$11$

Question $7$

Nile Ltd is a shipping company that provides transportation and logistics services. They acquired a new set of ships in the current financial year. There were ten $(10)$ ships acquired in total, two $(2)$ of which are "Ultra Large" with the remaining classified as "Small Feeders". The useful life of the Ultra Larger ships is $20$ years with a cost to dismantle at the end of its useful life. The small feeders have a useful life of $15$ years however these ships are usually sold before the end of their useful life.

The costs to acquire the ships include:

Purchase price

Discount

Licensing of each ship

Training of staff for operation of Ultra Large Ship

Specialist team to get ships ready for initial sail

Government inspections and health inspections

Consultancy and engineer fees

General overheads

The company wishes to make the following changes to how they account for their Ships as they believe it would provide more reliable and relevant information

Move from Cost Model to Revaluation Model of Ultra large ships Change useful life of small feeders to $12$ years

Required:

The audit committee of the company has requested that you prepare a memo to respond to the above with reference to the relevant IFRS standards.

In the memo, the following questions must be answered:

a$)$ In accordance to IAS $16,$ which costs can be capitalized versus expensed and why?

b$)$ With reference to IAS $8,$ what changes are allowed and what effect would the changes have on the financial statements.

$(20$ marks$)$