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com List of Examples IAS 16 Property, Plant and Equipment

N. Title Location
Example 1 Components of costs Excel
Example 2 Exchanges of assets Excel
Example 3 Subsequent expenditures Excel
Example 4 Depreciation Excel
Example 5 Change in useful life Excel
Example 6 Fully depreciated assets still in use Excel
Example 7 Revaluation model Excel
Example 8 Disposals of assets Excel
www.CPDbox.com Example 1: Components of costs IAS 16 Property, Plant and Equipment

SkyBeings Co. decided to build its own hangar to store and maintain part of aircraft. Construction was partially done internally and partially outsourced.
Construction process started on 1 March 20X1 and finished 31 October 20X1. Then, hangar was tested and came into use on 3 January 20X2. Before
hangar came into use, digital control unit was installed inside in order to maintain certain operations automatically. Ten mechanics were trained in order
to use control unit correctly. Company plans to use hangar during its full estimated useful life. Then the hangar will be removed as applicable laws
require so.
What is the cost of hangar?

Here is the summary of all expenditures incurred in the period from 1-3-20X1 until 3-1-20X2:

Description CU Hangar Other assets Expenses

Salaries and attached social security expenses for workers
1. 32,600 32,600
building hangar
2. Material expenses to build hangar: 200,000 200,000
3. Salary of officer who calculates wages of all employees 40,000 40,000
Invoices from construction companies performing certain
4. 80,000 80,000
building works (net of VAT):
5. Fees for professional construction supervision: 15,000 15,000
6. Legal fees for building permits, local non-refundable taxes: 3,400 3,400
Value-added tax on external services (refundable, as
7. 16,000 16,000
SkyBeings Co. is registered VAT payer in EU):
8. Invoices for digital control unit (includes 20% VAT): 24,000 20,000 4,000
9. Invoices for installing the digital control unit net of VAT: 3,000 3,000
10. Invoice for training of 10 mechanics to use digital equipment: 4,000 4,000
SUBTOTAL: 418,000 354,000 20,000 44,000
add provision for dismantling the asset 26,919 26,919
TOTAL COSTS: 444,919 380,919 20,000 44,000

SkyBeings' management has expressed the following estimations based on expert valuations and best
industry practices:
1. Estimated useful life of hangar: 20 years
2. Estimated residual value of hangar: 0
3. Estimated cost of removing hangar at the end of its useful life: 40,000
4. Estimated useful life of digital control unit: 5 years (needs to be replaced after that)
5. Discount rate: 2%

Present value of asset removal provision

(40 000/(1+0,02^20) 26,919
www.CPDbox.com Example 2: Exchanges of assets IAS 16: Property, Plant and Equipment

Recently, SkyBeings reviewed all of its PPE and decided to sell 30 high lifts. One of SkyBeings competitors, Aviacs, offered 20
luggage belts +
20 000 CU for 30 high lifts to SkyBeings. Let's assume that the transaction has a commercial substance.
How would these newly acquired assets appear in financial statements of SkyBeings and Aviacs?

Summary of financial data in respect of exchanged assets:

High lift - carrying amount 4,000 CU each

High lift - market value for similar used asset 3,700 CU each
Luggage belt - carrying amount 5,600 CU each
Luggage belt - market value for similar used belt 4,550 CU each

Solution

30 high lifts

SkyBeings Aviacs

20 luggage belts + 20 000 CU

Fair value of 30 high lifts: 111,000

Fair value of 20 luggage belts: 91,000

Skybeings:
Cost of 20 luggage belts (= FV of 20 luggage belts) 91,000
Cost of 1 luggage belt: 4,550
Carrying amount of 30 high lifts at disposal (4 000 x 30) 120,000

Debit PPE (20 luggage belts) 91,000

Debit Cash
20,000
Credit PPE (30 high lifts)
Debit Loss on sale of 30 high lifts -120,000 in CA
9,000
0
www.CPDbox.com Example 3: Subsequent expenditures IAS 16: Property, Plant and Equipment

During 20X2, SkyBeings incurred certain expenditures related to its PPE. Advice SkyBeings on appropriate accounting
treatment.

Summary of financial data in respect of expenditures incurred: CU ASSETS EXPENSES

Purchase of new digital CU to hangar (planned replacement) 20,000 20,000

Installation of new digital CU 3,000 3,000
Routine servicing in hangars, including replacement of handles 7,000 7,000
Installation of new hand dryers in toilets 8,000 8,000
Major fault inspection of airplanes 50,000 50,000
TOTAL 88,000 81,000 7,000
www.CPDbox.com Example 4: Depreciation IAS 16: Property, Plant and Equipment

During 20X2, X-bottlers acquired bottling machine. Purchase price of a machine was 30 000 CU, cost of delivery & installation was 2 500 CU and cost of training of
employees about machine usage was 2 000 CU.
Normal economic life of a machine is 6 years. X-bottlers plan to use machine for bottling 5 000 batches of X-lemonade and then, to sell machine for
2 000 CU (it is a current market price of used bottling machines). X-bottlers assume that further expenses to uninstall machine would be 500 CU.
Normal production plan for 1 bottling machine is as follows:
1st year - 1 800 batches
2nd year - 1 500 batches
3rd year - 1 100 batches
4th year - 600 batches
Advice X-bottlers how the machine would be depreciated.

1. Determining depreciable amount

1a. Cost of machine:

Purchase price: 30,000
Delivery & installation: 2,500
Total cost of machine: 32,500 A

1b. Residual value:

Expected proceeds at the end of useful life: 2,000
less cost of disposal: -500
Residual value: 1,500 B

1c. Depreciable amount:

Cost of machine: 32,500
Residual value: -1,500
Depreciable amount: 31,000 C = A-B

2. Determining useful life

= n. of batches to bottle 5,000

3. Determining depreciation method

Year N. of units Proportion Depreciation charge Carrying amount

1 1,800 0.36 11,160 21,340
2 1,500 0.30 9,300 12,040
3 1,100 0.22 6,820 5,220
4 600 0.12 3,720 1,500 Note: CA at the end of the useful life = residua
Total 5,000 1.00 31,000

4. Accounting treatment

Year 1 Year 2 Year 3 Year 4

11,160 9,300 6,820 6,820
Debit Inventories - WIP -11,160 -9,300 -6,820 -6,820
Credit PPE -accum. dep.
0 0 0 0
 www.CPDbox.com Example 4: Depreciation IAS 16: Property, Plant and Equipment

ost of training of

of the useful life = residual value

www.CPDbox.com Example 5: Change in depreciation IAS 16: Property, Plant and Equipment

SkyBeings' costs for new hangar are 380 919 CU including digital control unit in amount of 23 000 CU. Hangar has no residual value. Straight-line method of depreciation is used.
Useful life of digital control unit is 5 years and remaining hangar 20 years. What would depreciation charge be for the year ended 31-12-20X2 with regard to hangar?

1. Hangar - without DCU

Estimated useful life of hangar: 20 years
Cost of hangar excluding digital control unit (380 919 - 23 000) 357,919 CU
Annual depreciation charge (357 919 / 20) 17,896 CU A

2. Digital control unit - depreciated separately

Estimated useful life of digital control unit: 5 years
Cost of digital control unit: 23,000 CU
Annual depreciation charge (23 000 / 5): 4,600 CU B

Total depreciation charge for 20X2: 22,496 CU A+B

After closing of the year 20X4, SkyBeings reviewed the useful life of hangar downwards to 15 years in total (ending 20X16). Then, hangar would be removed at cost of 40 000
CU. How does this decision affect accounting treatment in respect of hangar ? Discount rate remains at 2% p.a.
Note: original cost of hangar included asset removal cost of 26 919 CU.

1. NO ACCOUNT ON PROVISION FOR ASSET REMOVAL IS TAKEN

1. Hangar without DCU

1a. Calculation of carrying amount at 1-1-20X5
Depreciation charge for 20X2 - 20X4 (17 896 * 3) 53,688 CU A * 3 years
Carrying amount at 1-1-20X5 (cost - accumulated depreciation) 304,231 CU D

1d. Calculation of revised depreciation charge:

New estimated useful life of hangar 1-1-20X5 - 31-12-20X16: 12 years
Annual depreciation charge (304 231 /12) 25,353 CU D / 12
Carrying amount at 31-12-20X5 (304 231 - 25 353) 278,879 CU

2. Digital control unit

End of useful life of currently installed DCU: 20X6

no effect on financial statements

2. WITH ADJUSTING PROVISION FOR ASSET REMOVAL

1. Hangar without DCU

1a. Calculation of carrying amount at 1-1-20X5
Depreciation charge for 20X2 - 20X4 (17 896 * 3) 53,688 CU A * 3 years
Carrying amount at 1-1-20X5 (cost - accumulated depreciation) 304,231 CU D

1b. Calculation of provision for asset dismantling at 1-1-20X5 -

under original assumption of 20 years
Capitalized discounted removal costs at 3-1-20X2: 26,919 CU Year Beg. balance Interest charge End balance
www.CPDbox.com Example 5: Change in depreciation IAS 16: Property, Plant and Equipment

Interest charge for 20X2-20X4 (at 2% p.a. - 26 919 *1,02*1,02*1,02 -

1,648 CU
26 919) 20X2 26,919 538 27,457
Provision for removal costs at 1-1-20X5: 28,567 CU E 20X3 27,457 549 28,006
20X4 28,006 560 28,567
1c. Calculation of provision for asset dismantling at 1-1-20X5 -
under new assumption of 12 years
Estimated cost of removal at the end of 20X16: 40,000 CU
Present value of provision for asset removal at 1-1-20X5: 31,540 CU F

1d. Calculation of revised depreciation charge and carrying

amount:
Increase of provision for asset removal (31 540 - 28 567) 2,973 CU G=F-E
Revised carrying amount at 1-1-20X5: 307,204 CU H=G+D
New estimated useful life of hangar - 1-1-20X5 - 31-12-20X16: 12 years
Annual depreciation charge (307 204/ 12) 25,600 CU H/12
Carrying amount at 31-12-20X5: 281,604 CU

2. Digital control unit

End of useful life of currently installed DCU: 20X6

no effect on financial statements

www.CPDbox.com Example 6: Fully depreciated assets still in use IAS 16 Property, Plant and Equipment

Volvel plc.'s CFO works on the closing of the year 20Z5's accounts. She performs the review of the machines used in the process of a production and assembly of
Volvel's products (cars) and finds out that the carrying amount of Volvel's painting machines is 0, but Volvel's production manager plans to utilize them in the next 2
years (20Z6 and 20Z7). Volvel's CFO also found out that in 20Z2 significant amount of small components in painting machines was replaced and this replacement
extended machines' useful life by 2 years. However, Volvel did not reflect this situation in its financial statements in 20Z2.
Based on the financial information below, advise Volvel how to reflect that in its financial statements as at 31 December 20Z5. Ignore tax effect.

Painting machines
Acquisition date: 1-Jan-20Z0
Original estimated useful life (in years): 6
Change in useful life: 20Z2
Revised remaining estimated useful life
2
as at 31-Dec-20Z5:
Cost: 700,000
Original annual depreciation charge: 116,667

#2 Painting machines

Accounting error in prior period Material? Restate

Cost: 700,000
Acc. depr. @1-Jan-20Z2: 233,333
Carrying amount @1-Jan-20Z2: 466,667

Original remaining useful life Revised remaining useful life When to

Difference
(1-Jan-20Z2): 4 years (1-Jan-20Z2): 6 years recognize?
Carrying Depreciation Carrying
Depreciation charge Carrying amount Depreciation charge
amount charge amount
31-Dec-20Z2 116,667 350,000 77,778 388,889 -38,889 38,889 @1-Jan-20Z4
31-Dec-20Z3 116,667 233,333 77,778 311,111 -38,889 77,778 @1-Jan-20Z4
31-Dec-20Z4 116,667 116,667 77,778 233,333 -38,889 116,667 31-Dec-20Z4
31-Dec-20Z5 116,667 0 77,778 155,556 -38,889 155,556 31-Dec-20Z5

#1 Restatement of opening balances for the earliest period presented (20Z4):

Debit - F/P Accumulated depreciation 77,778 Statement of financial position (extract)

Credit - F/P Retained earnings -77,778 20Z5 20Z4 (restated)
0 Property, plant and equipment
(painting machine) 155,556 233,333
#2 Restatement of comparative period (20Z4):
Equity - accumulated profit 116,667 116,667
Debit - F/P Accumulated depreciation 38,889 (effect of correction)
Credit - F/P Retained earnings -38,889
0
Statement of comprehensive income (extract)
#3 Current year's depreciation charge (20Z5):
20Z5 20Z4 (restated)
Debit - P/L Depreciation charge 77,778
Credit - F/P Accumulated depreciation -77,778 Depreciation 77,778 77,778
www.CPDbox.com Example 6: Fully depreciated assets still in use IAS 16 Property, Plant and Equipment
Debit - P/L Depreciation charge
Credit - F/P Accumulated depreciation
0 (painting machine)

Statement of changes in equity (extract)

Retained earnings
before restating restatement after restating
Balance at 31-Dec-20Z3 1,000,000 77,778 1,077,778

Profit for the year ended 31-Dec-20Z4 as restated 250,000 38,889 288,889
Balance at 31-Dec-20Z4 1,250,000 116,667 1,366,667

Profit for the year ended 31-Dec-20Z5 280,000 280,000

Balance at 31-Dec-20Z5 1,530,000 116,667 1,646,667
www.CPDbox.com Example 7: Revaluation of PPE IAS 16: Property, Plant and Equipment

X-bottlers decided to apply revaluation model for its buildings. In 20X0, Company acquired building in France with cost of 600 000 CU. Accumulated
depreciation of this building was 100 000 CU as of 31-12-20X4 and its useful life is 30 years in total. Straight-line depreciation method is used.
However, market value of building proved to be 550 000 CU as of 1-1-20X5. How would X-bottlers treat this revaluation in its financial statements as of 31-
12-20X5?
Then, after 1 year and as a result of world financial crisis, value of building went sharply down to 350 000 CU. What will X-bottlers recognize in its financial
statements as of 31-12-20X6?

1. Increase in carrying amount in 20X5

1a. Calculating amount of revaluation:
Carrying amount before revaluation (600 000-100 000) 500,000 CU
Fair value 550,000 CU
Revaluation surplus 50,000 CU A

Debit PPE (building) 50,000

Credit Equity - revaluation surplus -50,000
0

1b. Calculating depreciation charge:

Revalued amount: 550,000
Remaining useful life: 25 years
Depreciation charge: 22,000
Depreciation charge based on original cost (600 000 / 30) 20,000

Debit Depreciation expense (profit or loss) 22,000

Credit PPE (building) -22,000
0
Utilisation of revaluation surplus:
(difference between original depreciation and "revalued" depreciation) 2,000

Debit Equity - revaluation surplus 2,000

Credit Equity - retained earnings -2,000
0

2. Decrease in carrying amount in 20X6

Revalued amount before revaluation (550 000 - 22 000) 528,000
Fair value 350,000
Total decrease: 178,000

Debit to revaluation surplus (50 000 - 2 000) 48,000

Debit to profit or loss (178 000 - (50 000 - 2 000)) 130,000

Debit Equity - revaluation surplus 48,000

Debit Profit or loss 130,000
Credit PPE (building)
-178,000

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0

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www.CPDbox.com Example 7: Revaluation of PPE IAS 16: Property, Plant and Equipment
 www.CPDbox.com Example 7: Revaluation of PPE IAS 16: Property, Plant and Equipment

U. Accumulated
d is used.
al statements as of 31-

cognize in its financial

c
www.CPDbox.com Example 7: Revaluation of PPE IAS 16: Property, Plant and Equipment
www.CPDbox.com Example 8: Disposals IAS 16: Property, Plant and Equipment

In 20X7, building in France was revalued again to 370 000 CU. In 20X8, X-bottlers decided to sell this building and also bottling machine. How will these
transactions appear in financial statements of X-bottlers as of 31-12-20X8?

Financial data related to building in France:

Carrying amount of building as of 1-1-20X8: 370,000 CU
Balance of related revaluation surplus as of 1-1-20X8: 20,000 CU
Expected proceeds from sale of building:
at sale: 220,000 CU
in 2 years: 220,000 CU
Total: 440,000 CU
Discount rate: 2% p.a.
Expected expenses to clean&clear building before sale: 10,000 CU

Financial data related to bottling machine:

Carrying amount of bottling machine as of 1-1-20X8: 10,540 CU Note: This machine is unrelated to example 4.
Expected proceed from sale of bottling machine (full at sale): 4,000 CU
Expenditure to prepare the machine for sale: 500 CU

1. Sale of building in France

1a. Calculating net proceeds:
Expected proceeds at sale: 220,000
Expected proceeds in 2 years - discounted value
211,457
(220 000/(1+0,02)^2)
Less expenses before sale: -10,000
Net proceeds from sale of building in France: 421,457 CU

1b. Calculating gain or loss at sale:

Net proceeds: 421,457
Carrying amount: 370,000
Gain from derecognition: 51,457 CU

Debit Cash received at sale 220,000

Debit Receivable from sale of building 211,457
Credit Cash given for expenses of sale -10,000
Credit PPE (building)
-370,000
Credit Gain from disposal (profit or loss)
-51,457
0

Utilisation of revaluation surplus:

Debit Equity - revaluation surplus 20,000
Credit Equity - retained earnings -20,000
0

Interest on receivable in 20X9:

Debit Receivable from sale of building (211 457*2%) 4,229

Credit Interest revenue (profit or loss) -4,229
0

Interest on receivable in 20X10:

Debit Receivable from sale of building ((211 457+4 229)*2%) 4,314

Credit Interest revenue (profit or loss) -4,314
0

220,000

2. Sale of bottling machine

2a. Calculating net proceeds:
Expected proceeds at sale: 4,000
Less expenses before sale: -500
Net proceeds from sale of bottling machine: 3,500 CU

2b. Calculating gain or loss at sale:

Net proceeds: 3,500
Carrying amount: 10,540
Loss from derecognition: -7,040 CU

Debit Cash received at sale 4,000

Credit Cash given for expenses of sale -500
Credit PPE (bottling machine) -10,540
Debit Loss from disposal (profit or loss)
7,040
0
www.CPDbox.com Example 8: Disposals IAS 16: Property, Plant and Equipment
 www.CPDbox.com Example 8: Disposals IAS 16: Property, Plant and Equipment

ine. How will these