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IAS 16 Practice Questions
IAS 16 Practice Questions
IAS 16 Practice Questions
Rooney manufactured a press for $30 million. The press comprises two significant parts, the
hydraulic system and the ‘frame’. The hydraulic system has a three year life and the ‘frame’ has an
eight year life. Rooney depreciates plant on a straight line basis. The cost of the hydraulic system is
30% of the total cost of manufacture.
Rooney uses the IAS 16 revaluation model in accounting for diamond presses and revalues these
assets on an annual basis.
Revaluation surpluses or deficits are apportioned between the hydraulic system and the ‘frame’ on
the basis of their year-end book values before the revaluation.
Required
Explain the IAS 16 rules on accounting for significant parts of property, plant and equipment and
show the accounting treatment of the diamond press in the financial statements for the financial
years ending:
(i) 31st March 2016 (assume that the press has a fair value of $ 21million)
(ii) 31st March 2017 (assume that the press has a fair value of $ 19.6 million).
Required
Explain the correct accounting treatment for the above (with calculations if appropriate).
The following is an extract from the financial statements of Carly on 31 December 2014. Property,
plant and equipment
Land and Plant and Computers Total
buildings equipment
$ $ $ $
Cost
On 31 December 2014 1,500,000 340,500 617,800 2,458,300
Accumulated depreciation
On 31 December 2014 600,000 125,900 505,800 1,231,700
Carrying amount
On 31 December 2014 900,000 214,600 112,000 1,226,600
(2) A machine which had cost $ 80,000 and had accumulated depreciation of $ 57,000 at the start
of the year was sold for $ 25,000 in the first week of the year.
(3) A new machine was purchased on 31 March 2015. The following costs were incurred:
$
Purchase price, before discount, inclusive of reclaimable sales tax of $ 3,000 20,000
Discount 1,000
Delivery costs 500
Installation costs 750
Interest on loan taken out to finance the purchase 300
(4) On 1 January it was decided to change the method of providing depreciation on computer
equipment from the existing method to 40% reducing balance.
Required
Produce the analysis of property, plant and equipment as it would appear in the financial statements
of Carly for the year ended 31 December 2015.
(b) A grinder was purchased on 1 January 2012 for $100,000. The plant had an estimated useful
life of ten years and a residual value of nil. Depreciation is charged on the straight line basis.
On 1 January 2015, when the asset’s net book value is $ 70,000, the directors decide that it
would be more appropriate to depreciate this asset using the sum of digits approach. The
remaining useful life is unchanged.
(c) The company purchased a fifty year lease some years ago for $1,000,000. This was being
depreciated over its life on a straight line basis. On 1 January 2015, when the net book value
is $ 480,000 and twenty-four years of the lease are remaining, the asset is revalued to $
1,500,000. This revised value is being incorporated into the accounts.
Required
Explain the effects of these changes on the depreciation for the year to 31 December 2015.