IAS 16 (CAF5 S18) : (I) (Ii) (Iii) - Rs. in Million

IAS 16 Question 20
QUESTION 20 – IAS 16 (CAF5 S18)
Following information pertains to three exchange transactions relating to fixed assets:
(i) (ii) (iii)

--------- Rs. in million ---------
Cash received/(paid) 1.1 (2.1) -
Assets given-up:
Original cost 10.3 12.4 14.5
Book value 6.4 7.3 3.4
Estimated fair value 8.5 6.6 4.6
Assets received:
Estimated fair value 7.1 9.0 4.1
Additional information:
 In case of transaction (i), fair values of both assets are reliably measurable.
 In case of transaction (ii), fair value of the asset received is clearly more evident.
 In case of transaction (iii), fair value of neither asset is reliably measurable.
Required:
Compute gain or loss on disposal of fixed assets in each of the above transactions. (06)
ANSWER 20 – IAS 16 (CAF5 S18)
(i) (ii) (iii)

Rs. m Rs. m Rs. m
Asset Acquired (see below) 7.4 9.0 3.4
Cash (paid)/received 1.1 (2.1) -
Net disposal proceeds 8.5 6.9 3.4
Carrying amount at date of disposal (6.4) (7.3) (3.4)
GAIN (LOSS) ON DISPOSAL 2.1 (0.4) 0
Case (i) Fair value of asset given up ± Cash 8.5 – 1.1 = 7.4
Case (ii) Fair value of asset received = 9.0
Case (iii) Carrying amount ± Cash 3.4 + 0 = 3.4
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IAS 16 Question 1
QUESTION 1: IAS 16 PROPERTY, PLANT & EQUIPMENT
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).
IAS 16 Question 1
ANSWER – QUESTION 1: IAS 16 PROPERTY, PLANT & EQUIPMENT
IAS 16 requires that each part of an item (that has a cost that is significant in relation to the total
cost) is depreciated separately. Therefore the cost recognized at initial recognition must be
allocated to each part accordingly.
(i) 31st March 2016
Hydraulic System Frame Total
Carrying amount 1-4-2015 9,000 21,000 30,000
Depreciation (3,000) (2,625) (5,625)
Carrying amount 31-3-2016 6,000 18,375 24,375
Loss on revaluation 6,000 / 24,375 x 3,375 = 18,375 / 24,375 x 3,375
(831) = (2,544) (3,375)
Fair value 5,169 15,831 21,000
(ii) 31st March 2017

Hydraulic System Frame Total
Carrying amount 1-4-2016 5,169 15,831 21,000
Depreciation (2,585) (2,262) (4,847)
Carrying amount 31-3-2017 2,584 13,569 16,153
Gain on revaluation 2,584 / 16,153 x 3,447 = 13,569 / 16,153 x 3,447
551 = 2,896 3,447
Fair value 3,135 16,465 19,600
Out of 3,447 revaluation gain 3,375 will be accounted for in profit or loss account as reversal of
revaluation loss and balance of 72 will be accounted for in other comprehensive incomes.
IAS 16 Question 2
The following information relates to the financial statements of Ehtisham for the year to 31 March
2015.
The head office of Ehtisham was acquired on 1 April 2012 for $1 million. Ehtisham intend to
occupy the building for 25 years. On 31 March 2014 it was revalued to $1.15 million. On 31 March
2015, a surplus of vacant commercial property in the area had led to a fall in property prices and
the fair value was now only $0.8 million.
Required
Explain the correct accounting treatment for the above (with calculations if appropriate).
IAS 16 Question 2
ANSWER – QUESTION2: IAS 16 PROPERTY, PLANT & EQUIPMENT
The original depreciation was $ 40,000 ($ 1,000,000/25 years) per annum.
On 31st March 2014 the asset is two years old. Its carrying value before revaluation was therefore
$1million less accumulated depreciation of $80,000 (2/25 × $ 1million).
Cost/valuation 1,000,000
Accumulated depreciation (80,000)
Net book value 920,000
In order to effect the revaluation, the cost is uplifted to fair value of $1.15m, the accumulated
depreciation is eliminated, and the uplift to the net book value is credited to a revaluation surplus
account.
Cost/valuation 150,000
Accumulated depreciation 80,000
Revaluation surplus 230,000
The asset is depreciated over its remaining useful economic life of 23 years giving a charge of $
50,000 ($ 1,150,000/23 years) per annum in the year to 31st March 2015.
Cost/valuation 1,150,000
Accumulated depreciation (50,000)
Net book value 1,100,000
Transfer from revaluation surplus to retained earnings:

Revaluation surplus (230,000 / 23) 10,000
Retained earnings 10,000
Fall in fair value to 0.8 million:

Profit or loss 80,000
Asset 350,000
IAS 16 Question 3
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
Accounting policies
Depreciation
Depreciation is provided at the following rates.
On land and buildings 2% per annum straight line on buildings only
On plant and equipment 25% reducing balance
On computers 33.33% per annum straight line
During 2015 the following transactions took place.

(1) On 31 December the land and buildings were revalued to $ 1,750,000. Of this amount, $
650,000 related to the land (which had originally cost $ 500,000). The remaining useful life
of the buildings was assessed as 40 years.
(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.
IAS 16 Question 3
Financial statements for the year ended 31 December 2015 (extract)

Property, plant and equipment
Land and Plant & Computer Total
buildings machinery equipment
Cost
At 1 January 2015 1,500,000 340,500 617,800 2,458,300
Revaluation 250,000 - - 250,000
Additions W2 - 17,550 - 17,550
Disposals - (80,000) - (80,000)
At 31 December 2015 1,750,000 278,050 617,800 2,645,850
At 1 January 2015 600,000 125,900 505,800 1,231,700
Charge for the year W1 20,000 51,191 44,800 115,991
Revaluation (620,000) - - (620,000)
Disposals - (57,000) - (57,000)
At 31 December 2015 Nil 120,091 550,600 670,691
Carrying Amount
At 31 December 2015 900,000 214,600 112,000 1,226,600
At 31 December 2014 1,750,000 157,959 67,200 1,975,159
Workings:
W1 -Depreciation charges
Buildings = (1,500,000 – 500,000) x 2% 20,000.
Plant and machinery:
New machine (17,550 x 25% x 9/12) 3,291
Existing plant (((340,500 – 80,000) – (125,900 – 57,000)) x 25%) 47,900
Total 3,291 + 47,900 51,191
Computer equipment = 112,000 x 40% 44,800
W2 - Cost of new machine

Purchase price (20,000 – 3,000 – 1,000) 16,000
Delivery costs 500
Installation costs 750
Interest on loan taken out to finance the purchase 300
17,550
IAS 16 Question 4
Adjustments Limited has carried out a review of its non-current assets.

(a) A lathe was purchased on 1 January 2009 for $150,000. The plant had an estimated useful
life of twelve years, residual value of nil. Depreciation is charged on the straight line basis.
On 1 January 2015, when the asset’s net book value is $75,000, the directors decide that
the asset’s total useful life is only ten years.
(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.
IAS 16 Question 4
Part (a)
The lathe was purchased in 2009 and was originally being written off over an estimated useful life
of twelve years. As at 1 January 2015 six of the years have elapsed with a further six years
remaining. It was decided that the machine will now only be usable for a further four years.
IAS 16 requires that where the original estimate of useful life is revised, adjustments should be
made in current and future periods (not in prior periods). The unamortized cost of the asset should
be charged to revenue over the remaining useful life of the asset. The net book value of $75,000
should therefore be charged over the remaining four years of useful life, giving an annual
depreciation charge of $18,750.
The revision is not a change in accounting policy, or a fundamental error but a change in
accounting estimate. It is therefore not appropriate to deal with any excess depreciation by
adjusting opening retained earnings.
Part (b)
The grinder was purchased in 2012 and was originally being depreciated on a straight line basis. It
has now been decided to depreciate this on the sum of digits basis.
IAS 16 requires that depreciation methods be reviewed periodically and if there is a significant
change in the expected pattern of economic benefits, the method should be changed.
Depreciation adjustments should be made in current and future periods. This change might be
appropriate if, for instance, usage of the machine is greater in the early years of an asset’s life
when it is still new and consequently it is appropriate to have a higher depreciation charge.
If the change is implemented, the unamortized cost (the net book value) of the asset should be
written off over the remaining useful life commencing with the period in which the change is made.
The depreciation charge for the remaining life of the asset will therefore be as follows.
Year No of digits Depreciation
2015 7 (7/28 x 70,000) 17,500
2016 6 (6/28 x 70,000) 15,000
2017 5 12,500
2018 4 10,000
2019 3 7,500
2020 2 5,000
2021 1 2,500
½ x 7 (7 + 1) 28 70,000
Disclosure will need to be made in the accounts of the details of the change, including the effect
on the charge in the year.
IAS 16 Question 4
Part (c)
IAS 16’s allowed alternative treatment in respect of measurement of property plant and equipment
(subsequent to initial recognition), is that of revaluation. Revaluation is made at fair value.
Where any item of property plant or equipment is revalued, the entire class to which the asset
belongs should be revalued. Revaluations must be kept up to date. Where there are volatile
movements in fair value, the revaluation should be performed annually. Where there are no such
movements, revaluations every three to five years may be appropriate.
Accumulated depreciation at the date of revaluation is either:

(i) Restated proportionately with the change in the gross carrying amount so that the
carrying amount after the revaluation equals the revalued amount (e.g. where
revaluations are made to depreciated replacement cost using indices)
(ii) Eliminated against the gross carrying amount of the assets and the net amount restated
to the revalued amount of the asset (e.g. where buildings are revalued to their market
value).
AS 16 requires that the subsequent charge for depreciation should be based on the revalued
amount. The annual depreciation will therefore be $62,500, i.e. $1,500,000 divided by the 24 years
of remaining life.
There will then be a difference between the revalued depreciation charge and the historical
depreciation charge.
The resulting excess depreciation may be dealt with by a movement in reserves, i.e. by
transferring from the revaluation reserve to retained earnings a figure equal to the depreciation
charged on the revaluation surplus each year.
IAS 16 Question 5
Fam had the following tangible fixed assets at 31 December 2014.

Cost Depreciation NBV
$ 000 $ 000 $ 000
Land 500 – 500
Buildings 400 80 320
Plant and machinery 1,613 458 1,155
Fixtures and fittings 390 140 250
Assets under construction 91 – 91
2,994 678 2,316
In the year ended 31 December 2015 the following transactions occur.

(1) Further costs of $ 53,000 are incurred on buildings being constructed by the company. A
building costing $ 100,000 is completed during the year.
(2) A deposit of $ 20,000 is paid for a new computer system which is undelivered at the year
end.
(3) Additions to plant are $ 154,000.
(4) Additions to fixtures, excluding the deposit on the new computer system, are $ 40,000.
(5) The following assets are sold.

Cost Depreciation Proceeds
brought forward
$ 000 $ 000 $ 000
Plant 277 195 86
Fixtures 41 31 2
(6) Land and buildings were revalued at 1 January 2015 to $ 1,500,000, of which land is worth
$ 900,000. The revaluation was performed by Messrs Jackson & Co, Chartered Surveyors,
on the basis of existing use value on the open market.
(7) The useful economic life of the buildings is unchanged. The buildings were purchased ten
years before the revaluation.
(8) Depreciation is provided on all assets in use at the year end at the following rates.
Buildings 2% per annum straight line
Plant 20% per annum straight line
Fixtures 25% per annum reducing balance
Required
Show the disclosure under IAS 16 in relation to fixed assets in the notes to the published accounts
for the year ended 31 December 2015.
IAS 16 Question 5
Accounting policies
(a) Property, plant and equipment is stated at historical cost less depreciation, or at valuation.
(b) Depreciation is provided on all assets, except land, and is calculated to write down the cost or
valuation over the estimated useful life of the asset.
The principal rates are as follows:

Buildings 2% pa straight line
Plant and machinery 20% pa straight line
Fixtures and fittings 25% pa reducing balance
Fixed Assets Movements:

Land & Plant & Fixture Assets
buildings machinery & under Total
fittings construction
Cost
Cost at 1 January 2015 900 1,613 390 91 2,994
Revaluation adjustment 600 - - - 600
Additions - 154 40 73 (W1) 267
Reclassifications 100 - - (100) -
Disposals - (277) (41) - (318)
Cost at 31 December 2015 1,600 1,490 389 64 3,543
Depreciation
At 1 January 2015 80 458 140 - 678
Revaluation adjustment (80) - - - (80)
Depreciation for the year (W2) 17 298 70 - 385
Disposal - (195) (31) - (226)
At 31 December 2015 17 561 179 - 757
Net Book Value
At 31 December 2015 1,583 929 210 64 2,786
At 31 December 2014 820 1,155 250 91 2,316
Land and buildings have been revalued during the year by Messrs Jackson & Co on the basis of
an existing use value on the open market.
The corresponding historical cost information is as follows.

Land & Building
Cost
Brought forward 900
Reclassification 100
Carried forward 1,000
Depreciation
Brought forward (80)
For the year (10)
Carried forward (90)
NBV 910
IAS 16 Question 5
Workings:
W1 - Additions to assets under construction
Additions to assets under construction 53
Deposit on computer 20
73
W2 – Depreciation for the year

Depreciation on buildings 600/40 + (100 x 2%) 17
2% straight line depreciation is equivalent to a 50 year life.

The buildings are ten years old at valuation and therefore have 40 years remaining.
Depreciation on plant (1,613 + 154 – 277) x 20% 298
Depreciation on fixtures (390 + 40 – 41 – 140 + 31) x 25% 70
IAS 16 Question 6
(a) On July 1, 2012, Humayun Chemicals Limited acquired a machine at a cost of $ 10 million.
The useful life of the machine and its salvage value was estimated at 5 years and $ 3.0
million respectively. The cost of machine is being depreciated under the straight line
method.
Based on the practice followed by similar type of companies, the company has determined
that the remaining useful economic life of the machine is six years. It has also been
established that the residual value at the end of the useful life will be equal to 10% of the
cost of machine.
Required
Compute the depreciation expenses and other adjustments (if any) required to be made in the
financial statements of the company for the year ended June 30, 2015 under each of the following
assumptions:
(i) the review of useful life and residual value was carried out on June 30, 2015;
(ii) the review of useful life and residual value was carried out on June 30, 2014 but in the
financial statements for the year then ended the depreciation expense was erroneously
recorded on the previous basis.
(b) Discuss the requirements of International Accounting Standard(s) in respect of estimation

and revision of useful life of an item of property, plant and equipment.
IAS 16 Question 6
Part (a)(i)
If review is performed on June 30, 2015
Cost of machine 10,000,000
Depreciation (10,000,000 - 3,000,000) x 20% x 2 years (2,800,000)
WDV as at June 30, 2014 7,200,000
Residual value (10% of the cost of machine) (1,000,000)
Depreciable amount - on July 1, 2014 6,200,000
Remaining useful lives 6 years
Depreciation charge for the year ended June 30, 2015 1,033,333
Part (a)(ii)
If review is performed on June 30, 2014
Cost of machine 10,000,000
Depreciation (10,000,000 - 3,000,000) x 20% (1,400,000)
WDV as at June 30, 2013 8,600,000
Residual value (10% of the cost of machine) (1,000,000)
Depreciable amount - on July 1, 2013 7,600,000
Remaining useful lives 6 years
Depreciation charge for the year ended June 30, 2015 1,266,667
Depreciation charged for the year ended June 30, 2014 1,400,000
Effect of change in estimate (Reversal) [1,266,667 - 1,400,000) (133,333)
Part (b)
According to IAS-16, the following factors should be considered when estimating the useful life of
a depreciable asset:
(i) Expected usage
(ii) Expected physical wear and tear
(iii) Obsolescence
(iv) Legal or other limits on the use of the assets.
Once the useful life of a depreciable asset is determined, it shall be reviewed at least at each
financial year-end.
If expectations vary from the previous estimates, then change should be adjusted for current and
future periods in accordance with the requirements of IAS 8.
IAS 16 Question 7
Faraday Pharmaceutical Limited (FPL) acquired a building for $ 200 million on July 1, 2011. The
following information relating to the building is available:
(i) It is being depreciated on the straight line basis, over 20 years.
(ii) FPL uses the revaluation model for subsequent measurement of its property, plant and
equipment and accounts for revaluations on the net replacement value method. The details
of revaluation carried out by the independent valuers during the past years are as follows:
Revaluation date Fair value
$ in million
July 1, 2012 230
July 1, 2013 170
July 1, 2014 180
(iii) FPL transfers the maximum possible amount from the revaluation surplus to retained
earnings on an annual basis.
(iv) There is no change in the useful life of the building.
Required
Prepare the journal entries to record the above transactions from the date of acquisition of the
building to the year ended June 30, 2015.
(Ignore deferred tax)
IAS 16 Question 7
Journal Entries:
Date Particulars Dr. $ 000 Cr. $ 000
01.07.2011 Building 200,000
Bank 200,000
Record purchase of plant
30.06.2012 Depreciation 10,000

Accumulated depreciation – Building 10,000
Depreciation for the year 2012 (200,000/20 = 10,000)
01.07.2012 Accumulated depreciation – Building 10,000

Building 10,000
Reversal of prior year depreciation
01.07.2012 Building 40,000

Surplus on revaluation of fixed assets 40,000
Increase in value through revaluation 230,000 – 190,000 = 40,000

Accumulated depreciation – Building 12,105
Depreciation for the year 2013 (230,000/19 = 12,105)
30.06.2013 Surplus on revaluation of fixed assets 2,105

Retained earnings/Profit & loss 2,105
Transfer of surplus through retained earnings (40,000/19 = 2,105)
01.07.2013 Accumulated depreciation – Building 12,105

Building 12,105
Reversal of prior year depreciation.
01.07.2013 Surplus on revaluation of fixed assets 37,895

Revaluation expense 10,000
Building 47,895
Reversal of Surplus (40,000–2,105 = 37,895); Building: (230,000–12,105–170,000 =
47,895

Accumulated depreciation - Building 9,444
Reversal of prior year depreciation
01.07.2014 Building 19,444

Revaluation income 9,444
Surplus on revaluation of fixed assets 10,000
Revaluation income: 10,000–(10,000-9,444)=9,444 Building:170,000-9,444-180,000
= 19,444
IAS 16 Question 7

Accumulated depreciation – building 10,588
Record depreciation for the year: 180,000/17 = 10,588
30.06.2015 Surplus on revaluation of fixed assets 588

Retained earnings 588
Reverse the excess depreciation: 10,000/17 = 588
IAS 16 Question 8
Scientific Pharma Limited (SPL) is a manufacturer of pharmaceutical products. In January 2015,

one of its plants suffered a major break down. It was repaired at a cost of $ 1.5 million but the
production capacity was reduced significantly. The plant was ready for production on June 30,
2015. At that time the company’s engineers advised that the plant could be used at a reduced
level for 3 years only.
The factory was estimated to have a recoverable amount of $ 19,277,000 at June 30, 2015
Other related information is as under:
(i) The plant was imported at FOB price of Z 800,000. The payment was made at the time of
shipment on July 1, 2005 at $ 52 per Z. Other charges including installation cost amounted
to $ 7 million. Installation of the plant was completed on December 31, 2005 and
commercial production commenced from April 1, 2006.
(ii) The company uses straight line method of deprecation. Depreciation is charged from the
month the asset is available for use up to the month prior to disposal. At the time of
purchase, the estimated useful life of the plant was estimated at 15 years whereas the
salvage value was estimated at $ 2.0 million.
(iii) Based on the report of a professional independent valuer, the plant was revalued on July 1,
2010 at $ 45 million. There was however, no change in estimated useful life of the plant.
(iv) The factory remained closed from April 1, to June 30, 2012 due to law and order situation.
(v) The salvage value has not changed since it was first estimated at the time of purchase.
Required
Prepare accounting entries for the year ended June 30, 2015. Give all the necessary calculations.
(Ignore taxation)
IAS 16 Question 8
Journal Entries for the year ended June 30, 2015:

Date Particulars Dr. $ 000 Cr. $ 000
30.06.2015 Repair and maintenance expenses 1,500
Account payable / Bank 1,500
(Repair cost of major break down of the plant)
30.06.2015 Depreciation expense W1 4,095

(Depreciation expense for the year)
30.06.2015 Revaluation surplus W2 989

Retained earnings 989
(Incremental depreciation credited to retained earnings)
30.06.2015 Revaluation Surplus (Impairment loss)W1 5,247

Property, plant and equipment 5,247
(Impairment of plant due to break down – see Note 1 below)
W1 – Plant $ 000
FOB price (Z 800,000 at $ 52) 41,600
Other charges including installation cost 7,000
48,600
Accumulated depreciation(1-1-2006 to 30-6-2010)
(13,980)
(48,600-2,000)/15 years = $ 3,106 x 4.5 years
WDV as on 30-6-2010 34,620
Revaluation surplus (45,000-34,620) 10,380
Revalued amount as of July 1, 2010 45,000
Accumulated depreciation(1-7-2010 to 30-6-2015)
(20,476)
(45,000-2,000)/ 10.5 years = $ 4,095 x 5 years
WDV as on 30-6-2015 24,524
Impairment loss β 5,247
Recoverable amount 19,277
W2 – Revaluation surplus on impairment date

Transferred to retained earnings
(4,945)
(01.07.2010 to 30.06.2015) (10,380/10.5 years = $ 989 x 5 years
Revaluation surplus balance on impairment date 5,435
Note 1
Since impairment loss is less than the revaluation surplus on impairment date, the full amount of
impairment would be adjusted against the revaluation surplus.
IAS 16 Question 9
QUESTION 9 – IAS 16 PPE (ICAP C6 AUTUMN 2006 Q6)
You have recently been appointed as the Chief Accountant of Steel Air Limited, a commercial
airline. Your accountant has prepared the financial statements for the year ended June 30, 2006.
You have reviewed them and found them satisfactory except for the note on tangible fixed assets.
You have scrutinized the records and extracted the following information:
(i) The company acquired land on 99 years lease on January1, 1999 for Rs. 200 million.
(ii) The company has a fleet of nine aircrafts, relevant details of which are as under:
 Each aircraft consists of two major components i.e., engine and airframe having
useful economic life of 20 and 12 years respectively. 70% of the cost of aircrafts
pertains to the engine and 30% to the airframe. The company has10 year’s
replacement policy for airframes.
 Five aircrafts were acquired on January 1, 2000 for Rs. 220 million each.
 Four used aircrafts were also bought on January 1, 2000 from another airline for Rs.
55 million each. Each aircraft was renovated and overhauled at a cost of Rs. 25
million. Rs. 10 million were spent on the airframe and Rs. 15 million on the engine.
15% of these expenditures have been in respect of costs of consumables. The
useful economic lives of engines and airframes are estimated to be the same as
those of new aircrafts.
 Salvage value of engines as well as the airframes is estimated at 10% if sold at the
end of their economic life. Salvage value of airframes at the time of replacement is
estimated at 15% of the cost.
 A newly acquired aircraft was damaged during landing due to computer malfunction
on October 31, 2005. It remained in-operative during the remaining period of the
year. However, it does not require any revaluation.
(iii) Engineering machineries were acquired on April 01, 2000 for Rs. 330 million. As a result of
annual checkup, certain parts were replaced at a cost of Rs. 50 million on July 01, 2005.
This replacement did not enhance the useful life nor did it affect the efficiency of the
machineries. New parts have a useful life of 30,000 hours. Cost of replaced defective parts
was Rs. 20 million and they were sold for Rs. 8 million.
Total useful life of machinery is 60,000 hours and the average usage has been 500
machine hours per month. Estimated salvage value is 10% of cost.
(iv) Hangers for aircrafts have been in use since July 1, 2000. The total cost of their
construction was Rs. 20 million and the total estimated useful life is 20 years.
(v) Furniture and fixtures costing Rs. 13 million, Rs. 7 million and Rs. 4 million were acquired
on July 01, 2000, July 01, 2002 and July 01, 2005 respectively.
(vi) Ten vehicles were taken on finance lease on July 1, 2005 with fair market value of Rs. 1
million each.
(vii) The company’s policy as regards depreciation is as under:

 Leasehold land – straight line method.
 Hangers – straight line method.
 Aircrafts – straight line method.
IAS 16 Question 9
 Engineering plant and equipment–machine hours used.

 Leased vehicles – declining balance method at the rate of 20% per annum.
 Furniture and fixture – declining balance method at the rate of 10% per annum.
Required:
Draft a note to the accounts on fixed assets strictly in accordance with the requirements of
International Accounting Standards and the Companies Ordinance, 1984. Also submit necessary
workings. (Give all figures to the nearest thousand)
(22 marks)
IAS 16 Question 9
ANSWER 9 – IAS 16 PPE (ICAP C6 AUTUMN 2006 Q6)

Steel Air Limited
Notes to the financial statements (extracts)
For the year ended June 30, 2006
1. Significant Accounting Policies

Property, plant and equipments are stated at cost less accumulated depreciation and accumulated
impairment losses, if any.
Depreciation is charged to profit or loss for each class of assets as follows:

Asset Method
Leasehold land Straight line
Hangers Straight line
Aircrafts Straight line
Plant and equipment Machine hours used
Leased vehicles Reducing balance
Furniture and fixtures Reducing balance
2. Property, Plant and Equipment

Furniture
Leasehold Air Plant & Motor
Engines Hangers & Total
land Frames Machinery vehicles
fixtures
W1 W2 W2 W3 W4 W5
COST Rupees in thousands
As on 01-07-05 200,000 975,000 430,000 330,000 20,000 20,000 - 1,975,000
Additions - - - 50,000 - 4,000 10,000 64,000
Disposals - - - (20,000) - - - (20,000)
As on 30-06-06 200,000 975,000 430,000 360,000 20,000 24,000 10,000 2,019,000
DEPRECIATION
Rate % 1.01% 5% 10% 10% 5% 10% 20%
As on 01-07-05 13,131 241,313 201,025 155,925 5,000 7,221 - 623,615

For the year 2,020 43,875 36,550 36,900 1,000 1,678 2,000 124,023
Disposals - - - (9,450) - - - (9,450)
As on 30-06-06 15,151 285,188 237,575 183,375 6,000 8,899 2,000 738,188
Carrying Amount 184,849 689,812 192,425 176,625 14,000 15,101 8,000 1,280,812
W1 Leasehold Land
Depreciation up to 01-07-05 Rs. 200,000 / 99 years x 6.5 years = Rs. 13,131
Depreciation for the year Rs. 200,000 / 99 years = Rs. 2,020
IAS 16 Question 9
W2 Engines and Air frames

Total Engines 70% Airframes
30%
Rs. 000
New aircrafts (220,000 x 5) 1,100,000 770,000 330,000
Used aircrafts (55,000 x 4) 220,000 154,000 66,000
Overhauling air frames (10,000 x 4 x 85%) 34,000
Overhauling engines (15,000 x 4 x 85%) 51,000
Cost as at June 30, 2000 975,000 430,000
Residual value 10%, 15% (97,500) (64,500)
Depreciable amount 877,500 365,500
Useful life 20 years 10 years
Depreciation of one year 43,875 36,550
Years from 01-01-2000 to 01-07-2005 5.5 years 5.5 years
Accumulated depreciation as on 01-07-2005 241,313 201,025
W3 Plant and Machinery

Old April 01, 2000
New
Total Still in use Disposed
Cost 330,000 310,000 20,000 50,000
Residual value 10% (33,000) (31,000) (2,000) (5,000)
Depreciable amount 297,000 279,000 18,000 45,000
Useful life in hours 60,000 60,000 60,000 30,000
Per hour depreciation 4.95 4.65 0.30 1.5
Hours used till June 30, 2005 (63 months x 500 h) 31,500 31,500 31,500 Nil
Deprecation up to June 30, 2005 155,925 146,475 9,450 Nil
Hours used - current year (12 months x 500 h) 6,000 Nil 6,000
Depreciation for the year (hours x hourly rate) 27,900 9,000
Rs. 27,900 + 9,000 = Rs. 36,900
W4 Hangers
Depreciation up to 01-07-05 Rs. 20,000 / 20 years x 5 years = Rs. 5,000
Depreciation for the year Rs. 20,000 / 20 years = Rs. 1,000
W5 Furniture and fixture

Year Cost Carrying amount at beginning Depreciation 10%
2001 13,000 13,000 1,300
2002 13,000 11,700 1,170
2003 13,000+7,000 = 20,000 10,530+7,000 = 17,530 1,753
2004 20,000 15,777 1,578
2005 20,000 14,199 1,420
7,221
2006 20,000+4,000 = 24,000 12,779+4,000 =16,779 1,678
8,899
IAS 16 Question 10
QUESTION 10 – IAS 16 PPE (ICAP C6 AUTUMN 2003 Q2a)
Faraz Brothers Transport Company exchanged a number of used trucks and Cash for vacant plot
of Industrial Land. The trucks have a combined book value of Rs.126,000 (Cost 192,000 and
Accumulated Depreciation Rs 66,000). Faiz Ahmad, a purchasing the secondhand market
indicates that the trucks have a fair Market value of Rs 147,000. In addition to trucks Faraz
Brothers is also required to pay Rs 51,000 cash for the plot of Land.
Required:
Taking into account the requirements of IAS,16 calculate the following:
(i) Cost of land (01 mark)
(ii) Gain on disposal of used truck (02 marks)
(iii) Prepare journal entry to record the aforesaid exchange transaction (02 marks)
ANSWER 10 – IAS 16 PPE (ICAP C6 AUTUMN 2003 Q2a)
(i) The fair value of land is not available, therefore, the land shall be recognized initially at fair
value of assets given in exchange i.e. trucks and cash paid. Rs. 147,000 + 51,000 = Rs.
198,000
(ii) The gain on exchange transaction is Rs. 21,000 [Rs. 147,000 fair value – Rs. 126,000
carrying value).
(iii)
Date Particulars Dr. Rs Cr. Rs
xx.xx.xx Land 198,000
Trucks 192,000
Bank 51,000
P&L (gain) 21,000
(exchange of trucks with land acquired recorded)
IAS 16 Question 11
Following are the assets of a company as on June 30, 2000:
Accumulated Rate of
Particulars Cost
Depreciation Depreciation
(Rs. in million) (%)
Land 78.000 ---
Factory building 167.000 68.523 10
Machinery 265.000 108.735 10
Factory Equipment 0.900 0.369 10
Office Equipment 0.800 0.328 10
Vehicles 4.600 2.931 20
Computers and Accessories 2.300 0.944 10
(a) One of the vehicles costing Rs. 600,000 included in cost purchased on 1 August, 1998
totally destroyed in accident on July 01, 1999. Insurance was not covered.
(b) Machinery included additions at the beginning of the year of Rs.35 million.
(c) An old machinery purchased on 1 September, 1996 amounting to Rs.30 million which was
sold at beginning of the year ended 30 June, 2000 for Rs.18 million credited to machinery
account.
(d) The company uses reducing balance method. The depreciation for the year has not been
charged yet.
Required:
Calculate depreciation for the year ended as on 30 June, 2000 after adjustment of above.
(10 marks)
IAS 16 Question 11
Depreciation on Rs. m
Land (not to be depreciated) Nil
Factory building Rs.[167 – 68.523] x 10% 9.8477
Machinery Rs.[(265 + 18 error – 30 disposal) – (108.735 – 7.725 disposal w1)] x 10% 15.1990
Factory equipment Rs.[0.900 – 0.369] x 10% 0.0531
Office equipment Rs.[0.800 – 0.328] x 10% 0.0472
Vehicles Rs.[4.60 – 0.6 disposal) – (2.931 – 0.11 disposal w2) x 20% 0.2358
Computer etc Rs.[2.3 – 0.944] x 10% 0.1356
Total depreciation 25.9435
W1 – Accumulated depreciation – Machinery disposed
Cost 30
1997 Depreciation 10% x 10/12 2.5
Carrying amount 1997 27.5
1998 Depreciation 10% 2.75
1999 Depreciation 10% 2.475
Rs. 2.5+2.75+2.475 = Rs. 7.725
W2 – Accumulated depreciation – Vehicles disposed

Rs. 0.600 x 20% x 11/12 = Rs. 0.11
IAS 16 Question 12
QUESTION 12 – IAS 16 PPE (ICAP C6 SPRING 2002 Q4)
Under what circumstances should freehold land be depreciated?

(05 marks)
ANSWER 12 – IAS 16 PPE (ICAP C6 SPRING 2002 Q4)
Freehold land can be depreciated only when its useful life is determinable e.g.
(i) Land is expected to be taken over by the government
(ii) There is legal restriction on the future use of the land
(iii) Land is expected to be covered under water because the river is changing its direction
(iv) Land at sea shore is expected to become unusable due to increase in water level at sea.
(v) A land sliding is expected near mountains etc making the use of land impossible.
IAS 16 Question 13
QUESTION 13 – IAS 16 PPE (ICAP C6 AUTUMN 2008 Q2b)
Discuss the requirements of International Accounting Standard(s) in respect of estimation and

revision of useful life of an item of property, plant and equipment.
(04 marks)
ANSWER 13 – IAS 16 PPE (ICAP C6 AUTUMN 2008 Q2b)
All the following factors are considered in determining the useful life of an asset:
(a) expected usage of the asset. Usage is assessed by reference to the asset’s expected
capacity or physical output.
(b) expected physical wear and tear, which depends on operational factors such as the number
of shifts for which the asset is to be used and the repair and maintenance programme, and
the care and maintenance of the asset while idle.
(c) technical or commercial obsolescence arising from changes or improvements in production,
or from a change in the market demand for the product or service output of the asset.
(d) legal or similar limits on the use of the asset, such as the expiry dates of related leases.
IAS 16 Question 14

On October 01, 2004 ABC Limited, in the course of improvement and enhancement of its
production facility bought a plant having invoice value of Rs. 25 million for the production of its
popular brand of electrical goods. Mr. Aslam, one of the directors, was assigned the duty of
supervising the installation of the plant. Other information is given below:
(a) A special trade discount of 25% was allowed by the supplier due to efforts of the agent
involved in the deal, who had close association with Mr. Aslam. Normally the supplier
allows only 10% trade discount to his customers.
(b) The following costs were incurred on site preparation:

Rs. in 000
 Salary of civil engineers and labor 1,200
 Civil and electrical work 2,800
 Electrical item received from the company’s own production department
at cost plus 10% profit (similar items are sold to customers at cost plus
30% profit) 330
 Remuneration of Mr. Aslam during site preparation 600
(c) Civil and electrical work includes cost of certain instruments amounting to Rs. 150,000,
which were poorly handled by the workers and were totally damaged. Now they carry no
value.
(d) On January 01, 2005 test run was started and successfully completed on January 31, 2005
at a cost of Rs. 550,000. The sale proceeds of test production were Rs. 320,000.
(e) The plant went into normal production from February 01, 2005 and attained 45% capacity
during the period ended on June 30, 2005. The company, at this stage, discovered that the
actual capacity of the plant is about 85% of the capacity declared by the supplier. The
matter was discussed with the supplier and his agent. The agent finally agreed to pay a
compensation of 3% on invoice value and issued his credit note to this effect on June 30,
2005.
(f) The company accounts for its assets under cost model and on June 30, 2005 it estimated
Rs. 21 million as the fair value of the plant. It is further estimated that in case of disposal,
the following expenditure will have to be incurred:
Rs. in 000
 Cost of dismantling 250
 Cost of transportation 100
 Terminal benefits of labours to be laid off 300
 Legal costs 100
 Stamp duty 50
 Salary of production manager during dismantling 100
(g) Depreciation is to be charged at 10% on straight line basis from the commencement of
normal production.
Required:
Calculate the following, also submit your explanation if necessary:
(a) Initial recognition of the cost of plant. (05 marks)
(b) Impairment loss, if any, as at June 30, 2005 and accounting treatment thereof. (06 marks)
IAS 16 Question 14
Part (a) Calculation of cost of plant

Rs. 000
Invoice value 25,000
Trade discount 25% (6,250)
Rebate due to low capacity 3% (750)
Salary of civil engineers and labor 1,200

Civil and electrical work Rs. 2,800 – 150 abnormal loss 2,650
Electrical item at cost Rs. 330 x 100/110 300
Remuneration of Mr. Aslam during site preparation 600
Cost of testing Rs. 550 – 320 230
Cost of plant at initial recognition 22,980
Part (b) (figures in thousands)

Impairment loss of Rs. 1,622 (Rs. 22,022 carrying value w1 – Rs. 20,400 recoverable amount w2)
has to be recognized by charging the loss to profit or loss and reducing the carrying amount of the
plant.
W1 Rs. 22,980 – (Rs. 22,980 x 10% x 5/12 depreciation) = Rs. 22,022

W2 Rs. 21,000 fair value – (250 cost of dismantling + 100 legal costs + 50 stamp duty + 100
transportation costs + 100 salary of production manager during dismantling)
= Rs. 20,400 (IAS 36.28)
Note:
The data for calculating value in use is not available, therefore, recoverable costs are assumed to
be equal to plant’s fair value less cost to sell.
IAS 16 Question 15
QUESTION 15 – IAS 16 PPE (ICAP C6 SPRING 2003 Q4)
(a) Jubilee Processing (Pvt.) Limited, trades off its used Plant and Machinery for a new model.
The machine given up has a book value of Rs 16,000 (original cost Rs 24,000 and
accumulated depreciation Rs 8,000) and a fair value of Rs 12,000. It is traded for a new
model that has a list price of Rs 32,000. In negotiations with the seller, a trade-in allowance
of Rs 18,000 is finally agreed on for the used machine.
REQUIRED:
In the light of IAS-16
(i) Calculate the cost of new Machine; (03 marks)
(ii) Compute Gain/(Loss) occurred in exchange transaction; (02 marks)
(iii) Record the transaction in the Books of Jubilee Processing (Pvt.) Limited (02 marks)
(b) A free hold Building is purchased on January 01, 2000, for Rs 40,000. Its estimated useful
life is 20 years and it is depreciated at the rate of Rs 2,000 per annum in each of the ended
December 31, 2000 and 2001. On January1, 2002 a professional valuer estimates the
value of the building at Rs 108,000.
REQUIRED:
On the assumption that the revaluation is to be incorporated in to the books of account, and
that the original estimate of the useful life was correct, show the relevant ledger accounts
for the period January 2000 to December 31, 2002.
(08 marks)
IAS 16 Question 15
ANSWER 15 – IAS 16 PPE (ICAP C6 SPRING 2003 Q4)
Part (a) (i)

The cost of new machine is its fair value i.e. Rs. 32,000
Part (a) (ii)

The gain on exchange transaction is Rs. 2,000 [Rs. 18,000 trade in allowance – Rs. 16,000
carrying value).
Part (a) (iii)

Date Particulars Dr. Rs Cr. Rs
xx.xx.xx Machine (new) 32,000
Machine (old) 24,000
Bank 14,000
P&L (gain) 2,000
(exchange of machine recorded)
Part (b)
Building
Date Particulars Rs. Date Particulars Rs.
01.01.00 Bank 40,000 31.12.00 Balance c/d 40,000
40,000 40,000
01.01.01 Balance b/d 40,000 31.12.01 Balance c/d 40,000

40,000 40,000
01.01.02 Balance b/d 40,000
01.01.02 Revaluation surplus 68,000 31.12.02 Balance c/d 108,000
108,000 108,000
Accumulated Depreciation – Building

31.12.00 Balance c/d 2,000 31.12.00 Depreciation 2,000
2,000 2,000
01.01.01 Balance b/d 2,000
4,000 4,000
01.01.02 Revaluation Surplus 4,000 01.01.02 Balance b/d 4,000
108,000/18
10,000 10,000
Revaluation Surplus – Building

31.12.02 Retained earnings N 4,000 01.01.02 Building 68,000
31.12.02 Balance c/d 68,000 01.01.02 Accumulated dep. 4,000
72,000 72,000
Note: It has been assumed that the company has a policy to transfer increment depreciation (Rs.
6,000 – 2,000) to realized profits.
IAS 16 Question 16
QUESTION 16 – IAS 16 (ICAP CAF5 S17)
State the disclosure requirements for assets carried at revalued amounts, as referred to in IAS –
16 ‘Property, Plant and Equipment’. (04)
ANSWER 16 – IAS 16 (ICAP CAF5 S17)
When items of property, plant and equipment are stated at revalued amounts the following must
be disclosed:
 The effective date of the revaluation;
 Whether an independent valuer was involved;
 For each revalued class of property, plant and equipment, the carrying amount that would have
been recognised had the assets been carried under the cost model; and
 The revaluation surplus, indicating the change for the period and any restrictions on the
distribution of the balance to shareholders.
IAS 16 Question 17
QUESTION 17 – IAS 16 (CAF5 A17)
The following information pertains to Sherdil Limited (SL):

(i) Buildings and equipment were acquired on 1 January 2014 for Rs. 450 million and Rs. 50
million respectively.
(ii) The relevant information relating to both assets is summarised below:

Depreciation Subsequent
Assets Life/rate
method measurement
Buildings Straight line 20 years Annual revaluation
Equipment Reducing balance 10% Cost
SL transfers the maximum possible amount from revaluation surplus to retained earnings
on an annual basis.
(iii) The revalued amount of buildings as determined by Accurate Valuers (Private) Limited, an
independent valuation company, on 1 January 2015 and 2016 was Rs. 456 million and Rs.
378 million respectively.
(iv) Equipment costing Rs. 35 million was purchased on 1 August 2015. Half of the equipment
purchased on 1 January 2014 was disposed off on 30 June 2016.
Required:
In accordance with International Financial Reporting Standards, prepare a note on ‘Property plant
& equipment’ (including comparative figures) for inclusion in SL’s financial statements for the year
ended 31 December 2016. (18)
IAS 16 Question 17
ANSWER 17 – IAS 16 (CAF5 A17)
Property, plant & equipment 2016 2015

Building Equipment Total Building Equipment Total
Rs. in million
Cost / Revalued amount
1 Jan 456 85 541 450 50 500
Revaluation - cancellation (24) (24) (22.5) (22.5)
Revaluation surplus 28.5 – 28.5/19 (27) (27) 28.5 28.5
Revaluation loss (27) (27)
Additions 35 35
Disposal [50 x 50%] (25) (25)
31 December 378 60 438 456 85 541
1 Jan 24 10.96 34.96 22.5 5 27.5
Revaluation - cancellation (24) (24) (22.5) (22.5)
Disposal W2 (5.76) (5.76)
Depreciation W1 21 6.39 27.39 24 5.96 29.96
31 Dec 21 11.59 32.59 24 10.96 34.96
Carrying amount 357 48.41 405.41 432 74.04 506.04
Carrying amount (cost model) 382.5 405

(450 less depreciation)
Building Equipment
Measurement basis Revaluation model Cost model
Useful life / depreciation rate 20 years 10%
Depreciation method Straight line Reducing balance
The revaluation was performed on 1 January 2016 by Accurate Valuers (Private) Limited, an independent
firm of valuers. The entity transfers effect of incremental depreciation from revaluation surplus to retained
earnings on annual basis.
W1 – Depreciation Rs. m
2015 – Building [456 / 19 years] 24
2015 – Equipment [45 x 10% = 4.5] + [35 x 10% x 5/12 = 1.46] 5.96
2016 – Building [378 / 18 years] 21
2015 – Equipment [74.04 – 20.25] x 10% + 1.01 6.39
W2 – Depreciation on disposed equipment Rs. m

Cost 50 x 50% 25
Depreciation 2014 10% (2.5)
22.5
Depreciation 2015 10% (2.25)
20.25
Depreciation 2016 10% x 6/12 (1.01)
19.24
Accumulated depreciation related to disposed equipment 2.5 + 2.25 + 1.01 5.76
IAS 16 Question 18
The following information pertains to property, plant and equipment of Orchid Limited (OL), a listed
company:
Date of Cost Original Depreciation Subsequent

Description
purchase Rs. in million useful life method measurement model
Buildings 1-Jan-15 600 30 years Straight line Revaluation
Plant 1-Jan-15 475 25 years Straight line Cost
Buildings
The revalued amount of buildings as determined by Shabbir Associates, an independent valuer, on 31
December 2015 and 2017 was Rs. 700 million and Rs. 463 million respectively.
On 30 June 2017 a building having original cost of Rs. 66 million was sold to Baqir Limited for Rs. 85
million. It was last revalued at Rs. 87 million. OL incurred a cost of Rs. 2 million on disposal.
OL transfers the maximum possible amount from revaluation surplus to retained earnings on an annual
basis.
Plant
On 31 December 2016 the recoverable amount of the plant was assessed at Rs. 360 million with no
change in useful life.
During 2017, OL has decided to change the depreciation method for plant from straight line to reducing
balance. The new depreciation rate would be 10%.
Required:
Prepare following notes (along with comparative figures) to be presented in the financial statements of OL
for the year ended 31 December 2017 in accordance with the requirements of relevant IFRSs and
Companies Act, 2017:
(a) Property, plant and equipment (18)
(b) Change in depreciation method (02)
IAS 16 Question 18

Orchid Limited
Notes to the financial Statements
For the year ended 31 December 2017
Property, plant & equipment 2017 2016
Building Plant Total Building Plant Total
Rs. in million
Cost / Revalued amount
1 Jan 700 475 1,175 700 475 1,175
Disposal (87) (87)
Revaluation – cancellation (42.28) (42.28)
Revaluation loss (OCI and PL) W1 (107.72) (107.72)
31 December 463 475 938 700 475 1,175
Acc. depreciation/Impairment
1 Jan 24.14 115 139.14 0 19 19
Disposal W2 (4.5) (4.5)
Depreciation W1 22.64 36 58.64 24.14 19 43.14
Revaluation (Cancellation) (42.28) (42.28)
Impairment W1 77 77
31 Dec 0 151 151 24.14 115 139.14
Carrying amount 463 324 787 675.86 360 1,035.86
Carrying amount (cost model)

Cost [after disposal] [ Before] 534 600
Accumulated Depreciation (53.4) (40)
780.6 560
Building Plant
Measurement basis Revaluation model Cost model
Useful life / depreciation rate 30 years 10%
Depreciation method Straight line Reducing balance
The last revaluation was performed on 31 December 2017 by Shabbir Associates, an independent firm of
valuer.
Cost / Rev.
Book Value Sale Price Gain Mode of
Assets disposed Purchaser amount
disposal
Rs. in million
Building Baqir Ltd 87.00 82.50 85.00 0.5 Tender
Cost of disposal Rs. 2 m
Change in estimate
Due to significant change in the expected pattern or consumption of the future economic benefits
in the Plant assets, therefore, the company has decided to change the depreciation method of
plant from straight line to reducing balance method. The new depreciation rate is 10%.
Had the deprecation method been not changed, profit of 2017 would have been higher by Rs.
20.35 million. [Rs. 360 x 10% - 360 /23 years]
IAS 16 Question 18
W1 – Depreciation / Impairment / Revaluation Surplus Rs. m

Building
2015 – Depreciation [600 / 30 years] 20
2015 – Revaluation Gain [700 – [600 – 20]] 120
2016 – Depreciation [700 / 29 years] 24.14
2017 – Depreciation [[700 – 24.14] – 84] / 28 years + [84 / 28 years x 6/12] W2 22.64
2017 – Revaluation 463 FV – [(700 – 87 Cost) – 42.28 Acc. Dep.] (107.72)
Plant
2016 – Impairment [475 – 19 – 19] – [360 Recoverable amount] 77
2017 – Depreciation [360 x 10% reducing balance] 36
W2 – Depreciation and Revaluation on disposed equipment Rs. m Rs. m

Cost 66
Depreciation 2015 [66 / 30 years] eliminated on revaluation (2.2)
63.8
23.2 23.2
Revalued 31 Dec 2015 87
Depreciation 2016 [87 / 29 years] (3) (0.8)
84
Depreciation 2017 [87 / 29 years x 6/12] (1.5) (0.4)
82.5 22
Accumulated depreciation related to disposed equipment 3 + 1.5 4.5
IAS 16 Question 19
Following information pertains to a building acquired by SK Limited (SKL) on 1 July 2012 for Rs. 360
million:
(i) The building is being depreciated on straight-line 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 revaluations as carried out by independent valuer
are as follows:
Fair value
Revaluation date
(Rs. in million)
31 December 2013 323
(iii) There is no change in useful life of the building.
(iv) SKL transfers the maximum possible amount from the revaluation surplus to retained earnings 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 and elimination of accumulated depreciation
are not required) (11)
IAS 16 Question 19
Debit Credit
Date Description
Rs. M
31 Dec 2013 Accumulated depreciation 18 + 36 54
Building 54
Building 17
Revaluation Surplus (OCI) 17
31 Dec 2015 Accumulated depreciation 38+38 76

Building 76
Revaluation Loss (PL) 26
31 Dec 2017 Accumulated depreciation 32+32 64

Building 64
Building 23
Revaluation loss reversal (PL) 18
Workings Building OCI PL

Rs. m Rs. m Rs. m
Cost 1 Jul 2012 360
2012 Depreciation 360 / 10 years x 6/12 (18)
2013 Depreciation 360 / 10 years x 12/12 (36)
306
Gain on revaluation (balancing figure) 17 17
Fair value on 31 December 2013 323 17
2014 Depreciation 323 / 8.5 years (38) (2)
2015 Depreciation (same) (38) (2)
247 13
Loss on revaluation (balancing figure) (39) (13) (26)
Fair value on 31 December 2015 208 0 (26)
2016 Depreciation 208 / 6.5 years (32) 4
2017 Depreciation (same) (32) 4
144 (18)
Gain on revaluation (balancing figure) (23) 5 18
Fair value on 31 December 2017 167 5 0

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IAS 16 Question 20

QUESTION 20 – IAS 16 (CAF5 S18)

Following information pertains to three exchange transactions relating to fixed assets:

(i) (ii) (iii)

ANSWER 20 – IAS 16 (CAF5 S18)

(i) (ii) (iii)

QUESTION 1: IAS 16 PROPERTY, PLANT & EQUIPMENT

ANSWER – QUESTION 1: IAS 16 PROPERTY, PLANT & EQUIPMENT

(ii) 31st March 2017

QUESTION 2: IAS 16 PROPERTY, PLANT & EQUIPMENT

ANSWER – QUESTION2: IAS 16 PROPERTY, PLANT & EQUIPMENT

The original depreciation was $ 40,000 ($ 1,000,000/25 years) per annum.

Transfer from revaluation surplus to retained earnings:

Fall in fair value to 0.8 million:

QUESTION 3: IAS 16 PROPERTY, PLANT & EQUIPMENT

During 2015 the following transactions took place.

ANSWER – QUESTION 3: IAS 16 PROPERTY, PLANT & EQUIPMENT

Financial statements for the year ended 31 December 2015 (extract)

W2 - Cost of new machine

QUESTION 4: IAS 16 PROPERTY, PLANT & EQUIPMENT

Adjustments Limited has carried out a review of its non-current assets.

ANSWER – QUESTION 4: IAS 16 PROPERTY, PLANT & EQUIPMENT

Accumulated depreciation at the date of revaluation is either:

QUESTION 5: IAS 16 PROPERTY, PLANT & EQUIPMENT

Fam had the following tangible fixed assets at 31 December 2014.

In the year ended 31 December 2015 the following transactions occur.

(3) Additions to plant are $ 154,000.

(5) The following assets are sold.

ANSWER – QUESTION 5: IAS 16 PROPERTY, PLANT & EQUIPMENT

The principal rates are as follows:

Fixed Assets Movements:

The corresponding historical cost information is as follows.

W2 – Depreciation for the year

2% straight line depreciation is equivalent to a 50 year life.

Depreciation on fixtures (390 + 40 – 41 – 140 + 31) x 25% 70

QUESTION 6: IAS 16 PROPERTY, PLANT & EQUIPMENT

(b) Discuss the requirements of International Accounting Standard(s) in respect of estimation

ANSWER – QUESTION 6: IAS 16 PROPERTY, PLANT & EQUIPMENT

Effect of change in estimate (Reversal) [1,266,667 - 1,400,000) (133,333)

QUESTION 7: IAS 16 PROPERTY, PLANT & EQUIPMENT

(i) It is being depreciated on the straight line basis, over 20 years.

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

ANSWER – QUESTION 7: IAS 16 PROPERTY, PLANT & EQUIPMENT

30.06.2012 Depreciation 10,000

01.07.2012 Accumulated depreciation – Building 10,000

01.07.2012 Building 40,000

30.06.2013 Depreciation 12,105

30.06.2013 Surplus on revaluation of fixed assets 2,105

01.07.2013 Accumulated depreciation – Building 12,105

01.07.2013 Surplus on revaluation of fixed assets 37,895

30.06.2014 Depreciation 9,444

01.07.2014 Building 19,444

30.06.2015 Depreciation 10,588

30.06.2015 Surplus on revaluation of fixed assets 588

QUESTION 8: IAS 16 PROPERTY, PLANT & EQUIPMENT

Scientific Pharma Limited (SPL) is a manufacturer of pharmaceutical products. In January 2015,

ANSWER – QUESTION 8: IAS 16 PROPERTY, PLANT & EQUIPMENT

Journal Entries for the year ended June 30, 2015:

30.06.2015 Depreciation expense W1 4,095