Reference no: EM131570730

Issues in Financial Reporting and Analysis Assignment

Q1. Impairment Loss and Cash Generating Unit

RA Ltd calculates an impairment loss of $4,800,000 that must be applied to one of its cash generating units. The carrying amounts of the assets that comprise the cash-generating unit are as follows:

                                 $'000

Goodwill                     4,000

Building                      2,000

Plant                          1,000

Office Equipment         3,000

                                  $10,000

RA Ltd determines that the net selling price of the building is $1 800 000 and its value in use is $1 900 000.

Determine the carrying amount of each of these assets in accordance with AASB 136 Impairment of Assets. Show all workings.

Q2. Accounting for Intangible Assets

Part A: Morris Limited is a company involved in the research and development of a new mechanical toy soldier. The company incurs the following costs:

a. $150,000 on understanding the current toy market;

b. $250,000 on determining whether there still exists demand for mechanical toys in the current computer-based toy environment;

c. $500,000 in designing and testing a prototype;

d. $500,000 in developing and testing the product.

Part B: Morris Limited has an intangible asset on its books which was initially recorded on 1 July 2014 at $300,000. The asset has a finite life (10 years). At 30 June 2016, the asset was assessed as having a recoverable amount of $200,000

Required:

i. Determine how each of the four incurred costs outlined in Part A (above) would be treated for accounting purposes

ii. Identify if the accounting treatment of any four incurred costs outlined in Part A (above) is conditional, and explain those conditions

iii. Show the journal entries to account for the intangible asset in Part B (above): (a) at 30 June 2015 and (b) at 30 June 2016.