NUMERICAL PRACTICE QUESTIONS FOR IAS 16

 PRACTICE QUESTION
French Power Limited (FPL) uses the revaluation model for subsequent measurement of its
property, plant and equipment and has a policy of revaluing its assets on an annual basis using the
net replacement value method. The following information relates to FPL’s plant:
(i) The plant was purchased on 1 July 2009 at a cost of Rs. 360 million.
(ii) It is being depreciated on straight line basis, over 10 years.
(iii) The details of previous revaluations carried out by the independent valuers are as follows:
Revaluation date Fair value (Rupees in million)
1 July 2010 400
1 July 2011 280
1 July 2012 290
(iv) FPL transfers the maximum possible amount from the revaluation surplus to retained
earnings on an annual basis.
(v) There is no change in the useful life of the plant.
Required: Prepare journal entries to record the above transactions from the date of acquisition of
the plant to the year ended 30 June 2013.

 PRACTICE QUESTON
A plant and machinery was bought for $ 215,000. It is expected to last for five years and then be
sold for scrap for $ 15,000. The plant and machinery is expected to produce 40M goods as
follows;
Year Number of goods in millions
1 15
2 10
3 8
4 5
5 2
Required: Work out the depreciation to be charged each year under
a) The straight line method
b) The reducing balance method or diminishing balance method (using a rate of 35%).
 c) The units of production method
d) Sum of years digit method

 PRACTICE QUESTION:
An enterprise revalues its buildings and decides to incorporate the revaluation into the books of
account. The following information is relevant:
a) Extract the balance sheet as 31st December2012:
Buildings $
Cost 1,800,000
Depreciation (540,000)
1,260,000
b) Depreciation has been provided at 2% per annum on a straight line
c) The building is revalued at 30thJune 2013 at $ 1,380,000. There is no change in its
remaining estimated future life.
Required: Show the relevant extracts from the financial statements at 31stDecember 2013.

 PRACTICE QUESTION:
Following information pertains to property, plant and equipment of Tsuki Limited (TL):
Office building Warehouse
Acquisition:

 Date of acquisition 1 July 2017 1 July 2018

 Cost (Rs. in million) 96 156

 Estimated useful life (in years) 16 12

Revalued amount:

 1 January 2019 (Rs. in million) 116 138

 1 January 2021 (Rs. in million) 80 143

Revised useful life on 1 January 2020 (in years) 9 14

Additional information:
(i) TL uses revaluation model for subsequent measurement and accounts for revaluation
on net replacement value method.
(ii) TL transfers maximum possible amount from the revaluation surplus to retained
earnings on an annual basis.
(iii) The revalued amounts were determined by Sagheer Valuers (Private) Limited, an
independent valuation company.
Required: In accordance with IFRSs, prepare a note on ‘Property, plant and equipment’
(including comparative information) for inclusion in TL’s financial statements for the year
ended 31 December 2021. (Column for total is not required)

 PRACTICE QUESTION
Sputnik Sea Limited (SSL) runs a cruise business across oceans. Following information in respect
of one of SSL’s cruise ship is available:
(i) SSL bought a cruise ship on 1 March 2018. After completing all the required formalities,
the ship was ready to sail on 1 April 2018.
(ii) Details regarding components of the ship are as under:

Component Cost Useful life Estimated

(Rs in million) Residual value
(Rs in million)
Engine 840 50,000 hours 40
Body 535 25 years 35
Dry-docking 60 5 years -
(overhaul)

(iii) On 1 May 2019, the ship suffered an accident which damaged its body. Repair work
took 2 months and costed Rs. 26 million. The repair work did not change useful life and
residual values of the components.
(iv) The average monthly sailing of the ship during the last three years are as under:

Year Hours
2018 360
2019 480
2020 600

(v) SSL uses revaluation model for subsequent measurement. SSL accounts for revaluation
on net replacement value method and transfers the maximum possible amount from
the revaluation surplus to retained earnings on an annual basis.
(vi) The revalued amounts of the ship as at 31 December 2019 and 2020 were determined
as Rs. 1,400 million and Rs. 1,000 million respectively. Revalued amounts are
apportioned between the components on the basis of their book values before the
revaluation.
Required: Prepare necessary journal entries to record the above transaction from the date of
acquisition of the ship to the year ended 31 December 2020.

 PRACTICE QUESTION:
Following information pertains to a building acquired by SK Limited (SKL) on 1 July 2012 for Rs
360 million:
(i) The building is depreciated on SLM basis over 10 years.
(ii) SKL uses revaluation model for subsequent measurement of buildings. It accounts for
revaluation on net replacement value method.
The details of revaluation as carried out by independent value are as follows:

Revaluation Date Fair value (Rs in million)

31 December 2013 323
31 December 2015 208
31 December 2017 167

(iii) There is no change in useful life of the building.

(iv) SKL transfers the maximum possible amount from revaluation surplus to retained earning
on an annual basis
(v) SKL’s financial year ends on 31 December
Required: Prepare entries to record revaluation surplus/loss on each of the above revaluation
date. (Entries to record depreciation expense, incremental depreciation & elimination of
accumulated depreciation are not required.)

 PRACTICE QUESTION:
PQR Enterprises was incorporated on 1 July 2012. The company depreciates its PPE on SLM
over their useful life. It uses revaluation model for subsequent measurement of the PPE & has
a policy of revaluing these after every two years.
 Following information pertains to its PPE:

Rs in Useful life
million in years
Assets Cost as on WDV as on Original at Remaining Value as determined by
1-07-2013 1-07-2013 acquisition as by professional valuer as on
valuer 30-06-2014
Office 6000 5500 12 8 5750
Building
Factory 4400 3960 10 9 3320
Building
Ware house 4500 4050 10 9 3350

During the year there were no addition or deletion in the above assets. As per policy PQR
transfers the maximum possible amount from the revaluation surplus to retained earning on
annual basis.
Required: Prepare necessary journal entries for the year ended 30 June 2014 & 2015.

 PRACTICE QUESTION:
The following information is available in respect of fixed assets of MJ Enterprises (MJE)
(i) The opening balances of cost & accumulated depreciation of fixed asset as on 1 January
2009 were Rs 100,000 & Rs 33,000 respectively.
(ii) Assets costing Rs 20,000 were acquired on July 1 2008. The remaining fixed assets were
acquired when MJE commenced business on Jan 1 2005. There were no disposals of
fixed assets up to Jan 1 2009.
(iii) MJE provides for depreciation on the cost of assets at the rate of 10% per annum using
SLM on monthly basis.
(iv) Asset acquired on Jan 1 2005 whose net book value on June 30 2009 was Rs 2750 were
sold for Rs 1500.
(v) On July 1 2009 an asset which was acquired at a cost of Rs 2000, When MJE commenced
business was exchange for a new asset. The balance of purchase price was settled with a
cheque for Rs 800. The list price of the new asset was Rs 1200.
(vi) On October 1 2009 MJE transferred to its factory an asset which has been included in its
trading stock & which bore a price label of Rs 15400 in the showroom MJE makes a
gross profit of 40% of cost on sale of such assets.
Required: Prepared the following ledger accounts for the year ended 31 December 2009:
a) Fixed assets
b) Accumulated depreciation
c) Profit/loss on the sale of fixed assets.