Reference no: EM132616122

Section 1

Question 1
Alpha company sells perfumes in the region of London. Recently in 2017, a customer of Alpha Company suffered by skin allergy and considerable pain and discomfort by using the perfume sold by Alpha Company, sued the company for compensation. On 31/12/2017. the legal advisers of Alpha Company is of the opinion that the company will probably have to pay financial compensation of $200,000 to the customer.

On 31/12/2018, the claim has still not been settled and the legal adviser now believes that the claim will probably be settled in the customer's favour at $300,000

On 31/12/2019, still the claim has not settled and now the legal adviser believes that the customer is almost certain to win the legal dispute and the claim may be at 5250,000

On 31/12/2020, the claim is settled at $250,000.

a) According to IAS 37. State with reasons how Alpha Company should record the above transactions in the financial statements for the year ended 31st December 2017, 31 December 2018. 31 December 2019 and 31 December 2020 with relevant accounting entries (journal entries) and notes wherever applicable. (200 -250 words)

b) Briefly explain the meaning of Provisions as specified by IAS 37 (100-150 words)

c) Differentiate with example, the Provision and Accruals. (100 words)

Question 2

On 1 January 2015 Rom limited purchased a Machine for $150,000 and the estimated useful life of the Machine is 6 years having no residual value. Machine depreciated on the basis of Straight line method. After 4 years of use, on 31 December 2018, company decided to make an impairment test on the above machinery. On that day, the machinery's fair market value was $46,000 after spending a selling cost of $5,000.
Discount factor @ 9%
For year 1 = 0.917 For year 2 = 0.840 For year 3 = 0.770

It is estimated that the machine will give the forecasted cash flow for the next years as follows:

2019- $30000
2020- $12000
2020- $6000 (Scrap value)
The Present value (discount factor) at 9% is to be considered.

You are required to:
A. Calculate Impairment loss, record relevant journal env io for the sane and explain 110W it will be recognized in Income statement & statement of financial position applying IAS 36.

B. Briefly discuss the Provisions, contingent Liabilities and contingent assets in accordance to IAS 37, clearly stating whether it should be recognised in financial statement or disclosure as notes to accounts.

Question 3

Noura Ltd is a large UK company has its own Research and Development Department (R &D) and incurred the following expenses during the year.

(i) Company sent 10 staff for training to improve the production method. Cost incurred for the training was $80,000 in total. Company is believing that the training will improve the quality and the method of production and thereby additional revenue will arise in future to the extent of $800,000.

(ii) For the year ended 31/12/2016, Research Team of the company conducted a research work by spending $100,000 for development a new medicine which is not available at present in the market. Based on the research finding, the development team started its further process of developing the medicine.

(iii) By the end o f the year 31/12/2017, company spent $250,000 for developing the medicine but when spending the money, it was not clear that the project will be technically feasible.

(iv) By the end of year 31/12/2018, company spent $500,000 for developing the same medicine and it has been satisfied all of the conditions for recognizing the development costs as an intangible asset.

Company is expecting to start its production from 1/1/2020. Note that if the development expenditure is capitalized, it has to be amortised for 5 years

Required
a. Explain clearly how to consider the above expenditures in the financial statements of Noura Ltd. Also show the necessary journal entries for the above transactions. (200 -250 words)

b. Explain clearly what the treatment in accounts is if the development expenditure is capitalised. (75 - 100 words)

c. IAS 38 requires that development costs must be capitalised as an intangible if it satisfies certain conditions. Explain the conditions.

Section 2 - There is only one question in this section

The Income statement for two entities, Black Company and Bury Company, for the year ended 31' Dec 2019 are presented below:

The following notes are relevant to the preparation o f the consolidated financial statements:
(i) Black Company bought 80% o f the ordinary shares in Bury Company several years ago.
(ii) During the year ended 31' December 2019, Bury Company sold goods to Black Company for OMR 100,000 making a cog mark up of 20%. One fifth of these goods remained in the inventory of Black Company at the year end.
(iii) At 31" December 2019, both Black and Bury revalued land and buildings and which has not yet been accounted for in the individual financial statements of each entity. The surplus arising upon revaluation was OMR 12,000 and OMR 6,000 respectively.
You are required to
A. Calculate Provision for Unrealized Profit.
B. Prepare a consolidated statement o f profit or loss and other comprehensive income for the year 31' December 2019.
C. Calculate Profit after tax attributable to Parent and Non-controlling interest
D. Calculate total comprehensive income for the year to Parent and Non-controlling interest.