Exercise Ch-3 IAS 16

1. Land is purchased for $256,000. Additional costs include a $15,300 fee to a broker, a survey
fee of $2,400, $1,750 to construct a fence, and a legal fee of $8,500. What is the cost of the
land?
Ans: $282,200.

2. An asset which costs $20,800 and has accumulated depreciation of $8,000 is sold for
$11,600. What amount of gain or loss will be recognized when the asset is sold?
A. A gain of $1,200.
Ans:

($20,800 - $8,000) - $11,600 = $1,200 loss

3 On January 1, 2015, Nabcor company prepares financial statements to 31st December each
year bought a machinery after spending the below amount.

List price of the machine was 200,000.Company is allowed purchase discount of 10% on list
price and paid Transportation expenses 26,000 and installation fee 14,000. Machine is expected
to have a useful life of 5 years and residual value is 40,000.

Required:

i) Calculate the cost of machine that should be carried in the financial statement in
accordance with the IAS 16.

Calculate the depreciation as per IAS 16 using

ii) Straight line method

4. At 31 December 2017, an entity owns plant with an original cost of $500,000 and
accumulated depreciation of $80,000. The entity determines that, due to damage to the plant,
an impairment of $120,000 is necessary. The entity uses the cost model for all its property,
plant and equipment.
Required:
What is the carrying amount of the plant on 31 December 2017?
 Answer:
$
Cost 500,000
Accumulated depreciation (80,000)
Carrying amount before impairment 420,000
Impairment (120,000)
Carrying amount 300,000

5.i) On 1 January 2016, an entity acquired a piece of land for $500,000. At 31 st December 2011,
the land was revalued at $600,000. The entity uses the revaluation model for its land and
buildings.
Required:
How must the entity account for the increase in the value of the land for the year ended 31
December 2016? Note: Ignore deferred tax.
ANS: Dr Land $100,000
Cr Other comprehensive income – revaluation 100,000

5.ii) At 31st December 2017, the land was revalued at $300, 000.
Required:

How must the entity account for the revaluation of the land for the year ended 31 December
2017? Note: Ignore deferred tax
Ans: 31 December 2016
Dr Other comprehensive income – revaluation $ 100,000
Dr Profit or loss – revaluation decrease 100,000
Cr Land 200,000