QUESTION 1

On 1 October 2017 an entity acquired a machine under the following terms.

Hours $
Manufacturer's base price 1 050 000
Trade discount (applying to base price only) 20%
Early settlement discount taken (on the payable amount of the base cost only) 5%
Freight charges 30 000
Electrical installation cost 28 000
Staff training in use of machine 40 000
Pre-production testing 22 000
Purchase of a three-year maintenance contract 60 000
Estimated residual value 20 000
Estimated life in machine hours 6 000
Hours used – year ended 30 September 2018 1 200
– year ended 30 September 2019 1 800
– year ended 30 September 2020 (see below) 850

On 1 October 2019 the entity decided to upgrade the machine by adding new components at a
cost of $200 000. This upgrade led to a reduction in the production time per unit of the goods
being manufactured using the machine. The upgrade also increased the estimated remaining
life of the machine at 1 October 2019 to 4 500 machine hours and its estimated residual value
was revised to $40 000.

Required
Prepare extracts from the Statement of Comprehensive Income and Statement of Financial
Position for the above machine for each of the three years to 30 September 2020 in
accordance to the requirements of IAS 16: Plant, property and equipment.
QUESTION 2
The governing body of an entity listed on the ZSE is disappointed by the financial
performance of the entity as shown in the draft Financial Statements for the year ended 30
September 2020. The Finance Director has suggested an area where he believes the reported
profits may be improved:
A major item of plant that cost $20 million to purchase and install on 1 October 2017 is being
depreciated on a straight-line basis over a five-year period (assuming no residual value). The
plant is wearing well and at the beginning of the current reporting year (1 October 2019) the
production manager believed that the plant was likely to last eight years in total (i.e from the
date of its purchase). The assistant accountant has calculated that, based on an eight-year life
(and no residual value) the accumulated depreciation of the plant at 30 September 2020
would be $7.5 million [($20 million / 8years) × 3years].

In the financial statements for the year ended 30 September 2019, the accumulated
depreciation was $8 million ($20 million / 5 years × 2). Therefore, by adopting an eight-year
life, the entity can reduce the accumulated depreciation charge and instead actually credit
back $0.5 million ($8 million – $7.5 million) to the Statement of Financial Performance in
the current year to improve the reported surplus.
Required
Comment on the acceptability of the assistant accountant's suggestions, consider the
implications of IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors
QUESTION 3
Midlands National University prides itself in being the best University in the country. The
university spends substantial amounts of money in employee training, education and
continuous professional development for both academic and support staff.

Required:
Discuss how the recognition criteria for assets prevent employees from being recorded as an
asset in the Statement of Financial Position according to the specifications of IAS 38:
Intangible assets.