IAS 16 PPE

An entity has a policy of revaluing its PPE. An asset cost $15m on 1 January 2008, has a useful life of 15 years and is depreciated on a straight-line basis to a zero residual value. The value of the asset at 31 December 2008 was $14.5m. At 31 December 2009, the market value of the asset was $12.5m. The accounting entry at 31 December 2009 would be --------

• Depreciation $1m to income statement, fall in value of $0.5m charged to revaluation reserve and $0.5m to the income statement

• Depreciation $1.04m to income statement, fall in value of $0.5m charged to revaluation reserve and $0.46m to the income statement

• Depreciation $1m to income statement, fall in value of $0.96m to the income statement

• Depreciation $1.04m to income statement, fall in value of $0.96m charged to revaluation reserve

An entity has a policy of revaluing its PPE. An asset cost $5m on 1 January 2008 and has a useful life of five years and is depreciated on a straight-line basis to a zero residual value. The value of the asset at 31 December 2008 was $3.8m. The fall in value will be accounted for as follows –

• Depreciation $1m and fall in value of $200,000 both to the reserves

• Depreciation $1m to the income statement and fall in value of $200,000 ignored until there is a revaluation surplus

• Depreciation $1m and fall in value of $200,000 both to the income statement

• Depreciation $1m to income statement and fall in value of $200,000 to the reserves

An entity owns a fleet of company cars and executive vehicles, and has other property and equipment in order to service the fleet. It decided to revalue some of its property, plant and equipment. Which one of the following options complies with IAS 16?

• Revalue only one-half of each class of property, plant and equipment

• Revalue an entire class of property, plant and equipment

• Revalue only the cars and not the executive vehicles

• Revalue only those parts of the fleet that have increased in value

Multipart has purchased a budget airline and is discussing the way in which it should depreciate the aircraft as aircraft have a lifespan of 10 years, engines have a lifespan of seven years and tyres have a lifespan of 18 months. The aircraft should be depreciated on a straight-line basis over –

• 1.5 years useful life

• Seven years useful life of the engine, 1.5 years useful life of the tyres, and 10 years useful life applied to the balance

• 10 years composite useful life

• Seven years useful life

"The basic principle of IAS 16 is that items of property, plant and equipment that qualify for recognition should initially be measured at cost". True or False

• True

• False

When the disposal proceeds are greater than the carrying amount there is a profit on disposal and when the disposal proceeds are less than the carrying amount there is a loss on disposal.

True or False?

• True

• False

The carrying amount of Zen Co’s property at the end of the year amounted to $108,000. On this date the property was revalued and was deemed to have a fair value of $95,000. The balance on the revaluation surplus relating to the original gain of the property was $10,000.

How much is the gain on revaluation?

• USD 3000

• USD 10000

• USD 13000

• None of these

In the case of revaluation loss, we will adjust revaluation surplus, if any, and debit revaluation surplus, credit goes to non current asset. What if any further residual loss comes in?

• We will not consider further residual loss

• Debit Income statement for further residual loss

• Debit SOFP for further residual loss

• None of these