*5.7

Accounting standard IAS16 Property, Plant and Equipment makes a number of recognition, measurement and disclosure requirements with regard to tangible noncurrent assets. The term "non-current asset" is defined in accounting standard IAS1 Presentation of Financial Statements. The information given below relates to two companies, both of which prepare accounts to 31 December. Alpha Ltd Alpha Ltd bought a factory machine on 30 June 2019 and paid a total of 420,000. The supplier's invoice showed that this sum was made up of the following items:

Beta Ltd On 1 January 2009, Beta Ltd bought freehold property for 800,000. This figure was made up of land 300,000 and buildings 500,000. The land was non-depreciable but it was decided to depreciate the buildings on the straight-line basis, assuming a useful life of 40 years and a residual value of nil.

On 1 January 2019, the land was revalued at 400,000 and the buildings were revalued at 450,000. The company decided to incorporate these valuations into its accounts. The previous estimates of the buildings' useful life and residual value remain unchanged.

Required:

(a) Distinguish between current assets and non-current assets, giving TWO examples of each type of asset.

(b) Explain, with appropriate examples, the difference between capital expenditure and revenue expenditure.

(c) If a company incorrectly classified an item of capital expenditure as revenue expenditure, what effect would this have on the company's accounts in the year of the expenditure and in subsequent years?

(d) In accordance with the rules of IAS16, calculate the cost figure at which the machine bought by Alpha Ltd should initially be measured. Also explain the correct accounting treatment of any component of the 420,000 expenditure which cannot be treated as part of the machine's cost.

(e) Write journal entries for the revaluation of Beta Ltd's freehold property on 1 January 2019. Also calculate the amount of depreciation which should be charged in relation to the buildings for the year to 31 December 2019.

Alpha Ltd Alpha Ltd bought a factory machine on 30 June 2019 and paid a total of 420,000. The supplier's invoice showed that this sum was made up of the following items: Manufacturer's list price 380,000 Less: Trade discount 38,000 342,000 Delivery charge 6,800 Installation costs 29,600 Maintenance charge for year to 30 June 2020 27,000 Small spare parts 14,600 420,000