Reference no: EM133172377
Question - Top Ltd owns and occupies a large building which is used for warehousing, office and retailing purposes. The land and building were purchased in June 2015. The building was initially recognised at cost of $3,000,000, and depreciated over a period of 25 years, assuming nil residual value. During 2022 the roof of the building was damaged by severe storms and hail stones. During June 2022 Top Ltd engaged Roof Specialists Pty Ltd to repair the roof and install solar panels. Roof Specialists Pty Ltd's invoice identified the following cost:
$
Remove and dispose of existing roof tiles 80,000
Repairs to guttering and drainpipes 50,000
Roof tiles 300,000
Solar panels 600,000
Electrician - installation of solar panels 100,000
Roof spraying (to protect the roof form sun damage) includes 5-year warranty 10,000
1,140,000
Top Ltd's chief accountant is on holidays on Kangaroo Island and is unable to be contacted. The graduate accountant has been left in charge but is unsure about how to record the invoice. The graduate accountant seeks your advice and asks the following questions.
Required - All questions should be answered from the perspective of Top Ltd.
1) What is the main accounting policy issue(s) that must be resolved in relation the transaction described in the case?
2) Identify one principle that is relevant to the accounting policy issue(s) that you identified in part (1) by providing a reference for that principle AND explain why you chose that principle.
3) Identify another principle that is relevant to the accounting policy issue(s) that you identified in part (1) by providing a reference for that principle. e.g., AASB XXX, para. zz; or Conceptual Framework, Chapter X, para. x.xx
4) Describe an accounting policy to account for the transaction with Roof Specialists Pty Ltd's, including the subsequent accounting treatment of any asset affected by the transaction.
5) What is a journal entry to record the invoice on 30 June 2022 to illustrate the application of your policy at (4).