IMPAIRMENTS: Question 1 Bert Limited is a motor vehicle and parts manufacturing company that has a number of items of property, plant and equipment. The following are unresolved matters with which the accountant of the company needs assistance. 1. Bert Limited purchased an item of plant on 1/1/2007 for R375 000. The following information relating to that item of plant is available at 31 December: Fair value less cost to sell Value in use 2007 30 000 210 000 2008 315 000 150 000 . 2. Bert Limited purchased manufacturing buildings for R1 500 000 20 years ago from 31 December 2007. You have obtained a table which correctly shows the calculations relating to this building - the closing position of which is shown below. Historic carrying amount at 31 December 2007 Revalued carrying amount 31 December 2007 Revaluation Surplus R'000's 900 7 200 6 300 3. The gross replacement cost of these buildings at 1 January 2008 has been valued at R15 000 000. The residual values are assumed to be nil. During January 2007 Bert Limited paid R180 000 to a director, who had been encouraged to resign, in the form of a five-year restraint of trade agreement. The director undertook not to work in a business similar to that conducted by Bert Limited in terms of the restraint of trade. Bert Limited is involved in a significant project to research and develop a new line of motor oil. Details relating to the research and development program are as follows: 4. Date Activity Costs incurred (R) 01/10/2007 15/12/2007 31/12/2007 15 000 150 000 30/09/2007 375 000 31/12/2007 450 000 Research commences Name for product chosen Research phase completed and product identified Technical feasibility and intention to complete product established Adequate technical, financial resources available to complete product established Market research indicates that product will generate economic benefits for 4 years Product launched and goes on sale Impairments Q&A 1 Page 1 of 4 31/03/2008 480 000 30/06/2008 90 000* *Included in the above are advertising costs of R30 000 spent during the second quarter of 2008. Accounting policies and other information 1. The cost model in terms of IAS16: Property, plant and equipment is used to account for items of plant, whilst the revaluation is used to account for buildings. Transfers to retained earnings are made through use. Buildings are revalued on 1 January every year, by professional valuers, to net realisable open market value. Assume that the following depreciation rates are applicable: Depreciation rate Land: n/a Buildings: straight-line basis over 50 years Plant: straight-line basis over 5 years 2. 3. Bert Limited's year-end is 31 December. You are required to: 1. 2. 3. 3. Show the journal entries required in 2008 to correctly account for the items of Property, plant and equipment described in points 1 and 2 of the question. (17 marks) Discuss briefly whether or not the restraint of trade agreement is an intangible asset. (5 marks) Show the statement of financial position amounts as at 31 December 20x8 and the notes thereto to correctly reflect all the intangible assets of Bert Limited Note: Comparatives are required but an accounting policy note is not, and for the purposes of this part of the question, you should assume that the restraint of trade agreement is an intangible asset. (7 marks) IMPAIRMENTS: Question 1 Bert Limited is a motor vehicle and parts manufacturing company that has a number of items of property, plant and equipment. The following are unresolved matters with which the accountant of the company needs assistance. 1. Bert Limited purchased an item of plant on 1/1/2007 for R375 000. The following information relating to that item of plant is available at 31 December: Fair value less cost to sell Value in use 2007 30 000 210 000 2008 315 000 150 000 . 2. Bert Limited purchased manufacturing buildings for R1 500 000 20 years ago from 31 December 2007. You have obtained a table which correctly shows the calculations relating to this building - the closing position of which is shown below. Historic carrying amount at 31 December 2007 Revalued carrying amount 31 December 2007 Revaluation Surplus R'000's 900 7 200 6 300 3. The gross replacement cost of these buildings at 1 January 2008 has been valued at R15 000 000. The residual values are assumed to be nil. During January 2007 Bert Limited paid R180 000 to a director, who had been encouraged to resign, in the form of a five-year restraint of trade agreement. The director undertook not to work in a business similar to that conducted by Bert Limited in terms of the restraint of trade. Bert Limited is involved in a significant project to research and develop a new line of motor oil. Details relating to the research and development program are as follows: 4. Date Activity Costs incurred (R) 01/10/2007 15/12/2007 31/12/2007 15 000 150 000 30/09/2007 375 000 31/12/2007 450 000 Research commences Name for product chosen Research phase completed and product identified Technical feasibility and intention to complete product established Adequate technical, financial resources available to complete product established Market research indicates that product will generate economic benefits for 4 years Product launched and goes on sale Impairments Q&A 1 Page 1 of 4 31/03/2008 480 000 30/06/2008 90 000* *Included in the above are advertising costs of R30 000 spent during the second quarter of 2008. Accounting policies and other information 1. The cost model in terms of IAS16: Property, plant and equipment is used to account for items of plant, whilst the revaluation is used to account for buildings. Transfers to retained earnings are made through use. Buildings are revalued on 1 January every year, by professional valuers, to net realisable open market value. Assume that the following depreciation rates are applicable: Depreciation rate Land: n/a Buildings: straight-line basis over 50 years Plant: straight-line basis over 5 years 2. 3. Bert Limited's year-end is 31 December. You are required to: 1. 2. 3. 3. Show the journal entries required in 2008 to correctly account for the items of Property, plant and equipment described in points 1 and 2 of the question. (17 marks) Discuss briefly whether or not the restraint of trade agreement is an intangible asset. (5 marks) Show the statement of financial position amounts as at 31 December 20x8 and the notes thereto to correctly reflect all the intangible assets of Bert Limited Note: Comparatives are required but an accounting policy note is not, and for the purposes of this part of the question, you should assume that the restraint of trade agreement is an intangible asset. (7 marks)