ACCA FR (F7) B1 Coffee Class - PPE Answers PDF

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FR (F7) Coffee Class - Answers Syllabus B1: Tangible non-current assets Topic 1: IAS 16 - Recognition Q1. A. No, we need to control it Q2. B: 2 , because you have to use the assets and here you don’t use it, you rent it out. Q3. B. Training costs of employees who will use the PPE Q4. B. Dismantling costs Q5. A. Fair value, which is present value of future cash Q6. B: False

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Topic 2: Future Costs Q1. A: You use PV, which is less than $100, due to time value of money.

Q2. $100 / 1.10 ^2 = 82.6, The ^ is 2, because you need to get a value now of $100 (in 2 YEARS) DR PPE (Cost) 82.6 CR Liability

82.6

Q3. A: need to….finally you have to pay the FULL amount ($100). So the liability eventually needs to be the FULL amount. So we discount to present value at first, but then over time unwind the discounted liability so it is at the FULL amount when we come to pay it at the end

Q4. A: $82.6 x 10% = $8.26 DR Interest (I/S) $8.26 CR Liability $8.26

Q5. B: 90.86 82.6 + 8.26 = 90.9 DR PPE 82.6 DR Interest (I/S) $8.26 CR Liability $8.26 + 82.6 = 90.9

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Q6. B: 9.09 (82.6 + 8.26) x 10% = 9.09 DR Interest (I/S) $9.09 / CR Liability $9.09

Q7. B: CR Liability $82.6 + 8.26 + 9.09 = 99.95

Q8 Example 1 a. Calculate PV. $200 / 1.08^3 = 158.77 DR PPE $158.77 CR Liability $158.77

b. Unwind the discount in Y1 $158.77 x 8% = $12.7 DR Interest (I/S) $12.7 CR Liability $12.7

c. Double entry in Y1 DR PPE $158.77 DR Interest (I/S) $12.7 CR Liability $158.77 + 12.7 = 171.47

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d. Unwind the discount in Y2 $171.47 x 8% = 13.7 DR Interest (I/S) $13.7 CR Liability $13.7

e. How much will Liability be in Y2? CR Liability $171.47 + 13.7 = 185.17

f. Unwind the discount in Y3 $185.17 x 8% = 14.8 DR Interest (I/S) $14.8 CR Liability $14.8

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Q9. Statement of financial position as at 30 September 2011 (Extract) Assets Non-current assets Property, plant and equipment

126,000 (w1)

Equity and liabilities Non-current liabilities Provision for decontamination costs

44,000 (40,000(w1) + 4,000(w2)

Statement of Comprehensive Income for year ended 30 September 2011 (Extract) Depreciation

(14,000) (w1)

Finance costs

(4,000) (w2)

Working 1: NCA: Plant and equipment Decontamination costs

100,000 40,000

Total cost of the new plant

140,000 (100,000 + 40,000)

Depreciation charge for the year

(14,000) (140,000 / 10 years)

Carrying amount at 30 September 2011

126,000 (140,000 - 14,000)

We have to increase the Plant costs (100,000) by the PV of the decontamination costs (40,000).

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The double entry will be: DR PPE 40,000 CR Provision for decontamination costs 40,000

Working 2: Then we have to unwind the discount: $4,000 (40,000 x 10%) The double entry will be: DR Finance costs (I/S) $4,000 CR Provision for decontamination costs (SFP) $4,000

Topic 3: Borrowing costs Q1. Current borrowings - 1 year The interest added to the asset is 6% x 1,000 = $60

Q2a. Current borrowings - 2 years Y1: The interest added to the asset is 6% x 600 = $36

Q2b. Current borrowings - 2 years Y2: The interest added to the asset is 6% x 400 = $24 Q3. Current borrowings Calculate the WA cost of the borrowings: Total Borrowing = (1,000 + 3,000 + 2,000) = 6,000 Interest payable = (50 + 240 + 200) = 490 Weighted average rate = 490/6,000 = 8.17% So the total interest to be added to the asset is 8.17% x 5,000 = 408

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Q4. Specific loan - 1 year Interest Paid = 2,000 x 10% = 200 Dr "PPE Cost 200# Cr "Interest Accrual 200 Q5. Specific loan - 2 years Q5a. Y1: Interest Paid = 1,200 x 10% = 120 Dr "PPE Cost 120# Cr "Interest Accrual 120 Q5b. Y2: Interest Paid = 800 x 10% = 80 Dr "PPE Cost 80# Cr "Interest Accrual 80

Q6. Specific loan - no construction period Interest Paid = 2,000 x 10% x 10/12 months = 167 Dr "PPE Cost 167# Cr "Interest Accrual 167 Q7. Specific loan - Carrying amount Interest Paid = 2,000 x 10% x 10/12 months = 167 Total cost capitalised = $2,000 + $167 = $2,167

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Topic 4: Capital and Revenue Expenditure Q1a A PPE (SFP) Q1b (a) capital (b) revenue (c) capital (d) revenue (e) capital (f) revenue (g) revenue (h) capital (i) capital (j) capital (k) capital (l) capital (m) capital (n) capital (o) revenue (p) revenue (q) capital (r) capital (s) revenue (t) revenue (u) capital (v) capital (w) revenue

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Topic 5. Depreciation and Carrying Value Q1. No Q2. Q2a. 20,000 / 20 years = $1,000 Q2b. $1,000 Q2c. $20,000 - $1,000 = $19,000

Q3. Q3a. 20,000 / 20 years = $1,000 Q3b. 20,000 / 20 years = $1,000 Q3c. $1,000 x 2 years = $2,000 Q3d. $20,000 - $2,000 = $18,000 Q4. Q4a. 20,000 / 20 years = $1,000 Q4b. 20,000 / 20 years x 3 years = $3,000 Q4c. $20,000 - $3,000 = $17,000

Q5. Q5a. 20,000 / 20 years x 6/12 months = $500 Q5b. $500 Q5c. $20,000 - $500 = $19,500

Q6. First, you have to calculate 6 months’ depreciation to the date of revaluation 1/4/2016 - 1/10/2016: $20,000 / 20 years x 6/12 months = $500 Then, you have to calculate six months’ depreciation from the date of revaluation to 31/3/2017: $19,000/17.5 years remaining life x 6/12 = $543 Total depreciation is $500 + $543 = $1,043

Q7. First, you have to calculate 6 months’ depreciation to the date of revaluation: 10,000 / 20 years x 6/12 months = $250 Then, you have to calculate six months’ depreciation from the date of revaluation to 31/3/2017: $9,000/13.5 years remaining life x 6/12 = $333

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Total depreciation is $250 + $333 = $583 Q8. Q8a. $10,000,000 / 20,000 hours = $500 per flying hour Q8b. $500 per hour x 2,000 hours = $1,000,000 Q8c. $500 x 12,000 hours = $6,000,000 Q8c. $10,000,000 - $6,000,000 = $4,000,000

Q9.

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Topic 5: Recognition of Separate Items: Q1. B: As two separate PPEs

Q2a. B: a roof $20,000 / 20yrs = $1,000 p.a. and a house $80,000 / 100yrs = $800 p.a.

Q2b. B: capitalise $20,000 to PPE (increase PPE)

Topic 6: IAS 16 - Measurement Q1a. DR Cost of Sales (I/S) 100 / CR PPE (SFP) 100

Q1b. DR PPE 50 / CR Cost of Sales (I/S) 50

Q2.DR PPE 60 / CR Cost of sales (I/S) 60

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Q3. Step 1 Cost

10,000

Depreciation X6 (10,000 / 5 yrs)

-2,000

Depreciation X7

-2,000

NBV 1 Jan X8

6,000

Step 2 Dr PPE 6,000 Cr OCI & Revaluation surplus 6,000 This takes the PPE from its NBV in step 1, to its new revalued amount of 12,000 NBV 1 Jan X8

6,000

Revaluation (balancing figure)

6,000

New Value at 1st January X8

12,000

Step 3 Depreciation for X8 is calculated as follows: 12,000 / 3 yrs = 4,000 New Value at 1st January X8

12,000

Depreciation X8 (12,000 / 3 years)

-4,000

NBV end of X8

8,000

Disposal of a Revalued Asset

Q1. B. NO Q2. A. Take the Revaluation Surplus to the R.E$

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Q7. Past Paper: Q2 note i) June 2009 - Extract Pricewell – Statement of financial position as at 31 March 2009 (Extract) Assets Non-current assets Property, plant and equipment

(24,900 (w1) + 25,500(w2) + 60,400 10,000(w3))

Pricewell – Statement of comprehensive income for the year ended 31 March 2009 - (Extract) Revenue

310,000

Cost of sales (w4)

248,300

Gross profit

61,700 (310,000 - 248,300)

Working 1: NCA: Leasehold property valuation at 31 March 2008

25,200 given in the exam

depreciation for year (14 year life remaining)

(1,800) (25,200 / 14yrs )

Carrying amount at date of revaluation

23,400 (25,200 - 1,800)

Valuation at 31 March 2009 Revaluation Surplus

(24,900) given in the exam 1,500 (24,900 - 23,400)

There was an impairment charge of $2·8 million which was reported in the I/S of the previous year ended 31 March 2008. Therefore we have to decrease the impairment charge first (till it is 0) before we can account for the Revaluation surplus to the OCI/ Revaluation Surplus. Therefore the $1·5 million revaluation surplus is credited to the income statement (Cost of Sales) as this is the partial reversal of the $2·8 million impairment loss recognised in the income statement in the previous period. The double entry is: DR PPE / CR Cost of sales$

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Working 2: NCA: Plant and equipment Owned plant - Cost

46,800

Accumulated depreciation at 31 March 2008

12,800

NBV

34,000 (46,800 - 12,800)

Depreciation charge for the year

(8,500) (34,000 x 25%)

Carrying amount at 31 March 2009

25,500 (34,000 - 8,500)

Working 3: NCA: Plant and equipment (leased) – at cost

20,000

Accumulated depreciation at 31 March 2008

(5,000)

Depreciation charge for the year

(5,000) (20,000 x 25%)

Carrying amount at 31 March 2009

10,000 (20,000 - 5,000 - 5,000)

Working 4: Cost of sales Per trial balance

234,500

Depreciation - leasehold property

1,800 (w1)

Depreciation– owned plant

8,500 (w2)

Depreciation– leased plant

5,000 (w3)

Surplus on revaluation of leasehold property Total

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(1,500) (w1) 248,300

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Q8. Past Paper: Q2 note iii) December 2010 - Extract Cavern – Statement of financial position as at 30 September 2010 (Extract) Assets Non-current assets Property, plant and equipment

(41,800 (w1) + 38,500 (w2) + 92,900 12,600 (w3))

Equity and liabilities Non-current liabilities Provision for decontamination costs

4,400 (4,000(w3) + 400(w3)

Cavern – Statement of comprehensive income for the year ended 30 September 2010 (Extract) Revenue

182,500 Given in the exam

Cost of sales (w4)

137,400

Gross profit Finance costs

45,100 Bank interest 300 (given in (700) the Trial balance + 400(w3)

Statement of changes in equity for the year ended 30 September 2010 - (Extract) Revaluation Reserve Balance at 1 October 2009 Comprehensive income Balance at 30 September 2010

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7,000 800 (w1) 7,800

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Working 1: NCA: Land ($7 million) and building ($36 million)

43,000

Depreciation (Building)

(2000) (36,000 / 18 years)

Carrying amount at date of revaluation

41,000 (43,000 - 2,000)

Valuation at 30 September 2010 Revaluation Surplus

(41,800) 800 (41,800 - 41,000)

There was no previous impairment charge, therefore we will post the Revaluation surplus directly to the Revaluation Gain (OCI) and Revaluation Surplus (SFP)

Working 2: NCA: Plant and equipment - Existing Plant and equipment at cost

67,400

Accumulated depreciation plant and equipment – 30 September 2009

(13,400)

New Plant (w3)

We deduct it, because it is (10,000) depreciated differently.

NBV

44,000 (67,400 - 13,400 - 10,000)

Depreciation charge for the year

(5,500) (44,000 x 12.5%)

Carrying amount at 30 September 2010

38,500 (44,000 - 5,500)

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Working 3: NCA: Plant and equipment - New Decontamination costs

10,000 4,000

Total cost of the new plant

14,000 (10,000 + 4,000)

Depreciation charge for the year

(1,400) (14,000 / 10 years)

Carrying amount at 30 September 2010

12,600 (14,000 - 1,400)

We have to increase the Plant costs (10,000) by the PV of the decontamination costs (4,000). The double entry will be: DR PPE 4,000 CR Provision for decontamination costs 4,000 Then we have to unwind the discount: $400,000 (4,000 x 10%) The double entry will be: DR Finance costs (I/S) 400 CR Provision for decontamination costs (SFP) 400

Working 4: Cost of sales Per trial balance

182,500

Depreciation - building

2,000 (w1)

Depreciation– existing plant

5,500 (w2)

Depreciation– new plant

1,400 (w3)

Total

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137,400

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