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Hi MikeLittle, I would like to ask a question. Could you please help to explain this question? I don’t quite understand it.
(i) Revenue includes the sale of $10 million of maturing inventory made to Xpede on 1 October 2012. The cost of the goods at the date of sale was $7 million and Atlas has an option to repurchase these goods at any time within three years of the sale at a price of $10 million plus accrued interest from the date of sale at 10% per annum. At 31 March 2013 the option had not been exercised, but it is highly likely that it will be before the date it lapses.
Thank you.
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
Hello
For part (v) of the question, how do we calculate the opening balance backwards from the 1 for 4 right issue?
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) = 400Plant : 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
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