Q.6.1 This question comprises three independent parts.Q.6.1.1 Briefly discuss why research expenditure is expensed in profit orloss rather than capitalised as an intangible asset.(2)Q.6.1.2 Khair Ltd carries out research and development on a continuousbasis. The directors of the company are passionate aboutimproving their medicinal drugs and finding new cures.In the current financial year, the company has been makingsignificant findings regarding a vaccine for the coronavirus. To thiseffect, they have registered a patent for a new vaccine that willsoon be available to customers. The following costs have beenincurred in respect of the patent in the current financial year.Research salaries R250 000Development salaries R450 000Initial marketing costs R30 000Fees to register patent R78 000Materials used in development R12 000The development was completed on 1 July 2020.(4)Patents are amortised on a straight‐line basis at 20% per annumwith no residual value.Prepare the journal entry to recognise the patent in the financialstatements of Khair Ltd on 1 July 2020.Narrations are required as marks will be allocated to these.Q.6.1.3 Waikiki Trading Ltd incurred the following project expenditures inrespect of a new ERP system in the development phase:(4) Salaries of IT employees working exclusively on the project:R670 000 Employee awareness leaflets: R32 000 General overhead cost allocation: R123 000 Specialist consultancy service: R432 000State what value for each of the above four expenditures will beincluded in the capitalised cost of the ERP system. Write downonly the amounts. (If the amount to be included is NIL in youropinion, then write down NIL).All answers must comply with the requirements of International FinancialReporting Standards (IFRS), in particular IAS38 – Intangible assets.Q.6.2 Answer each of the following questions. (15)Q.6.2.1 If a property is partly an investment property and partly owner‐occupied, and the property is separable, how should the entityaccount for the property?(2)Q.6.2.2 Where the payment of an investment property is deferred beyondnormal credit terms, how should the entity account for anyadditional payment above the cash cost of the asset?(2)Q.6.2.3 Which two models may an entity opt for when accounting forinvestment property?(2)© The Independent Institute of Education (Pty) Ltd 2020Q.6.2.4 If investment property that is leased out and carried using the fairvalue model becomes owner‐occupied, what will the property’sinitial cost for subsequent accounting be?(2)Q.6.2.5 If inventories are transferred to investment property carried at fairvalue, what will the accounting treatment be for any differencebetween the fair value and the previous carrying amount at thetransfer date?(2)Q.6.2.6 How will we recognise any fair value gain arising from a change infair value of an investment property?(2)Q.6.2.7 For investment property carried using the cost model, what is thecalculation to determine the carrying value?(3) All answers must comply with the requirements of International FinancialReporting Standards (IFRS), in particular IAS16 – Property, plant andequipment.
Q.6.1 This question comprises three independent parts.
Q.6.1.1 Briefly discuss why research expenditure is expensed in profit or
loss rather than capitalised as an intangible asset.
(2)
Q.6.1.2 Khair Ltd carries out research and development on a continuous
basis. The directors of the company are passionate about
improving their medicinal drugs and finding new cures.
In the current financial year, the company has been making
significant findings regarding a vaccine for the coronavirus. To this
effect, they have registered a patent for a new vaccine that will
soon be available to customers. The following costs have been
incurred in respect of the patent in the current financial year.
Research salaries R250 000
Development salaries R450 000
Initial marketing costs R30 000
Fees to register patent R78 000
Materials used in development R12 000
The development was completed on 1 July 2020.
(4)
Patents are amortised on a straight‐line basis at 20% per annum
with no residual value.
Prepare the
statements of Khair Ltd on 1 July 2020.
Narrations are required as marks will be allocated to these.
Q.6.1.3 Waikiki Trading Ltd incurred the following project expenditures in
respect of a new ERP system in the development phase:
(4)
Salaries of IT employees working exclusively on the project:
R670 000
Employee awareness leaflets: R32 000
General
Specialist consultancy service: R432 000
State what value for each of the above four expenditures will be
included in the capitalised cost of the ERP system. Write down
only the amounts. (If the amount to be included is NIL in your
opinion, then write down NIL).
All answers must comply with the requirements of International Financial
Reporting Standards (IFRS), in particular IAS38 – Intangible assets.
Q.6.2 Answer each of the following questions. (15)
Q.6.2.1 If a property is partly an investment property and partly owner‐
occupied, and the property is separable, how should the entity
account for the property?
(2)
Q.6.2.2 Where the payment of an investment property is deferred beyond
normal credit terms, how should the entity account for any
additional payment above the cash cost of the asset?
(2)
Q.6.2.3 Which two models may an entity opt for when accounting for
investment property?
(2)
© The Independent Institute of Education (Pty) Ltd 2020
Q.6.2.4 If investment property that is leased out and carried using the fair
value model becomes owner‐occupied, what will the property’s
initial cost for subsequent accounting be?
(2)
Q.6.2.5 If inventories are transferred to investment property carried at fair
value, what will the accounting treatment be for any difference
between the fair value and the previous carrying amount at the
transfer date?
(2)
Q.6.2.6 How will we recognise any fair value gain arising from a change in
fair value of an investment property?
(2)Q.6.2.7 For investment property carried using the cost model, what is the
calculation to determine the carrying value?
(3)
All answers must comply with the requirements of International Financial
Reporting Standards (IFRS), in particular IAS16 – Property, plant and
equipment.
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