On 1 January 2019 Regina Ltd and Twin Ltd, an unrelated company, each subscribed for half of Sugar Ltd's 100,000 $1 ordinary shares on Sugar Ltd's incorporation. A contract between Regina Ltd and Twin Ltd gives them equal profit shares and states that unanimous consent is required for all key operating decisions.<\/p>
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Sugar Ltd made a profit for the six months ended 30 June 2019 of $15,600. In June 2019 Regina Ltd made sales of $5,000 to Sugar Ltd, at a mark-up of 25%. Sugar Ltd still held all these goods in inventories at 30 June 2019. Regina Ltd recognised its cost of investment in Sugar Ltd of $50,000 in current assets, but made no further accounting entries, other than to record the sale of the goods.<\/p>
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2)On 1 July 2019 Regina Ltd borrowed $200,000 at 6% pa to fund the construction of a new warehouse, a qualifying asset. The cash received was immediately placed on deposit earning interest at 2% pa. Construction did not begin until 1 August 2019 due to delays in agreeing the plans with the architects.<\/p>
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A construction payment of $120,000 was made on 1 August 2019 and the remaining $80,000 paid on 1 May 2020. The warehouse was ready for use on 1 June 2020 but Regina Ltd did not start to use it until 1 July 2020. The directors estimate that the warehouse has a useful life of 10 years.<\/p>
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Regina Ltd recognised the net interest in the statement of profit or loss for the year ended 30 June 2020. The construction costs were included in assets in the course of construction in the statement of financial position as at 30 June 2020. No depreciation is charged on assets in the course of construction.<\/p>
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3)On 1 January 2019 Nacho plc had in place $500,000 of 6.0% pa loan finance and $800,000 of 4.7% pa loan finance. Neither loan was taken out for a specific purpose. On 1 February 2019 the company began to construct a new office building, which was funded by this existing loan finance. The building was correctly assessed as a qualifying asset, was completed and available for use on 31 October 2019, and has an estimated total useful life of 50 years. The company moved its administrative function into this building on 31 December 2019. The accountant included the interest payable for the whole year on the total loan finance as part of the cost of the office building of $650,000 within property, plant and equipment. He did not recognise any depreciation on this building in the year ended 31 December 2019 because the staff did not move to the new building until the last day of the year. <\/p>
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4)The draft financial statements of Tacos plc include research and development expenditure of $390,500 within intangible assets. The accountant's working papers show that this all related to the development of a new waterproof fabric, which was assessed as being commercially viable on 31 March 2019. The development of the fabric was completed on 31 August 2019, and the first fabric was delivered to customers on 1 September 2019. The amount capitalised is made up as follows:<\/p>
<\/p>
<\/p>
<\/p>
Research costs <\/p>
100,000 <\/p>
Development costs incurred prior to 31 March 2015 <\/p>
55,500 <\/p>
Development costs incurred from 1 April 2015 to 31 August 2015 <\/p>
225,000 <\/p>
Marketing costs <\/p>
10,000 <\/p>
390,500 <\/p>
No amortisation has been charged on this amount. The fabric technology is estimated to have a three-year life before it is superseded by superior products. <\/p>
<\/p>
5) During the year ended 31 December 2019 the directors of Nami plc decided to change the company's accounting policy in respect of consumable stores, such as dyes and threads used in the manufacturing process. In the year ended 31 December 2018, and all years prior to that, Nami plc's stated accounting policy was to write off the costs of such consumable stores as incurred. The directors now wish to recognise consumable stores as inventory, on the grounds that this better matches purchases made to sales generated. As a result, the accountant included closing inventory of consumable stores of $22,600 in the draft financial statements for the year ended 31 December 2019, but made no other adjustments. It has been established that the equivalent figure at 31 December 2018 was $31,200, but it has not been possible to arrive at figures prior to that date. <\/p>", "transcribed_text": "", "related_book": { "title": "Global Strategy", "isbn": "0357512367, 978-0357512364", "edition": "5th Edition", "authors": "Mike W. Peng", "cover_image": "https:\/\/dsd5zvtm8ll6.cloudfront.net\/si.question.images\/book_images\/649592eaa157d_32303.jpg", "uri": "\/textbooks\/global-strategy-5th-edition-9780357512364", "see_more_uri": "" }, "free_related_book": { "isbn": "195192939X", "uri": "\/textbooks\/buying-multi-family-homes-for-investment-with-homes-for-sale-in-california-how-to-run-a-rental-property-business-1st-edition-978-1951929398-257987", "name": "Buying Multi Family Homes For Investment With Homes For Sale In California How To Run A Rental Property Business", "edition": "1st Edition" }, "question_posted": "2024-06-28 03:46:13", "see_more_questions_link": "\/study-help\/questions\/business-corporate-finance-2020-July-01", "step_by_step_answer": "The Answer is in the image, click to view ...", "students_also_viewed": [ { "url": "\/refer-to-exercise-1434-use-an-appropriate-statistical-technique-to", "description": "Refer to Exercise 14.34. 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