(i)On 1 April 2014, SGL acquired a property for $15 million for the use as an office building. The useful life of the building estimates to be 30 years from 1 April 2014 with no residual value. Depreciation charges on the straight-line basis over its useful life. The value of the land content of the property was immaterial.

During the year ended 31 March 2018, the planning authorities approved the land (where the office building is now situated) to build industrial units on the site. On 31 December 2017, SGL ceased using the property as an office building and started development on 28 February 2018 to convert the property to an industrial unit for capital appreciation. The fair values of the property were $25 million and $28 million respectively on 31 December 2017 and 28 February 2018. SGL adopts the cost model for owner-occupied property and fair value model for investment property.

Martin does not know how to account for the change in use of property in the financial statements at 31 March 2018 and therefore does not reflect such change in the financial statements.

(ii)SGL and Dawn Manufacturing Co. Ltd (Dawn) signed a lease for a machine for production purpose on 1 April 2017. The lease agreement is non-cancellable with a term of four years, requiring equal rental payments of $138,125 by SGL with the first payment on 31 March 2018. The annual rental payment includes a non-lease element. Both Dawn and SGL esti- mate the standalone price of the lease component and non-lease component are $121,550 and $30,387.50 respectively. Dawn will pay SGL $25,557 as a cash incentive for entering the lease by 1 April 2017.

The machine has a fair value at commencement of the lease of $370,000, an estimated economic life of six years. Dawn believes that the machine has a residual value at the end of the lease to be $80,476. The cost of the machine on Dawn's books immediately before lease is $300,000. The lease contains no renewal options but SGL also guarantees the re- sidual value to be $45,226 at the end of the lease term. The machine will revert to Dawn at the termination of the lease. SGL estimates the residual value of the machine to be $5,000. The implicit interest rate of Dawn is 9% and is unknown by SGL. SGL uses the incremental borrowing rate of 8%.

In the draft financial statements of SGL, SGL has treated the agreement as an exception to a single model and recognized lease rental payment expense of $138,125. The lease incen- tive received reports in other income. The machine is not a low value item.

(iii) SGL issued 100,000 $1,000 par value bonds to the market at par on 1 October 2017. The bonds pay a semi-annual rate of interest of 3% based on nominal value. Interest payments are on 31 March and 30 September per year. SGL has no intention to classify or designate the bonds as fair value through profit or loss upon initial recognition.

The financial institution that organised the placement charged SGL $100,000. The effec- tive semi-annual return on the bonds, taking into account the issue costs, is 3.0117%. The bonds listed in the Hong Kong Stock Exchange and, due to a persistent rise in market in- terest rates, quoted at $996.40 per bond on 31 March 2018 and $989.50 per bond on 30 September 2018.

In the draft financial statements of SGL, the proceeds from the bond have included in share capital. The issue costs have included in administrative expense. Interest paid has recog- nized as dividend paid.

(iv) Ms. Deborah Lam, CEO of SGL, has just returned from an annual visit on 1 January 2017 with the company's banker to present SGL's financial statements. The banker expressed concern over SGL's profitability and debt level. In an effort to alleviate the banker's con- cerns, Ms. Lam proposed to sell a major piece of production equipment to an international finance company, provided SGL is able to lease it back. The equipment purchased two years ago for $1,000,000 and depreciated at 15% per year on a reducing-balance basis. Ms. Lam estimates that the machinery is currently worth $1,500,000 at fair value.

She has approached Mr. Alan Fin, President of Shark's Finance Services Ltd, who indicated that he would be willing to purchase the equipment for $1,800,000 and lease it back to SGL for $274,252 per year for the next 10 years, payable at the end of each financial year (i.e. 31 March). The sale satisfies HKFRS 15 "Revenue from Contracts with Customers", however, the finance director of SGL insisted to account for it as a financing arrangement

but the evidence does not support her claim.

Contract inception date is 1 April 2017 and The first lease rental is paid and charged to the statement of profit or loss on the contract inception (on 1 April 2017) as rental expense. The sales proceed was treated as a financial liability at date of sales (also on 1 April 2017). The incremental borrowing rate is 12% per annum.

1. Explain, where appropriate, the required financial reporting requirement of the issues above in the financial statements for the year ended 31 March 2018 of SGL in accordance with relevant HKFRS, preparing all relevant calculations and setting out the required adjustments in the form of journal entries.