Question

Question 1 Businesses have several costs and one among them is development cost. They are material cost for companies which are either expensed or capitalised as an asset. Required: Discuss the conceptual issues involved and the definition of an asset that may be applied in determining whether development expenditure should be treated as an expense or an asset. Use examples to support your answer Question 2 Your advice has been requested by the accountant of Magic plc on the issues below as the draft financial statements for the year to 31 December 2017 are being prepared. (i) Magic plc has an administration building which cost MUR 600,000 on 1 January 2008 and is being depreciated over 50 years, based on the IAS 16 cost model. Magic plc no longer needs the building and entered into an agreement to lease the building out to another company on 1 July 2017. Magic plc applies the fair value model under IAS 40 Investment property and the fair value of the building was judged to be MUR 800,000 on 1 July 2017. This valuation had not changed at 31 December 2017. (ii) Magic plc owns another building which has been leased out for a number of years. It had a fair value of MUR 550,000 at 31 December 2016 and MUR 740,000 at 31 December 2017. OPEN UNIVERSITY of MAURITIUS 3 (iii) Magic plc has a retail business which is treated as a separate cash generating unit and which has suffered badly during the recession. The carrying amounts of the assets comprising the retail business are: $'000 Building 900 Plant and equipment 300 Inventory 70 Other current assets 130 Goodwill 40 On 31 December 2017, an impairment review has suggested that the recoverable amount of the cash generating unit is estimated at MUR 1.3m. Required a. What is the amount of the revaluation surplus that will be recognised in respect of the building in (i)? b. In respect of the building in (ii), how will the increase in value from MUR 550,000 to MUR 740,000 be accounted for? c. When an impairment review is carried out, a potentially impaired asset is measured at what amount? d. What will be the carrying amount of the inventory after the impairment loss in (iii) has been accounted for? e. What will be the carrying amount of the building after the impairment loss has been accounted for?

Answer 1

Answer:

Conceptual Issues:

Advancement costs are for the most part long haul in nature. In the event that the cost of advancement brought about are repeating in nature then it will be dealt with as cost yet in the event that it is non repeating in nature and for future advantage and furthermore increment the estimation of the business then it will regarded as a benefits. It is promoted as an advantage (impalpable resource) in a critical position Sheet of the Company.

Assests:

Resource is a source that an individual, company claims or controls with the desire that it will give a future advantage.

Resources are appeared on an organization's Balance Sheet and resources are purchased or made to expand a company's esteem or advantage the association's tasks.

Formative expenses are for the future advantages of an organization. It will expand the estimation of the Business.

In this manner Developmental expenses are dealt with as an elusive resources.

An impalpable resource is a benefit that isn't physical in nature. Generosity, scholarly properties are for the most part immaterial resources. An organization's image name is considered as an inconclusive immaterial resource since it remains with the organization for whatever length of time that the organization proceeds with tasks.

Essentially advancement costs will likewise remains with the organization for a long peroid on the grounds that it enhances the estimation of a business.

Thus, the advancement costs shou;d be dealt with as an advantage to be determined Sheet of an organization.