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Sample PPE Audit Problem - Solutions

The document discusses accounting for leasehold improvements, buildings, machinery and equipment, and delivery equipment. It provides calculations for depreciation expense for the year ending December 31, 2021 for these asset categories. For leasehold improvements, depreciation is calculated on a straight-line basis over the lease term of 80 months. Buildings depreciation uses the 150% declining balance method over 25 years. Machinery depreciation includes a new purchase and a machine destroyed by fire. Gains and losses on disposal of old assets are also calculated.

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Althea Rubin
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48 views

Sample PPE Audit Problem - Solutions

The document discusses accounting for leasehold improvements, buildings, machinery and equipment, and delivery equipment. It provides calculations for depreciation expense for the year ending December 31, 2021 for these asset categories. For leasehold improvements, depreciation is calculated on a straight-line basis over the lease term of 80 months. Buildings depreciation uses the 150% declining balance method over 25 years. Machinery depreciation includes a new purchase and a machine destroyed by fire. Gains and losses on disposal of old assets are also calculated.

Uploaded by

Althea Rubin
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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LEASEHOLD IMPROVEMENTS

IAS 16, Property, Plant and Equipment , Paragraph 56:


Consequently, all of the following factors are considered in determining the useful life of an asset:
(d) legal or similar limits on the use of the asset, such as expiry dates of related leases.

DEPRECIATION COMPUTATION:
Cost 4,200,000.00
Residual Value Immaterial
Useful Life 80 (July 1, 2021 to December 31, 2027)

= 4,200,000.00
80
Monthly Depreciation 52,500.00
Multiply by 8 Months
Accum. Depreciation 420,000.00

BUILDINGS
Depreciation Computation:
Cost 30,000,000.00
Accumulated Depreciation 6,577,500.00
Residual Value Immaterial
Useful Life 25 years
Depreciation Method 150% Declining Balance

= Carrying Amount X (1/25 Years) X 150%


= (30,000,000-6,577,500) X (1/25 Years) X 150%
2021 Depreciation 1,405,350.00
Add: Accum. Depreciation 6,577,500.00 Beginning Balance
Accum. Depreciation 7,982,850.00

MACHINERY & EQUPMENT


IAS 16, Property, Plant and Equipment , Paragraph 17:
Examples of directly attributable costs are:
(c) Initial delivery and handling costs
(d) installation and assembly costs
New Purchase:
Invoice Cost 7,000,000.00
Add:
Freight 125,000.00
Installation cost 625,000.00
Total Cost 7,750,000.00
Divided by: 10.00 Years (Useful life)
Yearly Depreciation 775,000.00
Divided by: 12.00 Months
Monthly Depreciation 64,583.33
Multiply by: 6 Months (July 1, 2021 to December 31, 2021)
2021 Depreciation Expense 387,500.00

Machine destroyed by fire:


Cost 575,000.00
Divided by: 10 Years (Useful life)
Yearly Depreciation 57,500.00
Multiply by: 5 Years (April 1, 2016 to March 31, 2021)
Accumulated Depreciation 287,500.00
Divided by: 60.00 Months
Monthly Depreciation 4,791.67
Multiply by: 57.00 Months (April 1, 2016 to December 31, 2021)
Accumulated Depreciation 273,125.00

Cost 575,000.00
Less: Accumulated Depreciation 287,500.00
Carrying Amount 287,500.00

Cost of Machinery & Equipment 22,500,000.00 Beginning Balance


Less: Cost of Machine Destroyed 575,000.00
21,925,000.00
Divided by: 10 Years (Useful life)
Yearly Depreciation 2,192,500.00

Accumulated Depreciation 6,250,000.00 Beginning Balance


Add:
Yearly Depreciation 2,192,500.00 January 1, 2021 to December 31, 2021
New Machine 387,500.00 July 1, 2021 to December 31, 2021
Less:
Accum Depreciation of Destroyed Machine 273,125.00 (April 1, 2016 to December 31, 2021)
Accumulated Depreciation - Machinery 8,556,875.00
DELIVERY EQUIPMENT
Old truck traded in:
Cost 450,000.00
Less: Accumulated Depreciation 315,000.00 Squeezed amount
Carrying Amount 135,000.00

Depreciation Computation (2021):


Cost 450,000.00
20%
2021 Depreciation 90,000.00

IAS 16, Property, Plant and Equipment , Paragraph 26:


If the entity is able to determine reliably the fair value of either the asset received or asset given up, then the fair value of the asset given up is used to
measure the cost of the asset received unless the fair value of the asset received is more clearly evident.

Cost of New truck 600,000.00 Cash price (considered as fair value)


40%
1st Year Depreciation 240,000.00

Accumulated Depreciation 2,115,000.00 Beginnning


Add:
Depreciation of Existing Assets 360,000.00 Less Depreciation of Old Truck for 2021
Depreciation of New Truck 240,000.00
Less: Depreciation of Old Truck 315,000.00 Accumulated Depreciation
2,400,000.00

Net gain (loss) from asset disposal:


Machine destroyed by fire
Receivable from Insurance Company 387,500.00
Less: Carrying value of asset 287,500.00 As of April 1, 2021
Gain on disposal 100,000.00

Trade in:
Cash paid for new truck 500,000.00
Carrying Value of Old Truck 135,000.00
Total Consideration 635,000.00
Less: Fair value of new truck 600,000.00
Loss on disposal 35,000.00

Total gain (loss) on disposal 65,000.00

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