Part A

Wanderers Limited is a small listed company producing components for satellites that monitor pollution levels across the globe. Its financial year end is 30 June.

The accounting policy of Wanderers Limited relating to equipment reads as follows:

‘Equipment is carried at cost less accumulated depreciation and accumulated impairment losses. Depreciation isprovidedat 20%per annum on the straight line basis. ’

The company purchased an item of specialised equipment at a cost of C 800 000 on 1 July 20X0. Details regarding this equipment follow:

• At 30 June 20X1, significant developments in technology by competitors led management to assess the recoverable amount of the equipment. The fair value less costs to sell was estimated at C 440 000 and the value in use was determined to beC 380 000.

• Towards the end of the 20X3 financial year, it became apparent that the competitors’ new technology developed in 20X1 was not commercially viable. The recoverable amount was assessed again and based on market prices, management estimated the fair value less costs to sell to be C 500 000 and the value in use to be C 400 000.

• The estimated useful life has remained unchanged throughout. The residual value is estimated to be nil (unchanged).

Profit before tax for the year ended 30 June 20X3 before accounting for any expenses or income relating to the equipment amounts to C 300 000.

The tax authorities grant a tax allowance of 33.3% per annum on the straight line basis in relation to this equipment. The normal tax rate is 30%. There are no other permanent or temporary differences other than those evident from the information provided.

Required:

a) To the extent of the information available, prepare extracts from the statement of comprehensive income, statement of financial position and notes to the financial statements of Wanderers Limited for the June 20X3 financial year in accordance with International Financial Reporting Standards.

Accounting policies and comparatives are not required.

b) To prepare the journal entry to account for the change in the recoverable amount of the equipment at 30 June 20X3.

Part B

The same situation applies as in Part A above, except that management of Wanderers Limited decide to adopt the following accounting policy relating to equipment:

‘Equipment is carried at its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Depreciation is providedat 20%per annum on the straight line basis.’

Details regarding this equipment follow:

At 30 June 20X1, significant changes in technology by competitors led management to assess the recoverable amount of the equipment. The fair value less costs to sell was estimated at C 440 000 and the value in use was determined to be C 380 000.

Towards the end of the 20X3 financial year, it became apparent that the competitors’ new technology developed in 20X1 was not commercially viable. The fair value, as determined by an independent valuator amounted to C 500 000. The recoverable amount is C 520 000.

The estimated useful life has remained unchanged throughout. The residual value is estimated to be nil (unchanged).

Required:

Prepare the journal entries to account for the equipment for the years ending 30 June 20X1 and 30 June 20X3 assuming that the net replacement value method is used.

Part C

The same situation applies as in Part A above, except that management of Wanderers Limited decide tr adopt the following accounting policy relating to equipment:

‘Equipment is carried at its fair value i the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Depreciation is provided at 20%per annum on the straight line basis.’

Details regarding this equipment follow:

• At 30 June 20X1, the fair value of the equipment as determined by an independent valuator amounted to C 440 000

• Towards the end of the 20X3 financial year the fair value of the equipment as determined by an independent valuator amounted to C 500 000.

• The estimated useful life has remained unchanged throughout. The residual value is estimated to be nil (unchanged).

Required:

Prepare the journal entries to account for the equipment for the years ending 30 June 20X1 and 30 June 20X3 assuming that the net replacement value method is used.