IFRS requires capitalizing actual interest (with modification) in self-constructed assets. What are the five steps necessary to meet IFRS requirement

Finance by Geoffrey

Assignment Question(s):                                                    (Marks 15)

 

Q1.

  1. A company abandons the historical cost principle and adopts the LCNRV method of valuing inventory. Explain the process of LCNRV (Mark 1)

 

  1. Abdullah Corporation gives you the following information about its inventory for four different products as on December 31st 2020.

                                                       Estimated                Expected         

Product    Original Cost            Completion Cost       Selling Price                             

   A                  SAR25                  SAR10                      SAR40                         

   B                  SAR42                  SAR20                      SAR58                         

   C                SAR120                  SAR40                    SAR150                         

   D                  SAR18                    SAR5                      SAR26                         

Using the lower-of-cost-or-net realizable value approach applied on an individual-product basis, compute the inventory valuation to be reported for each product on December 31, 2020.      (Marks 2)

 

 

Q2.a. IFRS requires capitalizing actual interest (with modification) in self-constructed assets. What are the five steps necessary to meet IFRS requirement. (Marks 1)

 

  1. On November 1, 2020, Saif Company contracted Ahmed Construction Co. to construct a building for SAR 1,600,000 on land costing SAR 400,000 (purchased from the contractor and included in the first payment). Saif made the following payments to the construction company during 2021.
Date Amount SAR
1st Jan 500,000
1st Mar 400,000
1st  Jun 350,000
1st   Sep 500,000
1st     Dec 250,000

Required: Compute weighted-average accumulated expenditures for 2021 (Marks 2)

 

Q3 Long-lived tangible asset are associated with either depreciations, impairments or depletions. Explain why companies revalue such assets on an annual basis, and give examples on depreciations, impairments and depletions. (Marks 3)

 

 

Q4. Firoz Corp. obtained a trade name in January 2010, incurring legal costs of SAR15,000. The company amortizes the trade name over 8 years. Firoz, successfully defended its trade name in January 2011, incurring SAR 4,900 in legal fees. At the beginning of 2012, based on new marketing research, Firoz determines that the recoverable amount of the trade name is SAR 12,000.

Required:

  1. Prepare the necessary journal entries on amortization for the years ending December 31, 2010 & 2011. (2 mark)
  2. In 2012, will Firoz meet any impairment loss? If yes, prepare journal entry to record the impairment loss and amortization entry on 31st Dec 2012 (2 mark)

 

Q5. Assume that a Financial Corporation issued SAR 500,000 of 8% term bonds on January 1, 2021, due on January 1, 2026, with interest payable each July 1 and January 1. Investors require an effective-interest rate of 6%.

Note: PV of principal amount at 6% is 0.74409 and PV of semi-annual interest amount at 6% is 8.53020

Required:

  1. Calculate the bond proceeds, and state whether the bond is issued at a premium or discount? (Marks 1.5)
  2. Pass journal entry to on date of issue, Jan. 1, 2021 (Marks 0.5)