Information relevant to questions 1 – 5.

Scenario

The draft financial statements of Plethora plc for the year to 31 December 20X9 are being prepared and the accountant has requested your advice on dealing with the following issues.

1. Plethora plc has an administration building which it no longer On 1 July 20X9 Plethora plc entered into an agreement to lease the building out to another company. The building cost $600,000 on 1 January 20X0 and is being depreciated over 50 years, based on the IAS 16 Property, Plant and Equipment cost model. Plethora plc applies the fair value model under IAS 40 Investment Property and the fair value of the building was assessed as $800,000 on 1 July 20X9. This valuation had not changed at 31 December 20X9.
2. Plethora plc owns another building which has been leased out for a number of It had a fair value of $550,000 at 31 December 20X8 and $740,000 at 31 December 20X9.
3. Plethora plc owns a retail business which has suffered badly during the Plethora plc treats this business as a separate cash-generating unit.

The carrying amounts of the assets comprising the retail business are:

An impairment review has been carried out as at 31 December 20X9 and the recoverable amount of the cash-generating unit is estimated at $1.3m.

REQUIREMENT

What is the amount of the revaluation surplus that will be recognised in respect of the building in (i)?

Information relevant to questions 1 – 5.

Scenario

The draft financial statements of Plethora plc for the year to 31 December 20X9 are being prepared and the accountant has requested your advice on dealing with the following issues.

1. Plethora plc has an administration building which it no longer On 1 July 20X9 Plethora plc entered into an agreement to lease the building out to another company. The building cost $600,000 on 1 January 20X0 and is being depreciated over 50 years, based on the IAS 16 Property, Plant and Equipment cost model. Plethora plc applies the fair value model under IAS 40 Investment Property and the fair value of the building was assessed as $800,000 on 1 July 20X9. This valuation had not changed at 31 December 20X9.
2. Plethora plc owns another building which has been leased out for a number of It had a fair value of $550,000 at 31 December 20X8 and $740,000 at 31 December 20X9.
3. Plethora plc owns a retail business which has suffered badly during the Plethora plc treats this business as a separate cash-generating unit.

The carrying amounts of the assets comprising the retail business are:

An impairment review has been carried out as at 31 December 20X9 and the recoverable amount of the cash-generating unit is estimated at $1.3m.

REQUIREMENT

What will be the carrying amount of the building after the impairment loss in (iii) has been accounted for?

Information relevant to questions 1 – 5.

Scenario

The draft financial statements of Plethora plc for the year to 31 December 20X9 are being prepared and the accountant has requested your advice on dealing with the following issues.

1. Plethora plc has an administration building which it no longer On 1 July 20X9 Plethora plc entered into an agreement to lease the building out to another company. The building cost $600,000 on 1 January 20X0 and is being depreciated over 50 years, based on the IAS 16 Property, Plant and Equipment cost model. Plethora plc applies the fair value model under IAS 40 Investment Property and the fair value of the building was assessed as $800,000 on 1 July 20X9. This valuation had not changed at 31 December 20X9.
2. Plethora plc owns another building which has been leased out for a number of It had a fair value of $550,000 at 31 December 20X8 and $740,000 at 31 December 20X9.
3. Plethora plc owns a retail business which has suffered badly during the Plethora plc treats this business as a separate cash-generating unit.

The carrying amounts of the assets comprising the retail business are:

An impairment review has been carried out as at 31 December 20X9 and the recoverable amount of the cash-generating unit is estimated at $1.3m.

REQUIREMENT

In respect of the building in (ii), how will the increase in value from $550,000 to $740,000 be accounted for?

Information relevant to questions 1 – 5.

Scenario

The draft financial statements of Plethora plc for the year to 31 December 20X9 are being prepared and the accountant has requested your advice on dealing with the following issues.

1. Plethora plc has an administration building which it no longer On 1 July 20X9 Plethora plc entered into an agreement to lease the building out to another company. The building cost $600,000 on 1 January 20X0 and is being depreciated over 50 years, based on the IAS 16 Property, Plant and Equipment cost model. Plethora plc applies the fair value model under IAS 40 Investment Property and the fair value of the building was assessed as $800,000 on 1 July 20X9. This valuation had not changed at 31 December 20X9.
2. Plethora plc owns another building which has been leased out for a number of It had a fair value of $550,000 at 31 December 20X8 and $740,000 at 31 December 20X9.
3. Plethora plc owns a retail business which has suffered badly during the Plethora plc treats this business as a separate cash-generating unit.

The carrying amounts of the assets comprising the retail business are:

An impairment review has been carried out as at 31 December 20X9 and the recoverable amount of the cash-generating unit is estimated at $1.3m.

REQUIREMENT

What will be the carrying amount of the inventory after the impairment loss in (iii) has been accounted for?

Information relevant to questions 1 – 5.

Scenario

The draft financial statements of Plethora plc for the year to 31 December 20X9 are being prepared and the accountant has requested your advice on dealing with the following issues.

1. Plethora plc has an administration building which it no longer On 1 July 20X9 Plethora plc entered into an agreement to lease the building out to another company. The building cost $600,000 on 1 January 20X0 and is being depreciated over 50 years, based on the IAS 16 Property, Plant and Equipment cost model. Plethora plc applies the fair value model under IAS 40 Investment Property and the fair value of the building was assessed as $800,000 on 1 July 20X9. This valuation had not changed at 31 December 20X9.
2. Plethora plc owns another building which has been leased out for a number of It had a fair value of $550,000 at 31 December 20X8 and $740,000 at 31 December 20X9.
3. Plethora plc owns a retail business which has suffered badly during the Plethora plc treats this business as a separate cash-generating unit.

The carrying amounts of the assets comprising the retail business are:

An impairment review has been carried out as at 31 December 20X9 and the recoverable amount of the cash-generating unit is estimated at $1.3m.

REQUIREMENT

Using the picklist provided, select the amount at which an impaired asset is measured, following an impairment has taken place?

Information relevant to questions 1 – 5

Scenario

On 1 October 20X5 Dearing Co acquired a machine under the following terms.

On 1 October 20X7 Dearing Co decided to upgrade the machine by adding new components at a cost of $200,000. This upgrade led to a reduction in the production time per unit of the goods being manufactured using the machine.

REQUIREMENT

What amount should be recognised under non-current assets as the cost of the machine?

Information relevant to questions 1 – 5

Scenario

On 1 October 20X5 Dearing Co acquired a machine under the following terms.

On 1 October 20X7 Dearing Co decided to upgrade the machine by adding new components at a cost of $200,000. This upgrade led to a reduction in the production time per unit of the goods being manufactured using the machine.

REQUIREMENT

On 30 September 20X7 the impairment review was carried The following amounts were established in respect of the machine:

What should be the carrying amount of the machine following the impairment review? $_______

Note. You are not required to put $ sign nor any coma. (e.g. 1000)

Information relevant to questions 1 – 5

Scenario

On 1 October 20X5 Dearing Co acquired a machine under the following terms.

On 1 October 20X7 Dearing Co decided to upgrade the machine by adding new components at a cost of $200,000. This upgrade led to a reduction in the production time per unit of the goods being manufactured using the machine.

REQUIREMENT

Every five years the machine will need a major overhaul in order to keep running.

How should this be accounted for?

Information relevant to questions 1 – 5

Scenario

On 1 October 20X5 Dearing Co acquired a machine under the following terms.

On 1 October 20X7 Dearing Co decided to upgrade the machine by adding new components at a cost of $200,000. This upgrade led to a reduction in the production time per unit of the goods being manufactured using the machine.

REQUIREMENT

By 27 September 20X7 internal evidence had emerged suggesting that Dearing Co's machine was impaired.

Which of the following are external indicators of impairment?

1. The performance of the machine had declined leading to reduced economic benefits
2. There were legal and regulatory changes affecting the operating of the machine.
3. There was an unexpected fall in the market value of the machine.
4. New technological innovations were producing more efficient machines.

Information relevant to questions 1 – 5

Scenario

On 1 October 20X5 Dearing Co acquired a machine under the following terms.

On 1 October 20X7 Dearing Co decided to upgrade the machine by adding new components at a cost of $200,000. This upgrade led to a reduction in the production time per unit of the goods being manufactured using the machine.

REQUIREMENT

How should the $200,000 worth of new components be accounted for?

The following scenario relates to questions 1–5.

Scenario

Elite Leisure Co is a private limited liability company that operates a single cruise ship. The ship was acquired on 1 October 20W6 (ten years before 20X6). Details of the cost of the ship's components and the basis on which they are depreciated is as follows:

At 30 September 20X4 no further capital expenditure had been incurred on the ship.

The propulsion system has been used for 30,000 hours at 30 September 20X4. Due to the unreliability of the engines, a decision was taken in early October 20X4 to replace the whole of the propulsion system at a cost of $140 million. The useful life of the new propulsion system was 50,000 hours and in the year ended 30 September 20X5 the ship had used the system for 5,000 hours.

At the same time as the propulsion system replacement, Elite Leisure Co took the opportunity to do a limited upgrade to the facilities at a cost of $60 million and repaint the ship's fabric at a cost of $20 million. After the upgrade of the facilities it was estimated that their remaining useful life was five years (from the date of the upgrade). For the purpose of calculating depreciation, all the work on the ship can be assumed to have been completed on 1 October 20X4. All residual values can be taken as nil.

REQUIREMENT

What is the amount of depreciation that should be charged in respect of the propulsion system for the year ended 30 September 20X5?

The following scenario relates to questions 1–5.

Scenario

Elite Leisure Co is a private limited liability company that operates a single cruise ship. The ship was acquired on 1 October 20W6 (ten years before 20X6). Details of the cost of the ship's components and the basis on which they are depreciated is as follows:

At 30 September 20X4 no further capital expenditure had been incurred on the ship.

The propulsion system has been used for 30,000 hours at 30 September 20X4. Due to the unreliability of the engines, a decision was taken in early October 20X4 to replace the whole of the propulsion system at a cost of $140 million. The useful life of the new propulsion system was 50,000 hours and in the year ended 30 September 20X5 the ship had used the system for 5,000 hours.

At the same time as the propulsion system replacement, Elite Leisure Co took the opportunity to do a limited upgrade to the facilities at a cost of $60 million and repaint the ship's fabric at a cost of $20 million. After the upgrade of the facilities it was estimated that their remaining useful life was five years (from the date of the upgrade). For the purpose of calculating depreciation, all the work on the ship can be assumed to have been completed on 1 October 20X4. All residual values can be taken as nil.

REQUIREMENT

Elite Leisure Co is being sued for $250,000 by a passenger who slipped on one of the gangways and twisted an ankle. The company's lawyer estimates that there is a 55% chance that it will lose the case. Legal costs for Elite Leisure Co will be $40,000.

Using the picklist provided, select the amount at which Elite Leisure Co provide in respect of this case

The following scenario relates to questions 1–5.

Scenario

Elite Leisure Co is a private limited liability company that operates a single cruise ship. The ship was acquired on 1 October 20W6 (ten years before 20X6). Details of the cost of the ship's components and the basis on which they are depreciated is as follows:

At 30 September 20X4 no further capital expenditure had been incurred on the ship.

The propulsion system has been used for 30,000 hours at 30 September 20X4. Due to the unreliability of the engines, a decision was taken in early October 20X4 to replace the whole of the propulsion system at a cost of $140 million. The useful life of the new propulsion system was 50,000 hours and in the year ended 30 September 20X5 the ship had used the system for 5,000 hours.

At the same time as the propulsion system replacement, Elite Leisure Co took the opportunity to do a limited upgrade to the facilities at a cost of $60 million and repaint the ship's fabric at a cost of $20 million. After the upgrade of the facilities it was estimated that their remaining useful life was five years (from the date of the upgrade). For the purpose of calculating depreciation, all the work on the ship can be assumed to have been completed on 1 October 20X4. All residual values can be taken as nil.

REQUIREMENT

Apart from depreciation, what is the charge to profit or loss for the year ended 30 September 20X5?

The following scenario relates to questions 1–5.

Scenario

Elite Leisure Co is a private limited liability company that operates a single cruise ship. The ship was acquired on 1 October 20W6 (ten years before 20X6). Details of the cost of the ship's components and the basis on which they are depreciated is as follows:

At 30 September 20X4 no further capital expenditure had been incurred on the ship.

The propulsion system has been used for 30,000 hours at 30 September 20X4. Due to the unreliability of the engines, a decision was taken in early October 20X4 to replace the whole of the propulsion system at a cost of $140 million. The useful life of the new propulsion system was 50,000 hours and in the year ended 30 September 20X5 the ship had used the system for 5,000 hours.

At the same time as the propulsion system replacement, Elite Leisure Co took the opportunity to do a limited upgrade to the facilities at a cost of $60 million and repaint the ship's fabric at a cost of $20 million. After the upgrade of the facilities it was estimated that their remaining useful life was five years (from the date of the upgrade). For the purpose of calculating depreciation, all the work on the ship can be assumed to have been completed on 1 October 20X4. All residual values can be taken as nil.

REQUIREMENT

At 30 September 20X4 the ship is eight years old. What is the carrying amount of the ship at that date?

The following scenario relates to questions 1–5.

Scenario

Elite Leisure Co is a private limited liability company that operates a single cruise ship. The ship was acquired on 1 October 20W6 (ten years before 20X6). Details of the cost of the ship's components and the basis on which they are depreciated is as follows:

At 30 September 20X4 no further capital expenditure had been incurred on the ship.

The propulsion system has been used for 30,000 hours at 30 September 20X4. Due to the unreliability of the engines, a decision was taken in early October 20X4 to replace the whole of the propulsion system at a cost of $140 million. The useful life of the new propulsion system was 50,000 hours and in the year ended 30 September 20X5 the ship had used the system for 5,000 hours.

At the same time as the propulsion system replacement, Elite Leisure Co took the opportunity to do a limited upgrade to the facilities at a cost of $60 million and repaint the ship's fabric at a cost of $20 million. After the upgrade of the facilities it was estimated that their remaining useful life was five years (from the date of the upgrade). For the purpose of calculating depreciation, all the work on the ship can be assumed to have been completed on 1 October 20X4. All residual values can be taken as nil.

REQUIREMENT

Elite Leisure Co's ship has to have a safety check carried out every five years at a cost of $50,000 in order to be licensed to operate. How should this be accounted for?

Information relevant to questions 1–5.

Scenario

Dexterity Co is a public listed company. It has been considering the accounting treatment of its intangible assets and how the matters below should be treated in its financial statements for the year to 31 March 20X4.

1. On 1 October 20X3 Dexterity Co acquired Temerity Co, a small company that specialises in pharmaceutical drug research and development. The purchase consideration was by way of a share exchange and valued at $35 million. The fair value of Temerity Co's net assets was $15 million (excluding any items referred to below). Temerity Co owns a patent for an established successful drug that has a remaining life of eight years. A firm of specialist advisors, Leadbrand, has estimated the current value of this patent to be $10 million, however the company is awaiting the outcome of clinical trials where the drug has been tested to treat a different illness. If the trials are successful, the value of the drug is then estimated to be $15 million. Also included in the company's statement of financial position is $2 million for medical research that has been conducted on behalf of a client.
2. Dexterity Co has developed and patented a new drug which has been approved for clinical use. The costs of developing the drug were $12 million. Based on early assessments of its sales success, Leadbrand have estimated its market value at $20 million, which can be taken as a reliable measurement.
3. Dexterity Co's manufacturing facilities have recently received a favourable inspection by government medical scientists. As a result of this the company has been granted an exclusive five-year licence to manufacture and distribute a new vaccine. Although the licence had no direct cost to Dexterity Co, its directors feel its granting is a reflection of the company's standing and have asked Leadbrand to value the licence.
   Accordingly they have placed a value of $10 million on it.
4. In the current accounting period, Dexterity Co has spent $3 million sending its staff on specialist training courses. While these courses have been expensive, they have led to a marked improvement in production quality and staff now need less supervision. This in turn has led to an increase in revenue and cost reductions. The directors of Dexterity Co believe these benefits will continue for at least three years and wish to treat the training costs as an asset.

REQUIREMENT

Which TWO of the following are required if Dexterity Co adopts the revaluation model for the measurement of its intangible assets? 

1. The entire class of intangible assets must be revalued at the same time
2. Valid active market for the asset
3. Can be used at initial recognition of the asset if there is an active market
4. The asset may include costs of prepaid marketing expenses and training costs

Information relevant to questions 1–5.

Scenario

Dexterity Co is a public listed company. It has been considering the accounting treatment of its intangible assets and how the matters below should be treated in its financial statements for the year to 31 March 20X4.

1. On 1 October 20X3 Dexterity Co acquired Temerity Co, a small company that specialises in pharmaceutical drug research and development. The purchase consideration was by way of a share exchange and valued at $35 million. The fair value of Temerity Co's net assets was $15 million (excluding any items referred to below). Temerity Co owns a patent for an established successful drug that has a remaining life of eight years. A firm of specialist advisors, Leadbrand, has estimated the current value of this patent to be $10 million, however the company is awaiting the outcome of clinical trials where the drug has been tested to treat a different illness. If the trials are successful, the value of the drug is then estimated to be $15 million. Also included in the company's statement of financial position is $2 million for medical research that has been conducted on behalf of a client.
2. Dexterity Co has developed and patented a new drug which has been approved for clinical use. The costs of developing the drug were $12 million. Based on early assessments of its sales success, Leadbrand have estimated its market value at $20 million, which can be taken as a reliable measurement.
3. Dexterity Co's manufacturing facilities have recently received a favourable inspection by government medical scientists. As a result of this the company has been granted an exclusive five-year licence to manufacture and distribute a new vaccine. Although the licence had no direct cost to Dexterity Co, its directors feel its granting is a reflection of the company's standing and have asked Leadbrand to value the licence.
   Accordingly they have placed a value of $10 million on it.
4. In the current accounting period, Dexterity Co has spent $3 million sending its staff on specialist training courses. While these courses have been expensive, they have led to a marked improvement in production quality and staff now need less supervision. This in turn has led to an increase in revenue and cost reductions. The directors of Dexterity Co believe these benefits will continue for at least three years and wish to treat the training costs as an asset.

REQUIREMENT

IAS 38 gives examples of activities that would be regarded as research and therefore not eligible for recognition as an intangible asset.

Which of the following would be an example of research costs?

Information relevant to questions 1–5.

Scenario

Dexterity Co is a public listed company. It has been considering the accounting treatment of its intangible assets and how the matters below should be treated in its financial statements for the year to 31 March 20X4.

1. On 1 October 20X3 Dexterity Co acquired Temerity Co, a small company that specialises in pharmaceutical drug research and development. The purchase consideration was by way of a share exchange and valued at $35 million. The fair value of Temerity Co's net assets was $15 million (excluding any items referred to below). Temerity Co owns a patent for an established successful drug that has a remaining life of eight years. A firm of specialist advisors, Leadbrand, has estimated the current value of this patent to be $10 million, however the company is awaiting the outcome of clinical trials where the drug has been tested to treat a different illness. If the trials are successful, the value of the drug is then estimated to be $15 million. Also included in the company's statement of financial position is $2 million for medical research that has been conducted on behalf of a client.
2. Dexterity Co has developed and patented a new drug which has been approved for clinical use. The costs of developing the drug were $12 million. Based on early assessments of its sales success, Leadbrand have estimated its market value at $20 million, which can be taken as a reliable measurement.
3. Dexterity Co's manufacturing facilities have recently received a favourable inspection by government medical scientists. As a result of this the company has been granted an exclusive five-year licence to manufacture and distribute a new vaccine. Although the licence had no direct cost to Dexterity Co, its directors feel its granting is a reflection of the company's standing and have asked Leadbrand to value the licence.
   Accordingly they have placed a value of $10 million on it.
4. In the current accounting period, Dexterity Co has spent $3 million sending its staff on specialist training courses. While these courses have been expensive, they have led to a marked improvement in production quality and staff now need less supervision. This in turn has led to an increase in revenue and cost reductions. The directors of Dexterity Co believe these benefits will continue for at least three years and wish to treat the training costs as an asset.

REQUIREMENT

At what amount should the patent acquired from Temerity Co be valued at 31 March 20X4?

Information relevant to questions 1–5.

Scenario

Dexterity Co is a public listed company. It has been considering the accounting treatment of its intangible assets and how the matters below should be treated in its financial statements for the year to 31 March 20X4.

1. On 1 October 20X3 Dexterity Co acquired Temerity Co, a small company that specialises in pharmaceutical drug research and development. The purchase consideration was by way of a share exchange and valued at $35 million. The fair value of Temerity Co's net assets was $15 million (excluding any items referred to below). Temerity Co owns a patent for an established successful drug that has a remaining life of eight years. A firm of specialist advisors, Leadbrand, has estimated the current value of this patent to be $10 million, however the company is awaiting the outcome of clinical trials where the drug has been tested to treat a different illness. If the trials are successful, the value of the drug is then estimated to be $15 million. Also included in the company's statement of financial position is $2 million for medical research that has been conducted on behalf of a client.
2. Dexterity Co has developed and patented a new drug which has been approved for clinical use. The costs of developing the drug were $12 million. Based on early assessments of its sales success, Leadbrand have estimated its market value at $20 million, which can be taken as a reliable measurement.
3. Dexterity Co's manufacturing facilities have recently received a favourable inspection by government medical scientists. As a result of this the company has been granted an exclusive five-year licence to manufacture and distribute a new vaccine. Although the licence had no direct cost to Dexterity Co, its directors feel its granting is a reflection of the company's standing and have asked Leadbrand to value the licence.
   Accordingly they have placed a value of $10 million on it.
4. In the current accounting period, Dexterity Co has spent $3 million sending its staff on specialist training courses. While these courses have been expensive, they have led to a marked improvement in production quality and staff now need less supervision. This in turn has led to an increase in revenue and cost reductions. The directors of Dexterity Co believe these benefits will continue for at least three years and wish to treat the training costs as an asset.

REQUIREMENT

Which of the following items should be capitalised as an intangible asset?

1. Patent for the new drug
2. Licence for the new vaccine
3. Specialist training courses undertaken by Dexterity staff
4. Temerity Co's patent on the existing drug currently licenced for use

Information relevant to questions 1–5.

Scenario

Dexterity Co is a public listed company. It has been considering the accounting treatment of its intangible assets and how the matters below should be treated in its financial statements for the year to 31 March 20X4.

1. On 1 October 20X3 Dexterity Co acquired Temerity Co, a small company that specialises in pharmaceutical drug research and development. The purchase consideration was by way of a share exchange and valued at $35 million. The fair value of Temerity Co's net assets was $15 million (excluding any items referred to below). Temerity Co owns a patent for an established successful drug that has a remaining life of eight years. A firm of specialist advisors, Leadbrand, has estimated the current value of this patent to be $10 million, however the company is awaiting the outcome of clinical trials where the drug has been tested to treat a different illness. If the trials are successful, the value of the drug is then estimated to be $15 million. Also included in the company's statement of financial position is $2 million for medical research that has been conducted on behalf of a client.
2. Dexterity Co has developed and patented a new drug which has been approved for clinical use. The costs of developing the drug were $12 million. Based on early assessments of its sales success, Leadbrand have estimated its market value at $20 million, which can be taken as a reliable measurement.
3. Dexterity Co's manufacturing facilities have recently received a favourable inspection by government medical scientists. As a result of this the company has been granted an exclusive five-year licence to manufacture and distribute a new vaccine. Although the licence had no direct cost to Dexterity Co, its directors feel its granting is a reflection of the company's standing and have asked Leadbrand to value the licence.
   Accordingly they have placed a value of $10 million on it.
4. In the current accounting period, Dexterity Co has spent $3 million sending its staff on specialist training courses. While these courses have been expensive, they have led to a marked improvement in production quality and staff now need less supervision. This in turn has led to an increase in revenue and cost reductions. The directors of Dexterity Co believe these benefits will continue for at least three years and wish to treat the training costs as an asset.

REQUIREMENT

How should Dexterity Co treat the goodwill arising on its acquisition of Temerity Co?

The following scenario relates to questions 1–5.

Scenario

Advent Co is a publicly listed company. Details of Advent Co's non-current assets at 1 October 20X8 were:

The following information is relevant:

1. The land and building were revalued on 1 October 20X3 with $80 million attributable to the land and $200 million to the building. At that date the estimated remaining life of the building was 25 years. A further revaluation was not needed until 1 October 20X8 when the land and building were valued at $85 million and $180 million respectively. The remaining estimated life of the building at this date was 20 years.
2. Plant is depreciated at 20% per annum on cost with time apportionment where On 1 April 20X9 new plant costing $45 million was acquired. In addition, this plant cost $5 million to install and commission. No plant is more than four years old.
3. The telecommunications licence was bought from the government on 1 October 20X7 and has a ten-year life. It is amortised on a straight-line In September 20X9, a review of the sales of the products related to the licence showed them to be very disappointing. As a result of this review the estimated recoverable amount of the licence at 30 September 20X9 was estimated at only $100 million.

There were no disposals of non-current assets during the year to 30 September 20X9.

REQUIREMENT

What is the carrying amount of the land and buildings at 30 September 20X9?

The following scenario relates to questions 1–5.

Scenario

Advent Co is a publicly listed company. Details of Advent Co's non-current assets at 1 October 20X8 were:

The following information is relevant:

1. The land and building were revalued on 1 October 20X3 with $80 million attributable to the land and $200 million to the building. At that date the estimated remaining life of the building was 25 years. A further revaluation was not needed until 1 October 20X8 when the land and building were valued at $85 million and $180 million respectively. The remaining estimated life of the building at this date was 20 years.
2. Plant is depreciated at 20% per annum on cost with time apportionment where On 1 April 20X9 new plant costing $45 million was acquired. In addition, this plant cost $5 million to install and commission. No plant is more than four years old.
3. The telecommunications licence was bought from the government on 1 October 20X7 and has a ten-year life. It is amortised on a straight-line In September 20X9, a review of the sales of the products related to the licence showed them to be very disappointing. As a result of this review the estimated recoverable amount of the licence at 30 September 20X9 was estimated at only $100 million.

There were no disposals of non-current assets during the year to 30 September 20X9.

REQUIREMENT

Having revalued its property Advent Co is required to make certain disclosures in respect of the revaluation.

Which of the following disclosures are required in respect of revaluation?

1. The effective date of revaluation
2. Professional qualifications of the valuer
3. The basis used to revalue the assets
4. The carrying amount of assets if no revaluation had taken place

The following scenario relates to questions 1–5.

Scenario

Advent Co is a publicly listed company. Details of Advent Co's non-current assets at 1 October 20X8 were:

The following information is relevant:

1. The land and building were revalued on 1 October 20X3 with $80 million attributable to the land and $200 million to the building. At that date the estimated remaining life of the building was 25 years. A further revaluation was not needed until 1 October 20X8 when the land and building were valued at $85 million and $180 million respectively. The remaining estimated life of the building at this date was 20 years.
2. Plant is depreciated at 20% per annum on cost with time apportionment where On 1 April 20X9 new plant costing $45 million was acquired. In addition, this plant cost $5 million to install and commission. No plant is more than four years old.
3. The telecommunications licence was bought from the government on 1 October 20X7 and has a ten-year life. It is amortised on a straight-line In September 20X9, a review of the sales of the products related to the licence showed them to be very disappointing. As a result of this review the estimated recoverable amount of the licence at 30 September 20X9 was estimated at only $100 million.

There were no disposals of non-current assets during the year to 30 September 20X9.

REQUIREMENT

What is the depreciation charge on the plant for the year ended 30 September 20X9?

The following scenario relates to questions 1–5.

Scenario

Advent Co is a publicly listed company. Details of Advent Co's non-current assets at 1 October 20X8 were:

The following information is relevant:

1. The land and building were revalued on 1 October 20X3 with $80 million attributable to the land and $200 million to the building. At that date the estimated remaining life of the building was 25 years. A further revaluation was not needed until 1 October 20X8 when the land and building were valued at $85 million and $180 million respectively. The remaining estimated life of the building at this date was 20 years.
2. Plant is depreciated at 20% per annum on cost with time apportionment where On 1 April 20X9 new plant costing $45 million was acquired. In addition, this plant cost $5 million to install and commission. No plant is more than four years old.
3. The telecommunications licence was bought from the government on 1 October 20X7 and has a ten-year life. It is amortised on a straight-line In September 20X9, a review of the sales of the products related to the licence showed them to be very disappointing. As a result of this review the estimated recoverable amount of the licence at 30 September 20X9 was estimated at only $100 million.

There were no disposals of non-current assets during the year to 30 September 20X9.

REQUIREMENT

Advent Co's licence is now carried at its recoverable amount.

The RECOVERABLE AMOUNT of an asset of an asset is the higher of ____________________ and _______________.

The following scenario relates to questions 1–5.

Scenario

Advent Co is a publicly listed company. Details of Advent Co's non-current assets at 1 October 20X8 were:

The following information is relevant:

1. The land and building were revalued on 1 October 20X3 with $80 million attributable to the land and $200 million to the building. At that date the estimated remaining life of the building was 25 years. A further revaluation was not needed until 1 October 20X8 when the land and building were valued at $85 million and $180 million respectively. The remaining estimated life of the building at this date was 20 years.
2. Plant is depreciated at 20% per annum on cost with time apportionment where On 1 April 20X9 new plant costing $45 million was acquired. In addition, this plant cost $5 million to install and commission. No plant is more than four years old.
3. The telecommunications licence was bought from the government on 1 October 20X7 and has a ten-year life. It is amortised on a straight-line In September 20X9, a review of the sales of the products related to the licence showed them to be very disappointing. As a result of this review the estimated recoverable amount of the licence at 30 September 20X9 was estimated at only $100 million.

There were no disposals of non-current assets during the year to 30 September 20X9.

REQUIREMENT

What is the amount of the impairment loss on the licence? Select your answer from the drop down box options below.

The following scenario relates to questions 1–5.

Scenario

Systria Co is preparing its financial statements for the year ended 31 December 20X7 and has a number of issues to deal with regarding non-current assets.

1. Systria Co has suffered an impairment loss of $90,000 to one of its cash-generating The carrying amounts of the assets in the cash-generating unit prior to adjusting for impairment are:
   

   	$'000
   Goodwill	50
   Patent	10
   Land and buildings	100
   Plant and machinery	50
   Net current assets	10
   The patent is now estimated to have no value.

2. During the year to 31 December 20X7 Systria Co acquired Dominica for $10 million, its tangible assets being valued at $7 million and goodwill on acquisition being $3 million. Assets with a carrying amount of $2.5 million were subsequently destroyed. Systria Co has carried out an impairment review and has established that Dominica Co could be sold for $6 million, while its value in use is $5.5 million.
3. A freehold property originally costing $100,000 with a 50-year life has accumulated depreciation to date of $20,000. The asset is to be revalued to $130,000 at 31 December 20X7.

REQUIREMENT

What is the carrying amount of the goodwill in (ii) following the impairment review? Select your answer from the drop down box options below.

The following scenario relates to questions 1–5.

Scenario

Systria Co is preparing its financial statements for the year ended 31 December 20X7 and has a number of issues to deal with regarding non-current assets.

1. Systria Co has suffered an impairment loss of $90,000 to one of its cash-generating The carrying amounts of the assets in the cash-generating unit prior to adjusting for impairment are:
   

   	$'000
   Goodwill	50
   Patent	10
   Land and buildings	100
   Plant and machinery	50
   Net current assets	10
   The patent is now estimated to have no value.

2. During the year to 31 December 20X7 Systria Co acquired Dominica for $10 million, its tangible assets being valued at $7 million and goodwill on acquisition being $3 million. Assets with a carrying amount of $2.5 million were subsequently destroyed. Systria Co has carried out an impairment review and has established that Dominica Co could be sold for $6 million, while its value in use is $5.5 million.
3. A freehold property originally costing $100,000 with a 50-year life has accumulated depreciation to date of $20,000. The asset is to be revalued to $130,000 at 31 December 20X7.

REQUIREMENT

What double entries required to record the revaluation in (iii)?

The following scenario relates to questions 1–5.

Scenario

Systria Co is preparing its financial statements for the year ended 31 December 20X7 and has a number of issues to deal with regarding non-current assets.

1. Systria Co has suffered an impairment loss of $90,000 to one of its cash-generating The carrying amounts of the assets in the cash-generating unit prior to adjusting for impairment are:
   

   	$'000
   Goodwill	50
   Patent	10
   Land and buildings	100
   Plant and machinery	50
   Net current assets	10
   The patent is now estimated to have no value.

2. During the year to 31 December 20X7 Systria Co acquired Dominica for $10 million, its tangible assets being valued at $7 million and goodwill on acquisition being $3 million. Assets with a carrying amount of $2.5 million were subsequently destroyed. Systria Co has carried out an impairment review and has established that Dominica Co could be sold for $6 million, while its value in use is $5.5 million.
3. A freehold property originally costing $100,000 with a 50-year life has accumulated depreciation to date of $20,000. The asset is to be revalued to $130,000 at 31 December 20X7.

REQUIREMENT

What is the post-impairment carrying amount of plant and machinery in (i) above? $_______

Note. You are not required to put $ sign nor any coma. (e.g. 1000)

The following scenario relates to questions 1–5.

Scenario

Systria Co is preparing its financial statements for the year ended 31 December 20X7 and has a number of issues to deal with regarding non-current assets.

1. Systria Co has suffered an impairment loss of $90,000 to one of its cash-generating The carrying amounts of the assets in the cash-generating unit prior to adjusting for impairment are:
   

   	$'000
   Goodwill	50
   Patent	10
   Land and buildings	100
   Plant and machinery	50
   Net current assets	10
   The patent is now estimated to have no value.

2. During the year to 31 December 20X7 Systria Co acquired Dominica for $10 million, its tangible assets being valued at $7 million and goodwill on acquisition being $3 million. Assets with a carrying amount of $2.5 million were subsequently destroyed. Systria Co has carried out an impairment review and has established that Dominica Co could be sold for $6 million, while its value in use is $5.5 million.
3. A freehold property originally costing $100,000 with a 50-year life has accumulated depreciation to date of $20,000. The asset is to be revalued to $130,000 at 31 December 20X7.

REQUIREMENT

The finance director has been asked to report to the board on the reasons for the impairment review on the cash-generating unit.

Which TWO of the following would be an internal indicator of impairment of an asset under IAS 36 Impairment of Assets?

The following scenario relates to questions 1–5.

Scenario

Systria Co is preparing its financial statements for the year ended 31 December 20X7 and has a number of issues to deal with regarding non-current assets.

1. Systria Co has suffered an impairment loss of $90,000 to one of its cash-generating The carrying amounts of the assets in the cash-generating unit prior to adjusting for impairment are:
   

   	$'000
   Goodwill	50
   Patent	10
   Land and buildings	100
   Plant and machinery	50
   Net current assets	10
   The patent is now estimated to have no value.

2. During the year to 31 December 20X7 Systria Co acquired Dominica for $10 million, its tangible assets being valued at $7 million and goodwill on acquisition being $3 million. Assets with a carrying amount of $2.5 million were subsequently destroyed. Systria Co has carried out an impairment review and has established that Dominica Co could be sold for $6 million, while its value in use is $5.5 million.
3. A freehold property originally costing $100,000 with a 50-year life has accumulated depreciation to date of $20,000. The asset is to be revalued to $130,000 at 31 December 20X7.

REQUIREMENT

What will be the depreciation charge relating to the asset in (iii) for the year ended 31 December 20X8?

Information relevant to questions 1-5.

Scenario

Derringdo Co is a broadband provider which receives government assistance to provide broadband to remote areas.
Derringdo Co invested in a new server at a cost of $800,000 on 1 October 20X2. The server has an estimated useful life of ten years with a residual value equal to 15% of its cost. Derringdo Co uses straight-line depreciation on a time apportioned basis.

The company received a government grant of 30% of its cost price of the server at the time of purchase. The terms of the grant are that if the company retains the asset for four years or more, then no repayment liability will be incurred. Derringdo Co has no intention of disposing of the server within the first four years. Derringdo Co's accounting policy for capital-based government grants is to treat them as deferred income and release them to income over the life of the asset to which they relate.

REQUIREMENT

Derringdo Co also sells a package which gives customers a free laptop when they sign a two-year contract for provision of broadband services. The laptop has a stand-alone price of $200 and the broadband contract is for $30 per month.

In accordance with IFRS 15 Revenue from Contracts with Customers, what amount will be recognised as revenue on each package in the first year?

Select the correct answer from the options below

Information relevant to questions 1-5.

Scenario

Derringdo Co is a broadband provider which receives government assistance to provide broadband to remote areas.
Derringdo Co invested in a new server at a cost of $800,000 on 1 October 20X2. The server has an estimated useful life of ten years with a residual value equal to 15% of its cost. Derringdo Co uses straight-line depreciation on a time apportioned basis.

The company received a government grant of 30% of its cost price of the server at the time of purchase. The terms of the grant are that if the company retains the asset for four years or more, then no repayment liability will be incurred. Derringdo Co has no intention of disposing of the server within the first four years. Derringdo Co's accounting policy for capital-based government grants is to treat them as deferred income and release them to income over the life of the asset to which they relate.

REQUIREMENT

Derringdo Co is carrying out a transaction on behalf of another entity and the finance director is unsure whether Derringdo Co should be regarded as an agent or a principal in respect of this transaction.

Which of the following would indicate that Derringdo Co is acting as an agent?

Information relevant to questions 1-5.

Scenario

Derringdo Co is a broadband provider which receives government assistance to provide broadband to remote areas.
Derringdo Co invested in a new server at a cost of $800,000 on 1 October 20X2. The server has an estimated useful life of ten years with a residual value equal to 15% of its cost. Derringdo Co uses straight-line depreciation on a time apportioned basis.

The company received a government grant of 30% of its cost price of the server at the time of purchase. The terms of the grant are that if the company retains the asset for four years or more, then no repayment liability will be incurred. Derringdo Co has no intention of disposing of the server within the first four years. Derringdo Co's accounting policy for capital-based government grants is to treat them as deferred income and release them to income over the life of the asset to which they relate.

REQUIREMENT

What amount will be presented under non-current liabilities at 31 March 20X3 in respect of the grant?

Information relevant to questions 1-5.

Scenario

Derringdo Co is a broadband provider which receives government assistance to provide broadband to remote areas.
Derringdo Co invested in a new server at a cost of $800,000 on 1 October 20X2. The server has an estimated useful life of ten years with a residual value equal to 15% of its cost. Derringdo Co uses straight-line depreciation on a time apportioned basis.

The company received a government grant of 30% of its cost price of the server at the time of purchase. The terms of the grant are that if the company retains the asset for four years or more, then no repayment liability will be incurred. Derringdo Co has no intention of disposing of the server within the first four years. Derringdo Co's accounting policy for capital-based government grants is to treat them as deferred income and release them to income over the life of the asset to which they relate.

REQUIREMENT

What is the net amount that will be charged to operating expenses in respect of the server for the year ended 31 March 20X3?

Information relevant to questions 1-5.

Scenario

Derringdo Co is a broadband provider which receives government assistance to provide broadband to remote areas.
Derringdo Co invested in a new server at a cost of $800,000 on 1 October 20X2. The server has an estimated useful life of ten years with a residual value equal to 15% of its cost. Derringdo Co uses straight-line depreciation on a time apportioned basis.

The company received a government grant of 30% of its cost price of the server at the time of purchase. The terms of the grant are that if the company retains the asset for four years or more, then no repayment liability will be incurred. Derringdo Co has no intention of disposing of the server within the first four years. Derringdo Co's accounting policy for capital-based government grants is to treat them as deferred income and release them to income over the life of the asset to which they relate.

REQUIREMENT

Determining the amount to be recognised in the first year is an example of which stage in the process of applying IFRS 15?

Information relevant to questions 1–5.

Scenario

Bridgenorth Co has undertaken a $5 million contract to repair a railway tunnel. The contract was signed on 1 April 20X8 and the work is expected to take two years. This is a contract where performance obligations are satisfied over time and progress in satisfying performance obligations is to be measured according to % of work completed as certified by a surveyor. Bridgenorth Co has an enforceable right to payment for performance completed to date.

At 31 December 20X9 the details of the contract were as follows:

REQUIREMENT

Bridgenorth Co measures performance obligations completed by reference to percentage of completion.

Identify which TWO of the following would be an acceptable method of measuring the performance obligations completed?

Information relevant to questions 1–5.

Scenario

Bridgenorth Co has undertaken a $5 million contract to repair a railway tunnel. The contract was signed on 1 April 20X8 and the work is expected to take two years. This is a contract where performance obligations are satisfied over time and progress in satisfying performance obligations is to be measured according to % of work completed as certified by a surveyor. Bridgenorth Co has an enforceable right to payment for performance completed to date.

At 31 December 20X9 the details of the contract were as follows:

REQUIREMENT

If at 31 December 20X8 Bridgenorth Co had completed only 10% of the contract for costs of $400,000 and felt that it was too early to predict whether or not the contract would be profitable, what amount, if any, could Bridgenorth Co have recognised as revenue?

Information relevant to questions 1–5.

Scenario

Bridgenorth Co has undertaken a $5 million contract to repair a railway tunnel. The contract was signed on 1 April 20X8 and the work is expected to take two years. This is a contract where performance obligations are satisfied over time and progress in satisfying performance obligations is to be measured according to % of work completed as certified by a surveyor. Bridgenorth Co has an enforceable right to payment for performance completed to date.

At 31 December 20X9 the details of the contract were as follows:

REQUIREMENT

What is the contract asset to be recognised at 31 December 20X9?

Information relevant to questions 1–5.

Scenario

Bridgenorth Co has undertaken a $5 million contract to repair a railway tunnel. The contract was signed on 1 April 20X8 and the work is expected to take two years. This is a contract where performance obligations are satisfied over time and progress in satisfying performance obligations is to be measured according to % of work completed as certified by a surveyor. Bridgenorth Co has an enforceable right to payment for performance completed to date.

At 31 December 20X9 the details of the contract were as follows:

REQUIREMENT

Using the drop down box, select what amount would have been included in trade receivables at 31 December 20X8?

Information relevant to questions 1–5.

Scenario

Bridgenorth Co has undertaken a $5 million contract to repair a railway tunnel. The contract was signed on 1 April 20X8 and the work is expected to take two years. This is a contract where performance obligations are satisfied over time and progress in satisfying performance obligations is to be measured according to % of work completed as certified by a surveyor. Bridgenorth Co has an enforceable right to payment for performance completed to date.

At 31 December 20X9 the details of the contract were as follows:

REQUIREMENT

What is the profit recognised for the year ended 31 December 20X8? $_______

Note. You are not required to put $ sign nor any coma. (e.g. 1000)

The following scenario relates to questions 1–5.

Scenario

Apex Co is a publicly listed supermarket chain. During the current year it started the building of a new store. The directors are aware that in accordance with IAS 23 Borrowing Costs certain borrowing costs have to be capitalised.

Details relating to construction of Apex Co's new store:

Apex Co issued a $10 million unsecured loan with a coupon (nominal) interest rate of 6% on 1 April 20X8. The loan is redeemable at a premium which means the loan has an effective finance cost of 7.5% per annum. The loan was specifically issued to finance the building of the new store which meets the definition of a qualifying asset in IAS 23. Construction of the store commenced on 1 May 20X8 and it was completed and ready for use on 28 February 20X9, but did not open for trading until 1 April 20X9.

REQUIREMENT

What is the total of the finance costs which can be capitalised in respect of Apex Co's new store? $_______

Note. You are not required to put $ sign nor any coma. (e.g. 1000)

The following scenario relates to questions 1–5.

Scenario

Apex Co is a publicly listed supermarket chain. During the current year it started the building of a new store. The directors are aware that in accordance with IAS 23 Borrowing Costs certain borrowing costs have to be capitalised.

Details relating to construction of Apex Co's new store:

Apex Co issued a $10 million unsecured loan with a coupon (nominal) interest rate of 6% on 1 April 20X8. The loan is redeemable at a premium which means the loan has an effective finance cost of 7.5% per annum. The loan was specifically issued to finance the building of the new store which meets the definition of a qualifying asset in IAS 23. Construction of the store commenced on 1 May 20X8 and it was completed and ready for use on 28 February 20X9, but did not open for trading until 1 April 20X9.

REQUIREMENT

Apex Co's new store meets the definition of a qualifying asset under IAS 23.

Which of the following is the correct description of a qualifying asset under IAS 23?

The following scenario relates to questions 1–5.

Scenario

Apex Co is a publicly listed supermarket chain. During the current year it started the building of a new store. The directors are aware that in accordance with IAS 23 Borrowing Costs certain borrowing costs have to be capitalised.

Details relating to construction of Apex Co's new store:

Apex Co issued a $10 million unsecured loan with a coupon (nominal) interest rate of 6% on 1 April 20X8. The loan is redeemable at a premium which means the loan has an effective finance cost of 7.5% per annum. The loan was specifically issued to finance the building of the new store which meets the definition of a qualifying asset in IAS 23. Construction of the store commenced on 1 May 20X8 and it was completed and ready for use on 28 February 20X9, but did not open for trading until 1 April 20X9.

REQUIREMENT

Rather than take out a loan specifically for the new store Apex Co could have funded the store from existing borrowings which are:

1. 10% bank loan $50 million
2. 8% bank loan $30 million

In this case it would have applied a 'capitalisation rate' to the expenditure on the asset.

What would that rate have been?

The following scenario relates to questions 1–5.

Scenario

Apex Co is a publicly listed supermarket chain. During the current year it started the building of a new store. The directors are aware that in accordance with IAS 23 Borrowing Costs certain borrowing costs have to be capitalised.

Details relating to construction of Apex Co's new store:

Apex Co issued a $10 million unsecured loan with a coupon (nominal) interest rate of 6% on 1 April 20X8. The loan is redeemable at a premium which means the loan has an effective finance cost of 7.5% per annum. The loan was specifically issued to finance the building of the new store which meets the definition of a qualifying asset in IAS 23. Construction of the store commenced on 1 May 20X8 and it was completed and ready for use on 28 February 20X9, but did not open for trading until 1 April 20X9.

REQUIREMENT

Apex Co issued the loan stock on 1 April 20X8. Three events or transactions must be taking place for capitalisation of borrowing costs to commence in accordance with IAS 23.

Which of the following is NOT one of these?

The following scenario relates to questions 1–5.

Scenario

Apex Co is a publicly listed supermarket chain. During the current year it started the building of a new store. The directors are aware that in accordance with IAS 23 Borrowing Costs certain borrowing costs have to be capitalised.

Details relating to construction of Apex Co's new store:

Apex Co issued a $10 million unsecured loan with a coupon (nominal) interest rate of 6% on 1 April 20X8. The loan is redeemable at a premium which means the loan has an effective finance cost of 7.5% per annum. The loan was specifically issued to finance the building of the new store which meets the definition of a qualifying asset in IAS 23. Construction of the store commenced on 1 May 20X8 and it was completed and ready for use on 28 February 20X9, but did not open for trading until 1 April 20X9.

REQUIREMENT

If Apex Co had been able to temporarily invest the proceeds of the loan from 1 April to 1 May when construction began, how would the proceeds be accounted for?

Information relevant to questions 1–5.

Scenario

Bertrand Co issued $10 million convertible loan notes on 1 October 20X0 that carry a nominal interest (coupon) rate of 5% per annum. They are redeemable on 30 September 20X3 at par for cash or can be exchanged for equity shares in Bertrand Co on the basis of 20 shares for each $100 of loan. A similar loan note, without the conversion option, would have required Bertrand Co to pay an interest rate of 8%.

The present value of $1 receivable at the end of each year, based on discount rates of 5% and 8%, can be taken as:

REQUIREMENT

How should the convertible loan notes be accounted for?

Information relevant to questions 1–5.

Scenario

Bertrand Co issued $10 million convertible loan notes on 1 October 20X0 that carry a nominal interest (coupon) rate of 5% per annum. They are redeemable on 30 September 20X3 at par for cash or can be exchanged for equity shares in Bertrand Co on the basis of 20 shares for each $100 of loan. A similar loan note, without the conversion option, would have required Bertrand Co to pay an interest rate of 8%.

The present value of $1 receivable at the end of each year, based on discount rates of 5% and 8%, can be taken as:

REQUIREMENT

What is the amount that will be recognised as finance costs for the year ended 30 September 20X1? $_______

Note. You are not required to put $ sign nor any coma. (e.g. 1000)

Information relevant to questions 1–5.

Scenario

Bertrand Co issued $10 million convertible loan notes on 1 October 20X0 that carry a nominal interest (coupon) rate of 5% per annum. They are redeemable on 30 September 20X3 at par for cash or can be exchanged for equity shares in Bertrand Co on the basis of 20 shares for each $100 of loan. A similar loan note, without the conversion option, would have required Bertrand Co to pay an interest rate of 8%.

The present value of $1 receivable at the end of each year, based on discount rates of 5% and 8%, can be taken as:

REQUIREMENT

Bertrand Co also purchased a debt instrument which will mature in five years' time. Bertrand Co intends to hold the debt instrument to maturity to collect interest payments.

Complete the following statement using the options below.

"This debt instrument will be measured as a financial _____________ at ___________ in the financial statements of Bertrand Co."

Information relevant to questions 1–5.

Scenario

Bertrand Co issued $10 million convertible loan notes on 1 October 20X0 that carry a nominal interest (coupon) rate of 5% per annum. They are redeemable on 30 September 20X3 at par for cash or can be exchanged for equity shares in Bertrand Co on the basis of 20 shares for each $100 of loan. A similar loan note, without the conversion option, would have required Bertrand Co to pay an interest rate of 8%.

The present value of $1 receivable at the end of each year, based on discount rates of 5% and 8%, can be taken as:

REQUIREMENT

If Bertrand Co had incurred transaction costs in issuing these loan notes, how should these have been accounted for?

Information relevant to questions 1–5.

Scenario

Bertrand Co issued $10 million convertible loan notes on 1 October 20X0 that carry a nominal interest (coupon) rate of 5% per annum. They are redeemable on 30 September 20X3 at par for cash or can be exchanged for equity shares in Bertrand Co on the basis of 20 shares for each $100 of loan. A similar loan note, without the conversion option, would have required Bertrand Co to pay an interest rate of 8%.

The present value of $1 receivable at the end of each year, based on discount rates of 5% and 8%, can be taken as:

REQUIREMENT

What is the amount that should be shown under liabilities at 30 September 20X1?

Information relevant to questions 1–5.

Scenario

On 1 April 20X7, Fino Co increased the operating capacity of its plant. On the recommendation of the finance director, Fino Co entered into an agreement to lease the plant from the manufacturer.

An initial payment is made on 1 April 20X7 and the present value of the future lease payments at that date is $173,500 Payments in respect of the lease are made in advance and are $100,000 per annum, commencing on 1 April 20X8. The rate of interest implicit in the lease is 10%. The lease does not transfer ownership of the plant to Fino Co by the end of the lease term and there is no purchase option available.

REQUIREMENT

The finance director questions why the lease payments cannot be simply charged to profit or loss.

In which TWO of the following situations would charging lease payments to profit or loss be the correct accounting treatment, assuming Fino Co takes advantage of any exemptions available?

Information relevant to questions 1–5.

Scenario

On 1 April 20X7, Fino Co increased the operating capacity of its plant. On the recommendation of the finance director, Fino Co entered into an agreement to lease the plant from the manufacturer.

An initial payment is made on 1 April 20X7 and the present value of the future lease payments at that date is $173,500 Payments in respect of the lease are made in advance and are $100,000 per annum, commencing on 1 April 20X8. The rate of interest implicit in the lease is 10%. The lease does not transfer ownership of the plant to Fino Co by the end of the lease term and there is no purchase option available.

REQUIREMENT

On 1 April 20X7 Fino Co also took out a lease on another piece of equipment. The lease runs for ten months and payments of $1,000 per month are payable in arrears. As an incentive to enter into the lease, Fino received the first month rent free.

What amount should be recognised as payments under short-term leases for the period up to 30 September 20X7?

Information relevant to questions 1–5.

Scenario

On 1 April 20X7, Fino Co increased the operating capacity of its plant. On the recommendation of the finance director, Fino Co entered into an agreement to lease the plant from the manufacturer.

An initial payment is made on 1 April 20X7 and the present value of the future lease payments at that date is $173,500 Payments in respect of the lease are made in advance and are $100,000 per annum, commencing on 1 April 20X8. The rate of interest implicit in the lease is 10%. The lease does not transfer ownership of the plant to Fino Co by the end of the lease term and there is no purchase option available.

REQUIREMENT

What is the total of the lease liability at 31 March 20X8 in respect of this plant?

Information relevant to questions 1–5.

Scenario

On 1 April 20X7, Fino Co increased the operating capacity of its plant. On the recommendation of the finance director, Fino Co entered into an agreement to lease the plant from the manufacturer.

An initial payment is made on 1 April 20X7 and the present value of the future lease payments at that date is $173,500 Payments in respect of the lease are made in advance and are $100,000 per annum, commencing on 1 April 20X8. The rate of interest implicit in the lease is 10%. The lease does not transfer ownership of the plant to Fino Co by the end of the lease term and there is no purchase option available.

REQUIREMENT

Over what period should Fino Co depreciate the right-of-use asset?

Information relevant to questions 1–5.

Scenario

On 1 April 20X7, Fino Co increased the operating capacity of its plant. On the recommendation of the finance director, Fino Co entered into an agreement to lease the plant from the manufacturer.

An initial payment is made on 1 April 20X7 and the present value of the future lease payments at that date is $173,500 Payments in respect of the lease are made in advance and are $100,000 per annum, commencing on 1 April 20X8. The rate of interest implicit in the lease is 10%. The lease does not transfer ownership of the plant to Fino Co by the end of the lease term and there is no purchase option available.

REQUIREMENT

Fino Co incurred initial direct costs of $20,000 to set up the lease and received lease incentives from the manufacturer totalling $7,000.

What is the initial cost of the right-of-use asset as at 1 April 20X7?

Information relevant to questions 1–5.

Scenario

Rainbird Co decided to reorganise a manufacturing facility during November 20X1 and commissioned a consulting engineer to carry out a feasibility study. A provision for the reorganisation was created at 31 December 20X1.

Staff functions will change following the reorganisation, so in December 20X1 Rainbird Co contracted with a training company to provide retraining to take place in January 20X2. A provision for this expenditure was created at 31 December 20X1.

Rainbird Co hopes that reorganising its manufacturing facility will improve quality control. It gives a one-year warranty with all products and the rate of returns under warranty is 12%. 5% of the returned items can be repaired at a cost of $5 (free of charge to the customer). The other 95% are scrapped and a full refund of $30 is given.
Rainbird Co sold 525,000 units during the year to 31 December 20X1.

In five years' time Rainbird Co will have to dismantle its factory and return the site to the local authority. A provision was set up for the present value of the dismantling costs when the factory was first acquired. The opening balance on the provision at 1 January 20X1 was $2.63 million. Rainbird Co has a cost of capital of 8%.

REQUIREMENT

Rainbird Co's finance director is checking some of the financial estimates involved. In accordance with IAS 37 if the reporting entity is presently obliged to transfer economic benefit to another party, the occurrence is probable but the amount cannot be measured with sufficient reliability.

Using the picklist below, select the correct option stating what this should give rise to in the financial statements

Information relevant to questions 1–5.

Scenario

Rainbird Co decided to reorganise a manufacturing facility during November 20X1 and commissioned a consulting engineer to carry out a feasibility study. A provision for the reorganisation was created at 31 December 20X1.

Staff functions will change following the reorganisation, so in December 20X1 Rainbird Co contracted with a training company to provide retraining to take place in January 20X2. A provision for this expenditure was created at 31 December 20X1.

Rainbird Co hopes that reorganising its manufacturing facility will improve quality control. It gives a one-year warranty with all products and the rate of returns under warranty is 12%. 5% of the returned items can be repaired at a cost of $5 (free of charge to the customer). The other 95% are scrapped and a full refund of $30 is given.
Rainbird Co sold 525,000 units during the year to 31 December 20X1.

In five years' time Rainbird Co will have to dismantle its factory and return the site to the local authority. A provision was set up for the present value of the dismantling costs when the factory was first acquired. The opening balance on the provision at 1 January 20X1 was $2.63 million. Rainbird Co has a cost of capital of 8%.

REQUIREMENT

What is the amount of the provision that should be created at 31 December 20X1 for returns under warranty?

Information relevant to questions 1–5.

Scenario

Rainbird Co decided to reorganise a manufacturing facility during November 20X1 and commissioned a consulting engineer to carry out a feasibility study. A provision for the reorganisation was created at 31 December 20X1.

Staff functions will change following the reorganisation, so in December 20X1 Rainbird Co contracted with a training company to provide retraining to take place in January 20X2. A provision for this expenditure was created at 31 December 20X1.

Rainbird Co hopes that reorganising its manufacturing facility will improve quality control. It gives a one-year warranty with all products and the rate of returns under warranty is 12%. 5% of the returned items can be repaired at a cost of $5 (free of charge to the customer). The other 95% are scrapped and a full refund of $30 is given.
Rainbird Co sold 525,000 units during the year to 31 December 20X1.

In five years' time Rainbird Co will have to dismantle its factory and return the site to the local authority. A provision was set up for the present value of the dismantling costs when the factory was first acquired. The opening balance on the provision at 1 January 20X1 was $2.63 million. Rainbird Co has a cost of capital of 8%.

REQUIREMENT

What is the amount of the provision that should be carried forward at 31 December 20X1 for the dismantling of the factory? 

Information relevant to questions 1–5.

Scenario

Rainbird Co decided to reorganise a manufacturing facility during November 20X1 and commissioned a consulting engineer to carry out a feasibility study. A provision for the reorganisation was created at 31 December 20X1.

Staff functions will change following the reorganisation, so in December 20X1 Rainbird Co contracted with a training company to provide retraining to take place in January 20X2. A provision for this expenditure was created at 31 December 20X1.

Rainbird Co hopes that reorganising its manufacturing facility will improve quality control. It gives a one-year warranty with all products and the rate of returns under warranty is 12%. 5% of the returned items can be repaired at a cost of $5 (free of charge to the customer). The other 95% are scrapped and a full refund of $30 is given.
Rainbird Co sold 525,000 units during the year to 31 December 20X1.

In five years' time Rainbird Co will have to dismantle its factory and return the site to the local authority. A provision was set up for the present value of the dismantling costs when the factory was first acquired. The opening balance on the provision at 1 January 20X1 was $2.63 million. Rainbird Co has a cost of capital of 8%.

REQUIREMENT

Rainbird Co's accountant is preparing the financial statements for the year to 31 December 20X1 and is not too sure about the provisions set up for the reorganisation of the facility and the staff training.

Which of these is a correct provision under IAS 37 Provisions, Contingent Liabilities and Contingent Assets?

Information relevant to questions 1–5.

Scenario

Rainbird Co decided to reorganise a manufacturing facility during November 20X1 and commissioned a consulting engineer to carry out a feasibility study. A provision for the reorganisation was created at 31 December 20X1.

Staff functions will change following the reorganisation, so in December 20X1 Rainbird Co contracted with a training company to provide retraining to take place in January 20X2. A provision for this expenditure was created at 31 December 20X1.

Rainbird Co hopes that reorganising its manufacturing facility will improve quality control. It gives a one-year warranty with all products and the rate of returns under warranty is 12%. 5% of the returned items can be repaired at a cost of $5 (free of charge to the customer). The other 95% are scrapped and a full refund of $30 is given.
Rainbird Co sold 525,000 units during the year to 31 December 20X1.

In five years' time Rainbird Co will have to dismantle its factory and return the site to the local authority. A provision was set up for the present value of the dismantling costs when the factory was first acquired. The opening balance on the provision at 1 January 20X1 was $2.63 million. Rainbird Co has a cost of capital of 8%.

REQUIREMENT

During January 20X2, before the financial statements of Rainbird Co for the year ended 31 December 20X1 had been finalised, a number of events took place.

Which of these events would require an adjustment to the financial statements as at 31 December 20X1 in accordance with IAS 10 Events After the Reporting Period?

Information relevant to questions 1–5.

Scenario

The carrying amount of Julian Co's property, plant and equipment at 31 December 20X3 was $310,000 and the tax written down value was $230,000.

The following data relates to the year ended 31 December 20X4:

1. At the end of the year the carrying amount of property, plant and equipment was $460,000 and the tax written down value was $270,000. During the year some items were revalued by $90,000. No items had previously required revaluation. In the tax jurisdiction in which Julian Co operates revaluations of assets do not affect the tax base of an asset or taxable profit. Gains due to revaluations are taxable on sale.
2. Julian Co began development of a new product during the year and capitalised $60,000 in accordance with IAS 38. The expenditure was deducted for tax purposes as it was incurred. None of the expenditure had been amortised by the year end.

The corporate income tax rate is 30%. The current tax charge was calculated for the year as $45,000.

REQUIREMENT

What amount should be charged to the revaluation surplus at 31 December 20X4 in respect of deferred tax? 

Information relevant to questions 1–5.

Scenario

The carrying amount of Julian Co's property, plant and equipment at 31 December 20X3 was $310,000 and the tax written down value was $230,000.

The following data relates to the year ended 31 December 20X4:

1. At the end of the year the carrying amount of property, plant and equipment was $460,000 and the tax written down value was $270,000. During the year some items were revalued by $90,000. No items had previously required revaluation. In the tax jurisdiction in which Julian Co operates revaluations of assets do not affect the tax base of an asset or taxable profit. Gains due to revaluations are taxable on sale.
2. Julian Co began development of a new product during the year and capitalised $60,000 in accordance with IAS 38. The expenditure was deducted for tax purposes as it was incurred. None of the expenditure had been amortised by the year end.

The corporate income tax rate is 30%. The current tax charge was calculated for the year as $45,000.

REQUIREMENT

Deferred tax assets and liabilities arise from taxable and deductible temporary differences.

Which of the following is NOT a circumstance giving rise to a temporary difference?

Information relevant to questions 1–5.

Scenario

The carrying amount of Julian Co's property, plant and equipment at 31 December 20X3 was $310,000 and the tax written down value was $230,000.

The following data relates to the year ended 31 December 20X4:

1. At the end of the year the carrying amount of property, plant and equipment was $460,000 and the tax written down value was $270,000. During the year some items were revalued by $90,000. No items had previously required revaluation. In the tax jurisdiction in which Julian Co operates revaluations of assets do not affect the tax base of an asset or taxable profit. Gains due to revaluations are taxable on sale.
2. Julian Co began development of a new product during the year and capitalised $60,000 in accordance with IAS 38. The expenditure was deducted for tax purposes as it was incurred. None of the expenditure had been amortised by the year end.

The corporate income tax rate is 30%. The current tax charge was calculated for the year as $45,000.

REQUIREMENT

What amount will be shown as tax payable in the statement of financial position of Julian Co at 31 December 20X4? 

Information relevant to questions 1–5.

Scenario

The carrying amount of Julian Co's property, plant and equipment at 31 December 20X3 was $310,000 and the tax written down value was $230,000.

The following data relates to the year ended 31 December 20X4:

1. At the end of the year the carrying amount of property, plant and equipment was $460,000 and the tax written down value was $270,000. During the year some items were revalued by $90,000. No items had previously required revaluation. In the tax jurisdiction in which Julian Co operates revaluations of assets do not affect the tax base of an asset or taxable profit. Gains due to revaluations are taxable on sale.
2. Julian Co began development of a new product during the year and capitalised $60,000 in accordance with IAS 38. The expenditure was deducted for tax purposes as it was incurred. None of the expenditure had been amortised by the year end.

The corporate income tax rate is 30%. The current tax charge was calculated for the year as $45,000.

REQUIREMENT

Julian Co's accountant is confused by the term 'tax base'. What is meant by 'tax base'?

Information relevant to questions 1–5.

Scenario

The carrying amount of Julian Co's property, plant and equipment at 31 December 20X3 was $310,000 and the tax written down value was $230,000.

The following data relates to the year ended 31 December 20X4:

1. At the end of the year the carrying amount of property, plant and equipment was $460,000 and the tax written down value was $270,000. During the year some items were revalued by $90,000. No items had previously required revaluation. In the tax jurisdiction in which Julian Co operates revaluations of assets do not affect the tax base of an asset or taxable profit. Gains due to revaluations are taxable on sale.
2. Julian Co began development of a new product during the year and capitalised $60,000 in accordance with IAS 38. The expenditure was deducted for tax purposes as it was incurred. None of the expenditure had been amortised by the year end.

The corporate income tax rate is 30%. The current tax charge was calculated for the year as $45,000.

REQUIREMENT

What is the taxable temporary difference to be accounted for at 31 December 20X4 in relation to property, plant and equipment and development expenditure? 

Information relevant to questions 1–5.

Scenario

The directors of Tunshill Co are disappointed by the draft profit for the year ended 30 September 20X3. The
company's assistant accountant has suggested two areas where she believes the reported profit may be improved:

1. A major item of plant that cost $20 million to purchase and install on 1 October 20X0 is being depreciated on a straight-line basis over a five-year period (assuming no residual value). The plant is wearing well and at the beginning of the current year (1 October 20X2) the production manager believed that the plant was likely to last eight years in total (ie from the date of its purchase). The assistant accountant has calculated that, based on an eight-year life (and no residual value) the accumulated depreciation of the plant at 30 September 20X3 would be $7.5 million ($20 million / 8 years × 3). In the financial statements for the year ended 30 September 20X2, the accumulated depreciation was $8 million ($20 million / 5 years × 2).
   Therefore, by adopting an eight-year life, Tunshill Co can avoid a depreciation charge in the current year and instead credit $0.5 million ($8 million – $7.5 million) to profit or loss in the current year to improve the reported profit.
2. Most of Tunshill Co's competitors value their inventory using the average cost (AVCO) basis, whereas Tunshill Co uses the first in first out (FIFO) basis. The value of Tunshill Co's inventory at 30 September 20X3 on the FIFO basis, is $20 million, however on the AVCO basis it would be valued at $18 million. By adopting the same method (AVCO) as its competitors, the assistant accountant says the company would improve its profit for the year ended 30 September 20X3 by $2 million. Tunshill Co's inventory at 30 September 20X2 was reported as $15 million, however on the AVCO basis it would have been reported as $13.4 million.

REQUIREMENT

What is the nature of the change being proposed by the assistant accountant in (i) and how should it be applied? 

Information relevant to questions 1–5.

Scenario

The directors of Tunshill Co are disappointed by the draft profit for the year ended 30 September 20X3. The
company's assistant accountant has suggested two areas where she believes the reported profit may be improved:

1. A major item of plant that cost $20 million to purchase and install on 1 October 20X0 is being depreciated on a straight-line basis over a five-year period (assuming no residual value). The plant is wearing well and at the beginning of the current year (1 October 20X2) the production manager believed that the plant was likely to last eight years in total (ie from the date of its purchase). The assistant accountant has calculated that, based on an eight-year life (and no residual value) the accumulated depreciation of the plant at 30 September 20X3 would be $7.5 million ($20 million / 8 years × 3). In the financial statements for the year ended 30 September 20X2, the accumulated depreciation was $8 million ($20 million / 5 years × 2).
   Therefore, by adopting an eight-year life, Tunshill Co can avoid a depreciation charge in the current year and instead credit $0.5 million ($8 million – $7.5 million) to profit or loss in the current year to improve the reported profit.
2. Most of Tunshill Co's competitors value their inventory using the average cost (AVCO) basis, whereas Tunshill Co uses the first in first out (FIFO) basis. The value of Tunshill Co's inventory at 30 September 20X3 on the FIFO basis, is $20 million, however on the AVCO basis it would be valued at $18 million. By adopting the same method (AVCO) as its competitors, the assistant accountant says the company would improve its profit for the year ended 30 September 20X3 by $2 million. Tunshill Co's inventory at 30 September 20X2 was reported as $15 million, however on the AVCO basis it would have been reported as $13.4 million.

REQUIREMENT

What will be the effect of the change in (ii) on profits for the year ended 30 September 20X3? 

Information relevant to questions 1–5.

Scenario

The directors of Tunshill Co are disappointed by the draft profit for the year ended 30 September 20X3. The
company's assistant accountant has suggested two areas where she believes the reported profit may be improved:

1. A major item of plant that cost $20 million to purchase and install on 1 October 20X0 is being depreciated on a straight-line basis over a five-year period (assuming no residual value). The plant is wearing well and at the beginning of the current year (1 October 20X2) the production manager believed that the plant was likely to last eight years in total (ie from the date of its purchase). The assistant accountant has calculated that, based on an eight-year life (and no residual value) the accumulated depreciation of the plant at 30 September 20X3 would be $7.5 million ($20 million / 8 years × 3). In the financial statements for the year ended 30 September 20X2, the accumulated depreciation was $8 million ($20 million / 5 years × 2).
   Therefore, by adopting an eight-year life, Tunshill Co can avoid a depreciation charge in the current year and instead credit $0.5 million ($8 million – $7.5 million) to profit or loss in the current year to improve the reported profit.
2. Most of Tunshill Co's competitors value their inventory using the average cost (AVCO) basis, whereas Tunshill Co uses the first in first out (FIFO) basis. The value of Tunshill Co's inventory at 30 September 20X3 on the FIFO basis, is $20 million, however on the AVCO basis it would be valued at $18 million. By adopting the same method (AVCO) as its competitors, the assistant accountant says the company would improve its profit for the year ended 30 September 20X3 by $2 million. Tunshill Co's inventory at 30 September 20X2 was reported as $15 million, however on the AVCO basis it would have been reported as $13.4 million.

REQUIREMENT

Which of the following would be treated as a change of accounting policy? 

Information relevant to questions 1–5.

Scenario

The directors of Tunshill Co are disappointed by the draft profit for the year ended 30 September 20X3. The
company's assistant accountant has suggested two areas where she believes the reported profit may be improved:

1. A major item of plant that cost $20 million to purchase and install on 1 October 20X0 is being depreciated on a straight-line basis over a five-year period (assuming no residual value). The plant is wearing well and at the beginning of the current year (1 October 20X2) the production manager believed that the plant was likely to last eight years in total (ie from the date of its purchase). The assistant accountant has calculated that, based on an eight-year life (and no residual value) the accumulated depreciation of the plant at 30 September 20X3 would be $7.5 million ($20 million / 8 years × 3). In the financial statements for the year ended 30 September 20X2, the accumulated depreciation was $8 million ($20 million / 5 years × 2).
   Therefore, by adopting an eight-year life, Tunshill Co can avoid a depreciation charge in the current year and instead credit $0.5 million ($8 million – $7.5 million) to profit or loss in the current year to improve the reported profit.
2. Most of Tunshill Co's competitors value their inventory using the average cost (AVCO) basis, whereas Tunshill Co uses the first in first out (FIFO) basis. The value of Tunshill Co's inventory at 30 September 20X3 on the FIFO basis, is $20 million, however on the AVCO basis it would be valued at $18 million. By adopting the same method (AVCO) as its competitors, the assistant accountant says the company would improve its profit for the year ended 30 September 20X3 by $2 million. Tunshill Co's inventory at 30 September 20X2 was reported as $15 million, however on the AVCO basis it would have been reported as $13.4 million.

REQUIREMENT

Adjusting for the change of useful life, what will be the carrying amount of the plant at 30 September 20X3?

Information relevant to questions 1–5.

Scenario

The directors of Tunshill Co are disappointed by the draft profit for the year ended 30 September 20X3. The
company's assistant accountant has suggested two areas where she believes the reported profit may be improved:

1. A major item of plant that cost $20 million to purchase and install on 1 October 20X0 is being depreciated on a straight-line basis over a five-year period (assuming no residual value). The plant is wearing well and at the beginning of the current year (1 October 20X2) the production manager believed that the plant was likely to last eight years in total (ie from the date of its purchase). The assistant accountant has calculated that, based on an eight-year life (and no residual value) the accumulated depreciation of the plant at 30 September 20X3 would be $7.5 million ($20 million / 8 years × 3). In the financial statements for the year ended 30 September 20X2, the accumulated depreciation was $8 million ($20 million / 5 years × 2).
   Therefore, by adopting an eight-year life, Tunshill Co can avoid a depreciation charge in the current year and instead credit $0.5 million ($8 million – $7.5 million) to profit or loss in the current year to improve the reported profit.
2. Most of Tunshill Co's competitors value their inventory using the average cost (AVCO) basis, whereas Tunshill Co uses the first in first out (FIFO) basis. The value of Tunshill Co's inventory at 30 September 20X3 on the FIFO basis, is $20 million, however on the AVCO basis it would be valued at $18 million. By adopting the same method (AVCO) as its competitors, the assistant accountant says the company would improve its profit for the year ended 30 September 20X3 by $2 million. Tunshill Co's inventory at 30 September 20X2 was reported as $15 million, however on the AVCO basis it would have been reported as $13.4 million.

REQUIREMENT

What is the correct account to show the accounting entry for the change in inventory value for the year ended 30 September 20X3?