Question

Last year Argos Company sho reos Company showed a negative cash flow from operating activities. What Ad! á be the reasons for this and should the business's management be concerned o. Assume that you have been invited to a meeting ABC's Company's board of directors to address some financial reporting questions which have emerged. During the meeting. Director NMA asks the following questions: Director NMA: "Each year we spend significant amounts on things like brand development, research and development (R&D and advertising. How is this expenditure treated from a financial reporting perspective? Do you agree with this treatment - why or why not?** Foro Write a BRIEF response to Director NMA. 3. Why would the market value of the firm usually be higher than the book value? Explain with examples 4. What are the characteristics that should be available in a particular item to be treated as an asset in the statement of financial position? 5. On 31 December 2013, FIRM XYZ has a building which cost $500 million and has Accumulated Depreciation of $200 million. The Fair Value of the Building is $265 million while the costs to sell are $10 million. The Value in Use of the Building is $270 million. Determine whether FIRM XYZ needs to record an Impairment Loss on the Building. If so, calculate the amount of the Impairment Loss-show all formulas used, steps and calculations. Suppose Motor Vehicle Cost = $64,000 and it has a four year life. Residual Value is $4,000. Assume the firm uses Straight Line Depreciation and the Machine is sold at the end of year 3 for €25,000. Calculate the gain or loss on disposal. Show all formulas used and calculations. 7. By the end of the year CIMA entity had 100 units in warehouse of product X. Units are so far reported at total cost of $10,000. The selling price of the product has fallen to $110 per unit and cost to sell each unit is $25 per unit. Compute the value at which inventory should be reported in the statement of financial position and explain the rule you used to support your answer. 100 units TVO

Answer 1

5.

CARRYING VALUE AS ON 31ST DECEMBER, 2013
	AMOUNT IN MN
COST	$                500.00
ACCUMULATED DEPRECIATION	$                200.00
CARRYING VALUE AS ON 31ST DECEMBER, 2013	$                300.00
RECOVERABLE VALUE = HIGHER OF VALUE IN USE OR FAIR VALUE
VALUE IN USE	$                270.00
FAIR VALUE	= 265 - 10
	$                255.00
RECOVERABLE VALUE	$                270.00
IMPAIRMENT LOSS = CARRYING VALUE - RECOVERABLE VALUE
= 300 - 270
$ 30 MN

6.

CARRYING VALUE AT THE END OF YEAR 3
	AMOUNT IN MN
COST	$                     64,000
DEPRECIATION FOR 3 YEARS	$                   (45,000)
(15000 * 3)
CARRYING VALUE AT THE END OF YEAR 3	$                     19,000
SALE PRICE	$                     25,000
CARRYING VALUE AT THE END OF YEAR 3	$                     19,000
PROFIT ON SALE ON ASSET	$                       6,000

DEPRECIATION CALCULATION

= (COST - SALVAGE VALUE)/ USEFUL LIFE

= (64000 - 4000)/4

$                                             15,000