On $1$ January $2021,$ Flight Limited purchased a new lear jet. The jet, which is to provide international mobility to the companys most senior executives, cost $$40$ million $($excluding VAT$).$ The company intends keeping the jet until it is obsolete $($i$.$e$.20$ years$)$ at which time it is expected to have no residual value. Although the invoice did not provide an analysis of the purchase price, it can reasonably be allocated as follows: $ $000`$s

Engines $\mathrm{}30,000,000$ Estimated useful life $10$ years with no residual value

Airframe $\mathrm{}\mathrm{}16,000,000$ Estimated useful life $20$ years with no residual value

Furniture and fittings $4,000,000$ Estimated useful life $5$ years with no residual value

Inspection costs$\mathrm{}3,000,000$ Such inspections are required by aviation authorities every two years

Additional information:

On $30$ June $2022,$ for reasons of convenience, the company undertook the requisite inspection six months earlier than required by the aviation authorities. The cost of the inspection was $ $\mathrm{}\mathrm{}300000$ and the next scheduled inspection is $30$ June $2024.$ 

Required:

Briefly outline how Flight Limited shall account for the inspection cost only during $2022,$ in accordance with IAS $16$ Property, plant and equipment. You must show all appropriate workings including cost and depreciation for the respective periods.

Answer rating: 100% (QA)

Flight Limited Accounting for Inspection Cost IAS 16 2022 Treatment of Inspection Costs According to IAS 16 inspection costs can be capitalized as part of the carrying amount of Property Plant Equipme... View the full answer