[XiaoLi]

Thank you for your answer. And sorry for the late reply as I have to read the book during the daytime.
the question one is quoted from one of my exams. I am sorry that I cannot understand what it means either. I guess they are saying that a firm has its roof replaced, costing $100,000, and among the total cost, $30,000 is spent on the special materials(which can save the cost so that future benefit may flow to the entity) so that $30,000 should be capital expense and the remaining $70,000 should be charged as revenue expense. But i am not sure whether it is possible to separate the cost in this way or not?

For the question four, it is a word-to-word quotation from F7 textbook (BPP version). the question 20 Jenson in the question bank (page 390-391 question C(ii) ). this question is quite confusing too.

“Jenson owns the rights to fast food franchise. On 1 April 2003, it sold the right to open a new outlet to Mr.Cody. The franchise is for 5 years. Jenson received an initial fee of $50,000 for the first year and will receive $5,000 per annum thereafter. Jenson has continuing service obligations on its franchise for advertising and product development that amount t o approximately $8,000 per year per franchise outlet. A reasonable profit margin on the provision of the continuing services is deemed to be 20% of revenue received.”
question asks “how to recognize the revenue and cost for Jenson in term of the franchise in each of the following five years”

The answer is “the initial fee of $50,000 should be spread evenly over the term of the franchise. This will give revenue of $10,000 in year 1 and $15,000 thereafter. the profit will therefore be 20% for year 1 and approximately 46% for year 2-5. ”
I am confusing because what is the point of the advertisement provision? and why should the initial fee be spread evenly in the five years?

Thank you for your patience. And may ask a few more questions because I do my reading and practicing myself everyday. I really need someone like you can offer a helping hand. thx

question one(30 June 2013):
as we known, employee cannot be recognized as an asset. However, I met a question saying:
A firm pay $300,000 to hire an expert for 3 years, the $300,000 is paid when contract is signed under a condition that if the expert leave in advance, he should pay back the unfinished obligation to the contract ( say, if the expert leave at the end of the second year, he will pay back one year obligation, i.e $100,000)
so should the entity recognize that condition as a kind of intangible asset ? How to recognize it?

question two.
An equity instrument is carried at FVTOCI, the initial cost to acquire it is $50,000 plus $20,000 transaction cost. At the year end, the fair value of the equity instrument is $100,000.
What amount should revaluation surplus be? $50,000 or $30,000.
what amount should be the equity instrument be? $100,000 or $120,000. and why?

question three
Should the impairment of ending inventory be charged as an impairment loss or be included as part of Cost of Sales?
Should cost of sales include the loss on disposal of non-current asset?

thanks with sincere gratitude

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