DipIFR Syllabus D. Preparation of external financial reports - Joint Ventures - Past Papers ^{2 / 2}

Delta is an entity which prepares financial statements to 31 March each year. Each year, the financial statements are authorised for issue on 25 May. The following events have occurred which are relevant to the year ended 31 March 2017:

Event (b)
On 1 April 2016, Delta entered into a joint arrangement with entity Y to jointly operate a delivery depot. Entity Y is located, and has major customers in, the same geographical region as Delta. Delta and entity Y each made the following payments in respect of the arrangement on 1 April 2016:

– $25 million each to purchase a joint 25-year leasehold interest in a depot which was close to both Delta and entity Y’s business premises. This depot was to act as headquarters for the delivery vehicles (see below).

– $7·5 million each to purchase a fleet of delivery vehicles. The vehicles have an expected useful life of five years, with no expected residual value.

Delta and entity Y agreed to jointly use the delivery vehicles to deliver products to their customers, and to share the operating costs of the depot equally. Any delivery charges to customers were levied by Delta and entity Y directly at the discretion of the individual entities. During the year ended 31 March 2017, the total cash cost of operating the depot was $8 million. This was paid equally by Delta and entity Y. In the year ended 31 March 2017, Delta charged its customers a total of $2 million in delivery charges. (7 marks)

Required:
Explain and state (where possible by quantifying amounts) how the three events would be reported in the financial statements of Delta for the year ended 31 March 2017.

Note: The mark allocation is shown against each of the three events above. You should assume that all amounts described here are material.

Delta is an entity which prepares financial statements to 31 March each year. Each year the financial statements are authorised for issue on 20 May. The following events are relevant to the year ended 31 March 2016:

Event (b)
On 1 August 2015, Delta supplied some products it had manufactured to customer C. The products were faulty and on 1 October 2015 C commenced legal action against Delta claiming damages in respect of losses due to the supply of the faulty products. Upon investigating the matter, Delta discovered that the products were faulty due to defective raw materials supplied to Delta by supplier S. Therefore on 1 December 2015, Delta commenced legal action against S claiming damages in respect of the supply of defective materials. Since that date Delta has consistently estimated that it is probable that both of the legal actions, the action of C against Delta and the action of Delta against S, will succeed.

On 1 October 2015, Delta estimated that the damages Delta would have to pay to C would be $5 million. This estimate was updated to $5·2 million as at 31 March 2016 and $5·25 million as at 15 May 2016. This case was eventually settled on 1 June 2016, when Delta was required to pay damages of $5·3 million to C.

On 1 December 2015, Delta estimated that they would receive damages of $3·5 million from S. This estimate was updated to $3·6 million as at 31 March 2016 and $3·7 million as at 15 May 2016. This case was eventually settled on 1 June 2016, when S was required to pay damages of $3·75 million to Delta. (6 marks)

Required:
Explain and show (where possible by quantifying amounts) how the three events would be reported in the financial statements of Delta for the year ended 31 March 2016.

Note: The mark allocation is shown against each of the three events above. You should assume that all amounts described here are material. When discussing event (a), you are not required to consider disclosure requirements.

Delta is an entity which prepares financial statements to 31 March each year. The functional currency of Delta is the $. During the year ended 31 March 2013 the following events occurred:

(b) On 1 April 2012, Delta began joint construction of a pipeline with another investor. Delta and the other investor have signed a contract that provides for joint operation and ownership of the pipeline. All of the ongoing expenditure, comprising maintenance plus borrowing costs, was to be shared equally. The pipeline was completed on 1 October 2012. It was first used on 1 January 2013, at which date its estimated useful economic life was 20 years. The total cash cost of constructing the pipeline was $40 million. This cost was partly financed by a loan of $10 million taken out on 1 April 2012. The loan carries interest at an annual rate of 10% with interest payable in arrears on 31 March each year. Between 1 January 2013 and 31 March 2013, it was necessary to spend $400,000 on maintenance costs. (7 marks)

Required: 
Explain and show (where possible by quantifying amounts) how the three events would be reported in the financial statements of Delta for the year ended 31 March 2013.

Note: The mark allocation is shown against each of the three events above.