Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › 12/07 Emerald
- This topic has 3 replies, 2 voices, and was last updated 8 years ago by MikeLittle.
- AuthorPosts
- November 25, 2015 at 11:12 am #285154
Dear Mike, would you please help me this question, as follows:
Emerald had had a policy of writing off development expenditure to profit or loss as it was incurred. In preparing its financial statements for the year ended 30 September 20×7 it has become aware that , under IFRS rules, qualifying development expenditure should be treated as an intangible asset. Below is the qualifying development expenditure for Emerald:………..$000
year end 30 September 20×4………………….300
year end 30 September 20×5………………….240
year end 30 September 20×6………………….800
year end 30 September 20×7………………….400
All capitalised development expenditure is deemed to have a four year life. Assume amortisation commences at the beginning of the accounting period following capitalisation. Emerald had no development expenditure before that for the year ended 30 September 20×4.
Required: Treating the above as the correction of an error in applying an accounting policy, calculate the amounts which should appear in the statement of profit or loss and statement of financial position (including comparative figures), and statement of changes in equity of Emerald in respect of the development expenditure for the year ended 30 September 20×7
the answer is that shown as follows:…………………….$000……………………….$000
statement of profit or loss:…………………………………..20×7………………………..20×6
Amortisation of development expenditure……………..335…………………………..135
Statement of financial position:
intangible assets: development expenditure…………1195………………………..1130
Statement of changes in equity
Prior period adjustment
added retained earnings balances at 1.10.×5………………………………………….465
I don’t understand this situation (added retained earnings balances at 1.10.×5….465),whether 465 is going to be added with Retained earning together or is going to be deducted from retained earning ?how they do it through double entry Dr: Retained Earning 465; Cr: development of expenditure 465, the 465 should be appeared in 2005 statement of financial position:intangible asset. going through 2006 amortisation, there are still leftover 330 needed to be amortised in next year 2007, why they are directly added to retained earning in 2006?
many thanksNovember 25, 2015 at 4:36 pm #285233It has previously been written off to retained earnings. Now we are reversing this so your journal entry is back to front. The adjustment / correction will be to Dr Development expenditure (INCA) and Cr Retained Earnings
I believe that that explains your other concerns
November 25, 2015 at 4:48 pm #285244thank you i got it
November 25, 2015 at 4:55 pm #285250You’re welcome
- AuthorPosts
- You must be logged in to reply to this topic.