问题详情

(a)Emcee,apubliclimitedcompany,isasportsorganisationwhichownsseveralfootballandbasketballteams.Ithasafinancialyearendof31May2016.EmceeneedsanewstadiumtohostsportingeventswhichwillbeincludedaspartofEmcee’sproperty,plantandequipment.Emceethereforecommencedconstructiononanewstadiumon1February2016,andthiscontinueduntilitscompletionwhichwasaftertheyearendof31May2016.Thedirectcostswere$20millioninFebruary2016andthen$50millionineachmonthuntiltheyearend.Emceehasnottakenoutanyspecificborrowingstofinancetheconstructionofthestadium,butithasincurredfinancecostsonitsgeneralborrowingsduringtheperiod,whichcouldhavebeenavoidedifthestadiumhadnotbeenconstructed.Emceehascalculatedthattheweightedaveragecostofborrowingsfortheperiod1February–31May2016onanannualisedbasisamountedto9%perannum.Emceeneedsadviceonhowtotreattheborrowingcostsinitsfinancialstatementsfortheyearending31May2016.(6marks)
(b)Emceepurchasesandsellsplayers’registrationsonaregularbasis.Emceemustpurchaseregistrationsforthatplayertoplayfortheclub.PlayerregistrationsarecontractualobligationsbetweentheplayerandEmcee.Thecostsofacquiringplayerregistrationsincludetransferfees,leaguelevyfees,andplayeragents’feesincurredbytheclub.Oftenplayers’formerclubsarepaidamountswhicharecontingentupontheperformanceoftheplayerwhilsttheyplayforEmcee.Forexample,ifacontractedbasketballplayerscoresanaverageofmorethan20pointspergameinaseason,thenanadditional$5millionmaybecomepayabletohisformerclub.Also,players’contractscanbeextendedandthisincursadditionalcostsforEmcee.
Attheendofeveryseason,whichalsoisthefinancialyearendofEmcee,theclubreviewsitsplayingstaffandmakesdecisionsastowhethertheywishtosellanyplayers’registrations.Theseregistrationsareactivelymarketedbycirculatingotherclubswithalistofplayers’registrationsandtheirestimatedsellingprice.Players’registrationsarealsosoldduringtheseason,oftenwithperformanceconditionsattached.Occasionally,itbecomesclearthataplayerwillnotplayfortheclubagainbecauseof,forexample,aplayersustainingacareerthreateninginjuryorbeingpermanentlyremovedfromtheplayingsquadforanotherreason.Theplayingregistrationsofcertainplayersweresoldaftertheyearend,fortotalproceeds,netofassociatedcosts,of$25million.Theseregistrationshadanetbookvalueof$7million.
Emceewouldliketoknowthefinancialreportingtreatmentoftheacquisition,extension,reviewandsaleofplayers’registrationsinthecircumstancesoutlinedabove.(10marks)
(c)Emceeusestherevaluationmodeltomeasureitsstadiums.Thedirectorshavebeenoffered$100millionfromanairlineforthepropertynamingrightsofallthestadiumsforthreeyears.TherearetwodirectorswhoareonthemanagementboardsofEmceeandtheairline.Additionally,thereareregulationsinplacebyboththefootballandbasketballleagueswhichregulatethefinancingoftheclubs.Theseregulationspreventcapitalcontributionsfromarelatedpartywhich‘increasesequitywithoutrepaymentinreturn’.Theaimoftheseregulationsistopromotesustainablebusinessmodels.Sanctionsimposedbytheregulatorincludefinesandwithholdingofprizemonies.Emceewishestoknowhowtotakeaccountofthenamingrightsinthevaluationofthestadiumandthepotentialimplicationsofthefinancialregulationsimposedbytheleagues.(7marks)
Required:
DiscusshowtheaboveeventswouldbeshowninthefinancialstatementsofEmceeunderInternationalFinancialReportingStandards.
Note:Thesplitofthemarkallocationisshownagainsteachofthethreeissuesabove.
Professionalmarkswillbeawardedinquestion3forclarityandqualityofpresentation.(2marks)


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