11 Ainsworth 49 mins

Ainsworth is preparing its financial statements for the year ended 31 March 20X8.
The exhibits provide information relevant to the question.
Exhibit 4 - Head office
Ainsworth leased its head office during the current accounting period and the
agreement terminates in six years' time. There is a clause in the lease relating to the
internal condition of the property at the termination of the lease. The clause states
that the internal condition of the property should be identical to that at the outset of
the lease. Ainsworth has improved the building by adding another floor to part of
the building during the current accounting period but is unsure of how the addition
should be accounted for in the financial statements.
Explain and show (where possible by quantifying amounts) how the four events
would be reported in the financial statements of Ainsworth for the year ended 31
March 20X8: ( 5 marks )
Solution
Under IAS 16 property, plant and Equipment , the entity should capitalize costs of
extra floor , which building to improve the building .
The extra floor should be depreciated over 6years the termination of the lease
agreement.
At the end of the lease agreement , the entity will have to remove the extra floor as
There is a clause in the lease relating to the internal condition of the property at the
termination of the lease. The clause states that the internal condition of the property
should be identical to that at the outset of the lease . This a decommissioning
liability
The cost should be capitalized as a part of the building and recognize a provision :
DR . Head office asset
CR . Provision
The amount capitalized should be depreciated over the six-year lease period.
The provision should be discounted to its present value and the unwinding of the
discount recognized in profit or loss.