Question Tag: Contractual Obligations

Puppsy PLC had identified the following segments in its annual financial statements for the year ended September 30, 2020:

i. Segment A
ii. Segment B
iii. Segment C

The company disclosed two reportable segments. Segments A and B were aggregated into a single reportable operating segment. Operating segments A and B have been aggregated on the basis of their similar basic features and the nature of their goods and services. In the local train market, it is the local transport authority which awards the contract and pays Puppsy PLC for its services. In the local train market, contracts are awarded following a competitive tender process, and the ticket prices paid by passengers are set by and paid to the transport authority. In the inter-city train market, ticket prices are set by Puppsy PLC, and the passengers pay Puppsy PLC for the service provided.

Required:
Advise Puppsy PLC on how the above issues should be dealt with in its financial statements for the year ended September 30, 2020.
(10 Marks)

b. Puppsy PLC was given a building by a private person in August 2018. The benefactor of the building included a condition that the building must be brought into use as a train museum in the interests of the local community or the asset (or a sum equivalent to the fair value of the asset) must be returned. The fair value of the asset was N7.5 million in August 2019. Puppsy PLC took over the building in November 2018.

However, the company could not utilize the building in accordance with the condition until August 2019 as the building needed some renovation and adaptation and in order to abide with the condition attached to it. Puppsy PLC spent N2.5 million on renovation and adaptation.

Required:
Advise Puppsy PLC on the appropriate accounting treatment for the building and the costs incurred in preparing it for use in its financial statements for the year ended September 30, 2020.
(5 Marks)