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See BPP exam kits number 28 Highveldt ( 2.5 6/05)
(a)I have not understand the part of development cost.
(1)Why should we reduce net assets at closing date by 22 (32-10) and why is it 32-10???
(2)In the calculation of Retained Earnings why had it add amortization of development expenditure 10 and not minus this figure???
(3)And why 50-18 for the write off development expenditure as incurred???
AS A WHOLE I HAVE NOT UNDERSTAND THIS PART (iv)(b) In the calculation of Revaluation Surplus what is this figure (4*75%):)??
PLEASE REPLY
4*75% = 3 is because – well, why should we stand the full 100% when we only own 75% of Samson? Why should we reduce net assets by 22? Because the development asset does not meet the criteria for being capitalised and should therefore have been expensed. Debit ret ears and credit the asset.
Why add 10? Because the amortisation of 10 shouldn’t have happened – if we had treated the original development costs as an expense in the first place. Therefore we need to add back the amortisation expense, and then expense the development costs in full.
Now we have added back the 10, we have a development costs figure of 50 less the 18 which was at acquisition date = 32does that help?
Mike but you told me that we should reduce net assets at closing date by 22 because it does not meet the criteria of being capitalised but the $18 was capitalised, does $18 also do not meet the criteria of being capitalised???
(2) The first question I asked you is why we take 32 and minus with 10???From memory, the 18 which existed at date of acquisition was adjusted through the goodwill calculation so only the remaining 22 needs to come off retained earnings. But that’s from memory – I don’t have the question in front of me
Yes but you have not still give me the answer for why we take 32 and we minus it with 10???
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