ACCA F7 June 2013 – Q2 Atlas

And what's your question? If it's about whether the revenue should be recognised, then the answer is no. Quite clearly the risks and rewards of ownership have not passed because Atlas is able to exercise the option. Therefore, no sale. But presumably cash has been received. To adjust, Debit Revenue and Credit a Loan account because that's effectively what the $10m amounts to - a loan at 10% interest. But if it's not a sale, then it must still be the inventory of Atlas so we need to bring back into inventory the $7m cost of these goods The net effect of reducing revenue and reducing the cost of sales is to eliminate the profit of $3m OK

OK! Thank you very much!

You're welcome

Hello For part (v) of the question, how do we calculate the opening balance backwards from the 1 for 4 right issue?

Oh i figured it out already , nevermind :)

Wrt note (ii) in the question (plant), the answer (extract) from acca is as follows : Plant The plant held for sale should be shown separately and not be depreciated after 1 October 2012. Other plant Carrying amount at 1 April 2012 (94,500 – 24,500) 70,000 Plant held for sale (9,000 – 5,000) (4,000) 66,000 Depreciation for year ended 31 March 2013 (20%) (13,200) Carrying amount at 31 March 2013 52,800 Plant held for sale: At 1 April 2012 (from above) 4,000 Depreciation to date of reclassification (4,000 x 20% x 6/12) (400) Carrying amount at 1 October 2012 3,600 Total depreciation of plant for year ended 31 March 2013 (13,200 + 400) 13,600. My question is : Why isn't the Plant carried @ 1 Oct 2012 : [70000 - Depn (6/12*20%*70000)] = 63000 Then NBV of Plant HFS @ 1 Oct 2012 : [(9000-5000) - Depn (6/12*20%*4000)] = (3600) NBV of the rest of the plant @ 1 Oct 2012 = (63000 - 3600) = 59400 Depn: last 6 mths (excl. PHFS): (1 Oct 2012-31 Mar 2013)=(6/12*20%*59400) = 5940 Depn: first 6 months (excl. PHFS) : (1 Apr 2012-30 Spt 2012) = (6/12*20%*70000)=7000 Depn on Plant HFS (1 Apr 2012-30 Spt 2012)(6/12*20%*4000) = 400 Plant : 31/03/2013=59400-5940=53460

Interesting! The reason for the difference is that you are double depreciating the plant that is not classified as held for sale. You are reducing the balance brought forward and then applying a further reduction. Try this - $100 asset, 20% per annum reducing balance (so the same as 10% for 6 months) - ignore the reclassification for this example except to say that something like reclassification happened after 6 months requiring us to calculate depreciation "differently" If nothing had happened, normal depreciation would be 20% x $100 = $20 and reduced carrying value would be $80 But splitting into 2 six month periods 20% x 6/12 x £100 = $10. So at the end of 6 months, reduced balance is $90. Now the second six months 20% x 6/12 x $90 = $9. So at the end of the year, reduced carrying value is $81 Does that help?

Yes, i wanted to obtain NBV of Whole Plant @ 1 Oct 2012 then subtract NBV of PHFS @ 1 Oct 2012 to obtain NBV of the rest of the plant at 1 Oct 2012. Then proceed with obtain the NBV of the rest of the plant @ year end by removing the remaining half year depn. So does that mean i won't be abl to proceed that way bcause of the reducing line depreciation method?

That's what it means! easier to separate out the plant held for sale and deal with that as though it were a completely different class of asset

Thanks a lot!

You're welcome