ias16_solutions - 01 TECHNICAL ias 16 solutions Solution 1 In accordance with IAS 16 all costs required to bring an asset to its present location and

ias16_solutions - 01 TECHNICAL ias 16 solutions Solution 1...

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¤ Depreciation of the store. Even though the asset has not yet been brought into use, IAS 16 states depreciation of an asset begins when it is available for use, ie when it is in the location and condition necessary for it to be capable of operating in the manner intended by management. Note: depreciation cannot be calculated in this question as information surrounding useful economic life has not been provided – this is for illustrative purposes only. Depreciation is covered later in this article. SOLUTION 3 The $18,000 should be capitalised as part of the cost of the asset as the revenue earning capacity of the machine has significantly increased, which could in turn lead to the inflow of additional economic benefit and the cost of the upgrade can be reliably measured. SOLUTION 4 Income statement extract Depreciation expense $37,500 Statement of financial position extract Plant (200,000 – 50,000 – 37,500) $112,500 Working for depreciation: 31/03/09 Cost 200,000 Depreciation – 25% (50,000) Carrying value 150,000 31/03/10 Carrying value 150,000 Depreciation – 25% (37,500) Carrying value 112,500 SOLUTION 5 31 March 2008 At the date of acquisition the cost of the asset of $120,000 would be capitalised. The asset should then be depreciated for the years to 31 March 2008/2009 as: Cost – residual value = 120,000 – 20,000 = $10,000 per annum Useful economic life 10 years Income statement extract 2008 Depreciation $10,000 Statement of financial position extract 2008 Machine (120,000 – 10,000) $110,000 31 March 2009 Income statement extract 2009 Depreciation $10,000 Statement of financial position extract 2009 Machine (120,000 – 20,000) $100,000 SOLUTION 1 In accordance with IAS 16, all costs required to bring an asset to its present location and condition for its intended use should be capitalised. Therefore, the initial purchase price of the asset should be: $ List price 82,000 Less: trade discount (10%) (8,200) 73,800 Import duty 1,500 Delivery fees 2,050 Electrical installation costs 9,500 Pre-production testing 4,900 Total amount to be capitalised at 1 March 91,750 The maintenance contract of $7,000 is an expense and therefore
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