Question Tag: IAS 16

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  • 20 Marks

AAA – May 2024 – L3 – SB – Q2 – Overview of Advanced Audit and Assurance

Discuss audit review types, include necessary IAS 16 and IAS 36 information in the audit checklist, and advise on misclassified asset treatment.

The statement below is an extract of property, plant and equipment from the “notes to the financial statements” of ABC Plc:

Land and buildings Plant, equipment, fixtures and fittings, and motor vehicles Total
Costs (₦)
At January 1, 2020 75,230,481 120,454,850 195,685,331
Additions 12,540,000 16,000,500 28,540,500
Acquisitions through business combinations 24,400,000 35,750,430 60,150,430
Classified as held for sale (10,200,450) (15,450,600) (25,651,050)
Disposals (5,000,465) (10,700,250) (15,700,715)
At December 31, 2020 96,969,566 146,054,930 243,024,496
Accumulated depreciation and impairment losses
At January 1, 2020 46,660,254 66,675,860 113,336,114
Depreciation charge for the year 5,594,523 17,220,518 22,815,041
Classified as held for sale (7,650,338) (9,270,000) (16,920,338)
Disposals (3,762,523) (9,034,069) (12,796,592)
Impairment losses 5,267,533 6,022,713 11,290,246
Reversal of Impairment losses (4,515,028) (4,818,170) (9,333,198)
At December 31, 2020 41,594,421 66,796,852 108,391,273

Net carrying amount
At December 31, 2020: ₦55,375,145 (Land and buildings), ₦79,258,078 (Plant, equipment, fixtures, and fittings, and motor vehicles), Total: ₦134,633,223
At December 31, 2019: ₦28,590,212 (Land and buildings), ₦53,778,390 (Plant, equipment, fixtures, and fittings, and motor vehicles), Total: ₦82,368,602

The above was the situation of the statement of financial position of the company when it was signed at the board of directors meeting. During further review to sign off the audit file, it was discovered that the classification of some of the assets as impaired was due to wrong classification and the value had actually increased due to a new road network in the location. This affected the impairment losses for the year. The new value of the buildings affected and shown in the note above as available from market survey had actually grown to ₦8.5 million within the period under review.

Required:

  1. Evaluate the different types of audit review, the purposes, and the scope of the reviews. (10 Marks)
  2. Discuss the necessary information to be included in the audit checklist based on the information above in relation to IAS 16 – Property, Plant, and Equipment and IAS 36 – Impairment of Assets. (7 Marks)
  3. Advise on the treatment of the issue raised with regard to the wrongly classified assets. (3 Marks)

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  • 10 Marks

FR – Nov 2014 – L2 – Q7b – Property, Plant and Equipment (IAS 16)

Prepare a statement of changes in Property, Plant and Equipment for Kwali Nigeria Plc.

b. The following details are extracted from the non-current assets register of Kwali
Nigeria Plc at the year ended 30 September 2013:

Additional information:

(i) During the year ended 30 September 2013, the company incurred the
sum of N106,000,000 on the construction work in progress and this
resulted in the completion of a warehouse costing N325,000,000. The
warehouse was put to use on 1 June, 2013. The freehold property is
depreciated at a flat rate of 15% per annum on a straight-line basis.

(ii) The leasehold property was acquired on 1 October 2011 on 15 years
lease at a cost of N300,000,000. The company’s policy is to revalue the
property at market value at each year end. At 30 September 2013, the
property was valued at N204,600,000.

(iii) Plant acquired is depreciated at 25% per annum using the reducing
balance method while the leased plant is also depreciated at 25% using
the straight-line method.

(iv) One item of plant acquired for N48,000,000 on 1 October 2010 was
disposed on 30 September, 2013 for N36,000,000 while a new plant with
a higher capacity was acquired as a replacement for N65,000,000 on the
same date.

(v) All the additional pieces of information above are yet to be adjusted for
in the books of Kwali Nigeria Plc.

Required:

Prepare a statement of changes in Property, Plant and Equipment for inclusion in the
Financial Statements for the year ended 30 September 2013. (10 Marks)

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  • 5 Marks

FR – Nov 2014 – L2 – Q7a – Property, Plant and Equipment (IAS 16)

Identify the elements of cost for PPE and provide examples of directly attributable costs.

a. IAS 16 covers all aspects of accounting for Property, Plant and Equipment (PPE), including its measurement and qualification for recognition as an asset. The standard also describes the elements of cost, stating that some costs are directly attributable to the costs of PPE while some other costs fail to qualify as costs of an item of PPE.

Required:

In the context of IAS 16, identify the elements of cost of an item of Property, Plant, and Equipment, giving SIX examples of directly attributable costs. (5 Marks)

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  • 20 Marks

FR – May 2024 – L2 – SB – Q4 – Impairment of Assets (IAS 36)

Differentiate between impairment and depreciation, and discuss the indicators and accounting treatment of impairment as per IAS 36.

a. Differentiate between impairment and depreciation. (5 Marks)

b. Discuss the following as contained in IAS 36 – Impairment of Assets: i. Indicators of impairment.
ii. How to identify and account for impairment of assets. (6 Marks)

c. A non-current asset in the statement of financial position of Zamfara Ltd, an SME, at the beginning of the financial year had a carrying amount of ₦800,000. The asset had previously been revalued, and there was a revaluation surplus of ₦50,000 relating to it in the revaluation reserve. At the end of the financial year, Zamfara Ltd suspected that the asset had been impaired. It, therefore, estimated the recoverable amount of the asset and found this to be ₦600,000. The depreciation charge on the asset for the year would be ₦80,000.

Required:
As the finance manager of Zamfara Ltd, explain with relevant computation the accounting treatments required in line with the provisions of IAS 36. (9 Marks)

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  • 1 Marks

FA – May 2012 – L1 – SA – Q5 – Accounting for Property, Plant, and Equipment (IAS 16)

Identifying features of non-current assets under IAS 16.

According to IAS 16 – “Accounting for Property, Plant and Equipment” all of the following are features of non-current assets EXCEPT where they are:

A. Held by an enterprise for use in the production or supply of goods and services
B. Expected to be used on a continuing basis
C. Intended for sale in the ordinary course of business
D. Financed by leasehold rights
E. Held for rental to others, or for administration purpose.

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  • 20 Marks

FR – Nov 2020 – L2 – Q6 – Property, Plant, and Equipment (IAS 16)

Discuss depreciation concepts and characteristics under IAS 16 and calculate machine cost, revenue expenditures, and carrying amounts over the years.

Noodles Nigeria Limited (NNL) manufactures various types of noodles in Oluyole for sale across Nigeria. Recently, to sustain the company’s market leadership, NNL bought a brand new machine under the following conditions:

On September 1, 2016, NNL decided to upgrade the machine by adding new major components at a cost of N300,000,000. As a result of the upgrade, the remaining useful life was increased to 8,000,000 units and the residual value was revised to N114,000,000.

Required:
a. Describe what is meant by depreciable amount within the context of IAS 16 on property, plant, and equipment (PPE). (1 Mark)
b. Highlight THREE characteristics of depreciable assets under IAS 16. (3 Marks)
c. Describe the TWO models of accounting for cost of PPE under IAS 16. (3 Marks)
d. Calculate the following:
i. Machine cost. (3 Marks)
ii. Revenue expenditure over the years in the statement of profit or loss. (5 Marks)
iii. Carrying amounts of the machine over the years. (5 Marks)

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  • 5 Marks

FR – Nov 2021 – L2 – Q7b – Property, Plant, and Equipment (IAS 16)

Explain the two methods of valuation for property, plant, and equipment as per IAS 16.

AS 16 prescribes the principles and models of the valuation in recognizing items of property, plant, and equipment in the financial statements of an entity.

Required:
Briefly explain the TWO methods of valuation recognized in IAS 16 – property, plant, and equipment.

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  • 1 Marks

FA – Nov 2013 – L1 – SA – Q36 – Accounting for Property, Plant, and Equipment (IAS 16)

Understanding the term for when the carrying amount of an asset exceeds its recoverable amount under IAS 16.

In accordance with IAS 16 (Property, Plant and Equipment), the amount by which the carrying amount of an asset exceeds its recoverable amount is called ____________.

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  • 1 Marks

FA – Nov 2013 – L1 – SA – Q25 – Accounting for Property, Plant, and Equipment (IAS 16)

Understanding the term for a new value resulting from revaluation under IAS 16.

According to IAS 16 (Property, Plant, and Equipment), the new value as a result of a revaluation exercise carried out on property, plant, and equipment, within the context of the historical cost system is called ____________.

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  • 8 Marks

FR – May 2019 – L2 – Q4c – Property, Plant, and Equipment (IAS 16)

Preparation of extracts of the statement of profit or loss and statement of financial position for Chidinma Ventures Plc, accounting for leasehold property revaluation.

Chidinma Ventures Plc. acquired a 12-year lease on a property on 1 October, 2016 at a cost of N132 million. The company’s policy is to revalue its properties to their market value at the end of each year.

Accumulated amortization is eliminated, and the property is restated to the revalued amount. Annual amortization is calculated on the carrying values at the beginning of the year. The market values of the property on 30 September 2017 and 2018 were N127.05 million and N96.25 million, respectively. The existing balance on the revaluation surplus at 1 October, 2016 was N27.5 million. This is related to some non-depreciable land whose value had not changed significantly since 1 October 2016.

Required:
Prepare extracts of the statement of profit or loss and statement of financial position for the year ended 30 September 2017 and 2018 in respect of the leasehold property.

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  • 1 Marks

FA – Nov 2014 – L1 – SA – Q13 – Accounting for Property, Plant, and Equipment (IAS 16)

Calculating the amount to be capitalized as cost of property, plant, and equipment.

Given the following information:

  • Cost of property, plant and equipment: N5,000,000
  • Administrative and general overhead: N750,000
  • Installation cost of property, plant & equipment: N500,000
  • Cost of entertainment: N150,000

What amount should be capitalized as cost of property, plant, and equipment?

A. N5,500,000
B. N6,250,000
C. N6,400,000
D. N6,700,000
E. N6,900,000

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  • 5 Marks

FR – Mar/Jul 2020 – L2 – Q5a – Financial Instruments (IAS 32, IFRS 9)

Explains how IFRS requires gains or losses on re-measurement to be dealt with in the financial statements for financial assets held at fair value under IFRS 9 and property, plant, and equipment under the revaluation model of IAS 16.

a. IFRS requires several methods for recognising gains and losses on re-measurement of various types of assets recognised by different International Accounting Standards.
Required:
Explain how IFRS requires gains or losses on re-measurement to be dealt within the financial statements for each of the following type of assets:
i. Financial assets held at fair value under – IFRS 9. (3 Marks)
ii. Property, plant and equipment held under revaluation model of IAS 16
(2 Marks)

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  • 6 Marks

FA – Nov 2023 – L1 – SB – Q4B – Accounting for Property, Plant, and Equipment (IAS 16)

Calculate the initial measurement of a motor vehicle for a business.

Caleb Limited has recently purchased a motor vehicle for its business operations. The company incurred various costs in acquiring, preparing, and operating the motor vehicle. The following information is available:

  1. Purchase price of motor vehicle – ₦5,000,000
  2. Annual insurance premium – ₦120,000
  3. Transportation costs to the company’s location – ₦50,000
  4. Installation costs for specialized equipment – ₦150,000
  5. License and registration fees – ₦80,000
  6. Fuel and maintenance expenses (for the first month of operation) – ₦70,000
  7. Legal fees for acquisition – ₦100,000

Required:
Calculate the initial measurement of the motor vehicle.

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  • 8 Marks

FA – Nov 2023 – L1 – SB – Q4A – Accounting for Property, Plant, and Equipment (IAS 16)

Describe and explain cost elements for PPE under IAS 16.

Provide a concise description of each cost element associated with Property, Plant, and Equipment (PPE) under IAS 16, and explain the conditions under which these costs are capitalized.

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  • 1 Marks

FA – Nov 2023 – L1 – SA – Q12 – Regulatory Environment of Accounting

Identify disclosure requirements for property, plant, and equipment under IAS 16.

In the notes to the financial statements, which of the following is NOT required to be disclosed regarding property, plant and equipment under IAS 16?

  • A. The fair value of the assets at the beginning and end of the period
  • B. The current market value of the assets at the end of the period
  • C. The gross carrying amounts and accumulated depreciation at the beginning and end of the period
  • D. The expected useful lives of the assets and their residual values
  • E. The total amount of additions made to the property, plant and equipment during the year

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  • 1 Marks

FA – Nov 2023 – L1 – SA – Q5 – Accounting for Property, Plant, and Equipment (PPE) in Accordance with IAS 16

Identify non-disclosure requirements for property, plant, and equipment.

Which of the following is NOT a disclosure requirement for property, plant and equipment, as per IAS 16 – Property, Plant and Equipment?

  • A. The measurement bases used for determining the gross carry amount of property, plant and equipment
  • B. The number of inspections carried out on items of property, plant and equipment
  • C. The depreciation methods used for each major class of property, plant and equipment
  • D. The impairment losses recognised during the period
  • E. The total cost of property, plant and equipment acquired through business combinations

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  • 8 Marks

FA – May 2023 – L1 – SB – Q6a – Accounting for Property, Plant, and Equipment (PPE) in Accordance with IAS 16

Identifying the elements of the cost of Property, Plant, and Equipment (PPE) under IAS 16, with examples of directly attributable costs.

In the context of IAS 16, identify the elements of the cost of an item of “Property, Plant, and Equipment,” giving FOUR examples of directly attributable costs. (8 Marks

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  • 12 Marks

FA – May 2017 – L1 – SB – Q2a – Accounting for Property, Plant, and Equipment (IAS 16)

Calculate the value of Land & Building, Plant & Machinery, and Motor Vehicle based on given transactions.

a. The following transactions are extracts from the records of Votle Limited in 2016, the year of commencement of its business operations.

Date Transaction Description Amount (₦’000)
1 January Cost of land acquisition brought forward 7,500
1 January Building construction work in progress brought forward 9,675
10 January Invoice price of imported machinery received 13,000
10 January Agency fees for land acquisition paid 750
12 January Discount on purchase of machinery (400)
12 January Freight and insurance of machinery 300
12 January Import duties on machinery paid 630
15 January Cost of additional construction materials used paid 3,550
21 January Legal fees for land acquisition agreement paid 350
25 January Clearing agent’s fees for machinery paid 315
31 January Initial ground rent for land paid 600
2 February Annual ground rent for land paid 250
7 February Cost of fairly used motor vehicle paid 3,750
14 February Cost of haulage of machinery 252
14 February Cost of major repair to bring the motor vehicle into a usable condition 1,550
22 February Cost of construction of platform for machinery paid 1,050
25 February Cost of labour used in construction of building paid 1,975
28 February Architect’s fees in respect of building construction paid 1,250
4 March Cost of connection of power and water to machinery 1,450
6 March Repair and maintenance of motor vehicle 250
10 March Cost of testing the machinery 603
15 March Cost of commissioning the building 950

Required:
Determine the value of the following non-current assets brought into use as at March 15, 2016.
i. Land and Building (4 Marks)
ii. Plant and Machinery (4 Marks)
iii. Motor Vehicle (4 Marks)

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  • 14 Marks

FA – Nov 2019 – L1 – SB – Q2c – Accounting for Property, Plant, and Equipment (PPE) in Accordance with IAS 16

Classify expenditure for plant into capital and revenue.

c. Ahmed Ventures Ltd acquired an item of plant from Judexco Machine Ltd to facilitate its operations.

The schedule of expenditure for the plant is given below:

Expenditure Item N’000 %
Purchase price 480,000 100%
Trade discount applicable to the purchase price 8%
Early settlement discount on the payable amount 5%
Freight charges 25,000
Pre-production testing cost 15,000
One-year maintenance contract 12,000
Staff cost in relation to the use of the machine 8,000
Electrical installation cost 19,000
Concrete reinforcement 9,000
Cost of correcting installation error 17,000
Dismantling and restoration cost 20,000
Staff training in the use of the plant 14,000

Required:
Using the format provided below, classify the above plant costs into capital and revenue expenditure respectively. (14 Marks)

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  • 6 Marks

FA – Nov 2019 – L1 – SB – Q2a & b – Accounting for Property, Plant, and Equipment (IAS 16)-

Explanation of IAS 16 requirements for initial recognition of Property, Plant, and Equipment (PPE).

a. Explain the requirements of IAS 16 on the initial recognition of Property, Plant, and Equipment (PPE).

(3 Marks)

b. After the acquisition of an item of PPE, an entity continues to incur subsequent expenditure on the item.

Required:
Explain briefly the requirements of IAS 16 in relation to subsequent expenditure and subsequent measurement. (3 Marks)

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