Mr. Luis Rodriguez is the financial manager of Hull plc, a UK company which is located in
Question:
Mr. Luis Rodriguez is the financial manager of Hull plc, a UK company which is located in the east of London.
Hull Plc has the following inventory transactions:
Day 1 Opening inventory nil |
Day 2 Purchased 50 units at £15 per unit |
Day 3 Sold 20 units at £35 per unit |
Day 4 Purchased 60 units at £17 per unit |
Day 5 Purchased 80 units at £30 per unit |
Day 5 Sold 30 units at £40 per unit |
You Are Required To:
i) Apply the Average costing method to each transaction and calculate the closing value of inventory.
ii) Prepare the report to critically evaluate the LIFO and FIFO inventory valuation methods and advise which methodis better. In addition, explain which method Hull plc should use to remain IAS 2 compliant.
iii) The Financial Manager of Hull Plc needs your advice on IAS 38. You are required to explain why it is necessary to distinguish between research and development expenditure and how this distinction affects the accounting treatment.
iv) Following the financial manager’s request, you need to explain the criteria that need to be satisfied before expenditure can be recognised in the balance sheet as intangible assets. Also, explain how the criteria is applied to the recognition of separately purchased intangible assets, intangible assets acquired in a business combination and internally generated intangible assets. In your discussion, you are required to discuss IAS 38.
v) The Hull plc decides to adopt straight-line depreciation on production equipment. The straight-line depreciation is charged in periods of operation, but if the production equipment is not in active use then no depreciation is charged. The financial managers of Hull plc justify this on the grounds that the economic benefits of the inactive production equipment are not being consumed. Some equipment can remain inactive for many years, although money is spent maintaining them during these periods. The financial manager requires advice as to whether this depreciation policy is in accordance with IAS 16 Property, Plant and Equipment.
Accounting for Governmental and Nonprofit Entities
ISBN: ?978-0073379609
15th Edition
Authors: Earl R. Wilson, Jacqueline L Reck, Susan C Kattelus