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Dec 2022 Question 4.. Part C

AMK Pte Ltd entered a lease contract for a CNC machine with an initial payment and annual payments over four years, with asset title transferring at lease end. Due to reduced demand, the estimated useful life of the machine was adjusted, and it was later destroyed by fire, with potential insurance claims and liabilities pending. The document outlines required journal entries, treatment of subsequent events, and qualitative characteristics of financial statements as per relevant accounting standards.

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3 views2 pages

Dec 2022 Question 4.. Part C

AMK Pte Ltd entered a lease contract for a CNC machine with an initial payment and annual payments over four years, with asset title transferring at lease end. Due to reduced demand, the estimated useful life of the machine was adjusted, and it was later destroyed by fire, with potential insurance claims and liabilities pending. The document outlines required journal entries, treatment of subsequent events, and qualitative characteristics of financial statements as per relevant accounting standards.

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© © All Rights Reserved
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Question 4 – (a), (b) and (c)

On 1 January 20x5, AMK Pte Ltd (AMK) entered into a non-cancellable contract to
rent a CNC machine to manufacture handphone cases for its customer, a mobile
phone manufacturer. The terms of this contract provide for an initial payment of
$20,000 and an annual payment of $50,000 on 31 December for four years. Title of
asset is transferred to AMK at the end of the lease term.

The cost model is used to account for right-of-use assets, and AMK has decided to
adopt the straight-line method to compute depreciation and the total estimated useful
life is five years. AMK’s incremental borrowing cost is 5% p.a..

Due to a significant slump in demand for mobile phones during 20x6, AMK decided
that the total estimated useful life of the CNC machine would reduce to four years. As
of 31 December 20x6, AMK estimated the value in use of the CNC machine to be
$94,000. The fair value and cost of disposal as of the same date are $95,000 and
$2,000 respectively.

On 4 March 20x7, a fire broke out at AMK’s only factory and completely destroyed the
CNC machine. The damage was so serious that AMK may have to cease operations.
The machine was covered by insurance and AMK may be able to make a claim of
$110,000. However, AMK may be liable to repair the damages caused by the fire to
its neighbour’s premise, depending on the outcome of the police investigation on the
cause of the fire. The financial statements for the financial year ended 31 December
20x6 was authorised for issue on 19 April 20x7.

© 2022 Singapore Accountancy Commission Page 14 of 17


e-Exam Question 4 required:
Question
No

10 (a) Record the journal entries for AMK Pte Ltd relating to the CNC
machine from 1 January 20x5 to 31 December 20x6 in
accordance with SFRS(I) 16 Leases, SFRS(I) 1-16 Property,
Plant and Equipment and SFRS(I) 1-36 Impairment of Assets.
Ignore the effects of income tax arising from these transactions
and events. Show all necessary workings. Round your answers
to the nearest dollar. (12 marks)

11 (b) Describe how the events and/or transactions subsequent to 1


January 20x7 should be dealt with by AMK Pte Ltd, particularly
in accordance with SFRS(I) 1-10 Events after the Reporting
Period and SFRS(I) 1-37 Provisions, Contingent Liabilities and
Contingent Assets. No computations or journal entries are
required. (6 marks)

12 (c) List any THREE enhancing qualitative characteristics and


discuss any ONE fundamental qualitative characteristic of
financial statements in accordance with the Conceptual
Framework for Financial Reporting.
(5 marks)
(Total: 23 marks)

END OF PAPER

© 2022 Singapore Accountancy Commission Page 15 of 17

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