Extract from Riri Ltd.s Ledger at 31 December 20X4: $ Administration expenses 950,000 Distribution costs 531,000 Purchases
Question:
Extract from Riri Ltd.’s Ledger at 31 December 20X4:
| $ |
Administration expenses | 950,000 |
Distribution costs | 531,000 |
Purchases | 2,875,000 |
Finance costs | 9,000 |
Sales revenue | 5,355,700 |
Ordinary share capital ($1 per share) | 1,000,000 |
Inventory on 1 January 20X4 | 1,670,000 |
Receivables | 55,700 |
Cash and cash equivalent | 242,000 |
Land and building cost | 900,000 |
Accumulated depreciation (land and building) at 1 January 20X4 | 36,000 |
Plant and equipment (cost) | 102,800 |
Accumulated depreciation (plant and equipment) | 36,400 |
Intangible assets (carrying amount at 1 January 20X4) | 68,000 |
Retained earnings at 1 January 20X4 | 713,300 |
Convertible bond (repayable on 31 December 20X6) | 200,000 |
Payable | 62,100 |
a). Non-current Assets
i). At the beginning of the year, a piece of plant costing $46,000 and accumulated depreciation of $22,000, met the criteria of IFRS 5 Non-current Asset Held for Sale and Discontinued Operations. The plant is available for sale at the price of $23,500 and costs of $1,000 will be incurred in order to complete the sale.
ii). Plant and equipment should be depreciated at 20% on cost and charged to cost of sales.
iii). The land and buildings were originally acquired on 1 January 20X1 for £900,000 of which $300,000 related to land. Depreciation is calculated on a straight line basis over a 50 year life and charged to cost of sales.
At the beginning of the year Riri’s Ltd. revalued their land and buildings to $1,400,000 of which $460,000 related to land. The remaining life remains unchanged. This has not been accounted for.
b). Intangible Asset
The intangible asset is a brand which was acquired for $68,000. The useful life of the brand is indefinite and therefore Riri Ltd. carries out an annual impairment review to identify the recoverable amount. The valuation team estimated that the brand’s fair value less cost to sell to be $61,250 and the financial controller has estimated the value in use to be $62,000.
c). Closing inventory was valued at $1,920,000
d). On 1 January 20X4, Riri Ltd. issued $200,000 4% convertible bond. The convertible bond can be converted to equity shares on 31 December 20X6 or redeem at par on the same date. An equivalent bond without the conversion rights would require interest of 6%. Interest is payable annually in arrears on 31 December each year. The present value of $1 receivable at the end of each year, based on discount rates of 4% and 6% are:
| 4% | 6% |
End of year 1 | 0.962 | 0.943 |
End of year 2 | 0.925 | 0.890 |
End of year 3 | 0.889 | 0.840 |
The convertible bond has been recorded as a normal bond in the record, no accounting treatment has been adjusted in relation to this case.
Accounting Principles
ISBN: 978-1119048503
7th Canadian Edition Volume 1
Authors: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel, Barbara Trenholm, Valerie Warren, Lori Novak