Capitalisation – Knowsia

FR – L2 – Q32 – Intangible Assets

Explain accounting treatment for intangible asset transactions of Tobi Plc for 20X4 per IFRS.

Question

Tobi Plc entered into the following transactions during the year ended 31 December 20X4. The directors of Tobi Plc wish to capitalise all assets where possible.

(1) On 1 January Tobi Plc acquired the net assets of Gidi for GH¢105,000. The assets acquired had the following book and fair values:

	Book value	Fair value
Goodwill	–	5,000
Patents	5,000	5,000
Non-current assets	50,000	50,000
Other sundry net assets	40,000	40,000

The recoverable amount of the goodwill at 31 December 20X4 was estimated at GH¢2,000.

(2) On 1 April Tobi Plc purchased a patent for GH¢20,000. The patent has a remaining useful life of eight years.

(3) On 1 April Tobi Plc purchased a brand for GH¢50,000. The brand has a remaining useful life of five years.

(4) During the year Tobi Plc incurred expenditure of GH¢30,000 developing a new brand.

(5) During the year Tobi Plc incurred expenditure of GH¢40,000 developing customer lists.

Required
Show how the above transactions would appear in the financial statements (including notes to the financial statements) of Tobi Plc as of 31 December 20X4.

Answer

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Tags: Amortisation, Capitalisation, Financial Statements, Goodwill, IAS 38, Impairment, Intangible assets
Level: Level 2

Topic: Financial Reporting Standards and Their Applications

FR – L2 – Q30 – Intangible Assets

Show how R&D projects are accounted for in Henry Ltd's financial statements for 20X4, including capitalisation and amortisation.

Question

During 20X4 Kofi Ltd has the following research and development projects in progress.

Project A was completed at the end of 20X3. Development expenditure brought forward at the beginning of 20X4 was GH₵412,500 on this project. Savings in production costs arising from this project are first expected to arise in 20X4. In 20X4 savings are expected to be GH₵100,000, followed by savings of GH₵300,000 in 20X5 and GH₵200,000 in 20X6.

Project B commenced on 1 April 20X4. Costs incurred during the year were GH₵56,000. In addition to these costs a machine was purchased on 1 April 20X4 for GH₵30,000 for use on the project. This machine has a useful life of five years. At the end of 20X4 there were still some uncertainties surrounding the completion of the project.

Project C had been started in 20X3. In 20X3 the costs relating to this project of GH₵36,700 had been written off, as at the end of 20X3 there were still some uncertainties surrounding the completion of the project. Those uncertainties have now been resolved and a further GH₵45,000 costs incurred during the year.

Required

Show how the above would appear in the financial statements (including notes to the financial statements) of Kofi Ltd as of 31 December 20X4.

Answer

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Tags: Amortisation, Capitalisation, Financial Statements, IAS 38, Intangible assets, Project Costs, Research and Development
Level: Level 2

Topic: Financial Reporting Standards and Their Applications

PSAF – L2 – Q9.1 – International Public Sector Accounting Standards

Account for borrowing costs for a tunnel project by the Ministry of Transport under IPSAS 5 for 2023.

Question

The Ministry of Transport decided to construct a tunnel that will link two major cities in the country to ease traffic congestion. The project, which commenced in January 2023, is expected to take two years to complete. The financing for the project includes the following borrowings:

Bank Term Loans: GHc50 million at 7% interest per annum
Institutional Borrowings: GHc70 million at 8% interest per annum
Corporate Bonds: GHc100 million at 9% interest per annum

The total borrowings amount to GHc220 million, of which GHc20 million was used for routine maintenance of existing roads, and the remaining was for the tunnel construction. During the year, the Ministry earned GHc5 million from temporary investments of the borrowed funds.

Required:
(a) Explain the accounting treatment for the borrowing costs under the benchmark treatment option (expense recognition) for the year ended 31st December 2023.
(b) Explain the accounting treatment for the borrowing costs under the alternative treatment option (capitalization of borrowing costs) for the year ended 31st December 2023.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Asset Recognition, Borrowing Costs, Capitalisation, Expense Recognition, Financial Performance, Infrastructure Projects, IPSAS 5
Level: Level 2

Topic: International Public Sector Accounting Standards

Tag (SQ): Capitalisation

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FR – L2 – Q32 – Intangible Assets

Explain accounting treatment for intangible asset transactions of Tobi Plc for 20X4 per IFRS.

FR – L2 – Q30 – Intangible Assets

Show how R&D projects are accounted for in Henry Ltd's financial statements for 20X4, including capitalisation and amortisation.

PSAF – L2 – Q9.1 – International Public Sector Accounting Standards

Account for borrowing costs for a tunnel project by the Ministry of Transport under IPSAS 5 for 2023.

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FR – L2 – Q32 – Intangible Assets

Explain accounting treatment for intangible asset transactions of Tobi Plc for 20X4 per IFRS.

You're reporting an error for "FR – L2 – Q32 – Intangible Assets"

FR – L2 – Q30 – Intangible Assets

Show how R&D projects are accounted for in Henry Ltd's financial statements for 20X4, including capitalisation and amortisation.

You're reporting an error for "FR – L2 – Q30 – Intangible Assets"

PSAF – L2 – Q9.1 – International Public Sector Accounting Standards

Account for borrowing costs for a tunnel project by the Ministry of Transport under IPSAS 5 for 2023.

You're reporting an error for "PSAF – L2 – Q9.1 – International Public Sector Accounting Standards"

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