QUESTION 1 [16 marks] PART A Old Harbour Limited (OHL) is a distribution company, located in Central Jamaica. The following information is available: OHL acquired control of Surrey Industries Limited (SIL) by offering 2 shares in OHL for every 3 shares held in SIL. Old Harbour Limited (OHL) acquired 6,400,000 shares in SIL and at that date each share in OHL had a market value of $7.30. An additional sum of $2,600,000 was to be paid two years from now (the relevant discount rate is 9%). The identifiable assets and liabilities of Cornwall Industries Limited were: . Required: a) Calculate the goodwill acquired by Old Harbour Limited (6 marks) b) Explain what is inherent goodwill and why it is not recorded in the books of account (4 marks) PART B Kingston Liquor Store has an excellent location because of its strategic location at the intersection of two major roads. The directors believe an intangible asset should be recognized for this excellent location. Explain briefly to the directors how the excellent location should be treated in the books of accounting. (6 marks) QUESTION 2 [30 MARKS] a) "The deduction from assets method of accounting for government grant is used by Clarendon Mines Limited to record a government grant. The directors want to switch to the deferred income method because they assume the amount of income shown on the Statement of Comprehensive Income will increase and thus improved the overall performance of the company. As an accounting major at university explain the accuracy of the directors assumption. (4 marks) b) Falmouth Cruise Limited bought a cruise boat valued at $10,200,000 to operate on the south coast of Jamaica. The government has decided to assist the company by giving the company a cash grant to offset of 50% of the value of the cruise boat. The boat qualifies as a depreciating asset according to IAS 20, Government Grants and is depreciated over a period of 8 years. Its residual value is expected to be nil. Required: a) Prepare extracts of Essential Limited's Income statement and statement of financial position to account for the first three (3) years for the above items using the deferred income method (12 marks) b) According to IAS 23, Borrowing Costs, certain borrowing costs have to be capitalized. Explain with reference to the above IAS how interest should be capitalized (4 marks) c) WestPoint Construction Limited acquired a loan for $60 million on 1 January 2020 to begin the construction of a bridge. The loan was acquired from Nelson Bank at a nominal interest rate of 10% and an effective interest rate of 12%. Construction did not begin on the bridge until, 1 February 2020 and was completed and ready for use on 31 December 2020. The company invested $20 million of the funds received from the bank over the period 1 January to 30 June 2020 at an interest rate of 8 %. During the months of July and September 2020 construction on the project was suspended. REQUIRED: For the year ended 31 December 2020 show the following: 1. The Statement of Comprehensive Income Extract for the year (4 marks) 2. The Borrowing cost to be capitalized on the Statement of Financial Position (6 marks) QUESTION 3 [19 marks] a) The objective of IAS 36 Impairment of assets is to prescribe the procedures that an entity applies to ensure that its assets are not impaired. Required: Explain how an impairment loss is determined (give an example to support your answer). (7marks) b) Montego Limited operates a wharf that suffered a massive drop in income due to the economic downturn. On 1 January 2020, the following carrying values were recorded in the books immediately prior to the impairment: Assets Value ($) Goodwill 520,000 Technology 80,000 Machinery & Equipment 160,000 Buildings 480,000 Other net assets 340,000 The recoverable value of the unit is estimated at $910,000. The technology is worthless, following its complete failure. Other net assets include inventory, receivables and payables. It is considered that other net assets are not impaired. Required: Calculate the carrying amounts of the assets above at 31 January 2020 after applying any impairment losses. (12 marks) QUESTION 4 [25 marks] Grange Construction Limited (GCL) is located in Hanover, Jamaica. GCL two construction projects in progress during the year ended 31 December 2020. Work on the contracts are certified by a surveyor as performance obligations are completed. The following figures relate to two projects at the end of the reporting period.

Kendal Project Cove Project $'000 $'000 Contract price 120,000 110 ,000 Costs incurred to date 26,800 35,040 Estimated costs to completion 67,200 81,760 Value of work certified to date 28,800 36,000 Progress Billings (amt. invoiced) 30,400 40,800 Cash received on invoiced amount 28,400 29,800

For the year ended 31 December 2019 revenue and cost recognized on the Kendal project was $15,000 and cost $11,000 respectively. KCL recognizes revenues and profits on construction contracts using the input approach REQUIRED: a) Calculate the figures which would appear in GCL's financial statements in respect of these two projects for the year ended 31 December 2020. (25 marks)