ACT B811F (2023 Summer) Assignment 1

Due date: 28 June 2023

Instructions: This is an individual assignment. Word limit: 1,500. Answer all questions.

Assignment Submission

As a mechanism to maintain academic integrity, please observe the following instructions of assignment submission:

i. Submission of assignment

1. The assignment must be word-processed and submitted through OLE as a single, MS Word document. No paper copies are required.

2. You can access the submission link through the course’s webpage on OLE.

3. Please take care to ensure that you have fully submitted your work through the submission

link on OLE (i.e. make sure you have clicked the SUBMIT button). Please only submit

once.

4. Students MUST keep a copy of the electronic file of their submission.

5. A set of marking rubric (for discussion based questions only) is provided in this file.

6. University policy will apply in cases of copying, plagiarism or other methods by which

students have obtained an unfair advantage.

ii. Late submission

10% of the marks awarded to the assignment will be deducted for each day it is overdue.

iii. Plagiarism

Checks will be made on your work using anti-plagiarism software and approved plagiarism checking websites. It is important that you correctly acknowledge someone else’s writing, thoughts or ideas and that you do not attempt to pass this off as your own work. Doing so is known as plagiarism. It is not acceptable to copy from another source without acknowledging that it is someone else’s writing or thinking. This includes using paraphrasing as well as direct quotations. You are expected to correctly cite and reference the works of others.

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Cost

Question 1 (25 marks)

In general terms, fair value refers to the market price of an asset or a liability. Some people have the view that all the items in the financial statements should be prepared based on fair value. Discuss to what extend you agree with the above opinion. Support your views with reference to The Conceptual Framework of Financial Reporting and examples.

Question 2 (35 marks)

According to the annual report of 2020 of Cathay Pacific Airway (Stock code: 0293), there is an item in the consolidated statement of profit or loss and other comprehensive income called “Impairment and related charges” which was over HK$4,000 million.

Required:

a. With reference to the appropriate accounting standards and the annual report of Cathay Pacific Airway, explain the rationale behind for reporting this item. Identify and explain the impairment indicators for each affected asset.

b. Discuss and explain the key financial reporting issue in assessing the amount of impairment. Assume that you are the compliance manager of Cathay Pacific Airway to review the amount of impairment prepared by the Finance Department, advise the management how you would validate the amount and what further information you would need.

Question 3 (40 marks)

Good Game Ltd (“GG Ltd”) is a running a computer game business in Hong Kong. its non-current assets as at 31 December 2021 and 2022 were:

 Office ($’000)

Cyber game centre ($’000)

Equipment ($’000)

  As at 31 December 2021

As at 31 December 2022

Fair value 73,000 59,000 620

Details of

Total ($’000) 141,500

111,300

Accumulated depreciation/ amortization

Carrying amount

60,000

(15 marks)

(20 marks)

      (8,000)

  52,000

80,000

(22,000)

58,000

1,500

(200)

1,300

(30,200)

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Additional information:

Office

The office had been used by GG Ltd as back office. From 1 November 2022, the office was let to GG Ltd’s subsidiary HH Company and charged $100,000 each month. The fair value of the Office on 1 November 2022 was $70 million. Certain building management services such as day-to-day cleaning and security were provided.

Cyber game centre

The game centre covers an area of 6,000 square feet and had been operated by GG Ltd for many years. The area of the game centre could not be sold separately. The business of cyber game had not been growing as expected due to fierce market competition.

On 1 May 2022, GG Ltd decided to let the game centre to an unrelated company Pineapple Limited which sells smart phones, computer hardware and software. Meanwhile, GG Ltd retained 100 square feet for selling its own game products. The fair value of the game centre on 1 May 2022 was $60 million.

GG Ltd adopts cost model for its property, plant and equipment and intangible assets whereas fair value model for investment property. Depreciation is calculated based on 5% per annum based on cost for the office, the game centre and the equipment. It requires full-month depreciation and no depreciation is necessary for the month when the asset is derecognized.

 Required:

a. For the year ended 31 December 2022, identify the nature of the following properties from the perspectives of GG Ltd and the group that it belongs to, if applicable. In addition, explain the accounting treatments with reference to appropriate Hong Kong Accounting Standards.

(i) Office

(ii) Cyber game centre

b. Determine the carrying amount of each of the non-current assets of GG Limited as at 31 December 2022.

c. Prepare an extract of financial statements of GG Limited as at 31 December 2022.

[End of Assignment 1]

(8 marks) (8 marks)

(9 marks)

(15 marks)

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