Assignment Question(s): Marks 10

Chapters covered 11, 12, 13 & 14

Q1. Presented below are the components related to an office building that ABC Company is considering purchasing for SAR10,000,000.

Component Useful Life Value

Building structure 60-year life 5,400,000

Building engineering 30-year life 2,400,000

Building external works 30-year life 900,000

Instructions: ( 2 marks)

1. Compute depreciation expense for 2010, assuming that ABC uses component depreciation.
2. Assume that the building engineering was replaced in 20 years at a cost of SAR 2,600,000 cash. Prepare the entry to record the replacement of the old component with the new component.

Answer:

Q2. a. Explain impairment of long-lived tangible.

b. The accountant of X. Ltd conducted an impairment test on a machinery. The carrying amount of machinery was SAR 195,000, its fair value less costs to sell is SAR 170,000, and its value-in-use is SAR 165,000. Is there impairment or no impairment on machinery? If impairment exists what would be the journal entry. (2 Mark)

Answer:

Q3. List the classified Intangible Assets with examples. (2 Marks)

Answer

Q4. a. Explain provisions and its types with IFRS requirements.

b. On January 1, 2020, an Oil Company erected an oil platform in the Gulf of KSA. Oil Company is legally required to dismantle and remove the platform at the end of its useful life, estimated to be five years. Oil Company estimates that dismantling and removal will cost SAR 3,000,000. Based on a 10 percent discount rate, the fair value of the environmental liability estimated to be SAR 1,862,760 (3,000,000 x .62092).

Pass entry in books of Oil Company to records this liability on Jan. 1, 2021. Using the straight-line method, record entry to be expensed. (2 Marks)

Answer:

Q5. Assume that a Financial Corporation issued SAR 500,000 of 8% term bonds on January 1, 2021, due on January 1, 2026, with interest payable each July 1 and January 1. Investors require an effective-interest rate of 6%. Is, the bond issued at a premium or discount? Calculate the bond proceeds and pass journal entry to on date of issue, Jan. 1, 2021 and to record first payment and amortization of the premium on July 1, 2021. (2 Marks)

Note: PV of principal amount at 6% is 0.74409 and PV of interest amount at 6% is 8.53020

Answer