El cambio económico de Chihuahua y su papel a nivel nacional

(a)

Extract from income statement for year ended 30 June 2008

£ Operating expenses to include:

Depreciation (W7) 91,200

Management expenses 72,000 Loss on disposal (W3) 4,500

Finance charge (W6) 3,500

Extract from balance sheet as at 30 June 2008

£

Project management fees 30,000

Building costs 375,000 Additions - leased plant (W6) 60,000

202,000 X 15% 30,300

Lift (W1) 15,000 / 10yrs x 2/12 250 Scrapped machine (W3) 18,000 x 15% x 6/12 1,350

Dep. charge in year 31,900 31,900

C/fwd 217,000 66,400

General comments: This question represented a combination of preparing extracts from the financial statements (in this case from both the income statement and balance sheet) together with a written conceptual part (b) and part (c) on the differences between IFRS and UK GAAP.

Carrying amount at 30 June 2008 (217,000 – 66,400) = £150,600 W3 Scrapped machine

£ Cost 18,000 Accumulated depreciation (W2) (13,500)

Carrying amount at disposal / loss on disposal 4,500 W4 Fixtures and fittings

Cost Dep.

charge

Acc. dep

£ £ £

B/fwd 75,000 36,000

Less: accumulated depreciation (36,000)

Carrying amount 39,000 X 25% 9,750

B/fwd - cost 75,000

Additions:

1 Oct 2007 20,000 X 25% x 9/12 3,750

13,500 13,500

C/fwd 95,000 49,500

Carrying amount at 30 June 2008 (95,000 – 49,500) = £45,500 W5 Land and buildings

Cost Dep. charge Accumulated

depreciation

£ £ £

Land

Cost 650,000 Buildings

B/fwd 1,075,000 172,000

Depreciation (1,075,000 x 4%) 43,000 Additions (dep 420,000 x 4% x 2/12) 420,000 2,800

Dep. charge in year 45,800 45,800

C/fwd 2,145,000 217,800

Carrying amount at 30 June 2008 (2,145,000 – 217,800) = £1,927,200 W6 Leased asset

SOTD = (7 x 8) = 28 Tutorial note: Fixed asset carrying amounts & depreciation charge

Depreciation charge

Carrying amounts

£ £

Plant & machinery 31,900 150,600 Fixtures & fittings 13,500 45,500 Land & buildings 45,800 1,927,200

91,200 2,123,300

The answers to this question were quite varied. Most candidates made a good attempt at part a) and there had clearly been an improvement in candidates’ ability since December 2007 when a similar question had been set. There was a clear improvement in the calculation of individual balances, however, poor layouts often meant that it was hard to see what exactly had been included in a total and what hadn’t. Often candidates seemed to prepare what looked like a random set of workings with no linkage. Workings must be referenced clearly.

Most candidates coped well with the calculations in relation to the leased asset, the elements of the new building, cost calculations and depreciation on the assets held for a complete year. Assets that had been held for less than a full year often saw an incorrect calculation of the number of months that the asset should have been depreciated for.

The majority of candidates scored well in the lease calculation, although there were a number of common errors, such as, showing the current lease liability as £7,000 rather than deducting the interest from this amount. Another common mistake was to include the lease payment of £7,000 in the income statement along with the finance charge. These errors show that there is clearly a lack in understanding for accounting for a finance lease. Candidates appear to have simply learnt how to construct the leasing table.

A minority of candidates produced a detailed PPE note along with additional notes in relation to the leased asset even though these were not required by the question and therefore wasted time that could have otherwise been spent productively.

Other common errors included correctly removing the £72,000 management cost from the cost of the building but then failing to charge this amount in the income statement, including £60,000 as the brought forward figure in the leasing table, an incorrect calculation of the sum-of-the-digits and failing to notice that the fixtures and fittings should have been depreciated on a reducing balance basis.

Total possible marks

(b) Elements of financial statements Assets/liabilities

A non-current asset acquired under a finance lease meets the definition of an asset, even though the asset is not legally owned by them, as it is:

• Controlled by the lessee, as they have physical possession of the asset

• Results from a past event, the lease was signed at a particular date

• Gives rise to future economic benefits, the lessee uses the asset to generate revenue for the company.

The lease payments are a liability as the company has an obligation arising from a past event to transfer economic benefits. The economic benefits that the lessee is obliged to transfer are the lease payments.

Generally, the lessee will have some kind of legal obligation to make the lease payments.

Recognition

The asset should be recognised if:

• It is probable that future economic benefits will flow to the company; and

• Those benefits can be measured reliably.

Conversely, the liability should be recognised if:

• It is probable that future economic benefits will be made by the company; and

• Those benefits can be measured reliably.

The inflows and outflows will be probable as a lease contract agreement has been signed and the benefits can be reliably measured as the lease contract will set out the present value of the minimum lease

payments.

The answers to part b) were often disappointing with a significant number of candidates explaining the accounting treatment for a finance lease with no reference to the IASB Framework, this approach gained no marks. Candidates often copied text straight from the open book text without explaining further how it related to a finance lease. Many candidates recognised that the signing of the lease was the past event which created the lease obligation but few managed to explain how economic benefits would be obtained.

Total possible marks Maximum full marks

7½ 5

(c) Key differences between IFRS and UK GAAP

IAS 17 lists a number of factors that would indicate that the risks and rewards of ownership have been transferred to the lessee in order for the lease to be classified as a finance lease. Such as, the lease term is for a major part of the asset’s life and the lessee is responsible for repairs and maintenance.

However, under UK GAAP, SSAP 21, there is a rebuttable presumption that if, at the inception of the lease, the present value of the minimum lease payments is at least 90% of the asset’s fair value then there is a finance lease.

IAS 17 specifically requires a lease which covers both land and building to be split at inception into two leases, one for the land and one for the buildings. A lease for land will normally be an operating lease since land will normally have an indefinite life.

The answers to part c) were mixed. Most candidates wrote something regarding the minimum lease payment being 90% of the fair value of the asset under a finance lease under UK GAAP. This was commonly referred to as the “90% rule” without further explanation as to what exactly this was. A typical answer included some explanation about land and buildings and whether they should be separated or not under IFRS and UK GAAP. However, a number of candidates were clearly confused about which regime separates leases of land and buildings and which does not. The majority of candidates also stated that land would always be an operating lease, with only the very best candidates appreciating that while this might normally be the case it was possible for land to be held under a finance lease.

Total possible marks Maximum full marks

4 3