l.l.Nhyiraba Limited lease a building worth R4 million to Quintin Limited under an operating lease for 10 years. During the period. Quintin Limited decided to buy the building at the end of the lease period of which no proper documentation and agreement were reached between the two companies. Identify how Nhyiraba Limited will recognize the building under IAS 40 and give reasons for your answer (10)
1.2. KK Limited owns a property that is used as its head office in Pretoria. On 1- January 2020, its carrying value was R20 million and Its remaining useful life was 20 years. On 1” July 2020, the business recognized cheaper premises found for use as the head office. It was therefore decided to lease the property under an operating lease. The property was valued by a qualified professional who assessed the propertys value as R21 million on 1“ July and R21.6 million on 31- December 2020. Explain the accounting treatment of the property In the financial statements for the year ended 31- December 2020. (Hint: Income statement and SOFP extract Including calculations). (40)
2.1. Nyhiraba Limited purchased an asset on 1- January 2015 for an amount of R5 million. The asset has an economic useful life of 10 years for which the company uses to generate operational Income. On 1st July 2018, the assets fair value was R3.8 million, and the cost to sell was estimated at R800.000. The assets value in use on that date was valued at R2.95 million. Determine whether the asset is impaired or not under IAS 36. Justify your answer with calculations and an explanation. (20)
NhyiraCapital Limited began research into the software it has used over a period. The software has been operational for the generation of economic benefits over the years. The company decided to research the development of the software. The company assigned four researchers who were paid R 10,000 in total for the period of the research. Transportation and feeding costs incurred in carrying out the research amounted to R4,000. The company further acquired four tablets with research software for R25.000 each to enable them to ascertain accurate findings.
The companys software is separately Identified and has a commercial value. The research was completed and there Is a need for developing the companys software. A development cost of R 125,000 was reliably measured and incurred. The economic useful life of the software was estimated to be 10 years from the date of completing its development. Show how the software and its related expenses are to be capitalized In the financial statements under IAS 38. (20)