Question
1) Explain requirements of IAS16 in relation to revaluation of PPE and the treatment of surpluses and deficits on revaluation. 2) K is reviewing the
1) Explain requirements of IAS16 in relation to revaluation of PPE and the treatment of surpluses and deficits on revaluation. 2) K is reviewing the file relating to a sophisticated oven that is used to heat cell cultures to a precisely controlled temperature: $ (i) List price paid to supplier 50 000 (ii) Wages and materials costs associated with testing and calibrating oven, up to start of operations 800 (iii) Ongoing wages and materials costs associated with calibrating oven since start of operations 2 000 (iv) Expected costs of disposing of oven at the end of its useful life 16 000 The oven is used to heat cell cultures to a temperature range that must be closely controlled. The ovens controls will have to be regularly checked and calibrated throughout its working life. The oven will have to be dismantled and sterilised by an expert contractor at the end of its life and then disposed of at a special facility. K has already provided $16,000 against these costs .The machines expected useful life is 5 years. K is planning to adopt the straight-line basis of depreciation. The market value/value in use of the machine at the year end is $28 000. This decrease in value from new is partly because the oven has been used to culture dangerous organisms, and so it is much less valuable. K is unsure whether to value equipment at cost less depreciation or at valuation. This decision will be based on an analysis of the resulting figures in terms of two of the qualitative characteristics of accounting statements (those of relevance and reliability).
Required (a) Calculate the cost of the oven, applying the requirements of IAS 16. Explain your treatment of items (ii), (iii) and (iv). (b) Calculate the figures that will appear in respect of the oven in the statement of comprehensive income for the enterprises first year and the statement of financial position at the year end under both the historical cost and valuation bases, then discuss the relevance and reliability of both sets of figures you have calculated in the answer.
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