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IAS 16 Quiz

Multipart purchased a budget airline and must determine how to depreciate the aircraft, engines, and tires based on their useful lives of 10 years, 7 years, and 18 months, respectively. IAS 16 outlines acceptable treatments for revaluation surpluses of property, plant, and equipment (PPE), including crediting to retained earnings or releasing to income over the life of the PPE. An entity should begin depreciation when an self-constructed asset is installed and ready for use, not when construction begins or ends. Revaluations of PPE are accounted for by recognizing any decrease in value first against any revaluation surplus related to that asset and any additional decrease as an expense.

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6K views2 pages

IAS 16 Quiz

Multipart purchased a budget airline and must determine how to depreciate the aircraft, engines, and tires based on their useful lives of 10 years, 7 years, and 18 months, respectively. IAS 16 outlines acceptable treatments for revaluation surpluses of property, plant, and equipment (PPE), including crediting to retained earnings or releasing to income over the life of the PPE. An entity should begin depreciation when an self-constructed asset is installed and ready for use, not when construction begins or ends. Revaluations of PPE are accounted for by recognizing any decrease in value first against any revaluation surplus related to that asset and any additional decrease as an expense.

Uploaded by

furqan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Multipart has purchased a budget airline and is discussing the way in which it should depreciate the aircraft as aircraft

have a lifespan of 10 years, engines have a lifespan of seven years and tyres have a lifespan of 18 months. The
aircraft should be depreciated on a straight-line basis over 1.5 years useful life
Seven years useful life of the engine, 1.5 years useful life of the tyres, and 10 years useful life applied to the balanc
Seven years useful life
10 years composite useful life

IAS 16 requires a revaluation surplus resulting from initial revaluation of PPE to be treated in one of the following ways
Credited to retained earnings as an unrealised gain
Released to the income statement over the life of the PPE
Debited to the class of PPE that is being revalued and credited to a equity
Credited to long-term provisions and added to the PPE

An entity constructs a machine for its own use. Construction is started on 1 January 2009 and is completed on 1
March 2009. The machine is installed on 1 April 2009 and the entity does not begin using the machine until 1 May
2009. The entity should begin charging depreciation on 1 April 2009
1 March 2009
1 January 2009
1 May 2009

An entity has a policy of revaluing its PPE. An asset cost $5m on 1 January 2008 and has a useful life of five years
and is depreciated on a straight-line basis to a zero residual value. The value of the asset at 31 December 2008 was
$3.8m. The fall in value will be accounted for as follows Depreciation $1m to income statement and fall in value of $200,000 to the reserves
Depreciation $1m and fall in value of $200,000 both to the income statement
Depreciation $1m to the income statement and fall in value of $200,000 ignored until there is a revaluation surplus
Depreciation $1m and fall in value of $200,000 both to the reserves

An entity has a policy of revaluing its PPE. An asset cost $15m on 1 January 2008, has a useful life of 15 years and is
depreciated on a straight-line basis to a zero residual value. The value of the asset at 31 December 2008 was

$14.5m. At 31 December 2009, the market value of the asset was $12.5m. The accounting entry at 31 December
2009 would be Depreciation $1m to income statement, fall in value of $0.5m charged to revaluation reserve and $0.5m to the income statement
Depreciation $1m to income statement, fall in value of $0.96m to the income statement
Depreciation $1.04m to income statement, fall in value of $0.96m charged to revaluation reserve
Depreciation $1.04m to income statement, fall in value of $0.5m charged to revaluation reserve and $0.46m to the income statement

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