Ias 16-Ppe Autumn 2022 by Hasan Marfani, ACA

CAF-1-FAR-1- IAS-16-Property, Plant and Equipment
by Hasan Marfani,ACA
IAS 16 – PROPERTY, PLANT AND EQUIPMENT
Property, Plant and Equipment
1. are held for
 use in the production or
 supply of goods or services,
 for rental to others, or
 for administrative purposes; and
2. are expected to be used during more than one period.
Components of Cost of PPE
1. Purchase price
Purchase price,
 import duties and
 non-refundable purchase taxes,
after deducting
 trade discounts and
 rebates
2. Directly attributable Cost
Any costs directly attributable to bringing the asset to the intended location and condition
 costs of employee benefits

 costs of site preparation;
 initial delivery and handling costs;
 installation and assembly costs;
 costs of testing whether the asset is functioning properly, after deducting the net proceeds from
selling any items produced while bringing the asset to that location and condition (such as
samples produced when testing equipment
 professional fees.
3. Certain Future Cost The
initial estimate of the costs of dismantling and removing the item and restoring the site on which it is
located, the obligation for which an entity incurs either when the item is acquired or as a consequence
of having used the item during a particular period for purposes other than to produce inventories
during that period.
Don’t Include in Costs
Examples of costs that are not costs of an item of property, plant and equipment are:
 costs of opening a new facility;

 costs of introducing a new product or service (including costs of
 advertising and promotional activities
 costs of conducting business in a new location or with a new class of customer
 costs of staff training; and
 administration and other general overhead costs
FROM THE DESK OF HASAN MARFANI,ACA-TMUC 1

Cost incurred after PPE reaching intended location and condition
Recognition of costs in the carrying amount of an item of property, plant and equipment ceases when the
item is in the location and condition necessary for it to be capable of operating in the manner intended by
management.
The following costs are not included in the carrying amount of an item of property, plant and equipment:
 costs incurred while an item capable of operating in the manner intended by management has yet to
be brought into use or is operated at less than full capacity;
 Initial operating losses, such as those incurred while demand for the item’s output builds up; and
 Costs of relocating or reorganizing part or all of an entity’s operations.
Major inspections
When an asset requires ‘regular major inspections as a condition to its continued use’, then the cost thereof,
(or an estimate thereof), must be capitalized as soon as the cost is incurred or an obligation arises. This
inspection will be recognized as an asset.
If an entity buys an asset that, on the date of purchase, has already been inspected and thus does not
require another inspection for a period of time, the cost must be separated into:
 The cost that relates to the physical asset (or its separate significant parts), and
 The cost that relates to the balance of the previous major inspection purchased.
Incomes from and Expenses on Incidental Operations

Some operations occur in connection with the construction or development of an item of property, plant
and equipment, but are not necessary to bring the item to the location and condition necessary for it to be
capable of operating in the manner intended by management. These incidental operations may occur
before or during the construction or development activities. For example, income may be earned through
using a building site as a car park until construction starts. Because incidental operations are not necessary
to bring an item to the location and condition necessary for it to be capable of operating in the manner
intended by management, the income and related expenses of incidental operations are recognized in
profit or loss and included in their respective classifications of income and expense.
Internal Profits on self-constructed assets
The cost of a self-constructed asset is determined using the same principles as for an acquired asset. If an
entity makes similar assets for sale in the normal course of business, the cost of the asset is usually the same
as the cost of construction an asset for sale (see IAS 2). Therefore, any internal profits are eliminated in
arriving at such costs.
Abnormal Losses
the cost of abnormal amounts of wasted material, labour, or other resources incurred in self-constructing an
asset is not included in the cost of the asset.
Borrowing Cost
Included in the cost of the assets if the criteria given in IAS 23 is fulfilled.
Deferred Payments
The cost of an item of property, plant and equipment is the cash price equivalent at the recognition date.
If payment is deferred beyond normal credit terms, the difference between the cash price equivalent and the
total payment is recognized as interest over the period of credit unless such interest is capitalized in
accordance with IAS 23.
i.e. The amount to be paid – Present Value of that time = Interest Expense recognized over the payment period

Cost of Separately recognizing significant part
A part is considered to be significant in relation to the total cost of the asset. The idea behind recognizing
each part separately is that we will then be able to depreciate each part separately (significant parts often
have different useful lives and residual values to the remainder of the item of PPE.)
RECORDING OF DEPRECIATION EXPENSE
Method 1: Allowance Method or Indirect method: (Most commonly used)
Depreciation expense (Dr.)
Accumulated depreciation (Cr.)
Depreciation expense is an expense account and is reported in the Profit and loss account. Due to the closing
process, balance of Depreciation expense become nil at each year end and always show one year
depreciation at a time.
Accumulated depreciation (also known as Allowance / provision for depreciation) is a contra asset account
and is shown as a deduction from the cost of the related asset account in the balance sheet. Balance of the
account shows the depreciation that has been charged against the asset during the life of the asset.
Method 2: Direct write off method or Net Book Value method: (not widely used and usually referred in
questions of incomplete records)
Depreciation Expense (Dr.)
Asset Account (Cr.)
In this method the asset account is directly credited with the depreciation for the year. So the asset account
directly shows the book value of the asset.
METHODS OF CALCULATING DEPRECIATION
1. Straight line method or Fixed installment method:
This method recognizes equal periodic depreciation charges over the useful life of an asset, thereby
making depreciation a function solely of time without regard to asset productivity, efficiency, or usage.
Depreciation charge per period = Cost - residual value
Useful life
Rate of depreciation = 100

Useful life
Depreciation for the year = (Cost - residual value) * Rate of depreciation
Rate of depreciation as %age of cost = 100 - % age of Residual value

Useful life
Where residual value is not given, depreciable cost and cost are the same amounts.
Alternate way to calculated depreciation when book value given:
Depreciation charge per period = Book value - residual value

Remaining Useful life

3. Reducing balance or Fixed Percentage of Declining Balance Method or Written down value method:
The fixed percentage of declining balance method multiplies a fixed rate times a declining balance. The
rate is calculated by means of the following formula, where n equals the useful life in years:
Re sidual _ value
Rate of deprecation = 1- n
Cost
Depreciation for the year = (Cost - Accumulated depreciation) * Rate of depreciation
 The result is to reduce the cost of the asset to its estimated net salvage value at the end of the asset’s
useful life.
 To calculate the rate of depreciation by this formula, some salvage value must be assigned to the asset,
since it is not possible to reduce an amount to zero by applying a constant rate to a successively smaller
remainder
 Usually a rate of depreciation is already given in the question for the reducing balance method which
is to be used.
Another way of calculating the rate of depreciation is to double the rate of straight line method, in this
case the method is named as Double declining balance method.
4. Service Hour Method:

This method assumes that if an asset is used twice as much in period 1 as in period 2, the depreciation charge
should differ accordingly.
Rate of depreciation per hour of use = Cost - residual value

Useful life in hours
Depreciation for the year = Rate of depreciation * Hours used during the year
The service hour method usually is appropriate when obsolescence is not a primary factor in depreciation
and the economic service potential of the asset is used up primarily by running time.

5. Productive Output Method:

This method is essentially the same as the service-hours method, except that useful life is expressed in terms
of units of production rather than hours of use.
Depreciation
Begins Ceases
At the earlier of date that the asset is
When an asset is available for use
classified as held for sale in accordance
(not when it was brought into use).
with IFRS 5 and the date that the asset is
derecognized.
Depreciation does not cease if an asset is
idle (unless the sum of the units method
is used to calculate the depreciation).
DEPRECIATION FOR PARTIAL PERIODS:

Since assets are acquired and disposed of throughout the year, entities must compute depreciation for partial
periods. Computation alternatives are found in practice (in the order of preference):
a. A full year’s depreciation is recognized on assets acquired during the year; none is recognized on assets
retired during the year.
b. Depreciation is recognized on proportional basis i.e. from the date of addition to the date of disposal.
c. One-half year’s depreciation only is recognized on all assets purchased or sold during the year (half year
convention).
Which method to use in the examination questions?
a. Use the policy given in the question if any
b. If no policy given then:
 If the dates of additions and disposals are given then calculate proportionate depreciation on the
additions and disposals
 Otherwise yearly basis.
REVISING THE USEFUL LIFE

The useful life of an asset shall be reviewed at least at each financial year-end and, if expectations differ from
previous estimates, the changes shall be accounted from the current and subsequent periods (prospectively).
In case of revision of life, the deprecations already charged in previous years on the basis of old life are not
re-stated
After the revision of life, the depreciation for the year is calculated as follows:

Straight line method: Remaining depreciable cost (Cost - Acc. dep. -Net salvage value)
Reducing balance method:

The book value is multiplied by the new rate which is determined as follows:
Re sidual _ value
Book _ value (where n is remaining life)
REVISING THE RESIDUAL VALUE

The residual value of an asset shall be reviewed at least at each financial year-end and, if expectations differ
from previous estimates, the changes shall be accounted from the current and subsequent periods.
After the revision of residual value, the depreciation for the year is calculated as follows:
Straight line method: Remaining depreciable cost (Cost – Acc. Dep. - New residual value)
Reducing balance method:
The book value is multiplied by the new rate which is determined as follows:
New _ Re sidual _ value
Book _ value (where n is remaining life)
REVIEW OF DEPRECIATION METHOD
The depreciation method applied to property, plant and equipment must be reviewed periodically and, if
there has been a significant change in the expected pattern of economic benefits from those assets, the
method is changed to reflect the changed pattern.
Where there is a change in the depreciation method used, this is a change in accounting estimate. A change
of accounting estimate is applied from the time of the change, and is not applied retrospectively. The carrying
amount (cost minus accumulated depreciation) of the asset at the date of the change is written off over the
remaining useful life of the asset.
DISPOSAL OF ASSET
Gain or (loss) from disposal = Net Sale proceeds or Trade in allowance or Fair value of the asset - Book value
at the time of disposal
 When asset is destroyed or retired without any sale, then take nil sale proceeds and whole book value is
loss.
 When an asset is disposed off, the cost of the asset and the related amount of accumulated depreciation
must be removed from the books.
 If the entity follows the policy to charge depreciation till date of disposal then ensure that the book values
are updated.
Entries for disposal (including exchange):

Dr. Cash / New asset (at fair value)
Dr. Accumulated depreciation of old asset
Cr. Cost of old asset

Cr. Cash (any net payment for new asset)
The difference if any on the debit side is the loss and on the credit side is the gain on disposal.
Rules for exchange of assets:

An asset may be acquired in exchange for another asset. The cost of such an asset is measured at its fair value
unless:
 the exchange transaction lacks commercial substance; or
 the fair value of neither the asset received nor the asset given up is reliably measurable.
If the new asset is measured at fair value, the fair value of

 the asset given up is used to measure the cost of the asset received
 unless the fair value of the asset received is more clearly evident.
If the new asset is not measured at fair value, its cost is measured at the carrying amount of the asset given
in exchange for it. This would be the case when the exchange lacked commercial substance or when the fair
value of either asset cannot be measured.
Lack of commercial substance

The determination of whether an exchange transaction has commercial substance depends on the extent to
which future cash flows are expected to change as a result of the transaction. If there is minimal impact on
future cash flows then the exchange lacks commercial substance.
Specimen of T-Accounts
FIXED ASSET ACCOUNT AT COST

Opening cost Cost of items disposed off
Additions during the year Closing balance
ACCUMULATED DEPRECIATION
Acc. dep of items disposed off Opening balance
Closing balance Depreciation for the year

FIXED ASSET ACCOUNT AT NBV

Opening NBV NBV of items disposed off
Additions during the year Depreciation
Closing NBV
DISPOSAL ACCOUNT
Cost of item disposed off Accumulated depreciation of item
disposed off
Gain on disposal Net Sales proceed / Trade in allowance
in exchange / Insurance claim
Loss on disposal

INITIAL RECOGNITION OF COST

COMPONENTS OF PURCHASE PRICE AND DIRECTLY ATTRIBUTABLE COST
Price of asset Xxx
Less:
Trade discounts (xxx)
Refundable taxes (VAT) (xxx)
Net Purchase Price xxx
Add:
Import duties xxx
Non-refundable duties xxx
Cost of preparing the site xxx
Initially delivery and handling cost xxx
Installation and assembly cost xxx
Salary (directly attributable for construction) xxx
Professional fees xxx
Cost of testing that the asset – net of proceeds xxx
Total cost to be capitalized xxx
Question 1
QUESTION 1:
ABC limited acquired an asset on 1 Jan 2008 and incurred the following costs:
Purchase price (List Price) 124,500

Import Duties 7,470
Capital Value Tax 6,000 (40% refundable)
Sales Tax 2,490 (Recoverable)
Trade Discount 8,715
On 31 Jan the supplier of the plant send a debit note that our account has been
debited by Rs 1,850 on account of subsequent rebate.
Useful life of the asset is 10 years and it residual value has a current estimate of Rs
12,000 at the end of its life.
Required
Calculate the cost of the asset
Calculate the carrying amount of the asset at 31 December 2008.
QUESTION 2:
Question 2 by Hasan Marfani,ACA
ABC limited acquired an asset and incurred the following costs in bringing the
asset to its present location and condition:
Purchase price (list price) 1,700,000 1 Sept 2015

Trade Discount 4% of list price 1 Sept 2015
Taxes on acquisition 7% on net price 10 Sept 2015
60% taxes and refundable and adjustable
Early settlement discount of 2% is offered if payment is made in 1 month.
The asset was delivered by the supplier at main factory on 28 Oct 2015. The
supplier incurred a delivery cost of Rs 30,000. 40% of such costs are to be
reimbursed by the company
Initial handling charges 7,895 28 Oct 2015
The asset needs adjustments in order to be compatible with the main

plant the company currently has. Cost of modification of the asset to bring
it in working condition is as under:
Salary to own employee for working 45,000 Up to 31 December

Retirement benefits for the employee 4,500 Up to 31 December
Cost of external labor 15,000 Up to 31 December
Fee against professional Advice 12,500 07 November 2015
Installation and assembly charges 70,000 Up to 31 December
Test run charges 14,000 05 Jan 2016
NRV of test run production 4,350 7 Jan 2016
Staff training cost 6,400 Up to 31 December
The asset was fully functional on 1 February 2016. Useful life of the asset is 15
years and Depreciation shall be charged using straight line method assuming a
residual value of Rs 187,500
The Company made and received all the payments and receipts on the same
date the expense is incurred or income is generated, except for purchase price
which the company paid 20 days later.
Required
Calculate the cost of PPE
Journalize all the reporting events at relevant date
Prepare extracts from:
Statement of Financial Position
Statement of Comprehensive Income
Question 3 FROM THE DESK OF HASAN MARFANI,ACA-TMUC 10

Question 4 by Hasan Marfani,ACA
QUESTION 3
ABC limited acquired an asset and incurred the following costs up to 1 Jan 2010:
Purchase cost 125,000

Installation cost 45,000
Staff training cost 12,000
182,000
As per the agreement with local authority the company has to dismantle the asset at
the end of four years (useful life of the asset) Estimate of dismantling cost at the end of
four years is Rs 69,120. Applicable interest rates are 20%
Required
Journalize all the reportable events in four years.
Question 5
QUESTION 4:
ABC limited acquired an asset and incurred the following costs up to 1 Jan 2010:
Purchase cost 640,000

Installation cost 34,000
Net test run charges 14,000
688,000
As per the agreement with local authority the company has to dismantle the asset at
the end of four years (useful life of the asset) Estimate of dismantling cost at the end of
four years is Rs 93,170. Applicable interest rates are 10%
Required
Journalize all the reportable events in four years.
QUESTION 5: Q2 of Autumn 2005 (5 marks)

On October 01, 2004 ABC Limited, in the course of improvement and enhancement of its production facility,
bought a plant having List price 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. Asalm. Normally the supplier allows only 10 % trade discount
to his customers.
b. The following cost were incurred on site preparation:
Rs. ‘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 330
cost plus 10% profit (similar items are sold to customers at cost plus 30% profit
Remuneration of Mr. Aslam during site preparation 600
c. Civil & electrical work includes cost of certain instruments amounting to Rs. 15,000, 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 & 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. `000
Cost of dismantling 250
Cost of transportation 100
Terminal benefits of labor 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 initial recognition of the cost of plant and also submit you explanation if necessary.
QUESTION 6 Q1b of Spring 2013 (8 marks)

Ammar is a manufacturer of personal products and has factories in two different cities. On 1 November 2011,
he bought a new state-of- the- art plant from Krones Inc. USA. The invoice value of the plant was Rs. 250
million. Other relevant details are as follows.
a. Cost of imports:
Rs. in million
LC opening charges 1.00
Import duty 25.00
Sales tax paid, recoverable against production output 40.00
Clearing & transportation 5.00
b. Cost incurred on site preparation:
Rs. in million
Amount paid to consultants 2.00
Civil and electrical works 3.00

The above includes cost of equipment damaged due to mishandling 0.80
c. The plant was received at the SITE on 1 February 2012. The installation and test run were successfully
completed in three months’ time at a cost of Rs. 6 million. The net sale proceeds of test production were
Rs. 1.2 million.
d. Commercial production commenced on 1 May 2012. During the period in which the plant was installed
the administrative and general overheads increased by Rs. 1 million as compared to the previous period.
e. Salary of factory manager is Rs. 250,000 per month. He contributed 30% of his time in supervising the
installation
f. Staff training cost amounted to Rs. 0.25 million
g. The plant is expected to last fifteen year with no residual value.
Required:
In accordance with IAS-16 calculate
a. Cost at which the plant would be capitalized
b. Depreciation for the year ended 31 December 2012 under the straight line method.
QUESTION 7:
On 1 October 20X6, Omega began the construction of a new factory. Costs relating to the factory, incurred
in the year ended 30 September 20X7, are as follows:
Rs in ‘000
Purchase of the land 10,000
Costs of dismantling existing structures on the site 500
Purchase of materials to construct the factory 6,000
Employment costs (Note 1) 1,800
Production overheads directly related to the construction (Note 2) 1,200
Allocated general administrative overheads 600
Architects’ and consultants’ fees directly related to the construction 400
Costs of relocating staff who are to work at the new factory 300
Costs relating to the formal opening of the factory 200
Interest on loan to partly finance the construction of the factory (Note 3) 1,200
Note 1: The factory was constructed in the eight months ended 31 May 20X7. It was brought into use on
30 June 20X7. The employment costs are for the nine months to 30 June 20X7.
Note 2: The production overheads were incurred in the eight months ended 31 May 20X7. They included
an abnormal cost of $200,000, caused by the need to rectify damage resulting from a gas leak.
Note 3: Omega received the loan of $12m on 1 October 20X6. The loan carries a rate of interest of 10% per
annum.
Note 4: The factory has an expected useful economic life of 20 years. At that time the factory will be
demolished and the site returned to its original condition. This is a legal obligation that arose on signing the
contract to purchase the land. The expected costs of fulfilling this obligation are $2m. An appropriate
annual discount rate is 8%.

Requirement
Compute the initial carrying value of the factory.

Question 08
Diamond Ltd has recently purchased an item of plant from PTM related details are as follows:
Basic List Price Rs. 350,000
Trade discount 10%
Ancillary Cost
Shipping and handling cost 5,500
Pre-production testing 15,000
Maintenance contract for three years 21,000
Site Preparation Cost
Electrical cable Installation 12,000
Concrete reinforcement 13,000
Own Labour Cost 4,000
Diamond Ltd paid for the plant (excluding ancillary costs) within four weeks of order, thereby
obtaining an early settlement discount of 3%. Diamond Limited has incorrectly specified the power of
the loading of the original electrical cable to be installed by the contractor. The cost of correcting this
error of Rs. 3000 is included in the above figure of Rs. 12,000, The Plant is expected to last for 10
years. At the end of this period there will be compulsory cost of Rs. 15,000 to dismantle the plant and
Rs. 3,000 to restore the site to its original use condition.
Required:
 Calculate the amount at which the initial cost of the Plant should be measured.
 Make Journal entries to record the above transaction.
Question 09
Chase Company purchased a Computer Server. The following costs were incurred:
a. List price of the computer Rs: 1,500,000 including recoverable Sales tax of 16%.
b. Trade discount of 10% allowed to Chase Co.
c. The supplier offered a 5% discount if Chase Company paid for cost within seven days. Chase
Company was able to take advantage of this additional discount.
d. Shipping cost including insurance in transit Rs. 35,000.
e. Import duties (Non-refundable tax) Rs. 230,000
f. Fuel cost incurred to transport the Computer to the factory Rs. 3,500.
g. Administration cost Rs. 10,000.
h. Staff party to celebrate the acquisition new server Rs. 12,000.
i. Staff training Rs. 20,000.
j. Cost of rewiring needed to provide proper electric power Rs. 4,200
k. Cost of air conditioning the room where the new computer is to be used Rs. 115,000. The
computer required a certain temperature and humidity to operate properly.
I. Insurance on the computer. The policy covers damage from vandalism fire, flood and certain
other natural disasters (3-years premium) Rs. 36,000.
Required:
Prepare Schedule that shows the calculation of the cost of computer.
COMPUTATION OF DEPRECIATION
QUESTION 1:
Books of Sarim Traders showed balance of Rs 840,000 in Machinery account and Rs 280,000 in
Accumulated depreciation account as on January 1, 2012.
The following transactions took place during 2012.
a. A new machine costing Rs 120,000 was purchased on March 1, 2012.
b. A machine costing Rs 140,000 purchased on July 1, 2010 was disposed off for Rs 96,000 on May
31, 2012.
c. A new machine costing Rs 205,000 was acquired on August 1, 2012 and was installed at a cost of
Rs 35,000 on September 1, 2012.
d. A machine purchased on March 1, 2009 having a book value of Rs 45,000 was sold for Rs 55,000
on November 1, 2012.
Required:
Prepare Machinery, Accumulated depreciation and Disposal account in each of the following cases
separately:
1. Depreciation is provided on Straight line basis @ 10% with full year’s depreciation in the year of
addition and none in the year of disposal
2. Depreciation is provided on reducing balance method @ 15% with full year’s depreciation in the
year of addition and none in the year of disposal
3. Depreciation is provided on Straight line basis @ 10% with proportional depreciation in the year of
addition as well as disposal
4. Depreciation is provided on reducing balance method @ 15% with proportional depreciation in
the year of addition as well as disposal
QUESTION 2:
The following information is available in respect of fixed assets of MJ Enterprises (MJE):
a. The opening balances of cost and accumulated depreciation of fixed assets as on January 1, 2009
were Rs. 100,000 and Rs. 33,000 respectively.
b. Assets costing Rs. 20,000 were acquired on July 1, 2008. The remaining fixed assets were acquired
when MJE commenced business on January 1, 2005. There were no disposals of fixed assets upto
January 1, 2009.
c. MJE provides for depreciation on the cost of assets at the rate of 10% per annum using the straight
line basis. Depreciation is calculated on a monthly basis.
d. Assets acquired on January 1, 2005 whose net book value on June 30, 2009 was Rs. 2,750 were
sold for Rs. 1,500.
e. On July 1, 2009, an asset which was acquired at a cost of Rs. 2,000 when MJE commenced
business, was exchanged for a new asset. The balance of the purchase price was settled with a
cheque for Rs. 800. The list price of the new asset was Rs. 1,200.
f. On October 1, 2009 MJE transferred to its factory an asset which had been included in its trading
stock and which bore a price label of Rs. 15,400 in the showroom. MJE makes a gross profit of 40%
of cost, on sale of such assets.

Required:
Prepare the following ledger accounts for the year ended December 31, 2009:
a. Fixed assets
b. Accumulated depreciation
c. Profit/loss on sale of fixed assets
QUESTION 3:
ABC Limited had the following balances on its motor vehicles accounts at 30 September 1990:
Motor vehicles at cost 10,000
Provision for depreciation of motor vehicles 4,000
During the year to 30 September 1991, the following transactions occurred.

31 January 1991 Bought a motor van (plant number MV11) costing Rs. 9,000.
24 April 1991 Sold a motor van (plant number MV05) for Rs. 500 which had originally cost Rs.
4,000 in January 1988.
During the year to 30 September 1992, the following transactions occurred:

31 August 1992 Traded in van bought on 31 January 1991 (plant number MV11) for a new van
(plant number MV13) costing Rs. 14,000. The trade-in allowance was Rs. 7,400.
ABC Limited provides for depreciation on its motor vehicles at a rate of 25% per annum using the reducing
balance method. It is company policy to make a full year’s charge against all assets held at the end of its
financial year (30 September).
Required:
You are required to show the ledger accounts necessary to record the above transactions. The form of
presentation should clearly show the value which will be transferred to the company’s income statement and
balance sheet at the end of each of the financial years to 30 September 1991 and 1992.

A business purchased a machine costing Rs. 1,120,000 on April 01, 2002. The machine can be used for a total
of 20000 hours over an estimated life of 48 months. At the end of that time the machine is expected to have
trade-in value of Rs. 112,000.
The financial year of the business ends on December 31st each year. The machine was used for:
4000 hours during the financial year ended December 31, 2002
Required:
a. Calculate the annual depreciation charges on the machine on each of the following bases for each of
the financial years ending on December 31, 2002, 2003, 2004, 2005 and 2006:
 the straight line method applied on monthly basis;

 the diminishing balance written down value method at 40% per annum applied on a full year
basis; and
 the usage method.
b. Suppose that during the financial year ending December 31, 2003 the machine was used for only 1500
hours before being sold for Rs. 800,000 on June 30, 2003. Assuming that the business has chosen to
apply the straight line method on a month for month basis, show the following accounts for 2003 only:
(i) the machine account;
(ii) the provision for depreciation – machine account; and
(iii) the assets disposals account.

A sole trader provides depreciation on vehicles on the straight-line method at the rate of 10% per annum. A
full year’s depreciation is provided at the end of each year on all vehicles purchased during the year. No
depreciation is provided in the year in which the vehicle is sold. The book value of Vehicles at December 31,
2002 was Rs. 3,512,700. Subsidiary records showed that the cost of vehicles then on hand was made up as
follows:
Vehicles bought in the year 1992 (or earlier) 1,044,000
Vehicles bought in the year 1993 558,000
Vehicles bought in the year 1994 306,000
Vehicles bought in the year 1995 (or later) 4,536,000
During the year 2003, a new vehicle was bought at a cost of Rs. 531,000, and a vehicle which had cost Rs.
99,000 in the year 1991 was sold as scrap for Rs. 6,300.
During the year 2004 there were additions costing Rs. 324,000, and a vehicle which had cost Rs. 126,000 in
the year 2000 was sold for Rs. 28,000.
Required:
Vehicles Account, Accumulated Depreciation account and Disposal Vehicle for the years 2003 and 2004.
QUESTION 6:
The machinery account (at cost) of a firm for the three years ended December 31, 1988 appeared as follows.
MACHINERY
1986 1986
Jan 01 cash (No. 1) 50,000 December 31 Balance c/d 50,000
1987 1987
Jan 01 Balance b/d 50,000
July 01 Cash (No 2) 20,000 December 31 Balance c/d 70,000
70,000 70,000
1988 1988
Jan 01 Balance b/d 70,000
July 01 Cash (No 3) 15,000 December 31 Balance c/d 85,000
85,000 85,000

Depreciation @ 20 % on the diminishing value basis was accumulated in provision for depreciation account.
On October 1,1989 machine no 2 was damaged and had to be replaced by a new machine costing Rs.
25,000. The machine was insured and an insurance claim of Rs. 12,400 was admitted by the insurer.
Required:
Show the 1989 machinery account, provision for depreciation account and machinery disposal account.
Depreciation during a year is provided for the period for which each machine is in use.

Following information has been extracted from the financial statements of Full Speed Enterprises (FSE) for
the year ended 30 June 2013:
Rupees
Vehicles – cost 65,201,300
Less: Accumulated depreciation (24,450,500)
WDV of vehicles 40,750,800
FSE provides depreciation on vehicles @ 15% per annum on written down values.
Depreciation on addition/deletion is provided in proportion to the period of use.
Other related information is as follows:
a. On 1 August 2013, a vehicle which was acquired at a cost of Rs. 850,000 on 1 July 2011 was exchanged
for a new vehicle. The balance was settled with a cheque for Rs. 350,000. The list price of the new
vehicle was Rs. 900,000.
b. Three new vehicles were purchased on 1 December 2013 for Rs. 1,250,000 each.
c. On 1 February 2014, a vehicle having written down value of Rs. 550,000 was repaired at a cost of Rs.
250,000. It is expected that the repairs would improve the efficiency of the vehicle significantly.
d. On 30 June 2014, a vehicle purchased on 1 January 2012 at a cost of Rs. 1,500,000 was sold for Rs.
1,350,000.
Required:
Prepare the following ledger accounts for the year ended 30 June 2014:
(a) Vehicles account
(b) Accumulated depreciation on vehicles
(c) Loss/gain on sale of vehicles

Naveed Enterprises commenced business on 01 July 2009. Certain information about their vehicles, for the
years ended 30 June 2011 and 2012 can be ascertained from the following ledger accounts:
Accumulated depreciation on Vehicles
28-02-11 Vehicle disposal a/c 435,467 01-07-10 Balance b/d 1,360,000
30-06-11 Balance c/d 2,160,800 30-06-11 Dep. for the year 1,236,267
2,596,267 2,596,267
30-04-12 Vehicle disposal a/c 560,000 01-07-11 Balance b/d 2,160,800

30-06-12 Balance c/d 3,025,040 30-06-12 Dep. for the year 1,424,240

3,585,040 3,585,040
Vehicle disposal account

28-02-11 Cost at 01-07-2009 1,420,000 28-02-11 Accumulated dep. 435,467
28-02-11 Profit on disposal 165,467 28-02-11 Cash received 1,150,000
1.585,467 1.585,467
30-04-12 Cost on 01-07-09 1,200,000 30-04-12 Accumulated dep. 560,000

30-04-12 Cash received 500,000
30-04-12 Loss on disposal 140,000
1,200,000 1,200,000
Following further information is available in respect of the vehicles for the last three years (01-07-
2009 to 30-06-2012):
a. Depreciation is being provided at the rate of 20% per annum on diminishing balance method.
b. Accumulated depreciation brought down on 1 July 2010 represents depreciation for the whole
year on vehicles bought on 1 July 2009.
c. Two vehicles were purchased on 1 November 2010 and 1 September 2011.
Required:
Prepare Vehicles (Asset) Account for the years ended 30 June 2011 and 2012.

ABC limited imported technical equipment costing Rs. 3 million on July 1, 2003. It further incurred the
following expenses on the equipment.
 Import duty Rs. 1,000,000
 Income tax Rs. 276,000 adjustable against company`s income tax liability
 Other nonrefundable taxes Rs. 60,000
 Transportation cost Rs. 10,000 to bring the equipment to factory premises
 Insurance in transit Rs. 4,000
 Fire insurance Rs. 10,000
Initially the useful life was estimated to be 5 year and depreciation was provided on straight line basis. The
estimated salvage value was Rs. 350,000
During the year 2004-05 the company estimated the remaining life of the equipment to be five years instead
of four years. The salvage value was re-estimated at Rs. 400,000.
The machine was sold on July 1,2006 for Rs. 2,800,000
Required:
a. Calculate depreciation expense for the year ended June 30 , 2004, 2005 and 2006.
b. Pass journal entry to record the sale of machine.

Kamran Enterprises (KE) provides depreciation on plant and machines at 10% on written-down value.
Depreciation is charged from the month the asset is available for use in operations up to the month prior to

its disposal. Cost of its plant & machines and the accumulated depreciation as on 1 July 2015 were Rs. 75
million and Rs. 17 million respectively.
The following information is available in respect of its plant & machines, for the year ended 30 June 2016:
a. On 1 October 2015, a second-hand machine was acquired from a Chinese company for Rs. 15 million.
The machine was renovated and overhauled at a cost of Rs. 3 million. 25% of this expenditure was in
respect of purchase of consumables.
b. On 1 November 2015, KE transferred a machine having a list price of Rs. 10 million from its stock-in-
trade to its Engineering Department. KE sells such machines at cost plus 25%.
c. On 1 January 2016, certain worn-out parts of a plant were replaced at a cost of Rs. 4 million. The
replaced parts neither enhanced the useful life of the plant nor its operating efficiency. The old parts
were sold for Rs. 0.75 million. The plant was purchased for Rs. 25 million on 1 January 2015.
d. On 1 May 2016, the plant was damaged and remained in-operative for one month. KE spent an amount
of Rs. 3 million on repairs to restore the plant in working condition.
e. On 1 April 2016, a machine which was purchased on 1 July 2012 for Rs. 12 million was completely
damaged and was sold for Rs. 1.2 million.
Required:
Prepare accounting entries to record the above transactions in KE’s books for the year ended 30 June 2016.
QUESTION 11:
At the beginning of the financial year on 1 April 2005, a company had a balance on plant account of Rs.
372,000 and on provision for depreciation of plant account of Rs. 205,400.
a. The company’s policy is to provide depreciation using the reducing balance method applied to the non-
current assets held at the end of the financial year at the rate of 20% per annum.
b. On 1 September 2005 the company sold for Rs. 13,700 some plant which it had acquired on 31 October
2001 at a cost of Rs. 60,300. Additionally, installation costs totaled Rs. 4,000. During 2003 major repairs
costing Rs. 6,300 had been carried out on this plant and, in order to increase the capacity of the plant,
a new motor had been fitted in December 2003 at a cost of Rs. 4,400. A further overhaul costing Rs.
2,700 had been carried out during 2004.
c. The company acquired new replacement plant on 30 November 2005 at a cost of Rs. 96,000, inclusive
of installation charges of Rs. 7,000.
Required:
Calculate:
a. The balance of plant at cost 31 March 2006
b. The provision for depreciation of plant 31 March 2006
c. The profit or loss on disposal of the plant.
The written down value of plant and machinery of Azfar and Company as at 30 June 2011 is Rs. 831,128.
Following additional information is also available:
a. On 1 July 2007, second-hand machinery was purchased for Rs. 300,000. An amount of Rs. 200,000 was
spent on its overhauling, before use.
b. On 1 January 2008 machinery costing Rs. 250,000 was purchased.
c. The machinery purchased on 1 July 2007 became obsolete and was sold for Rs. 100,000 on 1 January
2010. On the same date, new machinery was purchased at a cost of Rs. 600,000.
d. Machinery purchased on 1 January 2008 was sold on 30 June 2011 at its book value plus Rs. 50,000.
Azfar and Company provides depreciation on machinery @ 15% on written down value. Depreciation on
addition / deletion is provided in proportion to the period of use.
Required:
a. Machinery Account from 1 July 2009 to 30 June 2011
b. Machinery Disposal Account for the years ended 30 June 2010 and 2011
QUESTION 13:
The written down value of plant and machinery of Zafar and Company as at 30 June 2009 is Rs. 1,834,565.
Following additional information is also available:
e. The machinery purchased on 1 September 2007 for Rs. 360,000 became obsolete and was sold for Rs.
100,000 on 1 January 2010. On the same date, new machinery was purchased at a cost of Rs.
400,000.
f. Machinery purchased on 1 January 2008 costing Rs. 310,000 was sold on 30 June 2011 at its book
value plus Rs. 20,000.
Zafar and Company provides depreciation on machinery @ 15% on written down value. Depreciation on
addition / deletion is provided in proportion to the period of use.
Required:
c. Machinery Account (at book value)from 1 July 2009 to 30 June 2011
d. Machinery Disposal Account for the years ended 30 June 2010 and 2011
QUESTION 14:
On 1 October 2005 Dearing acquired a machine under the following terms:
Hours Amount ($)
Manufacturer’s base price 1,050,000
Trade discount (applying to base price only) 20%
Early settlement discount taken (on Base Price) 5%
Freight charges 30,000
Electrical installation cost 28,000
Staff training in use of machine 40,000
Purchase of a three-year maintenance contract 60,000
Estimated residual value 20,000
Estimated life in machine hours 6,000
Hours used – year ended 30 September 2006 1,200
– year ended 30 September 2007 1,800
– year ended 30 September 2008 *1 850
*1
On 1 October 2007 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. The upgrade also increased the estimated remaining life of the machine
at 1 October 2007 to 4,500 machine hours and its estimated residual value was revised to $40,000.
Required: Prepare extracts from the income statement and statement of financial position for the above
machine for each of the three years to 30 September 2008.

QUESTION 15:
Advent is a publicly listed company. Details of Advent's non-current assets at 1 October 20X8 were:
Land & Building Plant Telecom License Total
Cost/valuation 280 150 300 730
Accumulated depreciation (40) (105) (30) (175)
Carrying amount 240 45 270 555
The following information is relevant:
(i) The land and building were revalued on 1 October 20X3 with $80 million attributable to the land
and $200 million to the building. At that date the estimated remaining life of the building was 25
years. A further revaluation was not needed until 1 October 20X8 when the land and building were
valued at $85 million and $180 million respectively. The remaining estimated life of the building at
this date was 20 years.
(ii) Plant is depreciated at 20% per annum on cost with time apportionment where appropriate. On 1
April 20X9 new plant costing $45 million was acquired. In addition, this plant cost $5 million to
install and commission. No plant is more than four years old.
(iii) The telecommunications license was bought from the government on 1 October 20X7 and has a
10-year life. It is amortized on a straight line basis. In September 20X9, a review of the sales of the
products related to the license showed them to be very disappointing. As a result of this review the
estimated recoverable amount of the license at 30 September 20X9 was estimated at only $100
million.
There were no disposals of non-current assets during the year to 30 September 20X9.
Required:
a) Prepare balance sheet extracts of Advent’s non-current assets as at 30 Sep’04 (including
comparative figures), together with any disclosures required (other than those of the accounting
policies) under current International Financial Reporting Standards.
b) Explain the usefulness of the above disclosures to the users of the financial statements.
QUESTION 16:
Flightline is an airline which treats its aircraft as complex non-current assets. The cost and other details of one
of its aircraft are:
Particulars Amount (‘000) Estimated life
Exterior structure – Purchase date 1 April 1995 120,000 20 years
Interior cabin fitings – replaced 1 April 2005 25,000 5 Years
Engines 2 at $9 million each – replaced 1 April 2005 18,000 36,000 flying hours
No residual values are attributed to any of the component parts.

At 1 April 2008 the aircraft log showed it had flown 10,800 hours since 1 April 2005. In the year ended 31
March 2009, the aircraft flew for 1,200 hours for the six months to 30 September 2008 and a further 1,000
hours in the six months to 31 March 2009.
On 1 October 2008 the aircraft suffered a ‘bird strike’ accident which damaged one of the engines beyond
repair. This was replaced by a new engine with a life of 36,000 hours at cost of $10·8 million. The other engine

was also damaged, but was repaired at a cost of $3 million; however, its remaining estimated life was
shortened to 15,000 hours. The accident also caused cosmetic damage to the exterior of the aircraft which
required repainting at a cost of $2 million. As the aircraft was out of service for some weeks due to the
accident, Flightline took the opportunity to upgrade its cabin facilities at a cost of $4·5 million. This did not
increase the estimated remaining life of the cabin fittings, but the improved facilities enabled Flightline to
substantially increase the air fares on this aircraft.
Required:
Calculate the charges to the income statement in respect of the aircraft for the year ended 31 March 2009
and its carrying amount in the statement of financial position as at that date.
Note: the post accident changes are deemed effective from 1 October 2008. (10 marks)
Question 17
The book value of the machinery on the books of YMC Enterprises on 31 December 2000 was Rs.
145,8000 which had been purchased on 1st January 1998.
a. On 1st June 2001, YMC Enterprises purchased roasting machine for Rs. 60,000 and grinding
machine for Rs. 40,000.
b. On 1st March 2002, YMC Enterprises purchased one oil expeller for Rs. 100,000.
c. On 1st August 2003, the roasting machine for out of order and a new roaster was purchased
costing Rs. 120,000, after surrendering the old one and paying the cash of Rs. 90,000.
d. On 1st July 2004, the oil expeller purchased on 1.3.2002 was destroyed by fire and the
insurance company paid Rs. 60,000 only.
Required:
Prepare the following accounts for 2001, 2002, 2003 & 2004, charging depreciation @ 10% p.a. on the
WDV method.
a. Machinery account (at cost)
b. Provision for depreciation on machinery
c. Machinery disposal account
Question 18
Books of Marfani traders showed balance of Rs.2, 000,000 in Machinery account and Rs. 900,000 in
Accumulated Depreciation account as on January 1, 2012.
a) A new machine having a list price of Rs. 600,000 was purchased on March 1, 2012 and obtained a
bargain discount of 15% (Invoice price is inclusive of 15% sales tax).Supplier further allowed 5%
discount in case Marfani traders pay within stipulated time and Marfani traders paid the same with
in stipulated time. Marfani traders further incurred following expenses on the said PPE:
i. Shipping and handling cost Rs.10,000 (includes insurance in transit RS.5000)
ii. Import Duty Rs. 30,000 (20% refundable)
iii. Demurrage charges Rs.60,000 (30% abnormal)
iv. Carriage inward cost Rs. 7,000
v. Penalty on driver due to over speeding Rs.30,000
vi. Pre-production testing Rs.20,000
vii. Sale of test production units Rs.5,000
viii. Site Preparation Cost
a. Electrical cable Installation Rs.2,000
b.Concrete reinforcement Rs.3,000
ix. Maintenance contract for three years Rs.21,000
x. Fire Insurance Rs.60,000
Machine was actually brought in useable condition on 1 June 2012.
b) One of the machines costing Rs. 100,000(inclusive of 18% nonrefundable sales tax) purchased on
March 1, 2007 was disposed of for Rs.55, 000 on May 31, 2012.
c) A new machine costing Rs. 102,500(net off trade discount of Rs.10, 000 and inclusive of 15% sales
tax {out of which 40% was nonrefundable}) was acquired on August 1, 2012 and was installed at a
cost of Rs. 17,500 on September 1, 2012, company estimates that decommissioning cost amounting
Rs.100, 000 would have to be incurred at the end of useful life
d) A machine purchased on March 1, 2009 having a book value of Rs. 22,500 was sold for Rs.27, 500
on November 1, 2012.
e) Machine purchased on 1st December 2008 having a BV of Rs.10, 000 was scrapped in December
2012.
f) Fully depreciated machine, which was purchased in February 2005, having a list price of
Rs.100,000 ( gross of 5%trade discount), (further Rs.10,000 carriage inward and insurance in
transit cost was incurred to bring it in useable condition) was disposed off at Rs.10, 000 On 10th
November 2012.
g) One of the machinery purchased in 2008 costing Rs.50, 000 was overhauled at a cost of Rs.10,000
in March 2012.
h) One of the machinery purchased in 2009 costing Rs.100, 000 was repaired at a cost of Rs.5,000 in
February 2012.
Required:
Prepare Machinery, Accumulated Depreciation and Disposal account in each of the following cases
separately assuming company uses
i. indirect approach
a. Depreciation is provided on Straight line basis @ 10% with full year’s depreciation
in the year of addition and none in the year of disposal.
b. Depreciation is provided on Straight line basis @ 10% with proportional
depreciation in the month of addition but not in month of disposal
c. Depreciation is provided on WDV basis @ 15% with full year’s depreciation in the
year of addition and none in the year of disposal.
d. Depreciation is provided on WDV basis @ 15% with proportional depreciation in the
month of addition but none in month of disposal
Question19
Books of Marfani Traders showed balance of Rs.420, 000 in Machinery account and Rs. 140,000 in
a) A new machine costing Rs. 60,000 was purchased on March 1, 2012.
b) A machine costing Rs. 70,000 purchased on July 1, 2010 was disposed off for Rs.48, 000 on May 31,
2012.
c) A new machine costing Rs. 102500 was required on August 1, 2012 was installed at a cost of Rs.
17,500 on September 1, 2012.
d) A machine purchased on March 1, 2009 having a book value of Rs. 22,500 was sold for Rs.27, 500
on November 1, 2012

Required: Prepare Machinery, Accumulated Depreciation and Disposal account in each of the
following cases separately:
a) Depreciation is provided on Straight line basis @ 10% with full year’s depreciation in the year of
addition and none in the year of disposal.
b) Depreciation is provided on Straight line basis @ 10% with proportional depreciation in the month of
addition but not in month of disposal
.
Question 20
Books of Marfani and Co. Showed balance of Rs.420, 000 in Machinery account and Rs. 140,000 in
 A new machine costing Rs. 50,000 was purchased on February 1, 2012.

 A new machine costing Rs. 40,000 was purchased on April 1, 2012.
 A machine costing Rs. 50,000 purchased on March 1, 2009 was disposed off for Rs.48, 000 on May
31, 2012.
 A new machine costing Rs. 102500 was required on August 1, 2012 was installed at a cost of Rs.
20,000 on October 1, 2012.
 A machine purchased on March 1, 2008 having a book value of Rs. 22,500 was sold for Rs.27,500 in
November, 2012
a) Depreciation is provided on Straight line basis @ 10% with full year’s depreciation in the year of
b) Depreciation is provided on Straight line basis @ 10% with proportional depreciation in the month
of addition but not in month of disposal
Question 21
Books of Marfani brothers. Showed balance of Rs.1, 000, 000 in Machinery account and Rs. 400,000 in
 A new machine costing Rs. 10,000 was purchased in February 1, 2012.
 A new machine costing Rs. 40,000 was purchased in April 1, 2012, transportation cost to bring it to
factory and other incidental costs amounted to Rs.2, 000 and 5,000 respectively, further penalty
was levied on driver amounting Rs.1, 000.
 A machine costing Rs. 80,000 purchased on March 1, 2007 was disposed off for Rs.68, 000 in July,
2012.
 A new machine costing Rs. 102,500 (inclusive of 15% sales tax) was required on August 1, 2012
was installed at a cost of Rs. 20,000 on November 1, 2012.
 A machine purchased on March 1, 2007 having a book value of Rs. 20,000 was sold for Rs.30,000 in
July , 2012
a. Depreciation is provided on Straight line basis @ 10% with full year’s depreciation in the year of

b. Depreciation is provided on Straight line basis @ 10% with proportional depreciation in the month
Question 22
Books of Marfani brothers. Showed balance of Rs.2, 000, 000 in Machinery account and Rs. 1,000,000 in
 A new machine costing Rs. 60,000 was purchased in February 1, 2012, transportation cost to bring
it to factory and other incidental costs amounted to Rs.3, 000 and 7,000 respectively, further
penalty was levied on driver amounting Rs.1, 000.The machine became in useable condition in June
2012
 A machine costing Rs. 60,000 purchased on March 1, 2010 was disposed off for Rs.68, 000 in July,
2012.
 A new machine costing Rs. 100,000 (inclusive of 16% sales tax) was required on August 1, 2012
was installed at a cost of Rs. 10,000 in November 1, 2012.
 d. A machine purchased on March 1, 2007 having a book value of Rs. 20,000 was sold for Rs.30,000
in July , 2012
a. Depreciation is provided on Straight line basis @ 10% with full year’s depreciation in the year of
b. Depreciation is provided on Straight line basis @ 10% with proportional depreciation in the month
Question 23
Books of Marfani Traders showed balance of Rs.420, 000 in Machinery account and Rs. 140,000 in
a. A new machine costing Rs. 60,000 was purchased on March 1, 2012.
b. A machine costing Rs. 70,000 purchased on July 1, 2010 was disposed off for Rs.48, 000 on May 31,
2012.
c. A new machine costing Rs. 102500 was required on August 1, 2012 was installed at a cost of Rs.
17,500 on September 1, 2012.
d. A machine purchased on March 1, 2009 having a book value of Rs. 22,500 was sold for Rs.27, 500
on November 1, 2012
a. Depreciation is provided on WDV Method @ 15% with full year’s depreciation in the year of
b. Depreciation is provided on WDV Method @ 15% with proportional depreciation in the month of
addition but not in month of disposal
.
Question 24
Books of Marfani and Co. Showed balance of Rs.420, 000 in Machinery account and Rs. 140,000 in
 A new machine costing Rs. 50,000 was purchased on February 1, 2012.
 A new machine costing Rs. 40,000 was purchased on April 1, 2012.
 A machine costing Rs. 50,000 purchased on March 1, 2009 was disposed off for Rs.48, 000 on
May 31, 2012.
 A new machine costing Rs. 102500 was required on August 1, 2012 was installed at a cost of
Rs. 20,000 on October 1, 2012.
 d. A machine purchased on March 1, 2008 having a book value of Rs. 22,500 was sold for
Rs.27,500 in November , 2012
b. Depreciation is provided on WDV Method @ 15% with proportional depreciation in the month
Question 25
Books of Marfani brothers. Showed balance of Rs.1, 000, 000 in Machinery account and Rs. 400,000 in
 A new machine costing Rs. 40,000 was purchased in April 1, 2012, transportation cost to bring
it to factory and other incidental costs amounted to Rs.2, 000 and 5,000 respectively, further
penalty was levied on driver amounting Rs.1, 000.
 A machine costing Rs. 80,000 purchased on March 1, 2007 was disposed off for Rs.68, 000 in
July, 2012.
 A new machine costing Rs. 102,500 (inclusive of 15% sales tax) was required on August 1,
2012 was installed at a cost of Rs. 20,000 on November 1, 2012.
 A machine purchased on March 1, 2007 having a book value of Rs. 20,000 was sold for
Rs.30,000 in July, 2012

Question 26
Books of Marfani brothers. Showed balance of Rs.2, 000, 000 in Machinery account and Rs. 1,000,000
in Accumulated Depreciation account as on January 1, 2012.
 A new machine costing Rs. 60,000 was purchased in February 1, 2012, transportation cost to
bring it to factory and other incidental costs amounted to Rs.3, 000 and 7,000 respectively,
further penalty was levied on driver amounting Rs.1, 000.The machine became in useable
condition in June 2012
 A machine costing Rs. 60,000 purchased on March 1, 2010 was disposed off for Rs.68, 000 in
July, 2012.
 A new machine costing Rs. 100,000 (inclusive of 16% sales tax) was required on August 1,
2012 was installed at a cost of Rs. 10,000 in November 1, 2012.
 d. A machine purchased on March 1, 2007 having a book value of Rs. 20,000 was sold for
Rs.30,000 in July, 2012
Question 27 (autumn 2018)


DEPRECIATION & ERROR
QUESTION1: Q7 of Spring 2007 (12 marks)
On reviewing the books of Mansoori and Company at the end of first year of operations, you find that a
number of errors were made in recording transactions relating to delivery equipment. The ledger account
shows the following data:
Delivery Equipment
2-Jan Purchase of Vans #1 & 2 1,001,000 16-Apr Amount received from 40,000
insurance co. for
4-Jan Purchase of van # 3 431,250 damage to van #1
12-Jan Cost of repairs to van #1 as 43,900 31-Dec Depreciation for 2006 414,500
a result of an accident
3-Nov Payment on trade-in of 222,000 31-Dec Balance c/d 1,243,650
van#1 for van #4
1,698,150 1,698,150
Details of cost of vans debited in the accounts are as follows:

Van # 1 Van # 2 Van # 3 Van # 4
Purchase cost 350,000 500,000 365,000 400,000
Non-refundable taxes 52,500 75,000 54,750 60,000
License fee for 2006 11,000 12,500 11,500 12,000
413,500 587,500 431,250 472,000
Trade-in allowance – van # 1 250,000
Amount paid (including license fee of Rs. 12,000) 222,000
Depreciation was provided @25% of the balance in the delivery equipment account. It has been determined
that each van has a useful life of 4 years with a trade-in value of approximately 30% of total cost, at the end
of its useful life. Depreciation should be charged on the basis of number of months each van remains in use.
Required:
Give the necessary journal entries along with appropriate calculations.
QUESTION 2: Autumn 2009 (16 marks)

The accountant of Aslam, Bashir & Company, a partnership concern, has finalized the draft financial
statements for the year ended June 30, 2009. Mr. Bashir is not satisfied with the fixed assets reported in the
above financial statements and have asked you to review the same.
The details of fixed assets appearing in the financial statements are as follows:
Useful -----------------Rupees-----------------
life 2009 2008 2009 2008
(Years) Cost Accumulated Depreciation
Land 5,000,000 5,000,000 - -
Building 20 7,250,000 7,000,000 4,562,500 4,200,000
Plant & Machinery 15 11,910,000 10,000,000 3,994,000 3,200,000
Furniture & Fixtures 10 3,075,000 3,000,000 2,257,500 1,950,000

Depreciation is provided on straight line basis from the date of purchase to the date of sale.
An analysis of the working papers has revealed that the details of additions/deletions to fixed assets are as
follows:
a. In January 2009, Rs. 200,000 were spent on the extension of the underground water tank and Rs.
50,000 were spent on fumigation of the entire building.
b. On March 31, 2009 a generator which had completed five years of its life was replaced by another
generator. The cost of new generator was Rs. 2,000,000 whereas the supplier allowed 10% of the cost
of the old generator as trade-in-allowance. As a result, the company made a payment of Rs. 1,910,000
only.
c. On July 1, 2008 fully depreciated furniture costing Rs. 400,000 was repaired at a cost of Rs. 75,000. It is
expected that the repairs would allow the furniture to be used for the next five years.
Required:
Prepare necessary journal entries to record the required corrections.
QUESTION3: Q6 of Spring 2009 (20 marks)

The draft balance sheet of Time Life Enterprises (TLE) as on December 31, 2008, depicts the following:
Plant and Machinery – Cost 12,387,060

Less: Accumulated Depreciation 4,792,540
7,594,520
On reviewing the accounts of the business, its auditor found that the records have been correctly maintained
except for the following events:
a. On January 17, 2008 a contract was signed for the purchase of a machine from Makers Limited for Rs.
1,125,000 which is to be delivered on July 17, 2009. TLE paid an advance of Rs. 450,000 on the signing
of the contract and the balance was to be paid on delivery of the machine. The advance was debited
to plant and machinery account.
b. Installation of a machine was completed on January 21, 2008. The cost of machine of Rs. 2,700,000
was debited to plant and machinery account. The cost of installation amounting to Rs. 300,000 had
been debited to Repairs Account.
c. On July 1, 2008 various items of plant and machinery having a book value of Rs. 200,000 were sold for
Rs. 140,000. The sale proceeds were credited to Sales Account. The book value of the machine was
debited to loss on sale of fixed asset account and credited to plant and machinery account. The auditor
was able to ascertain the date of purchase of the items sold, as under:
Items having book value of Rs. 120,000 April 1, 2004
Remaining items having book value of Rs. 80,000 January 1, 2003
d. On July 23, 2008 a machine purchased in July 2005 at a cost of Rs. 464,000 was sold for cash at Rs.
263,320 which was credited to Plant and Machinery Account.
e. The depreciation is charged on declining balance method at 10 per cent per annum. Depreciation on
additions is provided from the month in which the asset is acquired while no depreciation is charged in
the month in which the asset is disposed off. Depreciation expenses for the year 2008 have been
correctly calculated and recorded except for the impact of errors discussed above.

Required: Determine the correct balances as at December 31, 2008 by recording appropriate adjustments
in the following accounts:
a. Plant and machinery
b. Accumulated depreciation - plant and machinery
c. Gain or loss on sale/disposal of plant and machinery.
Ziakot Steel Works, a sole proprietorship, provides depreciation on plant and machinery at 20% per annum
on diminishing balance method. On July 1, 2009 the balances in the plant and machinery and accumulated
depreciation accounts were Rs. 712,000 and Rs. 240,000 respectively. Depreciation is provided from the
month of purchase till the month of disposal. It was discovered during 2009-2010 that:
a. Rs. 25,000 being ordinary repairs to machinery, incurred on Octoberr 1, 2007 had been capitalized
incorrectly.
b. A machine which was purchased on January 1, 2007 for Rs. 100,000 was traded-in, on March 31, 2009
for a new and more sophisticated machine. The disposal was not recorded and the new machine was
capitalized at Rs. 120,000 being the net amount paid to the supplier. The trade-in allowance amounted
to Rs. 50,000.
It was decided to correct the above mistakes while finalizing the accounts for the year ended June 30, 2010.
Only one machine was purchased during the year ended June 30, 2010 costing Rs. 60,000. The machine
was received in the factory on October 1, 2009 and was installed on January 1, 2010.
Required
Plant and machinery account and accumulated depreciation account for the year ended June 30, 2010.
(Show all workings)
QUESTION 5: Q6 of Spring 2015 (14 marks)

You have recently been appointed as chief financial officer of Al-Hafeez Limited (AHL). While finalizing the
company’s financial statements for the year ended 31 December 2014, you have observed the following
issues:
a. Plant and equipment includes Machine A-31 at a carrying amount of Rs. 918,400 which was fabricated
in-house by AHL in February 2014 by using existing plant and machinery. The details are as follows:
Rupees
Direct material and labour 656,000
Depreciation – existing plant and machinery 24,000
Administration costs 140,000
20% profit (normally charged to its customers) 164,000
984,000
Less: Depreciation for the year (10% of the cost for 8 months) (65,600)
Carrying value of the machine at year-end 918,400
Direct material includes material lost due to fire amounting to Rs. 40,000.
The fabricated machine was transferred and available for use on 1 March 2014 and was brought into
commercial production on 1 May 2014.

b. AHL provides transportation services to its factory workers through its fleet of six buses. The buses are
depreciated on straight line basis. At the end of last year, the buses had carrying value of Rs. 7 million
and remaining useful life of 5 years.
On 1 July 2014, the local government promulgated a new legislation whereby all public transport buses
were required to undergo regular major inspection after a period of three years. An inspection exercise
of the fleet of buses was undertaken on 1 September 2014 at a cost of Rs. 1.8 million and this amount
was capitalized in the carrying amount of buses.
c. On 31 December 2014, AHL acquired a used specialized machine which has no active market, by
exchange of Machine X. The newly acquired machine was booked at the carrying value of Machine X
which was Rs. 9.5 million. However, the fair value of Machine X on the date of sale was Rs. 8 million but
no adjustment was made on the premise that the acquisition of this specialised machine would increase
efficiency and consequently save approximately Rs. 1.5 million over its useful life.
Required:
Explain the correct accounting treatment of the transactions by AHL and substantiate your point of view with
references to International Accounting Standards – 16 ‘Property, Plant and Equipment’. Also prepare the
necessary journal entries.

Question 6:

REVALUATION MODEL
OPTIONS FOR SUBSEQUENT MEASUREMENT:
An entity shall choose either
 the cost model or
 the revaluation model
as its accounting policy and shall apply that policy to an entire class of property, plant and equipment.
REVALUATION MODEL
After recognition as an asset, an item of property, plant and equipment whose fair value can be measured
reliably shall be carried at a revalued amount, being its fair value at the date of the revaluation less any
subsequent accumulated depreciation and subsequent accumulated impairment losses.
EXTENT OF REVALUATION:
If an item of property, plant and equipment is revalued, the entire class of property, plant and equipment to
which that asset belongs shall be revalued. The items within a class of property, plant and equipment are
revalued simultaneously to avoid selective revaluation of assets and the reporting of amounts in the financial
statements that are a mixture of costs and values as at different dates.
ADJUSTMENT TO CARRYING VALUE:

When an item of property, plant and equipment is revalued, the carrying amount of that asset is adjusted to
the revalued amount. At the date of the revaluation, the asset is treated in one of the following ways:
 the gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying
amount of the asset.; or
 the accumulated depreciation is eliminated against the gross carrying amount of the asset.
INCREASE DUE TO A REVALUATION:

If an asset’s carrying amount is increased as a result of a revaluation, the increase shall be recognised in other
comprehensive income and accumulated in equity under the heading of revaluation surplus. However, the
increase shall be recognised in profit or loss to the extent that it reverses a revaluation decrease of the same
asset previously recognised in profit or loss.
DECREASE DUE TO REVALUATION:

If an asset’s carrying amount is decreased as a result of a revaluation, the decrease shall be recognised in
profit or loss. However, the decrease shall be recognised in other comprehensive income to the extent of any
credit balance existing in the revaluation surplus in respect of that asset. The decrease recognised in other
comprehensive income reduces the amount accumulated in equity under the heading of revaluation surplus.
TREATMENT OF RESULTING REVALUATION SURPLUS:

The revaluation surplus included in equity in respect of an item of property, plant and equipment may be
transferred directly to retained earnings when the asset is derecognised. This may involve transferring the
whole of the surplus when the asset is retired or disposed of. However, some of the surplus may be transferred
as the asset is used by an entity. In such a case, the amount of the surplus transferred would be the difference
between depreciation based on the revalued carrying amount of the asset and depreciation based on the
asset’s original cost. Transfers from revaluation surplus to retained earnings are not made through profit or
loss.

FREQUENCY OF REVALUATION
Revaluations shall be made with sufficient regularity to ensure that the carrying amount does not differ
materially from that which would be determined using fair value at the end of the reporting period. Some
items of property, plant and equipment experience significant and volatile changes in fair value, thus
necessitating annual revaluation. Such frequent revaluations are unnecessary for items of property, plant and
equipment with only insignificant changes in fair value. Instead, it may be necessary to revalue the item only
every three or five years.
Question 1
Company acquired asset on 1st January 2001 at a cost of Rs.1000, company initially estimated the
useful life of asset as 5years.At the end of year 2, and company re-estimates useful life as 6 years. OR
at the end of year 2, company estimates remaining useful life as 4 years.
Calculate depreciation expense for each year.
Question 2
Company acquired asset on 1st January 2001 at a cost of Rs.10, 000, company initially estimated the
at the end of year 2, company estimates remaining useful life as 2 years.
Calculate depreciation expense for each year.
Question 3
Company acquired asset on 1st January 2001 at a cost of Rs.100, 000, company initially estimated the
at the end of year 3, company estimates remaining useful life as 1 year.
Calculate depreciation expense for each year
Question 4
HM acquired PPE at a cost of Rs. 100 on January 1, 2005.HM uses fair value model to value the
Property plant and equipment, and uses straight line method to depreciate the same over a period of 5
years.
During 5 years following events were incurred:
At the end of year 1, Fair value of the asset increased to Rs.140.
At the end of year 2, Fair value of the asset decreased to Rs.50.
At the end of year 4, Fair value of the asset remained at Rs. 60.
Required:
1. Prepare relevant entries for each year (assuming year end to be 31st December)
2. Prepare revaluation Account

3. Prepare relevant extracts of Financial Statements
Question 5
years.
Required:
Question 6
years.
At the end of year 2, Fair value of the asset is equal to the ACA.
At the end of year 4, Fair value of the asset is equal to the ACA.
Required:
Question 7
HM acquired PPE at a cost of Rs. 100 on July 1, 2005.HM uses fair value model to value the Property
plant and equipment, and uses straight line method to depreciate the same over a period of 5 years.
Required:

Question 8 (Autumn 2015)
Question9

Question10
Property plant and equipment, and uses straight line method to depreciate the same over a period of
10 years.
Following events were incurred:
At the end of year 1, Fair value of the asset increased to Rs.2400, and revised Useful life was estimated
to be 15 years or remaining useful life is estimated to be 14years.
Prepare relevant schedule and entries for 2years

Question11
10 years.
At the end of year 1, Fair value of the asset increased to Rs.2000, and revised Useful life was estimated

Question12
10 years.
At the end of year 1, Fair value of the asset decreased to Rs.500, and revised Useful life was estimated

Question13
10 years.
At the end of year 1, Fair value of the asset decreased to Rs.500, and revised Useful life was estimated

Question 14. Autumn 2014-Revaluation Question
Question 15 (Spring 2018)


Shahzad Textile Mills Limited (STML) purchased a plant for Rs. 500 million on 1 July 2010. The plant has an
estimated useful life of 10 years and no residual value.
STML uses revaluation model for subsequent measurement of its property, plant and equipment and accounts
for revaluations on net replacement value method. The details of revaluations performed by an independent
firm of valuers are as follows:
Revaluation date Fair value
1 July 2011 Rs. 575 million
Required:
Prepare journal entries to record the above transactions from the date of acquisition of the plant to the year
ended 30 June 2014. (Ignore tax implications)
Faraday Pharmaceutical Limited (FPL) acquired a building for Rs. 200 million on July 1, 2005. The following
information relating to the building is available:
a. It is being depreciated on the straight line basis, over 20 years.
b. 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:
Rupees in million
July 1, 2006 230
July 1, 2007 170
July 1, 2008 180
c. FPL transfers the maximum possible amount from the revaluation surplus to retained earnings on an
annual basis.
d. 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, 2009. (Ignore deferred tax)
French Power Limited (FPL) uses the revaluation model for subsequent measurement of its property, plant
and equipment and has a policy of revaluing its assets on an annual basis using the net replacement value
method.
The following information relates to FPL’s plant:
a. The plant was purchased on 1 July 2009 at a cost of Rs. 360 million.
b. It is being depreciated on straight line basis, over 10 years.
c. The details of previous revaluations carried out by the independent valuers are as follows:
Rupees in million
1 July 2010 400
1 July 2011 280
1 July 2012 290
d. FPL transfers the maximum possible amount from the revaluation surplus to retained earnings on an
annual basis.
e. There is no change in the useful life of the plant.
Required:
ended 30 June 2013. (Ignore deferred tax)

PQR Enterprises was incorporated on 1 July 2012. The company depreciates its property, plant and
equipment on straight line basis over their useful life. It uses revaluation model for subsequent measurement
of the property, plant and equipment and has a policy of revaluing these after every two years.
Following information pertains to its property, plant and equipment:
[
Assets Cost as WDV as Value as Useful life in years

on 01-07- on 01- determined by Original at Remaining as
2013 07-2013 valuer on 30-06- acquisition determined by
2014 valuer
----------Rs. in million --------
Office building 6,000 5,500 5,750 12 8
Factory building 4,400 3,960 3,320 10 9
Warehouse 4,500 4,050 3,350 10 8
During the year there were no addition or deletion in the above assets.
As per policy, PQR transfers the maximum possible amount from the revaluation surplus to retained earnings
on an annual basis.
Required:
Prepare necessary journal entries for the year ended 30 June 2014 and 2015.
QUESTION 20:
Falak Pharmaceutical Limited (FPL) acquired a building for Rs. 200 million on July 1, 2005. The following
information relating to the building is available:
e. It is being depreciated on the straight line basis, over 20 years.
f. 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:

Rupees in million
June 30, 2006 170
June 30, 2008 200
June 30, 2010 130
g. FPL transfers the maximum possible amount from the revaluation surplus to retained earnings on an
annual basis.
h. 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, 2011. (Ignore deferred tax)
QUESTION 21:
Faltoo Power Limited (FPL) uses the revaluation model for subsequent measurement of its property, plant
and equipment and has a policy of revaluing its assets using the net replacement value method.
The following information relates to FPL’s plant:
f. The plant was purchased on 1 July 2009 at a cost of Rs. 360 million.
g. It is being depreciated on straight line basis, over 15 years.
h. The details of previous revaluations carried out by the independent valuers are as follows:
Revaluation date Fair value Remaining life at the
Rupees in million time of revaluation
1 July 2010 300 12
1 July 2012 310 8
1 July 2014 190 8
i. FPL transfers the maximum possible amount from the revaluation surplus to retained earnings on an
annual basis.
Required:
ended 30 June 2015. (Ignore deferred tax)

QUESTION 22:
QUESTION 23:
Abid Limited (AL) uses the revaluation model for subsequent measurement of its property, plant and
equipment and has a policy of revaluing its assets on an annual basis using the net replacement value
method.
The following information pertains to AL’s buildings:
1) Four buildings were acquired in same vicinity on 1 January 2012 at a cost of Rs. 300 million. The
useful life of the buildings on the date of acquisition was 20 years.
2) AL depreciates buildings on the straight line basis over their useful life.

3) The results of revaluations carried out during the last three years by Premier Valuation Service, an
independent firm of valuers, are as follows:
Rs. in million
1 January 2013 323
1 January 2014 252
1 January 2015 272
4) On 30 June 2015, one of the buildings was sold for Rs. 80 million.
Required:
Prepare a note on “Property, plant and equipment” (including comparative figures) for inclusion in AL’s
financial statements for the year ended 31 December 2015 in accordance with International Financial
Reporting Standards. (Ignore taxation)

DISCLOSURES
The financial statements shall disclose, for each class of property, plant and equipment:
a. the measurement bases used for determining the gross carrying amount;
b. the depreciation methods used & the useful lives or the depreciation rates used;
c. the gross carrying amount and the accumulated depreciation at the beginning and end of the period;
and
d. a reconciliation of the carrying amount at the beginning and end of the period showing:
The financial statements shall also disclose:

a. the existence and amounts of restrictions on title, and property, plant and equipment pledged as
security for liabilities;
b. the amount of expenditures recognised in the carrying amount of an item of property, plant and
equipment in the course of its construction;
c. the amount of contractual commitments for the acquisition of property, plant and equipment; and
d. depreciation, whether recognised in profit or loss or as a part of the cost of other assets, during a period;
If items of property, plant and equipment are stated at revalued amounts, the following shall be disclosed:
a. the effective date of the revaluation;
b. whether an independent valuer was involved;
c. 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
d. the revaluation surplus, indicating the change for the period
Users of financial statements may also find the following information relevant to their needs. Therefore,
entities are encouraged to disclose these amounts.
a. the carrying amount of temporarily idle property, plant and equipment;
b. the gross carrying amount of any fully depreciated property, plant and equipment that is still in use;
c. the carrying amount of property, plant and equipment retired from active use; and
d. when the cost model is used, the fair value of property, plant and equipment when this is materially
different from the carrying amount.

QUESTION 1: Autumn 2017 Q4
The following information pertains to Sherdil Limited (SL):
1) Buildings and equipment were acquired on 1 January 2014 for Rs. 450 million and Rs. 50 million
respectively
2) The relevant information relating to both assets is summarised below:
Assets Depreciation method Life/Rate Subsequent 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.
3) 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.
4) 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.
QUESTION 2:
In the accounts of King Kong Limited the schedule of fixed assets for the year ended May 31, 1996
appeared as follows:
Fixed Assets Equipment Vehicles Total
Rs. 000 Rs. 000 Rs. 000
At cost at beginning of year 750 460 1,210
Additional during the year 210 190 400
Disposals (130) (80) (210)
At cost end of year 830 570 1,400
Depreciation:
At beginning of year 300 170 470
Charge for the year 83 114 197
On disposals (91) (64) (155)
At end of year 292 220 512
Net Book Value at end of year 538 350 888
During the year ended May 31, 1997, the following changes in fixed assets occurred:
a. New equipment was purchased for Rs. 175,000 and Rs. 200,000 on October 1, 1996 and December 1,
1996 respectively. A machine purchased for Rs. 60,000 on April 1, 1993 was sold on September 30,
1996 for Rs. 32,000. A machine purchased on October 1, 1990 for Rs. 25,000 was sold for scrap on May
1, 1997 realizing Rs. 2,000.

b. On January 1, 1997 four new vehicles were purchased costing Rs. 20,000 each. A part exchange
allowance of Rs. 5,000 per vehicle was received for two vehicles which cost Rs. 15,000 each on January
1, 1994. Following an accident in May 1997 a vehicle which cost Rs. 10,000 on April 1, 1993 was
declared a ‘total loss’ by the insurers. A claim for compensation of Rs. 3,000 had been agreed by the
Insurance Company but the monies have not yet been received by King Kong Limited.
c. The Company’s Policy is to depreciate the cost of all fixed assets in use at the end of the financial year
using the straight line method. No depreciation is provided on an asset in the year in which it is sold or
scrapped or otherwise disposed of. The same rates of depreciation used in the year ended May 31, 1996
are also to be used in the year ended May 31, 1997.
Required:
a. A disposal account showing separately the profits or losses arising from the disposals of equipment
and vehicles.
b. A schedule of fixed asset for the year ended May 31, 1997. The schedule should be in the same format
as that shown for 1996.
QUESTION 3:
In the accounts of Tuc Tuc Limited the following balances appear as at January 1, 2007:
Equipment Vehicle
Cost Rs 860,000 Rs 1,200,000
Accumulated depreciation 340,000 510,000
During the year ended December 31, 2007, the following changes in fixed assets occurred:
a. Of the four equipments purchased in May 1, 2002 for Rs 60,000 each, one equipment was sold for Rs.
6,200 on October 31, 2007.
b. On April 1, 2007, an equipment which was acquired at a cost of Rs 85,000 on August 1, 2005 was
exchanged for a new asset. The balance of the purchase price was settled with a cheque of of Rs 95,000.
The list price of the new asset was Rs 140,000.
c. Four new vehicles were purchased costing Rs. 72,000 each on July 1, 2007.
d. A vehicle which had cost Rs 145,000 on April 1, 2005 was sold for Rs. 50,000 on November 30, 2007.
e. The Company’s depreciation policy is as follows:
For Equipment: 25% on straight line basis with 20% residual value in all cases.
For Vehicle: 20% reducing balance method
Required:
a) Disposal accounts showing separately the gain or loss arising from the disposals of equipment and
vehicles.
b) A schedule of fixed asset for the year ended December 31, 2007.

QUESTION 4: Q4 of Spring 2016 (10 marks)
On 1 January 2013 Delta acquired a specialized machine for its production department. The available
information is as follows:
Rupees
List price of machine 9,200,000
Freight charges 263,000
Electrical installation cost 245,000
Staff training for use of machine 351,000
Purchase of a three-year maintenance contract 528,000
Estimated residual value 175,000
Trade discount on list price 5%
Early settlement discount taken 3%
Estimated life (in machine hours) 12,000
Machine hours used during the years ended 31 December 2013, 2014 and 2015 were 2000, 3200 and 1400
respectively.
On 1 January 2015 Delta decided to upgrade the machine by adding new components at a cost of Rs.
1,753,000. This upgrade led to a reduction in the production time per unit of goods being manufactured by
the machine. The upgrade also increased the estimated remaining life of the machine at 1 January 2015 to
8,000 machine hours and its estimated residual value to Rs. 350,000.
Required:
For the years ended 31 December 2013, 2014 and 2015, compute the relevant amounts to be included
(under each head) in the income statement and statement of financial position. Notes to the financial
statements are not required.
QUESTION 5:
Star chemical limited made-up its financial statements to 31st December each year until 31st December, 1997,
when the company changed its accounting date by making-up its next financial statements for the fifteen
months to 31st March, 1999.
The company`s depreciation policy is to charge proportionate depreciation in the periods of purchase and
sale of its non-current assets, charging depreciation as from the first day of the month in which assets are
acquired and up to the last day of the month before the month of any disposal. Annual rates of depreciation
taken are:
Plant & machinery 15% straight line
Motor vehicles 25% straight line
At 1st January 1998 the following balances existed in the company`s accounting records.
Plant & machinery - cost 819,000
Accumulated depreciation 360,000
Motor vehicles – Cost 148,000
Accumulated depreciation 60,000
During fifteen month ended 31st March, 1999 the following transaction took place.

a. 10th January 1998
An item of plant was purchased. The cost was made up as follows:
Cost ex-factory 41,200
Delivery 300
Installation costs 800
Construction of foundations 3,600
Spare parts for repairs 4,000
Cost of one year maintenance agreement 2,000
51,900
b. 18th April 1998

A new motor vehicle was purchased for Rs. 18,000. An existing vehicle which had cost Rs. 12,000 and
which had a book value at 1st January 1998 of Rs. 6,000 was given in part exchange at an agreed value
of Rs. 5,000. The balance of Rs. 13,000 was paid in cash.
Required:
Prepare the schedule of figures detailing the movements in non – current assets and depreciation for the
company`s financial statements for publication for the period ended 31 st March1999 required by IAS- 16
Property, plant and equipment.
QUESTION 6:
Flowers Limited own a variety of assets, the carrying amounts of which were as follows at 1st Jan 2000:
(i) Land: Rs. 50,000 (cost: Rs. 50,000 on 1 January 1997 comprising 4,000 square metres, situated in
North Karachi)
(ii) Plant: Rs. 1,800,000 (cost Rs. 3,000,000)
(iii) Machines: Rs. 400,000 (cost: Rs. 500,000, consisting of 5 identical machines)
Other than for depreciation, there was no movement of property, plant and equipment during the year
ended 31 December 2000.
Movements during the year ended 31 December 2001:
(i) Plant purchased on 1 June 2001 for Rs. 100,000
(ii) Machine sold on 30 June 2001 for Rs. 70,000 (cost: Rs. 100,000, accumulated depreciation on date of
sale: Rs. 35,000)
Depreciation is provided as follows:
(i) Land is not depreciated.
(ii) Plant is depreciated at 20% per annum to a nil residual value.
(iii) Machines are depreciated at 10% per annum to a nil residual value.
The company pledged both plants as security for a loan. Details of the loan will be provided in note 16.
The plant was installed and ready to use from 1 July 2001. Depreciation on machines is usually classified as
‘other costs’ in the statement of comprehensive income. Plant is used to manufacture inventories.
Required:
Disclose the plant and all related information in the financial statements for the years ended 31 December
2001 in accordance with the International Financial Reporting Standards.

QUESTION 7:
Ballu Limited (BL) accounts for non-current assets using the cost model except for land and buildings for
which it has adopted the revaluation model. BL makes an annual transfer between the revaluation surplus
and retained earnings each year to reflect the realization of the revaluation reserve.
The company’s financial statements include the following balances for property, plant and equipment for the
year ended 31 December 2015:
Accumulated
Cost Depreciation
Land and building 1,500,000 315,000
Plant and machinery 1,276,500 879,300

Office equipment 356,400 210,400
1. Additional information:
1. Land is included in the above at a valuation of Rs. 850,000.
2. Items of property, plant and equipment are depreciated on a straight-line basis as follows:
i. Building – over 50 years
ii. Plant and machinery – at a rate of 25% per annum on cost
iii. Office equipment – at a rate of 20% per annum on cost
iv. Land is not depreciated
3. On 30 June 2016 BL purchased plant at a cost of Rs. 135,000 and office equipment for Rs. 36,500. On 30
June 2016 it sold, for a profit, machinery which had cost Rs. 104,000 on 1 January 2014. For the first time
BL utilized spare capacity in its workshops and started to self-construct a specialized turning machine for
its own use. This machine was almost complete by 31 December 2016. Costs incurred on the machine to
31 December 2016 amounted to Rs. 29,200.
4. During December 2016 BL's the foundations of one of the company's warehouses were found to be
insufficient to support some of the machinery that had been housed there, although this machinery had
subsequently been moved to another site. This workshop had cost Rs. 150,000 on 1 January 2012 and
had been revalued to Rs. 210,000 on 31 December 2013. It is now estimated that its fair value is only Rs.
100,000 and that costs to sell would be Rs. 5,000. Its value in use has been estimated at Rs. 90,000.
Required: Prepare a note on Property, plant and equipment as per IAS 16.
QUESTION 8:
Following are the details of fixed asset at December 31, 2015.
Cost Depreciation WDV
Rs in “000” Rs in “000” Rs in “000”
Land 500 - 500

Buildings 400 80 320
Plant and machinery 1,613 458 1,155

Fixture and fittings 390 140 250

Asset under construction 91 - 91
2,994 678 2,316
In the year ended 31 December 2016 the following transactions occur:

1. Further costs of Rs. 53,000 are incurred on buildings being constructed by the company. A building
costing Rs. 100,000 is completed on 1st June 2016.
2. A deposit of Rs. 20,000 is paid for a new computer system which is undelivered at the year end.
3. Additions to plant on July 1, 2016 are Rs. 154,000.
4. Additions to fixtures on October 1, 2016, excluding the deposit on the new computer system, are Rs.
40,000
5. Following assets are sold:
Cost Depreciation up to Sales proceeds
disposal date
Rs in “000” Rs in “000” Rs in “000”

Plant and machinery 277 195 86
Fixture 41 31 10
Depreciation for the year on above disposed asset are as follows:

i. Plant and machinery Rs. 5
ii. Fixture Rs. 3
6. Land and buildings were revalued at 1 January 2016 to Rs. 1,500,000 for the first time, of which land is
worth Rs. 900,000. The revaluation was performed by 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% reducing balance
2. 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 2016.

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:
a. The company acquired land on 99 years lease on January 1, 1999 for Rs. 200 million.
b. The company has a fleet of nine aircrafts, relevant details of which are as under:

(i) 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 has 10 years replacement policy for airframes.
(ii) Five aircrafts were acquired on January 1, 2000 for Rs. 220 million each.
(iii) 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 has been in
respect of costs of consumables. The useful economic lives of engines and airframes are estimated
to be the same as those of the new aircrafts.
(iv) 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.
(v) 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.
c. 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.
d. 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.
e. 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.
f. Ten vehicles were purchased on July 1, 2005 at a cost of Rs. 1 million each.
g. The company’s policy as regards depreciation is as under:
 Leasehold land – straight line method.
 Hangers – straight line method.
 Aircrafts – straight line method.
 Engineering plant and equipment –machine hours used.
 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)



Spring 2020

Autumn 2019

STANDARD SUMMARIZATION WITH FLOWCHARTS

Definition: Property, Plant and Equipment
Tangible Items
Held for use Life more than one year
Production Rendering of Rental Administrative

of goods services purposes
Definition: Carrying Amount Amount at which asset is recognize
Less
accumulated depreciation and amortization
Definition: Cost Amount of
Cash or cash Fair value of other

equivalent consideration
given to
acquire / construct asset
Definition: Depreciable Amount Cost of Asset
Less
Residual value
Definition: Residual value

Net sale proceeds (sale value less cost of disposal)
Entity would currently obtain
If the asset were already of the age and in the condition

To reflect
expected at the end of its useful life
current market
and economic
conditions

Definition: Useful life Useful life is
Period over which asset is expected The no. of production or similar units expected to be
to be used obtained from that asset
Definition: Impairment loss Excess of carrying amount over
recoverable amount
Definition: Recoverable Amount Recoverable amount is
higher of
Fair value less Value in use

cost to sell
Recognition Criteria – Para 7 Cost of PPE be recognised
If and only if
Probable that future economic AND cost can be

benefits will flow to entity estimated reliably
PARA 11 Safety / Environmental / Administrative assets
donot generate inflow of economic resources
however, they assist the related assets in deriving economic benefits
hence they qualify for recognition
PARA 12
Cost of day-to-day servicing (repair and maintenance)
includes
should not be included in the cost of asset

 labour cost
 cost of consumables
 cost of small parts

PARA 13 Some items of PPE require
e.g: seats and

galleys require replacement at regular intervals
replacement
several times
carrying amount of asset shall include
during the life
cost of replacement part
of airflames.
when the cost is incurred and recognition criteria is met
cost of replaced part is derecognised
PARA 14 Cost of major inspection
included in carrying amount of PPE
when cost of inspection is incurred and recognition criteria is met
cost of previously recognised inspection cost is derecognized
PARA 15 Initial recognition of PPE shall be at
COST
PARA 16 ELEMENTS OF COST
Purchase price Directly attributable cost to bring Estimated cost of

Add: Duties and taxes the asset to the location and dismantling and
(non-refundable) condition necessary for its use restoration cost
Less: Discounts and rebates intended by management
For example
Para 17
 cost of employee benefits (IAS 19)

 cost of site preparation
 initial delivery and handling cost
 cost of testing (net of disposal proceeds of test production)
 professional fee
PARA 23 Cost of PPE
cash price equivalent at the recognition date

However, if payment is deferred beyond normal credit terms
Difference between
Recognised as interest
Cash price equivalent Total payment income over the period of
credit unless it is
PARA 29 SUBSEQUENT MEASUREMENT capitalised under IAS 23
After initial recognition, PPE shall be valued using either
Cost Model (Para 30) Revaluation Model (Para 31)
PPE carried at cost less Fair value of PPE can be measured reliably
accumulated depreciation and
amortisation carried at
Fair value less subsequent accumulated

Depreciation / Amortisation
PARA 36 If an item of PPE is revalued
all assets in that category shall be revalued
PARA 39 IMPACT OF INCREASE IN CARRYING VALUE DUE TO REVALUATION
If carrying amount increases due to revaluation, the increase shall be reported in
Other comprehensive income Accumulated equity; Revaluation Surplus
However, increase shall be recognised in profit and loss
to the extent
it reverses a revaluation decrease of the same asset previously recognised in profit and loss
PARA 39 IMPACT OF DECREASE IN CARRYING VALUE DUE TO REVALUATION
If carrying amount decreases due to revaluation it shall be
Recognised in profit and loss However, if revaluation surplus exists for

the same asset, the decrease can be charged
in that surplus to the extent of that surplus
amount. Any excess of decrease over
revaluation surplus shall be charged in profit
and loss
PARA 41 Revaluation surplus shall be transferred to retained earnings when asset is derecognized
Some of the surplus may be transferred to retained earnings which should be the difference between
Depreciation at original cost Depreciation at revalued amount
PARA 48 Depreciation of each period shall be recognised in
Profit and loss except that included in carrying amount of

another asset e.g. in IAS 2[.
PARA 51 Residual value shall be reviewed at each reporting date
If it changes from previous estimate
Change shall be treated as change in accounting estimate (IAS 8) i.e. Prospectively
PARA 55 DEPRECIATION
Begins Ceases
when the asset is at the earlier of two dates

available for use
i.e. depreciation continues when asset is classified asset is

asset is not used (idle) as held for sale (IFRS 5) derecognised
PARA 58 Land and building
Building Land
are separable assets
limited useful life normally have unlimited

are accounted for useful life and is not
separately depreciated
and is depreciated
PARA 59 Cost of land includes cost of
Dismantlement removal restoration
These portions of cost of land are depreciated over period

of benefits obtained by incurring these costs
PARA 60 Depreciation method should reflect
pattern of consumption of benefits from the asset
PARA 61 Depreciation method shall be
reviewed at each reporting date
if there is any change in pattern of consumption of benefits
change shall be treated as change in accounting estimate (IAS 8)
PARA 67 Carrying amount be derecognised
on disposal when no future economic benefits

are expected from its use or disposal
PARA 71 Gain / (Loss) on disposal
Difference b/w Net
Disposal proceeds
be recognised in profit and loss and carrying amount
PARA 72 Consideration receivable on disposal
recognise initially at fair value
if payment is deferred
consideration received recognised initially at cash equivalent price

difference between
Nominal amount cash price

of consideration equivalent
recognised as interest revenue (IFRS 15)

Ias 16-Ppe Autumn 2022 by Hasan Marfani, ACA

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Ias 16-Ppe Autumn 2022 by Hasan Marfani, ACA

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CAF-1-FAR-1- IAS-16-Property, Plant and Equipment

 costs of employee benefits

 costs of opening a new facility;

FROM THE DESK OF HASAN MARFANI,ACA-TMUC 1

Incomes from and Expenses on Incidental Operations

FROM THE DESK OF HASAN MARFANI,ACA-TMUC 2

Rate of depreciation = 100

Depreciation for the year = (Cost - residual value) * Rate of depreciation

Rate of depreciation as %age of cost = 100 - % age of Residual value

Depreciation charge per period = Book value - residual value

FROM THE DESK OF HASAN MARFANI,ACA-TMUC 3

4. Service Hour Method:

Rate of depreciation per hour of use = Cost - residual value

FROM THE DESK OF HASAN MARFANI,ACA-TMUC 4

5. Productive Output Method:

DEPRECIATION FOR PARTIAL PERIODS:

REVISING THE USEFUL LIFE

FROM THE DESK OF HASAN MARFANI,ACA-TMUC 5

Reducing balance method:

REVISING THE RESIDUAL VALUE

Entries for disposal (including exchange):

FROM THE DESK OF HASAN MARFANI,ACA-TMUC 6

Rules for exchange of assets:

If the new asset is measured at fair value, the fair value of

Lack of commercial substance

FIXED ASSET ACCOUNT AT COST

FROM THE DESK OF HASAN MARFANI,ACA-TMUC 7

FIXED ASSET ACCOUNT AT NBV

FROM THE DESK OF HASAN MARFANI,ACA-TMUC 8

INITIAL RECOGNITION OF COST

Purchase price (List Price) 124,500

Purchase price (list price) 1,700,000 1 Sept 2015

Early settlement discount of 2% is offered if payment is made in 1 month.

Initial handling charges 7,895 28 Oct 2015

The asset needs adjustments in order to be compatible with the main

Salary to own employee for working 45,000 Up to 31 December

Question 3 FROM THE DESK OF HASAN MARFANI,ACA-TMUC 10

Purchase cost 125,000

Purchase cost 640,000

QUESTION 5: Q2 of Autumn 2005 (5 marks)

FROM THE DESK OF HASAN MARFANI,ACA-TMUC 11

QUESTION 6 Q1b of Spring 2013 (8 marks)

FROM THE DESK OF HASAN MARFANI,ACA-TMUC 12

FROM THE DESK OF HASAN MARFANI,ACA-TMUC 13

FROM THE DESK OF HASAN MARFANI,ACA-TMUC 14

FROM THE DESK OF HASAN MARFANI,ACA-TMUC 16

During the year to 30 September 1991, the following transactions occurred.

During the year to 30 September 1992, the following transactions occurred:

QUESTION 4: Q8 of Autumn 2002 (11 marks)

FROM THE DESK OF HASAN MARFANI,ACA-TMUC 17

QUESTION 5: Q3 of Autumn 2005 (10 marks)

FROM THE DESK OF HASAN MARFANI,ACA-TMUC 18

QUESTION 7: Q6 of Autumn 2014 (10 marks)

QUESTION 8: Q4 of Autumn 2012 (13 marks)

30-04-12 Vehicle disposal a/c 560,000 01-07-11 Balance b/d 2,160,800

FROM THE DESK OF HASAN MARFANI,ACA-TMUC 19

Vehicle disposal account

30-04-12 Cost on 01-07-09 1,200,000 30-04-12 Accumulated dep. 560,000

QUESTION 9: Q3 of Autumn 2006 (8 marks)

QUESTION 10: Q7 of Autumn 2016 (17 marks)

FROM THE DESK OF HASAN MARFANI,ACA-TMUC 20

QUESTION 12: Q3 of Autumn 2011 (22 marks)

FROM THE DESK OF HASAN MARFANI,ACA-TMUC 22