Accounting policies

FR – L2 – Q23 – Financial Reporting Standards and Their Applications

Prepare PPE analysis for Crest Ltd for 20X4, including revaluation, disposal, and depreciation method change.

Question

The following is an extract from the financial statements of Crest Ltd on 31 December 20X3.

Property, plant and equipment

	Land and buildings GH₵	Plant and equipment GH₵	Computer equipment GH₵	Total GH₵
Cost
On 31 December 20X3	1,500,000	340,500	617,800	2,458,300
Accumulated depreciation
On 31 December 20X3	600,000	125,900	505,800	1,231,700
Carrying amount
On 31 December 20X3	900,000	214,600	112,000	1,226,600

Accounting policies
Depreciation
Depreciation is provided at the following rates.
On land and buildings: 2% per annum straight line on buildings only
On plant and equipment: 25% reducing balance
On computers: 33.33% per annum straight line

During 20X4 the following transactions took place.
(1) On 31 December the land and buildings were revalued to GH₵1,750,000. Of this amount, GH₵650,000 related to the land (which had originally cost GH₵500,000). The remaining useful life of the buildings was assessed as 40 years.
(2) A machine which had cost GH₵80,000 and had accumulated depreciation of GH₵57,000 at the start of the year was sold for GH₵25,000 in the first week of the year.
(3) A new machine was purchased on 31 March 20X4. The following costs were incurred:
Purchase price, before discount, inclusive of reclaimable sales tax of GH₵3,000: 20,000
Discount: 1,000
Delivery costs: 500
Installation costs: 750
Interest on loan taken out to finance the purchase: 300
(4) On 1 January it was decided to change the method of providing depreciation on computer equipment from the existing method to 40% reducing balance.

Required
Produce the analysis of property, plant and equipment as it would appear in the notes to the financial statements of Crest Ltd for the year ended 31 December 20X4.

Answer

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Tags: Accounting policies, Asset Valuation, Cost Basis, Depreciation, Disposals, Financial Statements, IAS 16, Non-current Assets, Property Plant and Equipment, Revaluation
Level: Level 2

Topic: Financial Reporting Standards and Their Applications

Title: FR – L2 – Q11 – Accounting Policies

Define accounting policies as per IAS 8 requirements.

Question

(a) Define accounting policies.

(b) State the main factors that IAS 8 requires management to consider in selecting and applying accounting policies in the absence of any IFRS Accounting Standard.

(i) Property, plant, and equipment

(ii) Inventories

(iii) Depreciation

Answer

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Tags: Accounting policies, Depreciation, IFRS, Inventories, Property Plant Equipment
Level: Level 2

Topic: Financial Reporting Standards and Their Applications

FR – L2 – Q10 – Accounting policies and changes in estimates

Show how a change in accounting policy for borrowing costs is reflected in the statement of changes in equity for 20X4 per IAS 8.

Question

AccraTech Company has previously written off any expenditure on borrowing costs in the period in which it was incurred.
The company has appointed new auditors this year. They have expressed the view that the previous recognition of borrowing costs in the statement of profit or loss was in error. The company has decided to correct the error retrospectively in accordance with IAS 8.
The financial statements for 20X3 and the 20X4 draft financial statements, both reflecting the old policy, show the following:

Statement of changes in equity (extract)

20X3	20X4
Retained earnings	Retained earnings
GH₵000	GH₵000
22,500	23,950
3,200	4,712
(1,750)	(2,500)
23,950	26,162

Opening balance
Profit after tax for the period
Dividends paid
Closing balance

Borrowing costs written off were GH₵500,000 in 20X3 and GH₵600,000 in 20X4.
The directors have calculated that borrowing costs, net of depreciation which should have been included in property, plant and equipment had the correct policy been applied, are as follows:

GH₵000
At 30 December 20X2
At 31 December 20X3
At 31 December 20X4

Had the correct policy been in force depreciation of GH₵450,000 would have been charged in 20X3 and GH₵870,000 in 20X4.

Required
Show how the change in accounting policy must be reflected in the statement of changes in equity for the year ended 31 December 20X4. Work to the nearest GH₵000.

Answer

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Tags: Accounting policies, Borrowing Costs, Equity changes, Financial Statements, IAS 8, Prior period adjustment, Retained Earnings
Level: Level 2

Topic: Accounting policies and changes in estimates

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FR – L2 – Q23 – Financial Reporting Standards and Their Applications

Prepare PPE analysis for Crest Ltd for 20X4, including revaluation, disposal, and depreciation method change.

Title: FR – L2 – Q11 – Accounting Policies

Define accounting policies as per IAS 8 requirements.

FR – L2 – Q10 – Accounting policies and changes in estimates

Show how a change in accounting policy for borrowing costs is reflected in the statement of changes in equity for 20X4 per IAS 8.

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FR – L2 – Q23 – Financial Reporting Standards and Their Applications

Prepare PPE analysis for Crest Ltd for 20X4, including revaluation, disposal, and depreciation method change.

You're reporting an error for "FR – L2 – Q23 – Financial Reporting Standards and Their Applications"

Title: FR – L2 – Q11 – Accounting Policies

Define accounting policies as per IAS 8 requirements.

You're reporting an error for "Title: FR – L2 – Q11 – Accounting Policies"

FR – L2 – Q10 – Accounting policies and changes in estimates

Show how a change in accounting policy for borrowing costs is reflected in the statement of changes in equity for 20X4 per IAS 8.

You're reporting an error for "FR – L2 – Q10 – Accounting policies and changes in estimates"

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