PRACTICE QUESTIONS

Viva Capital Limited began research into the software it has used over a period. The software has been operational for the generation of economic benefits over the years. The company decided to research the development of the software.

The company assigned four researchers who were paid R$10,000$ in total for the period of the research. Transportation and feeding costs incurred in carrying out the research amounted to R$4,000.$ The company further acquired four tablets with research software for R$25,000$ each to enable them to ascertain accurate findings. The company's software is separately identified and has a commercial value.

The research was completed and there is a need for developing the company's software. A development cost of R$125,000$ was reliably measured and incurred. The economic useful life of the software was estimated to be $10$ years from the date of completing its development.

Required:

Show how the software and its related expenses are to be capitalized in the financial statements under IAS

Lisa Limited leased a building worth R$4$ million to Quintin Limited under an operating lease for $10$ years. During the period, Quintin Limited decided to buy the building at the end of the lease period of which no proper documentation and agreement were reached between the two companies.

Required:

Identify how Nhyiraba Limited will recognize the building under IAS $40$ and give reasons for your answer.

ABC Limited owns a property that is used as its head office in Pretoria. On $1^{st}$ January $2020,$ its carrying value was R$20$ million and its remaining useful life was $20$ years. On $1$st July $2020,$ the business recognized cheaper premises found for use as the head office. It was therefore decided to lease the property under an operating lease.

The property was valued by a qualified professional who assessed the property's value as R$21$ million on $1$st July and R$21\mathrm{.}6$ million on $31$st December $2020.$

Required:

Explain the accounting treatment of the property in the financial statements for the year ended $31$st December $2020.($Hint: Income statement and SOFP

extract including

calculations$).$

$(40)$