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Tutorial PPE Answer

This document provides information on the initial costs, depreciation, and carrying values of various machinery and equipment. It discusses capitalizing versus expensing various subsequent expenditures and repairs. It also addresses recognizing new components, derecognizing replaced components, and adjusting depreciation schedules and estimates. The key information presented includes the initial costs and depreciation calculations for various assets over multiple time periods, as well as the accounting treatment for different types of subsequent costs.

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AdventurousLife
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70 views

Tutorial PPE Answer

This document provides information on the initial costs, depreciation, and carrying values of various machinery and equipment. It discusses capitalizing versus expensing various subsequent expenditures and repairs. It also addresses recognizing new components, derecognizing replaced components, and adjusting depreciation schedules and estimates. The key information presented includes the initial costs and depreciation calculations for various assets over multiple time periods, as well as the accounting treatment for different types of subsequent costs.

Uploaded by

AdventurousLife
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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1(a)

RM
Purchase price 1,200,000 x 90% 1,080,000
Shipping 16,000
Installation (82,000-12,000) 70,000
Pre-production testing 25,000
Dismantling costs (15,000 x0.75) 11,250
Initial cost of machinery 1,202,250

1(b) SOCI
RM
Depreciation (1202250-26000)/5 235,250
Finance cost (11,250 x 6%) 675

1(c) SOFP
RM
Property plant and equipment 1,202,250
Accumulated depreciation (235,250)
967,000

Non-current liabilities:
Provision for dismantling and restoration 11,250 + 675 11,925

2
a. Compulsory inspection – capitalise
b. Engine - capitalise RM250,000 and derecognise the carrying value of the engines placed.
c. Tyres – separate components. Prepaid expense therefore spread over 3 years.
d. Rust proof --- add to the carrying value of buses as it increases the useful life by 3 years.

3
The plant had been depreciated for four years at RM50,000 per annum. Therefore, the
carrying value will be RM500,000 – (RM50,000 x 4 years) = RM300,000.
In x6 the repairs and annual overhaul was expensed off.
Spare parts were accounted for as prepaid expenses and charged as expenses when used.
The replacement cost of a major part was capitalised as the economic benefits were
increased.
The carrying value of the part replaced was derecognised.

Depreciation for x6 would be RM300,000 – RM40,000 + RM200,000 = RM76,667.


6 years
4
RM m per Depreciatio Carrying value on
annum n for x4 31.12.x4 RM m
Engine (old) 120/3 40 (old) 40+ 0
Engine (new) 150/4 37.5 (new) 37.5=77.5 150-37.5=112.5
Body 500/10 50 50 500-150=350
Furniture and 120/5 [(120- 15.25 120-48+50–15.25
fittings 48)+50]/8 =106.75

The carrying value of the old engine of RM40 million is derecognised. The new engine is
depreciated over four years.
The subsequent expenditure on upgrading the furniture and fittings is capitalised and the
revised carrying value is depreciated over 8 years. Change in the estimated useful life is a
change in accounting estimate.
The repainting does not meet the recognition criteria and so is written off as expense.

5
RM m per Depreciatio Carrying value on
annum n for x7 31.12.x7 RM m
Engine (old) 160/5 32 (old) 16 0
Engine (new) 240/6 40 (new) +20 =36 240-20=220
Hull and decks 400/25 16 16 400-64=336
Furniture and 240/10 24 pa
fittings for 6 months 12 240-84+60-
[(240- +10.8 = 22.8 10.8=205.2
84)+60)]/10
for 6 months

The carrying value of the old engine of RM48 million is derecognised. The new engine is
depreciated over six years.
The subsequent expenditure on upgrading the furniture and fittings is capitalised and the
revised carrying value is depreciated over 10 years. Change in the estimated useful life is a
change in accounting estimate.
The repainting does not meet the recognition criteria and so is written off as expense.

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