EXERCISE 1
a/ On 1 September 2009, a company paid £80,000 to replace the wal lining of one of its furn
The furnace had been acquired several years previously and its carrying amount on 1 Sep
2009 (before accounting for the replacement of the lining) was £320,000. Of this amount, £1
related to the original wal lining.
b/ On 1 September 2009, a company paid £250,000 for a major inspection of one of its aircraf
a legal requirement that such an inspection is carried out at least once every three years. The p
inspection took place in March 2007 at a cost of £210,000. The carrying amount of the aircraf
September 2009 (before account-ing for the new inspection) was £1,200,000. Of this am
£70,000 related to the previous inspection.
Explain how each of these transactions should be accounted for in accordance with the requirements of IAS16. Solution:
a/ £80,000 + £320,000 - £10,000 = £390,000
b/ £250,000 + £1,200,000 - £70,000 = £1,380,000 EXERCISE 2
On 31 July 2009, a company which prepares financial statements to 31 March each year bou
machine for £621,000. This amount was made up as fol ows: £ Manufacturer's list price 500,000 Less: Trade discount 30,000 ––––––– 470,000 Delivery charge 4,300
Instal ation and testing charges 24,500 Minor spare parts 5,200
Servicing contract for the year to 31 July 20 36,000 ––––––– 540,000 Value added tax at 15% 81,000 ––––––– –––––––
The company is VAT-registered and reclaims VAT charged to it by its suppliers. Calcula
the cost of the machine in accordance with the requirements of IAS16. Solution
470.000 + 4.300 + 24.500 = 498.800 Exercise 3:
On 1 January 2009, a company which prepares financial statements to 31 December each
year buys a machine at a cost of £46,300. The machine's useful life is estimated at four
years with a residual value of £6,000. The machine is expected to achieve 50,000 units of
production over its useful life, as fol ows: year to 31 December 2009 10,000 units year to 31 December 2010 20,000 units year to 31 December 2011 15,000 units year to 31 December 2012 5,000 units
Calculate depreciation charges for each of these four years using: the straight-line method
the diminishing balance method (at a rate of 40%)
the units of production method. Exercise 4:
a/ Company X prepares financial statements to 31 May each year. On 31 May 2009, the com
acquired land for £400,000. This land was revalued at £450,000 on 31 May 2010 and at £375 on 31 May 2011
b/ Company Y prepares financial statements to 30 June each year. On 30 June 2009, the com
acquired land for £600,000. This land was revalued at £540,000 on 30 June 2010 and at £62 on 30 June 2011.
Assuming that both companies use the revaluation model, explain how each revaluation shou
dealt with in the financial statements. Ignore depreciation. Solution a/ 31 May 2010 Dr PPE £50,000 C r Revaluation Surplus £50,000 Dr Revaluation Surplus £50,000 Dr Loss £25,000 Cr PP E £75,000 b/ 30 June 2009 Dr Loss £60,000 C r PP E £60,000 Dr PPE £80,000 Cr Gain £60,000 C r Revaluation Surplus £20,000 Exercise 5:
On 01.01.X0, XY Inc. purchases an aircraft to extend its existing fleet. The aircraft is
available for use immediately and is put to use starting 01.01.X0. Depreciation is
calculated on a straight-line basis.
Purchasing costs for the aircraft can be sub-categorized into the fol owing parts (in EUR): Parts Purchasing costs Engines 2.450.000 Avionics 970.000 Gal ey and seats 820.000 Undercarriage 1.430.000 Sum 5.670.000
XY Inc. is assuming a useful life of the aircraft of 20 years. However, due to the strains
of take-off and landing, the undercarriage needs to be replaced every two years.
Avionics, as wel as the gal ey and seats need to be replaced every five years, the engines need t
o be replaced every four years.
On 01.01.X2, the undercarriage is replaced. The new undercarriage costs EUR
1.580.000 and has a useful life of two years. The old undercarriage can no longer be
used by XY Inc., but neither gives rise t o any costs of disposal.
After recognition, the airplane is measured using the cost model in accordance with IAS 16. During t e
h entire useful life, there are no indications of impairment. Required:
Prepare necessary journal entries Solution Date Account 01.01.X0 Dr Aircraft 5.670.000 Cr Cash 5.670.000 Parts Initial costs Useful life Depreciation (in EUR) (in years) (in EUR) Engines 2.450.000 4 612.500 Gal ey/Seats/Avionics 1.790.000 5 358.000 Undercarriage 1.430.000 2 715.000 Sum 5.670.000 1.685.500 Date Account 31.12.X0 t o X 1 Dr Depreciation 1.685.500 Cr Aircraft 1.685.500 Date Account 01.01.X2 Dr Aircraft 1.580.000 Cr Cash 1.580.000
Initial costs Useful life Depreciation Parts (in EUR) (in years) (in EUR) Engines 2.450.000 4 612.500 Gal ey/Seats/Avionics 1.790.000 5 358.000 Undercarriage 1.580.000 2 790.000 Sum 5.820.000 1.760.500
The depreciation charge of the new undercarriage is EUR 790.000. Therefore, depreciation of the
aircraft increases from EUR 1.685.500 to EUR 1.760.500. Date Account 31.12.X2 t o X 3 Dr Depreciation 1.760.500 Cr Aircraft 1.760.500 Exercise 6: Solution
= $90,000 + $50,000 + $1,750 + $9,000 - $1,000 = $149,750 Exercise 7:
Entity A incurred (and paid) the fol owing expenditures in acquiring an
administration building and the land o n which it is built: Date EUR Additional information 1 January 2017
200.000.000 20% of the price is attributable to the land 1 January 2017
20.000.000 Non-refundable transfer taxes (not included in the EUR 200.000.000 purchase price) 1 January 2017
1.000.000 Legal costs directly attributable t o the acquisition 1 January 2017
10.000 Reimbursing the previous owner for prepaying the non-
refundable local government property taxes
for the six- month period ending 30 June 2017 30 June 2017
20.000 Non-refundable annual local government property taxes for the year ending 30 June 2018 End of 2017 120.000 Day-t -
o day repairs and maintenance, including the salary
and other costs of the administration and maintenance staff.
The land and building are available for use on 1
January 2017. At 31 December 2017 Entity A made the fol owing assessments:
• Useful life of the building: 50 years from the date of acquisition
• Residual value of the building: EUR 20,000,000
• The entity wil consume the building’s future economic benefits evenly over 50 years from the date of acquisition Required:
1.) Calculate the cost of the land and the cost of the building. Assume that 20% of the
expenditures that can be capitalised are attributable to the land
2.) Calculate the depreciation.
3.) Prepare the journal entries t
o record all effects of the property, plant and equipment in
the accounting records of Entity A throughout 2017. (cái này các bạn học cái gì thì định
khoản cái đó thôi, không cần định khoản hết) Solution:
Total directly attributable cost
Land (20%) Building (80%) Purchase price 200.000.000 40.000.000 160.000.000 Non-refundable transfer taxes 20.000.000 4.000.000 16.000.000
Legal costs directly attributable 1.000.000 200.000 800.000 Total 221.000.000 44.200.000 176.800.000 Cost o fbuilding
176 800 000 = 200.000.000*0,8+20.000.000*0,8+1.000.000*0,8 Cost o fland
44 200 000 = 200.000.000*0,2+20.000.000*0,2+1.000.000*0,2
Useful life: 50 years; Residual value: 20 000 000; Straight-line depreciation Depreciation 3 13 6 00
0 = (176.800.000 – 20.000.000)/50
Recognise the cost of land and building Date Account 01.01.2017 Dr Land 44 200 00 0 Cr Cash 44 200 00 0 Date Account 01.01.2017 Dr Building 176 800 000 Cr Cash 176 800 000
Recognise the depreciation of the building Date Account 31.12.2017 Dr Depreciation 3 136 00 0 Cr Accumulated Depreciation 3 136 00 0
Recognise maintenance expense Date Account 31.12.2017 Dr Operating Expense 120 000 Cr Cash 120 000 Exercise 8:
On 01.01.X1, XY Inc. purchases a kiln for the pyrolysis of plastic. The kiln is available for
use right away. The useful life is nine years, depreciation is calculated on a straight-line
basis. The purchase price of the kiln is EUR 27.000.000. The combustion chamber needs
to be replaced after three years
Replacement costs are estimated to be EUR 3.000.000. Furthermore, every three years,
maintenance work to test seals and valves is necessary, resulting in costs of EUR
1.500.000. The original acquisition costs already include the combustion chamber and
the maintenance work for the first three years
After recognition, XY Inc. uses the cost model in accordance with IAS 16 as its
accounting policy for subsequent measurement. During the entire useful life, there are no indications of impairment.
Posting status for the year X1: With regards to the acquisition of the kiln, no bookings have been recorded. Required:
Calculating the carrying amount of the kiln at the beginning of X 6 [IAS 16.43-45]
a. Initial recognition Date Account 01.01.X1 Dr Kiln 27.000.000 Cr Cash 27.000.000 b. Depreciation Date Account 31.12.X1 Dr Depreciation 4.000.000 Cr
Kiln (or Accum. Dep. i findirect method) 4.000.000 Calculation:
Total depreciation is comprised of the depreciation charges of the individual parts of the asset (IAS 16.43). In
accordance with IAS 16.45 significant parts with the same useful lives can be grouped together to determine the depreciation charge: Depreciation i n Combustion Chamber Total Mio. EUR Kiln and Maintenance depreciation CA 01.01.X1 22,5 4,5 Useful life (i n years) 9 3 Depreciation 2,5 1,5 4,0 CA 31.12.X1 20,0 3,0 Assets in Mio.
01.01. 31.12. 31.12. 31.12. 31.12. 31.12. 31.12. 31.12. 31.12. 31.12. EUR X1 X1 X2 X3 X4 X5 X6 X7 X8 X9 Kiln 22,5 20 17,5 15 12,5 10 7,5 5 2,5 0 Combustion Chamber and 4,5 3 1,5 0 3 1,5 0 3 1,5 0 Maintenance Carrying Amount Kiln 27 23,0 19,0 15,0 15,5 11,5 7,5 8,0 4,0 0