CAF-01: FAR-1 Property, plant and equipment (IAS-16)

Lecture 11 (IAS-16) Lecture 11 (overall)

Classwork:
1) Revision of initial recognition and initial measurement;
2) Solved past paper 1 and 4 from lecture 9 handout;
3) Started discussing trade discount and cash discount and solved question 6 from chapter 7 of
Crescent book:
Question-6
ABC Co. bought goods on 1. January.20 having list price of 100,000 on credit. Due to bulk quantity,
supplier provided a 5% trade discount. Supplier further agreed to provide a 10% cash discount if the
payment is made within 20 days. ABC Co. made the payment on 15. January.20.
Required:
Pass journal entries on relevant dates in:
(i) The books of Buyer (ABC Co.);
(ii) The books of Seller (Supplier).
Homework Solution (Lecture 9)
Answer-4
(a) The cost of an item of property, plant and equipment shall be recognized as an asset if and only if:
i) It is probable that future economic benefits associated with the item will flow to the entity; and
ii) The cost of the item can be measured reliably.
An item which is revalued shall be carried at a revalued amount which is its fair value at the date of the
revaluation less any subsequent accumulated depreciation and accumulated impairment losses.
(b) Statement of Financial position (Extracts)
Rs.
2015 2014 2013
Non-current assets Rs. in ‘000’ Rs. in ‘000’ Rs. in ‘000’
Property, plant and equipment (W-1) 5,861 5,277 7,678
Prepaid maintenance 176
Current assets
Prepaid maintenance 176
Income Statement (Extracts) 2015 2014 2013
Rs. in ‘000’ Rs. in ‘000’ Rs. in ‘000’
Expenses
Depreciation (W-1) 1,169 2,401 1,501
Staff training expense 351
Maintenance contract expense (528/3) 176 176 176

(W-1) Depreciation expense Rs. in ‘000’

01.01.13 Cost (W-2) 9,179
31.12.13 Depreciation ((9,179 − 175)  2/12) (1,501)
31.12.13 Book value 7,678
31.12.14 Depreciation ((9,179 − 175)  3.2/12) (2,401)
31.12.14 Book value 5,277
01.01.15 Upgrade cost 1,753
01.01.15 Revised book value 7,030
31.12.15 Depreciation ((7,030 − 350)  1.4/8) (1,169)
31.12.15 Book value 5,861

Umair Sheraz Utra, ACA. Page |1

CAF-01: FAR-1 Property, plant and equipment (IAS-16)

(W-2) Cost of asset

List price 9,200
Less: Trade discount (9,200  5%) (460)
8,740
Less: Settlement discount (8,740 x 3%) (262)
Freight charges 263
Electrical installation 245
Pre-production testing 193
9,179

Answer-1
Plant will be capitalized at cost of Rs. 290.9 Million. Rs in million
Invoice value 250
LC opening charges 1
Import duty 25
Clearing & transportation 5
Site preparation (2 + 3 – 0.8) 4.2
Test run cost (6 – 1.2) 4.8
290
(i) Sales tax recoverable is not a part of cost of asset.
(ii) It is not necessary to damage equipment for plant installation so it is excluded from cost.
(iii) Admin and general overheads are not a part of cost of asset.
(iv) Staff training cost is not a part of cost of asset because we do not have control over it.
(v) Factory manager salary is not capitalized because it is an overhead.
Depreciation Expense = (290 /15 years)  8/12 = 12.89 Million.

Umair Sheraz Utra, ACA. Page |2