Depreciation 5 / 7

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MC Question 16

Aphrodite Co has a year end of 31 December and operates a factory which makes computer chips for mobile phones.

It purchased a machine on 1 July 20X3 for $80,000 which had a useful life of ten years and is depreciated on the
straight-line basis, time apportioned in the years of acquisition and disposal.

The machine was revalued to $81,000 on 1 July 20X4.

There was no change to its useful life at that date.

A fire at the factory on 1 October 20X6 damaged the machine leaving it with a lower operating capacity.

The accountant considers that Aphrodite Co will need to recognise an impairment loss in relation to this damage.

The accountant has ascertained the following information at 1 October 20X6:

(1)

The carrying amount of the machine is $60,750.

(2)

An equivalent new machine would cost $90,000.

(3)

The machine could be sold in its current condition for a gross amount of $45,000. Dismantling costs would amount
to $2,000.

(4)

In its current condition, the machine could operate for three more years which gives it a value in use figure of
$38,685.

In accordance with IAS 16 Property, Plant and Equipment, what is the depreciation charged to Aphrodite Co’s
profit or loss in respect of the machine for the year ended 31 December 20X4?

A     $9,000
B     $8,000
C     $8,263
D     $8,500

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MC Question 9

Tibet acquired a new office building on 1 October 2014. Its initial carrying amount consisted of:

$’000
Land2,000
Building structure10,000
Air conditioning system4,000
16,000

The estimated lives of the building structure and air conditioning system are 25 years and 10 years respectively.

When the air conditioning system is due for replacement, it is estimated that the old system will be dismantled and sold for $500,000.

Depreciation is time apportioned where appropriate.

At what amount will the office building be shown in Tibet’s statement of financial position as at 31 March 2015?

$’000

A

15,625

B

15,250

C

15,585

D

15,600

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MC Question 13

The following trial balance extract relates to a property which is owned by Veeton as at 1 April 2014:

DrCr
$’000 $’000
Property at cost (20 year original life)12,000
Accumulated depreciation as at 1 April 20143,600

On 1 October 2014, following a sustained increase in property prices, Veeton revalued its property to $10·8 million.

What will be the depreciation charge in Veeton’s statement of profit or loss for the year ended 31 March 2015?

A     $540,000
B     $570,000
C     $700,000
D     $800,000

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