This assignment addresses the following course learning outcome (CLO). No. CLO Question 2 Apply International Financial Reporting Standards (IFRS) to different asset items and reconcile their results with GAAP. (all parts)

Instructions Answer each of the following Questions and show all your workings.Do not use a cover page. Do not use color. Just use black and 12 pts font. You will be penalized for not following instructions.

Part 1 (7 marks)

National Company produces a single product called Delta. The production cycle takes on average two months to complete. Product Delta is the second product the company introduced to the market four years ago. The Companys normal level of units produced per cycle is 100,000 units. The monthly total manufacturing fixed overhead costs is AED 100,000. These fixed costs are allocated to the units produced each cycle based on the number of units produced. The Company produced 80,000 units in the last cycle of 2015 and sold 60,000 by the end of 2015. Thus, the number of units in the ending inventory of finished goods was 20,000 units. There were no ending inventories of raw materials or work-in-process.

The following costs were incurred in the last two months of the year in relation to the production of the last cycle. (all amounts are in dirhams):

Purchase price of the raw material used during the cycle 120,000

Transportation and handling costs of used material in the cycle 34,000

Cost of direct labor 290,000 Allocated variable overhead costs 40,000

Storage costs related to finished products before sale 10,000

Interest costs on borrowed funds to pay for the purchase of raw material 15,000

Selling expenses 65,000

Cost of wasted material during production 10,000

The nature of the manufacturing process causes a normal waste of 5% of the materials used in the cycle. The sale price of a unit the sold product was 8 dirham. The Company follows the rules of IFRS for the purposes of preparing its financial statements.

On December 31, 2015, the Company estimated the selling costs for ending inventory of finished goods to be 45,000 dirhams Required:

(a) Analyze the above cost items and determine the amount of the ending inventory of finished goods that would be reported on the balance sheet at December 31, 2015 according to IAS # 2. (3 marks)

(b) Construct the necessary journal entries to record the above transactions and events assuming the Company uses the perpetual inventory system (4 marks)

Part 2 (8 marks)

Green Valley Company purchased specialized equipment for 22 million dirhams on December 24, 2013. The Company borrowed on the same day 5 million dirhams for 10 years at 8% annual interest rate to partially finance the acquisition of the equipment. The interest is to be paid annually in January of each year while the principle amount will be paid on Dec. 31, 2023. The following additional costs were incurred in the process on Dec. 31, 2013:

Equipment registration costs 300,000

Installation and testing costs 200,000

The Company also signed a maintenance contract for 5 years for an amount of 100,000 dirham annually. Estimated useful life of the equipment is 15 years with a net cost at the end of the useful life of 1,000,000 dirhams (difference between salvage value and removal costs). The Company uses the straight-line method of depreciation for the equipment. The discount rate is 10%.

On January 1, 2014 the equipment was ready for use in the Companys operations.

Required:

1. Analyze the above case and determine the proper cost of the equipment as of January 1, 2014 (3 marks).

2. Construct the necessary journal entries to recognize the above transactions for 2013 and 2014 (including depreciation). (5 marks)