Question 2 You work as a trainee financial accountant at you fim Nevitt LLP, a client of your Boel (primarily involved in Oil Exploration and deiling) Has sert you the folowing email Hello, we are just finalising the financial atatements for the year ended 30 Soptember 2020 and have come across the following issues on which we are unture of the corect financial reporting treatment. Can you please actise on how we should account for these issues and why in accordance with International Financial Reporting Stancards? Borrowing Costs incurred on building new warehouse On 30 June 2020 we completed construction of a new warehouse (usedul economic life of 50 yoars) at a total cost of 26,000,000(f3,000,000 of which related to land) At the atart of the yoar, we had general borrowings made up of 2 loons: one of E10,000,000 at an interest rate of 5% and another of 22,000,000 at an irterest rate of 4%. Al these firance cobis have been expensed to the PbL accordingiy/. The land for dovelopment was bought for 93,000,000 on 1 September 2019 but it wasn 1 untiti 1 November 2019 we commissioned an architect to draw up plans and solicitor to obtain planining permission. Oil rig not extracting volume of oll expected Marshall's oll rig they acquired a number of years ago in the Gulf of Mexico is treated as a cash generabing unit (CGU). At 30 September 2020 these assets have the following camying amounts. Due to lower than expected oil in the region the recoverable amount of the rig in the Gulf of Mexico is 23,300,000 The rig structure due to its age and safety restrictions can orily be used as scrap and therefore has a scrap value of 750,000 Inventory and cash are at their recoverable amount. Requirement: a) Respond the Beels email, advising how each of the above issues should be dealt With in the financial statements for the year ended 30 September 2020 (19 Marks) b) Explain the 4 different ways of measuring elements in the financial statements. For each measurement base give an example of a situation of when it would be used. (6 Marks) (25 Marks) Question 2 You work as a trainee financial accountant at you fim Nevitt LLP, a client of your Boel (primarily involved in Oil Exploration and deiling) Has sert you the folowing email Hello, we are just finalising the financial atatements for the year ended 30 Soptember 2020 and have come across the following issues on which we are unture of the corect financial reporting treatment. Can you please actise on how we should account for these issues and why in accordance with International Financial Reporting Stancards? Borrowing Costs incurred on building new warehouse On 30 June 2020 we completed construction of a new warehouse (usedul economic life of 50 yoars) at a total cost of 26,000,000(f3,000,000 of which related to land) At the atart of the yoar, we had general borrowings made up of 2 loons: one of E10,000,000 at an interest rate of 5% and another of 22,000,000 at an irterest rate of 4%. Al these firance cobis have been expensed to the PbL accordingiy/. The land for dovelopment was bought for 93,000,000 on 1 September 2019 but it wasn 1 untiti 1 November 2019 we commissioned an architect to draw up plans and solicitor to obtain planining permission. Oil rig not extracting volume of oll expected Marshall's oll rig they acquired a number of years ago in the Gulf of Mexico is treated as a cash generabing unit (CGU). At 30 September 2020 these assets have the following camying amounts. Due to lower than expected oil in the region the recoverable amount of the rig in the Gulf of Mexico is 23,300,000 The rig structure due to its age and safety restrictions can orily be used as scrap and therefore has a scrap value of 750,000 Inventory and cash are at their recoverable amount. Requirement: a) Respond the Beels email, advising how each of the above issues should be dealt With in the financial statements for the year ended 30 September 2020 (19 Marks) b) Explain the 4 different ways of measuring elements in the financial statements. For each measurement base give an example of a situation of when it would be used. (6 Marks) (25 Marks)
