(a) The Conceptual Framework for Financial Reporting identifies faithful representation as a fundamental qualitative characteristic of useful financial information.

Required:

Distinguish between fundamental and enhancing qualitative characteristics and explain why faithful representation is important.

b) IFRSs are developed through a formal system of due process and broad international consultation

involving accountants, financial analysts, and other users and regulatory bodies from around the world.

The overall agenda of the IASB will initially be set by a discussion with the IFRS Advisory Council.

Required

Describe the steps involved in the due process for developing an individual standard

c) You have been recently appointed as the technical manager of Smart Consultancy Services [SCS]. SCS provides training and consultancy advice to companies which prepare financial statements using International Financial Reporting Standards [IFRSs]. The managing partner of SCS has asked you to prepare the advice to be given to several clients in respect of the accounting requirements of non-current assets for the year ended 31 December 2019.

1) Boafo Ltd

Boafo Bottling Ltd owns a bottling plant with an original cost of GHS200,000. It was acquired in January 2011. On acquisition, management determined that the useful life was 10 years and the residual value would be GHS20,000. The asset is now 8 years old , and during this time there have been no revisions to the assessed residual value. At the end of year 8 (as at 31 December 2018), management has reviewed the useful life and residual value and has determined that the useful life [from date of acquisition] can be extended to 12 years in view of the maintenance program adopted by the company. As a result, the residual value will reduce to GHS10,000.

Required

Determine how the asset will be accounted for in the 2015 financial statements ( Statement of Profit and Loss for 2019 and Statement of financial position as at 31 December 2019)

ii) Wisdom Ltd

Wisdom Ltd received a Government grant of GHS150 million in January 2019 to install and run a solar energy system in an economically backward area. Wisdom Ltd has estimated that such a system would cost GHS250 million to construct. The secondary condition attached to the grant is that the entity should hire labour in the local market (i.e., from the economically backward area where the windmill is located) instead of employing workers from other parts of the country. It should maintain a ratio of 1:1 local workers to workers from outside in its labor force for the next 5 years. The windmill is to be depreciated using the straight-line method over a period of 10 years. The management of Wisdom has adopted the policy of treating unearned government grant on a deferral basis.

Required

Advise Wisdom Ltd on the treatment of this grant in the 2019 financial statements ( Statement of Profit and Loss for 2019 and Statement of financial position as at 31 December 2019) in accordance with IAS 20.

iii) Esinam Ltd

Esinam company had the following loans in place at the beginning and end of 2019

1 January 31 December

2019 2019

GHS GHS

25% Bank loan repayable 2020 480,000 480,000

30% Bank loan repayable 2021 320,000 320,000

20% Debenture Stock repayable 2022 - 300,000

On 1 January 2019, the company began the construction of a qualifying asset (a bridge) to link the factory location to the settlement site of the workers at a cost of GHS400,000, using existing borrowings (the 25% bank loan and the 30% bank loan). Expenditure drawn down for the construction was GHS120,000 on 1 January 2019; GHS80,000 on 1 May 2019 and GHS200,000 on 1 October 2019. The bridge was completed and put to use on 31 December 2019.

The 20% debenture stock was specifically issued to fund the construction of another qualifying asset (an office building), construction of which began on 1 July 2019.

Required:

Calculate the borrowing costs to be capitalized for the bridge.

iv) ABC Ltd

ABC Ltd prepares accounts to 31 December. It acquired an administration block with an estimated useful life of 50 years at a cost of GHS22 million on 1 January 2013. The entity used the building until 1st April 2019, when it moved its office to a new building at the factory site. The building was reclassified as an investment property and leased out under a 40 year lease. The fair values of the building at 1^st April 2019 and 31^st December 2019 were GHS21 million and GH21.5 million respectively

Required:

Explain the treatment of the building in the 2019 financial statements (Statement of Profit and Loss for 2019 and Statement of financial position as at 31 December 2019) on the assumption that the entity uses the fair value model for investment properties.