International Corporate Reporting - Assignment Example

Name: Institution: Professor: Topic: International Corporate Reporting Course: Date: a) 1. Research costs are treated as expenses while development costs are treated as internally generated intangible assets according to the international accounting standards.” They are dealt with under IAS 38, Intangible assets which states that intangible assets are recognized if it has a future economic benefit and if the cost of the asset can be reliably measured.” Total research cost= £ 50,000 Total development cost =£ 120,000 The total internally generated intangible assets will be: £50,000 + £120,000 = £170,000 Cost of development of the new product amounting to £ 80,000 that has been scraped is not an asset but an expense Net amount for research and development: £120,000 + £50,000 = £170,000 DR Applied research account CR Date Details Ref. Amount £ Date Details Ref. Amount £ 2006 Jan 1 Cash _ 50,000 DR Development of new product account CR Date Details Ref. Amount £ Date Details Ref. Amount £ 2006 Jan 1 Cash _ 120,000 DR Development expense account CR Date Details Ref. Amount £ Date Details Ref. Amount £ 2006 Jan 1 Cash _ 80,000 Cash account DR CR Date Details Ref. no Amount Date Details Ref. no Amount 2006 Jan1 Applied Research Development new pro’t Dev’t new pro’t 50,000 80,000 120,000 2. The IAS 16 recognizes item of property, plant and equipment, determines their costs and assessing depreciation. The amount received on sale will be recorded in cash account. The dual aspect concept will apply therefore the same amount will be credited in sales account. Depreciation is an expense in the financial statement. The resulting gain from the sale will be recorded as revenue in the financial statement. General Journal Date Account name Ref. number DR £ CR £ 2006 January 1 Property Accumulated depreciation _ _ 500,000 20,000 DR Cash account CR Date Details Ref. no Amount Date Details Ref. no Amount Jan 1/06 Sales 950,000 DR Sales account CR Date Details Ref. no Amount Date Details Ref. no Amount Jan 1/06 Cash 950,000 The net gain for the sale of the property is £ 950,000 - £ 500,000= £ 450,000 Income statement extract Account name Amount £ Gain on sale of property 450,000 3. According to IAS 20 the government grants are treated as incomes. The cash received will be debited in the cash account. In the financial statement the amount will be credited as revenues Cash account DR CR Date Details Ref. no Amount Date Details Ref. no Amount 2006 Jan Government grant _ 930 4. The IAS 17 deals with lease payment. Amount paid as lease will be credited in cash account. According to the concept of dual aspect, the same amount will be debited in leased item account because this transaction has affected two accounts. Lease payment for the motor vehicle is calculated as follows: Dec 31/06 Dec 31/07 Dec 31/08 Dec 31/09 Dec 31/10 Lease Account TOTAL: £ 275,000 £55,000 £55,000 £55,000 £55,000 £55,000 The interest is credited in cash account. Cash account DR CR Date Details Ref. no Amount Date Details Ref. no Amount 2006 Dec31 “ “ Leased item Motor vehicle Interest 90,000 250,000 25,000 DR Leased Item CR Date Details Ref. no Amount Date Details Ref. no Amount Dec 31/10 Cash 90,000 DR Motor vehicle account CR Date Details Ref. no Amount Date Details Ref. no Amount Dec 31/10 Cash 275,000 Total annual lease payment = £55,000 + £90,000 = £145,000 5. The IAS 16 contains information about purchase of plant like factory. Details about cost are contained here. It guides that an asset must have a future economic benefit and its worth should be easily determined. The factory purchased is expected to have an economic benefit and therefore qualifies to be an asset. According to the concept of dual aspect which assumes that every transaction has a dual effect, this transaction will affect cash account and factory account. Cash account will be credited and factory account debited. IAS 39 requires that a bad debt should be recognized. BST Enterprises has suffered a bad debt. The amount of bad debt will be debited as expense in the financial statement and the same amount credited in the creditors account. DR Cash account CR Date Details Ref. no Amount Date Details Ref. no Amount Dec 31/06 factory 14,000 DR Factory account CR Date Details Ref. no Amount Date Details Ref. no Amount Dec 31/06 Cash 14,000 Dec 31/06 factory 14,000 DR Creditors account CR Date Details Ref. no Amount Date Details Ref. no Amount Dec 31/06 Expense 100 6. The IAS 36 recognizes investment property and requires that the property should be carried with an amount not greater than their recoverable amount. The carrying amount for the investment properties is debited in properties account. Considering the business entity concept, the value of property is part of business and should be credited in the capital account. The property has gained value by £ 50,000. Considering the accounting period concept of accounting, the value of the property three years ago will not be its value for this accounting period. The appreciated value will therefore have to be added to the initial value and the new value recorded in the properties account journal. DR Properties account CR Date Details Ref. no Amount Date Details Ref. no Amount Dec 31/06 Capital 450 DR Capital account CR Date Details Ref. no Amount Date Details Ref. no Amount Dec 31/06 Properties 450 7. With reference to international accounting standard 2, treatment for inventories is recognized. It provides guidance on valuing of inventories and also expenses on inventories and cost formula for valuation of inventories. The cost of repair of inventories is an expense in financial statement. The net value of the inventories is calculated as follows: Value of closing inventories – Damaged inventories + repaired inventories £ 550,000 - £ 60,000 + £ 30,000 = £ 520,000 DR Inventories account CR Date Details Ref. no Amount Date Details Ref. no Amount Dec 31/06 Balance 520 8. Considering IAS 16 paragraph 50, depreciable amount should be recorded systematically over the assets useful life. The amount which the freehold building has depreciated is an expense in the financial statement. IAS 16 paragraph 60 requires that depreciation method should show how economic benefit of asset is being consumed. Therefore for, plant and machinery, and fixtures and fittings there will be debiting of these accounts to show them as assets. Depreciation on freehold building: £ 18460/20 = £923, +£ 4180(accumulated depreciation) = £5103 Value of building = £18460-£ 5103 = £13357 Depreciation on plant and machinery: £ 2,960 x 30% = £ 88.8 +£ 964(accumulated depreciation) = £ 1052.8 Value of plant and machinery = £ 2,960 - £ 1052.8 = £ 1907.2 Depreciation on fixture and fittings: £47 x 20% = £ 9.4 +£ 17(accumulated depreciation) = £26.4 Value of fixture and fittings = £47 – £26.4 = £20.6 9. Considering the business entity concept, which states that the business enterprise and the owner are two different entries, the amount that the accountant has set aside will be credited in the suspense account. The same amount will be debited as expenses in financial statement. The amount that will be received from suing supplier will be debited in cash account when received according to realization concept 10. Considering the business entity concept, the business and its owner are two different entries. The amount spent on goodwill will be credited in cash account. The value is an expense in financial statement. 11. Considering the accounting period concept of accounting, the loss from the damage of inventories should not be recorded in the value of inventories as at 31st December 20x6. This loss will be credited as at 31st December 20x7. 12. The IAS 18 paragraph 29-30 guides treatments of revenues arising from dividends. The amount that will be received from dividends will be debited in cash account only when received, considering the realization concept which guides that an amount of revenue should be recorded only when received. The amount of money paid as corporate tax is an expense and will appear in the financial statement. b) The IAS 1 contains guidance on the statement of financial position, statement of comprehensive income and statement of changes in equity. BST ENTERPRISES PLC Statement of financial position AS AT 31 DECEMBER 2006 ASSETS AMOUNT(£ ‘000) Land 10,000 Plant and machinery 1907 Building 13,364 Bank 8764 Fixture and fitting 20 Inventories 330 Leased item 90 Leased car 55 New factory 14,000 Cash from sale of property 950 Cash from government grant 930 Trade receivable 2030 Intangible assets 120 Total assets 52,560 LIABILITIES AMOUNT(£ ‘000) Trade payable 775 Net income 16175 EQUITIES Retained earnings 1361 Share premiums 8 800 Total share capital 17,448 Debentures 8,000 Total liabilities and equity 52,560 BST ENTERPRISES PLC Statement of comprehensive income FOR THE YEAR ENDED 31 DECEMBER 2006 REVENUES AMOUNT (£ ‘000) AMOUNT (£ ‘000) Property sale 950 Shares 15,500 Receivables 775 11% Debentures 8000 Share premiums 800 Revaluation reserves 2675 Government grant 930 Investment property 50 TOTAL REVENUES 29,680 EXPENSES Total debenture interest 440 Administration cost 2919 Distribution cost 1968 Lease payment 145 Research and development 250 Total debentures 6182.2 Provision for claim 40 Total interim dividends 1510 TOTAL EXPENSES 13,454.2 NET INCOME 16225.8 BST ENTERPRISES PLC STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2006 PAID IN CAPITAL AMOUNT (£ ‘000) AMOUNT (£ ‘000) Share premium 800 Total share capital 15,500 Revaluation reserves 2,675 11% Debenture 8,000 RETAINED EARNINGS Beginning balance 1361 Net income 1622.8 Inventory 330 30,288.8 Less: debenture interest paid 486 Interim dividends paid 1510 Corporation tax 1600 3596 Net change in equity 2692.8 Bibliography: Grainne R., 1990, Damming the Three Gorges Probe International. Read More