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QUESTION 1
An entity started construction on a building for its own use on 1 April 20X7 and incurred the
following costs:
$000
Purchase price of land 250,000
Stamp duty 5,000
Legal fees 10,000
Site preparation and clearance 18,000
Materials 100,000
Labour (period 1 April 2007 to 1 July 2008) 150,000
Architect’s fees 20,000
General overheads 30,000
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583,000
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The following information is also relevant:
Material costs were greater than anticipated. On investigation, it was found that materials
costing $10 million had been spoiled and therefore wasted and a further $15 million was
incurred on materials as a result of faulty design work.
As a result of these problems, work on the building ceased for a fortnight during October
2007 and it is estimated that approximately $9 million of the labour costs relate to this
period.
The building was completed on 1 July 20X8 and occupied on 1 September 20X8.
Required:
Calculate the cost of the building that will be included in tangible non-current asset additions.
QUESTION 2
On 1 April 20X8 the fair value of Xu's property was $100,000 with a remaining life of 20 years.
Xu’s policy is to revalue its property at each year end. At 31 March 20X9 the property was
valued at $86,000. The balance on the revaluation surplus at 1 April 20X8 was $20,000 which
relates entirely to the property. Xu does not make a transfer to realised profit in respect of excess
depreciation.
Required:
(a) Prepare extracts of Xu's financial statements for the year ended 31 March 20X9
reflecting the above information.
(b) State how the accounting would be different if the opening revaluation surplus did not
exist.
QUESTION 3
An entity revalued its land and buildings at the start of the year to $60 million ($15 million for
the land). The property cost $30 million ($6 million for the land) ten years prior to the
revaluation. The total expected useful life of 40 years remained unchanged. The entity's policy is
to make an annual transfer of realized amounts to retained earnings.
Required:
Show the effects of the above on the financial statements for the year.
