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In the year to 31 October 20X6, it is anticipated that $2 million will be spent to improve the crowd barriers in the stadium. There is no legal requirement to improve the crowd barriers. Leria Co has incorrectly treated this amount as a reduction of the asset’s carrying amount at 31 October 20X5 and the corresponding debit has been made to profit or loss. At 31 October 20X5, the carrying amount of the stadium, after depreciation and deduction of the crowd barrier improvements, is $18 million.
examiner answer:Carrying amount of stadium is $(18 + 2) million = $20 million
sir, my question is that shouldn’t the cv now be 22m? as (we deducted 20m -2m) to reach at 18m at 31 oct 20×5. however we should have added the improvement rather than deducted as impairment. in that case the cv at 20×5> 20m+2m=22m
Original CA = 20
Client has incorrectly deducted 2 = 18
So we add back 2 = 20You cannot capitalise the improvement until you make the improvement (or have a legal or constructive obligation to do so)
If this does not make sense come back to me
Hi Sir, in the same question, how did we find the right of use of the asset as proportion of assets previous carrying amount that relates to the rights retained? can you please explain the logic?
Please review our lecture for the logic:
https://opentuition.com/acca/sbr/sale-and-leaseback-acca-sbr-lecture/
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