accounting notes
Financial Accounting (BEA 2001)
Tutorials
PROPERTY, PLANT & EQUIPMENT
Question 1: Measurement at recognition; components; depreciation
Olympic plc is a diversified industrial company with many different areas of operation. The following information relates to the company’s property, plant and equipment. The company has a 30
September year end.
All the plant was purchased and brought into use on 1 October 20X1 at a cost of £800 000. The cost of testing the plant amounted to £45 000 and samples manufactured while in the testing phase were sold for £5 000. The useful life of the plant is estimated at five years and the residual value is estimated at £40 000. At 30 September 20X4, similar items of plant of five years age are currently realising £70 000. The production director, however, expects the entity to obtain
£100 000 on disposal. The entity applies the re-allocation method.
The motor vehicle consists of a delivery van purchased on 1 October 20X3 at a cost of £270 000.
The useful life is estimated at four years and the residual value is estimated at £0.
At 30 May 20X4, the tyres of the delivery van are replaced with tyres of a better quality. The new tyres cost £24 000 and have an estimated useful life of two years. It is estimated that the original tyres cost £12 000. Costs of servicing the delivery van during the year amounted to £12 500.
A helicopter was purchased on 1 October 20X0 at a cost of £1 500 000. components were identified:
Airframe
Interior
Engines & rotar blades
Inspection
Cost
£
800 000
100 000
400 000
200 000
Residual value
£
0
0
30 000
0
The following
Useful life
Years
10
10
5
3
In order to maintain the operating license for the helicopter, inspections are required to be performed every three years on the anniversary of the purchase date. The cost of the inspection at
1 October 20X3 amounted to £240 000.
A photocopy machine was purchased for the office at a total cost of £280 000 and
Tutorials
PROPERTY, PLANT & EQUIPMENT
Question 1: Measurement at recognition; components; depreciation
Olympic plc is a diversified industrial company with many different areas of operation. The following information relates to the company’s property, plant and equipment. The company has a 30
September year end.
All the plant was purchased and brought into use on 1 October 20X1 at a cost of £800 000. The cost of testing the plant amounted to £45 000 and samples manufactured while in the testing phase were sold for £5 000. The useful life of the plant is estimated at five years and the residual value is estimated at £40 000. At 30 September 20X4, similar items of plant of five years age are currently realising £70 000. The production director, however, expects the entity to obtain
£100 000 on disposal. The entity applies the re-allocation method.
The motor vehicle consists of a delivery van purchased on 1 October 20X3 at a cost of £270 000.
The useful life is estimated at four years and the residual value is estimated at £0.
At 30 May 20X4, the tyres of the delivery van are replaced with tyres of a better quality. The new tyres cost £24 000 and have an estimated useful life of two years. It is estimated that the original tyres cost £12 000. Costs of servicing the delivery van during the year amounted to £12 500.
A helicopter was purchased on 1 October 20X0 at a cost of £1 500 000. components were identified:
Airframe
Interior
Engines & rotar blades
Inspection
Cost
£
800 000
100 000
400 000
200 000
Residual value
£
0
0
30 000
0
The following
Useful life
Years
10
10
5
3
In order to maintain the operating license for the helicopter, inspections are required to be performed every three years on the anniversary of the purchase date. The cost of the inspection at
1 October 20X3 amounted to £240 000.
A photocopy machine was purchased for the office at a total cost of £280 000 and