Professional Documents
Culture Documents
8568.... (1st Assignment)
8568.... (1st Assignment)
1
Ans.
• B Limited has obtained a generator for official lease on 2 years period whose useful life
is 6 years.
Operating Lease: The period over which lease agreement is enforceable is not comprised
of major part (more than 50%) of the economic useful life of the asset.
• C Ltd. has acquired an asset on lease the ownership of which will be transferred to the
company at the end of lease term.
Finance Lease: The title of the asset is passed from lessor to lessee at the end of the lease
term.
• The D Ltd. has acquired an asset on lease with an option to buy it at the end of lease term
at scrap value.
Finance Lease: (We assume it they will buy the asset at the end of lease term) Under the
terms and conditions of lease, the lessee has right/option to purchase the underlying asset.
In this respect the price has to be paid by the lessee for the purchase of asset is not the
market price but lesser one. It is quite certain that lessee will purchase the asset as per
terms.
• The Z Ltd has acquired an asset on lease for 8 years. The economic life of the asset is 10
years. The company has no intention to purchase it at the end of lease term.
Finance Lease: The period over which lease agreement is enforceable should be
comprised on major part (more than 50%) of the economic useful life of the asset.
• X Ltd. Has acquired an asset with annual lease payment of Rs. 50,000 for ten years
whereas the fair value of the asset is Rs. 310,000.
Finance Lease: Present value of minimum lease payments equals to fair value of asset.
Where,
Fv = future value = 0
Q. 2 (A)
Ans.
YEAR-1 1,300,000 X 7/85 = 107,058
Rs. 16,000 is the Research Cost and expensed out in income statement for the year. This
cost is totally research based because it is still incomplete and future benefits are not
known.
Rs. 150,000 can be capitalized. It is research done by others we pay it to buy and start
development phase on it. Eg: Oxford researches buy by largest medicines companies.
Rs. 35,000 is the donation and expensed out in income statement for the year.
Rs. 16,000- Testing cost should be capitalized It is testing cost should be capitalized.
Rs. 110,000 development cost can be capitalized. When feasibility report shows that the
project is technically sound and can be completed. The management has intentions to
develop, use or sell the asset. It is expected that the entity will drive economic benefits
from the use of asset.
Show expense out in income statement. This cost is totally research based because it is
still incomplete and future benefits are not known.
Q. 3 (A)
Ans.
Items A B C
Impairment loss =
Carrying amount of an
asset – Recoverable
amount of an asset
(4,000,000 * 4years)
Y-3 Depreciation Expense – SOCI 1,000,000
Accumulated Depreciation - SOFP 1,000,000
(3,000,000 * 3years)
Carrying Value 4,000,000 – 2,000,000 = 2,000,000
Recoverable amount = 3,500,000
Recoverable amount is greater than carrying value of the asset
therefore the asset is not impaired.
Q. 4 (A)
ANS:
A damage claim of Rs. 5 million for breach of contract has been served to the company. The
company’s legal council is of the opining that it probable the damages will be awarded to the
plaintiff.
Company should recognize a provision for damage claim because at reporting date there is
present obligation in respect of past event. Rs. 5 million for the pending claim by plaintiff is
most likely that company would require to pay as advised by company`s lawyer. Therefore a
provision should for an amount of Rs.5 million.
A suit has been decided against the company for Rs. 5 million in the High Court.
Rs. 5 million is virtually certain to pay as court decides so company should record a liability of
Rs.5 million.
The company has appealed to the court for the settlement of the sales tax liability of Rs.
3million.
Claim to the extent of Rs. 3 million is accepted in principle by the company, therefore it will be
taken as virtually certain to be received and it will be recorded as an asset now.
If recovery of the claim to the extent of Rs. 3 million is probable therefore a contingent asset
would be disclosed giving brief description of the event and estimate of financial statement.
If recovery of Rs. 3 million is remote therefore it would not be accounted for or disclosed
A supplier has returned an amount of Rs. 6 million previously recorded as a bad debt.
Show as recovery of bad debt from previously recorded as bad debt in the financial statement
and show as certain asset of the company.
B.
ANS:
Contingent Assets
Contingent asset is a possible economic benefit that A contingent is
dependent on that future events that are out of a company’s control.
Without knowing for sure whether these gains will materialize, or will
be able to determine their economic value, these assets are not to be
recorded on the balance sheet. While, they can be noted down in the
adjacent notes of the financial statements, provided that certain
conditions are met well. A contingent asset can also be termed as a
potential asset.
Contingent Assets Example
A company involved in a legal case with the sheer expectation to
receive the compensation which has a contingent asset as the outcome
of the case is not yet known and the amount is yet to be determined.
Company A Ltd. has filed a lawsuit against Company B Ltd. for
infringing a patent case. If there is a good chance that Company A Ltd.
will win the case, it has a contingent asset in this matter. This potential
asset will generally be disclosed in the financial statement, but will not
be recorded as an asset until the case is over and settled.
Contingent assets may also crop up when the companies expect to
receive monetary awards through the use of their warranty. Other
examples include the benefits that are to be received from an estate or
other court settlement. Contingent Liabilities Meaning
IAS-37
IAS-11
Retentions are amounts of progress billings that are not paid until the
satisfaction of conditions specified in the contract for the payment of
such amounts or until defects have been rectified. Progress billings
are amounts billed for work performed on a contract whether or not
they have been paid by the customer. Advances are amounts received
by the contractor before the related work is performed.
An entity shall present:
The gross amount due from customers for contract work is the net
amount of: