On 30 June 2014, the statement of financial position of Meezen Ltd showed the following non-current assets after charging depreciation: $ 300 000 Building Accumulated Depreciation (100 000) $200 000 Motor Vehicle 120 000 Accumulated Depreciation (40 000) 80 000 The company has adopted fair value for the valuation of non-current assets. This has resulted in the recognition in previous periods of an asset revaluation surplus for the building of $14000. On 30 June 2014, an independent valuer assessed the fair value of the building to be $160 000 and the vehicle to be $90 000. The income tax rate is 30%. Required 1. Prepare any necessary entries to revalue the building and the vehicle as at 30 June 2014. 2. Assume that the building and vehicle had remaining useful lives of 25 years and 4 years respectively, with zero residual value. Prepare entries to record depreciation expense for the year ended 30 June 2015 using the straight-line method.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Exercise 11.15
DECLINE IN VALUE OF ASSETS
A new accountant has been appointed to the firm of Gutenberg Ltd, which owns a large number of depre-
ciable assets. Upon analysing the firm's depreciation policy, the accountant has implemented a new policy
based on the principle that the depreciation rate for particular assets should measure the decline in the
value of the assets. Discuss this policy change.
Exercise 11.16
DEPRECIATION CHARGES
The management of Carlsberg Ltd has been analysing the financial reports provided by the accountant,
who has been with the firm for a number of years. Management has expressed its concern over deprecia-
tion charges being made in relation to the company's equipment. In particular, it believes that the depreci-
ation charges are not high enough in relation to the factory machines because new technology applied in
that area is rapidly making the machines obsolete. Management's concern is that the machines will have
to be replaced in the near future and, with the low depreciation charges, the fund will not be sufficient to
pay for the replacement machines. Discuss.
Exercise 11.17
REVALUATION OF ASSETS
On 30 June 2014, the statement of financial position of Meezen Ltd showed the following non-current
assets after charging depreciation:
$ 300 000
Building
Accumulated Depreciation
(100 000)
$200 000
Motor Vehicle
Accumulated Depreciation
120 000
(40 000)
80 000
The company has adopted fair value for the valuation of non-current assets. This has resulted in the
recognition in previous periods of an asset revaluation surplus for the building of $14 000. On 30 June
2014, an independent valuer assessed the fair value of the building to be $160 000 and the vehicle to be
$90 000. The income tax rate is 30%.
Required
1. Prepare any necessary entries to revalue the building and the vehicle as at 30 June 2014.
2. Assume that the building and vehicle had remaining useful lives of 25 years and 4 years respectively,
with zero residual value. Prepare entries to record depreciation expense for the year ended 30 June 2015
using the straight-line method.
Exercise 11.18
BUILDING COSTS
Chua Ltd has acquired a new building. Which of the following items should be included in the cost of the
building?
(a) Stamp duty
(b) Real estate agent's fees
(c) Architect's fees for drawings for internal adjustments to the building to be made before use
(d) Interest on the bank loan to acquire the building, and an application fee to the bank to get the loan,
which is secured on the building
(e) Cost of changing the name on the building
(f) Cost of changing the parking bays
(g) Cost of refurbishing the lobby to the building to attract customers and make it more user friendly
**
Exercise 11.19
CAPITALISATION
Rennau Ltd has acquired a new machine, which it has had installed in its factory. Which of the following
items should be capitalised into the cost of the building?
(a) Labour and travel costs for managers to inspect possible new machines and for negotiating for a new
machine
(b) Freight costs and insurance to get the new machine to the factory
(c) Costs for renovating a section of the factory, in anticipation of the new machine's arrival, to ensure that
all the other parts of the factory will have easy access to the new machine
(d) Cost of cooling equipment to assist in the efficient operation of the new machine
CHAPTER 11 Property, plant and equipment
1
Transcribed Image Text:Zain JO 9:45 PM @ 14% Exercises-ppe Exercises STAR RATING * BASIC ** MODERATE ★★★ DIFFICULT Exercise 11.15 DECLINE IN VALUE OF ASSETS A new accountant has been appointed to the firm of Gutenberg Ltd, which owns a large number of depre- ciable assets. Upon analysing the firm's depreciation policy, the accountant has implemented a new policy based on the principle that the depreciation rate for particular assets should measure the decline in the value of the assets. Discuss this policy change. Exercise 11.16 DEPRECIATION CHARGES The management of Carlsberg Ltd has been analysing the financial reports provided by the accountant, who has been with the firm for a number of years. Management has expressed its concern over deprecia- tion charges being made in relation to the company's equipment. In particular, it believes that the depreci- ation charges are not high enough in relation to the factory machines because new technology applied in that area is rapidly making the machines obsolete. Management's concern is that the machines will have to be replaced in the near future and, with the low depreciation charges, the fund will not be sufficient to pay for the replacement machines. Discuss. Exercise 11.17 REVALUATION OF ASSETS On 30 June 2014, the statement of financial position of Meezen Ltd showed the following non-current assets after charging depreciation: $ 300 000 Building Accumulated Depreciation (100 000) $200 000 Motor Vehicle Accumulated Depreciation 120 000 (40 000) 80 000 The company has adopted fair value for the valuation of non-current assets. This has resulted in the recognition in previous periods of an asset revaluation surplus for the building of $14 000. On 30 June 2014, an independent valuer assessed the fair value of the building to be $160 000 and the vehicle to be $90 000. The income tax rate is 30%. Required 1. Prepare any necessary entries to revalue the building and the vehicle as at 30 June 2014. 2. Assume that the building and vehicle had remaining useful lives of 25 years and 4 years respectively, with zero residual value. Prepare entries to record depreciation expense for the year ended 30 June 2015 using the straight-line method. Exercise 11.18 BUILDING COSTS Chua Ltd has acquired a new building. Which of the following items should be included in the cost of the building? (a) Stamp duty (b) Real estate agent's fees (c) Architect's fees for drawings for internal adjustments to the building to be made before use (d) Interest on the bank loan to acquire the building, and an application fee to the bank to get the loan, which is secured on the building (e) Cost of changing the name on the building (f) Cost of changing the parking bays (g) Cost of refurbishing the lobby to the building to attract customers and make it more user friendly ** Exercise 11.19 CAPITALISATION Rennau Ltd has acquired a new machine, which it has had installed in its factory. Which of the following items should be capitalised into the cost of the building? (a) Labour and travel costs for managers to inspect possible new machines and for negotiating for a new machine (b) Freight costs and insurance to get the new machine to the factory (c) Costs for renovating a section of the factory, in anticipation of the new machine's arrival, to ensure that all the other parts of the factory will have easy access to the new machine (d) Cost of cooling equipment to assist in the efficient operation of the new machine CHAPTER 11 Property, plant and equipment 1
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