CASE STUDY 1 - SOLUTION

Transcription

1 CASE STUDY 1 - SOLUTION QUESTION 1 (a) Journal entries J1 J2 J3 J4 J5 J6 30 June 2016 Provision for dismantling costs (SFP) [C1] Factory building (cost) SFP) Change in estimate of dismantling provision regarding factory building at 30 June 2016 evaluation surplus (SCE) [C3] etained earnings (SCE) Transfer of revaluation surplus to retained earnings as the Hunters shoe range machinery is used estructuring expense (P/L) (given) estructuring provision (SFP) ecognise restructuring provision on 30 June 2016 Cost of sales (P/L) [C4] Inventory (SFP) Hunters safety boots written down to net realisable value on 30 June 2016 evaluation surplus (OCI) [C6] Accumulated depreciation and impairment losses: Hunters machine (SFP) ecognition of impairment loss on Hunters shoe range on 30 June 2016 Impairment loss (P/L) [C7] Goodwill (SFP) (given) Accumulated depreciation and impairment losses: Factory building (SFP) [C7] ecognition of impairment loss on shoe manufacturing division on 30 June 2016 Dr Cr

2 2 FAC4863/NFA4863/ZFA4863 (b) CALIFONIA FOOTWEA LTD NOTES TO THE FINANCIAL STATEMENTS FO THE YEA ENDED 30 JUNE Income tax expense Major components of tax expense: Deferred tax - Movement in temporary differences [C8] ( ) CALCULATIONS C1. Change in provision for dismantling costs (IFIC 1.5) Balance on 30 June 2016 based on old estimated costs (PV = , N = 5, I = 12%, FV =?) or (PV = , N = 20, I = 12%, 1 input 5 amort =?) Balance on 30 June 2016 based on new estimated costs (FV = , N = 15, I = 12%, PV =?) Balance C2. evaluation of the Hunters shoe range machinery on 30 June 2015 Carrying amount 1 July 2014 ( ( /8 x 3)) or ( /8 x 5) Fair value 1 July 2014 ( ( /4)) or ( /4 x 5) ( ) evaluation surplus Although the revaluation is performed at the end of the year (30 June 2015) it is accounted for as if it was performed on 1 July 2014, because the accounting policy of California states that depreciation is based on the most recent revalued amount, C3. Transfer of revaluation surplus on the Hunters shoe range machinery to retained earnings as the machinery is used (IAS 16.41) evaluation surplus balance - 1 July 2014 [C2] Transfer to retained earnings 30 June 2015 ( ) Transfer to retained earnings 30 June 2016 ( /5 or /4 = ) ( /8 = ) ( ) evaluation surplus balance 30 June

3 C4. Inventory written off to net realisable value on 30 June FAC4863/NFA4863/ZFA4863 Closing balance 30 June 2016 (given) Net realisable value 30 June 2016 ( ) Inventory to be sold at 550 per pair in terms of the contract (500 x 550) emaining pairs to be sold at 450 per pair (450 x 500) C5. Value in use of Hunters shoe range 30 June 2016 PMT = ( ), N = 3, I = 10% (IAS 36.43(b)) C6. Impairment loss on Hunters shoe range 30 June 2016 Carrying amount of Hunters shoe range 30 June Machinery ( ( /4)) or ( /4 x 3) or ( [C2]/5 x 3) Patent ( ( /4)) or ( /4 x 3) Inventory [C4] ecoverable amount higher of Value in use [C5] Fair value less costs to sell ( ) Impairment loss Impairment loss allocation Limit - machinery (IAS ) ( (given)) Limit patent (IAS ) (Fair value less costs to sell of (given) exceeds carrying amount of ) - Impairment loss of allocated to machinery first against revaluation surplus available (IAS 36.61) evaluation surplus on machinery 30 June 2016 [C3] Therefore total amount of recognised against the revaluation surplus

4 C7. Impairment loss on shoe manufacturing division 30 June FAC4863/NFA4863/ZFA4863 Carrying amount - 30 June Factory building ( ( )/20)) [C1]) Hunters shoe range [C6] Manolo shoe range ( /4 x 3 = ) + ( /4 x 3 = ) Goodwill (given) Dismantling provision [C1] ( ) estructuring provision (given) (80 000) ecoverable amount higher of Value in use ( ) Fair value less costs to sell ( ) Impairment loss Impairment loss allocation Allocated to goodwill (IAS ) Hunters shoe range (already written off to value in use) [C6] - Manolo shoe range (carrying amount of below recoverable amount of ) - Factory building ( ) Limit ( ) =

5 5 FAC4863/NFA4863/ZFA4863 C8. Calculation of deferred tax Carrying amount Tax base Temporary difference (100%/ 80%) Deferred tax asset/ 28% 30 June 2015 ( ) 30 June 2016 Factory building Provision for dismantling costs Machinery Hunters shoe range Machinery Manolo shoe range Patents Hunters shoe range Patents Manolo shoe range Inventory estructuring provision (44 134) 2 ( ) - ( ) ( ) ( ) (89 250) (75 600) (80 000) - (80 000) ( ) Movement in temporary differences (Through OCI) (Deductible) Movement in temporary differences (Through P/L) (balancing) 12 ( ) [C7] [C7] [C1] [C6] [C6] [C7] [C6] [C7] [C4] Given (( ) ( x 5% x 5)) Purchased 1 July 2011, for year ended 30 June 2016 last 20% allowance will be claimed. Thus fully written off on 30 June Tax deduction was claimed during financial year ended 30 June 2011 [C6] x 28%

6 6 FAC4863/NFA4863/ZFA4863 (c) Discuss when the revenue from the sale of the cutting machines should be recognised in the financial statements of California Footwear Ltd. Please include the specific date/(s) as part of your discussion and conclusion. An entity shall recognise revenue when (or as) the entity satisfies a performance obligation by transferring a promised good or service (ie an asset) to a customer. An asset is transferred when (or as) the customer obtains control of that asset (IFS 15.31). An entity shall determine at contract inception whether it satisfies the performance obligation over time or satisfies the performance obligation at a point in time. If an entity does not satisfy a performance obligation over time, the performance obligation is satisfied at a point in time (IFS 15.32). None of the criteria is met for the revenue regarding the cutting machines to be recognised over time and therefore the revenue should be recognised at a point in time. To determine the point in time at which Bellissimo obtains control of the machines the requirements for control is considered (IFS 15.38). An entity shall consider the following indicators of the transfer of control (IFS 15.38): (1) The entity has a present right to payment for the asset: In accordance with the contract payment is due on the date that Bellissimo has accepted the machines, thus on 1 April 2016 California became entitled to payment as this is also the date on which Bellissimo was invoiced. (2) The customer has legal title to the asset: The contract stipulates that Bellissimo has legal title to the asset upon acceptace of the machines, thus on 1 April (3) The entity has transferred physical possession of the asset to the customer: Bellissimo has not yet obtained possession of the cutting machines on 1 April On 25 August 2016 Bellissimo took physical possession of all the cutting machines. Physical possession might not coincide with control of the asset (IFS 15.38(c)). A bill-and-hold arrangement is a contract under which an entity bills a customer for a product but the entity retains physical possession of the product until it is transferred to the customer at a point in time in the future. The arrangement by Bellissimo is a bill-and-hold arrangement as California retains physical possession of the cutting machines but has already invoiced Bellissimo for the machines. For a customer to have obtained control of a product in a bill-and-hold arrangement, all of the following criteria must be met: the reason for the bill-and-hold arrangement must be substantive; The arrangement was specifically requested by Bellissimo and is not due to conditions on California side. the product must be identified separately as belonging to the customer; The cutting machines are kept in a separate area in the warehouse of California. the product currently must be ready for physical transfer to the customer; The cutting machines are ready and can be delivered on request of Bellissimo. the entity cannot have the ability to use the product or to direct it to another customer. California does not have the ability to use the machines or sell it to another customer.

7 7 FAC4863/NFA4863/ZFA4863 (4) The customer has the significant risks and rewards of ownership of the asset. As the title has passed to Bellissimo they will also have the risks and rewards regarding ownership. (5) The customer has accepted the asset. Bellissimo inspected and accepted the cutting machines on 1 April 2016 California should consider whether it has a remaining performance obligation with regard to the custodial services that are provided (IFS ). If so, California should allocate a portion of the transaction price to this performance obligation in accordance with IFS (IFS 15.B82). Conclusion evenue regarding the 12 cutting machines should be recognised on 1 April 2016 as this is the date on which Bellissimo obtains control of the cutting machines.

8 8 FAC4863/NFA4863/ZFA4863 QUESTION 2 (a) (b) Journal entries 30 June 2015 J1 Employee benefit expense (P/L) [C1] Share-based payment reserve (SCE) ecognise share-based payment transaction expense 30 September 2015 J2 Employee benefit expense (P/L) [C2] Share-based payment reserve (SCE) ecognise accelerated expense due to the cancellation J3 Employee benefit expense (P/L) [C3] etained earnings (SCE) ((350 x 3 000) x(5-3,50)) Share-based payment reserve (SCE) [C2] Bank ( x 350 ) ecognising payment for cancellation of share scheme 1 30 June 2016 J4 Employee benefit expense (P/L) [C4] Share-based payment reserve (SCE) ecognise share-based payment transaction expense PACKMAN LTD STATEMENT OF CHANGES IN EQUITY FO THE YEA ENDED 30 JUNE 2016 Sharebased payment reserve Balance at 1 July Changes in equity 2016 Equity settled share-based payment transaction [J2] [J3] [J3] [J4] Transfer to: etained earnings ( ) Balance at 30 June Dr Cr

9 9 FAC4863/NFA4863/ZFA4863 (c) PACKMAN LTD NOTES TO THE FINANCIAL STATEMENTS FO THE YEA ENDED 30 JUNE Profit before tax note The following information is included in profit before tax: Employee benefit cost: Termination benefits [C5] Leave pay provision [C6] ( ) (d) Lease transaction In terms of IAS if there has been a reduction in the estimated unguaranteed residual value, the allocation of the finance income over the lease term must be revised and any reduction in respect of finance income must be recognised immediately. Packman Ltd has revised the unguaranteed residual value from to and therefore should revise the allocation of finance income over the lease period. The interest rate implicit in the lease is recalculated as 8% [C7]. This change in the estimate of the unguaranteed residual value would be disclosed as a change in accounting estimate in terms of the requirements of IAS 8 i.e. prospectively. Disclosure would need to be given of the nature and amount that the change in estimate of the residual value will have on the current and future periods (i.e. the effect of recognising a lower finance income) (IAS 8.38). On the date of change, Packman Ltd should recalculate the gross investment in lease amount (i.e. aggregate of the minimum lease payments and the revised unguaranteed residual value) as well as the revised net investment in lease (i.e. the present value of the minimum lease payments and the revised unguaranteed residual value). The difference between the amounts will indicate the revised unearned finance income amount. On 30 June 2016 the recalculated gross investment in the lease is ( [C7] [C4]) and the net investment in the lease is ( [C7] [C7] ) resulting in the revised unearned finance income amount of The difference between these revised amounts and the existing amounts would determine the adjustment that would need to be passed immediately by Packman Ltd. The adjustment would be as follows: The finance income earned will be reduced (debited) during the current year with an amount of ( ). The unearned finance income will be reduced (debited) by the change in its carrying amount of ( ). The gross investment in lease will be reduced (credited) by which is the absolute amount of the unguaranteed residual value foregone.

10 10 FAC4863/NFA4863/ZFA4863 CALCULATIONS C1. Share-based payment expense for 30 June : x x 82% x 5 x 18/24 = : x x 96% x 5 x 6/24 = ( ) ( ) C2. Share-based payment expense for cancelled options 30 September 2015: 350 x x 5 = June 2015: [C1]/2 000 x 350 = ( ) ( ) C3. Additional share-based payment expense Fair value of share option paid to employees / Fair value of share option at 30 September 2015 (given) 3,5 2,5 Additional expense 350 x x 2, C4. Share-based payment expense for 30 June 2016 Original x 98% x x 5 x 30/36 = Modification x 98% x x (7,50 2) x 7/ Previous estimate [C1] [C2] ( ) C5. Movement in termination benefit liablity Opening balance 1 July x Paid out on 15 October x ( ) C6. Movement in leave provision Opening balance 30 June 2015 (given) Closing balance 30 June 2016 ((8* x (( )/252) x (1 485 x 97%))

11 *Balance of leave days carried forward to 2016 Number of employees = ,90 x 1 650= employees = 10 days limited to 8 days carried forward C4. Lease transaction PV N 4 FV PMT COMP I 8% Year Minimum lease payments 11 FAC4863/NFA4863/ZFA4863 Capital repayment Interest (8%) Balance 01 July June June June June June Total Gross investment in the lease Net investment in the lease Unearned finance income