Acct860-Property Plant And Equipment Assessment Answer

Question 1. Inventories

A New Zealand clothing store sells seasonal dresses. As the season draws near the close, the store sells the dresses at 10% below the cost because carrying the dresses costs the store in terms of storage space and funds tied up in the inventories. The balance date is 31 December 2019. Summer ends in February. At 31 December 2019, the store has 10,000 dresses. Based on its past experiences, it expects  to sell 20% of these dresses at 10% below cost. The remaining 80% of these dresses are expected to be sold at the normal sales price, which is 15% above the cost. Each dress costs $15. 

Required:

a)Should the clothing store recognise an inventory write-down loss? Explain.

b)Briefly explain whether inventory write-down loss is useful to users. 

Question 2. Property, plant & equipment

NZ IAS 16 allows companies to choose between the cost model and the revaluation model for the subsequent measurement of property, plant and equipment (PPE). However, if a company chooses to revalue its PPE, NZ IAS 16 imposes some restrictions on revaluation. 

a)List the restrictions NZ IAS 16 imposes on revaluation.

b)Why does NZ IAS 16 impose these restrictions on revaluation?

c)Briefly explain whether revaluation of PPE is useful to users.

Question 3. Intangibles and impairment

AFT Pharmaceuticals is a New Zealand pharmaceuticals company, listed on the New Zealand Exchange. Its ticker symbol is AFT. Its 2019 annual report is uploaded on Blackboard. 

Required:

a)How much research and development expenditure does AFT Pharmaceuticals report on the statement of comprehensive income, and how much development expenditure did it capitalise during the year ended 31 March 2019?

b)NZ IAS 38 requires all research expenditure to be expensed immediately. What is the rationale for this requirement?

c)Do you think that the expensing of R&D expenditure causes any damage to the company? Support your answer with relevant financial/non-financial figures.

d)How does the company attempt to overcome any potential damage created by the NZ IAS 38 requirement to expense research expenditure immediately?

e)Refer to accounting policy note 4(u) Impairment of non-financial assets. Write down an improved accounting policy note for this item.