Toy Story Ltd is a company listed on the JSE Security Exchange. The company has a 31 March yearend. The primary segments of the business operations are the manufacturing and selling of toys and infant clothing. On 1 April 20.10 Toy Story Ltd obtained a licence to sell Bogus Toys for 25 years. The total cost of the licence amounted to R2 500 000. The licence is amortised on the straight-line basis over a period of 25 years, as it is expected that economic benefits relating to the licence will flow to the entity over this period. On 31 March 20.12 it is estimated that the licence will generate cash inflows amounting to R750 000 per annum. The annual cash outflow required to generate the inflow amounts to R325 000. Assume that all cash flows occur annually at 31 March. A pre-tax discount rate of 20% is regarded as appropriate. However, the expected future cash flow is now less than the original estimate because a second licence to sell Bogus Toys was awarded to a major competitor on 30 September 20.11. The original estimated useful life, however, remains unchanged. The licence can be sold for R2 000 000 on 31 March 20.12. For the year ended 31 March 20.11 the recoverable amount exceeded the carrying amount of the licence. The company regards all impairment losses or the reversal thereof above R100 000 as material. The tax rate has remained unchanged at 28%. Toy Story Ltd had a profit before tax of R269 080, before the impairment was taken into account, for the year ended 31 March 20.12. Required: Prepare the following Notes of Toy Story Ltd for the year ended 31 March 20.12. • Accounting policy (only Impairment of non-financial assets and Intangible assets) • Intangible assets • Impairment of assets • Profit before tax

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Toy Story Ltd is a company listed on the JSE Security Exchange. The company has a 31 March yearend. The primary segments of the business operations are the manufacturing and selling of toys and infant clothing. On 1 April 20.10 Toy Story Ltd obtained a licence to sell Bogus Toys for 25 years. The total cost of the licence amounted to R2 500 000. The licence is amortised on the straight-line basis over a period of 25 years, as it is expected that economic benefits relating to the licence will flow to the entity over this period. On 31 March 20.12 it is estimated that the licence will generate cash inflows amounting to R750 000 per annum. The annual cash outflow required to generate the inflow amounts to R325 000. Assume that all cash flows occur annually at 31 March. A pre-tax discount rate of 20% is regarded as appropriate. However, the expected future cash flow is now less than the original estimate because a second licence to sell Bogus Toys was awarded to a major competitor on 30 September 20.11. The original estimated useful life, however, remains unchanged. The licence can be sold for R2 000 000 on 31 March 20.12. For the year ended 31 March 20.11 the recoverable amount exceeded the carrying amount of the licence. The company regards all impairment losses or the reversal thereof above R100 000 as material. The tax rate has remained unchanged at 28%. Toy Story Ltd had a profit before tax of R269 080, before the impairment was taken into account, for the year ended 31 March 20.12. Required: Prepare the following Notes of Toy Story Ltd for the year ended 31 March 20.12. • Accounting policy (only Impairment of non-financial assets and Intangible assets) • Intangible assets • Impairment of assets • Profit before tax

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