Question 1 a. Please explain in detail some arguments for, and some arguments against the harmonization and adoption of IFRS by HKICPA.

ABC Ltd. began trading on 1 January 2016 with capital of $200,000, all of which was immediately spent on buying inventories. On 31 January 2016, 75% of the inventories were sold for $237,500 in cash. There were no other transactions in January 2015.

The consumer price index was 100 on 1 January 2016 and became 105 on 31 January 2016. The specific price index applicable to the ABC Ltd's inventories was 100 on 1 January 2016 and 107 on 31 January 2016.

Determine the profit of ABC Ltd for January 2016 using two financial capital maintenance methods and physical capital maintenance. Show your workings.

Question 2: Using applicable HKFRS and Conceptual Framework of Financial Reporting, explain why impairment is more appropriate than amortize purchased goodwill.

State with reasons, how the following expenditure would be dealt with in the financial statement that can satisfy the requirements of HKAS 38: $500,000 on development of a new high speed motor, which, in the opinion of a company has an assured and profitable market. Work has been suspended pending the development of a new material suitable for the construction of the motor. $20,000 spent on a joint project with OUHK investigating the use of material Y for the storage of nuclear waste.

Question 3: Betty Ltd is a running a video on demand (VOD) business in Hong Kong. Details of Betty Ltd's non-current assets at 31 December 2014 before revaluation were:

Additional information:

The land and office building were revalued on 31 December 2009 with $160m attribute to the land and $400m to the office building. At that date, the estimated remaining life of the office building was 25 years. A further revaluation was performed on 31 December 2014 when the land and office building were valued at $170m and $360m respectively. The remaining estimated life of the office building on that date was 20 years.

The studio is depreciated at 10% per annum on cost. On 1 July 2015, a new studio costing $90m was acquired. In addition, the new studio cost $10m for renovations and improvements. All studios are less than four years old.

The broadcasting license was bought from the government on 1 January 2013 and the license is valid for 10 years. In December 2015, a market survey on VOD in Hong Kong showed that VOD was not popular among Hong Kong citizens. Betty Ltd estimated that recoverable amount of the license at 31 December 2015 was only $200m.

• There was no disposal of non-current assets in 2015.
• Prepare extracts of the statement of financial position relating to Betty Ltd's non-current assets as at 31 December 20
• Prepare accounting journal entries as your workings.
• Explain the usefulness of the disclosures of non-current assets in financial statements to the lenders and shareholders of Betty Ltd.

Question 4

Explain why it is not generally appropriate to charge depreciation in relation to investment properties under HKAS.

Iron Ltd purchased a vacant office building at cost of $3m on 1 July 2014. The estimated useful life of this building was 20 years on that day. Iron Ltd wanted to develop the property and to let the various floors to different tenants. $0.6m was spent over the next six months on renovations. The building was ready for tenant occupation on 1 December 2014. The valuation of the building on 31 December 2014 was $4m. However, due to unforeseen difficulties in getting tenants, the building was remained unoccupied on 31 December 2014.

The property market declined in 2015. On 31 March 2015, the valuation of the office building was only $3m. Iron Ltd relocated its headquarters to this building and occupied 50% of the spaces of this building. The remaining space of this building was eventually rented to four tenants by 31 December 2015.

Assume Iron Ltd uses fair value model for its investment property and cost model for it property, plant and equipment, explain with reference to relevant HKASs, the accounting treatment of the property transaction taken place in 2014.