Costs of conversion of finished goods In 01, entity E started the production of product P. The production of P required direct materials of CU 100 and 10,000 hours in the cost unit “manufacturing” in 01. The following additional information is given (in CU): Material cost center Production cost center Direct materials 1,000 Direct labor 1,250 Various overheads 600 2,500 60% of the costs presented […]

Costs of purchase – financing element Entity E purchases merchandise on Nov 01, 01. Delivery takes place on the same day. In the case of (normal) deferred settlement terms of one month, the purchase price would be CU 200. However, E and its supplier stipulate that payment has to be made on Nov 30, 02, but at an amount of CU 212 (CU 200 plus […]

Measurement of merchandise On Dec 31, 01, entity E owns 100 units of merchandise M. The purchase took place on Oct 15, 01. Settlement in cash and delivery took place on the same date. The costs of purchase were CU 1 per unit. On Dec 31, 01, the net realizable value amounts to CU 0.9 per unit. On Jul 10, 02, 90 units of M […]

Introductory example – gain on disposal of an item of property, plant, or equipment On Dec 31, 01, entity E sells a machine for CU 10. Payment is effected in cash on the same day. On the same day, the machine”s carrying amount is CU 9. This results in the following entry in which the gain on disposal is recognized on a net basis (IAS […]

Preparation of a statement of cash flows Entity E”s statement of financial position as at Dec 31, 01 is presented as follows: ASSETS Dec 31, 01 Dec 31, 00 EQUITY AND LIABILITIES Dec 31, 01 Dec 31, 00 (a) Building 1 290 0 (e) Share capital 260 160 (h) Building 2 0 40   Profit for year 40 0 (c)                  Truck 20 0 (c) […]

Interest, issue, and redemption of a bond On Jan 01, 01, entity E issues a bond. On the same day, E receives CU 100 for issuing the bond. No interest is explicitly stipulated. However, E has to pay CU 121 on Dec 31, 02 in order to settle its obligations under the bond. E measures the bond at amortized cost, i.e. according to the effective […]

Acquisitions and disposals of subsidiaries On Dec 31, 01, entity E acquires 100% of the shares of entity S1 (which is free of debt) for CU 11. Payment is effected in cash on the same day. On the acquisition date, the fair values of S1″s assets are as follows: Machines 3 Buildings 2 Finished goods 3 Cash and cash equivalents 2 Goodwill 1 Purchase price […]

Scope of the principle of consistency (a) Useful life of a wind-driven power station of entity E was initially estimated to be 16 years. When preparing the financial statements for a later period, it turns out that repairs are necessary more often than originally expected and that there are more down times than previously expected. (b) Contingent liabilities are disclosed in the notes unless the […]

Changes in accounting estimates (a) On Jan 01, 01, entity E acquired a machine (property, plant, and equipment) for CU 100 that was available for use on the same date. The machine”s useful life was originally estimated to be 10 years. At the end of 05 it becomes clear that the entire useful life of the machine is eight years instead of 10 years due […]

A company is making a study of the relative profit-ability of the two products A and B in addition to direct costs, indirect selling and distribution costs to be allocated between the two products, which are provided as follows: Insurance coverage for inventory (finished) 78,000 Storage costs 1,40,000 Packing and forwarding charges 7,20,000 Salesman salaries 8,50,000 Invoicing costs 4,50,000 Other details are given here: Product […]