. QUESTION 3 (25 marks) QUESTION 4 PART A (20 marks) Beta Softwares Ltd (Beta), a company focused on offering a comprehensive range of Osiris Agricultural Products Ltd (OAP) is one of the largest companies in Asia involved software products to its clients in diverse industries, has investments in certain in the growing and processing of agricultural products. It is organised into three financial instruments since 2018. divisions which are regarded as separate cash-generating units of the company by HRAS 36 "Impairment of Assets" to sell different quality levels of agricultural products. On 1 January 2018, Beta purchased $15 million 5% bonds at $19.794,000 by cheque with interest payable in arrears on 31 December. The bonds are repayable on 31 OAP had a head office (HO) and a research centre (RC). The RC is used by all the cash- December 2020 at a premium of 50% on par and the effective rate of interest is 8%. generating units to improve quality of handling and processing of the agricultural Beta's business model is to collect the contractual cash flows over the life of this bond products. and such cash flows satisfy the solely payments of principal and interest. On the date of purchase, the bonds were considered to be low risk and as a result the 12-month Information on the carrying amounts of the three cash-generating units at 31 October expected credit losses are expected to be $15,000. The coupon interest was duly 2020 is as follows: $ received by cheque on 31 December 2018. Premium 1,680,000 On 1 January 2019, the risks associated with the bonds were deemed to have increased Fine 1,176,000 significantly. Beta estimated that the probability of default in the next 24 months was Economy 888,000 3%. Beta believed that there was a 30% chance that it would have 20% shortfall of all Because of downturn of economy, the management of OAP decided to undertake an receipts and 70% chance with no shortfall over the entire debt period. The coupon impairment test of the assets of the entity. Some of the information used in that process interest was duly received by cheque on 31 December 2019. was as follows: On 1 January 2020, the bond has shown a significant increase in credit risk with (1) As the HO interacts equally with the three cash-generating units, the assets of the objective evidence of impairment. Beta anticipated that no further coupon interest TIO were allocated evenly to the three units. In relation to the RC, there was no would be received during the year ended 31 December 2020 and only 20% of the reasonable way to allocate its assets to the three cash-generating units. Neither the but 20% of the redemption value was received by cheque as promised. HO nor the RC generates cash inflows. The assets of these corporate assets at 31 redemption value would be received. No cash flow of interest was received during 2020 October 2020 were as follows: $ Beta invested 15% ordinary shares in Digital Hub Ltd (DHL). DHL is a start-up in the HO 216,000 business of research and development of robotic process automation. After Beta RC 120,000 acquiring its shares in April 2020, DHL reached a breakthrough in product development earlier than initially expected. Beta has high hope on receiving good (i) The recoverable amounts of the three cash-generating units and entity as a whole return in terms of dividend and no intention to sell. Beta's investment in DHL docs not give Beta the control, joint control or significant influence over DHL and Beta has as at 31 October 2020 were assessed to be: no intention to increase the shareholding in DHL. $ Premium 1,860,000 Required Fine 1,200,000 With reference to HKFRS 9 Financial Instruments, Economy 900,000 3.930,000 Round all figures to the nearest dollar Required: (a) prepare the journal entries for the purchase of the bonds in the preparation of the financial statements of Beta for the years ended 31 December 2018, 2019 and (a) Describe, using examples, circumstances that may indicate that a 2020 respectively. You must use the below present value factors to determine the impairment loss as much as you can and round all figures to the nearest dollar to OAP in your answer. (5 marks) (19 marks) (b) Describe the process and determine the impairment loss of OAP with respect of PVF. 0.92593 PVF-OA, 0.92593 PVFR = 0.85734 cach OGU and cach corporate asset separately if exists, with detailed calculation, PVF-OA, as, 1.78326 PVF3,85 = 0.79383 PVF-OA,, s = if any, to be recognised by OAP at 31 October 2020 and prepare journal entries to 2.57710 rccord the impairment loss. Round your figures to the nearest dollar. (b) explain the possible classification of the equity instruments in DHL to be (15 marks) accounted for in the financial statements of Beta. You are required to define the rule to determine the classification with reference to HKFRS 9 "Financial Instruments (6 marks) . QUESTION 3 (25 marks) QUESTION 4 PART A (20 marks) Beta Softwares Ltd (Beta), a company focused on offering a comprehensive range of Osiris Agricultural Products Ltd (OAP) is one of the largest companies in Asia involved software products to its clients in diverse industries, has investments in certain in the growing and processing of agricultural products. It is organised into three financial instruments since 2018. divisions which are regarded as separate cash-generating units of the company by HRAS 36 "Impairment of Assets" to sell different quality levels of agricultural products. On 1 January 2018, Beta purchased $15 million 5% bonds at $19.794,000 by cheque with interest payable in arrears on 31 December. The bonds are repayable on 31 OAP had a head office (HO) and a research centre (RC). The RC is used by all the cash- December 2020 at a premium of 50% on par and the effective rate of interest is 8%. generating units to improve quality of handling and processing of the agricultural Beta's business model is to collect the contractual cash flows over the life of this bond products. and such cash flows satisfy the solely payments of principal and interest. On the date of purchase, the bonds were considered to be low risk and as a result the 12-month Information on the carrying amounts of the three cash-generating units at 31 October expected credit losses are expected to be $15,000. The coupon interest was duly 2020 is as follows: $ received by cheque on 31 December 2018. Premium 1,680,000 On 1 January 2019, the risks associated with the bonds were deemed to have increased Fine 1,176,000 significantly. Beta estimated that the probability of default in the next 24 months was Economy 888,000 3%. Beta believed that there was a 30% chance that it would have 20% shortfall of all Because of downturn of economy, the management of OAP decided to undertake an receipts and 70% chance with no shortfall over the entire debt period. The coupon impairment test of the assets of the entity. Some of the information used in that process interest was duly received by cheque on 31 December 2019. was as follows: On 1 January 2020, the bond has shown a significant increase in credit risk with (1) As the HO interacts equally with the three cash-generating units, the assets of the objective evidence of impairment. Beta anticipated that no further coupon interest TIO were allocated evenly to the three units. In relation to the RC, there was no would be received during the year ended 31 December 2020 and only 20% of the reasonable way to allocate its assets to the three cash-generating units. Neither the but 20% of the redemption value was received by cheque as promised. HO nor the RC generates cash inflows. The assets of these corporate assets at 31 redemption value would be received. No cash flow of interest was received during 2020 October 2020 were as follows: $ Beta invested 15% ordinary shares in Digital Hub Ltd (DHL). DHL is a start-up in the HO 216,000 business of research and development of robotic process automation. After Beta RC 120,000 acquiring its shares in April 2020, DHL reached a breakthrough in product development earlier than initially expected. Beta has high hope on receiving good (i) The recoverable amounts of the three cash-generating units and entity as a whole return in terms of dividend and no intention to sell. Beta's investment in DHL docs not give Beta the control, joint control or significant influence over DHL and Beta has as at 31 October 2020 were assessed to be: no intention to increase the shareholding in DHL. $ Premium 1,860,000 Required Fine 1,200,000 With reference to HKFRS 9 Financial Instruments, Economy 900,000 3.930,000 Round all figures to the nearest dollar Required: (a) prepare the journal entries for the purchase of the bonds in the preparation of the financial statements of Beta for the years ended 31 December 2018, 2019 and (a) Describe, using examples, circumstances that may indicate that a 2020 respectively. You must use the below present value factors to determine the impairment loss as much as you can and round all figures to the nearest dollar to OAP in your answer. (5 marks) (19 marks) (b) Describe the process and determine the impairment loss of OAP with respect of PVF. 0.92593 PVF-OA, 0.92593 PVFR = 0.85734 cach OGU and cach corporate asset separately if exists, with detailed calculation, PVF-OA, as, 1.78326 PVF3,85 = 0.79383 PVF-OA,, s = if any, to be recognised by OAP at 31 October 2020 and prepare journal entries to 2.57710 rccord the impairment loss. Round your figures to the nearest dollar. (b) explain the possible classification of the equity instruments in DHL to be (15 marks) accounted for in the financial statements of Beta. You are required to define the rule to determine the classification with reference to HKFRS 9 "Financial Instruments (6 marks)