2. The following issues relate to clients of the firm of accountants you work for. Each company has a year-end of 31 December 2020. You are required to prepare detailed notes for your manager explaining the appropriate accounting treatments in each case along with supporting calculations as necessary. You should cite relevant accounting regulations in your answer. (1) Gerrard acquired an item of plant at a cost of 800,000 on 1 January 2018 that is used to produce and package pharmaceutical pills. The plant had an estimated residual value of 50,000 and an estimated life of five years. Gerrard uses straight-line depreciation. On 31 December 2020 (after depreciation had been calculated for the year), Gerrard was informed by a major customer (who buys products produced by the plant) that it would no longer be placing orders with Gerrard. Even before this information was known, Gerrard had been having difficulty finding work for this plant but by modifying production methods Gerrard now estimates that the plant will have three more years of useful life, and net cash inflows will be as follows: Year ended: 000 31 December 2021 220 31 December 2022 180 31 December 2023 170 On 31 December 2023, the plant is still expected to be sold for its estimated realisable value. Gerrard has confirmed that there is no market in which to sell the plant at 31 December 2020. Gerrard's cost of capital is 10% and the following values should be used: Value of 1 at: End of Year 1 0.91 End of Year 2 0.83 End of Year 3 0.75 13 marks (ii) Accumulate owns the following properties at 1 January 2020: Property A: An office building used by Accumulate for administrative purposes with a depreciated historical cost of 2 million. At 1 January 2020 it had a remaining life of 20 years. After a reorganisation on 1 July 2020, the property was let to a third party and reclassified as an investment property applying Accumulate's policy of the fair value model. An independent valuer assessed the property to have a fair value of 2-3 million at 1 July 2020, which had risen to 2.34 million at 31 December 2020. Property B: Another office building sub-let to a third party tenant. At 1 January 2020, it had a fair value of 1.5 million which had risen to 1.65 million at 31 December 2020. 12 marks