Fixed assets

Raven fixed production

product line cost £8m 1 May 20x2 depreciated on straight line basis over 10years nil residual value

• asset revalued on 30 Apr 20x5 to £6.3m

• Imp review of asset 30 Apr 20x8 - FV less cost to sell £2.6m

• VIU £2.8m so no impairment was realised

10 year life but 3 years gone so 7/10 so

• 8m*7/10=£5.6m

• The asset revalued £6.3m

• The difference is £700k relating to the production line forms the revaluation reserve

• From the revalued amount £6.3m, a further 3 years’ depreciation (of the 7-year remaining life) have passed: £6.3m × 4/7 = £3.6m

• Recoverable amount higher than the FV less cost to sell £2.6m and VIU of £2.8m

• So the CA-VIU = £800k

• This is offset against the £700k in revaluation reserve and the balance goes to the P&L

• DR reval reserve 700k DR P&L £100k and CR PPE 800k

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Shortage of cash - sell the admin building for ££10m its FV on 1 May 20x7 leasing it back immedi from buildings new owners for 10 years - not have option to buy back the building

• Carrying amount before sale £7m - transaction qualifies as sale

• REceipt of cash £10m on 1 May 2x07 - DR cash CR suspense

• Building leaseannual rental payment £540k payment in arreras every 30 Apr

• 1st payment made on 30 Apr 20x8 was DR to rental expenses which is annual market rate of lease of building

• Expects continue to occopy the building remaining UEL 50 years for next 10 years

• interest 5%

First is the carrying amount is 7m and selling price is £10m so the gain is £3m

• calculate the lease liability of PV (5%,10 years, -540k nper,0,)=£4,169,880

• Working out the ROU = CA * pV/FV = 7m * 4.2m/10m =£2.9m

• Depreciation of 10 yrs = 2.9m/10=£290k per year DR depreciation CR ROU

• Gain of 3m is split into realised immediately and deferred

  • Gain that is deferred is Gain *pv/FV = £1.25m

  • REmaining is £3m-1.25=£1.75m which is the recognised gain.

• The journal is

  • DR cash £10m

  • DR ROU £2.9m

  • CR PPE CA 7m

  • CR lease liabolity £4.2m

  • CR gain £1.75m

• And then lease liability is amortised:

  • b/f PV is £4.2m

  • Interest 5% = 208k

  • Cash paid (540k)

  • Gives c/f £3.8m

• Journal is DR finance cost £208k, CR cash £540k and difference is lease liablity £331k

• 20x8 = 3.8m

• Interest is 5% =£192k

• Cash paid (540k)

• c/f £3.4m

  • Current liabilty is 540k-192k=£348k

  • Non current liablity is £3.4m