Accounting standard IAS16: Property, Plant and Equipment make a number of recognition, measurement and disclosure requirements with regard to tangible non-current assets. The term "non-current asset" is defined in accounting standard IAS1: Presentation of Financial Statements. The information given below relates to two companies, both of which prepare accounts by 31 December. Tom Limited: Joy Plc bought a factory machine on 30 June 2020 and paid a total of £420,000. The supplier's invoice showed that this sum was made up of the following items: £ Manufacturer's list price 380,000 Less: Trade discount 38,000 342,000 Delivery charge 6,800 Installation costs 29,600 Maintenance charge for a year to 30 June 2021 27,000 Small spare parts 14,600 £420,000 Jerry Limited: On 1 January 2010, Jerry Ltd bought freehold property for £800,000. This figure was made up of land £300,000 and buildings £500,000. The land was non-depreciable but it was decided to depreciate the buildings on a straight-line basis, assuming a useful life of 40 years and a residual value of £nil. On 1 January 2020, the land was revalued at £400,000 and the buildings were revalued at £450,000. The company decided to incorporate these valuations into its accounts. The previous estimates of the buildings' useful life and residual value remain unchanged. Required: In accordance with the rules of IAS16, calculate the cost figure at which the machine bought by Tom Limited should initially be measured. Also, explain the correct accounting treatment of any component of the £420,000 expenditure which cannot be treated as part of the machine's cost.
Accounting standard IAS16: Property, Plant and Equipment make a number of recognition, measurement and disclosure requirements with regard to tangible non-current assets.
The term "non-current asset" is defined in accounting standard IAS1: Presentation of Financial Statements. The information given below relates to two companies, both of which prepare accounts by 31 December.
Tom Limited:
Joy Plc bought a factory machine on 30 June 2020 and paid a total of £420,000. The supplier's invoice showed that this sum was made up of the following items:
|
|
£ |
|
Manufacturer's list price |
380,000 |
|
Less: Trade discount |
38,000 |
|
|
342,000 |
|
Delivery charge |
6,800 |
|
Installation costs |
29,600 |
|
Maintenance charge for a year to 30 June 2021 |
27,000 |
|
Small spare parts |
14,600 |
|
|
£420,000 |
Jerry Limited:
On 1 January 2010, Jerry Ltd bought freehold property for £800,000. This figure was made up of land £300,000 and buildings £500,000. The land was non-
£400,000 and the buildings were revalued at £450,000. The company decided to incorporate these valuations into its accounts. The previous estimates of the buildings' useful life and residual value remain unchanged.
Required:
In accordance with the rules of IAS16, calculate the cost figure at which the machine bought by Tom Limited should initially be measured. Also, explain the correct accounting treatment of any component of the £420,000 expenditure which cannot be treated as part of the machine's cost.
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explain the correct accounting treatment of any component of the £420,000 expenditure which cannot be treated as part of the machine's cost.
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