Transfers between assets & Intangible assets

A Ltd exchanges Patent A, which has a carrying amount of R20 000 and a fair value of R30 000, for Patent B with a fair value of R35 000. The fair value of patent B is more clearly evident than that of Patent A.

At which amount should Patent B be recognised in A Ltd’s financial statements?

• R20 000

• R30 000

• R35 000

• R50 000

The North-Technical University Ltd (‘NTU’) is a private university located in the vibrant town of Umhlanga. The NTU was incorporated on 1 January 2011 and has a 30 June financial year-end. The current reporting period ends on 30 June 2023.

Subsequent to the incorporation of the NTU, the university erected various buildings, acquired several other assets and developed a unique e-learning management system used by students and staff at the NTU. Details of one of the assets, can be found below:

The cafeteria, referred to as the ‘SS’ by students, was erected during the 2021 financial year at a cost of R3 500 000. The cafeteria was ready for use on 1 July 2021 and its doors were opened for business immediately. The total useful life of the cafeteria was estimated to be ten years on 1 July 2021 and has remained unchanged. As a result of the high cost of running the cafeteria, the NTU decided to lease out the cafeteria to an outside vendor under an operating lease (lessor) from 30 June 2023. This vendor will pay a fixed monthly lease payment and will be responsible to operate the cafeteria. The fair value of the cafeteria amounted to R3 600 000 and R2 550 000 on 1 July 2022, 30 June 2023 respectively.

Accounting policies

The following is an extract from the accounting policies of FT:

•       Owner-occupied land and buildings are accounted for in accordance with the cost model as per IAS 16.

•       Investment property is accounted for in accordance with the fair value model as per IAS 40.

The carrying amount of the building in NTU’s financial statements as at 30 June 2023?

• R4 000 000

• R2 450 000

• R2 550 000

• Some other amount

The North-Technical University Ltd (‘NTU’) is a private university located in the vibrant town of Umhlanga. The NTU was incorporated on 1 January 2011 and has a 30 June financial year-end. The current reporting period ends on 30 June 2023.

Subsequent to the incorporation of the NTU, the university erected various buildings, acquired several other assets and developed a unique e-learning management system used by students and staff at the NTU. Details of one of the assets, can be found below:

The cafeteria, referred to as the ‘SS’ by students, was erected during the 2021 financial year at a cost of R3 500 000. The cafeteria was ready for use on 1 July 2021 and its doors were opened for business immediately. The total useful life of the cafeteria was estimated to be ten years on 1 July 2021 and has remained unchanged. As a result of the high cost of running the cafeteria, the NTU decided to lease out the cafeteria to an outside vendor under an operating lease (lessor) from 30 June 2023. This vendor will pay a fixed monthly lease payment and will be responsible to operate the cafeteria. The fair value of the cafeteria amounted to R3 600 000 and R2 550 000 on 1 July 2022, 30 June 2023 respectively.

Accounting policies

The following is an extract from the accounting policies of FT:

•       Owner-occupied land and buildings are accounted for in accordance with the cost model as per IAS 16.

•       Investment property is accounted for in accordance with the fair value model as per IAS 40.

Prepare the journal entries to account for the reclassification of PPE to investment property at 30 June 2023.

• Option A

• Option B

• Option C

• Option D

If I have an asset that is initially recognised and measured in terms of IAS 16 and subsequently, I decide to hold the asset that meets the definition of IAS 40 - Investment property measured at fair value.

Is the following statement true or false: I will still recognise depreciaiton on that asset because initially it was recognised using IAS 16, therefore those principles need to apply.

• True

• False

Which of the following are costs that can be capitalized during the development phase as per IAS 38:

1. 1. Costs of materials and services used or consumed in generating the intangible asset;

3. 2. Costs of employee benefits (as defined in IAS 19) arising from the generation of the intangible asset;

3. 3. Selling, administrative and other general overhead expenditure unless this expenditure can be directly attributed to preparing the asset for use;

4. 4. Expenditure on training staff to operate the asset;

5. Fees to register a legal right; and

6. Amortisation of patents and licences that are used to generate the intangible asset

• 1, 2 and 5

• 2, 3 and 4

• 1, 3, 4 and 6

• 1, 2, 5 and 6

Clean had incurred expenditure to develop a manufacturing process that produces eco-friendly personal hygiene products at a cost of R1 200 000, these form part of the development costs. During February and March 2023 Clean conducted market research at a cost of R100 000 to identify whether there is a market for the eco-friendly products. During April 2023 an additional R300 000 was spent to bring the manufacturing process of eco-friendly products to the stage where Clean was able to demonstrate all of the criteria to recognise an internally generated intangible asset. Thereafter, Clean incurred R700 000 to bring the manufacturing process of the eco-friendly products to the condition where it was ready for use and paid R250 000 to acquire a small pilot plant to test the manufacturing process. Clean spent R16 000 to advertise the new products.

The cost of the development asset capitalised by Clean was:

• R2 150 000

• R2 450 000

• R2 250 000

• R1 950 000

On 1 March 2022, Construct Co acquired the Build it Quick (BIQ) patent at a cost of R996 000 to manufacture a specialized machine. Legal costs incurred to register the patent amounted to R85 000. Construct Co incurred advertising costs amounting to R30 000 to advertise the sale of the new machine. The patent was available for use as intended by management, from acquisition date. It is estimated that the patent has an expected useful life of 13 years, with no residual value. Construct Co’s year end is 28 February 2023.

Prepare the journal entry to account for the amortization on the patent.

• Option A

• Option B

• Option C

• Option D

FT Ltd (FT) is a media company based in Cape Town. FT print, distribute and sell newspapers. The company has a 30 April reporting date.

Property - Bellville

On 1 July 2016, FT purchased a property in Bellville at a cost of R6 900 000 (land: R2 000 000; building: R4 900 000). FT has rented this property out to tenants since acquisition date.

Due to the decline in the printed newspaper industry, the management of FT decided to start their own digital division and to use the property in Belville for this purpose. The tenants vacated the building on 31 January 2022 after adequate notice was given by FT. FT immediately took occupation of the property. On 31 January 2022, the useful life of the building was estimated to be 22 years and the estimated residual value was R2 000 000. At 30 April 2022, the remaining useful life and residual value of the building remained unchanged.

An independent sworn appraiser, who holds a recognised and relevant professional qualification and has recent experience in the location and category of the property being valued, determined the fair values and net replacement values of the property as follows (find in attached image).

The directors decided that this property will not be revalued on 30 April 2022, because the property was revalued on 31 January 2022.

Accounting policies

The following is an extract from the accounting policies of FT:

•       Owner-occupied land and buildings are accounted for in accordance with the cost model as per IAS 16.

•       Investment property is accounted for in accordance with the fair value model as per IAS 40.

 

Calculate the carrying amount of the building in FT’s financial statements as at 30 April 2022?

• R4 718 750

• R4 700 000

• R4 750 000

• R4 650 000

What are you struggling with regarding:

1. 1. Transfers between assets (IAS 2, IAS 16 & IAS 40)

2. 2. Intangible assets (IAS 38)