Reference no: EM132849679
Assignment - CASE 1 - Asset Part 1 - You are an audit senior in a firm, KAP Ahadi & Rekan. It is February 20X6 and you are currently reviewing the draft of financial statements of the PT Vendi Group which has recently become a client of your firm.
PT Vendi Group is a conglomerate group, comprising a number of subsidiary companies in which dominant influence is exercised by the group parent company, PT Verdi Internasional. The shares of PT Verdi Internasional are listed on the London and Dublin stock exchanges.
There was an issue that arisen in respect of the audit of PT Vendi group for the year ended 31 December 20X5. The audit manager, Mr Budi, has requested that you review these issues and send him a memorandum with your observations and recommendations.
Issue 1 - Revaluation of land
PT Vendi Group purchased a plot of land for Rp15 billion in 20X3 for storage of the building supplies. In 20X4 the area adjacent to the land was identified as the development site for a new shopping center. PT Vendi Group revalued the land to Rp80 billion at 31 Dec 20X4 due to its newly acquired development potential. No deferred tax has been provided in respect of the revaluation surplus.
During 20X5 a protest campaign by local residents resulted in the local council withdrawing permission for the commercial development, and at 31 Dec 20X5 the land was revalued to Rp30 Billion. At that time, most of the area was being utilized for storage, with small section being fenced off for parking by personnel.
Required -
1. Explain the correct accounting treatment of the land since its purchased in 20X3.
2. Set out the journal entries required to reflect your recommended accounting treatment.
Issue 2 - Inventory
Wool is a primary material used by PT Vendi for the manufacture of the specialized carpets. Wool inventory at Dec 31 20X5 had cost Rp60 million to purchase, but only had a net realizable value of Rp20 million. On the basis that PT Vendi does not intend to dispose of the wool, the inventory has been included in the financial statements at a value Rp45 million. It is believed that this partially reflects the fall in value of the wool, but also takes account of the intention to retain the inventory for use in the production process. It is expected that the finished carpets, into which the wool will be incorporated, can be sold at reasonable profit margin.
Required -
1. Advice correct accounting treatment of the wool inventory of the company at 31 Dec 20X5. Explain.
2. Provide relevant journal entries.