Assignment File

Assignment 1
Due date:

14 October 2016

Weighting:

20% of the total marks for this course

Coverage:

Units 1 and 2

Important note
You must use word processing software (such as Microsoft Word) to prepare the
TMAs, and submit them via the Online Learning Environment (OLE). All
assignments must be uploaded to the OLE by the due date.
Failure to upload a TMA in the required format to the OLE may result in the score
for the TMA being adjusted to zero.

Question 1 (25 marks)

At 1 January 2015, the non-current asset balances of Sunny Ltd
comprised the following:
Original cost ($)
Land and building

Accumulated depreciation ($)

1,165,000

119,000

Fixtures

890,000

89,000

Plant and equipment

456,000

101,000

The companys policy is to charge depreciation at the following rates:

Buildings: 2% straight line, no residual value

Fixtures: 5% straight line, no residual value

Plant and equipment: 15% reducing balance, no residual value

The accounting policy of Sunny Ltd requires a full years depreciation to

be charged in the year of acquisition for all assets; however, no
depreciation is charged in the year of sale. The following additional
information is relevant to the calculation of depreciation for the
yearended 31 December 2015.
i

The amount of the original cost relating to buildings is $850,000, and

these were purchased in June 2005.

ii Sunny Ltd traded in a lorry (classified as plant and equipment) during

the year and acquired a new one costing $50,000. A cheque for
$25,000 was written by the finance director of Sunny Ltd, being the
balance due for the new lorry. The lorry traded in had originally cost
$40,000 in May 2009 and had a net book value of $28,900 at
1 January 2015.

ACT B331 Company Accounting I

iii Additional fixture improvements were carried out during the year,
costing $190,000. Legal and architects fees in relation to the
improvements were also incurred, amounting to $8,000.
iv Office furniture was purchased during the year for $30,000. Sunny
Ltd incurred additional expenditure on the delivery and installation
amounting to $5,000.
Required:
a

Prepare accounting journal entries related to the non-current assets of

Sunny Ltd for the year ended 31 December 2015.
(9 marks)

Provide extracts of statement of financial position and statement of

profit or loss and other comprehensive income for the non-current
assets of Sunny Ltd for the year ended 31 December 2015. (5 marks)

What factors should the accountants of Sunny Ltd consider in

determining the useful life of an asset?
(6 marks)

Outline the general guidelines for determining whether expenditure

on repairs should be capitalized rather than revenue expenditure.
(5 marks)

Question 2 (25 marks)

Please discuss whether the revaluation of land and buildings other than
investment properties is compatible with the fundamental accounting
concepts of accrual accounting and going concern.

Question 3 (25 marks)

a

Discuss the pros and cons of the fair value model adopted in HKAS
40 Investment Property.
(12 marks)

Some people suggest that accounting standard setting process is

actually a political process (politicization). It is a political process
because the standard setting body is influenced by government
agencies, interest groups, bankers, financial analysts and so on.
Explain any three arguments showing that accounting standard
setting process is NOT a political process.
(13 marks)

Question 4 (25 marks)

Awaken Ltd owns a property which was purchased on 1 January 2010 for
$1,000,000, of which $400,000 was considered to be related to the land
on which the building is situated. The company has followed a policy of
depreciating the building at the rate of 4 per cent on cost per annum. On
31 December 2014 the property was valued by a firm of chartered
surveyors at $1,800,000 of which $900,000 was considered attributable
to the value of the land. The surveyors further estimated that the property

Assignment File

possessed a remaining useful life of 30 years from 1 January 2015. The

property market went down in 2015. The property was valued by the
surveyors again on 31 December 2015. The fair value of the property
became $1,600,000 and $600,000 was considered attributable to the
value of the building.
Awaken Ltd has another property in Ho Man Tin for capital appreciation.
The building was acquired in 2001 for $3,000,000. The estimated useful
life of this building was 25 years. The fair value of this building on
31 December 2015 was $2,700,000.
Awaken Ltd has adopted the revaluation model for its property, plant and
equipment and the fair value model for its investment properties.
a

Using the above information, prepare accounting journal entries for

Awaken Ltd in 2014 and 2015.
(16 marks)

Show the details relating to the properties which would appear in the
statement of financial position and statement of profit or loss and
other comprehensive income of Awaken Ltd on 31 December 2015.
(5 marks)

Why is residual value of property, plant and equipment normally

zero?
(4 marks)