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(1). The broad principles of accounting forproperty, plant and equipmentinvolve distinguishing between capital andrevenueexpenditure, measuring thecostof assets, determining how they should be depreciated and dealing

(1).

The broad principles of accounting forproperty, plant and equipmentinvolve distinguishing between capital andrevenueexpenditure, measuring thecostof assets, determining how they should be depreciated and dealing with the problems of subsequent measurement and subsequent expenditure. IAS 16Property, plant and equipmenthas the intention of improving consistency in these areas.

Required

(a)Explain:

(i)How the initialcostofproperty, plant and equipmentshould be measured

(ii)The circumstances in which subsequent expenditure on those assets should be capitalised

(b)Explain IAS 16's requirements regarding the revaluation ofnon-current assetsand the accounting treatment of surpluses and deficits on revaluation and gains and losses on disposal.

(2)

(i)Broadoak has recently purchased an item of plant from Plantco, the details of this are:

$$

Basic list price of plant240,000

Trade discount applicable to Broadoak12.5% on list price

Ancillarycosts:

Shipping and handlingcosts2,750

Estimated pre-production testing12,500

Maintenance contract for three years24,000

Site preparationcosts:

electrical cable installation14,000

concrete reinforcement4,500

own labourcosts7,500

26,000

Broadoak paid for the plant (excluding the ancillarycosts) within four weeks of order, thereby obtaining an early settlement discount of 3%. Broadoak had incorrectly specified the power loading of the original electrical cable to be installed by the contractor. Thecostof correcting this error of $6,000 is included in the above figure of $14,000. The plant is expected to last for 10 years. At the end of this period there will be compulsorycosts of $15,000 to dismantle the plant and $3,000 to restore the site to its original use condition.

Required

Calculate the amount at which the plant will be measured atrecognition.(Ignore discounting.)

(ii)Broadoak acquired a 12 year lease on a property on 1 October 20X0 at acostof $240,000. The company policy is to revalue its properties to their market values at the end of each year. Accumulated amortisation is eliminated and the property is restated to the revalued amount. Annual amortisation is calculated on the carrying values at the beginning of the year. The market values of the property on 30 September 20X1 and 20X2 were $231,000 and $175,000 respectively. The existing balance on the revaluation surplus at 1 October 20X0 was $50,000. This related to some non-depreciable land whose value had not changed significantly since 1 October 20X0.

Required

Prepare extracts of the financial statements of Broadoak (including the movement on the revaluation reserve) for the years to 30 September 20X1 and 20X2 in respect of the leasehold property.

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