Ican 2021 Financial Reporting Question 2

As a result of privatisation and commercialisation exercise currently going on in the country, the Ministry of Transport sold the assets and liabilities of the newly constructed standard gauge railway to a private company known as Stalus Rail Limited (SRL) to ensure smooth operations of the railway services by freeing it from government bureaucracy. The summarised extracts of the statement of financial position at fair value of SRL on January 1, 2019 reflecting the terms and conditions of the sales agreement of the Transport Ministry are as follows: N’m Assets Goodwill 150,000 Operating licence 900,000 Property – Train stations and land 225,000 Rail tracks and coaches 225,000 Two (2) train engines 750,000 Purchase consideration 2,250,000 Liabilities Sundry liabilities Nil The operating licence is for a ten-year period which was issued on January 1, 2019 by the Transport Ministry and it is stated at cost. The carrying value of the property and rail track and coaches are based on value in use. The engines are valued at their net selling prices. On February 1, 2019 one of the train engines got damaged due to a technical fault from the manufacturer and the engine was completely destroyed. The sale of the assets to SRL was without recourse to the Transport Ministry and the manufacturer of the engines. In view of this, it was estimated that there would be reduced passenger capacity, therefore, the estimated value in use of the whole train service business of SRL was assessed at N1,500 billion. The number of passengers after one of the engines of the train got damaged was below expectation, even allowing for the reduced capacity. In the light of this, the value in use of SRL rail services was re-assessed on March 31, 2019 at N1,350 billion. On this date the SRL received an offer of N675 billion from another company called Papaya Railway Services Limited (PRSL) for the operating licence (since it is transferable). The realisable value of the other assets has not changed significantly.