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Chapter 16
Property, Plant and Equipment (Part 2)

PROBLEM 1: TRUE OR FALSE

1. FALSE – PAS 16 defines depreciation as the “systematic
allocation of the depreciable amount of an asset over its
estimated useful life.”

2. FALSE – revaluation model

3. TRUE = (120K – 20K) ÷ 10 years = 10K annual depreciation;

10K annual depreciation ÷ 100K depreciable amount =10%

4. FALSE – 800K
5. TRUE
6. FALSE
7. TRUE
8. TRUE
9. FALSE – recognized in OCI and accumulated in equity
10. FALSE – (180K – 10K) – 200K = 30K loss

PROBLEM 2: MULTIPLE CHOICE – THEORY

1. D
2. B
3. A
F Depreciation starts when the asset is available for use in the
manner intended by management.
F Costs incurred while an item capable of operating in the
manner intended by management has yet to be brought into
use are recognized as expenses.

4. D – see the word “not” in the problem

5. D
6. D
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7. D - PAS 16 encourages the note disclosure of the gross

carrying amounts of fully depreciated assets. If the fully
depreciated assets were removed from the ledger, information
on the gross carrying amounts to be disclosed in the notes
would not be readily available.

8. B
9. D
10. D

PROBLEM 4: MULTIPLE CHOICE – COMPUTATIONAL

1. D
 SLM = (1M x 95%) ÷ 10 = 95,000
 SYD denominator = {10 x [(10 + 1) ÷ 2]} = 55
SYD depreciation in 20x2 = 950,000 x 9/55 = 155,455
 DDB rate = 2 ÷ 10 = 20%
DDB depreciation in 20x2 = 1M x 80% x 20% = 160,000
 UOPM (input) depreciation in 20x2 = 950,000 x (2,800/28,000) =
95,000
 UOPM (output) depreciation in 20x2 = 950,000 x (9,800/84,000)
= 110,833

2. C
Purchase price 480,000
Commission 20,000
Freight 22,000
Installation and testing 18,000
Total cost 540,000
Residual value (40,000)
Depreciable amount 500,000

 SLM = 500,000 x 8/10 + 40,000 = 440,000

 SYD denominator = {10 x [(10 + 1) ÷ 2]} = 55
SYD accumulated depreciation on Dec. 31, 20x2 = 500,000 x
[(10 + 9) ÷ 55] = 172,727
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SYD carrying amount on Dec. 31, 20x2 = 540,000 - 172,727 =

367,273
 DDB rate = 2 ÷ 10 = 20%
DDB carrying amount on Dec. 31, 20x2 = 540M x 80% x 80% =
345,600
 UOPM (input) Accumulated depreciation on Dec. 31, 20x2 =
500,000 x [(2,000 + 2,700 ) ÷ 25,000] = 94,000
Carrying amount on Dec. 31, 20x2 = 540,000 – 94,000 = 446,000
 UOPM (output) Accumulated depreciation on Dec. 31, 20x2 =
500,000 x [(8,000 + 10,000 ) ÷ 100,000] = 90,000
Carrying amount on Dec. 31, 20x2 = 540,000 – 90,000 = 450,000

3. C
Solution:
SYD denominator = Life x [(Life + 1) / 2] = 4 x [(4+1) / 2] = 10
Historical cost 20,000
Estimated residual value (2,000)
Depreciable amount 18,000

Depreciation - 20x1 (18,000 x 4/10) 7,200

Depreciation - 20x2 (18,000 x 3/10) 5,400
Depreciation - 20x2 (18,000 x 2/10) 3,600
Accumulated depreciation - 12/31/20x3 16,200

Historical cost 20,000

Accumulated depreciation - 12/31/20x3 (16,200)
Carrying amount - 12/31/20x3 3,800

4. B
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Yr. Straight line SYD

1 (100,000 – 10,000) ÷ 5 = 18,000 90,000 x 5/15 = 30,000
2 18,000 90,000 x 4/15 = 24,000
3 18,000 90,000 x 3/15 = 18,000
4 18,000 90,000 x 2/15 = 12,000
5 18,000 90,000 x 1/15 = 6,000

5. A (110,000 – 5,000) ÷ 10 yrs. = 10,500

6. A
Solution:
150% declining balance rate = 1.5/Life = 1.5/5 = 30%
Depreciation - 20x1 (200,000 x 30%) 60,000
Depreciation - 20x2 (200,000 - 60,000) x 30% 42,000
102,00
Accumulated depreciation - 12/31/x2 0

7. D
Solution:
 Composite life = Depreciable amount ÷ Annual depreciation
Composite life = 280,000 ÷ 70,000 = 4 years

 Composite rate = Annual depreciation ÷ Total cost

Composite rate = 70,000 ÷ 290,000 = 24.14%

 Depreciation in current year:

Total depreciable amount 280,000
Depreciable amount of old tools (8,000)
Depreciable amount of new tools 12,000
Revised depreciable amount 284,000
Divide by: Original composite life 4
Revised annual depreciation 71,000

Total cost 290,000

Cost of old tools (8,000)
Cost of new tools 12,000
Revised total cost 294,000
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Multiply by: Original composite rate 24.14%

Revised annual depreciation 70,972*
* Answer rounded-off to 71,000.

8. C
Solutions:
 Retirement method:
Cost of disposals (12,000 + 24,000 + 36,000) 72,000
Net disposal proceeds (1,000 + 1,600 + 2,000) (4,600)
Depreciation expense 67,400

 Replacement method:
Cost of additions as replacements (20,000 + 44,000) 64,000
Cost of disposals but not replaced 24,000
Proceeds from sale of old tools (1,000 + 1,600 + 2,000) (4,600)
Depreciation expense 83,400

 Inventory method:
Tools
beg. bal. 300,000 4,600 Proceeds from asset disposals
Additions 124,000 67,400 Depreciation (squeeze)
352,000 end. bal. (per physical count)

9. C
 Useful life = 20 years
 Remaining lease term as of 12/31/01 = (9* + 5 renewal) = 14
* Dec. 31, 2001 completion date of improvements to Dec. 31, 2010 end of original
lease term = 9 yrs.
 Shorter = 14 years
 480,000 x 13/14 = 445,714

10. C
Solution:
Step 1: Carrying amount as at the beg. of the period of change
 Double declining balance rate (2 ÷ Life) or (2 ÷ 20 yrs.) 10%
 Carrying amt. on Jan. 1, 20x8
(5M x 90% x 90% x 90% x 90% x 90% x 90% x 90%) 2,391,485
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Step 2: Apply the changes

 Remaining life = 20 yrs. – 7 yrs. = 13 years
 SYD denominator = {13 x [(13 + 1) ÷ 2]} = 91
 Carrying amount on Jan. 1, 20x8 2,391,485
Revised residual value (200,000 – 20,000) (180,000)
Depreciable amount 2,211,485
Multiply by: 13/91
SYD depreciation in 20x8 315,926

11. D
Historical cost 264,000
Original estimated useful life 8
Original depreciation per year 33,000

Historical cost 264,000

Accumulated depreciation - 1/1/x3 (33,000 x 3 yrs.) (99,000)
Carrying amount - 1/1/x3 165,000
Revised residual value (24,000)
Revised depreciable amount 141,000
Divide by: Revised useful life (6 yrs. - 3 yrs.) 3
Depreciation - 20x3 47,000

Accumulated depreciation - 1/1/x3 (33,000 x 3 yrs.) 99,000

Depreciation - 20x3 47,000
146,00
Accumulated depreciation - 12/31/x3 0

12. C
Solutions:
(1)
Jan. 1, Cash 100,000
20x7
Accumulated depreciation (1.8M x 5/15) 600,000
Loss on replacement (squeeze) 1,100,000
Equipment (old part) 1,800,000
to derecognize the old part
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Jan. 1, Equipment (new part) 2,100,000

20x7
Cash 2,100,000
to recognize the new replacement part

On derecognition, the difference between the carrying amount of

the derecognized PPE and the net disposal proceeds, if any, is
recognized as gain or loss in profit or loss.

(2)
Jan. 1, Cash 100,000
20x7
Accumulated depreciation (2.1M x 5/15) 700,000
Loss on replacement (squeeze) 1,300,000
Equipment (old part) 2,100,000
to derecognize the old part

Jan. 1, Equipment (new part) 2,100,000

20x7
Cash 2,100,000
to recognize the new replacement part

13. A
Solution:
(1)
Replacement cost 50,000,000
Less: Depreciation (50M x 8(a)/32(b)) (12,500,000)
Fair value (Depreciated replacement cost) 37,500,000
Less: Carrying amount (40,000,000 – 16,000,000) (24,000,000)
Revaluation surplus, gross of tax 13,500,000
Less: Deferred tax consequence (13.5M x 30%) (4,050,000)
Revaluation surplus, net of tax 9,450,000

(a)
Effective life (Effective age)
(b)
Total economic life = Effective life + Remaining economic life = (8 + 24) = 32

Fair value (Depreciated replacement cost) 37,500,000

Divide by: Remaining economic life 24
Revised annual depreciation 1,562,500
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14. B
Solutions:
Replacement cost 30,000,000
Less: Depreciation (30M – 3M) x 7(a)/28 (6,750,000)
Fair value 23,250,000
Carrying amount (22M – 2M) x 19/25 + 2M (17,200,000)
Revaluation surplus, gross of tax 6,050,000
Less: Deferred tax consequence (6.050M x 30%) (1,815,000)
Revaluation surplus, net of tax – 12/31/x6 4,235,000
(a)
28 yrs. total economic life – 21 yrs. remaining economic life = 7 yrs. effective life

(1) Carrying amount of building on 12/31/x7:

Fair value on 12/31/x6 23,250,000
Revised residual value (3,000,000)
Revised depreciable amount 20,250,000
Divide by: Remaining economic life 21
Revised annual depreciation 964,286

Fair value on 12/31/x6 23,250,000

Less: Depreciation in 20x7 (964,286)
Carrying amount of building on 12/31/x7 22,285,714

(2) Carrying amount of revaluation surplus on 12/31/x7:

Revaluation surplus, net of tax – 12/31/x6 4,235,000
Divide by: Remaining economic life 21
Annual transfer to retained earnings 201,667

Revaluation surplus, net of tax – 12/31/x6 4,235,000

Less: Amount transferred to R/E in 20x7 (201,667)
Revaluation surplus, net of tax – 12/31/x7 4,033,333
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15. A
Solution:
 Building:
Replacement cost 12,000,000
Less: Depreciation (12M x 10/40*) (3,000,000)
Fair value 9,000,000
Carrying amount [8M - (8M x 15**/25)] (3,200,000)
Revaluation surplus – gross of tax 5,800,000
Multiply by: 70%
Revaluation surplus – net of tax (Building) 4,060,000

* 10 yrs. effective life + 30 yrs. remaining life = 40 total economic life

**Actual life

 Patio:
Replacement cost 4,200,000
Less: Depreciation (4.2M x 10/25*) (1,680,000)
Fair value 2,520,000
Carrying amount [3M – (3M x 10**/20)] (1,500,000)
Revaluation surplus – gross of tax 1,020,000
Multiply by: 70%
Revaluation surplus – net of tax (Patio) 714,000

* 10 yrs. effective life + 15 yrs. remaining life = 25 total economic life

**Actual life

Total Revaluation Surplus, net of tax: (4.06M + 714K) = 4,774,000

16. D
Solution:
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17. D
Solution:
 Changes in accounting estimates in 20x4:
Step 1: Carrying amount as at the beg. of the period of change
 Carrying amt. on Jan. 1, 20x4 (20M – 1M) x 7/10 + 1M R.V. 14,300,000

Step 2: Apply the changes

 Revised estimate of remaining useful life 5 years
 SYD denominator {5 x [(5 + 1) ÷ 2]} 15
 Carrying amount on Jan. 1, 20x4 14,300,000
Revised residual value (800,000)
Revised depreciable amount 13,500,000

Revised depreciation table:

Depreciable
Date amount SYD rate Depreciation
12/31/x4 13,500,000 5/15 4,500,000
12/31/x5 13,500,000 4/15 3,600,000
12/31/x6 13,500,000 3/15 2,700,000
12/31/x7 13,500,000 2/15 1,800,000
12/31/x8 13,500,000 1/15 900,000S
13,500,000

 Sale on July 21, 20x6:

Carrying amount on Jan. 1, 20x4 14,300,000
Depreciation in 20x4 (4,500,000)
Depreciation in 20x5 (3,600,000)
Depreciation from Jan. 1 to July 31, 20x6 (2.7M x 7/12) (1,575,000)
Carrying amount on date of sale 4,625,000
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Net disposal proceeds (4,500,000 – 50,000) 4,450,000

Carrying amount on date of sale (4,625,000)
Loss on sale (175,000)

18. B
Solution:
 Gain (loss) in P/L:

Fair value on 1/1/x6 15,000,000

Multiply by: 10/15
Carrying amount on 1/1/11 10,000,000

Net disposal proceeds (12M - .6M) 11,400,000

Carrying amount on 1/1/11 (10,000,000)
Gain on sale - P/L 1,400,000

 Direct transfer within equity:

Fair value on 1/1/x6 15,000,000

Carrying amount on 1/1/x6 (12M x 20/25) (9,600,000)
Revaluation surplus 5,400,000
Divide by: Remaining useful life 15
Annual transfer to retained earnings 360,000

Revaluation surplus - 1/1/x6 5,400,000

Annual transfers (360K x 5 yrs.) (1,800,000)
Revaluation surplus - 1/1/11 3,600,000

19. B
Accumulated depreciation
  971,065 12/31/x1
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715,99
Disposal (squeeze) 8 599,035 Depreciation - 20x2
12/31/x2 854,102  

20. B
Solution:
 Cost of acquisitions:
Building
Building, beginning 1,000,000
Acquisitions (squeeze) 2,300,000 800,000 Disposals
2,500,000 Building, end

 Depreciation expense:
The journal entry to record the sale of the old building is re-
provided below:
20x2 Cash 260,000
Accumulated depreciation (squeeze) 500,000
Loss on sale of building 40,000
Building 800,000

Accumulated depreciation
200,000 beg.
Accumulated
depreciation of Depreciation expense
building sold 500,000 500,000 (squeeze)
end 200,000
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