Requires: Prepare journal entries to record the lessee’s

transactions at the commencement date and the end of

the
year N.
Topic 7_IAS 01
Presentation of Financial statements
Do the quizzes on the LMS
Topic 8_IAS 08
Accounting policies, estimates and errors
Case Study 8.1
Facts
Accurate Inc. was incorporated on January 1, 20X1, and
follows IFRS in preparing its financial statements. In
preparing its financial statements for financial year
ending December 31, 20X3, Accurate Inc. used these
useful
lives for its property, plant, and equipment:
• Buildings: 15 years
• Plant and machinery: 10 years
• Furniture and fixtures: 7 years
On January 1, 20X4, the entity decides to review the
useful lives of the property, plant, and equipment. For
this
purpose it hired external valuation experts. These
independent experts certified the remaining useful lives
of the
property, plant, and equipment of Accurate Inc. at the
beginning of 20X4 as
• Buildings: 10 years
• Plant and machinery: 7 years
• Furniture and fixtures: 5 years
Accurate Inc. uses the straight-line method of
depreciation. The original cost of the various components
of
property, plant, and equipment were
• Buildings: $15,000,000
• Plant and machinery: $10,000,000
• Furniture and fixtures: $3,500,000
Required Compute the impact on the income statement
for the year ending December 31, 20X4, if Accurate Inc.
decides to change the useful lives of the property, plant,
and equipment in compliance with the recommendations
of external valuation experts. Assume that there were no
salvage values for the three components of the property,
plant, and equipment either initially or at the time the
useful lives were revisited and revised.
Case Study 8.2
Facts
On January 1, 20X1, Robust Inc. purchased heavy-duty
equipment for $400,000. On the date of installation, it
was estimated that the machine has a useful life of 10
years and a residual value of $40,000.
Accordingly the annual depreciation worked out to
$36,000 = [($400,000 – $40,000) / 10].
On January 1, 20X5, after four years of using the
equipment, the company decided to review the useful life
of the
equipment and its residual value. Technical experts were
consulted. According to them, the remaining useful life
of the equipment at January 1, 20X5, was seven years
and its residual value was $46,000.
Required Compute the revised annual depreciation for
the year 20X5 and future years.
Case Study 8.3 Facts
(a) The internal auditor of Vigilant Inc. noticed in 200Y
that in 200X the entity had omitted to record in its books
of accounts an amortization expense amounting to
$30,000 relating to an intangible asset.
(b) An extract from the income statement for the years
ended December 31, 200X and 200Y, before correction
of the error follows:
200Y
200X
Gross profit
$300,000
$345,000
General and administrative expenses
(90,000)
(90,000)
Selling and distribution expenses
(30,000)
(30,000)
Amortization
(30,000)
XXXX
200Y
200X
Net income before income taxes
150,000
225,000
Income taxes
(30,000)
(45,000)
Net profit
$120,000
$180,000
(c) The “retained earnings” of Vigilant Inc. for 200X and
200Y before correction of the error are
200Y
200X
Retained earnings, beginning of the year
$225,000
$45,000
Retained earnings, ending of the year
$375,000
$225,000
(d) Vigilant Inc.’s income tax rate was 20% for both
years.
Required
Present the accounting treatment prescribed by IAS 8 for
the correction of the errors.
Case Study 8.4
Facts
(a) All Change Co. Inc. changed its accounting policy in
200Y with respect to the valuation of inventories. Up to
200X, inventories were valued using a weighted-average
cost (WAC) method. In 200Y the method was changed
to first-in, first-out (FIFO), as it was considered to more
accurately reflect the usage and flow of inventories in
the economic cycle. The impact on inventory valuation
was determined to be
At December 31, 200W: an increase of $10,000
At December 31, 200X: an increase of $15,000
At December 31, 200Y: an increase of $20,000
(b) The income statements prior to adjustment are
200Y
200X
Revenue
$250,000
$200,000
Cost of sales
100,000
80,000
Gross profit
150,000
120,000
Administration costs
60,000
50,000
Selling and distribution costs
25,000
15,000
Net profit
$65,000
$55,000(c) The “retained earnings” All Change Co. Inc.
for 200X and 200Y before correction of the error are
200Y
200X
Retained earnings, beginning of the year
$355,000
$300,000
Retained earnings, ending of the year
$420,000
$355,000
Required
Present the change in accounting policy in the Income
Statement and the Statement of Changes in Equity in
accordance with requirements of IAS 8.
Topic 9_IAS 10 Events after the reporting period
Do the quizzes on the LMS
Topic 10_IAS 37 Provisions, contingencies
Exercise 10.1 HamburgerPrince, fast food company,
organized a birthday party for 20 children where burgers
from minced beef meat were served. After the party, 8
children came to the hospital suffering from food
poisoning and their parents believe that it is due to
burgers not being fried properly.
Parents are now suing HamburgerPrince. Lawyer of this
company believes that based on past similar court cases
and insufficient evidence against HamburgerPrince there
is a 40% chance of losing the case and
HamburgerPrice would have to pay 160 000 EUR to
indemnify children for poisoning.
Requires: What should HamburgerPrince do in its
financial statements concerning this claim? Choose the
right
answer below and explain your choice.
A. Do nothing
B. Disclose contingent liability
C. Recognize Provision for liability
D. Disclose contingent asset
Exercise 10.2 (continue to Ex 10.1) A few months later,
court case proceeded further where one employee of
HamburgerPrince , acting as a witness, stated that frozen
beef burgers supplied by local meat processing
company Beefers showed signs of potential bacterial
infection. Judge ordered immediate inspection in Beefers
to verify its' hygienic and work standards. Inspection
proved presence of several bacteria in half products.
Court
case against HamburgerPrince has not been closed yet.
Based on this new evidence, lawyer believes that chance
to lose the case increased to 80% .
HamburgerPrince then decided to sue Beefers for
supplying contaminated burgers and causing them
damage.
However, Beefers argue that if HamburgerPrince would
have fried burgers properly, every possible infection
would be destroyed. Lawyer believes that
HamburgerPrince has 90% chance of winning this case
with
compensation of 160 000 EUR from Beefers.
What should HamburgerPrince do in its financial
statements in relation to new events?
Choose the right answer belows and explain your choice.
A. Do nothingB. Disclose contingent liability
C. Recognise Provision for liability
D. Disclose contingent asset
Exercise 10.3 NiceHome Co. runs 2 main divisions:
production of wooden accessories and metal
accessories. On 30 September 20X1, board of directors
approved formal restructuring plan that involves
shifting some production away from metal accessories to
wooden accessories due to current developments
of customers' preferences.
Managers have prepared details of restructuring plan and
have publicly announced it on 30 November
20X1. An implementation of the plan should start on 1
February 20X2 and complete 31 January 20X3.
Managers have estimated the costs of restructuring as
follows:
1. Carrying amount of redundant machines for metal
accessories production - 2 000 000 EUR, revenue from
their sale (based on offer received recently) - 1 300 000
EUR
2. New computers in accounting department - 50 000
EUR
3. Cost of retraining employees from metal accessories -
100 000 EUR
4. Cost of severance payments to redundant employees
from metal accessories - 400 000 EUR
Require:a/ When should Nice Homes recognised a
provision for restructuring?
b/ What amount is the provision should be?
Exercise 10.4 Match the events to its appropriate
accounting treatment
Events
Accounting treatment at the end of year 1
1.CarProd is a car manufacturer who gives
warranties to its clients at the time of
purchase. Under the terms of sale contract in
year 1, CarProd undertakes to repair
manufacturing defects or replace defective
parts that become apparent within 5 years
from the date of sale.
Based on previous experience, it is probable
that there will be some claims under
warranties.
How should CarProd deal with the
warranties?
a. Do nothing
2. PhthalateCorp operating in chemical
industry worldwide regularly causes
contamination of land , but cleans up only
when is required so under the laws of
particular country. Country Cleanlandia has
had no such legislation and PhthalateCorp has
been contaminating land for several years.
As at 31 December year 1 it is certain that
draft of law requiring clean-up of
contaminated land (no matter when) will be
enacted after the year-end in Cleanlandia.
b. Disclose contingent liability on the
NotesHow should the company deal with the
estimated cleaning expense?
3. BenzCorp operating in chemical industry
worldwide regularly causes contamination of
land , but has widely published its
environmental policy in which it undertakes
to clean up all contamination.
In year 1, Benz Corp operates in the countries
without any environmental legislation. How
should the company deal with the estimated
cleaning expense?
c. Disclose contingent asset on the Notes
4. At the end of year 1, government
introduces a number of changes to the income
tax system. As a result of these changes,
during the next year, Taxexperts Co will need
to retrain a large number of its financial
services staff in order to continue providing
up-to-date information and advices to its
clients.
How Taxexperts account for the estimated
retraining expenditure?
d. Present Provision on the SoFP
Topic 11_IFRS 15
Revenue from contract with customers
Do the Exercise 11.1 to 11.7 on the handout Topic 11
(Slide no.54-60)