ASSIGNMENT – 1

1. WHITEBIRK
BORROWING COST
1. IAS 23 States that only the borrowing cost which is used for getting
the qualifying asset will be capitalized as asset in the statement of
financial positions and other all borrowing cost should be expensed in
statement of profit and loss.
2. IAS 23 has a criteria to be met to capitalized the cost :
- when the loan was taken
- When the construction has begun
- when the interest on loan is being paid.
3. the qualifying asset are asset which takes a substantial long period of
time to build or for using purpose.
4. as the construction started in 1 feburary 20X6 and year end is on 31
may 20X6 then only 4 months cost will be capitalized. The direct cost
$2m will be capitalized. and the $1m will be capitalized for 4 months at
9% borrowing rate. So borrowing cost is $1m*9/100*4/12 = $0.03m
5. the total borrowing cost that will be capitalized is $2m + $0.03m =
$2.03m.
6. no depreciation will be charged as the construction of PPE has not
been completed. Depreciaition can only be charged when the PPE or
any asset is ready to use.
INTANGIBLE ASSET
1. IAS 38 intangible asset states that the research cost should be
expensed in statement of profit and loss. And some development cost
can be capitalized as asset in the statement of financial positions if they
met criteria of the capitalization. Otherwise it should be expensed and
charged in statement of profit and loss.
2. the capitalization criteria are PIRATE
- Probable economic benefits
- Intention to complete the product
- resources are available
- ability to sell
- technology feasible
- cost are estimated
3. research cost $1m should be expensed in statement of profit and loss
as it was research expenditure for a new product.
4. development cost of $0.5m will be capitalized as they have met the
criteria of capitalization and are ready to use and marketed and sold in
market and will be recorded as intangible asset in statement of financial
position.
5. amortization will be charged as the product is ready to use and being
marketed.

2. SKIZER
i)
1.IAS 38 Intangible asset says that asset can be recorded as asset when
there is a probable future economic benefit and the cost can be
measured reliably.
2. IAS 38 also has 4 criteria to be met to be recorded as a intangible
asset they are:
- asset should be identifiable
- asset should be controlled by the entity
- asset will generate future economic benefits
- the cost of the asset will be measured reliably
3. Intangible asset is initial recognized at historical cost model which is
cost – amortization – any impairment loss. and at the reporting date it
can be measured at cost model or fair value model.
4. in IAS 38 asset are not depreciated rather they are amortized. The
asset has definite and indefite lives. The definite live of the asset will be
amoritsed and indefinite lives of the asset will not be amortized rather
they will have impairment review annually.
5. any impairment loss will be charged in statement in profit and loss.
amoritisation will be charged in the year in which the completion of the
project happened and it is ready to use. if asset are measured at fair
value then it should be as per IFRS 13 fair value measurement.
6. the conceptual framework says that the qualities of financial
statement are of mainly relevant information and faithful
representation.
7. relevant information in IAS 38 will be whether the asset has been met
the criteria are not. Any material information which may affect the
economic decision of users.
8. faithful representation means true and unbiased manner. All the
information should be presented should be true and fair. Like the lives
of the asset whether it is definite or indefinite, etc.
ii) 1. IAS 38 Intangible asset says that asset can be recorded as asset
when there is a probable future economic benefit and the cost can be
measured reliably.
2. IAS 38 intangible asset states that some development cost can be
capitalized as asset in the statement of financial positions if they met
criteria of the capitalization. Otherwise it should be expensed and
charged in statement of profit and loss.
3. if the criteria of recognization of intangible asset was met then the
project which as recorded as intangible asset was correctly recorded in
statement of financial positions. If the recognization criteria is not met
then the intangible asset which is recorded should be derecognized and
expensed to statement of profit and loss.
4. And impairment loss is loss when the carrying amount of asset is
greater than recoverable amount. And this loss is charged in profit and
loss. recoverable amount of asset is higher off fair value less cost to sell
(NRV) or value in use of the asset.
5. in skizer co charged the impairment loss on 31.12.X7 because of the
uncertainties of surrounding of project this means that the completion
of project is difficult to happen so they have charged loss.
 6. during the year 31.12.X8 the skizer co was not able to complete the
project and there was no resources available to complete the project so
the criteria is not met of development cost and there is no economic
future benefits from the development of project so the project should
not be recognized as asset.
7. As in 31.12.X8 the project was not complete and it is difficult to
complete so the asset which is recognized in 31.12.X7 should be
derecognized. And charged as research and development cost in profit
and loss.
8. journal entry for the recognition will be
Dr intangible asset (development project)
Cr cash
Journal entry for derecognized
Dr research and development cost (profit and loss)
Cr intangible asset

ASSIGNMENT 2
1. CALIBRA
a) REVENUE RECOGNITION
1. calibra co deals in property sector and constructs and trade in new apartment
block.
2. IFRS 15 states that revenue is recognized when the control of the
goods/services is transferred. Here the control of building is transferred to the
customer when the construction is completed. so at that time the revenue
should be recognized
3.therefore the receipt of revenue of $8.5m is incorrectly recorded as revenue
and the company should therefore not recognize it now.
4. the revenue should be recorded after the 2 years as there is a delay of
payment in 2 years. On receipt of payment of $8.5m it should be recorded as a
liability as it has a financing component in it.
5. it will accrue the interest of 6% each year which will increase the carrying
amount of liability. After 2 years the carrying amount of liability will be $9.55m
and after receiving the payment the company should derecognized the liability
and recognize the revenue in the statement of profit and loss.
6. IAS 23 borrowing cost states that cost which is directly attributable to
acquisition, construction of an qualifying asset can be capitalized in statement of
financial position and other all cost should be expensed in statement of profit
and loss.
7. here the $8.5m is used for constructing apartment block and apartment block
is a qualifying asset as it takes long period of time to construct.
8. so $8.5m will be capitalized and it should be included in the cost of the asset.
b) journal entries
1. remove the revenue which is recorded
Dr revenue $8.5m
Cr liability $8.5m
2. record the liability as a receipt of cash – 1.1.X8
Dr liability $8.5m
Cr cash $8.5m
3. interest – 31.12.X8
Dr inventory (8.5*6%) $0.51m
Cr liability $0.51m
4. interest – 31.12.X9
Dr inventory ((8.5+0.51)*6%) $0.54m
Cr liability $0.54m
5. revenue recognized
Dr liability (8.5+0.54+0.51) $9.55m
Cr revenue $9.55m

2. JACINTA CO
a) PURCHASED CREDIT IMPAIRED LOANS
1. IFRS 9 states that financial instrument which are credit impaired loans are
recognized on forward looking basis.
2. on initial recognition it is recorded at a fair value or transaction price which is
$32m. the interest income is calculated using the credit analysis effective interest
rate (CAIR).
3. CAIR includes all the contractual terms of financial asset as well as lifetime
expected credit losses.
4. the journal entry on initial recognition
Dr credit impaired loan asset $32m
Cr cash $32m
5. the credit impaired loan on 31.12.X6 will be recorded at amortized cost.
Opening + interest – cash = closing
32m + (32*3.9%) – 8.8m = $ 24.45
Closing credit impaired loan = $24.45.
6. loss allowance is recognized by amortized or FV through OCI method
7. the difference between the original cash flow and revised cash flow is the
impairment loss or gain which is recognized in statement of profit and loss.
8. present value of original cash flows
Date Cash flow Discount Present value
31.12.X7 8.8m 1/1.039 $8.5m
31.12.X8 8.8m 1/1.039^2 $8.2m
31.12.X9 8.8m 1/1.039^3 $7.8m
Total original Cash flow = $24.5m

9. present value of revised cash flows

Date Cash flow Discount Present value
31.12.X7 10m 1/1.039 $9.6m
31.12.X8 10m 1/1.039^2 $9.3m
31.12.X9 10m 1/1.039^3 $9.0m
Total revised Cash flow = $27.9m

10. previously cashflow were $24.5m and currently the cashflows are $27.9m.
there is a favourable change in lifetime ECL.
11. the impairment gain (27.9-24.5) = $3.4m which is recognized in statement of
profit and loss.
12. journal entry
Dr loss allowance $3.4m
Cr profit and loss $3.4m
13. on 31.12.X6 the following amounts will be recognized at statment of financial
position
Carrying amount of credit impaired loan = $24.45m.
Loss allowance will be a debit balance of $3.4m

3. BENITO CO
a) i) TRANSFER OF AN ASSET QUALIFIES AS A SALE
1. an entity assess if the transfer is sale or not by referring to IFRS 15 criteria o
sale.
2. as per 15 sale occurs if the control has been transfereed certain indicators of
control being transfer are
- transfer of physical possession
- receipt of bank payment
- ownership title is transferred etc.
ii)
1. if the transfer is the sale then the lessee derecognized the sale and records
ROU AND LL and balancing figure as P/L on disposal.
2. ROU = PV/FV*CA.
3. transfer of an asset is above FV then the asset has an financial liability
component in it.
4. transfer of an asset is below FV then the asset has paid a prepayment.
iii) TRANSFER OF ASSET DEALT BY SELLER/LESSEE DOES NOT QUALIFY AS SALE.
1. Transfer is not a sale then the proceeds is treated as a loan and recorded in
statement of financial position.
2. then the lessee will record the rental paid as interest paid on loan
3. lessee should not derecognized the asset.
iv) CALL OPTION (IFRS 15)
1. seller has an option/right to buyback the asset.
2. call option cannot be treated as a sale.
3. if the repurchase price of asset is greater than the selling price then it will be
treated as a lease.
4. if the repurchase price of asset is lesser than the selling price then it will be
treated as a secured loan.

b) SALE AND LEASEBACK QUALFIES AS A SALE

1. IFRS 16 states that if a sale and leaseback qualifies as a sale then the lessee
should
- derecognized the asset
- should record proceeds/recepits from the sale
- record ROU
- record lease liability
- profit/ loss on disposal.
2. benito should derecognized the asset at its carrying amount which is $3.75m.
3. as the transfer is a sale and it is above the fair value i.e, selling price is more
than fair value so it will be recorded as a financing liability. The financing liability
is (7.5m – 6.75m) = $0.75m.
4. the present value of lease liability will include the financing liability so it needs
to deducted from the present value of lease payments. The present value of
lease payment after deducting financial components is $5.47m - $0.75m = $
4.72m.
5. ROU is calculated as present value of lease payments/ fair value of asset *
carrying amount of asset. ROU = 4.72/6.75*3.75 = $2.62m.
6. when the transfer is at fair value the journal entry will be
Dr bank $6.75m
Dr ROU $2.62m
Cr asset $3.75m
Cr lease liability $4.72m
Cr profit on disposal (balancing figure) $0.90m
($9.37m - $8.47m)
7. WHEN TRANSFER IS AT ABOVE FAIR VALUE
Dr bank $7.5m
Dr ROU $2.62m
Cr asset $3.75m
Cr lease liability $4.72m
Cr financial liability $0.75m
Cr profit on disposal (balancing figure) $0.90m
8. profit on disposal is calculated at transfer at fair value by balancing figure will
be carried at above fair value by same amount.
9. benito only recognize the amount of the gain which relates to the right
transferred to otine co. gain on sale is (6.75-3.75) = $3m. out of which only
$2.1m (3/6.75*4.72) relates to head office retained by benito and remaining
$0.9m relates to transferred to octine.

SALE AND LEASEBACK DOES NOT QUALFIES AS A SALE

8. if the sale and leaseback does not qualifies as a sale then benito will continue
to be recognized the head office at carrying amount of $3.75m rather than being
derecognized.
9. the transfer proceeds will be recorded as financial liability of $7.5m
10. journal entry
Dr cash $7.5m
Cr financial liability $7.5m
ASSIGNMENT 4
Minny co
a) CRITERIA FOR ASSET TO BE HELD FOR SALE AS PER IFRS 5 NCA HELD
FOR SALE AND DISCONTINUED OPERATIONS.
1. IFRS 5 states that asset which needs to be held for sale and
discontinued operations should meet the criteria so that they be held
for sale.
2. IFRS 5 states that a major line of business means that the nature of
business or the geography area where it is located.
3. if the company buys the subsidiary with the intention to resell it then
it must be classified as asset HELD FOR SALE as per IFRS 5.
4. the criteria for held for sale and discontinued operations are
- the company had committed to sell the asset
- the company is actively looking for an buyer in active market
- asset should be sold at a present condition
- sale of the asset should be highly probable
- sale of asset must be taken place within 1 year
- the company should not change the plan to sell the asset.
This conditions have been met at the date so it can be recorded as per
held for sale.
5. As this is a major line of business operations and the minny co has
not purchased this for the purpose of reselling it.
6. however it is a major line of business and it has met the criteria of
held for sale so this major line of business operations should be
recorded as DISPOSAL GROUP
7. DISPOSAL GROUP it is a group where a lot of NCA are sold in 1
transaction is known as disposal group.
 8. it will be recorded at 30m at the statement of profit and loss after
Profit after tax as a separate heading as income form discontinued
operations.

b) ACCONTING TRAETMET IN CONSOLIDATED FINANCIAL STATEMENTS.

DISPOSAL OF THE MAJOR LINE OF BUSINESS
1. IFRS 5 states that the disposal of major line of business will be
recorded in consolidated financial statement.
2. in group consolidated profit and loss it will recorded as a separate
line after Profit after tax as a revenue from discontinued operation.
3. in consolidated financial position this major line of business including
PPE, inventory and current liability this all needs to be derecognized as
they have been sold.
4. PPE should not be depreciated.
5. the disposal of business expected proceeds of $30m
THE INVESTMENT IN PUTTY CO
6. the initial investment in putty co is of 14% through fair value through
other comprehensive income.
7. for 14% minny co acquired putty for $18 million cash consideration.
8. additional 16% acquisition of putty co by paying cash consideration of $16m
gaining the significant influence.
9. the total investment in putty is of 30% and this will be classified as
investment in associate and will be recorded as per IAS 28 equity method
(single line of accounting)
10. the share of profit in associate is
- 14%*20m = $2.8m
- 30% *30m = $9m
Total share of profit = $11.8m
PURCHASE OF PATENT
11. IAS 38 states that the research cost should be expensed in statement profit
and loss and development cost which have met the criteria can be capitalized
in statement of financial position or else needs to be expensed in statement of
profit and loss
12. development cost criteria are
- probable economic benefits
- intention to complete the project
- resources are readily available
- ability to use or sell the project
- technology feasibility
- cost can be measured estimate
13. as this criteria are met the total project cost that will be capitalized in
statement of financial position = purchase price + development cost +
prototype = $10m+$8m+$4m = $22m. intangible asset = $22m.
14. the marketing cost of $1m will be expensed in statement of profit and loss.
15. after the development phase when the project is ready to be used or sell in
the market the amortization of asset should be charged.
ASSIGNMENT 5,6
HEBERS CO
a) i) PROJECT DIAGNOSE
1. IAS 38 intangible asset states that the research and development cost
should be expensed in statement of profit and loss. however some of the
development cost can be capitalized if they meet the certain criteria.
2. the development criteria are
- probable economic benefits
- intention to complete
- resources are readily available
- ability to sell or use of asset
- technology feasibly
- cost of the asset are estimated.
3. as the criteria are met so hebers co have capitalized the cost in as an asset
on 18 july 20X7.
4. however this cost include administrative overheads employee benefits and
depreciation of dedicated IT equipment. This treatment of cost is correct as
administrative overheads is directly attributable to development of AI so this
cost can be capitalized
5. employee benefits should also be capitalized they should be accounted or
recorded as per IAS 19 employee benefit
6. depreciation of IT equipment can also not be capitalized but rather it should
be expensed in profit and loss as per IAS 16 PPE accounting treatment. IAS 38
intangible asset states that even the amortization of the asset which is under
development should not be charged once the project does not have fully
prepared or developed. once developed it can be amortized but should be
charged to statement of profit and loss.
7.october 20X7 breakthrough increase the asset value and economic viability
but does not need to change recognition however the future cost will also be
capitalized
ii) BANK LOAN
1. the loan $15m from crown bank should be accounted as per IFRS 9 financial
instrument
2. IFRS 9 states that the initial recognition of financial liability should be
accounted as amortized cost. So the loan of $15m should be amortized at a
interest of 6%.
3. as there is a modification in loan this should be accounted as per IFRS 9
modifiaction of debt accounting treatment
4. modification of debt means when an existing loan is changed or exchanged
far a new loan with existing tender
5. the accounting treatment will depend on whether the change is
substantially different or not.
6. for substantially different the following are compared
- PV of cashflow under new arrangement including fee discounted at original
effective rate
- PV of remaining cashflow under original arrangement.
7. it is said to be substantially different if the difference between them is more
than 10%. The accounting treatment is derecognize the liability and recognized
new liability at FV. Any gain /loss via SOPL. Transaction cost is expensed
8. if no substantially different then original liability will been modified not
derecognized. Transaction cost is capitalized
iii) SERVICE CONTRACT
1. ghyll health contract should be accounted as per IAS 24 related party
disclosures as ghyll health is controlled by sister of director of hebers co
2. the transaction of $600,000 is material and director declared the interest
and did not participate. Therefore it needs to be disclosed in financial
statement
3. disclosure requirements are
- nature of relationship
- amount and details of the transaction
- any outstanding balances of transaction
b) ACCOUNTING TREATMENT IN MEDICO AI
1. the hebers co holds 30% of medico AI and mill co 50% and spicey co 20%.
And the voting rights are either
- 70% needed to make decision
- 75% needed to make decision