Quiz 1: PPE and impairment 7 - 8 August 2020

True / False section

1. IAS 16 defines PPE items to be tangible, held for use in the production of goods and services
but is expected to be used for less than 12 months.
2. PPE is classified in the SOFP as a non-current asset.
3. Acquisition date or the transaction date is the date that the PPE item is delivered to the entities
premises.
4. The transaction date for the purchase of PPE items on the CIF terms is the date the good are
delivered to the foreign port.
5. The acquisition cost of an imported machine includes the foreign purchase price, import duties,
local transport and all VAT.
6. Acquisition costs excludes ALL profit or losses on FOREX transactions.
7. Acquisition costs includes borrowing costs on funds used to purchase the PPE items.
8. When an asset is exchanged for another non-monetary asset, the transaction is ALWAYS
measured at the fair value of the asset or consideration acquired.
9. The depreciable amount, which is less the residual value, must be calculated before dividing by
the useful life of the PPE item.
10. The journal entry to recognize the depreciation expense is: debit Depreciation expense
(SOPL) and credit Accumulated Depreciation (SOFP).
11. The accumulated depreciation for each type of PPE must be kept in a separate ledger
account.
12. The carrying value (CV) or net book value (NBV) of an item of PPE = depreciable amount –
accumulated depreciation13. Depreciation starts when the asset is available for use

13. Five years useful life is the same as 20%pa deprecation rate
14. Diminishing or Reducing Balance depreciation expense for current year =
[(Cost – Residual Value) – Accumulated depreciation at end of current year] x % Depreciation rate
15. Profit or loss on disposal of a PPE item = CV or NBV at date of sale – (net proceeds including
VAT)
16. If the CV > RA the asset is impaired
17. RA is the smaller of FV less costs to sell or its value in use
18. If the CV < RA then you recognize an impairment profit
19. The journal entry for an impairment loss write of is:
Debit Impairment Loss (SOFP) and credit Accumulated impairment loss (SOPL)
Quiz 1: PPE and impairment 7 - 8 August 2020
Calculations section
ABC Limited’s main source of income is the manufacturing of specialized tools used in the repairs
of all electronic equipment. ABC Limited has a current end of reporting date of 30 June 2020. The
following information was obtained from the company asset register at the beginning of the year:
01 July 2019.

Acc,Dep. Residual
Useful
Asset type life Depreciation Method Cost 01072019 Value
Machines 4 Straight Line Method R1 400 000 R120 000 Nil
Diminishing Balance
Vehicles 3 R850 000 R50 000 R10 000
Method

20. Calculate the depreciable amount of the vehicles.

21. Calculate the carrying value (CV) or net book value (NBV) on the vehicles at 1 July 2019.
22. Calculate the current depreciation expense on the vehicles.
23. Calculate the current depreciation expense on the machines.
24. Calculate the carrying value (CV) or net book value (NBV) on the machines at 30 June 2020.

At 30 June 2020 ABC Limited owns a machine for which there is an active market and can at this
stage be sold to a willing and knowledgeable buyer for R108 500. The costs to sell amount to R7 755
and the value in use at 30 June 2020 is R95 000. This machine initially cost R210 000 and the
accumulated depreciation at 30 June 2020 is R98 000.
25. Calculate the recoverable amount of the machine as at 30 June 2020.
26. Calculate the CV or NBV of the machine as at 30 June 2020.
27. Calculate the impairment on the machine (if any) as at 30 June 2020.