1. The essay requires 1500 words
2. In total it needs at least 12 references with Harvard style.
3. If answering the questions need to calculate, please do remember to write down the calculation process.
4. Below are two questions, please answer all of them.
5. I have attached the essay requirement doc, please read thoroughly.
6. I will email the support team about the lecture ppt, please read if needed.
This assignment consists of two questions.
Candidates should answer all parts of all questions.
Question 1 [50 marks] Worldwide Fuels, a public limited company, is preparing its financial statements for the
year ending 31 December 2020. The exhibits contain information relevant to the
Exhibit 1 – Construction of energy generating facility
On 1 February 2020 Worldwide Fuels started the construction of an energy generating
facility. The following costs were incurred during the construction:
Freehold land 1,500
Site preparation 725
Direct labour costs 8,250
Legal fees 1,000
General overheads 575
To aid construction of the energy generating facility, Worldwide Fuels issued a £10
million unsecured loan on 1 February 2020. The loan carried an interest rate of 15%
per annum and is repayable on 1 February 2025. On 30 June 2020, Worldwide Fuels
finalised the construction of the energy generating facility. The facility was brought into
use on 1 August 2020. The facility has an expected useful economic life of 30 years
and that will have no residual value at that date. Worldwide Fuels uses the straight-line method for calculating depreciation. Worldwide Fuels has a legal
decommission the facility at the end of its estimated useful life. The directors of
Worldwide Fuels estimated the costs of this decommissioning to be £32 million –
based on prices prevailing at 30 June 2050. At an appropriate discount rate the present
value of the cost of decommissioning the facility is £9 million.
Exhibit 2 – Research & Development
On 1 March 2020, Worldwide Fuels began a research project. The aim of the project
was to investigate ways of streamlining its production process. The initial costs of
setting up the project were £7 million. From 1 March 2020 to 31 May 2020 ongoing
project costs were £300,000 per month. On 1 June 2020, the project was considered
to be technically feasible and commercially viable and from this date project costs
increased to £750,000 per month. From 1 July 2020 to 31 August 2020, additional
£1,750,000 was spent for the design and construction of a pilot for the project. This
pilot is not capable of operating on a scale economically feasible for commercial
production. From 1 September 2020 to 1 December 2020, additional £430,000 were
also spent for testing of the pilot. The project was not completed till 31 December 2020.
Worldwide Fuels charged all the costs to complete the project to administrative
Exhibit 3 – Provision
At a recent board meeting, a director of Worldwide Fuels has the following questions:
“At 31 December 2020, Worldwide Fuels was engaged in a legal dispute
with a customer who alleged that Worldwide Fuels has supplied faulty
products that caused the customer an actual financial loss. The lawyers of
Worldwide Fuels consider that the consumer has a 70% chance of
succeeding in this action and that the likely outcome, should the customer
succeed, is that the customer will be rewarded damages of £1.5 million. The
directors of Worldwide Fuels believe that the fault in the products was
caused by the supply of defective components by one of the suppliers to
Worldwide Fuels. Worldwide Fuels has initiated legal action against the
supplier and considers that there is a 70% chance that Worldwide Fuels will
receive £910,000 of compensation from the supplier. I expected to see a
provision for legal claims based on the likelihood of the claims succeeding.
However, I also expected to see an equivalent asset in respect of amountsreceived from the supplier, is made in the notes to the financial statements.
How can it be the correct accounting treatment to include a liability but not
the corresponding asset, given the above facts?.”
“Worldwide Fuels operates profitably from a factory that it leases for five
years under an operating lease. At 31 December 2020, the market rent for
the factory is £800 per month while the monthly operating lease instalments
that we pay are £1,350 per month. I would have expected to see a provision
from the onerous contract in the consolidated statement of financial
a) Using Exhibit 1, show, with appropriate calculations, how the above events
would be reported in the financial statements of Alpha for the year ended 31
December 2020. Ignore the unwinding of the provision by the end of the year.
[10 Marks] b) Using Exhibit 2, discuss, with the reference to IAS 38: Intangible Assets, the
correct accounting treatment for all the costs incurred in relation to the research
project for the year ended 31 December 2020. (Hint: use the definitions of
“research” and “development”).
[20 Marks] (350 words).
c) Using Exhibit 3, provide answers to the queries raised by the director. You
should justify your answers with reference to relevant IFRS Standards.
Page 4 of 6
[20 Marks] (350 words)
Question 2 [50 marks] a) Discuss, with reference to the relevant literature, the impact of the treatment of
R&D expenditure under IAS 38 on the quality of the accounting information.
[25 Marks] (400 words)
b) Discuss, with reference to relevant IFRS Standards and academic literature,
how managerial judgments on the recognition of a provision affects the
usefulness of financial information.
[25 Marks] (400 words)