Question

Guiglano Inc. is a large, publicly held corporation. The following are six selected expenditures that were made by the company during the current fiscal year ended April 30, 2014. The proper accounting treatment of these transactions must be determined in order to ensure that Guiglanos annual financial statements are prepared in accordance with IFRS.
1. Guiglano spent $3 million on a program that is designed to improve relations with its dealers. Dealers responded well to the project and Guiglano's management believes that it will therefore result in significant future benefits. The program was conducted during the fourth quarter of the current fiscal year.
2. A pilot plant was constructed during 2013-14 at a cost of $5.5 million to test a new production process. The plant will be operated for approximately five years. After the five years, the company will make a decision about the economic value of the production process. T he pilot plant is too small for commercial production, so it will be dismantled when the test is over.
3. During the year, Guiglano began a new manufacturing operation in Newfoundland, its first plant east of Montreal. To get the plant into operation, the following costs were incurred:
(a) $100,000 to make the building fully wheelchair- accessible
(b) $41,600 to outfit the new employees with Guiglano uniforms
(c) $12,700 for the reception to
introduce the company to others in the industrial mall where the plant is located
(d) $64,400 in payroll costs for the new employees while they were being trained.
4. Guiglano purchased Eagle Company for 56 million cash in early August 2013. The fair value of Eagle's net identifiable assets was 55.2 million.
5. The company spent $14 million on advertising during the year. Of that, 52 .5 million was spent in April2014 to introduce a new product to be released during the first quarter of the 2015 fiscal year and $200,000 was used to advertise the opening of the new plant in Newfoundland. The remaining expenditures were for recurring advertising and promotion coverage.
6. During the first six months of the 2013- 14 fiscal year, $400,000 was spent on legal work on a successful patent application. The patent became effective in November 2013. The patent's legal life is 20 years and its economic life is expected to be approximately 10 years.
Instructions
For each of the six items presented, determine and justify the following:
(a) The amount, if any, that should be capitalized and included on Guiglano's statement of financial position prepared as at April 30, 2014.
(b) The amount that should be included in Guiglano's statement of income for the year ended April 30, 2014.


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  • CreatedSeptember 18, 2015
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