IAS 16 Part 1 Exercises.

1. Flamengo Ltd purchased a machine on 1 January 2013.

the following details are provided:
Note E
Purchase rice 1 100 000
Delivery costs 3000
Installation costs 6000
General administrative costs 2 1000
Cost of testing 3 5000
Pre-production costs 4 2000
Initial operating losses 5 10 000
 …Exercises
• Additional information:
1. The purchase price of E 100 000 is only payable on 31 Dece 2013. the supplier
of the machine does not usually allow credit for the purchase of similar
machines.
2. The administrative costs are of a general and indirect nature.
3. The costs of testing comprise costs incurred to produce samples while testing
whether the machine is functioning properly. Samples were sold at net
proceeds of E 500.
4. The pre-production costs were necessary to bring the machine to the condition
necessary to be able to operate in the manner intended by management.
5. The initial operating losses are attributable to the initial production of small
quantities.
6. The assets were ready for use on 3 January 2013 and immediately put to use.
 …Exercise
7. The current interest rate is 14% per annum and the company does
not follow a policy of capitalising borrowing costs.
8. The machine will be depreciated using the straight-line method
over eight years, taking into account a residual value of E 7000.
9. Assume that a liability exists to dismantle and remove the machine
at the end of its useful life at a cost of E 3500(discounted present
value equals E 1700).
10.Ignore VAT.
11.Required:
a. Calculate the cost at which the asset will be recognised.
b. Calculate the carrying amount of the asset on 31 December
2013.
 IAS 16 Exercise
2. Brick Ltd Commenced manufacturing of bricks at a new
plant. The plant was purchased on 1 January 2014 for E
700000. During January 2014, some equipment was installed
and other equipment was modified. Installation and
modification costs incurred amounted to E 130 000. For
security reasons a fence was erected at the plant at a cost of
E 20 000. The plant was ready for use on 1 February 2014.
An opening function was held in the plant on 15 February
2014 at a cost of E 50 000 in order to entertain customers
and to introduce the new products to be manufactured at
this plant. Production only commenced on 1 March 2014.
 IAS 16 Exercise 2….
The plant has a useful life of 10 years and the residual value
was estimated at E 200 000. Expected scrapping costs
amount to E 140 000( discounted present value of scrapping
costs equals E 100 000). Assume that the provision for the
scrapping costs will be raised in accordance with IAS 37.
At the end of August 2014 heavy rain caused severe damage
to the houses of the employees in the region. Management
granted special leave to all the employees of the plant to
attend to the repair of their houses. The plant stood idle
during September 2014.
The company’s year end is 31 December.
 IAS 16 Exercise 2….
Required:
a. Calculate the cost of the plant.
b. Calculate the depreciable amount of the
plant.
c. Calculate depreciation for the year ended 31
December 2014.
d. Calculate the carrying amount of the plant
on 31 December 2014.
 Exercises
3. IAS 16: property, plant and equipment gives
certain criteria to be satisfied before an item
of property, plant and equipment should be
recognized as an asset. State these criteria
and state the value at which the asset should
be measured initially. Give six examples of
directly attributable costs that could be
included in the value and four examples of
cost that should not be included in the value.