Question 1 Businesses have several costs and one among them isdevelopment cost. They are...

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Question 1 Businesses have several costs and one among them isdevelopment cost. They are material cost for companies which areeither expensed or capitalised as an asset. Required: Discuss theconceptual issues involved and the definition of an asset that maybe applied in determining whether development expenditure should betreated as an expense or an asset. Use examples to support youranswer Question 2 Your advice has been requested by theaccountant of Magic plc on the issues below as the draft financialstatements for the year to 31 December 2017 are being prepared. (i)Magic plc has an administration building which cost MUR 600,000 on1 January 2008 and is being depreciated over 50 years, based on theIAS 16 cost model. Magic plc no longer needs the building andentered into an agreement to lease the building out to anothercompany on 1 July 2017. Magic plc applies the fair value modelunder IAS 40 Investment property and the fair value of the buildingwas judged to be MUR 800,000 on 1 July 2017. This valuation had notchanged at 31 December 2017. (ii) Magic plc owns another buildingwhich has been leased out for a number of years. It had a fairvalue of MUR 550,000 at 31 December 2016 and MUR 740,000 at 31December 2017. OPEN UNIVERSITY of MAURITIUS 3 (iii) Magic plc has aretail business which is treated as a separate cash generating unitand which has suffered badly during the recession. The carryingamounts of the assets comprising the retail business are: $'000Building 900 Plant and equipment 300 Inventory 70 Other currentassets 130 Goodwill 40 On 31 December 2017, an impairment reviewhas suggested that the recoverable amount of the cash generatingunit is estimated at MUR 1.3m. Required a. What is the amount ofthe revaluation surplus that will be recognised in respect of thebuilding in (i)? b. In respect of the building in (ii),how will the increase in value from MUR 550,000 to MUR 740,000 beaccounted for? c. When an impairment review is carriedout, a potentially impaired asset is measured at what amount? d. What will be the carrying amount of the inventory afterthe impairment loss in (iii) has been accounted for? e.What will be the carrying amount of the building after theimpairment loss has been accounted for?

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Answer Conceptual Issues Advancement costs are for the most part long haul in nature In the event that the cost of advancement brought about are repeating in nature then it will be dealt with as cost yet in the event that it is non repeating in nature and for future advantage and furthermore increment See Answer

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In: AccountingQuestion 1 Businesses have several costs and one among them isdevelopment cost. They are material...Question 1 Businesses have several costs and one among them isdevelopment cost. They are material cost for companies which areeither expensed or capitalised as an asset. Required: Discuss theconceptual issues involved and the definition of an asset that maybe applied in determining whether development expenditure should betreated as an expense or an asset. Use examples to support youranswer Question 2 Your advice has been requested by theaccountant of Magic plc on the issues below as the draft financialstatements for the year to 31 December 2017 are being prepared. (i)Magic plc has an administration building which cost MUR 600,000 on1 January 2008 and is being depreciated over 50 years, based on theIAS 16 cost model. Magic plc no longer needs the building andentered into an agreement to lease the building out to anothercompany on 1 July 2017. Magic plc applies the fair value modelunder IAS 40 Investment property and the fair value of the buildingwas judged to be MUR 800,000 on 1 July 2017. This valuation had notchanged at 31 December 2017. (ii) Magic plc owns another buildingwhich has been leased out for a number of years. It had a fairvalue of MUR 550,000 at 31 December 2016 and MUR 740,000 at 31December 2017. OPEN UNIVERSITY of MAURITIUS 3 (iii) Magic plc has aretail business which is treated as a separate cash generating unitand which has suffered badly during the recession. The carryingamounts of the assets comprising the retail business are: $'000Building 900 Plant and equipment 300 Inventory 70 Other currentassets 130 Goodwill 40 On 31 December 2017, an impairment reviewhas suggested that the recoverable amount of the cash generatingunit is estimated at MUR 1.3m. Required a. What is the amount ofthe revaluation surplus that will be recognised in respect of thebuilding in (i)? b. In respect of the building in (ii),how will the increase in value from MUR 550,000 to MUR 740,000 beaccounted for? c. When an impairment review is carriedout, a potentially impaired asset is measured at what amount? d. What will be the carrying amount of the inventory afterthe impairment loss in (iii) has been accounted for? e.What will be the carrying amount of the building after theimpairment loss has been accounted for?