College of Business, Hospitality and Tourism Studies
School of Accounting
ACC702 International Corporate Reporting Trimester III, 2016
Group Assignment Weighting: 10%
GROUP MEMBERS
Solution Question 1
ID #
The journal entries to e re!or"e" in the oo#s o$ a!!ount are: ,000 Dr. A!!umulate" amortisation ,000 Cr. Asset !ost (Being elimination of accumulated amortisation against the cost of the asset) Dr. Asset !ost Cr. Re&aluation reser&e (Being uplift of net asset value to fair value)
6,000 6,000
The net result is that the asset has a !arr'ing amount o$ (12,000: (10,000 ) (,000 * (6,000
Question 2
A patent is !onsi"ere" as an intangile asset+ this is e!ause a patent "oes not ha&e ph'si!al sustan!e, an" pro&i"es longterm &alue to the o-ning entit'. As su!h, the a!!ounting $or a patent is the same as $or an' other intangile $i/e" asset, -hi!h is: •
Initial recordation Re!or" the !ost to a!uire the patent as the initial asset !ost. I$ a !ompan' $iles $or a patent appli!ation, this !ost -ill in!lu"e the registration, "o!umentation, an" other legal $ees asso!iate" -ith the appli!ation. I$ the !ompan' instea" ought a patent $rom another part', the pur!hase pri!e is the initial asset !ost.
Consi"er the $ollo-ing a""itional points -hen !onsi"ere" the a!!ounting $or patents: •
•
•
R&D expenditures- ote that the resear!h an" "e&elopment R345 !osts reuire" to "e&elop the i"ea eing patente" !annot e in!lu"e" in the !apitalie" !ost o$ a patent. These R34 !osts are instea" !harge" to e/pense as in!urre"+ the asis $or this treatment is that R34 is inherentl' ris#', -ithout assuran!e o$ $uture ene$its, so it shoul" not e !onsi"ere" an asset. Useful life- A patent asset shoul" not e amortie" $or longer than the li$e span o$ the prote!tion a$$or"e" ' the patent. I$ the e/pe!te" use$ul li$e o$ the patent is e&en shorter, use the use$ul li$e $or amortiation purposes. Thus, the shorter o$ a patents use$ul li$e an" its legal li$e shoul" e use" $or the amortiation perio". Capitaliation limit- In pra!ti!e, the !osts o$ otaining a patent ma' e so small that the' "o not meet or e/!ee" a !ompan's !apitaliation limit. I$ so, !harge these !osts to e/pense as in!urre". In man' larger !ompanies -ith higher !apitaliation limits, this means that patents are rarel' re!or"e" as assets unless the' ha&e een pur!hase" $rom other entities.
Question 3
It is har" to tell i$ the resear!h -ill a!tuall' result in real pro$its. I$ resear!h -as !apitalie" then !ompanies -oul" ha&e to oo# massi&e, unpre"i!tale -rite "o-ns -hene&er the' $oun" out that a resear!h proje!t "i"nt pa' o$$. Its etter not to gi&e in&estors $alse hope thats -h' -e ha&e the a!!ounting prin!iple o$ !onser&atism
Question 4
i.
A!uisition Anal'sis: et $air &alue o$ i"enti$iale assets an" liailities a!uire": 8an" lant In&entor' Cash
90,000 2;<,000 =<,000 1<,000 79<,000 20,0005 =0,0005 !3",###
A!!ounts a'ale 8oans et Assets
ii.
Consi"eration trans$erre" 100,000 shares > (6.10
610,000
?argain ur!hases@Re&aluation Reser&e 610,000 ) 69<,0005
2<,0005
ournal Bntries 4r 8an" 90,000 4r lant 2;<,000 4r In&entor' =<,000 4r Cash 1<,000 Cr ?argain ur!hase@ Re&aluation Reser&e Cr A!!ounts a'ale Cr 8oans Cr hare Capital (!o record ac"uisition of the assets & lia#ilities of $mall %td)
iii. ournal Bntries in re!or"s o$ mall 8t" i$ DE o$ shares is (7.<0 Dair Ealue o$ a!uires net assets
69<,000
2<,000 20,000 =0,000 610,000
Goo"-ill
11<,000
Consi"eration trans$erre" 100,000 > 7.<0
7<0,000
4r 4r 4r 4r 4r Cr Cr Cr
90,000 2;<,000 =<,000 1<,000 11<,000
8an" lant In&entor' Cash Goo"-ill A!!ounts a'ale 8oans hare Capital
20,000 =0,000 7<0,000
Question "
ature o$ goo"-ill Is it an assetF 2 t'pes: Internal &s e/ternal@a!uire" goo"-ill ature o$ internal goo"-ill: un"er&alue"@unre!or"e" assets, !ore goo"-ill ature o$ a!uire" goo"-illF Core goo"-ill: going !on!ern 3 !omination Wh' "i" a!uirer pa' $or goo"-illF 'nerg' ) e/tra ene$its • • • • •
o- to a!!ount $or it Internal goo"-ill IA 9=: not re!ognise" as !annot "etermine a !ost A!uire" goo"-ill Re!ognise" onl' in a usiness !omination Heasure" as a resi"ual un"er para 92 uje!t to annual impairment test I$ allo!ate" to CG, -rite o$$ $irst i$ impairment loss I$ re&ersal o$ impairment loss, no reinstatement o$ goo"-ill Duture e$$e!ts on tatement o$ Comprehensi&e In!ome o !ause $or !on!ern o annual amortisation Jnl' e/pense i$ impairment loss Impairment loss !ushione" ' &arious a!!ounting treatments su!h as use o$ !ost metho" $or B, nonre!ognition o$ internall' generate" goo"-ill 3 internall' generate" intangiles • • • • • • •
• • • •
Question !
The $air &alue less !ost o$ sell is:
•
K 16,000,000 ) 2,000,000 $ %14,###,###
The !arr'ing amount is: K 20,000,000 ) 10,000,000 $ %1#,###,###
The &alue in use o$ the plat$orm is: K 2,000,000 ) 10,000,000 $ %14,###,###
The re!o&erale amount o$ the !ashgenerating unit is (1,000,000+ -hi!h e/!ee"s the !arr'ing amount there$ore the asset is not impaire".
Question &
The $air &alue less !ost o$ sell is: K 20,000,000 )1,000,000 $ %1',###,###
The !arr'ing amount is: K 2=,000,000 ) =,000,000 $ %2#,###,###
The &alue in use o$ the plat$orm is: K 26,000,000 ) =,000,000 $ %1(,###,###
The re!o&erale amount o$ the !ashgenerating unit is (1;,000,000+ -hi!h is less than the !arr'ing amount (20,000,000 there$ore the asset is impaire".
Question (
)ffice Building *1#+1"
Carrying -alue
Total
.eco/era0le Amount
mpairment oss
L
2
10
12
;
9
M
9
1<
1=
1=
0
Total
"
2"
3#
The impairment loss -ill e allo!ate" on the asis o$ 2@12 against the uil"ing (0.< million5 an" 10@12 (2.< million5 against all other assets.
Question '
The main oje!ti&e o$ IA 1; is to pres!rie the a!!ounting an" "is!losure $or emplo'ee ene$its. IA 1; reuires an" entit' to re!ognie: •
•
a liability -hen an emplo'ee has pro&i"e" ser&i!e in e/!hange $or emplo'ee ene$its to e pai" in the $uture+ an" an expense -hen the entit' !onsumes the e!onomi! ene$it arising $rom ser&i!e pro&i"e" ' an emplo'ee in e/!hange $or emplo'ee ene$its
I$ unuse" entitlements to si!# lea&e are to e pai" out -hen the emplo'ee lea&es the organisation then these si!# lea&e entitlements are generall' re$erre" to as &esting si!# lea&e entitlements. I$ the entitlements !ontinue to a!!rue as the emplo'ee !ontinues to -or# $or the emplo'er, then the a!!ounting treatment is the same as that use" to a!!ount $or annual lea&e. A liailit' -ill e re!ognise" -hi!h -ill not e "epen"ent upon assigning proailities to the li#elihoo" that the emplo'ee -ill a!tuall' ta#e the lea&e. I$ si!# lea&e is !onsi"ere" to e non&esting, entitlements -ill onl' e pai" -hen the emplo'ee is si!#, an" the' -ill not e pai" out -hen the emplo'ee !eases emplo'ment. Dor non&esting si!# lea&e, a!!ounting entries must e ma"e -hi!h re!ognise the emplo'eesN entitlements to si!# lea&e ase" on past ser&i!e, an" the proailit' that the si!# lea&e -ill a!tuall' e ta#en. Dor e/ample, i$ an in"i&i"ual emplo'ee on a salar' o$ (100 000 has an entitlement to t-o -ee#s si!# lea&e an" it is e/pe!te" that the emplo'ee has a <0 per !ent proailit' o$ ta#ing one -ee# lea&e, an" a <0 per !ent proailit' o$ ta#ing no lea&e, then the a!!ounts -oul" nee" to re!ognise a liailit' o$ (100 000 / 1@<2 / 0.<0 K (;62 in relation to the emplo'ee.
Question 1#
5 B5T 6AS
IA 1; reuires an entit' to a!!ount not onl' $or its legal oligation to "e$ine" ene$it plans ut also $or an' !onstru!ti&e oligation that arises. In a!!ounting $or "e$ine" ene$it plans, an entit' shoul" "etermine the present &alue o$ an' "e$ine" ene$it oligation an" the $air &alue o$ an' plan assets -ith su!h regularit' that the amount sho-n in the $inan!ial statements "oes not "i$$er materiall' $rom the amounts that -oul" e "etermine" at the alan!e sheet "ate. 4e$ine" ene$it plans shoul" use the proje!te" unit !re"it metho" to measure their oligations an" !osts. 5 C)T.B7T) 6AS
n"er a "e$ine" !ontriution plan, pa'ments or ene$its pro&i"e" to emplo'ees ma' e simpl' a "istriution o$ total $un" assets or a thir" part'+ $or e/ample, an insuran!e entit' ma' assume the oligation to pro&i"e the agree" le&el o$ pa'ments or ene$its to the emplo'ees. The emplo'er is not reuire" to ma#e up an' short$all in the $un"Ns assets. 5 C)T.B7T) A 5 B5T 6AS CASS5CAT)
In "e$ine" !ontriution plans, an entit' pa's a $i/e" !ontriution into a separate entit' $un"5 an" -ill ha&e no legal or !onstru!ti&e oligation to pa' $urther !ontriutions i$ the $un" "oes not ha&e su$$i!ient assets to pa' emplo'ee ene$its relating to emplo'ee ser&i!e in the !urrent an" prior perio"s. An entit' shoul" re!ognie !ontriutions to a "e$ine" !ontriution plan -here an emplo'ee has ren"ere" ser&i!e in e/!hange $or those !ontriutions. All other postemplo'ment ene$it plans are !lassi$ie" as "e$ine" ene$it plans. 4e$ine" ene$it plans !an e un$un"e", partl' $un"e", or -holl' $un"e". C)T.AST8 5 B5T A 5 C)T.B7T)
n"er the "e$ine" ene$its s!heme, the ene$its pa'ale to the emplo'ees are not ase" solel' on the amount o$ the !ontriutions, as in a "e$ine" !ontriution s!heme+ rather, the' are "etermine" ' the terms o$ the "e$ine" ene$it plan. This means that the ris#s remain -ith the emplo'er, an" the emplo'erNs oligation is to pro&i"e the agree" amount o$ ene$its to !urrent an" $ormer emplo'ees. The ene$its normall' are ase" on su!h $a!tors as age, length o$ ser&i!e, an" !ompensation. The emplo'er retains the in&estment an" a!tual ris#s o$ the plan. The a!!ounting $or "e$ine" ene$it plans is more !omple/ than "e$ine" !ontriutions plans.
Question 11
