The following costs were incurred by Barak Klever Ltd in 2020 in the design and construction of a new office building over a nine-month period during 2020: GH¢000 Feasibility study 8 Architects' fees 100 Site clearance (by external demolition professionals) 80 Construction materials 600 Cost of own inventories used in the construction (net realisable value if sold outside the company GH¢24,000) 30 Internal construction staff salaries during period of construction 360 External contractor costs 2,400 Income from renting out part of site as storage depot during early phase of construction (12) 3,566 Required: In accordance with IAS 16 Property, plant and equipment, calculate the amount that Barak Klever Ltd should capitalise as property in the financial statements for the year ending 31 December 2020
The following costs were incurred by Barak Klever Ltd in 2020 in the design and
construction of a new office building over a nine-month period during 2020:
GH¢000
Feasibility study 8
Architects' fees 100
Site clearance (by external demolition professionals) 80
Construction materials 600
Cost of own inventories used in the construction
(net realisable value if sold outside the company GH¢24,000) 30
Internal construction staff salaries during period of construction 360
External contractor costs 2,400
Income from renting out part of site as storage depot
during early phase of construction (12)
3,566
Required:
In accordance with IAS 16 Property, plant and equipment, calculate the amount that Barak Klever
Ltd should capitalise as property in the financial statements for the year ending 31 December 2020
b. Courage Hodey Inc. owns the following properties as at 31 December 2019:
Property: Fair value (GH¢million)
Land with future use undetermined 3.2
Factory rented to Courage Hodey's subsidiary under an operating lease 2.4
10 floor office building (fair value is equal per floor)
with 3 floors used as the subsidiary's head office and seven floors
rented to third parties under an operating lease. 15.0
Empty building held for capital appreciation, but not leased out. 4.1
Courage Hodey's accounting policy is to hold its investment properties under the fair value model
and its land and buildings under the revaluation model.
Required:
In accordance with IAS 40 Investment Property calculate the carrying amount to be recognised as investment property in Courage Hodey's consolidated financial statements as at 31 December 2019.
c. IAS 23 Borrowing Costs requires that borrowing costs directly attributable to the acquisition, construction or production of a 'qualifying asset' (one that necessarily takes a substantial period of time to get ready for its intended use or sale) are to be capitalised or included in the cost of the asset once they meet certain conditions.
Required:
Identify THREE conditions that must be met before an entity can commence to capitalise borrowing cost.
d. Polycarp Ltd adopts revaluation model for subsequent measurement of its intangible assets in accordance with IAS 38: Intangible assets. The policy of Polycarp is to revalue its intangible asset at the end of each year. An intangible asset with an estimated useful life of 9 years was acquired on 1 January 2018 for GH¢45,000. It was revalued to GH¢54,400 on
31 December 2018 and the revaluation surplus was correctly recognized on that date. As at 31 December 2019, the asset was revalued at GH¢32,000.
Required:
Discuss the accounting treatment required in 2018 and 2019 financial statements
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