Solution-1
Journal Entries in the books of White Ltd. |
|||
(Amount in $) |
|||
Date |
Particulars |
Debit |
Credit |
30 June, 2015 |
Accumulated depreciation (refer WN-1) |
60,000 |
|
To Machine |
60,000 |
||
(To adjust depreciation with cost of asset) |
|||
30 June, 2015 |
Machine (refer WN-1) |
45,000 |
|
To Revaluation Surplus |
45,000 |
||
(To record the fair valuation of machine) |
|||
30 June, 2016 |
Accumulated depreciation (refer WN-2) |
65,000 |
|
To Machine |
65,000 |
||
(To adjust depreciation with cost of asset) |
|||
30 June, 2016 |
No Journal Entry is required (refer note below) |
||
30 June, 2017 |
Accumulated depreciation (refer WN-3) |
65,000 |
|
To Machine |
65,000 |
||
(To adjust depreciation with cost of asset) |
|||
30 June, 2017 |
Revaluation Surplus |
35,000 |
|
To Machine |
35,000 |
||
(To record the fair valuation of machine) |
|||
31 Dec, 2017 |
Depreciation expense |
30,000 |
|
To Accumulated Depreciation |
30,000 |
||
(To record depreciation upto date of sale) |
|||
31 Dec, 2017 |
Accumulated Depreciation |
30,000 |
|
To Machine |
30,000 |
||
(To adjust depreciation with cost of asset) |
|||
31 Dec, 2017 |
Bank |
500,000 |
|
To Machine |
490,000 |
||
To Gain on sale of machine (refer WN-4) |
10,000 |
||
(To record sale of machine) |
|
Note: Since, the carrying value and fair value of the machine is same (i.e. $620,000 (refer WN-2)) as on 30 June, 2016, hence no entry is required.
WN-1 |
Calculation of value of the machine as at 30 June 2015 |
|
Date of Acquisition |
01-Jul-14 |
|
Cost |
$700,000 |
|
Useful life |
10 |
|
Residual value |
$100,000 |
|
Cost |
||
Cost |
$700,000 |
|
Less: Depreciation for the year |
$60,000 |
|
WDV as on 30 June, 2015 |
$640,000 |
|
Fair value |
$685,000 |
|
Revaluation Surplus |
$45,000 |
|
WN-2 |
Calculation of value of the machine as at 30 June 2016 |
|
Remaining Useful life |
9 |
|
Opening WDV |
$685,000 |
|
Less: Depreciation for the year |
$65,000 |
|
Closing WDV |
$620,000 |
|
Fair value |
$620,000 |
|
Revaluation Surplus |
$0 |
|
WN-3 |
Calculation of value of the machine as at 30 June 2017 |
|
Remaining Useful life |
8 |
|
WDV |
$620,000 |
|
Less: Depreciation for the year |
$65,000 |
|
WDV as on 30 June, 2015 |
$555,000 |
|
Fair value |
$520,000 |
|
Revaluation Surplus |
($35,000) |
|
WN-4 |
Calculation of gain on sale of the machine as at 31 December 2017 |
|
Remaining Useful life |
7 |
|
Opening WDV |
$520,000 |
|
Less: Depreciation for the period |
$30,000 |
|
Closing WDV |
$490,000 |
|
Sale value |
$500,000 |
|
Gain on sale |
$10,000 |
Solution-2
The Brown’s Ltd obligation to restore the contaminated environment is classified as a provision because the company has accepted its liability by means of public announcements and it involves outflow of resources in coming years. As per para 14 of AASB 137, a provision shall be recognized if it meets the following recognition criteria’s.
Since, the above criteria’s are met, hence the company should recognize the obligation as provision.
Cost |
Probability |
Weighted Cost |
840,000 |
20% |
168,000 |
800,000 |
70% |
560,000 |
600,000 |
5% |
30,000 |
400,000 |
5% |
20,000 |
Total |
|
778,000 |
By taking the discount rate of 4% for a total period of 2 years, the present value of obligation comes at $719,304.73. So, the Brown Ltd. should recognize the amount of $719,304 as provision on 30 June, 2017.
The approach used is the combination of present value and expected value. Due to uncertainties involved, first of all the weighted cost is computed by multiplying the cost with appropriate probabilities and then the present value is calculated as the costs are going to incur in the next two years and hence, the time value of money is involved.
Solution-3
Hence, applying the above definition to the master licenses, we conclude that the master licenses are the intangible assets, because they are separately identifiable and further they have no physical substance, i.e. they are intangible and moreover the company has economic benefits in the form of providing security services for 5 years. Since, these master licenses satisfy the definition of intangible assets hence they should be recorded as intangible assets.
“12 An asset is identifiable if it either:
(b) arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations.”
The master licenses are the legal rights provided under Security Industry Act, 1997, and can be measured and identified separately, hence it is said that these licenses met the identifiability criteria of definition of intangible assets according to which an asset which arises from any legal or contractual right is considered as an identifiable asset.
As per para 72 of AASB 138, after recognition, the entity can choose to measure the asset either as per cost model or as per revaluation model. Under cost model, the asset is recognized at an initial cost and is carried for the remaining life at initial cost less accumulated impairment losses. Under revaluation model, the asset is recognized at initial cost and thereafter its cost is reviewed at each year end and a fair value of the asset is computed and recorded year on year. Hence, the asset is carried at revalued amount.
Hence, the Wilson security services Ltd. can opt for either cost model or revaluation model to measure its master license after initial recognition.
In the given case, the Wilson Security Services Ltd, was firstly given the master license for 5 years only and this license is renewable after 5 years only if the required conditions are met. Hence, there is no strong evidence as regard to renewal of license, because it totally depends upon the satisfaction of required conditions after 5 years.
From the above, we conclude that the licenses have finite life and that is to the useful life is 5 years which is equal to the time span for which licenses were allowed.
References:
Aasb.gov.au (2018). Retrieved from https://www.aasb.gov.au/admin/file/content105/c9/AASB138_08-15_COMPoct15_01-18.pdf
Aasb.gov.au (2018). Retrieved from https://www.aasb.gov.au/admin/file/content105/c9/AASB137_07-04_COMPoct10_01-11.pdf
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