BINDURA UNIVERSITY OF SCIENCE EDUCATION

FACULTY OF COMMERCE
DEPARTMENT OF ACCOUNTANCY
__________________________________________________________________________
FINANCIAL ACCOUNTING 3B (AC402)
In-class Test 2
Suggested solutions

a) PEE Ltd

Year Capital b/f Lease Capital Finance Capital

payment outstanding charge at year end

@ 15.15%

$ $ $ $ $

2009 20,000 5,200 14,800 2,242 17,042

2010 17,042 5,200 11,842 1,794 13,636

2011 13,636 5,200 8,436 1,278 9,714

2012 9,714 5,200 4,514 686 5,200

2013 5,200 5,200 --- ---- ----

Non-current liability at 31 December 2009

Amounts due under finance lease (17,042 – 5,200) 11,842

In this situation the lease payments are in advance. So the next payment is due in 1 day and the year
end current liability includes the current year's finance charge (which has accrued but not been
paid). To calculate the non-current liability, the full amount of the next payment is deducted from
the year end capital balance.

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 b) Blue Ltd

Impairment to the statement of comprehensive income only goodwill $ 3 600

Identifiable assets 13 500

Goodwill 400

Workings and explanation

A portion of True Ltd’s recoverable amount of $15 000 is attributable to the unrecognised non-
controlling interest in goodwill. Therefore, in accordance with IAS 36, the carrying amount of True Ltd
must be notionally adjusted to include goodwill attributable to the non-controlling interest, before
being compared with the recoverable amount of $15 000.

Total Identifiable Goodwill: Blue Goodwill: NCI

assets Ltd

Initial carrying 20 000 1 5000 4 0001 -----

amount

Depreciation (1 500) (1 500) ----- -----

Unrecognised 1 0002 ----- ----- 1 000

non-controlling
interest

in goodwill

19 500 13 500 4 000 1 000

Impairment (4 500)3 ---- (3 600)4 (900)5

Recoverable 15 000 13 500 400 100

amount

1 16 000 (Investment) – (15 000 Assets x 80%) = 4 000 goodwill

2 4 000 x 20/80 = 1 000

3 19 500 – 15 000 = 4 500 impairment

4 4 500 x 80% = 3 600 Interest of Blue group

5 4 500 x 20% = 900 non-controlling interest

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 The full $4 500 of the impairment loss is allocated to the goodwill. However, only 80% of Blue Ltd’s
interest in goodwill is recognised in the consolidated financial statements, therefore only 80% of the
impairment loss will be recognised by the group. As shown in (b), the carrying amount of True Ltd
comprises the identifiable assets of True Ltd + 80% of the remaining goodwill ($13 500 + $400 = $13
900).

In-Class 2

QUESTION 2

a) Grants related to assets are government grants whose primary condition is that an entity should
purchase, construct or otherwise acquire long-term assets. Subsidiary conditions may also be
attached restricting the type or location of the assets or the periods during which they are to be
acquired or held. This type of grant is recorded either by setting up a deferred income account in
respect of the receipt, or by deducting the grant in arriving at the carrying amount of the asset. The
grant is then recognised as income on a systematic and rational basis, either over the useful life of
the asset (if deferred income), or by way of a reduced depreciation charge over the life of the
depreciable asset (if deducted from the carrying amount). If the grant relates to a non-depreciable
asset (for example land), one has to identify the periods that will be burdened with the costs of
complying with the attached conditions, and then recognise the grant as income over these periods
(for example the useful life of the building erected on the land).
b) If it is the policy of Alpha Ltd to account for the grant as deferred income, the repayment will be
accounted for as follows:

Profit or loss (Statement of comprehensive income) Year 1 Year 2 Year 3

$ $ $

Depreciation (250 000 / 4) (62 500) (62 500) (62 500)

Grant received (80 000 / 4);(60 000 / 4) 20 000 20 000 15 000

Grant income adjustment i.r.o. year 1 and 2 [(20 000 -15 000)x 2] (10 000)

(This adjustment represents a debit to profit or loss, being a reversal of excess grant income
recognised in years 1 and 2. NB: The change in estimate in year 3 will amount to $15 000, consisting
of the reduction in grant income in year 3 from $20 000 to $15 000, as well as the adjustment of $10
000 in respect of years 1 and 2. The future effect of the change in estimate will amount to $5 000,
being the reduction in grant income in year 4.)

c) Statement of financial position Year 1 Year 2 Year 3

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 $ $ $

Property, plant and equipment- Cost 250 000 250 000 250 000

Accumulated depreciation (62 500) (125 000) (187 500)

Deferred income (80 000 - 20 000); (60 000 -

20 000);(40 000 balance - 20 000 repayment +

10 000 adjustment - 15 000 current year) (60 000) (40 000) (15 000)

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