FINANACIAL ACCOUNTING & REPORTING 1

SIR HASSAN MARFANI , ACA

IAS-16 Property, Plant & Equipment

(IAS 16) : Property, Plant & Equipment [PPE]

These are those tangible items that:

• Are held for use in business for production or supply of goods or for administrative
purposes; and
• Are expected to be used during more than one accounting period.
The asset are capitalized and then depreciated over their useful life.
Examples of these assets include:
• Land & Building
• Plant & Machinery
• Furniture & Fixtures
• Motor Vehicles
• Computer Equipment etc
Depreciation is the systematic allocation of depreciable amount of an asset over its useful
life.
Depreciable Amount = Cost –Residual Value
Cost means purchase price and all costs incurred in bringing the asset into working condition
as intended by
management.
Residual Value is the amount expected to be obtained from an asset at the end of its useful
life.
Useful Life is the period over which asset is expected to be used by an entity.

Methods of depreciation:
➢ Straight line method:
Annual Depreciation = Cost – Residual Value
Estimated useful life
or
Rate of depreciation= 1/ Useful life x 100
In this method, depreciation will be same for every year.
➢ Reducing Balance method (Diminishing Balance Method):
In this method, a rate of depreciation is calculated as follows:

n = Useful Life
s = Scrap Value/ Residual Value
c = Cost of asset

From the desk of Sir Hasan Marfani (ACA)

 FINANACIAL ACCOUNTING & REPORTING 1
SIR HASSAN MARFANI , ACA
IAS-16 Property, Plant & Equipment

• The rate will then be multiplied in first year on the cost of asset ( without deducting residual
value).
• From second accounting period onwards, rate of depreciation is multiplied with WDV at the
beginning of the year, to calculate depreciation for the year.
• If however, a rate of depreciation is given then simply use that rate.

➢ Sum of year’s digit method:

DISPOSAL / SALE OF ASSET

Machine
Cost = 750,000
Accumulated Depreciation = 600,000
Written down value = 150,000
Suppose this machine is now sold for 180,000.
Gain / Loss = different between WDV and Sale proceeds.
= 180,000 – 150,000
Gain = 30,000

From the desk of Sir Hasan Marfani (ACA)

 FINANACIAL ACCOUNTING & REPORTING 1
SIR HASSAN MARFANI , ACA
IAS-16 Property, Plant & Equipment

From the desk of Sir Hasan Marfani (ACA)

 FINANACIAL ACCOUNTING & REPORTING 1
SIR HASSAN MARFANI , ACA
IAS-16 Property, Plant & Equipment

From the desk of Sir Hasan Marfani (ACA)

 FINANACIAL ACCOUNTING & REPORTING 1
SIR HASSAN MARFANI , ACA
IAS-16 Property, Plant & Equipment

Important point to remember

Revaluation is not compulsory every year as per IAS-16.Revaluation entries are only required
whenever
there is a material difference between carrying amount and fair value.
From the desk of Sir Hasan Marfani (ACA)
 FINANACIAL ACCOUNTING & REPORTING 1
SIR HASSAN MARFANI , ACA
IAS-16 Property, Plant & Equipment

If there is a loss on revaluation of an asset in an accounting period but there is a balance of any
revaluation
surplus related to same asset because of any previous revaluation then first adjust the loss against
the
surplus and the balance of loss (if any) is recognized in statement of profit or loss.

From the desk of Sir Hasan Marfani (ACA)

 FINANACIAL ACCOUNTING & REPORTING 1
SIR HASSAN MARFANI , ACA
IAS-16 Property, Plant & Equipment

From the desk of Sir Hasan Marfani (ACA)

 FINANACIAL ACCOUNTING & REPORTING 1
SIR HASSAN MARFANI , ACA
IAS-16 Property, Plant & Equipment

a)
Cash 325,000
Acc Depreciation 150,000
Loss 125,000
Equipment 600,000
b)
Revaluation Surplus 300,000
Retained Earnings 300,000

From the desk of Sir Hasan Marfani (ACA)

 FINANACIAL ACCOUNTING & REPORTING 1
SIR HASSAN MARFANI , ACA
IAS-16 Property, Plant & Equipment

2) Transfer the surplus annually:

In this case surplus is transferred to retained earnings as the asset is depreciated annually. The basis
of
calculation of amount of transfer should be exactly similar to the basis of calculation of depreciation.
The
entry of transfer remains same as discussed earlier; i.e
Revaluation Surplus Xxx
Retained Earnings xxx
If the question is silent regarding the policy of transfer of surplus then transfer the surplus as the asset
is
used and depreciated (to adjusted the effect of extra depreciation annually; otherwise if the policy of
transfer
of surplus is on disposal then that effect will be adjusted on disposal).

Revaluation model:
1) This model involves revaluing the asset’s carrying amount to its fair value (FV) (Also known as
revalued amount).
2) If FV is more than carrying amount then revaluation surplus
3) If FV is less than carrying amount revaluation loss
4) If there is revaluation surplus already in existence for an asset because of a previous revaluation,
then subsequent revaluation loss is adjusted against surplus. If loss is more than surplus, difference
is recorded in income statement.
5) Depreciation should be charged on cost of asset. If there is a surplus then effect of extra
depreciation is transferred to retained earnings. If there is a revaluation loss then effect of less
charged depreciation should be charged when there is a subsequent surplus in future.
6) After revaluation, revalued amount (FV) is depreciated over remaining useful life.
7) When revaluation surplus is realized (means transferred to retained earnings)
a) At the time of disposal/end of useful life; or
b) As the asset is used by the entity and depreciated (period wise)
If the question is silent then follow the (b) policy.
8) Treatment of accumulated depreciation at the time of revaluation: Eliminate against the value of
asset (net replacement value method)
9) If an asset is revalued, then all the assets in the class of asset need to be revalued. The following
are examples of classes of property, plant and equipment.
(i) Land
(ii) Building
(iii) Plant and Machinery
(iv) Motor Vehicles
(v) Furniture & Fixtures
(vi) Office Equipment.
10) Revaluation is not compulsory annually for items of property, plant and equipment carried out at
revaluation model.
Instead revaluation is only required whenever there is a material differences between fair value and
carrying amount.
[Para 34]
11) As the land is not depreciated in normal circumstances therefore its surplus is transferred at the
time
of disposal.
From the desk of Sir Hasan Marfani (ACA)
 FINANACIAL ACCOUNTING & REPORTING 1
SIR HASSAN MARFANI , ACA
IAS-16 Property, Plant & Equipment

Disclosures of property, plant and equipment:

• Schedule of PPE.
• Measurement basis
• Useful life / rate of depreciation
• Method of depreciation
• Detail of disposal of an item of PPE.
Disclosure requirements if an item of property, plant and equipment is revalued.
When items of property, plant and equipment are stated at revalued amounts the following must be
disclosed:
• The effective date of the revaluation (if there are more than one revaluation dates then the

From the desk of Sir Hasan Marfani (ACA)

 FINANACIAL ACCOUNTING & REPORTING 1
SIR HASSAN MARFANI , ACA
IAS-16 Property, Plant & Equipment

latest date);
• Whether an independent valuer was involved and its name if available;
• For each revalued class of property, plant and equipment, the carrying amount that would have
been recognised had the asset been carried under the cost model; and
• The revaluation surplus, indicating the change for the period and any restrictions on the
distribution of the balance to shareholders.
Point to remember:
Revaluation surplus is presented in other comprehensive income in statement of comprehensive income.

From the desk of Sir Hasan Marfani (ACA)

 FINANACIAL ACCOUNTING & REPORTING 1
SIR HASSAN MARFANI , ACA
IAS-16 Property, Plant & Equipment

Question

Q-1
Ammar is a manufacturer of personal products and has factories in two different cities. On 1 November 2011,
he bought a new state-of-the-art plant from Krones Inc. USA. The invoice value of the plant was Rs. 250
million. Other relevant details are as follows:

(i) Costs of import:

Rs. in
million
LC opening charges 1.00
Import duty 25.00
Sales tax paid, recoverable against production output 40.00

Clearing & transportation 5.00

(ii) Costs incurred on SITE preparation:

Amount paid to consultants 2.00
Civil and electrical works 3.00
The above includes cost of equipment damaged due 0.80
to mishandling
(iii) The plant was received at the SITE on 1 February 2012. The installation and test run were successfully
completed in three months’ time at a cost of Rs. 6 million. The net sale proceeds of test production
were Rs. 1.2 million.
(iv) Commercial production commenced on 1 May 2012. During the period in which the plant was installed,
administration and general overheads increased by Rs. 1 million as compared to the previous period.
(v) Salary of factory manager is Rs. 250,000 per month. He contributed 30% of his time in supervising the
installation.
(vi) Staff training cost amounted to Rs. 0.25 million.
(vii) The plant is expected to last fifteen years with no residual value.
Required:
In accordance with IAS-16 calculate:
• cost at which the plant would be capitalised.
• depreciation for the year ended 31 December 2012 under the straight line method. (08)
{Spring 2013, Q # 1(b)}

Q-2
On 1 January 2013 Delta acquired a specialized machine for its production department. The available
information is as follows:

Rupees
List price of machine 9,200,000
Freight charges 263,000

From the desk of Sir Hasan Marfani (ACA)

 FINANACIAL ACCOUNTING & REPORTING 1
SIR HASSAN MARFANI , ACA
IAS-16 Property, Plant & Equipment

Electrical installation cost 245,000

Staff training for use of machine 351,000
Pre-production testing 193,000
Purchase of a three-year maintenance contract 528,000
Estimated residual value 175,000

Trade discount on list price 5%

Estimated life (in machine hours) 12,000
Machine hours used during the years ended 31 December 2013, 2014 and 2015 were 2000, 3200 and 1400
respectively.

On 1 January 2015 Delta decided to upgrade the machine by adding new components at a cost of Rs.
1,753,000. This upgrade led to a reduction in the production time per unit of goods being manufactured by the
machine. The upgrade also increased the estimated remaining life of the machine at 1 January 2015 to 8,000
machine hours and its estimated residual value to Rs. 350,000.

Required:
For the years ended 31 December 2013, 2014 and 2015, compute the relevant amounts to be included (under
each head) in the income statement and statement of financial position. Notes to the financial
statements are not required. (10)
{Spring 2016, Q # 4(b)}

Q-3
Following information pertains to three exchange transactions relating to fixed assets:

(i) (ii) (iii)

--------- Rs. in million ---------
Cash received/(paid) 1.1 (2.1) -
Assets given-up:
Original cost 10.3 12.4 14.5
Book value 6.4 7.3 3.4
Estimated fair value 8.5 6.6 4.6
Assets received:
Estimated fair value 7.1 9.0 4.1
Additional information:
• In case of transaction (i), fair values of both assets are reliably measurable.
• In case of transaction (ii), fair value of the asset received is clearly more evident.

From the desk of Sir Hasan Marfani (ACA)

 FINANACIAL ACCOUNTING & REPORTING 1
SIR HASSAN MARFANI , ACA
IAS-16 Property, Plant & Equipment

• In case of transaction (iii), fair value of neither asset is reliably measurable.

Required:
Compute gain or loss on disposal of fixed assets in each of the above transactions. (06)

(Spring 2018, Q # 6(b))

Q-4
Shahzad Textile Mills Limited (STML) purchased a plant for Rs. 500 million on 1 July 2010. The plant has an
estimated useful life of 10 years and no residual value.

STML uses revaluation model for subsequent measurement of its property, plant and equipment and accounts
for revaluations on net replacement value method. The details of revaluations performed by an independent
firm of valuers are as follows:

Revaluation date Fair value

1 July 2011 Rs. 575 million
1 July 2012 Rs. 390 million
1 July 2013 Rs. 380 million
Required:
Prepare journal entries to record the above transactions from the date of acquisition of the plant to

the year ended 30 June 2014. (Ignore tax implications) (15)

{Autumn 2014, Q # 4}

Q-5
French Power Limited (FPL) uses the revaluation model for subsequent measurement of its property, plant and
equipment and has a policy of revaluing its assets on an annual basis using the net replacement value method.

The following information relates to FPL’s plant:

(i) The plant was purchased on 1 July 2009 at a cost of Rs. 360 million.
(ii) It is being depreciated on straight line basis, over 10 years.
(iii) The details of previous revaluations carried out by the independent valuers are as follows:

Revaluation date Fair value Rupees in

million
1 July 2010 400
1 July 2011 280
1 July 2012 290
(iv) FPL transfers the maximum possible amount from the revaluation surplus to retained earnings on an annual
basis.
(v) There is no change in the useful life of the plant.
Required:
Prepare journal entries to record the above transactions from the date of acquisition of the plant to
From the desk of Sir Hasan Marfani (ACA)
 FINANACIAL ACCOUNTING & REPORTING 1
SIR HASSAN MARFANI , ACA
IAS-16 Property, Plant & Equipment

the year ended 30 June 2013. (Ignore deferred tax) (16)

{FAR II Autumn 2013, Q # 2}

Q-6
Following information pertains to a building acquired by SK Limited (SKL) on 1 July 2012 for Rs. 360 million:

(i) The building is being depreciated on straight-line basis over 10 years.

(ii) SKL uses revaluation model for subsequent measurement of buildings. It accounts for revaluation on net
replacement value method. The details of revaluations as carried out by independent valuer are as
follows:

Revaluation date Fair value

(Rs. in million)
31 December 2013 323
31 December 2015 208
31 December 2017 167
(iii) There is no change in useful life of the building.
(iv) SKL transfers the maximum possible amount from the revaluation surplus to retained earnings on an
annual basis.
(v) SKL’s financial year ends on 31 December.
Required:
Prepare entries to record revaluation surplus/loss on each of the above revaluation date. (Entries to
record depreciation expense, incremental depreciation and elimination of
accumulated depreciation are not required) (11)
(Spring 2018, Q # 6(b))

Q-7
The following information pertains to Piano Limited (PL):

Plant Equipment
Acquisition
Date of acquisition January 1, 2015 July 1, 2015
Cost Rs. 500 million Rs. 360 million
Estimated useful life 10 years 12 years
Residual value Rs. 60 million Nil
Depreciation method Straight line method Straight line method

Revaluation on December 31, 2016

Fair value Rs. 526 million Rs. 280 million
Residual value Rs. 78 million Nil

From the desk of Sir Hasan Marfani (ACA)

 FINANACIAL ACCOUNTING & REPORTING 1
SIR HASSAN MARFANI , ACA
IAS-16 Property, Plant & Equipment

Revaluation on December 31, 2018

Fair value Rs. 310 million Rs. 275 million
Residual value Rs. 64 million Nil

Additional information:
(i) PL uses revaluation model for subsequent measurement and accounts for revaluation on net
replacement value method.
(ii) There is no change in useful life of plant. The remaining useful life of equipment was estimated as 15
years and 10 years in 2016 and 2018 respectively.
(iii) PL transfers maximum possible amount from the revaluation surplus to retained earnings on an annual
basis.
(iv) PL’s financial year ends on 31 December.

Required:
(a) Calculate depreciation on each asset for 2015 to 2018. (08)
(b) Prepare entries to record revaluation in 2018. (Entries to record depreciation expense,
incremental depreciation and elimination of accumulated depreciation are not
required. Further, entries prior to 2018 are also not required.) (08)
(Spring 2019, Q # 5)

Q-8
Omega Chemicals Limited (OCL) uses revaluation model for its buildings. The following information pertains to
its buildings as at 31 December 2013:

Prior to revaluation as at 31- Revalued

Estimated 12- amount as
useful life as 2013 per valuation
originally Cost Accumulated report
estimated depreciation*
------------------------------ Rs. in million --------------
------
--------
Factory building 20 years 100.00 37.50 52.00
Office building 25 years 164.50 26.32 149.94
* Including depreciation for the year ended 31 December 2013
As per the report of the professional valuer, there was no change in estimated useful life of the buildings. OCL
recorded revaluation effect on 31 December 2013 as per the valuation report. On 1 July 2014, one of the office
buildings was sold for Rs. 30 million. On 31 December 2013, written down value before revaluation and
revalued amount of the sold building amounted to Rs.

27.72 million and Rs. 31.92 million respectively.

From the desk of Sir Hasan Marfani (ACA)

 FINANACIAL ACCOUNTING & REPORTING 1
SIR HASSAN MARFANI , ACA
IAS-16 Property, Plant & Equipment

On 31 December 2014, factory buildings were revalued at Rs. 64 million whereas there was no change in value
of the office buildings.

OCL uses straight line method of depreciation which is charged from the date the asset is available for use upto
the date of disposal. Revaluation is to be accounted for by using net replacement value method.
Required:
In the light of the requirements of the International Financial Reporting Standards, prepare accounting entries
from the above information for the year ended 31 December 2014. (17)

{FAR II Spring 2015, Q # 2}

Q-9
Sputnik Sea Limited (SSL) runs a cruise business across oceans. Following information in respect of one of
SSL’s cruise ship is available:
(i) SSL bought a cruise ship on 1 March 2018. After completing all the required formalities, the ship was
ready to sail on 1 April 2018.
(ii) Details regarding components of the ship are as under:

(iii) On 1 May 2019, the ship suffered an accident which damaged its body. Repair work took 2 months and
costed Rs. 26 million. The repair work did not change useful life and residual values of the components.
(iv) The average monthly sailing of the ship during the last three years are as under:

(v) SSL uses revaluation model for subsequent measurement. SSL accounts for revaluation on net
replacement value method and transfers the maximum possible amount from the revaluation surplus
to retained earnings on an annual basis.
(vi) The revalued amounts of the ship as at 31 December 2019 and 2020 were determined as Rs. 1,400
million and Rs. 1,000 million respectively. Revalued amounts are apportioned between the components
on the basis of their book values before the revaluation.

Required:
Prepare necessary journal entries to record the above transaction from the date of acquisition of the ship to
the year ended 31 December 2020. (17)

{Spring 2021, Q # 8}
From the desk of Sir Hasan Marfani (ACA)
 FINANACIAL ACCOUNTING & REPORTING 1
SIR HASSAN MARFANI , ACA
IAS-16 Property, Plant & Equipment

Q-10
The following information pertains to Sherdil Limited (SL):
(i) Buildings and equipment were acquired on 1 January 2014 for Rs. 450 million and Rs. 50 million
respectively.
(ii) The relevant information relating to both assets is summarised below:
Assets Depreciation Life / rate Subsequent
method measurement
Buildings Straight-line 20 years Revaluation model
Equipment Reducing balance 10% Cost model

SL transfers the maximum possible amount from revaluation surplus to retained earnings on an annual
basis.
(iii) The revalued amount of buildings as determined by Accurate Valuers (Private) Limited, an independent
valuation company, on 1 January 2015 and 2016 was Rs. 456 million and Rs. 378 million respectively.
(iv) Equipment costing Rs. 35 million was purchased on 1 August 2015. Half of the equipment purchased on
1 January 2014 was disposed off on 30 June 2016.
Required:
In accordance with International Financial Reporting Standards, prepare a note on
‘Property plant & equipment’ (including comparative figures) for inclusion in SL’s financial
statements for the year ended 31 December 2016.
(18)
{Autumn 2017, Q # 2}
Q-11
Abid Limited (AL) uses the revaluation model for subsequent measurement of its property, plant and
equipment and has a policy of revaluing its assets on an annual basis using the net replacement value method.

The following information pertains to AL’s buildings:

(i) Four buildings were acquired in same vicinity on 1 January 2012 at a cost of Rs. 300 million.
The useful life of the buildings on the date of acquisition was 20 years.
(ii) AL depreciates buildings on the straight line basis over their useful life.
(iii) The results of revaluations carried out during the last three years by Premier Valuation Service, an
independent firm of valuers, are as follows:
Fair value
Rs. in
Revaluation date million
January 1, 2013 323
January 1, 2014 252
January 1, 2015 272
(iv) On 30 June 2015, one of the buildings was sold for Rs. 80 million.
Required:

From the desk of Sir Hasan Marfani (ACA)

 FINANACIAL ACCOUNTING & REPORTING 1
SIR HASSAN MARFANI , ACA
IAS-16 Property, Plant & Equipment

Prepare a note on “Property, plant and equipment” (including comparative figures) for inclusion in
AL’s financial statements for the year ended 31 December 2015 in with International Financial
Reporting Standards. (Ignore taxation)
(13)
{FAR II Spring 2016, Q # 2}

Q-12
You have recently been appointed as the Chief Accountant of Steel Air Limited, a commercial airline. Your
accountant has prepared the financial statements for the year ended June 30, 2006. You have reviewed them
and found them satisfactory except for the note on tangible fixed assets. You have scrutinized the records and
extracted the following information:
(i) The company has a fleet of nine aircrafts, relevant details of which are as under:
- Each aircraft consists of two major components i.e engine and airframe having useful economic
life of 20 and 12 years respectively. 70% of the cost of aircrafts pertains to the engine and 30%
to the airframe. The company has 10 years replacement policy for airframes.
- Five aircrafts were acquired on January 1, 2000 for Rs. 220 million each.
- Four used aircrafts were also bought on January 1, 2000 from another airline for Rs. 55 million
each. Each aircraft was renovated and overhauled at a cost of Rs. 25 million. Rs. 10 million were
spent on the airframe and Rs. 15 million on the engine. 15% of these expenditures has been in
respect of costs of consumables. The useful economic lives of engines and airframes are
estimated to be the same as those of the new aircrafts.
- Salvage value of engines as well as the airframes is estimated at 10% if sold at the end of their
economic life. Salvage value of airframes at the time of replacement is estimated at 15% of the
cost.
- A newly acquired aircraft was damaged during landing due to computer malfunction on October
31, 2005. It remained in-operative during the remaining period of the year. However, it does
not require any revaluation.
(ii) Engineering machineries were acquired on April 01, 2000 for Rs. 330 million. As a result of annual
checkup, certain parts were replaced at a cost of Rs. 50 million on July 01, 2005. This replacement did
not enhance the useful life nor did it affect the efficiency of the machineries. New parts have a useful
life of 30,000 hours. Cost of replaced defective parts was Rs. 20 million and they were sold for Rs. 8
million.
Total useful life of machinery is 60,000 hours and the average usage has been 500 machine hours per
month. Estimated salvage value is 10% of cost.
(iii) Hangers for aircrafts have been in use since July 1, 2000. The total cost of their construction was Rs. 20
million and the total estimated useful life is 20 years.
(iv) Furniture and fixtures costing Rs. 13 million, Rs. 7 million and Rs. 4 million were acquired on July 01,
2000, July 01, 2002 and July 01, 2005 respectively.
(v) The company’s policy as regards depreciation is as under:
- Hangers – straight line method.
- Aircrafts – straight line method.
- Engineering plant and equipment –machine hours used.
- Furniture and fixture – declining balance method at the rate of 10% per annum.
Required:

From the desk of Sir Hasan Marfani (ACA)

 FINANACIAL ACCOUNTING & REPORTING 1
SIR HASSAN MARFANI , ACA
IAS-16 Property, Plant & Equipment

Draft a note to the accounts on fixed assets in accordance with the requirements of International Accounting
Standards. Also submit necessary workings. (Give all figures to the nearest thousand).

(22)
{FAR II Autumn 2006, Q # 2}

Q-13
Following information pertains to property, plant and equipment of Tsuki Limited (TL):

Office building Warehouse

Acquisition:
Date of acquisition 1 July 2017 1 July 2018
Cost (Rs. million) 96 156
Estimated useful life (years) 16 12

Revalued amount:
1 January 2019 (Rs. million) 116 138
1 January 2020 (Rs. million) 80 143

Revised useful life on 1 January 2020 (years) 9 14

Additional information:

TL uses revaluation model for subsequent measurement and accounts for revaluation on net replacement
(i)
value method.
TL transfers maximum possible amount from the revaluation surplus to retained earnings on an annual
(ii)
basis.
The revalued amounts were determined by Sagheer Valuers (Private) Limited, an independent valuation
(iii)
company.

Required:
In accordance with IFRSs, prepare a note on ‘Property, plant and equipment’ (including
comparative information) for inclusion in TL’s financial statements for the year ended 31
December 2021. (Column for total is not required)
(18)
{Spring 2022, Q # 9}

Q-14
Ninjago Limited (NL) operates buses on different routes within a city. Following information relates to
property, plant and equipment:
(i) Building: It was purchased at commencement of business on January 1, 2014 for Rs. 30 million. Its
useful life was estimated at 40 years. Building was revalued to Rs. 29.6 million on January 1, 2017.
Revaluation was carried by M/S Superior Consultants.

From the desk of Sir Hasan Marfani (ACA)

 FINANACIAL ACCOUNTING & REPORTING 1
SIR HASSAN MARFANI , ACA
IAS-16 Property, Plant & Equipment

(ii) Buses: Four buses were purchased on commencement of business at a cost of Rs. 12 million each. On
July 1, 2017 two additional buses were purchased at a cost of Rs. 15 million each. Buses are depreciated
over a useful life of 15 years on straight-line basis.
(iii) Equipment: Cost and accumulated depreciation of equipment on January 1, 2017 were Rs. 15 million
and 6.5 million respectively. On July 1, 2017 new equipment were purchased for Rs. 5 million.
Depreciation on equipment is charged at 30% on reducing balance basis.

Required:
Prepare a note on property, plant and equipment for inclusion in financial statements for the year ending
December 31, 2017. (comparative figures are not required)

Q-15
Awesome Industries Limited (AIL) manufactures components for textile machinery. It purchased a plant on
1 July 2008 at a cost of Rs. 200 million. It has an estimated useful life of five years and no residual value.
AIL revalues its plant on an annual basis. The details of revaluations performed by Supreme Valuation
Service, an independent firm of valuers, are as follows:

Date Fair value

(Rs. in
million)
July 1, 2009 180
July 1, 2010 108
July 1, 2011 88

Required:
Prepare extract of “property, plant and equipment” note to the financial statements of AIL for
the year ending June 30, 2012 (including comparative figures).

Q-16

A machine was purchased on July 1, 2008 at a cost of Rs. 28 million. It had a useful life of 7 years.
Accounting depreciation is charged on straight line basis. Asset is carried at revaluation model and
following fair values were determined:

Fair values: Rs.'000

on June 30, 2010 25,000
on July 1, 2011 14,000
on July 1, 2012 16,500

During 2012, estimate of remaining useful life was revised to 5 years. It is company's policy to transfer
incremental depreciation to retained earnings.
From the desk of Sir Hasan Marfani (ACA)
 FINANACIAL ACCOUNTING & REPORTING 1
SIR HASSAN MARFANI , ACA
IAS-16 Property, Plant & Equipment

Required:
(a) Prepare extracts of statement of financial position and statement of comprehensive income for the year
ending June 30, 2013.
(b) Journal entries for the year ending June 30, 2013.

Q-17
A plant was purchased on July 1, 2014 for Rs. 500 million. It had an estimated useful life of 8

years with residual value of Rs. 1 million. Initially it was decided to depreciate this plant at

54% on reducing balance basis. It was revalued as follows:

Required:

Pass journal entries for the year ending June 30, 2019.

From the desk of Sir Hasan Marfani (ACA)

 FINANACIAL ACCOUNTING & REPORTING 1
SIR HASSAN MARFANI , ACA
IAS-16 Property, Plant & Equipment

SOLUTIONS
Answer-1
Cost of plant: Rs. in
million
Invoice value 250.00
LC opening charges 1.00
Import duty 25.00
Clearing & transportation 5.00
Site preparation [2 + 3 - 0.8] 4.20
Testing cost [6 - 1.2] 4.80
Admin & general overheads* 1.00

Salary of factory manager [0.25 x 3 x 30%] 0.23

291.23
* It is assumed that increase is directly related to installation
Depreciation:
[291.23/15 x 8/12] 12.94

Answer-2
Income statement for the year 31-Dec-13 31-Dec-14 31-Dec-15
ended:
--------------- Amount in Rs. ---------------
Cost of sales (W-3) 1,720,333 2,646,934 1,371,028
Administration expenses:
- Staff training 351,000 - -
Statement of financial position as at 31-Dec-13 31-Dec-14 31-Dec-15
--------------- Amount in Rs. ---------------
Non current assets
Property, plant and equipment (W-4) 7,896,667 5,425,733 5,983,705
Prepaid maintenance 176,000
Current assets
Prepaid maintenance 176,000 176,000

Workings
W-1: Cost price of machine Rupees
List price 9,200,000
Less: Trade discount (9,200,000×5%) (460,000)
8,740,000
Add: Freight charges 263,000
Electrical installation cost 245,000
Pre-production testing 193,000
From the desk of Sir Hasan Marfani (ACA)
 FINANACIAL ACCOUNTING & REPORTING 1
SIR HASSAN MARFANI , ACA
IAS-16 Property, Plant & Equipment

9,441,000

W-2: Valuation after upgrade Rupees

Original cost (W-1) 9,441,000
Depreciation upto 31 December 2014 [1,544,333(W-3) + 2,470,934(W-3)] ( 4,015,267)
Carrying amount on 1 January 2015 5,425,733
Capitalization of Upgrade 1,753,000
Value after capitalization 7,178,733

W-3: Costs of sales 2013 2014 2015

------------------ Rupees ------------------
Depreciation
[9,441,000(W-1)-175,000]×2,000/12,000 1,544,333
[9,441,000(W-1)-175,000]×3,200/12,000 2,470,934
[7,178,733(W-2)-350,000]×1,400/8,000 1,195,028
Maintenance cost (528,000/3) 176,000 176,000 176,000
1,720,333 2,646,934 1,371,028

W-4: Property, plant and equipment:

Cost (W-1) 9,441,000 9,441,000 *11,194,000
Accumulated depreciation (1,544,333) (4,015,267) (5,210,295)
7,896,667 5,425,733 5,983,705

Answer-3
Gain or loss on exchange (i) (ii) (iii)
[9,441,000+1,753,000]
------------- Rs. in million -------------
8.50 6.90 3.40
Sale value [9 - 2.1] (ii)
6.40 7.30 3.40
NBV
2.10 (0.40) -

From the desk of Sir Hasan Marfani (ACA)

 FINANACIAL ACCOUNTING & REPORTING 1
SIR HASSAN MARFANI , ACA
IAS-16 Property, Plant & Equipment

Answer-4
Dr. Cr.
----- Rs. million -----
Gain /
(loss) on exchange

01-07-10 Plant 500.00

Cash 500.00
[Plant purchased]

30-06-11 Depreciation 50.00

Accumulated depreciation 50.00
[Dep for 2011]

01-07-11 Accumulated depreciation 50.00

Plant 50.00
[Elimination of accumulated depreciation]

01-07-11 Plant 125.00

Revaluation surplus 125.00
[Revaluation of plant]

30-06-12 Depreciation 63.89

Accumulated depreciation 63.89
[Dep for 2012]

30-06-12 Revaluation surplus 13.89

Retained earnings 13.89
[Transfer from surplus to RE]

01-07-12 Accumulated depreciation 63.89

Plant 63.89
[Elimination of accumulated depreciation]

01-07-12 Revaluation surplus 111.11

P&L 10.00

From the desk of Sir Hasan Marfani (ACA)

 FINANACIAL ACCOUNTING & REPORTING 1
SIR HASSAN MARFANI , ACA
IAS-16 Property, Plant & Equipment

Plant 121.11
[Revaluation of plant]

30-06-13 Depreciation 48.75

Accumulated depreciation 48.75
[Dep for 2013]

01-07-13 Accumulated depreciation 48.75

Plant 48.75
[Elimination of accumulated depreciation]

01-07-13 Plant 38.75

P&L 8.75
Revaluation surplus 30.00
[Revaluation of plant]

30-06-14 Depreciation 54.29

Accumulated depreciation 54.29
[Dep for 2014]

30-06-14 Revaluation surplus 4.29

Retained earnings 4.29
[Transfer from surplus to RE]

NBV ----- Revaluation -----

W-1 Surplus P&L

------- Rs. million -------

From the desk of Sir Hasan Marfani (ACA)

 FINANACIAL ACCOUNTING & REPORTING 1
SIR HASSAN MARFANI , ACA
IAS-16 Property, Plant & Equipment

01-07-10 Cost 500.00

(50.00)
30-06-11 Dep [500/10] 450.00 - -
125.00 125.00 -
5 75.00 125.00 -
(63.89) (13.89) -
01-07-11 Revaluation 511.11 111.11 -
(121.11) (111.11) (10. 00)
390.00 - (10.00)
30-06-12 Dep [575/9] [125/9]
(48.75) - 1.25
341.25 - (8.75)
01-07-12 Revaluation 38.75 30.00 8.75
380.00 30.00 -
(54.29) (4.29) -
30-06-13 Dep [390/8] [10/8] 325.72 25.72 -

01-07-13 Revaluation

30-06-14 Dep [380/7] [30/7]

Answer-5
Dr. Cr.

----- Rs. million ----- 01-07-09 Plant

360.00
Cash 360.00
[Plant purchased]

30-06-10 Depreciation 36.00

Accumulated depreciation 36.00
[Dep for 2010]

01-07-10 Accumulated depreciation 36.00

Plant 36.00
[Elimination of accumulated depreciation]

01-07-10 Plant 76.00

Revaluation surplus 76.00

From the desk of Sir Hasan Marfani (ACA)

 FINANACIAL ACCOUNTING & REPORTING 1
SIR HASSAN MARFANI , ACA
IAS-16 Property, Plant & Equipment

[Revaluation of plant]

30-06-11 Depreciation 44.44

Accumulated depreciation 44.44
[Dep for 2011]

30-06-11 Revaluation surplus 8.44

Retained earnings 8.44
[Transfer from surplus to RE]

01-07-11 Accumulated depreciation 44.44

Plant 44.44
[Elimination of accumulated depreciation]

01-07-11 Revaluation surplus 67.56

P&L 8.00
Plant 75.56
[Revaluation of plant]

30-06-12 Depreciation 35.00

Accumulated depreciation 35.00
[Dep for 2012]

01-07-12 Accumulated depreciation 35.00

Plant 35.00
[Elimination of accumulated depreciation]

01-07-12 Plant 45.00

P&L 7.00
Revaluation surplus 38.00
[Revaluation of plant]

30-06-13 Depreciation 41.43

Accumulated depreciation 41.43
[Dep for 2013]

30-06-13 Revaluation surplus 5.43

Retained earnings 5.43

From the desk of Sir Hasan Marfani (ACA)

 FINANACIAL ACCOUNTING & REPORTING 1
SIR HASSAN MARFANI , ACA
IAS-16 Property, Plant & Equipment

[Transfer from surplus to RE]

NBV ----- Revaluation -----

W-1 Surplus P&L
------- Rs. million ----
01-07-09 Cost 360.00 ---
30-06-10 Dep [360/10] (36.00)

324.00 - -
01-07-10 Revaluation
76.00 76.00 -
400.00 76.00 -
30-06-11 Dep [400/9] [76/9]
(44.44) (8.44) -
355.56 67.56 -
01-07-11 Revaluation
(75.56) (67.56) (8.00)
280.00 - (8.00)
30-06-12 Dep [280/8] [8/8]
(35.00) - 1.00
245.00 - (7.00)
01-07-12 Revaluation
45.00 38.00 7.00
290.00 38.00 -
30-06-13 Dep [290/7] [38/7]
(41.43) (5.43) -
31-12-
248.57 32.57 -
15
Answer-6
SK Limited

(a) Accounting entries for revaluation

Date Particulars Dr. Cr.

---- Rs. in million ----

31 - 12 - 1 3 Bu i l ding 17.00
Rev aluation surplus 17.00
Revaluation surplus 13.00
P&L 26.00
Building 39.00

31-12-17 Building 23.00

P&L 18.00
Revaluation surplus 5.00
From the desk of Sir Hasan Marfani (ACA)
 FINANACIAL ACCOUNTING & REPORTING 1
SIR HASSAN MARFANI , ACA
IAS-16 Property, Plant & Equipment

W-1 NBV Surplus P&L

-------------Rs. in million ------------
01-07-12 Cost 360.00 -
(18.00)
31-12-12 Dep [360/10 x 6/12]

342.00 (36.00)
31-12-13 Dep [360/10] - -
306.00 - -
31-12-13 Revaluation
17.00 17.00 -
31-12-14 Dep [323/8.5] 323.00 17.00 -

31-12-15 Dep (38.00) (2.00) -

285.00 15.00 -
31-12-15 Revaluation
(38.00) (2.00) -

31-12-16 Dep [208/6.5] 247.00 13.00 -

(39.00) (13.00) (26.00)

31-12-17 Dep
144.00 - 208.00 - (26.00)
(18.00) 31-12-17
(32.00) - 4.00
Revaluation 18.00
176.00 - (22.00)

(32.00) - 4.00
Answer-7
(a) Calculation of Depreciation 23.00 5.00
167. 00 5.00 -
Plant Equipment
2015 2015

= = x6/12
= 44 = 15
2016 2016
=
= **
= 44* = 23
2017 2017

= =
=56 = 20
2018 2018

From the desk of Sir Hasan Marfani (ACA)

 FINANACIAL ACCOUNTING & REPORTING 1
SIR HASSAN MARFANI , ACA
IAS-16 Property, Plant & Equipment

=
= **
= 56* = 26

* It is assumed that circumstances were changed at year-end, therefore, estimate

change of residual value has been accounted for from next year.
** Since no date is mentioned for estimate change, it is assumed to be at start of
relevant year.

(b) Journal Entries (Amount in million rupees)

(i) Revaluation loss (P&L) 18.50

Revaluation surplus 85.50
Plant 104.00
[Revaluation of plant]

(ii) Equipment 41.00

Revaluation loss (P&L) 35.10 Revaluation surplus 5.90
[Revaluation of equipment]

Dep 2017 (56.00) (14.25) (20.00) 3.00

470.00 99.75 - 260.00 - (39.00)
Dep 2018 (56.00) (14.25) (26.00) 3.90
414.00 85.50 - 234.00 - (35.10)
Reval. (104.00) (85.50) (18.50) 41.00 5.90 35.10
310.00 - (18.50) 275.00 5.90 -

Answer-8
Omega Chemicals Limited
Accounting entries for the year ended 31 December 2014
Date Particulars Debit Credit

From the desk of Sir Hasan Marfani (ACA)

 FINANACIAL ACCOUNTING & REPORTING 1
SIR HASSAN MARFANI , ACA
IAS-16 Property, Plant & Equipment

---------Rs. in million ------

-
Factory building

31-Dec-14 Depreciation expense [W-1] 4.16

Accumulated depreciation-Factory buildings 4.16
(Depreciation for the year ended 31-12-
2014)
31-Dec-14 Accumulated depreciation-Factory buildings 4.16
Factory buildings 4.16
(Elimination of acc. depreciation 31-12-
2014)
31-Dec-14 Factory buildings [W-1] 16.16
P&L account (Loss reversal) [W-1] 9.66
Revaluation surplus (Bal.) 6.50
(Revaluation of factory buildings 31-12-
2014)
Office building
1-Jul-14 Depreciation expense [W-2] 0.76
Accumulated depreciation-Office buildings 0.76
(Depreciation for the six months ended 1
July 2014 for the office building block
sold)
1-Jul-14 Revaluation surplus [W-2] 0.10
Retained earnings 0.10
(Transfer to RE for six months 31-12-2014)
1-Jul-14 Bank 30.00
Accumulated depreciation 0.76
Loss on sale of office buildings 1.16
Office buildings 31.92
(Sale of office building)
1-Jul-14 Revaluation surplus 4.10
Retained earnings 4.10
(Transfer or remaining surplus)
31-Dec-14 Depreciation expense [W-3] 5.62
Accumulated depreciation-Office buildings 5.62
(Depreciation for the year ended 31-12-
2014)
31-Dec-14 Revaluation surplus [W-3] 0.36

From the desk of Sir Hasan Marfani (ACA)

 FINANACIAL ACCOUNTING & REPORTING 1
SIR HASSAN MARFANI , ACA
IAS-16 Property, Plant & Equipment

Retained earnings 0.36

(Transfer to RE for year ended 31-12-2014)

W-1 Factory building:

Asset
(NBV) Surplus P&L
31-12-13 Balance [100 - 37.5] 62.50
31-12-13 Revaluation (10.50) (10.50)
52.00 (10.50)
31-12-14 Dep. [52 / 12.5 (W-5)] (4.16) 0.84 [10.5/12.5]
47.84 (9.66)
31-12-14 Revaluation 16.16 6.50 9.66
64.00 6.50 -

W-2 Office building (Disposed)

Asset
(NBV) Surplus
31-12-13 Balance 27.72
31-12-13 Revaluation 4.20 4.20

31.92 4.20
01-07-14 Dep. [31.92 / 21(W-5) x 6/12] (0.76) (0.10) [4.2 / 21 x 6/12]
4.10 - 31.16

Sold for 30.00

Loss on disposal (1.16)

W-3 Office building (Remaining) Asset

(NBV) Surplus
31-12-13 Balance [149.94 - 31.92] 118.02 7.56 [W-4]
31-12-14 Dep. [118.02 / 21] (5.62) (0.36) [7.56 / 21]

From the desk of Sir Hasan Marfani (ACA)

 FINANACIAL ACCOUNTING & REPORTING 1
SIR HASSAN MARFANI , ACA
IAS-16 Property, Plant & Equipment

112.40 7.20 -

W-4 Surplus on remaining buildings:

Rs. million

Cost 164.50

Acc. Dep (26.32)

138.18
NBV of disposed (27.72)

110.46
Revalued amount 118.02

Surplus 7.56

W-5 Remaining life:

Factory Office

Acc. dep. On 31-12-13 [A] 37.50 26.32

Annual dep. [Cost / life] [B] 5.00 6.58

Life used [A/B] 7.50 4.00

Total life 20.00 25.00

Remaining life 12.50 21.00

Answer-9
Dr. Cr.

-------- Rs. million ------- 01-03-18

Ship - engine 840.00
Ship - body 535.00
Ship - dry docking 60.00
Bank 1,435.00
[Purchase of ship]

31-12-18 Depreciation 75.84

Acc. dep - Engine (W-1) 51.84
From the desk of Sir Hasan Marfani (ACA)
 FINANACIAL ACCOUNTING & REPORTING 1
SIR HASSAN MARFANI , ACA
IAS-16 Property, Plant & Equipment

Acc. dep - Body (W-2) 15.00

Acc. dep - Dry docking (W-3) 9.00
[Depreciation for 2018]

01-05-19 Repairs 26.00

Bank 26.00
[Repair of ship body]

31-12-19 Depreciation 108.80

Acc. dep - Engine (W-1) 76.80
Acc. dep - Body (W-2) 20.00
Acc. dep - Dry docking (W-3) 12.00
[Depreciation for 2019]

31-12-19 Acc. dep - Engine 128.64

Acc. dep - Body 35.00
Acc. dep - Dry docking 21.00
Ship - engine 128.64
Ship - body 35.00
Ship - dry docking 21.00
[Elimination of accumulated depreciation]

31-12-19 Ship - engine (W-1) 85.13

Ship - body (W-2) 59.84
Ship - dry docking (W-3) 4.67
Revaluation surplus 149.64
[Revaluation of ship]

31-12-20 Depreciation 165.82

Acc. dep - Engine (W-1) 129.81
Acc. dep - Body (W-2) 22.57
Acc. dep - Dry docking (W-3) 13.44
[Depreciation for 2020]

31-12-20 Revaluation surplus (W-5) 18.62

Retained earnings 18.62
[Transfer from surplus to RE]

31-12-20 Acc. dep - Engine 129.81

Acc. dep - Body 22.57

From the desk of Sir Hasan Marfani (ACA)

 FINANACIAL ACCOUNTING & REPORTING 1
SIR HASSAN MARFANI , ACA
IAS-16 Property, Plant & Equipment

Acc. dep - Dry docking 13.44

Ship - engine 129.81
Ship - body 22.57
Ship - dry docking 13.44

[Elimination of accumulated depreciation]

31-12-20 Revaluation surplus (W-5) 131.02

P&L (W-5) 103.16
Ship - engine (W-1) 126.50
Ship - body (W-2) 101.95
Ship - dry docking (W-3) 5.73
[Revaluation of ship]

W-1 Engine NBV

NBV (Cost Extra/under
model) depreciation
--------------- Rs. million ------------
01-03-18 Cost 840.00 840.00
31-12-18 Dep. [(840 - 40) x 360 x 9 ÷ 50,000] (51.84)
(51.84) - 788.16 788.16
(76.80) (76.80)
31-12-19 Dep. [(840 - 40) x 480 x 10 ÷ 50,000] - 711.36 711.36
85.13 -
31-12-19 Revaluation
(W-4) 796.49 711.36
31-12-20 Dep. (129.81) (115.20) (14.61)

[(796.49 - 40) x 600 x 12 ÷ 41,960*] [(840 - 40) x 600 x 12 ÷ 50,000]

666.68 596.16
31-12-20 Revaluation -
(W-4) 540.18 596.16
* Remaining life = 50,000 - 360 x 9 - 480 x 10 = 41,960

W-2 Body NBV

NBV (Cost Extra/under
model) depreciation

From the desk of Sir Hasan Marfani (ACA)

 FINANACIAL ACCOUNTING & REPORTING 1
SIR HASSAN MARFANI , ACA
IAS-16 Property, Plant & Equipment

--------------- Rs. million ------------

01-03-18 Cost 535.00 535.00
31-12-18 Dep. [(535 - 35) ÷ 25 x 9/12] (15.00) (15.00) -
520.00 520.00
31-12-19 Dep. [(535 - 35) ÷ 25] - (20.00) (20.00)
500.00 500.00
31-12-19 Revaluation 59.84 -
(W-4) 559.84 500.00
31-12-20 Dep. [(559.84 - 35) ÷ 23.25*] [(535 - 35) ÷ 25] (22.57) (20.00) (2.57)
537.27 480.00
31-12-20 Revaluation -

(W-4) 480.00
* Remaining life = 25 - 1.75 = 23.25 W-3 Dry docking
NBV
NBV (Cost Extra/under
model) depreciation
--------------- Rs. million ------------
01-03-18 Cost 60.00 60.00
31-12-18 Dep. [60 ÷ 5 x 9/12] (9.00) (9.00) -
51.00 51.00
31-12-19 Dep. [60 ÷ 5] - (12.00) (12.00)
39.00 39.00
31-12-19 Revaluation 4.67 -
(W-4) 43.67 39.00
31-12-20 Dep. [43.67 ÷ 3.25*] [60 ÷ 5] (1.44) (13.44) (12.00)
30.23 27.00
(5.73) -
(W-4) 24.50 27.00

* Remaining life = 5 - 1.75 =

3.25

W-4 Fair value 2019 2020

NBV Fair value NBV Fair value

Body 711.36 796.49 666.68 540.18

[711.36 x 1,400/1,250.36] [666.68 x 1,000/1,234.18]

Engine 500.00 559.84 537.27 435.32

From the desk of Sir Hasan Marfani (ACA)

 FINANACIAL ACCOUNTING & REPORTING 1
SIR HASSAN MARFANI , ACA
IAS-16 Property, Plant & Equipment

[500 x 1,400/1,250.36] [537.27 x 1,000/1,234.18]

Dry docking 39.00 43.67 30.23 24.50

[39 x 1,400/1,250.36] [30.23 x 1,000/1,234.18]

31-12-20 Revaluation
1,250.36 1,400.00 1,234.18 1,000.00

W-5 Ship (Total asset) NBV ---- Revaluation -----

Surplus P&L

--------------- Rs. million ------------

01-03-18 Cost 1,435.00
31-12-18 Dep.
1,359.16 - -
31-12-19 Dep.
- -
1,250.36 149.64
31-12-19 Revaluation 149.64 -
1,400.00 (18.62)
31-12-20 Dep. 131.02 -
(131.02)
-
1,234.18
31-12-20 Revaluation (103.16)
(103.16)
Answer-10
Sherdil Limited
Extracts - notes
for the year ending December 31, 2016
6 - Property, plant and equipment
Building Equipment Total
Cost / Revalued amount ----------- Rs. million --------

Balance as at 01-01-16 456.00 85.00 541.00

Additions - - -

Revaluation [378 - 456] (78.00) - (78.00)

Disposal (W-3) - (25.00) (25.00)

From the desk of Sir Hasan Marfani (ACA)

 FINANACIAL ACCOUNTING & REPORTING 1
SIR HASSAN MARFANI , ACA
IAS-16 Property, Plant & Equipment

Balance as at 31-12-16 378.00 60.00 438.00

Accumulated depreciation
Balance as at 01-01-16 24.00 10.96 34.96
21.00 6.39 27.39
Charge for the year (W-1) (W-2)
(24.00) - (24.00)
Revaluation - (5.76) (5.76)
Disposal (W-3) 21.00 11.59 32.59
Balance as at 31-12-16 357.00 48.41 405.41
Carrying value as at 31-12-16

Cost / Revalued amount Balance as at 01-01-15 450.00 50.00 500.00

Additions - 35.00 35.00
6.00 - 6.00
Revaluation [456 - 450]
- - -
Disposal 456.00 85.00 541.00
Balance as at 31-12-15
Accumulated depreciation 22.50 5.00 27.50
Balance as at 01-01-15 (W-1) [50 x 10%] 24.00 5.96 29.96
Charge for the year (W-1) (W-2) (22.50) - (22.50)
- - -
Revaluation
24.00 10.96 34.96
Disposal 432.00 74.04 506.04
Balance as at 31-12-15
Carrying value as at 31-12-15
20 years 10%
Useful life/Depreciation rate
Revaluation Cost
model model
Measurement
SLM RBM
Depreciation method

6.1 - The last revaluation was performed on January 1, 2016 by Accurate Valuers (Private)

Limited, an independent firm of valuers.

2016 2015
------ Rs. million ------

6.2 - Carrying amount of building which would have been

determined, had cost model been followed [357 + 25.50] [432 - 27] 382.50 405.00

From the desk of Sir Hasan Marfani (ACA)

 FINANACIAL ACCOUNTING & REPORTING 1
SIR HASSAN MARFANI , ACA
IAS-16 Property, Plant & Equipment

6.3 -
2016 2015

Movement in surplus: ------ Rs. million ------

Opening balance 27.00

Revaluation (27.00) 28.50

Transfer to RE - (1.50)

Closing balance - 27.00

From the desk of Sir Hasan Marfani (ACA)

Answer-11
Abid Limited

Notes – Extracts

1 - Property, plant and equipment 2015 2014

------- Rs. in million -----

--
Revalued amount

as at January 1 252.00 323.00

Additions - -

Revaluation [34 – 14] [54 + 17] 20.00 (71.00)

Disposal (68.00) -

252.00

12.00 14.00
192.00 238.00

20 20
Revaluation model Cost
Model
SLM SLM
Acc. depreciation

as at January 1 14.00 17.00

Revaluation (14.00) (17.00)

Charge for the year 14.00 14.00

Disposal (2.00) -
as at December 31 NBV as at December 31

Useful life (years)

Measurement

Depreciation method

Sir Hasan Marfani (ACA)

The last revaluation was performed on 1 January 2015 by M/s Premier Valuation Services, an independent firm of
valuers. Revaluations are performed annually.

Carrying amount which would have been determined had cost model been followed:
[192 – 12] ; [238 + 17 180.00 255.00

Movement in surplus
Balance as on January 1 - 36.00
Revaluation during the year 17.00 (36.00)
Transfer to retained earnings (5.00) -
Balance as on December 31 12.00 -

Workings ---------- Rs. in million ----------

NBV
Surplus P&L 300.00
01-01-12 Cost (15.00)
31-12-12 Dep [300 / 20] 285.00 - -
38.00 38.00
01-01-13 Revaluation 323.00 38.00 -
(17.00) (2.00)
31-12-13 Dep [323 / 19]
306.00 36.00 -
(54.00) (36.00) (18.00)
01-01-14 Revaluation
252.00 - (18.00)
(14.00) 1.00
31-12-14 Dep [252 / 18]
238.00 - (17.00)

01-01-15 Revaluation 34.00 17.00 17.00

272.00 17.00 -
30-06-15 Dep [272/17 x 6/12] (8.00) (0.50)
264.00 16.50 -
30-06-15 Disposal [1/4th] (66.00) (4.125)
198.00 12.375 -
31-12-15 Dep [198/16.5 x 6/12] (6.00) (0.375)
192.00
12.00 -

Answer-12
OWNED FIXED ASSETS

Sir Hasan Marfani (ACA)

 ------------------------------------------ Rs. in million ------------------------------------------

Cost Depreciation
Description Rate NBV
As on 01- Addition/ As on 30-06- % As on 01-07- For the year As on 30-06-
07-05 Deletion 06 05 Disposal 06

Engines (W-1) 975.00 - 975.00 5 241.31 - 43.87 285.19 689.81

Air frames (W-1) 430.00 - 430.00 10 201.03 - 36.55 237.58 192.42
50.00
P & M (W-2) 330.00 (20.00) 360.00 10 155.93 (9.45) 36.90 183.38 176.62
Hangers (W-3) 20.00 - 20.00 5 5.00 - 1.00 6.00 14.00
Furniture (W-4) 20.00 4.00 24.00 10 7.22 - 1.68 8.90 15.10
1,775.00 34.00 1,809.00 610.49 (9.45) 120.00 721.04 1,087.96

WORKINGS:
W-1 Calculation of cost of aircraft as at 01 July 2005
Rs. in million
Engine Airframe Total
(70% of Cost) (30% of Cost) Rs.
Newly Acquired Aircrafts
Cost of Acquisition (220 x 5) Used 770 330 1,100
Aircrafts
Cost of Acquisition (55 x 4) 220 154 66
85
Overhauling (W-1.1) 51 34

205 100 305

Cost 975 430 1,405

W-1.1 Overhauling
Cost 15.00 10.00 25.00
Less: Consumables @ 15% 2.25 1.50 3.75
Overhauling for one Aircraft 12.75 8.50 21.25
Overhauling for 4 Aircrafts 51.00 34.00 85.00

W-1.2 Depreciation Charged upto June 30, 2005 --------Rs. in million ---
--
Engines Airframes
Cost (W-1) 975.00 430.00
Residual value (10% : 15%) 97.50 64.50
877.50 365.50

Useful Life 20 years 10 years

Depreciation charged for each year 43.875 36.55

Sir Hasan Marfani (ACA)
 Depreciation upto June 30, 2005 (43.875 x 5.5) 241.31 201.03
(36.550 x 5.5)

W-2 Depreciation charged for Machinery

W-2.1
Total cost 330

Depreciable amount (330 x 90%) 297

155.93
Depreciation upto 30-06-05 [297 x 31,500 / 60,000]

W-2.2
Cost of replaced part 20
Depreciable amount (20 x 90%) 18
Depreciation upto 30-06-05 [18 x 31,500 / 60,000] 9.45

W-2.3
Depreciation for the year:

Existing machine [(297 – 18) x 6,000 / 60,000] 27.90

New parts [50 x 90% x 6,000 / 30,000] 9.00 36.90

W-3 Depreciation for Hangers as at June 30, 2005

Cost 20.00

Useful life 20 years

Depreciation for one year 1.00

Depreciation upto June 30, 2005 (1,000 x 5) 5.00

W-4 Depreciation charged for Furniture and Fixtures

Answer-13
Tsuki Limited
Notes to financial statement
for the year ending December 31, 2021

Sir Hasan Marfani (ACA)

Net carrying amount as on 31-12-20 96.00 117.00

Depreciation method SLM SLM

Useful life/rate
yrs yrs

Measurement
Revaluation Revaluation
model model

4.1 - Building and Warehouse were valued by Sagheer Valuers (Private) Limited, an independent valuer, on
January 1, 2020.

Sir Hasan Marfani (ACA)

4.2 - Movement in surplus: Buildings Warehouse
------- Rs. million ------ Balance as on 01-01-20 27.00 -
Transfer to retained earnings (W-1)(W-2) (3.00) -
Revaluation during the year - - Balance as
24.00 -
on 31-12-20
(1.00) (1.25)
Transfer to retained earnings (W-1)(W-2) (16.00) 16.25
Revaluation during the year 7.00 15.00

Balance as on 31-12-21

4.3 - Had cost model been followed, building and warehouse would have been measured at:
Buildings Warehouse
------- Rs. million ------
31-12-21 63.00 117.00
31-12-20 72.00 126.75

W-1 Building NBV ---- Revaluation -----

Surplus P&L
--------------- Rs. million ------------
01-07-17 Cost 96.00
31-12-17 Dep. [96/16 x 6/12] (3.00)
93.00 - -
31-12-18 Dep. [96/16] (6.00)
87.00 - -
01-01-19 Revaluation 29.00 29.00
116.00 29.00 -
31-12-19 Dep. [116/14.5] [29/14.5] (8.00) (2.00)
108.00 27.00 -
31-12-20 Dep. [108/9] [27/9] (12.00) (3.00) -
96.00 24.00 -
01-01-21 Revaluation (16.00) (16.00) -
80.00 8.00 -
31-12-21 Dep. [80/8] [8/8] (10.00) (1.00) -
70.00 7.00 - W-2 Warehouse NBV ----
Revaluation -----
Surplus P&L
--------------- Rs. million ------------

Sir Hasan Marfani (ACA)

01-07-18 Cost 156.00
31-12-18 Dep. [156/12 x 6/12] (6.50)
149.50 - -
01-01-19 Revaluation (11.50) - (11.50)
138.00 - (11.50)
31-12-19 Dep. [138/11.5] [11.5/11.5] (12.00) - 1.00
126.00 - (10.50)
31-12-20 Dep. [126/14] [10.5/14] (9.00) - 0.75
117.00 - (9.75)
26.00 16.25 9.75
01-01-21 Revaluation
143.00 16.25 -
(11.00) (1.25) -
31-12-21 Dep. [143/13] [16.25/13]
132.00 15.00 -

Answer-14
Notes
for the year ending December 31, 2017

4 - Property, plant and equipment

Building Buses Equipment Total

--------------------- Rs. in million --------------------

Cost / Revalued amount

Balance as at 01-01-17 30.00 48.00 15.00 93.00

Revaluation (0.40) - - (0.40)

Addition - 30.00 5.00 35.00

Disposal - - - -

Balance as at 31-12-17 29.60 78.00 20.00 127.60

Accumulated depreciation

Balance as at 01-01-17 (W-1) 2.25 9.60 6.50 18.35

Revaluation (2.25) - - (2.25)

Depreciation (W-2) 0.80 4.20 3.30 8.30

Disposal - - - -

Balance as at 31-12-17

Sir Hasan Marfani (ACA)

Net book value as at 31-12-17
0.80 13.80 9.80 24.40

28.80 64.20 10.20 103.20

Measurement Revaluation model Cost model Cost model

Depreciation method SLM SLM RBM

40 15 30%
Useful life/Depreciation rate

4.1 - Revaluation of building was conducted by M/S Superior Consultant on January 1, 2017.
4.2 - Building would have been carried at Rs. 27 million (30 x 36/40), had cost model been followed.

Movement in surplus Rs. million

Balance as on 01-01-17 -
Revaluation during the year 1.85
Transfer to retained earnings (0.05)
Balance as on 31-12-17 1.80

Working Rs. million

W-1 Opening acc. depreciation
Building [30 x 3/40] 2.25

Buses [12 x 4 x 3/15] 9.60

W-2 Depreciation
Building [29.60 / 37] 0.80

Buses [48/15 + 30/15 x 6/12] 4.20

Equipment [(15 - 6.5) x 30% + 5 x 30% x 6/12] 3.30

Answer-15
Awesome Industries
Notes - Extracts
Property, plant and equipment
2012 2011

------- Rs. in million -------

Sir Hasan Marfani (ACA)

Revalued amount

as at July 1 108.00 180.00

Additions - -

Revaluation (20.00) (72.00)

Disposal - -

as at June 30 88.00 108.00

Acc. Depreciation

as at July 1 36.00 45.00

Revaluation (36.00) (45.00)

Charge for the year [88 / 2] ; [108 / 3] 44.00 36.00

Disposal - -

June 30 44.00 36.00

NBV as at June 30 44.00 72.00
Depreciation rate
Depreciation method 20% 20%
Measurement Revaluation model SLM SLM

The last revaluation was performed on 1 July 2011 by M/s Supreme Valuation Services, an independent firm of valuers.
Revaluations are performed annually.

Carrying amount which would have been determined had cost model been followed:
2012 2011
------- Rs. in million -----

[200 x 1/5] ; [200 x 2/5] 40.00 80.00

Movement in surplus
Balance as on July 1 - 15
Revaluation during the year 8 (15)
Transfer to retained earnings (4) -
Balance as on June 30 4 -

Answer-16
Sir Hasan Marfani (ACA)
(a)
Extracts - SOCI - 2013 Rs.'000’
Depreciation (4,125)

Revaluation loss reversal 1,600

Other comprehensive income:
Revaluation gain 3,700

Extracts - SOFP - 2013 Non-current assets:

Machine 12,375
Equity:
Revaluation surplus 2,775

(b)
---------- Rs.'000 -----------
Date Particulars Dr. Cr.
01-Jul-12 Accumulated depreciation 2,800
Machine 2,800
(Elimination of accumulated depreciation)
01-Jul-12 Machine 5,300
P&L 1,600
Revaluation surplus 3,700
(Revaluation of machine)
30-Jun-13 Depreciation 4,125
Accumulated depreciation 4,125
(Charge for the year)
30-Jun-13 Revaluation surplus 925
Retained earnings 925
(Transfer of incremental depreciation)

Sir Hasan Marfani (ACA)

Sir Hasan Marfani (ACA)
 ` NBv Surplus P&L NBV (cost model)

W-1
------------ Rs. million --------------
01-07-14 Cost 500.00 - 500.00
30-06-15 Dep [500 x 54%] - (270.00)
- - 230.00
30-06-16 Dep [230 x 54%]
- (124.20)
01-07-16 Revaluation - - 105.80
(15.80) - (15.80) -
30-06-17 Dep [90 x 52.76%] 90.00 - (15.80) 105.80
(47.48) - 9.65 (57.13)
30-06-18 Dep [42.52 x 52.76%] 42.52 - (6.15) 48.67
(22.43) - 3.85 (26.28)
01-07-18 Revaluation 20.08 - (2.30) 22.39
29.92 27.62 2.30 -
30-06-19 Dep [50 x 62.39%] 50.00 27.62 - 22.39
(31.20) (19.11) (12.09)
18.81 8.52 - 10.30
W-2
Dep. rate after 2016 revaluation = 52.76% [1 - (1/90)1/6]

Sir Hasan Marfani (ACA)

Dep. rate after 2018 revaluation = 62.39% [1 - (1/50)1/4]

OBJECTIVE BASED QUESTIONS

01.

Sir Hasan Marfani (ACA)

An entity purchased a property 15 years ago at a cost of Rs. 100,000 and have been depreciating it
at a rate of 2% per annum, on the straight-line basis. The entity has had the property professionally
revalued at Rs. 500,000.
What is the revaluation surplus that will be recorded in the financial statements in respect of this
property?
(a)
Rs. 400,000
(b)
Rs. 500,000
(c)
Rs. 530,000
(d)
Rs. 430,000
02.
An entity owns two buildings, A and B, which are currently recorded in the books at carrying
amounts of Rs. 170,000 and Rs. 330,000 respectively. Both buildings have recently been valued as
follows:
Building A Rs. 400,000
Building B Rs. 250,000
The entity currently has a balance on the revaluation surplus of Rs. 50,000 which arose when
building A was revalued several years ago. Building B has not previously been revalued.
What double entry will need to be made to record the revaluations of buildings A and B?
(a)
Dr Non-current assets Rs. 150,000
Dr Statement of profit or loss Rs. 80,000
Cr Other comprehensive income (revaluation surplus) Rs. 230,000
(b)
Dr Non-current assets Rs. 150,000
Dr Statement of profit or loss Rs. 30,000
Cr Other comprehensive income (revaluation surplus) Rs. 180,000
(c)
Dr Non-current assets Rs. 150,000
Cr Other comprehensive income (revaluation surplus) Rs. 150,000
(d)
Dr Non-current assets Rs. 150,000
Dr Statement of profit or loss Rs. 50,000
Cr Other comprehensive income (revaluation surplus) Rs. 200,000
03.
An entity purchased property for Rs. 6 million on 1 July 2013. The land element of the purchase
was Rs. 1 million. The expected life of the building was 50 years and its residual value nil. On 30
June 2015 the property was revalued to Rs. 7 million, of which the land element was Rs. 1.24
million and the buildings Rs. 5.76 million. On 30 June 2017, the property was sold for Rs. 6.8
million.
What is the gain on disposal of the property that would be reported in the statement of profit or loss
for the year to 30 June 2017?
(a)
Gain Rs. 40,000
(b)

Sir Hasan Marfani (ACA)

Loss Rs. 200,000
(c)
Gain Rs. 1,000,000
(d)
Gain Rs. 1,240,000

04.
Which of the following statements are correct?
1. If the revaluation model is used for property, plant and equipment, revaluations must subsequently be made with
sufficient regularity to ensure that the carrying amount does not differ materially from the fair value at each reporting date.
2. When an item of property, plant and equipment is revalued, there is no requirement that the entire class of assets to
which the item belongs must be revalued.
(a)
Only statement 1 is correct
(b)
Only statement 2 is correct
(c)
Both statements are correct
(d)
None of the statement is correct
05.
The following trial balance extract relates to a property which is owned by Maira Limited as at 1 April 2014.
Dr Cr
Rs. 000 Rs. 000
Property at cost (20 year original life) 12,000
Accumulated depreciation as at 1 April 2014 3,600
On 1 October 2014, following a sustained increase in property prices, Maira Limited revalued its property to Rs. 10.8
million.
What will be the depreciation charge in Maira Limited’s statement of comprehensive income for the year ended 31 March
2015?
(a)
Rs. 540,000
(b)
Rs. 570,000
(c)
Rs. 700,000
(d)
Rs. 800,000
06.
A company purchased a building on 1 April 2007 for Rs. 10,000,000. The asset had a useful economic life at that date of
40 years. On 1 April 2009 the company revalued the building to its current fair value of Rs. 12,000,000.
What is the double entry to record the revaluation?
(a)
Dr. Building 1,500,000
Dr. Accumulated depreciation 500,000
Cr. Other comprehensive income 2,000,000
(b)
Dr. Building 2,000,000
Dr. Accumulated depreciation 500,000
Cr. Profit or loss 2,500,000
(c)
Dr. Building 2,000,000
Dr. Accumulated depreciation 500,000
Cr. Other comprehensive income 2,500,000
(d)
Dr. Building 1,500,000
Dr. Accumulated depreciation 500,00
Cr. Profit or loss 2,000,000
Sir Hasan Marfani (ACA)
07.
The carrying value of property at the end of the year amounted to Rs. 108 million. On this date the property was revalued
and was deemed to have a fair value of Rs. 95 million. The balance on the revaluation reserve relating to the original gain
of the property was Rs. 10 million.
What is the double entry to record the revaluation?
(a)
Dr. Profit or loss 3 million
Dr. Other comprehensive income 10 million
Cr. Property 13 million
(b)
Dr. Profit or loss 10 million
Dr. Other comprehensive income 3 million
Cr. Property 13 million
(c)
Dr. Profit or loss 13 million
Dr. Other comprehensive income 3 million
Cr. Property 16 million
(d)
Dr. Profit or loss 13 million
Cr. Property 13 million
08.
A company revalued its property on 1 April 2009 to Rs. 20m (Rs. 8m for the land). The property originally cost Rs. 10m
(Rs. 2m for the land) 10 years ago. The original useful economic life of 40 years is unchanged. The company’s policy is to
make a transfer to realized profits in respect of excess depreciation.
At which amount the property be presented at as at 31 March 2010?
(a)
Rs. 20 million
(b)
Rs. 19.6 million
(c)
Rs. 12 million
(d)
Rs. 11.6 million
09.
A company revalued its property on 1 April 2009 to Rs. 20m (Rs. 8m for the land). The property originally cost Rs. 10m
(Rs. 2m for the land) 10 years ago. The original useful economic life of 40 years is unchanged. The company’s policy is to
make a transfer to realized profits in respect of excess depreciation.
What is amount of balance in revaluation surplus account as at 31 March 2010?
(a)
Rs. 12 million
(b)
Rs. 10 million
(c)
Rs. 9.8 million
(d)
Rs. 11.8 million
10.
Which of the following is an optional disclosure requirement of IAS 16?
(a)
Measurement bases for determining gross carrying amount
(b)
Depreciation method
(c)
Useful lives or depreciation rates
(d)
The carrying amount of temporarily idle PPE
11.
Following information is available for equipment account of a business on 1st January 2018:
Sir Hasan Marfani (ACA)
Opening balance of equipment, a/c (Revalued amount) Rs. 7,500,000
Surplus on revaluation of equipment a/c Rs. 2,000,000
At start of year company sold equipment for Rs. 90,000,000.
Company has a policy of charging 20% depreciation on straight line basis.
What will be treatment of revaluation surplus at disposal of asset?
(a)
Dr Surplus on revaluation Rs. 2,000,000
Cr Retained earnings Rs. 2,000,000
(b)
Dr Retained earnings Rs. 2,000,000,
Cr Surplus on revaluation Rs. 2,000,000
(c)
Dr Surplus on revaluation Rs. 3,500,000
Cr Retained earnings Rs. 3,500,000
(d)
Dr Surplus on revaluation Rs. 2,0000,000
Cr Equipment account Rs. 2,000,000
12.
A non–current asset costing Rs. 216,000 and carrying value Rs. 145,000 is revalued to Rs. 291,000.
How should revaluation be recorded?
(a)
Dr Asset a/c Rs. 75,000,
Cr Surplus on revaluation Rs. 75,000
(b)
Dr Asset a/c Rs. 75,000,
Dr Accumulated Depreciation Rs. 71,000,
Cr Surplus on revaluation Rs. 146,000
(c)
Dr Surplus on revaluation Rs. 146,000,
Cr Asset a/c Rs. 75,000,
Cr Accumulated Depreciation Rs. 71,000
(d)
Dr Accumulated depreciation Rs. 146,000,
Cr Surplus on revaluation Rs. 146,000
13.
When items of property, plant and equipment are stated at revalued amounts the following must be disclosed:
(i) the effective date of the revaluation
(ii) whether an independent valuer was involved
(iii) for each revalued class of property, plant and equipment, the carrying amount that would have been recognised had
the assets been carried under the cost model;
(iv) the revaluation surplus, indicating the change for the period and any restrictions on the distribution of the balance to
shareholders.
(a)
(i), (ii) and (iv) only
(b)
(i), (ii), and (iii) only
(c)
(ii), (iii) and (iv) only
(d)
(i) to (iv) all
14.
IAS 16 encourages disclosure of the following information as users of financial statements might find it to be useful.
(i) the carrying amount of temporarily idle property, plant and equipment
(ii) the gross carrying amount of any fully depreciated property, plant and equipment that is still in use
(iii) the carrying amount of property, plant and equipment retired from active use and held for disposal
(iv) when the cost model is used, the fair value of property, plant and equipment when this is materially different from the
carrying amount
(a)
(i), (ii) and (iii) only
Sir Hasan Marfani (ACA)
(b)
(i), (ii) and (iv) only
(c)
(i), (iii) and (iv) only
(d)
(i) to (iv) all
15.
Which of the following statements is correct?
(a)
An entity may present PPE at gross carrying amount or net carrying amount under IAS 16
(b)
Either useful lives or depreciation rates are to be disclosed, both are not required.
(c)
Under revaluation model, PPE are revalued at end of each year
(d)
If an entity chooses revaluation model, it must apply revaluation model to all of its PPE.
16.
Waqas Limited purchased a machine for Rs. 30,000 on 1 January 2015 and assigned it a useful life of 12 years. On 31
March 2017 it was revalued to Rs. 32,000 with no change in useful life.
What will be depreciation charge in relation to this machine in the financial statements for the year ending 31 December
2017?
Rs. ___________
17.
A business purchased building costing Rs. 7,500,000 on 1 January 2018.
The policy of business is to charge straight line depreciation over its useful life of 20 years.
On 31 December 2020, building was revalued to Rs. 7,650,000.
What is the amount of incremental depreciation to be transferred to retained earnings at year ending 31 December 2021?
Rs. ___________
18.
A business purchased an asset on 1 January 2016 costing Rs. 5,000,000 having a useful life of 10 years with nil residual
value. On 1 January 2018 balance of accumulated depreciation was Rs. 1,000,000. Asset is revalued to Rs. 4,500,000 on
1 January 2018 (start of the year).
Business has a policy to charge straight line depreciation.
What is the depreciation charge for the year ended 31 December 2018?
Rs. ___________
A business purchased an asset on 1 January 2016 costing Rs. 5,000,000 having a useful life of 10 years with nil residual
value. On 1 January 2018 balance of accumulated depreciation was Rs. 1,000,000. Asset is revalued to Rs. 4,500,000 on
1 January 2018 (start of the year).
Business has a policy to charge straight line depreciation.
What is the amount of revaluation surplus at the date of revaluation?
Rs. ___________
20.
A business purchased an asset on 1 January 2016 costing Rs. 5,000,000 having a useful life of 10 years with nil residual
value. On 1 January 2018 balance of accumulated depreciation was Rs. 1,000,000. Asset is revalued to Rs. 4,500,000 on
1 January 2018 (start of the year).
Business has a policy to charge straight line depreciation.
What is the amount of incremental depreciation for the year ended 31 December 2018?
Rs. ___________
21.
A revaluation gain is credited into?
(a)
Revaluation reserve
(b)
Capital reserve
(c)
Profit and loss
(d)
Any of the above
22.
Sir Hasan Marfani (ACA)
After initial recognition, an entity has a choice to choose cost and?
(a)
Realizable model
(b)
Replacement model
(c)
Revaluation model
(d)
Carrying value model
23.
When an item of property, plant and equipment is revalued, what should be revalued?
(a)
A selection of assets decided by management
(b)
The whole class of assets to which it belongs
(c)
The individual asset
(d)
A selection of assets picked at random
24.
If an asset increases in value, the increase is noted as?
(a)
An increase in net profit in the SOCI
(b)
An increase in retained earnings in SOFP
(c)
An increase in revaluation surplus in the SOFP and other comprehensive income in the SOCI
(d)
An increase in “other profit” in SOCI
25.
Which of the following is not a valid reason for reporting non-current assets at revaluation amount rather than cost?
(a)
To prevent long life assets from being reported at out of date historical costs
(b)
To keep owners of the business better informed of their equity in the business.
(c)
To report performance correctly by matching earnings with the proper costs of assets used.
(d)
To avoid having to pay higher taxes
26.
An entity has a policy of revaluing its PPE. An asset cost Rs.5m on 1 January 2020 and has a useful life of five years and
is depreciated on a straight-line basis to a zero residual value. The value of the asset at 31 December 2020 was Rs.3.8m.
The fall in value will be accounted for as follows?
(a)
Depreciation Rs.1m and fall in value of Rs.200,000 both to the reserves
(b)
Depreciation Rs.1m to the income statement and fall in value of Rs.200,000 ignored until there is a revaluation surplus
(c)
Depreciation Rs.1m to income statement and fall in value of Rs.200,000 to the reserves
(d)
Depreciation Rs.1m and fall in value of Rs.200,000 both to the income statement
27.
During the financial year, Akmal Ltd had the following increases in reserves:
i. Rs. 5 million from a revaluation of freehold premises
ii. Rs.10 million in share premium
iii. Rs.25 million from trading profit retained
Which of these are increases in capital reserves?
(a)
i only
Sir Hasan Marfani (ACA)
(b)
ii only
(c)
i. and ii. Only
(d)
iii. only
28.
The following gains may legally be withdrawn from the company by shareholders:
i. gains that arise from the upward revaluation of non-current assets
ii. gains that arise from the sale of non-current assets
What is the validity of each statement?
(a)
Both i. and ii are true
(b)
i. is true and ii. is false
(c)
Both i. and ii are false
(d)
ii. is true and i. is false
29.
The financial statements of Saadi Limited for the most recent year indicated the following:
i. a bonus issue of shares
ii. a transfer of profit retained to retained earnings
iii. an increase in the revaluation reserve due non-current assets
iv. a rights issue of shares
Which of the above involved a movement of cash?
(a)
i. and ii
(b)
ii. and iii.
(c)
iii only
(d)
iv only
30.
An apartment is revalued upwards by Rs. 1 million. It was acquired 5 years ago for Rs. 5 million. Its useful life remains
same as 10 years.
What is the revised depreciation charge for the year after revaluation?
(a)
Rs. 500,000
(b)
Rs. 600,000
(c)
Rs. 700,000
(d)
Rs. 800,000
31.
A building is revalued upwards by Rs. 2 million. It was acquired five years ago for Rs.10 million. Its useful life remains
same as 20 years. What is the incremental depreciation charge for the year?
(a)
Rs.100,000
(b)
Rs.133,333
(c)
Rs.166,667
(d)
Rs.200,000
32.

Sir Hasan Marfani (ACA)

An IT equipment being carried at revaluation model has revaluation reserve balance of Rs. 50,000. During the year, it
reduces its value due to technological obsolescence. It has Rs. 70,000 decrease in value. What would be the impact of
this revaluation decrease?
(a)
The decrease of Rs.50,000 is debited to revaluation reserve and Rs.20,000 to profit or loss for the year
(b)
The decrease of Rs.50,000 is debited to profit and loss account and Rs.20,000 to revaluation reserve for the year
(c)
The whole decrease is debited to revaluation reserve
(d)
The whole decrease is debited to profit or loss for the year
33.
The correct accounting treatment of initial operating losses incurred during the commercial production due to under-
utilization of the plant would be to:
(a)
capitalise as a directly attributable cost
(b)
defer and charge to profit or loss account when profit is earned from the plant
(c)
charge directly to retained earnings since these are not considered to be normal operating losses
(d)
charge to profit or loss account
34.
Which of the following is NOT considered as an item of property, plant and equipment?
(a)
A standby generator expected to be used for seven years
(b)
A plot of land held for resale
(c)
A bus for pick and drop of staff members
(d)
A generator for rental to others
35.
An entity acquires a plant in exchange of old machinery which has carrying amount of Rs. 760,000 and fair value of Rs.
750,000 at the date of exchange. The list price of plant acquired is Rs. 850,000. The entity is also required to pay cash of
Rs. 55,000 in this exchange transaction.
At which amount the acquired plant should be initially recognised?
(a)
Rs. 850,000
(b)
Rs. 760,000
(c)
Rs. 815,000
(d)
Rs. 805,000
36.
An item of plant was purchased on 1 April 2008 for Rs. 2,000,000 and is being depreciated at 25% on a reducing balance
basis. What would be its residual value after its useful life of 5 years?
(a)
Rs. 632,809
(b)
Rs. NIL
(c)
Rs. 474,609
(d)
Rs. 400,000
37.
A non-current asset cost Rs.96,000 and was purchased on 1 June Year 1. Its expected useful life was five years and its
expected residual value was Rs.16,000. The asset is depreciated by the straight-line method.
Sir Hasan Marfani (ACA)
The asset was sold on 1 September Year 3 for Rs.68,000. There were no disposal costs. It is the company policy to
charge depreciation on a monthly basis. The financial year runs from 1 January to 31 December.
What was the gain or loss on disposal?
Rs. ___________
38.
A non-current asset was purchased on 1 June Year 1 for Rs.216,000. Its expected life was 8 years and its expected
residual value was Rs.24,000. The asset is depreciated by the straight-line method. The financial year is from 1 January
to 31 December.
The asset was sold on 1 September Year 4 for Rs.163,000. Disposal costs were Rs.1,000.
It is the company policy to charge a proportionate amount of depreciation in the year of acquisition and in the year of
disposal, in accordance with the number of months for which the asset was held.
What was the gain or loss on disposal?
Rs. ___________
39.
A change in depreciation method is a?
(a)
Change in accounting policy
(b)
Change in accounting estimate
(c)
Change in accounting method
(d)
Change in accounting standard
40.
When an asset is sold or disposed of, where is the gain or loss recognised?
(a)
Asset disposal account
(b)
Profit and loss
(c)
Revaluation reserve
(d)
Depreciation
41.
How often should the useful life of an asset be reviewed?
(a)
Every six months
(b)
As and when the market value will significantly change
(c)
At least at each financial year end
(d)
Never
42.
An entity acquired laptops in exchange of desktops which have carrying amount of Rs. 450,000 and fair value of Rs.
300,000 at the date of exchange. The list price of the laptops acquired is Rs. 600,000. The entity is also required to pay
cash of Rs. 275,000 in this exchange transaction.
The laptops should be initially recognized at:
(a)
Rs. 300,000
(b)
Rs. 575,000
(c)
Rs. 450,000
(d)
Rs. 600,000
43.
During the year 2019, an entity purchased a machine for Rs. 20 million to be used for 6 years. Which of the following
would represent residual value of this machine in 2019?
Sir Hasan Marfani (ACA)
(a)
Rs. 15 million can be currently obtained from disposal of the machine in present condition
(b)
Rs. 4 million can be currently obtained from disposal of a 6 year old similar machine
(c)
Rs. 18 million can be obtained in 2025 from disposal of the machine in present condition
(d)
Rs. 7 million can be obtained in 2025 from disposal of a 6 year old similar machine

Answer:

Sir Hasan Marfani (ACA)

Sir Hasan Marfani (ACA)
Sir Hasan Marfani (ACA)
Sir Hasan Marfani (ACA)