You have been recently appointed as the Technical Manager of Quality Consultancy Services [QCS]. QCS provides training and consultancy advice to companies which prepare financial statements using International Financial Reporting Standards [IFRSs]

The Managing Partner of QCS has asked you to prepare the advice to be given to several clients in respect of the accounting requirements of non-current assets and financial instruments for the year ended 31 December 2020. You have been asked to prepare an internal file note commenting on the recognition, measurement and presentation requirements for each of the following issues:

a) On 1 January 2020, Baba Plc acquired a new sea boat for GHS520,000. It is expected to have a useful life of eight years and depreciation has been charged for the year on this basis . On 31 December 2022, it will require a major inspection to obtain a new operating certificate from Ghana Maritime Authority. The expected cost of inspection is GHS40,000 and a provision of GHS10,000 has been created in the 31 December 2020 financial statements

b) On I January 2020, Haruna Airlines Plc purchased a new aircraft at a cost of GHS10,000,000. The useful life of the aircraft is estimated at 20 years, and a depreciation charge of GHS500,000 has been recognised in profit or loss. An aircraft expect from Ghana Civil Aviation has analysed the costs and useful lives of the various components as follows:

Component Basic aeroplane Engines Interior

Useful Life 20 years

8 years

5 years

Cost [GHS000] 6,000

2,000

2,000

------- 10,000 =====

c) Suleimana Plc acquired an administration block with an estimated useful life of 50 years at a cost of GHC22 million on 1 January 2015. The entity used the building for five and a half years until 1 July 2020, when it moved its office to a new building at the factory site. The building was reclassified as an investment property and leased out under a 40 year lease. The fair value of the building at 1 July 2020 was GHC24 million. As at 31 December 2020, the fair value was GHC24.4 million.

The company adopts the fair valuation model for investment property

d) Braima Plc constructed a new piece of manufacturing equipment during the year. The costs incurred and capitalized comprise the following:

Cost of supplied parts, excluding VAT Recoverable VAT

Installation and pre-production testing costs Start-up losses before full production

GHS 100,000

15,000 10,000 25,000

---------- 150,000 ======

In addition, samples produced during the testing phase were sold for GHS15,000, which was recognised as revenue.

e) Seidu Plc. sells goods with a cost of GHS100,000 to Razak Plc for GHS140,000 and a credit period of six months. Seidu Plcs normal cash price would have been GHS125,000 with a credit period of one month or with a GHS5,000 discount for cash on delivery.

The accountant recognised sales revenue of GHS140,000 and charged discount of GHS5,000 to profit .

Required

Prepare an internal file note that describes and justifies the correct accounting treatment and presentation for each of the above issues