Vulcano plc You have recently been appointed as assistant to the financial controller of Vulcano plc, a
Question:
Vulcano plc You have recently been appointed as assistant to the financial controller of Vulcano plc, a manufacturing company. He has asked you to help with the finalisation of the financial statements for the year ended 31 December 2018. There are a number of outstanding issues which are described below:
1) On 1 January 1018, Vulcano plc borrowed £600,000 at 6%, repayable in three years’ time, to help fund the construction of an office block. Vulcano plc immediately paid £200,000 to acquire land and gained planning permission on this date, but construction did not start until 31 March 2018. The remaining amount was put into a deposit account, earning interest at 3% pa, until the next payment of £300,000 was made on 1 December 2018. The building was not complete at the year end and a further payment of £100,000 was due to the construction company after 31 December 2018. All relevant interest was received and paid on 31 December 2018.
2) On 1 July 2018 Vulcano plc paid £72,000 for a licence for the production of a state of the art microchip. At the end of six years it is thought that the licence will be worthless due to advances in technology.
The licence has been recognised in the draft financial statements as an intangible asset of £90,000 as this the amount that a competitor offered to Vulcano plc for the licence on 31 December 2018 due to its unique nature. The increase in value has been recognised as a revaluation reserve.
3) On 1 October 2018, Vulcano plc received a government grant of £375,000 and recognised it in other income. The grant is to help fund local employment within Vulcano’s research facilities.
A condition of the grant is that the ‘local workforce’ must make up at least one third of the total number of Vulcano plc’s employees for the three years from the date of receipt of the grant. At 31 December 2018 the local workforce made up 35% of Vulcano plc’s total number of employees. This percentage is expected to rise over the next two years and Vulcano plc is confident that it will not have to repay the grant.
Required:
Explain the required IFRS accounting treatment of the three issues above, preparing relevant calculations and discussing the impact, where appropriate, on the statement of profit or loss and statement of financial position.
Intermediate Accounting
ISBN: 978-0077400163
6th edition
Authors: J. David Spiceland, James Sepe, Mark Nelson