Practice Problem 1 (25 minutes) Grape-to-Gullet Ltd. (GTG) has Operated a vertically integrated wine business for a number of years. It owns vineyards in Ontario and British Columbia, and it uses the grapes in its own wine-fermentation facilities. It then sells the wine through the company's own chain of retail outlets. GTG's year end is June 30, and the company prepares its nancial statements in accordance with ASPE. The audited income statement for the year ended June 30, 2019, along with the draft gures for the year ended June 30. 2020, are as follows: (in '0005) June 2020 June 2019 (draft) (audited) Revenue $21,000 $20,000 Cost of goods sold 115,000) (13,500) Gross prot 6,000 6,500 Distribution costs (250) (200) Administrative expenses (1,680) 1900) Operating income 4,070 5,400 Interest expense (530) (310) Income before tax 3,540 5,090 Tax expense (1,093) (1,490) Net income for the year g 2,447 5 3,600 For several years, GTG's wine retailing business has faced severe competition; it incurred an operating loss for the year ended June 30, 2020. The directors decided in July 2019 to sell the wine retailing business. A binding sales agreement was entered into in November 2019 and the sale was completed on December 31, 2019, for $4,600,000. The assets, liabilities, revenue, and costs of the wine retailing business are separately distinguishable and form a separate component of the business. The gures for the wine retailing business included in the above statements of comprehensive income are as follows: (in '0005) 2020 2019 Revenue $2,800 $6,000 Cost of goods sold (2,750) (4,000) Distribution costs (60) (50) Administrative expenses [500) {450) Income (loss) before tax (510) 1,500 Tax (expense)/recovery 143 (420) Net income (loss) 1367) $1,080 The carrying value of the assets of the wine retailing business on December 31, 2019, equalled $4,320,000. The company had no liabilities relating to the wine retailing business. The proceeds of the sale were recorded by debiting cash $4,600,000 and crediting an account called su3pense. This su3pense account is not reected in the above income statement. Assume there will be no tax payable regarding the disposal of the wine retailing operation. GTG's tax rate is 28%. Required: a) Prepare an updated income statement of GTG (including comparatives) for the year ended June 30, 2020. b) Prepare a suitable disclosure note relating to the discontinuance of the wine retailing business. Practice Problem 2 (20 minutes) Kizys Inc. (Kizys), a publicly accountable enterprise, operates in three business areas: fibre optics, cable TV, and internet services. The bre Optics business has struggled for a number of years, and on March 31, 2020, the board decided to sell the business. A plan was drawn up and the business was put up for sale on June 1, 2020. Management determined the bre Optics business qualied at a non-current asset held for sale on June 1, 2020. At June 1, 2020, the assets of the disposal group had a carrying value of $15.8 million. Liabilities to be repaid of as part of the business equalled $1.6 million. The assets of the business had been impaired by $1.5 million in 2018 due to market conditions. There is no goodwill associated with the assets of the group. At June 1, 2020, the directors estimated that the assets and liabilities of the business had a fair value of$14 million, with costs to sell of $0.2 million. Selling costs are deemed to relate to the assets of the business. As at December 31, 2020, the company's year end, the estimated fair value less costs to sell was $17 million an increase in value due to an improvement of market conditions. The liabilities of the division equalled $2.1 million on December 31, 2020, and $1.4 million at the date of sale. At all times, the fair value of the liabilities equalled their book value. The company follows the cost model for all of its non-current assets. The business was sold in April 2021 for $18.7 million, net of selling costs. Required: a) Prepare calculations to support any adjustments required in the years to December 31, 2020 and 2021, in relation to the bre optics business. b) Prepare an extract of the statement of nancial position of Kizys as at December 31, 2020 that presents any non-current assets held for sale. Practice Problem 3 (20 minutes) Bolt Inc. manufactures running shoes for sale to elite athletes. In the current year, Bolt replaced an old piece of equipment with new technology. The old equipment is still in good working order and is adequate to continue producing shoes for non-elite athletes. The equipment was removed from Bolt's factory on September 30, 2020, and it is currently in storage. Bolt performed all necessary maintenance on the equipment before moving it to the storage facility. Depreciation was not recorded after September 30, 2020, and the equipment has a current carrying value of $75,000. The equipment is being marketed on industry websites at a sales price of $80,000. Selling costs are expected to equal 10% of the sales price. Management has not yet received an offer to purchase the equipment. In the past, similar pieces of equipment have sold within a few months for close to $80,000. Bolt reports under IFRS. Required: Determine whether the asset meets the criteria for recognition as held for sale. If so, provide the required journal entry.Practice Problem 4 (20 minutes) ABC Co. received a $500,000 government grant for the purchase of new equipment that cost $2,500,000. ABC received the cash for the grant during 2020. The equipment was acquired on January 1, 2020, and is being depreciated on a straight-line basis over 10 years. The estimated residual value is $0. Under the terms of the grant, the company must keep the asset for at least ve years. ABC expects that it will comply with the terms of the grant. The company has a December 31 year end and prepares its financial statements in accordance with ASPE. Required: Prepare all required journal entries pertaining to the equipment and related grant for ABC for its year ended December 31, 2020, assuming that: a) ABC uses the net method to account for government grants. b) ABC uses the gross method to account for government grants. Practice Problem 5 (15 minutes) During the year ended December 31 , 2020, Seahawk Ltd. received a government grant of $120,000 for hiring and training costs for the years ending December 31, 2020, 2021, and 2022. The grant represents 25% of the total estimated costs. During 2020, the company spent $200,000 on training. The company's budgeted hiring and training costs for 2021 are $160,000, and for 2022, $120,000. If total hiring and training costs are not at least $480,000 by the end of 2022, the grant is repayable to the government on a pro-rated basis. Seahawk is subject to IFRS. Required: 3) Explain how the grant should be dealt with in the nancial statements of Seahawk for the year ended December 31, 2020, assuming the company uses the net method for presenting government grants, and prepare any necessary journal entries relating to the grant for 2020. b) Describe the required note disclosures related to the grant for the year ended December 31, 2020, if any. Practice Problem 6 (20 minutes) Trucks N' Stuff (TNS) is owned by two brothers: Sun-Jae and Yong-Jun. The brothers own 20% each of Brakes Etc. (BE), and the remaining 60% is owned by their childhood friend, Sam. Both Sun-Jae and Yong-Jun are members of the board of BE. TNS sells vehicles and accessories, while BE provides auto parts to vehicle repair shops. Sun-Jae and Yong-Jun would like to expand TNS and, as a result, have approached Sam about purchasing a building from BE. They know that the building is not being used by BE. The building has a book value of $180,000 and originally cost $350,000. Sam recently had the building professionally appraised and its fair value is estimated at $300,000. Sun-Jae and Yong-Jun plan for TNS to offer to purchase the building from BE for $295,000 in cash. Both TNS and BE report under ASPE. Required: Using the related party transaction decision tree, determine how the transaction should be measured from the perspective of TNS. Prepare the journal entry to record the transaction