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Test 5

The document contains a test on IAS 36 and IAS 40, focusing on accounting for impairment and investment properties. It includes questions about journal entries for impairment tests, fair value assessments for a building, and multiple-choice questions regarding carrying values and investment property recognition. The test requires knowledge of financial accounting principles and the application of relevant standards.

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21 views

Test 5

The document contains a test on IAS 36 and IAS 40, focusing on accounting for impairment and investment properties. It includes questions about journal entries for impairment tests, fair value assessments for a building, and multiple-choice questions regarding carrying values and investment property recognition. The test requires knowledge of financial accounting principles and the application of relevant standards.

Uploaded by

arehmanh871
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Financial accounting and reporting I

Test 5 – IAS 36 & IAS 40

Question 1

On March 1, 2017 a machine was imported for a cash payment of $ 200,000 ($1 = Rs. 100). Following further
expenditure were incurred:
Rs.'000
Transportation 500
Import duty 200
Non adjustable sales tax 200
Installation 1,150
[Installation cost includes Rs. 250,000 in respect of rectification work caused by faulty design]

Installation was completed by May 31, 2017, however, it was brought actively in use in July 2017. Accounting year
ends on June 30th. Useful life was estimated at 50000 hours. Machine was used as follows:

hours
Year 2018 3500
Year 2019 4500
Year 2020 2800
Year 2021 3600

During 2020, estimate of remaining life was revised to 40000 hours. Impairment tests conducted showed following
results:
Rs.'000
Recoverable amount as at 30-06-19 18,200
Recoverable amount as at 30-06-21 15,500

Required:
Journal entries to record results of impairment test on June 30, 2019 and 2021. (10)

Question 2
Pelikan Limited (PL) had an administration building which was vacant for many years. On July 1, 2020 PL decided lease out
the building. For this purpose, renovation was started on that date. The building was actually let out to another company
on October 1, 2020.
Carrying amount of building as on January 1, 2020 amounted to Rs. 120 million (Cost Rs. 300 million) with remaining
useful life of 8 years.
PL follows fair value model for all investment properties and cost model for all property, plant and equipment. Following
fair values of building were available:
Date Fair value (Rs. million)
01-07-20 135
01-10-20 138
31-12-20 144
Required:
Prepare journal entries for the year ending December 31, 2020. (6)

[1]
Financial accounting and reporting I
Test 5 – IAS 36 & IAS 40
Question 3
Select the appropriate answer of the following:

1. Carrying value of a machine is Rs. 80 million. Fair value less cost to sell is Rs. 60 million and value in use is Rs. 120
million. Which of the following is correct?
A Impairment loss Rs. 40 million; Revised carrying amount Rs. 40 million
B Impairment loss NIL; Revised carrying amount Rs. 120 million
C Impairment loss Rs. 20 million; Revised carrying amount Rs. 60 million
D Impairment loss NIL; Revised carrying amount Rs. 80 million (1)

2. Which of the following would be recognized as an investment property?


A a property intended for sale in the ordinary course of business
B a property being constructed on behalf of customer
C a property held by the entity under finance lease and leased out on operating lease
D a property used by entity as sales office (1)

[2]

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