QUESTION ONE 2 marks James Intl acquired a block of land on

QUESTION ONE (2 marks) James Intl acquired a block of land on 1 July 2013 at a cost $1.4 million and valued it according to the cost model. Three years on, the management found out that the area where land was acquired has been contaminated due to a chemical incident. On 30 June 2015, the management is provided with the following information: The value in use $1.3 million RA1.1 mittien Net selling price $1.2 million REQUIRED Describe the accounting treatment required under Accounting Standards to record the drop in the value of the land? (1 mark) Provide the journal entries to account for the land on 30 June 2015. (1 mark) ESTION TWO (2 marks) On 30 June 2017, James Intl purchased government bonds for $535,000 and 5% shares of Connor Ltd, one of its providers, for $47,000. REQUIRED Explain the two necessary conditions for which James Intl is allowed to measure the government bonds at amortised cost (1 mark) Identify whether the 5% shares acquired by James Intl are a financial asset, financial liability or an equity instrument for Connor Ltd. (1 mark)

Solution

1) Impairment Loss = Carrying Amount - Recoverable Amount

Recoverable Amount Is higher of Value in use and Net selling Price.

So in this question Value of recoverable amount is 1. 3 million( 1. 3 million $ is value in use is higher than the 1. 2 million $ of net selling price)

Carriying Amount =1. 4 million $

Impairment loss= 1. 4 million$- 1. 3million $= 0. 1 million $

So value of drop the land is 0. 1million $

Journal entries

a) Impairment Loss A/c Dr 0. 1 M $

To Land A/c 0. 1M$

(Being the imparment loss created )

b) Profit and Loss A/c Dr 0. 1 M $

To Land A/c 0. 1M$

Note: Land not a depreciable asset so in this anwer depreciation is not a part

2) There are 2 conditions of financial assets classification on Fair Value of assets,

1. Entity\'s business model for managing the financial assets

2. Contractual cash flow characteristics of financial assets

5% Share is a financial assets because Any equity instrument of another entity is a financial assets.