College of Administrative and Financial Sciences
Assignment 3
Deadline: 30 /04/ 2022 @ 23:59
Course Name: Financial Accounting
Course Code: ACCT 201
Semester: 2
Academic Year: 2020 - 21
For Instructor’s Use only
Student’s Name:
Student’s ID Number:
CRN:
Instructor’s Name:
Students’ Grade: …… /10
Level of Marks: High/Middle/Low
nstructions – PLEASE READ THEM CAREFULLY
 The Assignment must be submitted on Blackboard (WORD format only) via
allocated folder.
 Assignments submitted through email will not be accepted.
 Students are advised to make their work clear and well presented, marks may be
reduced for poor presentation. This includes filling your information on the cover
page.
 Students must mention question number clearly in their answer.
 Late submission will NOT be accepted.
 Avoid plagiarism, the work should be in your own words, copying from students
or other resources without proper referencing will result in ZERO marks. No
exceptions.
 All answered must be typed using Times New Roman (size 12, double-spaced)
font. No pictures containing text will be accepted and will be considered
plagiarism).

Submissions without this cover page will NOT be accepted.
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Assignment Question(s): Marks 10
Chapters covered 11, 12, 13 & 14
Q1. Presented below are the components related to an office building that ABC Company is
considering purchasing for SAR10, 000,000.
Component
Useful Life
Value
Building structure
60-year life
5,400,000
Building engineering
30-year life
2,400,000
Building external works
30-year life
900,000
Instructions: ( 2 marks)
(a) Compute depreciation expense for 2010, assuming that ABC uses component
depreciation.
(b) Assume that the building engineering was replaced in 20 years at a cost of SAR
2,600,000 cash. Prepare the entry to record the replacement of the old component with
the new component.
Answer:
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Q2. a. Explain impairment of long-lived tangible.
b. The accountant of X. Ltd conducted an impairment test on a machinery. The carrying amount
of machinery was SAR 195,000, its fair value less costs to sell is SAR 170,000, and its value-inuse is SAR 165,000. Is there impairment or no impairment on machinery? If impairment exists
what would be the journal entry. (2 Mark)
Answer:
a. An impairment loss is recognized on a long-lived asset if its carrying amount is not recoverable
and exceeds its fair value. The carrying amount is not recoverable when it exceeds the sum of
the undiscounted cash flows expected to result from use of the asset over its remaining useful
life and final disposition.
b.
Carrying value of machinery = 195,000
Fair value less cost to sell = 170,000
Value in use = 165,000
Recoverable value = Higher of Fair value and value in use (170,000 and 165,000)
Recoverable value = 170,000
So, impairment loss = carrying value = Recoverable value = 195,000 – 170,000 = 25,000
The journal entry would be :Impairment loss account
Machinery account
Dr.
25,000
Cr.
25,000
Q3. List the classified Intangible Assets with examples. (2 Marks)
Answer
An intangible asset is a non-physical asset having a useful life greater than one year.
Examples of intangible assets are noted below.
Marketing-Related Intangible Assets
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Trademarks
Newspaper mastheads
Internet domain names
Noncompetition agreements
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Customer-Related Intangible Assets
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Customer lists
Order backlog
Customer relationships
Artistic-Related Intangible Assets
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Performance events
Literary works
Musical works
Pictures
Motion pictures and television programs
Contract-Based Intangible Asset
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Licensing agreements
Service contracts
Lease agreements
Franchise agreements
Broadcast rights
Employment contracts
Use rights (such as drilling rights or water rights)
Technology-Based Intangible Asset
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Patented technology
Computer software
Trade secrets (such as secret formulas and recipes)
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Q4. a. Explain provisions and its types with IFRS requirements.
A provision can be a liability of uncertain timing or amount. A liability, in turn, is a present
obligation of the entity arising from past events, the settlement of which is expected to result in
an outflow from the entity of resources embodying economic benefits.
Though it is often thought to be a form of savings, a provision should not be considered as such.
Examples of common provisions are: income tax liability, product warranty, environment
restoration, etc.
b. On January 1, 2020, an Oil Company erected an oil platform in the Gulf of KSA. Oil
Company is legally required to dismantle and remove the platform at the end of its useful life,
estimated to be five years. Oil Company estimates that dismantling and removal will cost SAR
3,000,000. Based on a 10 percent discount rate, the fair value of the environmental liability
estimated to be SAR 1,862,760 (3,000,000 x .62092).
Pass entry in books of Oil Company to records this liability on Jan. 1, 2021. Using the straightline method, record entry to be expensed. (2 Marks)
Answer:
Date
Jan.1
December 31
December 31
Transaction
Driling platform
Asset retirement obligations
Depreciation expense (1,862,760/5years)
Accumulated depreciation
Interest expense (1,862,760 * 10%)
Asset retirement obligations
Debit
1,862,760
Credit
1,862,760
372,592
372,592
186,276
186,276
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Q5. Assume that a Financial Corporation issued SAR 500,000 of 8% term bonds on January 1,
2021, due on January 1, 2026, with interest payable each July 1 and January 1. Investors require
an effective-interest rate of 6%. Is, the bond issued at a premium or discount? Calculate the bond
proceeds and pass journal entry to on date of issue, Jan. 1, 2021 and to record first payment and
amortization of the premium on July 1, 2021. (2 Marks)
Note: PV of principal amount at 6% is 0.74409 and PV of interest amount at 6% is 8.53020
Answer
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College of Administrative and Financial Sciences