- 7 Marks
Question
Nkonya is a local fruit processing company whose accounting year is December 2021 and prepares its financial statements using IFRSs. On 1 April 2021, Nkonya moved to a new head office and decided to sell its old premises. Agents were appointed to assist with the sale. As at 1 January 2021, the old premises had a carrying amount of GH¢8.4 million. The old premises had cost GH¢10 million and were being depreciated over their expected useful life of 50 years. The agents advised the directors that the market value of the old premises at 1 April 2021 was GH¢7 million, and a commission of 1% was payable on sale. No entries have yet been made in respect of the old premises for the year ended 31 December 2021. The old premises remained unsold as at 31 December 2021, but the sale was finalised on 10 January 2022 for net proceeds of GH¢6.8 million.
Required:
Show how the property should be dealt with in the financial statements of Nkonya for the year ended 31 December 2021. (7 marks)
Answer
Nkonya
Statement of profit or loss (extract) for the year ended 31 December 2021
| Item | GH¢’000 |
|---|---|
| Depreciation expense | (100) |
| Impairment charge (1,370+130) | (1,500) |
Nkonya
Statement of financial position (extract) as at 31 December 2021
| Item | GH¢’000 |
|---|---|
| Current assets | |
| Held for sale | 6,800 |
Workings
| Item | GH¢’000 |
|---|---|
| Carrying amount @ 1 Jan 2021 | 8,400 |
| Less: 3 months dep (10,000/25 x 3/12) | (100) |
| Carrying amount @ reclassification | 8,300 |
| Impairment charge | (1,370) |
| Fair value less cost to sell (7 – (1% x 7)) | 6,930 |
| Additional charge | (130) |
| Revised carrying amount @ 31 Dec 2021 | 6,800 |
Note: The eventual sale of the property constitutes an adjusting event. Held for sale is not subject to depreciation.
(7 marks)
- Tags: Depreciation, IFRS 5, Impairment, Revaluation
- Level: Level 2
- Topic: Financial Reporting Standards and Their Applications
- Series: MAR 2023
- Uploader: Uploader1