'Silic Case\r'

'Accy 510 Silic Case readiness Assignment Name: Yue (Josie) Deng Date: June 11, 2012 #1 On 01/01/2003, Silic should memorialise the one-off, bonnie- regard as revaluation as result of its word sense of SIIC tax regime. Because the twist was appraised at €12, d and originally bought at €10,000, the firm require to make a diary entry to account for this increase in take account 01/01/2003 Buildings & ampere; fetch€2,500 Revaluation special€2,500 * Land & Building = €12,500 †€10,000 = €2,500 * As we learned in class from reading Silic’s financial statements, 82. % of the unrealized gains from revaluation will flow to the Revaluation trim account and 17. 1% will flow to the other Creditors account. * €2,500 * 82. 9% = €2,072 * €2,500 * 17. 1% = €428 * However, in this whileicular case, we harmonize the two accounts for simplicity purposes. On 12/31/2003, Silic need to record a derogation de preciate on the construction. 12/31/2003 Charge to derogation€500 Depreciation & formulations €500 Revaluation Surplus €100 Consolidated reserves€100 * As given in the question, the depreciation expense is €500.Silic depreciates its office and structures on a straight-line basis. We substructure deduce the multipurpose life of this particular building is 25 course of instructions (€12,500/€500 = 25 years). * The lodge also needs to amortize the revaluation exorbitance it originally recorded in response to the bonny value revaluation based on the useful life of the building. €2,500/25 years = €100. The amortized amount go to consolidate reserves (retained earnings). On 01/01/2004, Silic sell the building at €12,000 in cash. 01/01/2004 Cash €12,000 Depreciation & Provisions €2,900 Building & Land €12,500Gains on Disposal €2,400 Revaluation Surplus€2,400 Consolidated reserv es €2,400 * The firm received €12,000 in cash by disposing the asset. The give notice value of the building was €9,600 (€12,500 †€2,900 = €9,600). Thus, the firm sold the building at a gain of €2,400. * In addition, the firm needs to clear the revaluation profusion of this building to zero, and move the amount to consolidated reserves. #2 a) On 12/31/2012, Silic demolishes a fully-depreciated building. It needs to make the journal entry: 12/31/2012 Charge to Depreciation Depreciation and ProvisionDepreciation & Provision €64,000 Buildings & Land€64,000 * The firm needs to commencement ceremony record the depreciation expense for the closing curtain year of the asset’s useful life. The amount cannot be determined by the given information provided in the question. * We also need to clear this particular building from the balance sheet by debiting Depreciation & Provision (contra-asset account) and credit ing Building & Land. b) No, this would not pee a stuffy representation of Silic’s activities for the building. We whitewash need to amortize the revaluation surplus for the last year.It would not be representational faithful if the rest value of fair-value gradation-up still sits in the Revaluation Surplus account, because the gain is already realized through the depreciation of the asset. We need to amortize the remaining surplus to consolidated reserves to show the event. Although this journal entry whitethorn not necessarily affect the value of make out liabilities and equities, we still need to make sure to record this entry to provide investors with most representational faithful information. #3 01/01/2005 Buildings & Land€93,863 Unrealized Gains on Land and Buildings€93,863 The number is calculated by subtracting the historical court of land and buildings on exhibit 4 from the fair value of these assets on exhibit 4b. * €1,681,493 †(€1,139,063 + €448,567) = €93,863 #4 (a) From my point of view, cost accounting system method provides more than(prenominal) relevant information to investors. According to FAC No. 8 Objectives of Financial Reporting, â€Å"relevant financial information is sufficient of making a difference in the termination made by users”. The two most grand characteristics are the information’s predictive value and confirmatory value.As indicated in the case, Silic primarily competes in the french commercial-property market, which 72% (2004 data) of its earnings was derived from rental properties. As a result, its ordinary course of business centers around its leasing activities, and the fair market value of the properties is not a prodigious indicator of the community’s performance. Thus, the fluctuation in the value of properties should not materially affect investors’ purpose making. Since the 1980s, the commercial property market of Pa ris and its skirt region had experienced actual upward and downward(prenominal) movements in the values of properties.If we incorporate the change in the fair market value into the computation of net income, Silic’s bottom line would fluctuate importantly for each one year. However, the truth is â€Å"the french real landed estate and property management effort had been growing stunner at an average rate of 2. 8% per year. ” The industry and the society have been on a steady growth trend. Investors would not be able set about the real picture of the operate performance of the company if it switched to fair market accounting of properties.Therefore, I shop at the company’s decision of measuring coronation property using the cost model. This election provides more relevant information to investors with regards to the company’s operating performance. (b) I think historical cost accounting would present Silic in the most well-disposed glisten o ver time. As I discussed in part (a), the adoption of IAS no. 40 would require Silic to mark its investment properties to fair value during each account period, and report the gains and losses on its income statement.As indicated in the case, French real estate market had experienced substantial upward and downward movements in the value of properties. Thus, a probable outcome of fair value accounting would be a significant fluctuation in the firm’s bottom line during each reporting period. Fluctuations in net income signals great fortune of the financial performance of an entity. A normal risk of exposure averse investors would not invest in an company that poses significant risk. Therefore, I believe historical cost accounting would present Silic in the most favorable light over time.\r\n'