QUESTION 1 LBC manufactures mechanical talkative recorder, which trade under the name Talkative. In the year ended
Question:
QUESTION 1
LBC manufactures mechanical talkative recorder, which trade under the name ‘Talkative’. In the year ended 31st December 2017, 10,000 Talkatives were manufactured and the related costs were:
GH¢ | ||
Materials | 3,000 | |
Labour | 4,000 | |
Depreciation of Machinery | 2,000 | |
Factory rates | 1,000 | |
Selling expenses | 3,000 | |
Expenses at head office | 2,000 | |
Abnormalloss | 3,000 |
In addition to the information above, at 31st December 2017, there were 2,000 Talkatives in inventory.
Required:
Assuming that these have a resale value of GH¢5 and a Net Realisable Value of GH¢1.15 each, what value should be placed on the closing inventory?
QUESTION 2
a) Statehow closinginventoryis to bemeasuredaccordingtoIAS 2.
b) Usingthe followinginformationcalculate;
(i) The value of closing inventoryfor eachofthe Phones(Nokia, Sumsungand Motorola).
(ii) The total valueof allthe closing inventories(Nokia,SumsungandMotorola).
Azontotradesindifferenttypesofphonesonwholesalebasis.Thefollowingdatawas extracted at the end oftheyear 31stDecember, 2016.
Nokia | Sumsung | Motorola | |
Cost per unit | GH¢8 | GH¢10 | GH¢19 |
Net realisable value per unit | GH¢10 | GH¢7.9 | GH¢15.6 |
Selling price per unit in the market | GH¢12 | GH¢11 | GH¢14 |
Units in inventory | 10,000 | 20,000 | 30,000 |
IAS 16-PROPERTY, PLANT AND EQUIPMENT
QUESTION 1
Construction of BB block by KK Limited began on 1st April 2016. The following costs were incurred on the construction:
GH¢
Freehold land 4,500,000
Architect fees 620,000
Site preparation 1,650,000
General overheads 940,000
Price list of Materials purchased 7,800,000
Discount on materials 10%
Direct labour costs 11,200,000
Legal fees 2,400,000
KK secured a loan of GH¢25m on 1stApril 2016 to finance the construction of the new store (which meets the definition of a qualifying asset per IAS 23). The loan carried an interest rate of 8% per annum and is repayable on 1st April 2017.
The block was completed on 1st January 2017 and brought into use following its grand opening on the 1st April 2017.
Required:
Calculate the amount to be included as property, plant and equipment in respect of the new store for the year ended 31st March 2017 in accordance with IAS 16
QUESTION 2
Gbormitta Company Limitedpurchases an asset that had a list price of GH¢100,000 but was offered a trade discount of 10%. If the company pays for the asset within the next twenty days it can take advantage of a further 5% settlement discount.
In addition to the list price the company also incurred the following charges:
GH¢
Shipping & handling charges 2,500
Pre-production testing 10,000
Site preparation costs:
electrical cabling costs 10,000
floor reinforcing 5,000
in-house labour costs 7,000 22,000
Included in the electrical cabling costs is GH¢3,000 which is as a result of the company providing incorrect requirements for the asset.
The company paid after eighteen days.
Required:
What initial cost should be recorded for the asset in the Statement of Financial Position?
QUESTION 3
On 1st January 2018, CPILimited paid the Government of Ghana GH¢5,000 for a three-year licence to quarry gravel. At the end of the licence, CPI Limited must restore the quarry to its natural state. This will cost a further GH¢3,000. These costs will be incurred on 1st January 2021.CPI’s cost of capital is 10%.
Required:
Show how this expenditure is treated in the statement of profit or loss andstatement of financial position of CPI Limited.
QUESTION 4
On 1 January 2015Killmequick Brewery Limited (KBL) acquired a new bottling plant under the following terms:
GH¢
Manufacturer’s base price 4,200,000
Trade discount (applying to base price only) 20%
Settlement discount on the bottling plant 10%
Freight charges 120,000
Electrical installation cost 112,000
Staff training in use of machine 160,000
Pre-production testing 88,000
Purchase of a three-year maintenance contract 240,000
Estimated residual value 80,000
Hectolitres (HL)
Estimated life in hectolitres of beer 24,000
Hectolitres of beer produced - year ended 31 December 2015 4,800
- year ended 31 December 2016 7,200
- year ended 31 December 2017 (see below) 3,400
On 1 January 2017, KBL decided to upgrade the plant by adding new components at a cost of GH¢800,000. This upgrade led to a reduction in the production time per unit of output and also improved the quality of the bottling process. The upgrade also increased the estimated remaining life of the machine at 1 January 2017 to 18,000 HL and its estimated residual value was revised to GH¢160,000.
Required:
Prepare extracts from the statement of profit or loss and statement of financial position for the above machine for each of the three years to 31 December 2015, 2016 and 2017.
QUESTION 5
TheAssistantAccountantofyourcompanywhoisresponsibleforpreparingthefinalaccounts of thecompanyhasencounteredsomedifficultiesrelatingtotreatmentofsomeitemswhen drafting the2014finalaccounts. He hasapproachedyouforsomeguidance. Theaccounting yearendofQRSLtdis31December.
On 1 January 2014, QRS Company purchased a freehold land and building for GH¢800,000. (Land: GH¢240,000, Building: GH¢560,000). The building was expected to have economic useful life of 40 years and depreciation of the land is ignored. On 1 October 2017, the land was, revalued at GH¢300,000 and the building at GH¢580,000. The original estimated useful life remains unchanged.
Required:
Show the relevant entries in the Statement of profit or loss for the year ended 31 December 2017 andStatementof Financial Position as at 31December2017. (5 marks)
REVALUATION- IAS 16
QUESTION 6
On January 1, Year 1, LBC Limited acquires a building at a cost of GH¢50,000. The building is expected to have a 25-year life and no residual value. The asset is accounted for under the revaluation model and revaluations are carried out every three years.
On December 31, Year 3, the fair value of the building is appraised at GH¢45,000.
Required:
Prepare the entries required on December 31, Year 3
QUESTION 7
Joyce Limited purchased land and building on 1st January, 2012 for GH¢200,000 (land GH¢60,000 and buildings GH¢140,000). While there is no depreciation on land, however the company uses 5% reducing balance method on building.On 1st January 2016 the land was revalued to GH¢75,000 and the buildings to GH¢135,000. Depreciation on buildings is computed at 4% reducing balance. The financial statements are prepared on a yearly basis.
Required:
Calculate the revaluation reserve for the year ended 31st December, 2016. (5 marks)
IAS 40-INVESTMENT PROPERTY
QUESTION 8
Investment property is acquired January 11, 2014, at a cost of GH¢200,000.
Fair values on:
December 31, 2014 - GH¢190,000
December 31, 2015 - GH¢198,000
December 31, 2016 - GH¢205,000
Required:
Account for how the above transaction should be treated.
QUESTION 9
KK owns the following properties as at 31st December 2018:
Property: Fair value GH¢
Land with future use undetermined 3,200,000
Factory rented to KK’s subsidiary under an operating lease 2,400,000
10 floor office building (fair value is equal per floor)
with 3 floors used as the subsidiary's head office and seven floors
rented to third parties under an operating lease. 15,000,000
Empty building held for capital appreciation, but not leased out. 4,100,000
KK's accounting policy is to hold its investment properties under the fair value model and its land and buildings under the revaluation model.
Required:
In accordance with IAS 40 Investment Property calculate the carrying amount to be recognized as investment property in KK's consolidated financial statements as at 31 December 2018.
Financial Accounting and Reporting
ISBN: 978-1292162409
18th edition
Authors: Barry Elliott, Jamie Elliott