Question 2 a On 1 July 2014 Cooper plc entered into a 5 mill

Question 2 a) On 1 July 2014, Cooper plc entered into a £5 million contract for the supply of computer hardware and five years of after-sales support. The cost of providing after-sales support is estimated at £500,000 per annum and the mark-up on similar after-sales only contracts is 30% on cost (i.e. cost + 30% mark-up). On 1 September 2014, Cooper plc received the £5 million for this contract and recognised the full amount as revenue in its income statement for the year ended 31st December 2014 Explain why the revenue recognition approach adopted by Cooper plc is not appropriate. Describe the correct revenue recognition approach and calculate the revenue that should be recognised in each accounting period until the end of the contract. 10 marks b) Rookie plc, a company with a 31st Dec year-end, had the following general borrowings in place at the beginning and end of 20X6 1 January31 December 20X6 20X6 120 10% Bank loan repayable 20X8 | 9.5% Bank loan repayable 20X9 120 80 80 On 1 March 20X6, Rookie plc began construction of a qualifying asset, a piece of machinery for a hydro-electric plant, using existing borrowings. Expenditure drawn down for the construction was £30million on 1 March 20X6 and £20million on 1 October 20X6 Calculate the amount of borrowing costs that can be capitalised for the hydro-electric plant machine (and clearly show your workings). 4 marks c) Explain which 2 criteria must be met by non-current assets in order for them to be classified as \"Held for Sale\", according to IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations. In addition, explain how Non-current Assets Held for Sale should be measured and presented on the Statement of Financial Position. 6 marks

Solution

Q.2.(c) In general. the following conditions must be met for an asset (or disposal group) to be classified as held for sale:

Non-current Assets held for sale are measured at the lower carrying amount and fair value less costs to sell, and are presented separately in the statement of financial position. Specific disclosures are also required for discontinued operations and disposals of non-current assets.