Topic: Accounting for Property, Plant, and Equipment (PPE) IAS 16

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  • 15 Marks

FA – May 2012 – L1 – SB – Q5 – Accounting for Property, Plant, and Equipment (PPE) in Accordance with IAS 16

Recording journal entries for three trade-in options for machinery and selecting the most viable option.

Fancy Enterprises has machinery that cost N750,000 with an accumulated depreciation of N510,000. The firm is contemplating acquiring new machinery to replace the old one. The new machinery has a catalog price of N1,290,000 and attracts a 12% trade discount. The following options are available:

(i) Trade in the old machinery and add cash of N895,200.
(ii) Trade in the old machinery and add cash of N600,000.
(iii) Trade in the old machinery and add cash of N1,080,000.

You are required to:

(a) Record journal entries for each of the options, considering the information provided above.
(b) Which of the options is economically viable for the firm to acquire the new machinery?
(14 Marks)

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  • 1 Marks

FA – May 2012 – L1 – SA – Q29 – Accounting for Property, Plant, and Equipment (IAS 16)

Calculating the cost of a moulding machine to be stated in the financial statement.

Ishola & Sons Limited purchased a moulding machine for N2,550,000 from Japan, the transport expenses amounted to N250,000, installation cost amounted to N150,000, and the annual maintenance is N170,000. At what cost will the moulding machine be stated in the statement of financial position?

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  • 1 Marks

FA – May 2012 – L1 – SA – Q7 – Accounting for Property, Plant, and Equipment (IAS 16)

Identifying the correct accounting entry for an increase in asset value due to revaluation.

Which accounting entries should be raised to record an increase in the value of assets on revaluation by the partners?

A. Debit revaluation account and credit partners’ capital account
B. Debit partners’ capital account and credit revaluation account
C. Debit revaluation account and credit partners’ current account
D. Debit revaluation account and credit assets account
E. Debit assets account and credit revaluation account.

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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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  • 1 Marks

FA – Nov 2011 – L1 – SA – Q17 – Accounting for Property, Plant, and Equipment (PPE) in Accordance with IAS 16

This question asks for the term used to describe the amount agreed to be paid by a tenant to a landlord.

The amount agreed to be paid by a tenant to a landlord for the use of his property for economic reasons is known as?

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  • 1 Marks

FA – Nov 2020 – L1 – SA – Q18 – Accounting for Property, Plant, and Equipment (IAS 16)

Determines the correct journal entry for the credit purchase of property, plant, and equipment (PPE).

Which of the following journal entries correctly records the credit purchase of property, plant, and equipment (PPE)?

Account to be Debited Account to be Credited
A. PPE register Purchases ledger control
B. Purchase ledger control PPE
C. Bank PPE
D. PPE Supplier of PPE
E. PPE PPE disposal

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  • 1 Marks

FA – Nov 2020 – L1 – SA – Q14 – Accounting for Property, Plant, and Equipment (IAS 16)

Identifies an item to be classified as capital expenditure.

Which of the following should be classified as capital expenditure?
A. Penalty paid to a supplier for late payment in respect of plant supplied
B. Interest payable on loan used exclusively for the production of self-constructed PPE
C. Staff training cost on the use of equipment
D. Legal fees on debt recovery
E. Bonuses to production operatives

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  • 1 Marks

FA – Nov 2012 – L1 – SA – Q9 – Accounting for Property, Plant, and Equipment (PPE) in Accordance with IAS 16

Identifying what does not lead to improvement of property, plant, and equipment.

Which of these may NOT lead to improvement in respect of Property, Plant and Equipment?

A. Extension of economic life of the asset
B. Repairs and maintenance of asset
C. Increased quality of output
D. Faster production
E. Reduced operating costs

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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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  • 12 Marks

FA – May 2023 – L1 – SB – Q6b – Accounting for Property, Plant, and Equipment (IAS 16)

Calculation of gain or loss on disposal and recording the acquisition and disposal of cars in ledger accounts.

The carrying amount of ten cars used by Bayo Limited on January 1, 2017, was N12,000,000 and the accumulated depreciation was N3,200,000. On January 2, 2017, the entity bought a new car costing N2,000,000. The dealer accepted a car owned by the entity in part exchange at a value of N160,000. The car originally cost N1,200,000 and its accumulated depreciation was N1,080,000.

i. Calculate the gain or loss on disposal of the old car. (4 Marks)

ii. Show how the purchase of the new car and the disposal of the old car will be recorded in the ledger accounts of Bayo Limited. (8 Marks)

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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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  • 1 Marks

FA – May 2023 – L1 – SA – Q9 – Accounting for Property, Plant, and Equipment (IAS 16)

Identifying factors not considered in determining the useful life of a non-current asset.

Which of the following is NOT considered in the determination of the useful life of a non-current asset?

A. Wear and tear due to erosion and rust

B. Change in technology

C. Time factor

D. Inflation

E. Usage

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  • 1 Marks

FA – May 2023 – L1 – SA – Q8 – Accounting for Property, Plant, and Equipment (IAS 16)

Identifying when depreciation on property, plant, and equipment starts according to IAS 16.

When is depreciation on property, plant and equipment required to start in accordance with IAS 16?

A. At the date the asset was purchased

B. When payment to the vendor is completed

C. When the assets are put to use by the management

D. When the assets are available for use

E. After employees are trained on the use of the assets

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  • 20 Marks

FA – Nov 2019 – L2 – SB – Q6 – Accounting for Property, Plant, and Equipment (PPE)

This question deals with the accounting treatment for the disposal of property, plant, and equipment, including depreciation and profit/loss on disposal.

a. The disposal of property, plant, and equipment (PPE) requires the determination of profit or loss on the asset and the subsequent de-recognition of affected assets.

Required:
State the double entries required to record the following events:
(7 Marks)

b. Davidsco Ventures Limited prepares its financial statements to December 31, each reporting year.
The company’s policy is to write off its plants at the rate of 10% per annum over a ten-year period.

During the year ended December 31, 2018, the company’s manufacturing plant register, in respect of three plants, is made available to you as follows:

Plant Acquisition Date Amount (N’000)
Plant DV001 July 01, 2016 1,200
Plant DV002 January 01, 2017 1,600
Plant DV003 October 01, 2018 900

The payments for the plants were made by cheque on the date of purchase.

The plant purchased in 2016 was sold on September 30, 2018 for N1,100,000.

The company charges depreciation on a time apportionment basis.

Required:

i. Prepare the plant account. (5 Marks)
ii. Prepare the provision for depreciation account. (5 Marks)
iii. Prepare the plant disposal account. (3 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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You're reporting an error for "FA – Nov 2019 – L1 – SB – Q2c – Accounting for Property, Plant, and Equipment (PPE) in Accordance with IAS 16"

  • 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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  • 1 Marks

FA – May 2017 – L1 – SA – Q15 – Accounting for Property, Plant, and Equipment (IAS 16)

Adjusts profit for incorrect treatment of a capital expenditure as an expense.

An accounts officer recorded ₦90,000, being the purchase price of a new machine, as repairs and maintenance costs. A draft profit of ₦450,000 for the period was calculated before the discovery of the error. The depreciation rate for machinery is 25% on cost with a full year’s charge in the year of purchase. What is the correct profit?
A. N360,000
B. N382,500
C. N427,500
D. N472,500
E. N517,500

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  • 1 Marks

FA – May 2017 – L1 – SA – Q7 – Accounting for Property, Plant, and Equipment (IAS 16)

Identifies the correct term for the expected disposal value of a non-current asset.

The expected disposal value of the non-current asset at the end of its expected useful life is called
A. Back-up value
B. Replacement value
C. Carrying amount
D. Residual value
E. Sales value

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