Q3a – June 2012 Ethan

Hello

This question and answer was confusing and as a result i have quite a number of queries as shown below. I am kindly requesting that you answer according to the numbers (1-4) below:

1:
The answer mentions investment properties, but it also mentions that Ethan “a public limited company, develops, operates and sells investment properties”…this gives me the impression that the properties should be considered inventory.

The answer in paragraph 1 mentions “Therefore investment properties are not being valued in accordance with the best possible method.”

However the question mentions in paragraph 2 “In Ethan’s consolidated financial statements, investment properties acquired through business combinations are recognised at fair value.”

2:
I also do not understanding these lines, its a bit confusing:
“The recoverable amount is the higher of fair value less costs to sell and value in use. Fair value less costs to sell is a post-tax valuation taking account of deferred taxes. According to IAS 36, the deferred tax liability should be included in calculating the carrying amount of the CGU, since the transaction price also includes the effect of the deferred tax and the purchaser assumes the tax risk.”

3:
I do not understand the pre tax and post tax profits and its relation to the question.

4:
Apart from those mentioned above , if you can give a summary of the question and answer would be greatly appreciated.

Links:
question
https://www.accaglobal.com/content/dam/acca/global/PDF-students/acca/p2/exampapers/int/P2INT_2012_jun_q.pdf

answer
https://www.accaglobal.com/content/dam/acca/global/PDF-students/acca/p2/exampapers/int/P2INT_2012_jun_a.pdf