Romel (Pty) Ltd Case Study - Accounting & Finance Assignment Help

Assignment Task

QUESTION ONE
Read the following scenario and answer the questions that follows:
Romel (Pty) Ltd is a company that started operating on 1st January 2019 and has its year end on 31 December each year. The company`s head office is in Pretoria. It also owns land and buildings in North West Province which was purchased for R 300 000. The land and buildings are leased to tenants under an operating lease for R 50 000 per annum.

Required:
1.1 Identify whether leased land and building can be recognized as an investment property under IAS 40.
HINT: Start by identifying whether it can be recognized as an asset or not.
1.2. Journalize the purchase of Land and Buildings on 31st December 2019 and the rental received in the same year.
1.3. Lawrence Electronics Ltd (LE Ltd) classified a patent as held for sale on 30 June 2010 (its yearend) as it had met all the criteria for classification as held for sale on that date. The patent had a carrying amount and fair value less costs to sale of R960 000 at year end, an original cost of R1 600 000 and aromatization on the item is written off at 20% per annum on the straight- line bases with no residual value expected at any time in the future.
Due to a change in patent rights promulgated on 1 April 2011, Lawrence Electronics Ltd (LE Ltd) decided to no longer dispose of the patent and as a result the asset had to be reclassified. The recoverable amount of the asset under consideration amounted to R700 000 on 1 April 2011 and its useful life on that date was 2.25 years.

REQUIRED
Calculate the carrying amount at which the patent should be reinstated on 1 April 2011 due to the decision to no longer sell the asset, the adjustment to the carrying amount, as well as the applicable amortization for 2011. Also state under which section in the statement of profit or loss and other comprehensive income the adjustment to the carrying amount should be reflected.

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