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Assignment 2

The document outlines financial reporting and analysis assignments for construction companies under IFRS standards, focusing on contract revenue recognition, asset revaluation, and equity changes. It includes specific calculations and journal entries for ABC Constructions Ltd., XYZ Infra Ltd., Delta Textiles Ltd., and Zeta Industries Ltd. The assignments require students to apply accounting principles to determine financial outcomes and prepare relevant financial statements.

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23 views

Assignment 2

The document outlines financial reporting and analysis assignments for construction companies under IFRS standards, focusing on contract revenue recognition, asset revaluation, and equity changes. It includes specific calculations and journal entries for ABC Constructions Ltd., XYZ Infra Ltd., Delta Textiles Ltd., and Zeta Industries Ltd. The assignments require students to apply accounting principles to determine financial outcomes and prepare relevant financial statements.

Uploaded by

eman.rana.003
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Financial Reporting and Analysis

Assignment 2
Q. 1. ABC Constructions Ltd. is engaged in long-term construction contracts. On 1
January 2023, the company entered into a contract with Skyline Developers to build a
commercial complex. (IFRS 15 – Percentage of Completion Method)

The key terms and information of the contract are as follows:

Details Amount / Description


Total Contract Price Rs. 60 million
Estimated Total Cost to Complete (initial estimate) Rs. 48 million
Contract Duration 2 years
Billing Method Based on work certified
Progress Recognition Basis Over time – Percentage of Completion
Amount Billed to Date (as of 31 Dec 2023) Rs. 24 million
Cash Collected from Customer (till 31 Dec 2023) Rs. 20 million
Costs Incurred to Date (as of 31 Dec 2023) Rs. 21.6 million
Estimated Cost to Complete (as of 31 Dec 2023) Rs. 25.2 million

Required:

a) Calculate the percentage of completion as at 31 December 2023 using the cost-to-cost


method.
b) Determine the revenue to be recognized, cost of sales, and profit or loss to be reported
in the Statement of Profit or Loss for the year ended 31 December 2023.
c) Calculate the contract asset or contract liability to be reported in the Statement of
Financial Position as of 31 December 2023 under IFRS 15.
d) Prepare relevant journal entries to record revenue, costs, and billing for the year ended
31 December 2023.

Notes:
 Apply the percentage of completion method (cost-to-cost basis).
 ABC Constructions Ltd. recognizes revenue over time as performance obligations are
satisfied.

Q. 2. XYZ Infra Ltd. is engaged in a construction contract to build a hospital for a client.
The following data relates to the contract:
 Contract price: Rs. 80 million
 Date started: 1 January 2023
 Date expected to complete: 30 June 2025
 Costs incurred up to 31 December 2023: Rs. 24 million
 Estimated cost to complete as of 31 December 2023: Rs. 36 million
 Amount billed to the customer by 31 December 2023: Rs. 27 million
 Cash received from the customer by 31 December 2023: Rs. 22 million

Required:
(a) Calculate the percentage of completion of the contract as of 31 December 2023.
(b) Calculate the revenue, cost of sales, and profit to be recognized in 2023.
(c) Determine the amount of contract asset or liability at 31 December 2023.
(d) Prepare the journal entries to record costs, revenue, billing, and cash received.

Q.3. Revaluation of Assets under IAS 16


ABC Co. – Extract of Financial Information as at 31 December 20X1
Extract from Statement of Financial Position
Particulars 31 Dec 20X1 ($000) 31 Dec 20X0 ($000)
Property, Plant and Equipment – Land & Building 11,200 12,000
Revaluation Surplus (Equity) 1,800 2,000
Retained Earnings 6,500 5,300
Accumulated Depreciation (Note 1) (2,000) (1,520)

Note 1 – Additional Information:

1. The building was initially purchased on 1 January 20X0 for $13 million and had a
useful life of 30 years at the time of purchase. Depreciation is charged on a straight-line
basis, with no residual value.
2. On 1 January 20X1, the property was revalued upwards to $14 million, and the surplus
was transferred to a revaluation reserve. At that time, the remaining useful life was
assessed to be 25 years.
3. On 31 December 20X1, the building was revalued again, and the fair value was
assessed at $11.2 million.
4. No journal entries have been made for:
o The depreciation charge for 20X1, or
o The revaluation decrease at 31 December 20X1.
5. ABC Co. does not make an annual transfer of excess depreciation from revaluation
surplus to retained earnings.

Required:

a) Calculate the depreciation charge for the year ended 31 December 20X1 (on the
revalued amount).
b) Prepare the journal entries to record the depreciation and the revaluation decrease at
31 December 20X1.
c) Show the adjusted carrying amount of the building and accumulated depreciation in
the Statement of Financial Position at 31 December 20X1.
d) Prepare an extract of the Statement of Changes in Equity, showing movements in
revaluation surplus and retained earnings during the year.

Q. 4. Delta Textiles Ltd. presents the following extract from its financial
statements as at 31 December 2023:

Extract from Statement of Financial Position


Particulars 31 Dec 2023 (Rs. 000) 31 Dec 2022 (Rs. 000)
Property, Plant & Equipment (PPE) 36,000 39,000
Revaluation Surplus (in Equity) 1,800 800
Accumulated Depreciation (Note 1) (8,400) (7,000)
Retained Earnings 9,200 6,800

📄 Additional Information (Note 1):

1. The company owns a factory building purchased on 1 January 2018 at a cost of Rs. 30
million.
o Estimated useful life: 30 years
o Depreciation is charged on a straight-line basis with no residual value.
o The building was revalued upward on 1 January 2022 to Rs. 32 million.
2. On 1 January 2023, the company revalued the factory building again, and the fair value
was assessed at Rs. 28 million.
3. Delta Textiles does not transfer excess depreciation from revaluation surplus to
retained earnings.
4. The company charges depreciation on revalued amounts from the date of revaluation.

Required:

(a) Calculate the depreciation charge for the factory building for the year ended 31
December 2023.
(b) Prepare the journal entries to record the revaluation decrease on 1 January 2023.
(c) Prepare an extract of the Statement of Changes in Equity for the year ended 31
December 2023, showing the movement in revaluation surplus and retained earnings.
(d) Show the revised carrying amount of the building and accumulated depreciation in the
Statement of Financial Position as of 31 December 2023.

Q. 5. Zeta Industries Ltd. provides the following balances in equity as at 1


January 20X4:

Component Amount (Rs. in 000s)


Share Capital (Rs. 10 par value) 20,000
Share Premium 3,500
Revaluation Surplus 2,000
Retained Earnings 8,000
Total Equity (Opening) 33,500

The following transactions occurred during the year ended 31 December 20X4:

1. Final dividend of Rs. 1,000,000 was paid in February 20X4.


2. The profit after tax for the year amounted to Rs. 4,200,000.
3. A revaluation loss of Rs. 500,000 on land was recognized. The revaluation reserve had
sufficient balance to absorb it.
4. The company issued 100,000 new ordinary shares at Rs. 12 per share on 1 July 20X4.
(Rs. 10 par value)
5. An interim dividend of Rs. 600,000 was declared and paid in October 20X4.
6. Rs. 200,000 of the revaluation surplus was transferred to retained earnings to reflect
excess depreciation (policy of annual transfer).
7. The company’s board approved a bonus issue of 1 share for every 10 shares held using
retained earnings (ignore date but assume it happened before year-end).

Required:

Prepare the Statement of Changes in Equity for Zeta Industries Ltd. for the year ended 31
December 20X4, in accordance with IAS 1.

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