In: Accounting
Q.3
a.GTUC owns a property that it is using at its head office. At 1
January 2018, its carrying value was $20 million and its remaining
useful life was 20 years. On 1 July 2018 the business was
reorganized and cheaper premises were found for use as a head
office. It was therefore decided to lease the property under an
operating lease.
The property was valued by a qualified professional, who assessed
the property’s value as $21 million on 1 July and $21.6 million on
31 December 2018.
Explain the accounting treatment of the property, plant and
equipment in the financial statements for the year-ended 31
December 2018.
b.
The objective of IAS 2 is to prescribe the accounting treatment for
inventories and provide guidance for measuring and valuing
inventories. It classifies inventories into three main types,
determines the cost of inventories and subsequent recognition as an
expense, including any write-down to net realizable value.
i. Identify the three (3) main types of inventories.
ii. The following are the cost, estimated sales value, and the cost to complete for the items of inventory held by My Sweetie Ltd at December 31, 2013.
Item (inventory) Cost (GH₵)
Estimated cost Complete (GH₵) No. of Units. Selling Px
to
A 2.00
2.50 0.50
500
B 4.00
4.00 0.80
1,000
C 6.00
10.00
1.00
750
D 5.00
6.00
2.0
750
E 1.00
1.20
0.25
2500
You are required to determine the cost of each item of inventory
and the total inventory cost of My Sweetie Ltd.
Q3 1 . Under Operating leases the assets will be owned by the lessor only and will be shown under Balance sheet without transferring it to the lessess. Hence the assets unedr operating leases will be accounted for in the books of lessor as per the respective accounting standard.
- The only entry under the opwrating leases in the books of lessor is for the lease income only.
- Journal entry for PPE for the yaer end 31 december 2018-
Date | particulars | amount ($ millions) |
01 July 2018 | Depreciation on Property Dr. | 0.5 |
To property Account | 0.5 | |
(Being depreciation charged FOR 6 MONTHS upto the date of revaluation) | ||
01 july 2018 | Property account Dr. | 1.5 |
To Revaluation surplus account(OCI) | 1.5 | |
( being property of value 19.5 million is revalued to 21 million) | ||
31 Dec 2018 | Depreciation on Property Dr. | 0.5385 |
To property account | 0.5385 | |
(being depreciation charged for 6 month on property of value 21 million from july - dec) | ||
31 Dec 2018 | Property account Dr. | 1.1385 |
To Revaluation surplus account(OCI) | 1.1385 | |
being property of value 20.4615 ( 21-0.5385) million is revalued to 21.6 million) | ||
Note- under IAS 16 if assets are accounted inder revaluation model then first charge the depreciation upto the date of revaluation and then revalue the asset.
Note- Revaluation gain will never be transferred to Profit/ loss statement. It will shown as Revaluation surplus reserve through OCI( Other comprehensive income).
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#Q 3. B i
- under IAS 2 INVENTORIES are assets
=> held for sale in the ordinary course of business ( Finished Goods)
=>in the process of production of such sale ( Work in progress)
=> in the form of material or supplies to be consumed ( Raw material)
#Q 3.B .ii
As per IAS 2 Inventory should be valued as Cost or Net realisable value which ever is lower.
- Net realisable value (NRV ) is " the estimated selling price in the ordinary course of business less estimated cost to complete"
Product | cost(A) | Estimated sale value(B) | estimated cost to complete(C) | NRV (B-C) (D) |
VALUE of inventory (E) ( Lower of A or D) |
No. of units | inventoty value (E * NO OF UNITS) |
A | 2 | 2.5 | 0.5 | 2 | 2 | 500 | 1000 |
B | 4 | 4 | 0.8 | 3.2 | 3.2 | 1000 | 3200 |
C | 6 | 10 | 1 | 9 | 6 | 750 | 4500 |
D | 5 | 6 | 2 | 4 | 4 | 750 | 3000 |
E | 1 | 1.2 | 0.25 | 0.95 | 0.95 | 2500 | 2375 |
Total | 14075 |