Reference no: EM133081123
Question 1: Classification of acquisition costs
Nikita Ltd began operations on 1 July 2016. During the following year, the company acquired a tract of land, demolished the building on the land and built a new factory. Equipment was acquired for the factory and, in March 2017, the factory was ready. A gala opening was held on 18 March, with the local parliamentarian opening the factory. The first items were ready for sale on 25 March.
During this period, the following inflows and outflows occurred:
|
1.
|
|
While searching for a suitable block of land, Nikita Ltd placed an option to buy with three real estate agents at a cost of $100 each. One of these blocks of land was later acquired.
|
|
|
|
2.
|
|
Payment of option fees
|
$300
|
|
|
3.
|
|
Receipt of loan from bank
|
400 000
|
|
|
4.
|
|
Payment to settlement agent for title search, stamp duties and settlement fees
|
10 000
|
|
|
5.
|
|
Payment of arrears in rates on building on land
|
5 000
|
|
|
6.
|
|
Payment for land
|
100 000
|
|
|
7.
|
|
Payment for demolition of current building on land
|
12 000
|
|
|
8.
|
|
Proceeds from sale of material from old building
|
5 500
|
|
|
9.
|
|
Payment to architect
|
23 000
|
|
|
10.
|
|
Payment to council for approval of building construction
|
12 000
|
|
|
11.
|
|
Payment for safety fence around construction site
|
3 400
|
|
|
12.
|
|
Payment to construction contractor for factory building
|
240 000
|
|
|
13.
|
|
Payment for external driveways, parking bays and safety lighting
|
54 000
|
|
|
14.
|
|
Payment of interest on loan
|
40 000
|
|
|
15.
|
|
Payment for safety inspection on building
|
3 000
|
|
|
16.
|
|
Payment for equipment
|
64 000
|
|
|
17.
|
|
Payment of freight and insurance costs on delivery of equipment
|
5 600
|
|
|
18.
|
|
Payment of installation costs on equipment
|
12 000
|
|
|
19.
|
|
Payment for safety fence surrounding equipment
|
11 000
|
|
|
20.
|
|
Payment for removal of safety fence
|
2 000
|
|
|
21.
|
|
Payment for new fence surrounding the factory
|
8 000
|
|
|
22.
|
|
Payment for advertisements in the local paper about the forthcoming factory and its benefits to the local community
|
500
|
|
|
23.
|
|
Payment for opening ceremony
|
6 000
|
|
|
24.
|
|
Payments to adjust equipment to more efficient operating levels subsequent to initial operation
|
3 300
|
|
Required
Using the information provided, determine what assets Nikita Ltd should recognise and the amounts at which they would be recorded.
Question 2: Application of revaluation model
At 1 July 2014, Twister Ltd acquired the following non-current assets:
Equipment $100 000
Vehicles 80 000
They are in different classes of non-current assets and are to be measured at fair value. The expected useful lives of vehicles and equipment are 5 years and 10 years, respectively.
At 30 June 2015, the fair values of both assets were assessed. The equipment had a fair value of $82 000, and the vehicles, $70 000. The remaining useful lives were assessed to be 8 years for equipment and 7 years for vehicles.
At 30 June 2016, the fair value of equipment was assessed to be $81 750 and the fair value of vehicles was $55 000.
Required
Prepare the journal entries for Twister Ltd for the years ending 30 June 2015 and 2016.
Question 3: Revaluation of assets
On 1 July 2016, Kingdom Ltd acquired two assets within the same class of plant and equipment. Information on these assets is as follows:
|
|
|
|
Cost
|
|
Expected useful life
|
|
|
|
Machine A
Machine B
|
|
$100 000
60 000
|
|
|
5 years
3 years
|
|
|
The machines are expected to generate benefits evenly over their useful lives. The class of plant and equipment is measured using fair value.
At 30 June 2017, information about the assets is as follows:
|
|
|
|
Fair value
|
|
Expected useful life
|
|
|
|
Machine A
Machine B
|
|
|
$84 000
38 000
|
|
|
4 years
2 years
|
|
|
On 1 January 2018, Machine B was sold for $29 000 cash. On the same day, Kingdom Ltd acquired Machine C for $80 000 cash. Machine C has an expected useful life of 4 years. Kingdom Ltd also made a bonus issue of 10 000 shares at $1 per share, using $8000 from the general reserve and $2000 from the asset revaluation surplus created as a result of measuring Machine A at fair value.
At 30 June 2018, information on the machines is as follows:
|
|
|
|
Fair value
|
|
Expected useful life
|
|
|
|
Machine A
Machine C
|
|
|
$61 000
68 500
|
|
|
|
3 years
1.5 years
|
|
|
Required
Prepare the journal entries in the records of Kingdom Ltd to record the described events over the period 1 July 2016 to 30 June 2018, assuming the ends of the reporting periods are 30 June 2017 and 30 June 2018.