IAS1 and IAS34

The following figures have been extracted from the accounting records of Zvaipa Ltd on 30 September 2016
$000 $000
Investment property at valuation 10 000
25-year leasehold 50 000
15-year leasehold 30 000
Plant and equipment at cost 49 800
Depreciation, 1 October 2015: 25-year leasehold
15-year leasehold
Plant and equipment 10 000
10 000
19 800
Accounts receivable 16 700
Inventory, 30 September 2016 7 500
Cash at bank 500
Sales revenue 98 880
Investment income 700
Cost of sales 56 000
Joint venture account 1 200
Operating expenses 14 000
Loan note interest paid 1 800
Accounts payable 9 420
Deferred tax, 1 October 2015 2 100
Ordinary shares, $0.25 each 40 000
10% Redeemable (in 2021 at par) preference shares, $1 each 10 000
12% Loan note (issued in 2014) 30 000
Retained earnings, 1 October 2015 6 100
Investment property revaluation reserve, 1 October 2015 2 000
Interim dividends 1 500
239 000 239 000

The following notes are relevant:
1. On 1 January 2016 Zvaipa Ltd agreed to act as a selling agent for an overseas company, Chaunoda. The terms of the agency are that Zvaipa receives a commission of 10% on all sales made on behalf of Chaunoda. This is achieved by Zvaipa remitting 90% of cash received from Chaunoda’s customers, one month after Zvaipa has collected it. Zvaipa has included in its sales revenue $7 200 000 of sales on behalf of Chaunoda, of which there is one month’s outstanding balance of $1 200 000 included in Zvaipa’s receivables. The cash remitted to Chaunoda during the year amounted to $5 400 000 (i.e 90% of $6 000 000) in accordance with the terms of the agency, has been treated as the cost of the agency sales.
2. The joint venture account represents the net balance of Zvaipa’s transactions in a joint venture with Mamboyi which commenced on 1 October 2015. Each venture contributes their own assets and pays their own expenses. The revenues for the venture are shared equally. The joint venture is not a separate entity. Details of Zvaipa’s joint venture transactions were:
$000
Plant and equipment at cost 1 500
Share of joint venture sales (50% of total sales revenue) (800)
Related cost of sales excluding depreciation 400
Accounts receivables 200
Accounts payables (100)
Net balance of joint venture account 1 200
Plant and equipment should be depreciated in accordance with the company’s policy in note 3.
3. On 1 October 2015 Zvaipa had its two leasehold factories revalued for the first time by an independent surveyor as follows:
25-year leasehold, $52 000 000
15-year leasehold, $18 000 000
Zvaipa depreciates its leasehold on a straight line basis over the life of the lease. The directors of Zvaipa are disappointed in the value placed on the 15-year leasehold. The surveyor has said that the fall in its value is due mainly to its unfavourable location, but in time the surveyor expects its value to increase. The directors are committed to incorporating the revalued amount on the 25-year leasehold into the financial statements, but wish to retain the historic cost basis for the 15-year leasehold. Revaluation surpluses are transferred to accumulated realised profits (retained earnings) in line with the realisation of the related assets.
Prior to the current year, Zvaipa had adopted a policy of carrying its investment property at fair value, with the surplus being credited to reserves. For the current year, it will be applying the fair value method of accounting for investment properties in International Accounting Standard (IAS) 40. The value of the investment property had increased a further $500 000 in the year to 30 September 2016.
4. A provision for income tax for the year to 30 September 2016 of $5 000 000 is required. Temporary differences (related to the difference between tax base of the plant and its statement of financial position written down value) on 1 October 2015 were $7 000 000 and on 30 September 2016 they had declined to $5 000 000. Assume a tax rate of 30%. Ignore deferred tax on the property revaluations.
5. The interim dividend paid includes half of the full year’s preference dividend. On 25 September 2016 the directors declared a final ordinary dividend of 3 cents per share.
Required:
a) Prepare the financial statements of Zvaipa Ltd for the year to 30 September 2016 as far as the information given permits. (20 Marks)
b) Discuss the relationship between IAS 1 and IAS 34 (5 Marks)