Exploring Accounting Recognition and Measurement: Fair Value,

School: Nanyang Technological University - Course: ACC 2101 - Subject: Accounting

AC2101 - Accounting Recognition and Measurement Semester 1, 2022-23 Presentation Question - Project Team 2 For each of the following parts, the group is required to show workings clearly, where applicable, in their presentation. When using animations in your presentations, please make sure the answers are not "hidden by the animations" when printed out as hardcopies. Please ensure academic integrity and cite sources of information, where necessary. These instructions are applicable to ALL group presentations throughout the semester. PART I Explain clearly with supporting reasonswhyeachof the following statements isTRUEor FALSE. (1) For the purpose of applying the lessor accounting requirements in SFRS(I) 16Leases, fair value is defined as the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction. This is not fair value as defined in SFRS(I) 13. (2) Since a sales-type lease is a finance lease for the seller-lessor, any initial direct costs incurred by the lessor are included in the initial measurement of net investment in the lease. (3) If a lease under SFRS(I) 16 contains clauses requiring payments that are not reasonably certain and these payments are made in optional periods,these payments are excluded from the measurement of lease assets and liabilities. (4) Under SFRS(I) 16, the customer that enters into a leasing agreement obtains control of a resource whereas the supplier in a service contract relinquishes all economic benefits. PART II Fonda Ltd is a local-based company which is in the business of importing and selling commercial vans to its customers. The cost of the commercial van is $80,000 and the fair- market sales price is $82,899. For customers who are unable to pay the sales price of the commercial vans upfront, Fonda Ltd allows them to hire the commercial van under a standard rental contract. Under this contract, customers pay a yearly installment on 31 December each year over a period of 5 years. There is no transfer of title at the end of the lease term and the unguaranteed residual value of the equipment is estimated to be $40,000 at the end of the lease as high taxes on new vehicles led to booming demand for used vehicles. Fonda Ltd charges a market interest rate of 3% to its customers under such contracts and the market interest rate is communicated to its customers.

2The useful life of the commercial van is 6 years and it has zero residual value at the end of its useful life. On 1 January 20x1, Jana Ltd enters into a standard contract with Fonda Ltd to hire a commercial van commencing on the same day. Both companies adopt the cost model and straight-line depreciation policy with respect to their property, plant and equipment under SFRS(I) 1-16Property, Plant and Equipment.Both companies comply with all relevant Singapore Financial Reporting Standards (International). Assume a 31 December year-end for both companies and account for all figures to thenearest dollar.