Question 1:

MyNextProblem Ltd has acquired a new building called Next in Line Building for
$2,000,000. It has incurred incidental costs of $30 000 in the acquisition process for
legal fees, real estate agents fees and stamp duties. At the quarterly Board
meeting, the management believes that these costs should be expensed because
they have not increased the value of the building and, if the building was
immediately resold, these amounts would not be recouped. In other words, the fair
value of the building is considered to still be $2,000,000.

Required: Discuss how these costs should be accounted for in the books of
MyNextProblem Ltd. Maximum 200 words.

Answer

The IAS 16 Property, Plant and Equipment states that costs incurred directly in
connection with making the asset ready for use should be capitalized along with the
purchase price. Therefore, MyNextProblem Ltd will show $2,030,000 as the value of
fixed asset on the balance sheet.
Question 2:

A recent annual report of the City of Darwin Council did not include library books on
the statement of financial position, notwithstanding the existence of a substantial
library collection. The City of Darwin Councils accounting policy for library books is
to expense them at the time of acquisition. A note in the annual report reveals that
in applying this policy the council considered the following factors:

As soon as the book is purchased its fair value is minimal compared with its
cost.
The acquisition costs of individual books are below the councils capitalization
policy.
The useful life of a book is variable and indeterminable, making depreciation
difficult.
Required
Critically evaluate the councils accounting policy for its library collection.
Suggest an alternative accounting policy or supplemental information that
could be reported, if appropriate. Maximum 400 words

Question 3

ChallengeMe Pty Ltd is a manufacturer of tennis equipment and fashion wear. The
statement of financial position as at 30 June 2020 and details of expenses and
revenues for the year ending 30 June 2020 are as follows: