T 03 Answer ONEquestion from this section. Question B1 a) Chatzivgeri plc is preparing its financial statements for the year ended 31 December 2017. On June 2017, the company acquired equipment that would help them produce robots. The provider of the equipment had initially asked for 12,000,000 but Chatzivgeri plc estimated that NPV of the future expected cash flows of the equipment would be 10,500,000, so the vendor agreed on receiving 10,000,000 from Chatzivgeri plc for the equipment. The useful life of the equipment is 5 years and the depreciation method used is the straight-line (assume zero residual value). During November 2017 a competitor announced that it had created a more advanced robot, which was highly welcomed by the industry. This led Alpha plc believing that a downward revision of the equipment might be necessary. It is now believed that the NPV as at 31 December 2017 was 7,500,000, while the estimated net realisable value of the equipment was 4,500,000 at the end of the financial year. REQUIRED Examine Chatzivgeri plc for evidence of impairment and critically describe how the equipment should be treated in the financial statements for the year ended 31 December 2017. (10 marks) b) Winston Motors sells sports cars. During the year, the showroom was renovated and enlarged by means of an extension to the building. The principal supplier of cars, Nathan Sports, contributed towards the cost of the extension. This cash contribution is repayable after two years. REQUIRED Evaluate how and why the extension and the cash contribution should be reflected in the financial statements of Winston. Your answer should refer to relevant financial reporting standards. (8 marks) Continued on next page L.. c) Company Z prepares financial statements to 31 March each year. On 31 March 2016, the company acquired an intangible asset for 100,000. This asset was revalued at 85,000 on 31 March 2017, and at 105,000 on 31 March 2018. REQUIRED Assuming that the company uses the revaluation model, explain how the above transactions shou ld be dealt with in the financial statements (ignore amortisation). (7 marks) (Total 25 marks) T 03 Answer ONEquestion from this section. Question B1 a) Chatzivgeri plc is preparing its financial statements for the year ended 31 December 2017. On June 2017, the company acquired equipment that would help them produce robots. The provider of the equipment had initially asked for 12,000,000 but Chatzivgeri plc estimated that NPV of the future expected cash flows of the equipment would be 10,500,000, so the vendor agreed on receiving 10,000,000 from Chatzivgeri plc for the equipment. The useful life of the equipment is 5 years and the depreciation method used is the straight-line (assume zero residual value). During November 2017 a competitor announced that it had created a more advanced robot, which was highly welcomed by the industry. This led Alpha plc believing that a downward revision of the equipment might be necessary. It is now believed that the NPV as at 31 December 2017 was 7,500,000, while the estimated net realisable value of the equipment was 4,500,000 at the end of the financial year. REQUIRED Examine Chatzivgeri plc for evidence of impairment and critically describe how the equipment should be treated in the financial statements for the year ended 31 December 2017. (10 marks) b) Winston Motors sells sports cars. During the year, the showroom was renovated and enlarged by means of an extension to the building. The principal supplier of cars, Nathan Sports, contributed towards the cost of the extension. This cash contribution is repayable after two years. REQUIRED Evaluate how and why the extension and the cash contribution should be reflected in the financial statements of Winston. Your answer should refer to relevant financial reporting standards. (8 marks) Continued on next page L.. c) Company Z prepares financial statements to 31 March each year. On 31 March 2016, the company acquired an intangible asset for 100,000. This asset was revalued at 85,000 on 31 March 2017, and at 105,000 on 31 March 2018. REQUIRED Assuming that the company uses the revaluation model, explain how the above transactions shou ld be dealt with in the financial statements (ignore amortisation). (7 marks) (Total 25 marks)