FEEDBACK TUTORIAL LETTER 1ST SEMESTER 2017 ASSIGNMENT 1 FINANCIAL ACCOUNTING 201 FAC611S

Transcription

1 FEEDBACK TUTORIAL LETTER 1ST SEMESTER 2017 ASSIGNMENT 1 FINANCIAL ACCOUNTING 201 FAC611S 1

2 Assignment 1- Memorandum Question 1 Part A a) Disclosure CAPTAIN PLANET LIMITED EXRACT FROM STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 20X3 Note Profit before tax N$ Profit for the year Other comprehensive income for the year - Total comprehensive income for the year CAPTAIN PLANET LIMITED EXTRACT FROM STATEMENT OF FINANCIAL POSITION AT 30 JUNE 20X3 Note N$ ASSETS Non-current assets Property, plant and equipment CAPTAIN PLANET LIMITED NOTES TO THE FINANCIAL STATEMENTS AT 30 JUNE 20X3 20X3 2 Profit before tax N$ Profit before tax is stated after taking into account the following: Depreciation ( ) / 4 remaining years Reversal of impairment CA: RA: , ltd to depreciated cost of ( ) 3 Property, plant and equipment Equipment Net carrying amount: 1 July 20X2 Gross carrying amount Less accumulated 20X1: depr imp depreciation loss X2: depr N$ ( ) Depreciation ( ) Reversal of impairment Net carrying amount: 30 June 20X Gross carrying amount Less accumulated depreciation X3: depr imp rev ( ) Due to changes in technology, an impairment loss of C relating to equipment has been reversed during the period. The recoverable amount is based on the fair value less costs of disposal, determined using the cost approach. All inputs used to determine the fair value are level 1 per IFRS13 Fair value measurement. (20 marks)

3 Part B Journals Part (a) GRVM Part (b) NRVM 1/1/20X3 Dr/ (Cr) Dr/ (Cr) Plant: cost Liability ( ) ( ) Purchase of asset: (1/1/20X3) 31/12/20X3 Depreciation: plant ( ) / years x 1 Plant: acc. depr & imp. loss (60 000) (60 000) Depreciation on plant 31/12/20X4 Depreciation: plant ( ) / 5 years x Plant: acc. depr & imp. loss (60 000) (60 000) Depreciation on plant 1/1/20X5: revaluation (increase) Plant: cost Cost acc: now (A: W2) - was: Plant: acc. depr & imp. loss AD acc: now (A: W2) - was: N/A (40 000) N/A Revaluation surplus FV: CA: ; or Balance (60 000) N/A GRVM: revaluation of asset: (1/1/20X5) Plant: acc. depr & NRVM: N/A imp. loss 000 Plant: cost N/A ( ) NRVM: set-off of accumulated depreciation before revaluing asset Plant: cost FV: CA: N/A Revaluation surplus N/A (60 000) NRVM: revaluation of asset: (1/1/20X5) 31/12/20X5: depreciation and transfer of revaluation surplus Depreciation: plant (FV: ) / 3 years remaining x Plant: acc. depr & imp. loss (80 000) (80 000) Depreciation: new CA over remaining useful life Revaluation surplus / 3 years remaining x 1 Retained earnings (20 000) (20 000) Transfer of revaluation surplus to retained earnings: over life of asset (the extra depreciation for 20X5 due to the revaluation above HCA = revalued depreciation historic depreciation) 1/1/20X6: revaluation (increase) Plant: cost Cost acc: now (A:W2) was Plant: acc. depr & imp. loss AD acc: now (A: W2) was N/A (60 000) N/A Revaluation surplus FV: CA: (40 000) N/A GRVM: revaluation of asset: (1/1/20X6) Plant: acc. depr & imp. loss N/A Plant: cost N/A (80 000) NRVM: set-off of accumulated depreciation before revaluing asset Plant: cost FV: CA: N/A Revaluation surplus N/A (40 000) NRVM: revaluation of asset

4 31/12/20X6: depreciation and transfer of revaluation surplus Depreciation: plant (FV ) / 2 years remaining x Plant: acc. depr & imp. loss ( ) ( ) Depreciation: new CA over remaining useful life Revaluation surplus / 2 years remaining Retained earnings (40 000) (40 000) Transfer of revaluation surplus to retained earnings: over life of asset (the extra depreciation for 20X6 due to the revaluation above HCA = revalued depreciation historic depreciation) half a mark (20 marks) Workings for Part (a): GRVM W1: The gross replacement values are as follows: 1/1/20X5: FV: / 3 years remaining x 5 total years = /1/20X6: FV: / 2 years remaining x 5 total years = W2: Revised balances will be: After the Revaluation on 1/1/20X5 After the Revaluation on 1/1/20X6 Cost account GRV (calculated above) Acc deprec Balancing ( ) ( ) account Carrying amount Fair value (given) Workings for Part (b): NRVM W1: Revised balances will be: Cost account Acc deprec account Carrying amount Fair value (given) Netted off against cost Fair value (given) After the Revaluation on 1/1/20X5 After the Revaluation on 1/1/20X (0) (0)

5 Question 2 Part A 31 August 20X8 Depreciation: factory buildings Building: accum. depreciation ( ) / (25 5) x 8/ Being depreciation on factory buildings to date it was vacated and no longer PPE Building: accum. O/balance: 20X7 depr: ( depreciation ) / (25 5) x 12/ X8 depr: Building: fair value NRVM: Set-off of accumulated depreciation against cost prior to revaluation Buildings: fair value ( ) Impairment reversal (P/L) W Revaluation surplus (OCI) FV HCA (W2) Revaluation of buildings to fair value Land: fair value Revaluation surplus (OCI) Revaluation of land to fair value Investment property Land: Buildings: Land: fair value Buildings: fair value / (25 5) x 21years Transfer of PPE to investment property following change in use 31 December 20X8 Investment property ( ) Fair value adjustment (P/L) Fair value adjustment on IP at year end is one mark (14 Marks) Workings: N$ W1 Impairment loss reversed Fair value limited to FV , limited to historical carrying amount (W2) Less actual carrying amount W3 ( ) W2 Historical carrying amount Cost Given Accumulated depreciation to 31 August 20X8 ( ) / 300 months x 68 months ( ) W3 Actual carrying amount Fair value at 31 December Given X7 Accumulated depreciation to 31 August 20X8 ( ) / (25 5) x 8/12 ( ) (6 Marks) Total = 20 Marks

6 Part B Recognition: The issue here is whether the cost of the special driving permit should have been expensed or recognised as an intangible asset. To be recognised as an intangible asset, the item must meet the definition of an intangible asset and the recognition criteria. The definition: An intangible asset is defined as an identifiable non-monetary asset without physical substance. The special permit is identifiable because it constitutes a legal right to drive in the dedicated bus lanes in the greater Windhoek area. asset, the intangible asset must be a resource controlled by the entity, from a past event and must result in an expected inflow of future economic benefits: and through being able to restrict access to these related future economic benefits. The permit will enable Keep Left to travel in the dedicated bus lane, achieve faster travel times and thus increase profitability (i.e. future economic benefits) Keep Left is able to restrict access to these increased profits (i.e. future economic benefits) since no other company may obtain a similar permit during the 5-year term of the special permit. -end. transport of more passengers. does not have physical substance as it is not the document but rather the licensed ability to drive in the dedicated bus lanes. The recognition criteria: economic benefits is satisfied (IAS 38 allows this criteria to be assumed in such an instance). permit. y measured as an amount of N$ was paid for the special driving (10 marks) Conclusion: The special permit should be capitalised as an intangible asset since it meets the relevant definition and recognition criteria. Measurement: An intangible asset should be initially measured at cost and subsequently should be amortised (if it has a finite life) and checked for impairments on an annual basis. Subsequent measurement would involve either the revaluation model or cost model. Unlike property, plant and equipment, the revaluation of an intangible asset may only occur if the fair value is determinable in terms of an active market. Given that the permit is not able to be sold to other third parties, a fair value in terms of an active market will not be available. The permit should thus be measured using the cost model. - The life is determined as the shorter of the actual life and legal life. - The actual life is not relevant since the licence provides the company with a legal life of five years and therefore the permit should be amortised over 5 years. - The residual value is zero.

7 - The pattern of future economic benefits is not apparent and therefore the straight-line should be used as the default method of amortisation. - Amortisation of N$ must be expensed during 20X9 [(N$ ) / 5 years x 1 year]. Assuming there is no indication of an impairment, the recoverable amount would not need to be calculated. It is assumed that the asset is not impaired, since there is no information provided regarding any evidence thereof. will therefore be measured at N$ (Cost: Accumulated amortisation: Accumulated impairments: 0). (10 Marks) Disclosure: carrying amount of the special permit would be presented in the line item intangible assets on the face of the statement of financial position. This line item would be supported by a note that disclosed the roll forward of the opening and closing carrying amount for the permit. in the statement of comprehensive income. This line item would be supported by a note entitled profit before tax that disclosed the amortization expense. (5 Marks) Part C Measurement Revaluation of intangible assets:, but (since an active market requires that the items traded are homogenous and yet brands are unique by their nature). Therefore, the proposed revaluation of the brand is not allowed. The fact that the brand has been completely amortised and yet is believed to currently have a fair value of N$100 million, suggests that the original estimated useful life needs to be revised (amortisation would need to be reversed and recognised as a change in estimate: IAS 8). The residual value would not, however, be revised since it is always zero with regard to intangible assets unless: question) or Disclosure Disclosure would be the same as that above except for the following: and - the methods of amortisation - the period of amortisation or the rate of amortisation - the line item in the income statement in which amortisation is included; nd impairment losses at the beginning and end of each period and a reconciliation between the opening and closing net carrying amounts detailing: - additions; - retirements and disposals; - amortisation; - impairment losses recognised in the income statement; - impairment losses reversed through the income statement; and - other movements. Although not required, IAS 38 Intangible assets encourages disclosure of the following information: ible asset that is still being used.

8 If Energyboost Limited decided to change the estimated useful life of the brand (increasing the useful life on which the accumulated amortisation was calculated, in order to reduce the accumulated amortisation and thus increase its carrying amount), further disclosure of this change in estimate would be required in terms of IAS 8 Accounting policies, changes in accounting estimates and errors. (15 Marks)