Reference no: EM132977782

Question: The managing director of Sky Ltd approached you for advice regarding the following issues: A. Sky Ltd has been in business for a number of years and has established a portfolio of loyal customers. The managing director wants to include this portfolio of customers in the statement of financial position as intangible asset, as is of the opinion that Sky Ltd is worth more than is reflected by the company's current net asset value. B. Market research has indicated that there is a need for a shocking device that can be used for self-defence. Two prototypes were developed during the year at a cost of R 65 000. A final choice between the two prototypes will be made early in the next financial year. The managing director wants to capitalize the R65 000 as an asset. C.R 90 000 was spent during the current financial year to generate a trademark internally. It is expected that the benefits from the trademark will flow to the entity over a period of 10 years.

The company therefore wants to capitalize the trademark and amortise it over 10 years. D. Early in the current year a new production process was brought into use. Personnel were trained for three months to operate the new system. The total training expenditure amounted to R 50 000. The new system will be in use for at least 6 years, and therefore the company wants to capitalize the training expenditure and amortise it over 6 years. E. Advertisement costs amounting to R 35 000 were incurred during the year (radio and television advertisements). The objective of these advertisements was to introduce to the public two new product of Sky Ltd. It is expected that the demand for these products will last for approximately 4 year. As the economic benefits will flow to the entity over a 4 year period, the managing director wants to capitalize the advertisement costs and amortise it over 4 years. Required: Indicate in each of the mentioned cases whether or not the relevant cost may be capitalized. Motivate your answer in accordance with the requirements of statements of Generally Accepted Accounting Practice. Assume all amounts to be material.

Armstrong Limited commenced with the manufacturing of wood products in 2012 at a new plant and is a registered VAT vendor in the Republic. The plant was purchased on 1 January 2012 for R798 000. During January 2012, some equipment was installed and other equipment was modified. Installation and modification costs incurred amounted to R148 200. For security reasons a fence was erected at the plant at the cost of 22 800. The plant was ready for use on 1 February 2012. An opening function was held in the plant on 15 February 2012 at a cost of 57 000 in order to entertain customers and to introduce the new product to be manufactured at this pant. Production only started on 1 March 2012.

The plant has a useful life of 10 years and the residual value was estimated at R200 000 excluding VAT. Expected scrapping costs amount to R140 000 (discounted present value of scrapping costs equals R100 000) excluding VAT. Assume that the provision for the scrapping costs shall be raised in accordance with IAS37. At the end of August 2012, heavy rain caused severe damage to the houses of the employees in the region. Management granted special leave to all the employees of the plant, to attend to the repair of their houses. The plant stood idle during September 2012. The company's year-end is 31 December. All amounts are inclusive of VAT unless otherwise stipulated

Required:

1 Calculate the cost of the plant

2 Calculate the depreciable amount of the plant

3 Calculate depreciation for the year ended 31 December 2012

4 Calculate the carrying amount of the plant at 31 December 2012.