FEEDBACK TUTORIAL LETTER 1ST SEMESTER 2017 ASSIGNMENT 1 FINANCIAL ACCOUNTING 201 FAC611S 1
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 300 000 110 000 +100000 N$ 2 290 000 Profit for the year 290 000 Other comprehensive income for the year - Total comprehensive income for the year 290 000 CAPTAIN PLANET LIMITED EXTRACT FROM STATEMENT OF FINANCIAL POSITION AT 30 JUNE 20X3 Note N$ ASSETS Non-current assets Property, plant and equipment 3 320 000 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 (440 000 0) / 4 remaining 110 000 years Reversal of impairment CA: 220 000 RA: 500 000, ltd to depreciated cost of 320 000 (100 000) 3 Property, plant and equipment Equipment Net carrying amount: 1 July 20X2 Gross carrying amount Less accumulated 20X1: depr 160 000 + imp depreciation loss 200 000 + 20X2: depr 110 000 N$ 330 000 800 000 (470 000) Depreciation (110 000) Reversal of impairment 100 000 Net carrying amount: 30 June 20X3 320 000 Gross carrying amount 800 000 Less accumulated depreciation 470 000 + 20X3: depr 110 000 imp rev 100 000 (480 000) Due to changes in technology, an impairment loss of C100 000 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)
Part B Journals Part (a) GRVM Part (b) NRVM 1/1/20X3 Dr/ (Cr) Dr/ (Cr) Plant: cost 300 000 300 000 Liability (300 000) (300 000) Purchase of asset: (1/1/20X3) 31/12/20X3 Depreciation: plant (300 000 0) / 5 60 000 60 000 years x 1 Plant: acc. depr & imp. loss (60 000) (60 000) Depreciation on plant 31/12/20X4 Depreciation: plant (300 000 0) / 5 years x 1 60 000 60 000 Plant: acc. depr & imp. loss (60 000) (60 000) Depreciation on plant 1/1/20X5: revaluation (increase) Plant: cost Cost acc: now 400 000 (A: W2) - was: 300 000 Plant: acc. depr & imp. loss AD acc: now 160 000 (A: W2) - was: 120 000 100 000 N/A (40 000) N/A Revaluation surplus FV: 240 000 CA: 180 000; or Balance (60 000) N/A GRVM: revaluation of asset: (1/1/20X5) Plant: acc. depr & NRVM: 60 000 + 60 N/A 120 000 imp. loss 000 Plant: cost N/A (120 000) NRVM: set-off of accumulated depreciation before revaluing asset Plant: cost FV: 240 000 - CA: N/A 60 000 180 000 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:240 000 0) / 3 years remaining x 1 80 000 80 000 Plant: acc. depr & imp. loss (80 000) (80 000) Depreciation: new CA over remaining useful life Revaluation surplus 60 000 / 3 years 20 000 20 000 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 = 80 000 revalued depreciation 60 000 historic depreciation) 1/1/20X6: revaluation (increase) Plant: cost Cost acc: now 500 000 (A:W2) was 400 000 Plant: acc. depr & imp. loss AD acc: now 300 000 (A: W2) was 240 000 100 000 N/A (60 000) N/A Revaluation surplus FV: 200 000 CA: 160 000 (40 000) N/A GRVM: revaluation of asset: (1/1/20X6) Plant: acc. depr & imp. loss N/A 80 000 Plant: cost N/A (80 000) NRVM: set-off of accumulated depreciation before revaluing asset Plant: cost FV: 200 000 - CA: N/A 40 000 160 000 Revaluation surplus N/A (40 000) NRVM: revaluation of asset
31/12/20X6: depreciation and transfer of revaluation surplus Depreciation: plant (FV 200 000 0) / 2 years remaining x 1 100 000 100 000 Plant: acc. depr & imp. loss (100 000) (100 000) Depreciation: new CA over remaining useful life Revaluation surplus 80 000 / 2 years 40 000 40 000 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 = 100 000 revalued depreciation 60 000 historic depreciation) half a mark (20 marks) Workings for Part (a): GRVM W1: The gross replacement values are as follows: 1/1/20X5: FV: 240 000 / 3 years remaining x 5 total years = 400 000 1/1/20X6: FV: 200 000 / 2 years remaining x 5 total years = 500 000 W2: Revised balances will be: After the Revaluation on 1/1/20X5 After the Revaluation on 1/1/20X6 Cost account GRV 400 000 500 000 (calculated above) Acc deprec Balancing (160 000) (300 000) account Carrying amount Fair value (given) 240 000 200 000 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 1/1/20X6 240 000 200 000 (0) (0) 240 000 200 000
Question 2 Part A 31 August 20X8 Depreciation: factory buildings 156 200 Building: accum. depreciation (4 686 000 0) / (25 5) x 8/12 156 200 Being depreciation on factory buildings to date it was vacated and no longer PPE Building: accum. O/balance: 20X7 depr: (4 390 500 depreciation 686 000 0) / (25 5) x 12/12 + 20X8 depr: 156 200 Building: fair value 390 500 NRVM: Set-off of accumulated depreciation against cost prior to revaluation Buildings: fair value 7 500 000 (4 686 000 2 970 200 156 200) Impairment reversal (P/L) W1 1 656 867 Revaluation surplus (OCI) FV 7 500 000 HCA (W2) 6 186 667 1 313 333 Revaluation of buildings to fair value Land: fair value 4 000 000 3 400 000 600 000 Revaluation surplus (OCI) 600 000 Revaluation of land to fair value Investment property Land: 4 000 000 + 11 500 000 Buildings: 7 500 000 Land: fair value 4 000 000 Buildings: fair value 4 686 000 / (25 5) x 21years 7 500 000 Transfer of PPE to investment property following change in use 31 December 20X8 Investment property (4 180 000 + 7 900 000) 580 000 11 500 000 Fair value adjustment (P/L) 580 000 Fair value adjustment on IP at year end is one mark (14 Marks) Workings: N$ W1 Impairment loss reversed 1 656 867 Fair value limited to FV 7 500 000, limited to 6 6 186 667 historical carrying amount 186 667 (W2) Less actual carrying amount W3 (4 529 800) W2 Historical carrying amount 6 186 667 Cost Given 8 000 000 Accumulated depreciation to 31 August 20X8 (8 000 000 0) / 300 months x 68 months (1 813 333) W3 Actual carrying amount 4 529 800 Fair value at 31 December Given 4 686 000 20X7 Accumulated depreciation to 31 August 20X8 (4 686 000 0) / (25 5) x 8/12 (156 200) (6 Marks) Total = 20 Marks
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$1 000 000 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.
- 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$200 000 must be expensed during 20X9 [(N$1 000 000 0) / 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$800 000 (Cost: 1 000 000 Accumulated amortisation: 200 000 - 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.
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)