the question is under branch accounting
QUESTION ONE (25 Marks) Prima (Ghana) Limited is a listed company with a year end of 31 December. It operates two businesses, the first is the rental of luxury yaches and the second is a chain of luxury holiday villas in Europe. The directors have requested your advice on the following matters Holiday Villas Prima (Ghana) Limited's policy is to carry the holiday villas at their re-valued amount which, based on the most recent valuation in 2010, was GHS30m historical cost was GHS10m). Prima (Ghana) Limited is unsure how frequently a revaluation of such properties is required and so has instructed a surveyor to provide an up-to-date valuation as at 31 December Year 4. This valuation has provided the following information: GHS Replacement cost 17 Value in use Open market value 25 One of the villas has received very few booking over the past two years and so a decision was reached to exclude it from the Year 5 brochure. It is currently up for sale. The villa has a carrying value of GHS 1.25m. Its value in use is only GHISO85m and its expected market value is GHSim. before expected agents and solicitor's fees of GHS50,000. The directors are unsure as to the accounting treatment of this villa. A number of potential buyers have expressed an interest in the property, and it is hoped that a deal will be noted in the first few months of Year 5. Prima (Ghana) Limited's accounting policy is to be charge depreciation on the villas. Its justification is that the villas are maintained to a high standard and have useful lives of at least 50 Head Office Over the past two years, Prima (Ghana) Limited has built its own head office. Construction began on 1 October Year 2 and finished on 1 June You though minor modifications meant that the company did not relocate until September Year The site cost GHSim and the costs of construction were a further GHSXm. Prima (Ghana) Limited took out a two year loan of GHSS on October Year 2.at an interest rate of 9% per annum, to help fund the work. In order to encourage businesses to operate in areas of high unemployment, the government offered a GHS1 Sm grant towards the cost of construction. The terms of settlement were that payment would only be made upon completion of the building once a wemment inspection had taken place. This inspection had not take place by the year end, but Prima (Ghana) Limited is confident that the grant will be received shortly after the year end. 2 The company intends to use the head office for the next 5 years and, as for the villas, does not intend to depreciate the land or buildings Yachts Prima (Ghana) Limited has spent the past year designing a new range of luxury yachts. Work was completed on 1 April Year 4 at a cost of GHS2. During the construction, the economy took a downtown and the company now believes that the market value of the yachts is only GHS17m. although the value in use is estimated to be GHS18. The engines of the yachts have a three year life, the interior has a two year, and the remainder should have a life of 15 years. The engine cost is believed to represent 15% of the total cost of manufacture and the interior approximately 25% Required Explain the accounting issues relating to the villas, head office and yachts, referring to relevant LAS guidance. Where possible, numerical information relating to the 31 December Year 4 financial statements should be provided (2 marks) 45% Search ... LTE 1:21 PM Intermediate Accounting II Onli... QUESTION ONE (25 Marks) Prima (Ghana) Limited is a listed company with a year end of 31 December. It operates two businesses, the first is the rental of luxury yachts and the second is a chain of luxury holiday villas in Europe. The directors have requested your advice on the following matters. Holiday Villas Prima (Ghana) Limited's policy is to carry the holiday villas at their re-valued amount, which, based on the most recent valuation in 2010, was GHS20m (historical cost was GHS10m). Prima (Ghana) Limited is unsure how frequently a revaluation of such properties is required and so has instructed a surveyor to provide an up-to-date valuation as at 31 December Year 4. This valuation has provided the following information: GHSm Replacement cost 17 Value in use 28 Open market value 25 One of the villas has received very few bookings over the past two years and so a decision was reached to exclude it from the Year 5 brochure. It is currently up for sale. The villa has a carrying value of GHS1.25m. Its value in use is only GHS0.85m and its expected market value is GHSim, before expected agents and solicitor's fees of GHS50,000. The directors are unsure as to the accounting treatment of this villa. A number of potential buyers have expressed an interest in the property, and it is hoped that a deal will be negotiated in the first few months of Year 5. Prima (Ghana) Limited's accounting policy is to not charge depreciation on the villas. Its justification is that the villas are maintained to a high standard and have useful lives of at least 50 years Head Office Over the past two years, Prima (Ghana) Limited has built its own head office. Construction began on 1 October Year 2 and finished on 1 June Year 4, although minor modifications meant that the company did not relocate until 1 September Year 4. The site cost GHS1m and the costs of construction were a further GHS8m. Prima (Ghana) Limited took out a two year loan of GHS5m on 1 October Year 2, at an interest rate of 9% per annum, to help fund the work. In order to encourage businesses to operate in arcas of high unemployment, the government offered a GHS1.5m grant towards the cost of construction. The terms of settlement were that payment would only be made upon completion of the building once a government inspection had taken place. This inspection had not taken place by the year end, but Prima (Ghana) Limited is confident that the grant will be received shortly after the year end. The company intends to use the head office for the next 50 years and, as for the villas, does not intend to depreciate the land or buildings. Yachts Prima (Ghana) Limited has spent the past year designing a new range of luxury yachts. Work was completed on 1 April Year 4 at a cost of GHS20m. During the construction, the economy took a downtown and the company now believes that the market value of the yachts is only GHS 17m, although the value in use is estimated to be GHS18m. The engines of the yachts have a three year life, the interior has a two year, and the remainder should have a life of 15 years. The engine cost is believed to represent 15% of the total cost of manufacture and the interior approximately 25%. Required Explain the accounting issues relating to the villas, head office and yachts, referring to relevant IAS guidance. Where possible, numerical information relating to the 31 December Year 4 financial statements should be provided. (25 marks) QUESTION ONE (25 Marks) Prima (Ghana) Limited is a listed company with a year end of 31 December. It operates two businesses, the first is the rental of luxury yaches and the second is a chain of luxury holiday villas in Europe. The directors have requested your advice on the following matters Holiday Villas Prima (Ghana) Limited's policy is to carry the holiday villas at their re-valued amount which, based on the most recent valuation in 2010, was GHS30m historical cost was GHS10m). Prima (Ghana) Limited is unsure how frequently a revaluation of such properties is required and so has instructed a surveyor to provide an up-to-date valuation as at 31 December Year 4. This valuation has provided the following information: GHS Replacement cost 17 Value in use Open market value 25 One of the villas has received very few booking over the past two years and so a decision was reached to exclude it from the Year 5 brochure. It is currently up for sale. The villa has a carrying value of GHS 1.25m. Its value in use is only GHISO85m and its expected market value is GHSim. before expected agents and solicitor's fees of GHS50,000. The directors are unsure as to the accounting treatment of this villa. A number of potential buyers have expressed an interest in the property, and it is hoped that a deal will be noted in the first few months of Year 5. Prima (Ghana) Limited's accounting policy is to be charge depreciation on the villas. Its justification is that the villas are maintained to a high standard and have useful lives of at least 50 Head Office Over the past two years, Prima (Ghana) Limited has built its own head office. Construction began on 1 October Year 2 and finished on 1 June You though minor modifications meant that the company did not relocate until September Year The site cost GHSim and the costs of construction were a further GHSXm. Prima (Ghana) Limited took out a two year loan of GHSS on October Year 2.at an interest rate of 9% per annum, to help fund the work. In order to encourage businesses to operate in areas of high unemployment, the government offered a GHS1 Sm grant towards the cost of construction. The terms of settlement were that payment would only be made upon completion of the building once a wemment inspection had taken place. This inspection had not take place by the year end, but Prima (Ghana) Limited is confident that the grant will be received shortly after the year end. 2 The company intends to use the head office for the next 5 years and, as for the villas, does not intend to depreciate the land or buildings Yachts Prima (Ghana) Limited has spent the past year designing a new range of luxury yachts. Work was completed on 1 April Year 4 at a cost of GHS2. During the construction, the economy took a downtown and the company now believes that the market value of the yachts is only GHS17m. although the value in use is estimated to be GHS18. The engines of the yachts have a three year life, the interior has a two year, and the remainder should have a life of 15 years. The engine cost is believed to represent 15% of the total cost of manufacture and the interior approximately 25% Required Explain the accounting issues relating to the villas, head office and yachts, referring to relevant LAS guidance. Where possible, numerical information relating to the 31 December Year 4 financial statements should be provided (2 marks) 45% Search ... LTE 1:21 PM Intermediate Accounting II Onli... QUESTION ONE (25 Marks) Prima (Ghana) Limited is a listed company with a year end of 31 December. It operates two businesses, the first is the rental of luxury yachts and the second is a chain of luxury holiday villas in Europe. The directors have requested your advice on the following matters. Holiday Villas Prima (Ghana) Limited's policy is to carry the holiday villas at their re-valued amount, which, based on the most recent valuation in 2010, was GHS20m (historical cost was GHS10m). Prima (Ghana) Limited is unsure how frequently a revaluation of such properties is required and so has instructed a surveyor to provide an up-to-date valuation as at 31 December Year 4. This valuation has provided the following information: GHSm Replacement cost 17 Value in use 28 Open market value 25 One of the villas has received very few bookings over the past two years and so a decision was reached to exclude it from the Year 5 brochure. It is currently up for sale. The villa has a carrying value of GHS1.25m. Its value in use is only GHS0.85m and its expected market value is GHSim, before expected agents and solicitor's fees of GHS50,000. The directors are unsure as to the accounting treatment of this villa. A number of potential buyers have expressed an interest in the property, and it is hoped that a deal will be negotiated in the first few months of Year 5. Prima (Ghana) Limited's accounting policy is to not charge depreciation on the villas. Its justification is that the villas are maintained to a high standard and have useful lives of at least 50 years Head Office Over the past two years, Prima (Ghana) Limited has built its own head office. Construction began on 1 October Year 2 and finished on 1 June Year 4, although minor modifications meant that the company did not relocate until 1 September Year 4. The site cost GHS1m and the costs of construction were a further GHS8m. Prima (Ghana) Limited took out a two year loan of GHS5m on 1 October Year 2, at an interest rate of 9% per annum, to help fund the work. In order to encourage businesses to operate in arcas of high unemployment, the government offered a GHS1.5m grant towards the cost of construction. The terms of settlement were that payment would only be made upon completion of the building once a government inspection had taken place. This inspection had not taken place by the year end, but Prima (Ghana) Limited is confident that the grant will be received shortly after the year end. The company intends to use the head office for the next 50 years and, as for the villas, does not intend to depreciate the land or buildings. Yachts Prima (Ghana) Limited has spent the past year designing a new range of luxury yachts. Work was completed on 1 April Year 4 at a cost of GHS20m. During the construction, the economy took a downtown and the company now believes that the market value of the yachts is only GHS 17m, although the value in use is estimated to be GHS18m. The engines of the yachts have a three year life, the interior has a two year, and the remainder should have a life of 15 years. The engine cost is believed to represent 15% of the total cost of manufacture and the interior approximately 25%. Required Explain the accounting issues relating to the villas, head office and yachts, referring to relevant IAS guidance. Where possible, numerical information relating to the 31 December Year 4 financial statements should be provided. (25 marks)
