The components of the cost of a major item of equipment are given below: $ Purchase price 780,000 Import duties 117,000 VAT (refundable) 78,000 Site preparation 30,000 Installation 28,000 Testing 10,000 Initial losses before asset reaches planned performance 50,000 Discounted cost of dismantling and removal at end of useful life 40,000 1,133,000 What amount should be recognised as the cost of the asset in accordance with IAS 16 Property, plant and equipment ?
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
The components of the cost of a major item of equipment are given below:
$
Purchase price 780,000
Import duties 117,000
VAT (refundable) 78,000
Site preparation 30,000
Installation 28,000
Testing 10,000
Initial losses before asset reaches planned performance 50,000
Discounted cost of dismantling and removal at end of useful life 40,000
1,133,000
What amount should be recognised as the cost of the asset in accordance with
IAS 16 Property, plant and equipment ?
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