[mika84]

Ok, thank you.

[mika84]

There was a tip–effect of acquisition on parent.So, i think, we had to compare Parent without Sub with its past years performance.

[mika84]

Also i remember not few questions on Inventory

[mika84]

Im surprised, you didnt have revenue questions-second or third section B was all about revenue.Do we have different variants?

[mika84]

Yes, now it is clear, thank you.

[mika84]

Yes, but how should we recognize right of use and liability in exam question -T0 to T4 or T1-T5 in case of advance payments? in your lecture you you apply T1-T5, right?

Thank you

[mika84]

As far as i understand now, 2500 credit for AR will leave only 1500

[mika84]

I have revised your notes and watched lectures again.
I am bit confused now.

This is a text:
“A lessee enters into a five-year lease of a building which has a remaining useful life of ten years. Lease payments are $50,000 per annum, payable at the beginning of each year. The lessee incurs initial direct costs of $20,000 and receives lease incentives of $5,000. There is no transfer of the asset at the end of the lease and no purchase option. The interest rate implicit in the lease is not immediately determinable but the lessee’s incremental borrowing rate is 5%. At the commencement date the lessee pays the initial $50,000, incurs the direct costs and receives the lease incentives. ”

In case of rentals paid in advance, they give the following solution:

Annuity factor is calculated using 4 years, giving 177297 as discounted liability.

Assets and liabilities will initially be recognized as follows:

Debit

Right-of-use asset:
Initial payment 50,000
Discounted liability 177,297
Initial direct costs 20,000
Incentives received (5,000)
Total: 242297

But what I understood from your lectures, we have to take 5 years for annuity factor adding other costs and deducting incentives. This totaled 231473 in my case.
Is there any information I miss here ? I can’t understand, what amount is correct.

And could you please be so kind to show allocation of initial recognition amounts to credits and debits, using correct amounts.

Thank you.

[mika84]

As far as i understood from Aliahmed’s solutions, we have to take a revalued number of useful life.

Thank you.

[mika84]

Ok, thank you.

[mika84]

Dear Chris,
I looked through the text once more and realized that this 800 represent loan interest paid.So, 2400 is expense amount and 2400-800 =1600 will be added to Liabilty amount.
My question is, is it right to suppose that if it is written that the amount is paid then its not expense for previous period?Because logically i think if this is Loan interest Debit then it is interest expense.

[mika84]

This is past exam problem under the name of ENCA.

A director of Enca, a public listed company, has expressed concerns about the
accounting treatment of some of the company’s items of property, plant and
equipment which have increased in value. His main concern is that the statement of
financial position does not show the true value of assets which have increased in
value and that this ‘undervaluation’ is compounded by having to charge depreciation
on these assets, which also reduces reported profit. He argues that this does not
make economic sense.
Required:
Respond to the director’s concerns by summarising the principal requirements of
IAS 16 Property, Plant and Equipment in relation to the revaluation of property,
plant and equipment, including its subsequent treatment. (5 marks)
(b) The following details relate to two items of property, plant and equipment (A and B)
owned by Delta which are depreciated on a straight-line basis with no estimated
residual value:
Item A Item B
Estimated useful life at acquisition 8 years 6 years
$000 $000
Cost on 1 April 2010 240,000 120,000
Accumulated depreciation (two years) (60,000) (40,000)
––––––– –––––––
Carrying amount at 31 March 2012 180,000 80,000
––––––– –––––––
Revaluation on 1 April 2012:
Revalued amount 160,000 112,000
Revised estimated remaining useful life 5 years 5 years
Subsequent expenditure capitalised on 1 April 2013 nil 14,400
At 31 March 2014 item A was still in use, but item B was sold (on that date) for
$70 million.
Note: Delta makes an annual transfer from its revaluation surplus to retained
earnings in respect of excess depreciation.

[mika84]

Sorry, is this intra group loan included into F7 ? I haven’t met this in my text book except intra group loans between P and S.

[mika84]

@jetavi said:
Hi,

So if it is “Convertible Bond”, where there is a choice given to convert the debt to equity.
This is an example of Compound Instruments. These instruments have the components of both the liability as well as equity.

Is it clear now?

I listened to the lecture on Amortised cost, as far as I understood these are examples of 1)Amortised cost 2)Amortised cost FVTOCI and 3)Amortised cost FVTPL
Chris mentioned, these kinds most unlikely to come in exam paper.

[mika84]

I will check, thanks

[mika84]

Yes, that’s what was missing, thanks.

[mika84]

Thanks for replying,

Step1 – find temporary difference

we don’t know TD because we are given profit figures
so we move to

Step2 – position

position is TD * tax rate, but we don’t know TD
however we can directly calculate deferred tax by
comparing Profit on accounting base (1000 per year) and taxable
profit:
Y1 Y2 Y3
Profit accounting base 1000 1000 1000
Taxable profit 1200-240=960 1200-210=990 1200-150=1050
Tax 960*0,3=288 990*0,3=297 1050*0,3=315

Tax paid on accounting base 300 300 300
Tax paid on taxable base 288 297 315
Deffered tax asset or liability -12 -3 15
liabilit liability asset

SPL
Profit before tax 1000 1000 1000
Incom tax expense -288 -297 -315
Deferred tax -12 -3 15
Profit 700 700 700

Here I can not understand, why in your example do movements refer to SPL and
here to SFP ?

SFP
Noncurrent liabilities: DT -12 -15 0
movement -3 movement +15

Current liabilities : Tax -288 -297 -315

[mika84]

Thanks for replying,

I follow the following guide : If the revenue recognised exceeds the cash received, there will be a contract asset. If the contract costs to date exceed the cost of sales recognised, this will be treated as work­in­progress. This can be included within the contract asset. This will be shown as a separate asset within current assets.

The variants given are:

Current assets Current liabilities
A Contract asset/Inventory 6 Contract liability/Provision 6
B Contract asset/Trade receivables 8 Contract liability 20
C Contract asset/Inventory 6 Contract liability 20
D Contract asset/Trade receivables 8 Contract liability/Provision 6

Correct answer is D

My calculations:

Cash received 55
Cash recognized 63
Trade receivable 8
so Asset is 8

Revenue 63
COS 77
COS (provision) 6
Loss -20
so Liability is 6

However, variant A gives also Inventory =6 option and I calculate WIP as following:

Cost to date 83 (77+6)
Cost recognized 77
Inventory 6

Therefore, I could choose variant A. So, I just would like to understand, is my calculation of WIP wrong ? if it is right then variant A is potentially correct, isn’t it?

[mika84]

Sorry, I would like to add that I understand that for SFP we have:

Y1 Y2 Y3
Tax 288 297 315
Def.tax 12 3 -15

Following your instructions i can do following:

SPL

Y1 Y2 Y3
PBT 1000 1000 1000
Current tax -288 -297 -315
DT movement 12 -9 18

As you see my movements dont give smooth 700 profit figures.What is wrong?

[mika84]

Hi,
In Kaplan kit they say:

A division of a company has the following balances in its financial statements:
Goodwill $700,000
Plant $950,000
Property $2,300,000
Intangibles $800,000
Other net assets $430,000
Following a period of losses, the recoverable amount of the division is deemed to be
$4 million. A recent valuation of the building showed that the building has a market value of
$2.5 million. The other net assets are at their recoverable amount. The company uses the
cost model for valuing property, plant and equipment.

Question:To the nearest thousand, what is the balance on property following the impairment
review?

In the answer they explain as following:valuation of 2.5 mln indicates that there is no impairment.Answer is 2.3 mln.

My question:
I understand that it must not be lower than Realisable value, but is there any rule that valuation of building gives us reference to property only? What about plant, for ex?
Thank you.

[mika84]

In the text, they mean market value of buildings.

[mika84]

Could you please advise pros and cons of Paper and CBE?

[mika84]

CONGRATULATIONS!I am taking in F7 and know very little about this paper.Could you advise, what is best way to prepare:read text and solve kit, or listen to OT lectures and solve Kit, or any other ways?what provider did you use?

[mika84]

Hello, please advise, which publisher is better for F7 since you say it is not enough to study opentuition alone?

[mika84]

Passed!at last.

[Author]

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