a) Provisions Dish plc has a year end of 31 December 2021. It was given permission on 1 January 2021 to mine for minerals it uses as raw materials, for a period of 5 years. Decommissioning costs at the end of the five years will be 7 million. Of this, 20% relates to the removal of plant and equipment required to carry out the mining, and the remainder is to rectify damage caused by mining. The plant and equipment was specifically constructed for the project, at a cost of 20 million. Due to delays, extraction had not started at 31 December 2021, although the plant and machinery had been set up on site. The licensing agreement was granted to Dish on condition that the plant be removed at the end of operations. Dish uses a risk-adjusted discount rate of 5% to account for the effect of the time value of money (see table, right). Required: Explain how the decommissioning costs (both removal of plant and damage rectification) should be accounted for and disclosed in the financial statements of Dish for the year ended 31 December 2021. (20 marks) b) Inventory valuation Doom plc supplies specialist medical equipment. Due to supply shortages, the price of one piece of equipment which was new on the market this year, has increased substantially during the year ended 31 December 2021. Details on the inventory movements of this component are: Date Transactions Number of Units Cost per Unit () 1-Jan-21 Opening balance - - 06-Jan-21 Bought 7,000 units at 6,000 each 7,000 6,000 08-May-21 Bought 5,600 units at 8,100 each 5,600 8,100 06-Jun-21 Sold 4,200 units (4,200) 07-Jul-21 Bought 3,000 units at 9,800 each 3,000 9,800 03-Sep-21 Sold 3,600 units (3,600) 15-Nov-21 Sold 2,100 units (2,100) 31-Dec-21 Closing Inventory 5,700 The finance director of Doom is under pressure by the Board of Directors to maintain levels of profit for the year ended 31 December 2021. In previous years, the weighted average valuation method (AVCO) was used to value inventory, but the finance director wants to change to first in, first out (FIFO) this year.

Required: Explain how FIFO and AVCO valuation methods differ and why these alternative methods are permitted under IAS 2 Inventories. Calculate the inventory valuation at 31 December 2021 using both methods, and hence show the impact on profit of a change from FIFO to AVCO. Discuss whether a change to FIFO is in accordance the Conceptual Framework and ethics (5 marks are available for this discussion). (20 marks) c) Disposal of revalued asset Ali plc is preparing its financial statements for the year ended 31 December 2021. During the year, it disposed of a building (for proceeds of 200,000) which was used in the business in accordance with IAS 16 Plant Property and Equipment. The building was initially acquired on 1 January 2007 at a cost of 500,000 and had an estimated useful life at that time of 50 years (with no residual value). The building was revalued on 1 January 2012 to 1m (with no change in the estimated useful life). Ali plc operates a depreciation policy in which a full year's charge is made in the year of acquisition, and no depreciation charged in the year of disposal. Required: Explain, with supporting workings, how the carrying amount of the revalued building would be calculated at the date of disposal, and hence calculate the loss on disposal that would be recognised in Ali plc's income statement for the year ending 31 December 2021. Explain whether the reported loss would be higher or lower if the building had remained at historic cost (rather than being revalued); and discuss any concerns that a loss on disposal may raise over the estimation techniques used by Ali plc's management in their accounting for depreciation.