HUMPHREY Limited owns a property that is used as itshead office in Pretoria. On 1st January 2024, itscarrying value was R20 million and its remaining usefullife was 20 years. On 1st July 2024, the businessrecognized cheaper premises found for use as the headoffice. It was therefore decided to lease the propertyunder an operating lease. The property was valued by aqualified professional who assessed the property'svalue as R21 million on 1st July and R21.6 million on 31st December 2024.Required:Discuss the differences between operating and financeleases (5)Discuss the conditions that need to be met for a lease tobe recognised as a finance lease (5)Explain the accounting treatment of the property in thefinancial statements for the year ended 31st December2024. (Hint: Income statement and SOFP extractincluding calculations).

(a) Operating leases and finance leases are two different methods of leasing assets, each with its…

Answered: HUMPHREY Limited owns a property that…

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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KK Limited owns a property that is used as its head office in Pretoria. On 1st January 2020, itscarrying value was R20 million and its remaining useful life was 20 years. On 1st July 2020, thebusiness recognized cheaper premises found for use as the head office. It was therefore decidedto lease the property under an operating lease. The property was valued by a qualifiedprofessional who assessed the property’s value as R21 million on 1st July and R21.6 million on31st December 2020. Explain the accounting treatment of the property in the financialstatements for the year ended 31st December 2020. (Hint: Income statement and SOFP extractincluding calculations).
1.2)KK Limited owns a property that is used as its head office in Pretoria. On 1st January 2020, itscarrying value was R20 million and its remaining useful life was 20 years. On 1st July 2020, thebusiness recognized cheaper premises found for use as the head office. It was therefore decidedto lease the property under an operating lease. The property was valued by a qualifiedprofessional who assessed the property’s value as R21 million on 1st July and R21.6 million on31st December 2020. Explain the accounting treatment of the property in the financialstatements for the year ended 31st December 2020. (Hint: Income statement)
XYZ, a manufacturing company, purchases a property for Ghs1m on 1 January 2016 for its investment potential. The land element of the cost is believed to be Ghs 400,000 and the buildings element is expected to have a useful life of 50 years. At 31 December 2016, local property indices suggest that the fair value of the property has risen to Ghs1.1m. Requirement Explain how the property would be presented in the financial statements as at 31 December 2016 if XYZ adopts the Cost model andFair value model.
1.2. KK Limited owns a property that is used as its head office in Pretoria. On 1st January 2020, its carrying value was R20 million and its remaining useful life was 20 years. On 1st July 2020, the business recognized cheaper premises found for use as the head office. It was therefore decided to lease the property under an operating lease. The property was valued by a qualified professional who assessed the property’s value as R21 million on 1st July and R21.6 million on 31st December 2020. Explain the accounting treatment of the property in the financial statements for the year ended 31st December 2020. (Hint: Income statement and SOFP extract including calculations
Romel (Pty) Ltd is a company that started operating on 1" January 2019 and has its year end on 31 December each year. The company's head office is in Pretoria. It also owns land and buildings in North West Province which was purchased for R 300 000. The land and buildings are leased to tenants under an operating lease for R 50 000 per annum. Required: 1.1 Identify whether leased land and building can be recognized as an investment property under IAS 40. HINT: Start by identifying whether it can be recognized as an asset or not. RECOMMENDED FORMAT DEFINITION APPLICATION 1.2. Journalize the purchase of Land and Buildings on 31" December 2019 and the rental received in the same year.
Wawood Limited purchased the rights, under a government licence to mineon government land. The agreement which was signed on 1 January 2020,includes a clause that obligates Wawood Limited to restore the land back toa satisfactory condition at the conclusion of their mining operation when theright expires in four years’ time. The costs of the restoration in four years’time will be R 2 050 000. The appropriate discount rate to present value therestoration costs is 13%. Required:Prepare the journal entries to record the initial recognition of the provisionon 1 January 2020 and the change in the value of the provision as at 31 December 2020. Round off the present value factor to 4 decimal placesand the present value of the provision to the nearest rand.All answers must comply with the requirements of International FinancialReporting Standards (IFRS), in particular IAS37 ‐ Provisions, contingentliabilities and contingent assets
Wawood Limited purchased the rights, under a government licence to mine on government land. The agreement which was signed on 1 January 2020, includes a clause that obligates Wawood Limited to restore the land back to a satisfactory condition at the conclusion of their mining operation when the right expires in four years’ time. The costs of the restoration in four years’ time will be R 2 050 000. The appropriate discount rate to present value the restoration costs is 13%.Required:Prepare the journal entries to record the initial recognition of the provisionon 1 January 2020 and the change in the value of the provision as at31 December 2020. Round off the present value factor to 4 decimal placesand the present value of the provision to the nearest rand.All answers must comply with the requirements of International FinancialReporting Standards (IFRS), in particular IAS37 ‐ Provisions, contingentliabilities and contingent assets.All calculations must be shown as marks will be…
A. MacPro Property Bhd acquired an investment property on 1 January 2015 and measured it using the cost model. On 1 January 2018, MacPro Property Bhd changed the accounting policy and used the fair value model to measure investment property. The acquisition cost of the property was RM70 million and the estimated useful life was 35 years. The fair values of the property were measured as below: Date RM (in million) 31/12/2015 72 31/12/2016 74 31/12/2017 78 31/12/2018 83 Profit after depreciation on investment property but before tax for 2017 and 2018 were RM80 million and RM95 million, respectively. Retained earnings brought forward on 1 January 2017 and 2018, were RM150 million and RM210 million, respectively. Assume that tax rate for 2017 and 2018 was 25%. REQUIRED: Discuss the accounting treatment of the above transaction in accordance to MFRS 108 Accounting Policies, Changes in Accounting Estimates and Errors. Prepare the comparative financial…
TIA Bhd paid RM9,000,000 on 1 January 2016 to purchase a building for capital appreciation. The fair value of the building on 31 December 2016 and 31 December 2017 were RM16,000,000 and RM11,000,000, respectively. On 30 June 2018, TIA Bhd decided to use this building as an administrative office. The remaining useful life of the office building on 30 June 2018 is 8 years. The fair value of the building on 30 June 2018 was RM14,000,000. However, due to financial problem, TIA Bhd sold this building on 30 June 2019 for RM15,500,000. TIA Bhd adopted fair value model for investment property and revaluation model for owner occupied property. The straight-line method has been used by TIA Bhd to calculate depreciation for the fixed asset. TIA Bhd closes its account on 31 December every year.REQUIRED:(a) Prepare all journal entries for the year 2016, 2017, 2018 and 2019.(b) Explain the accounting treatment for the derecognition of investment property
MacPro Property Bhd acquired an investment property on 1 January 2015 and measured it using the cost model. On 1 January 2018, MacPro Property Bhd changed the accounting policy and used the fair value model to measure investment property. The acquisition cost of the property was RM70 million and the estimated useful life was 35 years. The fair values of the property were measured as below: Date RM (in million) 31/12/2015 72 31/12/2016 74 31/12/2017 78 31/12/2018 83 Profit after depreciation on investment property but before tax for 2017 and 2018 were RM80 million and RM95 million, respectively. Retained earnings brought forward on 1 January 2017 and 2018, were RM150 million and RM210 million, respectively. Assume that tax rate for 2017 and 2018 was 25%. REQUIRED: Discuss the accounting treatment of the above transaction in accordance to MFRS 108 Accounting Policies, Changes in Accounting Estimates and Errors. Prepare the comparative…
During the year ended 30 June 2023, CoCo Berhad had the following transactions: a. In July 2022, CoCo Berhad acquired a building for RM800, 000 with an estimated useful life of 20 years. It is the company's policy to depreciate the building on a straight line basis. On 30 June 2023, the building had been revalued to RM950, 000. It is the company's policy to provide a full year's depreciation in the year of purchase and none in the year of disposal. For tax purposes, initial allowance of 10% and annual allowance of 3% are given for such buildings. The company has no intention to dispose the revalued building. b. CoCo Berhad had trade receivables of RM1, 500, 000 and an allowance for doubtful debts of 10% has been made for the year. Income tax rate is 25% for the year ended 30 June 2023. Required: Calculate the deferred tax asset or deferred tax liabilities as at 30 June 2023 arising from the above transactions. Please step by step answer
Welders Ltd commenced trading on 1 Jan 20x5 and bought the following assets: Business premises €100,000 which comprised of land worth €55,000 and a building worth €45,000. The land would rot be depreciated, and the building would be depreciated on a straight-line basis over its useful life of 15 years with a nil residual value 2 Welding machines for €20,000 each. Each had an estimated life of five years and a residual value of €5,000. Onl Jan 20x7, the area around the factory was rezoned and the business premises was revalued to €250,000, comprising Land €175,000 and Building €75,000. The useful life of the building was reduced to 10 years with a nil residual value. On 30 Jun 20x7, one of the welding machines was sold for €15,000 cash. The policy of the company is to charge a full year's depreciation in the year of acquisition and none in the year of disposal. Required: Prepare the relevant ledger accounts for the year ended 31 Dec 20X7 to reflect the above transactions, assuming the…

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