- 14 Marks
FR – L2 – Q25 – Financial Reporting Standards and Their Applications
Question
FAMCO LTD
FAMCO LTD had the following tangible non-current assets at 31 December 20X3.
| Cost | Depreciation | Carrying amount | |
|---|---|---|---|
| GH¢000 | GH¢000 | GH¢000 | |
| Land | 500 | – | 500 |
| Buildings | 400 | 80 | 320 |
| Plant and machinery | 1,613 | 458 | 1,155 |
| Fixtures and fittings | 390 | 140 | 250 |
| Assets under construction | 91 | – | 91 |
| 2,994 | 678 | 2,316 |
In the year ended 31 December 20X4 the following transactions occur.
(1) Further costs of GH¢53,000 are incurred on buildings being constructed by the company. A building costing GH¢100,000 is completed during the year.
(2) A deposit of GH¢20,000 is paid for a new computer system which is undelivered at the year end.
(3) Additions to plant are GH¢154,000.
(4) Additions to fixtures, excluding the deposit on the new computer system, are GH¢40,000.
(5) The following assets are sold.
| Cost | Depreciation b/f | Proceeds | |
|---|---|---|---|
| GH¢000 | GH¢000 | GH¢000 | |
| Plant | 277 | 195 | 86 |
| Fixtures | 41 | 31 | 2 |
(6) Land and buildings were revalued at 1 January 20X4 to GH¢1,500,000, of which land is worth GH¢900,000. The revaluation was performed by Messrs 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% per annum reducing balance
Required
Show the disclosure under IAS 16 in relation to non-current assets in the notes to the published accounts for the year ended 31 December 20X4.
Answer
Accounting policies
(a) Property, plant and equipment is stated at historical cost less depreciation, or at valuation.
(b) Depreciation is provided on all assets, except land, and is calculated to write down the cost or valuation over the estimated useful life of the asset.
The principal rates are as follows.
| Buildings | 2% pa straight line | | Plant and machinery | 20% pa straight line | | Fixtures and fittings | 25% pa reducing balance |
Fixed asset movements
| Land | Buildings | Plant and machinery | Fixtures and fittings | Assets under construction | Total | |
|---|---|---|---|---|---|---|
| Cost/valuation | GH¢000 | GH¢000 | GH¢000 | GH¢000 | GH¢000 | GH¢000 |
| Cost at 1 January 20X4 | 500 | 400 | 1,613 | 390 | 91 | 2,994 |
| Revaluation adjustment | 400 | 600 | – | – | – | 1,000 |
| Additions | – | – | 154 | 40 | 73 | 267 |
| Reclassifications | – | 100 | – | – | (100) | – |
| Disposals | – | – | (277) | (41) | – | (318) |
| Cost at 31 December 20X4 | 900 | 1,100 | 1,490 | 389 | 64 | 3,943 |
| Depreciation | ||||||
| At 1 January 20X4 | – | 80 | 458 | 140 | – | 678 |
| Revaluation adjustment | – | (80) | – | – | – | (80) |
| Charge for year (W2) | – | 17 | 298 | 70 | – | 385 |
| Disposals | – | – | (195) | (31) | – | (226) |
| At 31 December 20X4 | – | 17 | 561 | 179 | – | 757 |
| Carrying amount | ||||||
| At 31 December 20X4 | 900 | 1,083 | 929 | 210 | 64 | 3,186 |
| At 31 December 20X3 | 500 | 320 | 1,155 | 250 | 91 | 2,316 |
The corresponding historical cost information is as follows.
Land and buildings
| GH¢000 | |
|---|---|
| Cost | |
| Brought forward | 900 |
| Reclassification | 100 |
| Carried forward | 1,000 |
| Depreciation | |
| Brought forward | 80 |
| Provided in year | 17 |
| Carried forward | 97 |
| Carrying amount | |
| 903 |
Workings
(1)
Additions to assets under construction
| Deposit on computer | GH¢000 |
|---|---|
| 53 | |
| 20 | |
| 73 |
(2)
Depreciation on buildings (600/40 + (100 × 2%)) = 17
2% straight line depreciation is equivalent to a 50-year life.
The buildings are ten years old at valuation and therefore have 40 years remaining.
Depreciation on plant (1,613 + 154 – 277) × 20% = 298
Depreciation on fixtures (390 + 40 – 41 – 140 + 31) × 25% = 70
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