Question 1

Explain whether each of the following asset meets the recognition criteria of IAS 16 Property, plant & equipment?

An equipment was bought by YY Global to be used in its manufacturing process. The equipment can be used for 5 years.

YY Global trades in machining. On 1 January 20X9, YY Global decided to acquire some machine to enable them to expand their manufacturing process. On 1 February a further 5 machines was acquired but this machines is to meet the demand for one of their customer.

ABC Bhd has a machine that they are currently using for manufacturing. However during to the economic slowdown the machine is longer in use as it is surplus to requirement. Management of ABC Bhd has decided that the machine will not be used anymore. The machine could not be sold as well as it has no buyer.

Question 2

MNH has received an approval from the government to construct a manufacturing plant. Part of the condition for the approval is that MNH would need to dismantle the plant and restored it back to the original condition when the project cease in 6 years time. The construction cost of the plant is estimated to be $50 million. However due to a wrong specification from the architect, the company ended up incurring a total construction costs of $50.5 million. Meanwhile the estimated cost of restoration cost in 5 years time would be $10.2 million. Besides the restoration costs the company also estimated that they will incur another $20 million environmental cost as a result of the damages done on the environment from their manufacturing activities.

Required:

Determine the cost of the manufacturing plant capitalized assuming that a discount rate of 10% apply (10% discount rate for year 5 is 0.621).

Show the financial statement extract for the first year.

Question 3

On 1 January 20X8, KK bought an plant for $100,000. It has a contracted life span of 9 years. However the plant was not ready for use until 1 January 20X9. Determine the depreciation charges for year ended 31 December 20X9.

Question 4

JJJ is reviewing the accounting treatment of its buildings. The company uses the revaluation model for its buildings. The buildings had originally cost $10 million on 1 June 2015 and had a useful economic life of 20 years. They are being depreciated on a straight line basis to a nil residual value.

The buildings were revalued downwards on 31 May 2016 to $8 million which was the buildings recoverable amount. At 31 May 2017,the value of the buildings had risen to $11 million which is to be included in the financial statements. The company is unsure how to treat the above events.

Required: Discuss the accounting treatment for the above transactions.

Q5 (IAS 23)

KKK Co had following loans in place at the beginning at end of 2021.

1 January 2021 31 December 2021

$m $m

10% Bank loan repayable 20Y3 120 120

9.5% Bank loan repayable 20Y1 80 80

8.9% Bank loan repayable 20Y8 0 150

The 8.9% debanture was issued to fund the construction of a qualifying asset (a piece of mining equipment), construction of which began on 1 July 2021.

On 1 January 2021, KKK Co began construction of a qualifying asset, a piece of machinery for a hydroelectric plant, using existing borrwings. Expenditure drawn down for the construction was:

$30m on 1 January 2021,

$20m on 1 October 2021.

required

Calculate the borrowing costs to be capitalised for the hydroelectric plant machine.