lOMoARcPSD|36630272
IFRS 5- Non-current assets Held for sale ^0 Discontinued
Operations Question Bank
Specific Financial Reporting (University of South Africa)
, lOMoARcPSD|36630272
CHARTERED ACCOUNTANTS ACADEMY
FINANCIAL ACCOUNTING & REPORTING DEPARTMENT
CERTIFICATE OF THEORY IN ACCOUNTING
IFRS 5- NON-CURRENT ASSETS HELD FOR SALE &
DISCONTINUED OPERATIONS
Contents
QUESTIONS........................................................................................................................................................ 2
SERGEANT LIMITED ....................................................................................................................................... 2
ESCAPE LIMITED ............................................................................................................................................ 8
SENSEI LIMITED ........................................................................................................................................... 17
LOOKATYAR LIMITED................................................................................................................................... 20
, lOMoARcPSD|36630272
QUESTIONS
SERGEANT LIMITED
Sergeant Limited is a manufacture of sophisticated military weapons. The company has been flourishing in
recent years due to exclusive supply contracts with the South African National Defence Force (SANDF).
Apart from these contracts, Sergeant has supply contracts with the government of Botswana and Namibia
(these are much smaller in sales value compared to those with the SANDF).
Unexpectedly, on 1 October 20X6 (during the financial year), the South African government signed an
international peace treaty that requires it to reduce its weapon supply. This is expected to significantly
reduce the demand for Sergeant’s weapons from the SANDF.
Sergeant Limited has only one item of plant which was purchased for C3 312 000 on 2 January 20X4.
Management held a meeting on 20 October 20X6 to discuss the possibility that plant should be sold. It was
agreed that the plant should be sold, as the company would be unable to obtain additional supply
contracts in the near future. It was also agreed that international expansion would be inappropriate due to
cash constrains. However, management was unable to agree on a suitable selling price.
A subsequent meeting was held on 2 January 20X7 in which management reach agreement on the selling
price and a task team was immediately appointed to find a suitable buyer. It was agreed that the plant
would be marketed at its fair value of C1 545 600.
The value of the plant were as follows:
Fair value Costs to sell Value in use
C C C
01 October 20X6 1 545 600 82 800 1 614 600
20 October 20X6 1 545 600 95 600 1 200 000
02 January 20X7 1 545 600 110 400 1 104 00
The following details apply to the measurement of the plant:
• The plant is measured under the cost model
• Depreciation is calculated on the straight-line basis
• Useful life: 8 years
• Residual value: nil
• These variables of depreciation have remained unchanged since date of purchase.
Due to uncertainty over how the treaty would affect the weapons industry, there were initially no offers
made to purchase the plant until early June 20X7, the last month of the financial year, when a number of
Asian countries announced that they would not be signing the treaty.
The offers received after this announcement ranged from a low of C1 126 300 to the highest bid of C1 766
400, which was received on 29 June 20X7 from an Asian weapons manufacture. If the Sergeant Limited
accepts this latter offer, the selling costs would only be C55 200, being the delivery costs as the Asian
purchasing company has agreed to pay the legal bills for the drafting of the sales agreement.
, lOMoARcPSD|36630272
Required MARKS
A. Discuss how the plant must be recognised and measured in Sergeant 10
Limited’s financial statements for the year ended 30 June 20X7.
1
Communication: Logical Flow
IFRS 5- Non-current assets Held for sale ^0 Discontinued
Operations Question Bank
Specific Financial Reporting (University of South Africa)
, lOMoARcPSD|36630272
CHARTERED ACCOUNTANTS ACADEMY
FINANCIAL ACCOUNTING & REPORTING DEPARTMENT
CERTIFICATE OF THEORY IN ACCOUNTING
IFRS 5- NON-CURRENT ASSETS HELD FOR SALE &
DISCONTINUED OPERATIONS
Contents
QUESTIONS........................................................................................................................................................ 2
SERGEANT LIMITED ....................................................................................................................................... 2
ESCAPE LIMITED ............................................................................................................................................ 8
SENSEI LIMITED ........................................................................................................................................... 17
LOOKATYAR LIMITED................................................................................................................................... 20
, lOMoARcPSD|36630272
QUESTIONS
SERGEANT LIMITED
Sergeant Limited is a manufacture of sophisticated military weapons. The company has been flourishing in
recent years due to exclusive supply contracts with the South African National Defence Force (SANDF).
Apart from these contracts, Sergeant has supply contracts with the government of Botswana and Namibia
(these are much smaller in sales value compared to those with the SANDF).
Unexpectedly, on 1 October 20X6 (during the financial year), the South African government signed an
international peace treaty that requires it to reduce its weapon supply. This is expected to significantly
reduce the demand for Sergeant’s weapons from the SANDF.
Sergeant Limited has only one item of plant which was purchased for C3 312 000 on 2 January 20X4.
Management held a meeting on 20 October 20X6 to discuss the possibility that plant should be sold. It was
agreed that the plant should be sold, as the company would be unable to obtain additional supply
contracts in the near future. It was also agreed that international expansion would be inappropriate due to
cash constrains. However, management was unable to agree on a suitable selling price.
A subsequent meeting was held on 2 January 20X7 in which management reach agreement on the selling
price and a task team was immediately appointed to find a suitable buyer. It was agreed that the plant
would be marketed at its fair value of C1 545 600.
The value of the plant were as follows:
Fair value Costs to sell Value in use
C C C
01 October 20X6 1 545 600 82 800 1 614 600
20 October 20X6 1 545 600 95 600 1 200 000
02 January 20X7 1 545 600 110 400 1 104 00
The following details apply to the measurement of the plant:
• The plant is measured under the cost model
• Depreciation is calculated on the straight-line basis
• Useful life: 8 years
• Residual value: nil
• These variables of depreciation have remained unchanged since date of purchase.
Due to uncertainty over how the treaty would affect the weapons industry, there were initially no offers
made to purchase the plant until early June 20X7, the last month of the financial year, when a number of
Asian countries announced that they would not be signing the treaty.
The offers received after this announcement ranged from a low of C1 126 300 to the highest bid of C1 766
400, which was received on 29 June 20X7 from an Asian weapons manufacture. If the Sergeant Limited
accepts this latter offer, the selling costs would only be C55 200, being the delivery costs as the Asian
purchasing company has agreed to pay the legal bills for the drafting of the sales agreement.
, lOMoARcPSD|36630272
Required MARKS
A. Discuss how the plant must be recognised and measured in Sergeant 10
Limited’s financial statements for the year ended 30 June 20X7.
1
Communication: Logical Flow
