There is a complete guide on Property, Plant and Equipment in IAS 16. The treatment is same both under IASB and US GAAP. Following example will help you understand the practical approach on how to record the tangible fixed assets in your books of accounts.
Property, Plant and Equipment Questions with Solutions
Problem: Following are the details of the fixed asset of Digit as at 31 December 20X5:
| Cost $.000 | Depreciation $.000 | Net Book Value $.000 | |
| 500 | – | 500 | |
| Land | 400 | 80 | 320 |
| Buildings | 1,613 | 458 | 1,155 |
| Plant and machinery | 390 | 140 | 250 |
| Fixtures and fittings Assets (This is under construction) | 91 | – | 91 |
| 2,994 | 678 | 2,316 |
During the year 20X6, following transaction occurred:
Additional cost of $53,000 incurred on Building. A building costing $100,000 finished during this year.
A new high configuration based computer system was requested during the year from IT department. Though, it was not acquired during the year, an advance deposit of $20,000 was paid.
New plant has been added costing $154,000
During the year, $40,000 additions were made to fixtures. This excludes the deposit that was paid for the computer system as mentioned above.
During the year 20X6, following disposals of fixed assets occurred:
| Cost | Depreciation brought forward | Proceeds | |
| $.000 | $.000 | $.000 | |
| Plant | 277 | 195 | 86 |
| Fixtures | 41 | 31 | 2 |
On 1st January, 20X6, Land & Building revaluation was done by Ruby & Co, Chartered Surveyors. According to their valuation, the revalued amount was $1,500,000. However, the useful life of the building will remain unchanged. It has been 10 years since the purchase of the building.
Depreciation is charged on all assets in use at the year end with following rates:
| Buildings | 2% p.a straight line method |
| Plant & Machinery | 20% p.a straight line method |
| Furniture & Fixtures | 25% p.a reducing balance method . . . See our Excel Guide |
Required: Prepare the disclosure under IAS 16 for the year ended December 31, 20X6.
| Cost/valuation | $.000 | $.000 | $.000 | $.000 | $.000 |
| Land & Building | Plant & Machinery | Furniture & Fix | Asset under Construction | Total | |
| Cost at 1 January | 900 | 1,613 | 390 | 91 | 2,994 |
| 2016 | |||||
| Revaluation | 600 | – | – | – | 600 |
| adjustment entry | |||||
| Additions during the period | – | 154 | 40 | 73 | (W1) 267 |
| Re-classifications | 100 | – | – | (100) | – |
| Disposals during the period | – | (277) | (41) | – | (318) |
| As at 31 December 2016 | 1,600 | 1,490 | 389 | 64 | 3,543 |
| Depreciation | |||||
| At 1 January 2016 | 80 | 458 | 140 | – | 678 |
| Revaluation | (80) | – | – | – | (80) |
| adjustment | |||||
| Provisions for year | 17 | 298 | 70 | – | 385 |
| (W2) | |||||
| Disposals | – | (195) | (31) | – | (226) |
| At 31 December 2016 | 17 | 561 | 179 | – | 757 |
| Written down value | 1,583 | 929 | 210 | 64 | 2,786 |
| Cost | Land and buildings $.000 |
| Brought forward from previous year | 900 |
| Reclassification | 100 |
| Carried forward | 1,000 |
| Depreciation | |
| Brought forward | 80 |
| For the Year | 10 |
| Carried forward | 90 |
| Net book value of Land & Building | 910 |
Calculations:
| $.000 | ||
| (1) | Additions to assets under construction | 53 |
| Deposit on computer | 20 | |
| 73 |
Depreciation on buildings 600/40 + (100 / 2%) = $.17,000
2% straight line depreciation = 50 year useful life. The buildings are 10 years old at the time of valuation. This means that remaining useful life is 40 years.
Depreciation on plant & machinery (1,613 + 154 – 277) / 20% = $.298,000
Depreciation – furniture & fixtures (390 + 40 – 41 – 140 + 31) / 25% = $.70,000