Tag (SQ): Financial Statements

Search 500 + past questions and counting.
Sort & Filter

Reset filters

Search

Filter by Professional Bodies

Filter by Subject

Filter by Topics

Filter by Levels

  • 16 Marks

FR – L2 – Q33 – Intangible Assets

Explain accounting treatment for R&D, patent, brand, and process in Medina Traders Ltd's 20X4 financial statements per IFRS.

33 AKYEM TRADERS LIMITED

(a) Following are the criteria that should be used while recognizing intangible assets from research and development work.

(i) No intangible asset arising from research shall be recognised.

(ii) An intangible arising from development shall be recognised if, and only if, an entity can demonstrate all of the following:

  • the technical feasibility of completing the intangible asset so that it will be available for use or sale.
  • its intention to complete the intangible asset and use or sell it.
  • its ability to use or sell the intangible asset.
  • how the intangible asset will generate probable future economic benefits. Among other things, the entity can demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset.
  • the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset.
  • its ability to measure reliably the expenditure attributable to the intangible asset during its development.

(b) (i) Since the product met all the criteria for the development of the product, it should be recognised as an intangible in the statement of financial position (SOFP) of the company. However, RI should capitalise only the development work (i.e. GH¢9 million) as intangible asset. IAS-38 does not allow capitalization of cost relating to the research work, training of staff and cost of trial run.

Since the product has a useful life of 7 years, the amortization expense amounting to GH¢0.32 million (GH¢9 million × 3/12 ÷ 7 years) should be recorded in the statement of profit or loss.

(ii) This purchasing of right to manufacture should be recognised as an intangible in the SOFP because:

  • it is for an established product which would generate future economic benefits.
  • cost of the patent can be measured reliably.

Since there is a finite life, the patent must be amortised over its useful life. The useful life will be shorter of its actual life (i.e. 10 years) and its legal life (i.e. 5 years). The amortization to be recorded in SOCI is GH¢2.83 million (GH¢17 million × 10/12 ÷ 5).

(iii) The acquired brand should be recognised as an intangible in the SOFP because acquisition price is a reliable measure of its value. The amortization to be recorded in SOCI is GH¢0.12 million (GH¢2 million ÷ 10 years × 7/12).

(iv) The carrying amount of the intangible asset should be increased to GH¢10 million in the SOFP. Since there is an indefinite useful life of the intangible assets, it should not be amortised. Instead, RI should test the intangible asset for impairment by comparing its recoverable amount with its carrying amount.

Required

In the light of International Financial Reporting Standards, explain how each of the above transactions should be accounted for in the financial statements of Akyem Traders Limited for the year ended 31 December 20X4

Login or create a free account to see answers

Login | Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FR – L2 – Q33 – Intangible Assets"

  • 15 Marks

FR – L2 – Q32 – Intangible Assets

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

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.

Login or create a free account to see answers

Login | Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

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

  • 15 Marks

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.

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.

Login or create a free account to see answers

Login | Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

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

  • 15 Marks

FR – L2 – Q29 – Government Grants

Show how Karla Ltd's three grants are reflected in financial statements for year ended 30 June Year 2, with options per IAS 20.

During the year ended 30 June Year 2, Karla Ltd received three grants, the details of which are set out below.
(1) On 1 September, a grant of GH₵40,000 from local government. This grant was in respect of training costs of GH₵70,000 which Karla Ltd had incurred.
(2) On 1 November Karla Ltd bought a machine for GH₵350,000. A grant of GH₵100,000 was received from central government in respect of this purchase. The machine, which has a residual value of GH₵50,000, is depreciated on a straight-line basis over its useful life of five years.
(3) On 1 June, a grant of GH₵100,000 from local government. This grant was in respect of relocation costs that Karla Ltd had incurred moving part of its business from outside the local area. The grant is repayable in full unless Karla Ltd recruits ten employees locally by the end of Year 2. Karla Ltd is finding it difficult to recruit as the local skill base does not match the needs of this part of the business.

Required
Show how the above transactions should be reflected in the financial statements of Karla Ltd for the year ended 30 June Year 2. Where any accounting standards allow a choice you should show all possible options.

Login or create a free account to see answers

Login | Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FR – L2 – Q29 – Government Grants"

  • 20 Marks

FR – L2 – Q27 – Investment Properties

Explain accounting treatment for Vantage Ltd's properties in financial statements for 31 Dec Year 8, noting profit/loss impact.

Vantage Ltd owns several properties and has a year end of 31 December. Wherever possible, Vantage Ltd carries investment properties under the fair value model.

Property 1 was acquired on 1 January Year 1. It had a cost of GHC1 million, comprising GHC500,000 for land and GHC500,000 for buildings. The buildings have a useful life of 40 years. Vantage Ltd uses this property as its head office.

Property 2 was acquired many years ago for GHC1.5 million for its investment potential. On 31 December Year 7 it had a fair value of GHC2.3 million. By 31 December Year 8 its fair value had risen to GHC2.7 million. This property has a useful life of 40 years.

Property 3 was acquired on 30 June Year 2 for GHC2 million for its investment potential. The directors believe that the fair value of this property was GHC3 million on 31 December Year 7 and GHC3.5 million on 31 December Year 8. However, due to the specialised nature of this property, these figures cannot be corroborated. This property has a useful life of 50 years.

Required

(a) For each of the above properties briefly state how it would be treated in the financial statements of Vantage Ltd for the year ended 31 December Year 8, identifying any impact on profit or loss.

(b) Produce an analysis of property, plant and equipment for Vantage Ltd for the year ended 31 December Year 8, showing each of the above properties separately.

Login or create a free account to see answers

Login | Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FR – L2 – Q27 – Investment Properties"

  • 14 Marks

FR – L2 – Q25 – Financial Reporting Standards and Their Applications

Disclose non-current asset movements for FAMCO LTD under IAS 16, including revaluation, depreciation, and disposals for 20X4.

FAMCO LTD
FAMCO LTD had the following tangible non-current assets at 31 December 20X3.

Cost Depreciation Carrying amount
GH¢000 GH¢000 GH¢000
Land 500 – 500
Buildings 400 80 320
Plant and machinery 1,613 458 1,155
Fixtures and fittings 390 140 250
Assets under construction 91 – 91
2,994 678 2,316

In the year ended 31 December 20X4 the following transactions occur.
(1) Further costs of GH¢53,000 are incurred on buildings being constructed by the company. A building costing GH¢100,000 is completed during the year.
(2) A deposit of GH¢20,000 is paid for a new computer system which is undelivered at the year end.
(3) Additions to plant are GH¢154,000.
(4) Additions to fixtures, excluding the deposit on the new computer system, are GH¢40,000.
(5) The following assets are sold.

Cost Depreciation b/f Proceeds
GH¢000 GH¢000 GH¢000
Plant 277 195 86
Fixtures 41 31 2

(6) Land and buildings were revalued at 1 January 20X4 to GH¢1,500,000, of which land is worth GH¢900,000. The revaluation was performed by Messrs Jackson & Co, Chartered Surveyors, on the basis of existing use value on the open market.
(7) The useful economic life of the buildings is unchanged. The buildings were purchased ten years before the revaluation.
(8) Depreciation is provided on all assets in use at the year end at the following rates.
Buildings 2% per annum straight line
Plant 20% per annum straight line
Fixtures 25% per annum reducing balance

Required
Show the disclosure under IAS 16 in relation to non-current assets in the notes to the published accounts for the year ended 31 December 20X4.

Login or create a free account to see answers

Login | Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FR – L2 – Q25 – Financial Reporting Standards and Their Applications"

  • 15 Marks

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

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

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.

Login or create a free account to see answers

Login | Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

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

  • 10 Marks

FR – L2 – Q22 – Property, Plant and Equipment

Explain accounting treatment for revaluation and depreciation of Tema Limited's head office property under IAS 16.

The following information relates to the financial statements of Accra Enterprises Limited for the year to 31 March 20X4.
The head office of Accra Enterprises Limited was acquired on 1 April 20X1 for GH¢1million. Accra Enterprises Limited intend to occupy the building for 25 years. On 31 March 20X3 it was revalued to GH¢1.15 million. On 31 March 20X4, a surplus of vacant commercial property in the area had led to a fall in property prices and the fair value was now only GH¢0.8 million.

Required
Explain the correct accounting treatment for the above (with calculations if appropriate).

Login or create a free account to see answers

Login | Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FR – L2 – Q22 – Property, Plant and Equipment"

  • 12 Marks

Title: FR – L2 – Q16 – Inventories

Calculate inventory value at 31 Dec using FIFO, NRV, and IAS 2 for Bolga Limited.

Bolga Limited has the following purchases and sales of a particular product line.

Units purchased Purchase price per unit Units sold Selling price per unit
GH₵’000 GH₵’000
2 December 100 500 60 530
16 December 60 503 80 528
30 December 70 506 50 524
14 January 50 509 70 524
28 January 80 512 50 520
11 February 40 515 40 520

At 31 December the physical inventory was 150 units. The cost of inventories is determined on a FIFO basis. Selling and distribution costs amount to 5% of selling price and general administration expenses amount to 7% of selling price.

Required
(a) State any three reasons why the net realisable value of inventory may be less than cost.

(b) Calculate to the nearest GH₵’000 the value of inventory at 31 December
(i) at cost
(ii) at net realisable value
(iii) at the amount to be included in the financial statements in accordance with IAS 2

Login or create a free account to see answers

Login | Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "Title: FR – L2 – Q16 – Inventories"

  • 15 Marks

FR – L2 – Q15 – Financial Reporting Standards

Calculate revenue, costs, and financial statement balances for four construction contracts using cost proportion method.

On 31 March 20X9, Annabel Ltd had four construction contracts in progress. Details are set out below.

Contract A Contract B Contract C Contract D
GH¢000 GH¢000 GH¢000 GH¢000
Contract price 1,850 750 960 800
Costs to date 1,490 590 405 120
Estimated future costs 25 600 480
Revenue taken in earlier years 990 100
Cost of sales recognised in earlier years 800 100
Progress billings to date 1,850 690 650 100
Cash received to date 1,850 600 600 100

Contract A was completed during the year.
Contract C commenced on 1 May 20X8.
Contract D commenced on 1 January 20X9. It is not considered possible on 31 March 20X9 to assess the outcome of Contract D with any certainty.
Annabel Ltd recognises revenue based on the proportion of costs incurred to date to expected total costs.

Required:
Show the amounts that would be recognised and presented for each contract in the financial statements of Annabel Ltd for the year ended 31 March 20X9 and show the total balances in those financial statements. Work to the nearest GH¢000.

Login or create a free account to see answers

Login | Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FR – L2 – Q15 – Financial Reporting Standards"

Oops!

This feature is only available in selected plans.

Click here to view all plans

Click on the login button below to login if you’re already subscribed to a plan or click on the upgrade button below to upgrade your current plan.

Login
Upgrade Plan

If you’re not subscribed to a plan, click on the button below to choose a plan

Subscribe to a plan

Pick a Form

Professional Tutor Application Form
Academic Tutor Application Form
Student Tutor Application Form