ACC206 Group-based Assignment

Question 1

On 1 January 20X4, Jet Fly Pte Ltd. (JFL) purchased two buildings: Building A near east coast for $37.5 million and Building B near Pasir Ris for $12.5 million. The company also paid a legal fee of $240,000 and agent’s commission of $60,000 to complete the transfer of the title deeds for both buildings. The decision for the purchase was the result of a favourable market study which the company paid $17,000 for on 30 June 20X3. Both buildings have useful of 50 years with zero residual value. The company adopts the straight-line method for depreciation of its non-current assets.

The company intends to use Building A for its office and to hold Building B for capital appreciation.

On 1 October 20X5, the company moved its office to another premises and put Building A and Building B up for sales.

On 30 November 20X5, Building B was sold for 12,500,000 (net of the cost of disposal).

The fair value and value-in-use of the buildings are given as below:

The cost of disposal (sale) is $50,000.

Additional information:

• The company does not practice reserve transfer for the revaluation model.
• When assets are adjusted for revaluations, the company adopts the elimination method.
• The company financial year ends on 31 December.
• The company has initially not decided on which model to use for the buildings.

Required:

Consider all accounting models available under Financial Reporting Standards (FRS) for each of the two buildings. Identify and list all possible options for the accounting treatment of the buildings. For each scenario, assess the information given, discuss and illustrate the accounting treatments for the year 20X4 and 20X5. Workings and explanations must be clearly shown, and all necessary journal entries to be provided. Carrying amount of the assets must be clearly stated at the end of each reporting period. Round your answers to the nearest whole number.

Organize your answer in the following format:

1. Classification of the assets
2. Measurement at initial recognition
3. Measurement after recognition

3.1.   Building A option 1

Building B option 1

(80 marks)

Question 2

A company has a large batch of slow-moving goods near year-end. The marketing manager argues that because these goods are still in good condition and might sell in the future, the company should keep their inventory valuation at cost.

The accountant suggests writing down the inventory to net realisable value (NRV), since there is no clear evidence of demand.

Required:

Evaluate the differing views of the marketing manager and the accountant. In your discussion, apply the relevant accounting principles, demonstrate the professional judgment required, identify the types of evidence needed to support each position, and conclude with your justified recommendation as the accountant.

(20 marks)

—- END OF ASSIGNMENT —-