Reference no: EM133006320
a) IFRS 9: Financial Instruments
The Company issued 22% GHS50 million 4 year Corporate Bond at a discount of 5% on 1January 2020. Issue costs were GHS1,534,000. The Bonds would be redeemed on 31
December 2023 at par. Interests are paid annually in arrears at 31 December and the effectiveinterest rate is thus determined as 25% per annum.
b) IAS 23: Borrowing Costs
The Company borrowed GHS24 million from Classic Bank on 1 January 2020 at an interest rate
of 20% per annum specifically to build a new Administration Block. The contract price agreedwith the Contractor was GHS24 million. The construction commenced in the first week of January 2020. The payment schedule agreed between the Company and Consar Ltd was asfollows:
- 1 January 2020 [GHS4 million],
- 1 April 2020 [GHS8 million];
- 1 October 2020 [GHS8 million]; and
- 31 December 2020 [GHS4 million].
The Company decided to invest idle funds of the borrowed money temporary in fixed deposit atannual interest rate of 15%.
The building was completed in the last week of December 2020 and put to use on 2nd January2021.
c) IAS 16: Property, Plant and Equipment
The Company constructed a Waste Disposal Plant in January 2020 at a cost of GHS50 million .
It was agreed with the owner of the plant site that the plant would be decommissioned inDecember 2022 (after three years of usage). The Engineers of the Company estimate the decommissioning
costs to be GHS1 million in December 2022. (The annual cost of capital to theCompany is taken to be 25% ).
d) IAS 40 : Investment Property
The Company acquired a property on 1 January 2015 at a cost of GHS200,000 and
immediately occupied it as an office premise. On acquisition, it was estimated to have a useful lifeof 50 years. Subsequent to its acquisition, the asset was measured at depreciated cost until 1 July 2020 when Management decided to convert the building into an investment property(mainly for rentals). Following this decision, the property was fair valued at GHS 190,000. QRS adopted the fair value model for subsequent measurement of the investment property. At 31December 2020, it was fair valued at GHS195,000.
e) IAS 38: Intangible Assets
The Company adopts a fair value model for subsequent measurement of its intangible assets. An
intangible asset with an estimated useful life of 9 years was acquired on 1 January 2019 forGHS450,000. It was revalued to GHS544,000 on 31 December 2019 and the revaluation surplus was correctly recognized on that date. As at 31 December 2020, the intangible asset wasrevalued at GHS320,000
Required
Problem 1: Explain (together with relevant calculations) how each of the above transactions would be dealt with in the 2020 statement of profit or loss and the statement of financial position asat 31 December 2020 [with reference to respective IFRS)