Question 1 Part a On January 1, 2018, Iron Limited purchased a piece of equipment for production of goods. The purchase price of the equipment was $670,000. Iron Limited paid on the date of purchase by the issue of ordinary shares. Iron Limited estimated that the equipment has an expected useful life of 4 years with a residual value of $30,000 on December 31, 2021. On February 15, 2020, Iron Limited disposed of equipment for cash amount of $358,000.

Iron Limited adopts revaluation model for measuring equipment. For items with revaluation, it is Iron Limiteds policy to eliminate accumulated depreciation against gross carrying amount of asset in a revaluation. There is no need to transfer the excess depreciation from revaluation reserve to retained earnings.

Iron Limited usually depreciates equipment of similar type on a straight line basis. Full year of depreciation is to be charged in the year of purchase and none to be charged in the year of disposal.

Iron Limited revalued the equipment on both December 31, 2018 and December 31, 2019; the revalued amounts were $528,000 and $370,000 respectively.

Required In accordance with the requirement of HKAS 16 `Property, Plant and Equipment, prepare all journal entries that Iron Limited should make relating to the equipment:

1. For the year ended December 31, 2018 and 2019. (10 marks)

2. For the disposal of the equipment on February 15, 2020 (5 marks

Part b

ABC Ltd is a software producing entity, it recorded a software license in its books $5.65 million on 1 January 2017, it represented the development cost of software owned by it and generated revenue correspondingly. The price $3.5 million offered by interested buyer of the license is regarded as valid market price. Owing to the loss of customers and upgrading the software, it needs to prepare the cash flow projection for the software license in coming 4 years and calculate the recoverable amount at discount rate of 8%, the forecasted net cash inflows for the year ended 31 December 2017 up to 31 December 2020 were formulated as follows:

Year Net cash inflow (in $000)

2017 250 2018 750 2019 1,500 2020 1,750

The expected disposal value of the software license is $800,000 as at 31 December 2020

Required With reference to above information, determine whether the impairment losses were required to the software license on 1 January 2017 in accordance with HKAS 36. Prepare relevant journal entries if necessary. (8 marks)

Part c

GHI Ltd owned a building worth $1,386,000 purchased at 1 January 2016, estimated useful life for 30 years, and using straight line method for depreciation. After the usage of 4 years, at the beginning of 1 January 2020, GHI Ltd re-assessed the useful life of the building, after the professional valuer advise, the remaining useful life available should be 48 years.

Required Calculate the depreciation expenses of above building as at 31 December 2020 and show the relevant journal entry. All workings must be shown (7 marks)