Case study details

D&D Construction Ltd. is based in Maitland, Nova Scotia. The company takes on small construction jobs ranging from small contracts worth just a few thousand dollars to multi- million-dollar projects. D&D reports according to IFRS, and its fiscal year end is December 31. You are the company accountant, and you have been asked to prepare the working papers, adjusting journal entries and adjusted trial balance that the controller needs in order to prepare the December 31, 20X7, financial statements.

During the busy construction season from April to early October, D&D has many projects going on. In the winter, there are fewer projects, but they tend to have a higher value and longer duration.

The following 11 significant transactions have occurred in 20X7, which may have possible year-end adjustment implications:

1. Land

D&D accounts for land using the revaluation model. The company has only one parcel of land. It is recorded in the statement of financial position by D&D at $3.2 million. In 20X7, the value of the land was assessed. It was found to be $3 million. No revaluation adjustments have been recorded in the past.

Prepare the journal entry to record the change in value of the land.

2. Workshop B

D&D is building a second workshop on land it already owns. This second workshop will be located at the rear of the property behind the existing workshop. The new workshop, known as Workshop B, will be accessible from the service road behind the property. Construction of the workshop began in January 20X7 when business was slow. The workshop is expected to be completed in March 20X8. No work was done on the workshop from May to August 20X7. The unadjusted trial balance indicates that to date (at December 31, 20X7) the costs associated with building the workshop have been capitalized at $509,284. The

costs capitalized to this account in 20X7 are as follows:

D&D Construction Ltd. Workshop B
20X7	Legal	Engineers	Internal architects	External contractors	Internal labour	Overhead on internal labour	Materials, supplies and components
January	$1,200	$6,300	$16,700		$27,600	$3,544	$18,300
February				$14,500	35,200	2,816	28,600
March				7,200	48,600	3,888	36,500
April				16,300			17,500
May
June
July
August
September							10,300
October					37,500	3,000	11,500
November					46,700	3,736	36,000
December				6,500	22,500	1,800	45,000

The following is the information needed to calculate D&Ds capitalization rate associated with these costs (note the debt outstanding is considered to be general borrowings):

D&D capitalization rate information
Interest expense for the year (20X7)	Months outstanding	Debt outstanding	Interest rate
Bonds	12	$3,000,000	8.00%
Bank loan	3	$1,140,000	7.50%
	6	$1,150,000	7.50%
	2	$1,140,000	7.50%
	1	$1,128,000	7.50%

Prepare the journal entry/entries to update the cost of the self-constructed asset, Workshop B. Use the Excel worksheet titled WorkshopB-Your name to help you record any adjustments that need to be made to the cost of the asset. Assume that the workshop is considered to be a qualifying asset.

3. Plant and equipment

D&D applies the half-year rule in depreciating plant and equipment, as well as in amortizing intangible assets. Buildings, mobile equipment, automobiles and office equipment are depreciated using the straight-line method. Tools and equipment are depreciated using declining balance methods. The depreciation rates on tools and equipment vary from 17.5% to 33% per year. Computer equipment is depreciated using a double-declining rate method at 62.5% per year. The property, plant and equipment schedule (located in the Excel worksheet titled PPE-Your name) provides the rates for each category of asset.

On December 5, 20X7, warehouse equipment with a cost of $85,600 was delivered. The equipment was immediately put into service. The useful life is expected to be 11 years, with an expected salvage value of $10,500. This equipment is depreciated using the declining balance method at a rate of 17.5%. The invoice for this equipment has not been received and the purchase has not been recorded.

In October 20X7, the company disposed of several hand tools. The cost of these tools was

$21,300, and at the time of disposal, accumulated depreciation was $18,899. The equipment sold for total proceeds of $6,500. The funds received were recorded by the company as a gain on sale of property, plant and equipment of $6,500.

Depreciation for 20X7 has not yet been recorded for any of the PPE held by the company. Prepare the journal entry/entries to record the property, plant and equipment transactions. Use the Excel worksheet titled PPE-Your name:

i. Update the Additions, Disposals, Revaluations / impairments and Depreciation columns in PPE-Your name (columns Q, R, T and Y, respectively).

. Record your journal entries in the AJEs-Your name worksheet.

4. D&D Jig patent

Fourteen years ago in March, D&Ds patent, under the name D&D Jig, was registered. The patent was capitalized at $63,360. The expected useful life of the patent was 18 years. The patent was tested for impairment at the end of each year. After nearly 14 years of useful life, the patent was tested for impairment at the end of 20X7 and found to have no further value.

Use the Excel worksheet titled Jig-Your name to help you prepare any journal entry/entries associated with the D&D Jig patent.

5. D&D Reversible Oscillating Mitre Saw patent

On December 20, 20X7, D&D was advised that the patent process was complete and the companys patent for the D&D Reversible Oscillating Mitre Saw was properly registered as at that date. The saw saves on setup time, which is highly valuable in the construction business. It took several years to perfect the now-patented saw.

The following is a breakdown of costs incurred by the company with regard to the patent:

D&Ds owner believes that his own time spent working on the design and testing various prototypes over just the past five years is worth approximately $65,000.

Fees paid to Canadian patent lawyers to help register the patent in Canada totalled $7,500.

Fees paid to American patent lawyers to register the patent in the United States were $3,500 (in Canadian equivalent).

Fees paid to technical investigators were $4,500.

Fees paid to the patent offices to help register the patent were $2,300.

In total, the costs related to the patent are $82,800, excluding any taxes.

The amount paid for the owners time is included in the accounting records in wages, salaries and benefits. The fees to the patent offices were charged to the fees, licences and registrations account. The other items paid to lawyers and technical investigators were all charged to professional fees when they were paid. The fees to lawyers, technical specialists and patent offices were all paid during 20X7. The owner believes he spent approximately an equal amount of time on the project for each of the years from 20X3 to 20X7. The patent is protected for 20 years in both Canada and the United States.

Management believes the patent will have value for the entire 20-year period of protection. Amortization on the patent will begin in the 20X8 fiscal year.

Prepare the journal entry/entries to ensure the mitre saw patent is properly recorded. Use the Excel worksheet titled Mitre-Your name.

6. Copyright designs

D&D owns the copyright on the designs for 25 of the houses that it builds. It sells the right to use the house plans (designs) for a single build at $550 per set. In 20X7, the company sold rights to a single use for 1,500 sets of house plans. The cost of developing a plan that is then copyrighted includes the specific hours that the architects and designers work on the design, fees charged by external engineers and lawyers and fees for registering the copyright. The sum of these costs is capitalized as an intangible asset individually for each of the 25 copyright-protected house plans. The copyrighted designs are accounted for using the cost model. A house plan may have an indefinite life, but because home styles and the desirable features in them change over time, the popularity and value of a house plan may increase or decline. D&D tests each of the plans, individually, for impairment each year.

At the end of 20X7, plan number DD-01236E was found to be impaired in value. The original cost of the plan was $12,480. The value of the plan at December 31, 20X7, is $8,000.

Plan number DD-0185G originally cost $10,030. In 20X2, the value of this plan was found to be impaired, and an impairment loss of $8,530 was recorded at that time. Since that time, this house style has become more popular. At December 31, 20X7, the impairment test found that the value of the plan is now $11,500.

The value of the 25 copyrighted house plans on the December 31, 20X6, financial statements was $457,270.

Prepare the journal entry/entries to update the copyrighted house designs account using the information given here. Use the Excel worksheet titled Copyright-Your name. Record your journal entries in the AJEs-Your name worksheet.

7. Apprentices

D&D is committed to supporting apprentices and usually has at least three on the payroll at any time. Apprentices work closely with qualified tradespersons. In 20X7, a new bookkeeper realized that the amount of money D&D spends on training the apprentices should be recorded as a valuable asset, since it will provide long-term benefit to the company. D&D estimates that, collectively, the time that tradespersons spend training, guiding and mentoring apprentices takes up approximately half the working time of one tradesperson. In 20X7, the new bookkeeper capitalized this training as an intangible asset apprentice training in each quarter. To the end of September 30, 20X7 (Quarter 3), $39,500 had been capitalized. The cost of wages, salaries and benefits was reduced accordingly. The fourth-quarter costs are $11,700. The journal entry to record the capitalization of these fourth-quarter costs has not yet been recorded.

As part of its commitment to hiring apprentices, D&D is eligible to receive an industry training grant. The Provincial Training Authority provides a non-repayable grant of $400 per month per apprentice for any month in which an apprentice works at least 160 hours. The apprentices hours worked in each month of 20X7 are as follows.

D&D Construction Ltd.
Provincial Training Authority Apprentice Grant Program
20X7
Apprentice	J. Johnson	M. Razak	C. Billie	W. Winslow
Employee ID	3608	3654	3689	3702
Program	Carpenter	Electrician	Joiner	Carpenter
	Hours worked
January	136	96
February	152	152
March	184	184
April	152	152	60
May	176	179	176
June	184	176	176	60
July	169	167	160	160
August	176	176	176	176
September	160	160	160	160
October	168	168	168	168
November	168	128	168	150
December	128	128	128	128

To date for fiscal 20X7, $4,800 has been accrued in the industry training grant receivable account.

Prepare the journal entry/entries to update the industry training grant receivable and intangible asset apprentice training accounts using the information given here. Use the Excel worksheet titled Apprentices-Your name:

i. Calculate the adjustment to the industry training grant receivable. Complete the highlighted cells by entering numbers and formulas as appropriate. ii. Calculate the adjustment to the intangible asset apprentice training.

iii. Record your journal entries in the AJEs-Your name worksheet.

8. Yellow Note Ltd. Investment

On September 1, 20X7, D&D bought 15,000 of the 46,875 outstanding shares in Yellow

Note Ltd. for $141 per share. Transaction costs were $1,800. The fair value of Yellow Notes net assets is $6.8 million. The book value of Yellow Notes assets and liabilities is equal to their fair market value. On December 24, 20X7, Yellow Note declared a dividend of $0.60 per share. It is payable December 31, 20X7. The dividend cheque had not been received at year end; however, the controller recorded the dividend as dividend income for the 20X7 fiscal year end. Yellow Notes net income before taxes for 20X7 is $431,000. The fair value of Yellow Notes shares at December 31, 20X7, is $138. D&D accounts for this investment using the equity method.

Prepare the journal entry/entries to update the investment in the Yellow Note account using the information given here. Use the Excel worksheet titled YellowN-Your name:

Calculate the adjustment to the investment in Yellow Note. Complete the highlighted cells by entering numbers and formulas as appropriate.

Record your journal entries in the AJEs-Your name worksheet.

9. National Bank Dominion of the Maritimes investment

In 20X6, D&D paid $1 million for $1 million of 10-year, 5%, semi-annual bonds of the National Bank Dominion of the Maritimes (NBDM). D&D receives $25,000 in interest income every six months and will continue to do so until the bonds mature on December 31, 20X8. That date is also when D&D must pay a balloon payment on a mortgage payable. The mortgage is a variable rate mortgage. D&D intends to hold the bonds and collect the interest until maturity, at which time it will use the bonds to pay the $1 million balloon payment on the mortgage payable. D&D irrevocably designated the bonds receivable as a financial asset at fair value through profit and loss (FVPL). At December 31, 20X7, the fair market value of the bonds is $1,008,750.

Prepare the journal entry to update the investment in NBDM account using the information given here. Use the Excel worksheet titled NBDM-Your name:

Calculate the adjustment to the investment in NBDM. Complete the highlighted cells in Column B by entering numbers and formulas as appropriate.

Record your journal entry in the AJEs-Your name worksheet.

10. Triumph Cellars Inc. investment

On March 15, 20X7, D&D bought 9% of Triumph Cellars Inc.s 165,000 outstanding shares for

$692,225, plus transaction costs of $3,800. The transaction costs were expensed to miscellaneous expenses when the share purchase was recorded in March 20X7. Triumph Cellars has a December 31 year end, and it reported net income before taxes of $376,500. On December 20, 20X7, Triumph Cellars declared dividends totalling $45,000. The dividend will be paid on January 3, 20X8, to shareholders of record on December 28, 20X7. Triumph Cellars net book value of its assets at December 31, 20X7, is $700,000. The fair market value of Triumph Cellars shares at December 31, 20X7, is $48.70 per share. D&D accounts for the investment at FVPL.

Prepare the journal entry/entries to update the investment in Triumph Cellars account using the information given here. Use the Excel worksheet titled Triumph-Your name:

Calculate the adjustment to the investment in Triumph Cellars. Complete the highlighted cells by entering numbers and formulas as appropriate.

Record your journal entries in the AJEs-Your name worksheet.

11. Miscellaneous expenses

Miscellaneous expenses totalling $15,700 were incurred by D&D prior to year end. They have not been invoiced or accrued. Prepare the journal entry to accrue the miscellaneous expenses and record it in the AJEs-Your name worksheet.