Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

QUESTION TWO 4 5 MARKS CASE STUDY READ THE CASE STUDY AND ANSWER THE QUESTIONS THAT FOLLOW: Willie Wonker, a famous sweet maker, is in

image text in transcribed
QUESTION TWO
45 MARKS
CASE STUDY
READ THE CASE STUDY AND ANSWER THE QUESTIONS THAT FOLLOW:
Willie Wonker, a famous sweet maker, is in a sticky situation; he knows all there is to know about making delightful confectionaries but very little (nothing in fact) about IFRS. Willie is in a quite a state as he wants to comply with IFRS but is struggling with working out if his assets are impaired. Having just consumed his fourth Seriously Smart Sugar Sherbet he had a bright idea and decided to call in an IFRS expert.
Willie Wonker owns the following non-current assets:
Jelly Bean Machine;
Seriously Smart Sugar Sherbet Machine;
Brain Boosting Bar Recipe; and
Wonker Bar Chocolate Machine.
Jelly Bean Machine:
This machine was purchased many years ago (so many that Willie cannot remember ever actually buying it) and has been happily producing delicious beans since that date. At the end of the previous financial year, the accountant, Violet, who subsequently left due to an incident with a bubble-gum machine, decided that the Jelly Bean Machine was so old it had to be impaired. However, despite the recent rapid advancement in technology, upon performing a detailed IFRS-compliant assessment at the end of the prior year, she determined that its recoverable amount, being the value in use, was double that of its carrying amount. As a result, no impairment was processed.
During the current year, the market interest rate for Jelly Bean production (which Violet originally used to calculate the value in use) had remained the same. However, because it is now one year on and thus the machine is older than when Violet performed her assessment, Willie is considering calculating its recoverable amount and comparing it to the carrying amount.
Seriously Smart Sugar Sherbet Machine:
There was a recent dramatic drop in sales of Seriously Smart Sugar Sherbet, a product historically sold in mass quantities. The drop in sales occurred after the Candy Cane Police raised concerns that the sherbet made people less intelligent.
An urgent interdict, preventing Willie Wonker from selling the sherbet without each packet of sherbet labelled with a health warning, was passed down by the High Candy Cane Court. This case was a high-profile case and featured on the front page of almost every newspaper at the time. The impact of this negative publicity had an immediate and profound effect on sales of sherbet, evidenced by internal sales forecast data showing plummeting sales.
The damage to the brand name is considered to be so severe that it is unlikely that the sales of sherbet will ever fully recover.
Willie is distraught as the demand, immediately before the High Candy Cane Courts urgent interdict, had been expected to remain strong.
4
Brain-boosting Bar Recipe:
In a furious rage, Willie Wonker purchased the recipe for a Brain-Boosting Bar which he hoped would replace the lost demand from the sherbet. Although not ready for immediate use the recipe is sure to be a success.
Willie is currently registering the recipe in his own name. This is expected to be finalised within the next financial year.
Wonker Choc Bar Machine:
As the financial year has been so hectic, Willie was unable to find any data for the Wonker Choc Bar Machine. The only information that Willie has is shown below:
\table[[Net assets value of the entire 'Willie Wonker Empire',R150000000
image text in transcribed

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Horngrens Cost Accounting A Managerial Emphasis

Authors: Srikant M. Datar, Madhav V. Rajan

16th edition

134475585, 978-0134475998, 134475992, 978-0134475585

More Books

Students also viewed these Accounting questions