¤ Depreciation of the store. Even though the asset has not
yet been brought into use, IAS 16 states depreciation of an asset
begins when it is available for use, ie when it is in the location
and condition necessary for it to be capable of operating in
the manner intended by management.
Note: depreciation cannot be calculated in this question as
information surrounding useful economic life has not been provided
– this is for illustrative purposes only. Depreciation is covered later
in this article.
SolutIon 3
The $18,000 should be capitalised as part of the cost of the
asset as the revenue earning capacity of the machine has
significantly increased, which could in turn lead to the inflow
of additional economic benefit and the cost of the upgrade can be
reliably measured.
SolutIon 4
Income statement extract
Depreciation expense
$37,500
Statement of financial position extract
Plant
(200,000 – 50,000 – 37,500)
$112,500
SolutIon 1
In accordance with IAS 16, all costs required to bring an asset
to its present location and condition for its intended use should
be capitalised. Therefore, the initial purchase price of the asset
should be:
$
List price 82,000
Less: trade discount (10%) (8,200)
73,800
Import duty 1,500
Delivery fees 2,050
Electrical installation costs 9,500
Pre-production testing 4,900
Total amount to be capitalised at 1 March 91,750
The maintenance contract of $7,000 is an expense and therefore
should be spread over a five-year period in accordance with the
accruals concept and taken to the income statement. If the
$7,000 has been paid in full, then some of this cost will represent
a prepayment.
In addition the settlement discount received of $3,690
($73,800 x 5%) is to be shown as other income in the
income statement.
SolutIon 2
This is an example of a self-constructed asset. All costs to get the
store to its present location and condition for its intended use should
ias 16
solutions
01 TECHNICAL
