Disposals – Knowsia

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

FA – L1 – Q22 – Non-current assets and depreciation

Prepare Patowato Motors’ vehicle accounts for 20X6-20X9 and explain why revaluing some vehicles is unethical

Question

Patowato Motors Limited leases second-hand German sports cars for special occasions. It started business on 1 January 20X6 and has decided to depreciate the cars on a straight line basis at 25% per annum on cost at the year-end. During the years 20X6 to 20X9 the following purchases and sales of cars took place.

20X6 Acquired 20 Porsche 928 Turbos at a cost of GH₵18.6 million each
20X7 Purchased 6 Porsche vehicles for a total cost of GH₵108.6 million.
20X8 Traded-in two of the cars acquired in 20X6 and received an allowance of GH₵9 million each which was set against the purchase of a further two cars costing GH₵19.8 million each
20X9 Replaced 15 cars purchased in 20X6 with another 15, each of which cost GH₵21 million. A trade-in allowance totalling GH₵48 million was received

Patowato Motors Limited prepares accounts to 31 December each year.
The finance director of Patowato Motors Limited, who is a qualified accountant, intends to apply the revaluation model to those of the company’s sports cars that appreciate in value. He intends to recognise revaluation increases in profit or loss and has told colleagues that this will boost the directors’ bonuses.

Required
(a) Prepare a vehicle account, an accumulated depreciation account, a depreciation account and a disposals account for the years 20X6 to 20X9.
(b) Explain why the finance director’s suggestion to revalue some vehicles is unethical

Answer

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Tags: Depreciation, Disposals, IAS 16, Non-current Assets, Revaluation Ethics, Straight-line Method, Vehicle Accounts
Level: Level 1

Topic: Non-current assets and depreciation

AAA – L3 – Q40 – Group audits

Planning considerations for Pinnacle Holdings and Viper audits, including group restructuring and disposals.

Question

The following diagram shows the structure of the Pinnacle Holdings group, a listed company with subsidiaries both locally and overseas. All subsidiaries are wholly-owned. All of Pinnacle Holdings’ overseas operations are run via Falcon.
During the year ended 31 December 20X8 the board of Pinnacle Holdings decided to restructure the group and the following events took place:
(1) Robin was sold on 1 August 20X8 to an East African competitor, Hawk. The consideration was in the form of shares in Hawk, such that Falcon now owns 30% of Hawk.
(2) Heron was sold on 30 November 20X8 to Viper. The consideration was C100 million settled in cash.
(3) To stimulate the operations of Viper and Heron, 26% of the Viper group was sold to Innovative Ventures on 1 December 20X8.
You are the audit manager on the Pinnacle Holdings audit. In addition to the main group financial statements, Viper is also required by Innovative Ventures to prepare group financial statements. Your office audits the Pinnacle Holdings group, Viper and Heron. Your Asian associate audits Falcon. Ibis (which is not material to the group) is not audited, and Hawk and Robin are audited by a small East African practice. With the exception of Ibis, all members of the group are components at which audit work will be performed.

Required
(a) Prepare notes for a planning meeting with the engagement partner setting out the significant matters which need to be considered at this stage in respect of the Viper audit.
(b) Prepare notes for a planning meeting with the engagement partner setting out the significant matters which need to be considered at this stage in respect of the Pinnacle Holdings audit.

Answer

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Tags: Audit Planning, Disposals, Financial Statements, Group audits, Subsidiary audits
Level: Level 3

Topic: Group audits

Tag (SQ): Disposals

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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.

FA – L1 – Q22 – Non-current assets and depreciation

Prepare Patowato Motors’ vehicle accounts for 20X6-20X9 and explain why revaluing some vehicles is unethical

AAA – L3 – Q40 – Group audits

Planning considerations for Pinnacle Holdings and Viper audits, including group restructuring and disposals.

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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"

FA – L1 – Q22 – Non-current assets and depreciation

Prepare Patowato Motors’ vehicle accounts for 20X6-20X9 and explain why revaluing some vehicles is unethical

You're reporting an error for "FA – L1 – Q22 – Non-current assets and depreciation"

AAA – L3 – Q40 – Group audits

Planning considerations for Pinnacle Holdings and Viper audits, including group restructuring and disposals.

You're reporting an error for "AAA – L3 – Q40 – Group audits"

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