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Case 2: Background: You are a graduate of accounting and pursing ACCA. Currently you are employed in Relief SAOC where you are working in team
Case 2: Background: You are a graduate of accounting and pursing ACCA. Currently you are employed in Relief SAOC where you are working in team that deals with transactions related to property, plant and equipment. Below are the issues related to specific assets that you are required to deal with and provide necessary treatment? Situation 1. Relief SAOC provides data entry and call center services and operates a number of such offices using computer systems to carry out their work. Their year-end is 31st December The company has a policy to replace their computers about every five years. 1st April 2017 they installed 200 new systems for a value of RO 5,000 each. This is estimated to have a residual value of RO 50,000 after five years. The management in discussion of the frequency of updating computer systems have observed that the current computer system is largely capable of handling future storage and computational needs. From 1st January 2019 they decide to extend the economic life used in their depreciation model to 7 years. Objective: To show how the asset will be accounted for under IAS 16 in the company's year-end accounts for the year 2019 & 2020. Identify the change that has taken place with regards to computer system and how it dealt with as per the provisions of IAS 16. (4 marks) Situation 2: The Company also owns a piece of land adjacent to an upcoming shopping center. The land lay vacant for several years, but shortly after the shopping center commenced operation the company built a car park for a total expenditure of RO 50,000, the car park is put into operation on 1 July 2019. Management considers the development to have a useful life of 15 years and no residual value On 1* January 2020 the company learns that the shopping center is to close at the end of the year because of a disappointing volume of traffic. The management consider that some volume of business will remain but expect net revenues to suffer considerable reduction and now consider the recoverable amount to be RO 10,000 based on value in use. In this instance the value in use was the discounted value of net future cash flows. Objective: To show how the asset will be accounted for under IAS 16 and IAS 36 in the company's year-end accounts for the year 2019 & 2020. Also identify and mention necessary conditions for such treatments (4 marks) Apart from the above the manager needs to know how such situations will affect the financial performance of the business for the year 2019 & 2020. (2 marks Min 75 - 100 words) Case 2: Background: You are a graduate of accounting and pursing ACCA. Currently you are employed in Relief SAOC where you are working in team that deals with transactions related to property, plant and equipment. Below are the issues related to specific assets that you are required to deal with and provide necessary treatment? Situation 1. Relief SAOC provides data entry and call center services and operates a number of such offices using computer systems to carry out their work. Their year-end is 31st December The company has a policy to replace their computers about every five years. 1st April 2017 they installed 200 new systems for a value of RO 5,000 each. This is estimated to have a residual value of RO 50,000 after five years. The management in discussion of the frequency of updating computer systems have observed that the current computer system is largely capable of handling future storage and computational needs. From 1st January 2019 they decide to extend the economic life used in their depreciation model to 7 years. Objective: To show how the asset will be accounted for under IAS 16 in the company's year-end accounts for the year 2019 & 2020. Identify the change that has taken place with regards to computer system and how it dealt with as per the provisions of IAS 16. (4 marks) Situation 2: The Company also owns a piece of land adjacent to an upcoming shopping center. The land lay vacant for several years, but shortly after the shopping center commenced operation the company built a car park for a total expenditure of RO 50,000, the car park is put into operation on 1 July 2019. Management considers the development to have a useful life of 15 years and no residual value On 1* January 2020 the company learns that the shopping center is to close at the end of the year because of a disappointing volume of traffic. The management consider that some volume of business will remain but expect net revenues to suffer considerable reduction and now consider the recoverable amount to be RO 10,000 based on value in use. In this instance the value in use was the discounted value of net future cash flows. Objective: To show how the asset will be accounted for under IAS 16 and IAS 36 in the company's year-end accounts for the year 2019 & 2020. Also identify and mention necessary conditions for such treatments (4 marks) Apart from the above the manager needs to know how such situations will affect the financial performance of the business for the year 2019 & 2020. (2 marks Min 75 - 100 words)
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