(a) Explain what is meant by €˜component depreciation€™ and its status under inter national accounting standards.
(b) Trin, a limited liability company, owns its business premises. It has just installed extensive specialized machinery and fittings in the premises. The estimated remaining useful life is 10 years for the building and 6 years for the machinery and fittings. Trin knows that decommissioning the machinery and fittings in 6 years€™ time will cost around $910,000 at current prices.

Required:
Explain, with reasons, how Trin should account for the costs of decommissioning its machinery and fittings.

(c) Cozz, a limited liability company, has an asset, purchased on 1 November 2002, which was reported in its balance sheet as at 1 November 2006 as follows:
$
Cost ........... 240,000
Accumulated depreciation .... 118,000
122,000

The accumulated depreciation figure is made up as follows:
$
Four years€™ depreciation based on the asset€™s estimated life of 12 years .. 80,000
Impairment recognised during the year ended 31 October 2005 ..... 20,000
Impairment recognised during the year ended 31 October 2006 ..... 18,000
118,000

As at 31 October 2007 there was no change to the estimate of this asset€™s economic life or residual value. The asset€™s recoverable amount was estimated to be $125,000 as at 31 October 2007. Cozz reports this class of assets at historical cost.


Required:
What charge will Cozz make in its income statement for the year ended 31 October 2007 for this asset and how will the asset be reported in the balance sheet as at 31 October 2007?

d) The following is the summarised balance sheet of Grimsel, a limited liability company, as at 31 October 2007.

Grimsel has been a very successful company in its time. However, a series of losses due to a declining share in the market and demands from its bankers for repayment of significant bank debt included in current and non-current liabilities have left its shareholders keen to sell.
Brenner, another limited liability company, operates in the same line of business as Grimsel. Brenner has been very successful and sees an opportunity to acquire Grimsel at a bargain price.
Brenner has successfully concluded negotiations with Grimsel and has agreed a price of $2,000,000 for all the issued share capital of Grimsel. The following additional information is available:
(i) The value of all the assets and liabilities identified in Grimsel€™s balance sheet were agreed as fair values for the purposes of the purchase with the exception of the following assets:
Fair values $000
Property, plant and equipment .. 8,000
Inventory .......... 2,000
Receivables .......... 3,710
(ii) Grimsel has a deferred income tax asset of $2,200,000. This is not shown in Grimsel€™s balance sheet because it was unlikely that Grimsel would be able to recover this amount because of its continuing losses. Brenner is trading profitably in the same type of business and will be able to realise this benefit.
(iii) Grimsel has significant patents which were internally developed. These patents are still useful and an independent valuer has given them a fair value of $1,000,000.
(iv) Brenner will also take over Grimsel€™s customer list. This is a sensitive area. While the customer list was not of much value to Grimsel, the directors of Brenner feel that it could be of significant value but wish to continue keeping it off the balance sheet. An independent valuer has estimated the fair value of the customer list to Brenner as $1,500,000.

Required:
Applying the rules in IFRS 3 calculate the amount of goodwill arising on the acquisition of Grimsel by Brenner.
(e) Summarise the guidance in IFRS 3 when goodwill turns out to be anegative.

Non-current assets Property, plant and equipment 3 Receivables 4,120 6,780 4,320 LIABILITIES AND EQUITY Current liabilities Non-current liabilities Issued share capital Accumulated losses 5,000 6,955 4,320