FEEDBACK TUTORIAL LETTER

Transcription

1 FEEDBACK TUTORIAL LETTER 1 ST SEMESTER 2017 ASSIGNMENT 2 Financial Accounting 201 [FAC611S] May

2 Memorandum- Assignment 2 Question 1 1 January 20X5 Debit Factory Building Bank/ liability Purchase of the Factory Investment Property Bank/ liability June 20X5 Depreciation expense ( ) / 20 x 6 / 12 months) Office building: carrying amount (PPE) Depreciation to date of change in use Impairment loss (P/L) Accumulated Impairment loss Impairment loss of building due to demolition Accumulated Impairment loss Accumulated Depreciation Building Derecognition of building Investment Property: fair value (IP) Fair value adjustment on investment property (P/L) Measurement of investment property to fair value at year-end PPE Investment Property Transfer of Investment Property to IP Depreciation Accumulated Depreciation ( /5.5*6/12) (20 Marks)

3 Question 2- Carew Plastics 31 December 20X4 Fair value loss - investment W1 property (E) Investment property: fair value (A) Journals Debit Remeasurement of investment property prior to reclassification to HFS Depreciation (E) PPE: Furniture: acc ( ) / 10yrs x 6/ PPE: Equipment: acc ( ) / 20yrs x 6/ Remeasurement of items of property, plant and equipment prior to reclassification to HFS: depreciation but no impairments necessary DGHFS: Investment Fair value: given (W1) property: FV (A) DGHFS: Furniture (A) Cost: AD: AIL: 0 (W2) DGHFS: Equipment (A) Cost: AD: AIL: 0 (W3) PPE: Furniture: acc W2: ( ) / 10 x PPE: Equipment: acc W3: ( ) / 20 x Investment property: FV (A) Given PPE: Furniture: Cost (A) Given PPE: Equipment: Cost (A) Given Reclassification of assets as held for sale in a disposal group Impairment loss DGHFS W4 (E) DGHFS: Furniture: acc imp W5 loss (-A) DGHFS: Equipment: acc W5 imp loss (-A) Impairment of DG immediately after classification as HFS 30 June 20X5 Fair value loss - investment W6 property (E) DGHFS: Investment property: FV (A) Remeasurement of investment property to latest FV at year-end Impairment loss (E) W DGHFS: Furniture: acc imp W8 loss (-A) DGHFS: Equipment: acc W8 imp loss (-A) Remeasurement of DGHFS at year-end, with impairment allocated to the DGHFS s scoped-in assets Workings W1: Fair value adjustment of investment property before reclassifying: 31/12/X4 (i.e. still investment property, measured in terms of IAS 40): Investment property at fair value on 1 July 20X4 Fair value on 31 December 20X4 Fair value loss N$ Given Given (77 000) (23 Marks)

4 W2: Impairment of furniture before N$ reclassifying: 31/12/X4 (i.e. still PPE, measured in terms of IAS 16): Carrying amount ( ) x % x 2.5 years; OR: CA: Subsequent depr: ( ) x 10% x 0.5 year Recoverable amount Higher of VIU: and (99 000) FV-CtS: ( ) = Impairment of furniture Furniture is not impaired 0 W3: Impairment of equipment before N$ reclassifying: 31/12/X4 (i.e. still PPE, measured in terms of IAS 16): Carrying amount ( ) / x 2.5 years; OR: CA: Subsequent depr: ( ) / 20 x 0.5 year Recoverable amount Higher of VIU: and ( ) FV-CtS: ( ) Impairment of equipment Equipment is not impaired 0 W4: Impairment of disposal group N$ immediately after reclassifying: 31/12/X4 (i.e. now NCAHFS, measured in terms of IFRS 5): Investment property: W carrying amount Furniture: carrying amount W Equipment: carrying amount W Carrying amount of disposal group Fair value less costs to sell Given: ( ) Impairment of disposal group W5: Allocation of impairment to assets in N$ disposal group: 31/12/X4 Furniture (cost x / ( ) Equipment (cost x / ( Investment property (FV ) None allocated: Investment property that is measured in terms of the fair value model is outside the measurement scope of IFRS 5 Total impairment expense W An alternative layout of workings (instead of W4 and W5): 31/12/X4 CA immediately before classification as HFS Impairment loss allocation CA immediately after classification as HFS Investment property (FV N/A Note Furniture (cost (11 550) Note Equipment (cost (26 950) Note Net assets (38 500) Note Workings continued Note 1. The total impairment loss of is calculated as: CA: (per table above) FV-CtS: (Given: ) = (17 Marks) N/A

5 Note 2. The measurement requirements of IFRS 5 only apply to scoped-in non-current assets. Investment property measured at fair value is a scoped-out non-current asset and thus none of the disposal group s impairment loss is allocated to this investment property. Note 3. The impairment loss is first set-off against any goodwill, and any impairment loss remaining is then allocated to the remaining scoped-in non-current assets on the basis of the relative carrying amounts: Total impairment loss (IL): Goodwill: 0 = IL still to be allocated: The remaining impairment loss of is allocated based on the carrying amounts of the scoped-in non-current assets: Furniture: x / ( ) = Equipment: x / ( ) = Question 3 -Langson Limited Part A (3 marks for Letter format) Re: Query regarding the impact of IFRS 5 on the decision to close the security division Thank you for your query. We have pleasure in advising as follows: A decision has been made to close the security division pursuant to the recent government announcement and its expected effect on profitability on an already ailing division. It would appear from the evidence provided that this security division will, in effect, be abandoned. The security division is considered to be a disposal group since it meets the definition thereof: or otherwise, together as a group in a single transaction, and liabilities directly associated with those assets that will be transferred in the transaction. IFRS 5 Appendix A: Defined terms abandonment, by way of a single transaction (please note that a group of assets and liabilities need not be disposed of through a sale for it to be considered to be a disposal group). See IFRS 5.13 In terms of IFRS 5 Non-current assets held for sale and discontinued operations, an entity shall not classify as held for sale a non-current asset (or disposal group) that is to be abandoned. This is because its carrying amount will be recovered principally through continuing use. Thus, although the division is a disposal group, it may not be classified as a disposal group held for sale. See IFRS 5.13 Despite the fact that the division may not be classified as held for sale, a disposal group that is to be abandoned may need to be classified as a discontinued operation. See IFRS 5.13 A disposal group would need to be presented as a discontinued operation if it meets the requirements of IFRS 5.32, which are as follows: component of an entity that either s classified as held for sale, (a) represents a separate major line of business or geographical area of operations, (b) is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations, or (c) is a subsidiary acquired exclusively with a view to resale. In this case, the division represents: component of the entity since it has operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity IFRS 5 App A: Defined terms : the division was reported separately as the security segment ; separate major line of business, being the manufacturing of security systems, which is clearly separate from the manufacture of light fittings and the evidence provided suggests that the security system, being until now, equally profitable relative to the lighting division, is currently a major line of business; but represents not yet been disposed of (it will be disposed of through abandonment but only in about 15 months from now) and it is a component that may not be classified as held for sale (since it is to be abandoned rather than sold). Thus the security division must not be classified as a discontinued operation in the current financial statements since, although it is a component of an entity that represents a separate

6 major line of business (i.e. meets IFRS 5.32(a)), it does not meet the requirement of either being classified as held for sale or having already been disposed of. Thus, the security division is neither a disposal group held for sale nor is it a discontinued operation. Similarly, since the individual plants are to be abandoned rather than sold, the plants would also not be classified as individual non-current assets held for sale. Instead, the effects of the decision to abandon the security division relate merely to the measurement of the plant in terms of IAS 16 Property, plant and equipment, read together with IAS 36 Impairment of assets and may also require consideration of IAS 8 Accounting policies, estimates and correction of errors. If you require further information in this regard, please do not hesitate to contact me. (25 Marks) Part B =Half a mark Year ended 31 December 20X2 Journals Journals on 1 January 20X2 Debit Plant: accumulated depreciation Plant: cost NRVM: set-off of accumulated depreciation before revaluation Plant: cost CA: FV: Revaluation surplus Increase in value Journals on 31 December 20X2 Debit Depreciation: plant (FV ) / years remaining x 1 Plant: accumulated depreciation Depreciation of asset Revaluation surplus / 4 years remaining x Retained earnings Transfer of revaluation surplus to retained earnings: over life of asset

7 1 January 20X2 Actual carrying amount (100K 20K) Adjustment through Statement of 0 comprehensive income Historical carrying amount (100K 20K) Adjustment through statement of financial position (revaluation surplus - cr) Fair value Year ended 31 December 20X3 Journals Journals on 1 January 20X3 Debit Plant: accumulated depreciation Plant: cost NRVM: set-off accumulated depreciation before revaluing asset Revaluation surplus CA: HCA: (OCI) 000 Revaluation expense (P/L) HCA: FV: Plant: cost (A) CA: FV: Revaluation of asset (a decrease in value): The devaluation first reverses the revaluation surplus balance [(40-10) or (90-60) or see workings below] and any devaluation thereafter, which would reduce the CA below depreciated cost (also known as historical CA or HCA) is recognised as a revaluation expense [(60 50) or see workings below] Journal on 31 December 20X3 Debit Depreciation (E) (FV: )/ 3 remaining years x Plant: accumulated Depreciation of asset Workings 1 January 20X3 Actual carrying amount (120K - 120K/4 x 1yr) or (80K + 40K 30K) Adjustment through statement of financial position (reversal: 90K 60K) or (40K 10K) Historical carrying amount (100K K/ 5 x 2 yrs) Adjustment through Statement of comprehensive income (revaluation expense: 60K 50K) Fair value (given) (15 Marks)