CLASS 3 Tangible non-current assets

Questions
1. Which of the following costs should be included in the cost of an item of property, plant and
equipment (PPE) at initial recognition?
the purchase price of the item

import duties incurred in relation to the item

delivery charges

small spare parts for the item

the cost of a maintenance contract

non-refundable purchase taxes relating to the item

2. Market value can usually be taken as fail value.

True False

3. Investment properties must always be shown at fair value.

True False

MCQs
1. Foster has built a new factory incurring the following costs:

$’000
Land 1,200
Materials 2,400
Labor 3,000
Architect's fees 25
Surveyor' s fees 15
Site overheads 300
Apportioned administrative overheads 150
Testing of fire alarms 10
Business rates for first year 12
7,112
What will be the total amount capitalised in respect of the factory?
A $6,112,000
B $6,950,000
C $7,112,000
D $7,100,000
2. Capita had the following bank loans outstanding during the whole of 20X8:
$m
9% loan repayable 20Х9 15
11% loan repayable 20Y2 24

Capita began construction of a qualifying asset on 1 April 2oX8 and withdrew funds of $6 million on that date
to fund construction. On 1 August 2oX8 an additional $2 million was withdrawn for the same purpose.
Calculate the borrowing costs which can be capitalised in respect of this project for the year ended 31
December 20X8.
A $549,333
B $411,999
C $750,000
D $350,000

3. Leclerc has borrowed $2.4 million to finance the building of a factory. Construction is expected to take
two years. The loan was drawn down and incurred on 1 January 20X9 and work began on 1 March 20X9.
$1 million of the loan was not utilised until 1 July 20X9 so Leclerc was able to invest it until needed. Leclerc
is paying 8% on the loan and can invest surplus funds at 6%.
Calculate the borrowing costs to be capitalised for the year ended 31 December 2oX9 in respect of this
project.

A $140,000
B $192,000
C $100,000
D $162,000

4. Which one of the following statements is correct regarding investment properties?

(1) Transfers to or from investments property should only be made when there is a change in their use.
(2) Transfers from an investments property to an IAS 16 property must be made at the fair value of an
investment property at the date of transfer.
(3) An entity should treat any difference at the transfer date from a capitalized property (treated under
IAS 16) to an investment property as an expense to the profit or loss.

A Statement (1) only

B Both statements (1) and (2)
C Both statements (2) and (3)
D Both statements (1) and (3)
 OTQs

5. Auckland purchased a machine for $60,000 on 1 January 20X7 and assigned it a useful life of 15 years. On
31 March 20X9 it was revalued to $64,000 with no change in useful life.
What will be depreciation charge in relation to this machine in the financial statements of Auckland for
the year ending 31 December 20X9?

6. Wetherby Co purchased a machine on 1 July 20X7 for $500,000. It is being depreciated on a straight-
line basis over its useful life of ten years. Residual value is estimated at $20,000. On 1 January 20X8,
following a change in legislation, Wetherby Co fitted a safety guard to the machine. The safety guard
cost $25,000 and has useful life of five years with no residual value.
What amount will be charged to profit or loss for the year ended 31 March 20X8 in respect of
depreciation on the machine?

7. Carter vacated an office building and let it out to a third party on 30 June 2oX8. The building had an
original cost of $900,000 on 1 January 20X0 and was being depreciated over 50 years. It was judged to
have a fair value on 30 June 20X8 of $950,000. At the year end date of 31 December 20X8 the fair value
of the building was estimated at $1.2 million. Carter uses the fair value model for investment property.
What amount will be shown in revaluation surplus at 31 December 20X8 in respect of this building?

$
 MSQs case

On 1 October 2ОХ5 Dearing acquired a machine under the following terms.

Hours $
Manufacturer's base price 1,050,000
Trade discount (applying to base price only) 20%
Early settlement discount taken (on the payable amount of the 5%
base cost only)
Freight charges 30,000
Electrical installation cost 28,000
Staff training in use of machine 40,000
Pre-production testing 22,000
Purchase of a three-year maintenance contract 60,000

On 1 October 20Х7 Dearing decided to upgrade the machine by adding new components at a cost of $200,000.
This upgrade led to a reduction in the production time per unit of the goods being manufactured using the
machine.

8. What amount should be recognized under non-current assets as the cost of the machine?
A $840,000
B $920,000
C $898,000
D $870,000

9. How should the $200,000 worth of new components be accounted?

A Added to the carrying amount of the machine
B Charged to profit or loss
C Capitalised as a separate asset
D Debited to accumulated depreciation

10. Every five years the machine will need a major overhaul in order to keep running, How should this be
accounted for?
A Set up a provision at year 1
B Build up the provision over years 1-5
C Capitalised the cost when it arises and amortise over five years
D Write the overhaul off to maintenance costs

Assessment progress test (Class 3)  15 min

https://edu.hse.ru/mod/quiz/view.php?id=250157
 SELF-STUDY OTQs – case

Elite Leisure is a private limited company that operates a single cruise ship. The ship was acquired on 1
October 20W6 (ten years before 20X6). Details of cost of the ship`s components and their estimated useful
lives are:
Original cost Depreciation basis
Components
$m
Ship`s fabric (hull, desk etc) 300 25 years straight-line
Cabins and entertainment 150 12 years straight-line
Propulsion system 100 Useful life of 40,000 hours

At 30 September 20X4 no further capital expenditure had been incurred on the ship.
The measured expired life of the propulsion system at 30 September 20X4 was 30,000 hours. Due to the
unreliability of the engines, a decision was taken in early October 20X4 to replace the whole of the propulsion
system at cost of $140 million. The expected life of new propulsion system was 50,000 hours and in the year
ended 30 September 20X5 the ship had used its engines for 5,000 hours.
At the same time as the propulsion system replacement, the company took the opportunity to do a limited
upgrade to the facilities at a cost of $60 million and repaint the ship`s fabric at a cost of $20 million. After the
upgrade of the facilities it was estimated that their remaining life was five years (from the date of the
upgrade). For the purpose of calculating depreciation, all the work on the ship can be assumed to have been
completed on 1 October 20X4. All residual values can be taken as nil.

1. At 30 September 20X4 the ship is eight years old. What is the carrying amount of the ship at that date?

$279m
$275m
$229m
$254m

2. What is the amount of depreciation that should be charged in respect of the propulsion system for the
year ended 30 September 20X5?

$14m
$39m
$17.5m
$16.5m

3. Apart from depreciation, what is the total charge to profit or loss for the year ended 30 September
20X5?
$