Question

d. Polycarp Ltd adopts revaluation model for subsequent measurement of its intangible assets in accordance with IAS 38: Intangible assets. The policy of Polycarp is to revalue its intangible asset at the end of each year. An intangible asset with an estimated useful life of 9 years was acquired on 1 January 2018 for GH€45,000. It was revalued to GH¢54,400 on 31 December 2018 and the revaluation surplus was correctly recognized on that date. As at 31 December 2019, the asset was revalued at GH¢32,000. Required: Discuss the accounting treatment required in 2018 and 2019 financial statements. 3 marks e. E. Adentwi Enterprises Ltd bought a machine for GHC 150,000 on 1st January 2019. It depreciates the machine on cost over four years assuming a nil residual value. The company received a grant of GHC30,000 from the municipal assembly to support the acquisition of the machines. Account for this grant under the netting off method. 3 marks

Answer 1

Polycarp Ltd.

2018:

Cost of the intangible asset acquired on January 1, 2018 = 45,000

Estimated useful life = 9 years

Therefore, annual amortization = 5,000 (45,000 / 9)

Carrying amount on December 31, 2018 = 40,000

Revaluation amount = 54,400

Therefore, revaluation gain = 14,400

Accounting treatment for 2018:

Intangible asset on Balance sheet = 54,400

Amortization in income statement = 5,000

Revaluation surplus in Other Comprehensive Income = 14,400

2019:

Depreciable value of the asset = 54,400

Remaining useful life = 8 years

Therefore, annual amortization = 6,800 (54,400 / 8)

Carrying amount on December 31, 2019 = 47,600

Revaluation amount = 32,000

Therefore, revaluation loss = 15,600

Accounting treatment for 2019:

Intangible asset on Balance sheet = 32,000

Amortization in income statement = 6,800

Total revaluation loss of 15,600 distributed as - Against revaluation surplus in OCI 14,400. Balance as a loss in the income statement 1,200

Adentwi Enterprises

Cost of the asset = 150,000

Less: Government grant received = (30,000)

Revised cost of the asset = 120,000

Estimated useful life = 4 years

Annual depreciation = 30,000 (120,000 / 4)

Therefore, Journal entries are -

1. Purchase of asset

Machine ------------Dr 150,000

To cash 150,000

2. Government grant received

Cash (Govt grant)------Dr 30,000

To Machine 30,000

3. Depreciation for the year

Depreciation (P&L)-----------Dr. 30,000

To Accumulated Depreciation 30,000

Therefore, carrying value of the asset on December 31. 2019 is 90,000 (Cost 120,000 less Accumulated depreciation 30,000)