PFR 2-1

21. Garry took out a $15 million 15% loan on 1 January 2019 to build a new warehouse during the year Construction of the warehouse began on 1 February 2019 and was completed on 30 November 2019. As not all the funds were needed immediately, Garry invested $3 million in 5% bonds from 1 January to 1 May 2019.

What are the total borrowing costs to be capitalised in respect of the warehouse?

22. Delmer Co has built a new factory incurring the following costs:

$’000

Land                                                                5,200

Materials                                                        4,400

Labour                                                            3,600

Architect’s fees                                                    85

Surveyor’s fees                                                    25

Site overheads                                                  350

Apportioned administrative overheads      450

Testing of fire alarms                                        25

Business rates for first year                              17

                                                                        14,152

What will be the total amount capitalised in respect of the factory?

23. Deniquin acquired a building with a 30‐year life for its investment potential for $10 million on 1 January 2019 At 31 December 2019, the fair value of the property was estimated at $12 million with costs to sell estimated at $200,000.

If Deniquin Co uses the fair value model for investment properties, what gain should berecorded in the statement of profit or loss for the year ended 31 December 2019?

24. Hat Head Co purchased a machine for $100,000 on 1 January 2018 and assigned it a useful life of 20 years. On 30 June 2020 it was revalued to $131,250 with no change in useful life.

What will be depreciation charge in relation to this machine in the financial statements of Hat Head Co for the year ending 31 December 2020?

25. Which of the following would be recognised as an investment property under IAS 40 Investment Property in the consolidated financial statements of Smithson Co?

26. Which TWO of the following items should be capitalised within the initial carrying amount of an item of plant?

27. During the current year an entity had in place $1 million of 6% loan finance and $2 million of 9% loan finance. It constructed a new factory which cost $600,000 and this was funded out of the existing loan finance. The factory took 8 months to complete.

To the nearest thousand, what borrowing costs should be capitalised?

28. Woolumby Co purchased a machine on 1 July 2019 for $1,500,000. It is being depreciated on a straight-line basis over its useful life of ten years. Residual value is estimated at $100,000. On 1 January 2020, following a change in legislation, Woolumby Co fitted a safety guard to the machine. The safety guard cost $60,000 and has a useful life of five years with no residual value.

What amount will be charged to profit or loss for the year ended 31 March 2020 in respect of depreciation on this machine?

29. Which of the following CANNOT be recognised as an intangible non‐current asset in BHI’s consolidated statement of financial position at 30 September 2020?

30. At 30 September 20X9 Yule Co’s trial balance showed a brand at cost of $30 million, less accumulated amortisation brought forward at 1 October 20X8 of $9 million. Amortisation is based on a ten year useful life. An impairment review on 1 April 20X9 concluded that the brand had a value in use of $12 million and a remaining useful life of five years. However, on the same date Yule Co received an offer to purchase the brand for $20 million.

What should be the carrying amount of the brand in the statement of financial position of Yule Co as at 30 September 20X9? (Answer to the nearest $’000)

31. Which of the following could be classified as development expenditure in Duke’s  statement of financial position as at 31 March 2020 according to IAS 38 Intangible Assets?

32. Woolworth Co is developing a new product and expects to be able to capitalise the costs. Which of the following would disallow the capitalisation of the costs?

33. Which TWO of the following factors are reasons why key staff cannot be capitalised as an intangible asset by an entity?

34. A division of Xero has the following balances in its financial statements:

Following a period of losses, the recoverable amount of the division is deemed to be $5 million A recent valuation of the building showed that the building has a market value of $3.2 million. The other net assets are at their recoverable amount. The entity uses the cost model for valuing building and plant.

To the nearest thousand, what is the balance on plant following the impairment review?

35. Which of the following best describes the recoverable amount of an asset?

36. A CGU subsidiary has the following net assets:

In a recent collision with a bus, one of the engines has exploded, is not capable of economic repair and must be scrapped for just one sixth of its carrying value. Because the engine was fundamental to the continuing viability of the business the directors have decided to cut back severely on the company’s activities and have now received an offer of $65,000 for the brand.

As it stands the recoverable amount of the entire subsidiary has been estimated at $350,000

What will be the values of the remaining engine and the goodwill after the impairment loss has been accounted for?

37. Which of the following indicators would NOT be recognised as an suggestion that assets are impaired?

38. IAS 36 Impairment of Assets suggests how indications of impairment might be recognised.

Which TWO of the following would be EXTERNAL INDICATORS that one or more of an entity’s assets may be impaired?

1          Evidence of obsolescence of one or more assets

2          A decline in the economic performance of one or more assets

3          An unusually significant fall in the market value of one or more assets

4          An increase in market interest rates used to calculate value in use of the assets