Tangible Non-Current Assets

Q1. Use the information given below. What will be the total capitalized cost with respect to new business (Answer in $000)? (FIB)Land $6,000,000Inspection Officer $200,000Architecture Design $100,000Labour Wages $1,200,000Material Cost $2,500,000Administration Cost $400,000Property Tax $300,000Site Overheads $150,00037147528384500$ (2 marks)

Q2. Siva Co took some loans from the bank at the start of the year 2010 which are as follows: 6% loan repayable in 2011 of $8m & a 9% loan repayable in 2015 of $18m. A construction of a qualifying asset began on 5th April 2010 with the withdrawal of $3m of funds. On 12th August 2010, another $4m was withdrawn for the qualifying asset. What will be the capitalized borrowing cost at the end of the year 2010? (MCQ) $181,800$216,467$316,467$533,851(2 marks)

Q3. Relay Co borrowed $60,000 to finance the construction of a shop. Construction will commence in two years' time. The loan was taken on 1st January 2001 but the construction began on 1st March 2001. $13,000 of the loan was unused until 1st July 2001 and instead of keeping it idle Relay Co invested the amount with 3% return. The interest payable for the company is at 10% per annum. Calculate the cost to be capitalized for the year ended on December 2001? (MCQ)$4,800$4,870$5,130$6,000(2 marks)

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Q4. To operate a local locomotive the government has applied a restriction that in every two years the wheels of the locomotive has to be replaced. This replacement will cost $1.9 million. How should the replacement cost be treated? (MCQ)The cost should be taken into profit ; loss account when it is incurred

The cost should be accrued over the two years ; accounted for the maintenance costThe cost should be provided in advance ; accounted for under the maintenance costCapitalize the cost ; depreciate it over the two years until next time(2 marks)

Q5. Trivial Co has purchased an asset worth $375,000 on 1st January 2000 ; its useful life is stated at 20 years. A revaluation was taken place on 31st March 2002 where the assets worth increased to $390,000. What will be the total depreciation charged on the asset for the year ended 31st December 2002? (MCQ)$4,687$16,479$21,167$23,872(2 marks)

Q6. Accenture Co has rented its office building to 3rd party on 30th June 2020. The company uses the fair valuation model for investment property. Buildings original cost valued at $500,000 on 1st January 2012 ; total life were 25 years. A fair value was obtained on the rented day which valued the building at $400,600.

At the year-end of 2020, the fair value of the building was $850,000. What will be the revaluation gain/loss on 31st December 2020? (MCQ)$50,000 (Loss)$70,600 (Gain)$170,00 (Gain)$203,100 (Loss)(2 marks)

Q7. Hexcentric inaugurated a plant on 1st July 2016. The plant was expected to run for four years until 30th June 2020. After the expected life the plant would be decommissioned and the land will be restored close to its original state. The cost of decommissioning was expected to be $6 million in four years.

This estimate was calculated on 1st July 2016. To calculate the present value the company will use an 8% discount rate where the discount factor for year four is 0.735. Calculate the total charge for the cost to be taken into year-end 30th June 2017 profit ; loss account? (MCQ)$352,800$1,102,500$1,455,300$2,088,000(2 marks)

Q8. The following statements relate to revaluation. (HA) The entire class of PPE has to be revalued whenever a single equipment in the respective class undergoes revaluation TRUE FALSEIf a revaluation model is used revaluation must be made regularly to ensure carrying amount has a material difference from the fair value TRUE FALSE(2 marks)

Q9. Pang Co has purchased a property worth $7 million on 1st January 2013. The land valued at $3 million. The building total life was 20 years with no residual value. On 31st December 2015, the property was revalued to $9 million where the building valued at $5.184 million. The property was fully sold on 30th December 2017 for $6.5 million. Calculate the gain/loss on disposal which will be accounted for profit ; loss? (MCQ) $1,924,000 (Loss)$3,816,000 (Loss)$4,608,000 (Gain)$2,824,000 (Gain)(2 marks)

Q10. Which of the following statements are correct in relation to government grants? (MRQ)A government grant is recognized in the profit ; loss over an assets useful lifeA repayment of a government grant received in previous years is a prior period adjustmentA marketing advice from the government does not constitute under the definition of government grantThe grant received for an asset must be excluded from the carrying amount of the asset (2 marks)

Q11. A company has inaugurated a new plant with the help of a government grant of $20,000. The life of the plant is five years. Other than granting the installed equipment in the plant cost $90,000. All equipment is depreciated at 20% per annum on a straight-line basis. Calculate the value of government grant taken into Year 1 current liability using deferred income method? (MCQ)$4,000$16,000$18,000$20,000(2 marks)

Q12. A company issued loan notes for $200,000 on 1st January 2008. On the same day, the company used the money to buy an investment property. At the year-end, the fair value of the property had risen to $400,000 with a remaining life of ten years. The company uses the fair value model for all properties. Which of the values will be accounted in the year's profit ; loss account? (MCQ)Gain $200,000, Depreciation $40,000Gain $0, Depreciation $40,000Gain $200,000, Depreciation $0Gain $200,000, Depreciation $20,000(2 marks)

Q13. Zima Co took some loans from the bank at the start of the year 2015 which are as follows: 9% loan repayable in 2016 of $11m ; a 13% loan repayable in 2020 of $29m. A construction of a qualifying asset began on 5th April 2015 with the withdrawal of $8m of funds. On 12th August 2015, another $9m was withdrawn for the qualifying asset. What will be the capitalized borrowing cost at the end of the year 2015? (MCQ) $267,750$446,250$714,000$1,160,250(2 marks)

Q14. Olay Co borrowed $25,000 to finance the construction of a plant. Construction will commence in two years' time. The loan was taken on 1st January 2013 but the construction began on 1st March 2013. $6,000 of the loan was unused until 1st July 2013 and instead of keeping it idle Olay Co invested the amount with 7% return. The interest payable for the company is at 15% per annum. Calculate the cost to be capitalized for the year ended on December 2013? (FIB)3613151270000$ (2 marks)

Q15. Plato Co has purchased an asset worth $258,990 on 1st January 2008 ; its useful life is stated at twenty years. A revaluation was taken place on 31st March 2010 where the assets worth increased to $310,000. What will be the total depreciation charged on the asset for the year ended 31st December 2010 nearest to $000? (FIB)3613151270000$ (2 marks)

Q16. Ventura Co has rented one its properties to a 3rd party on 30th June 2010. The company uses the fair valuation model as an investment property. Property's original cost valued at $800,800 on 1st January 2002 ; total life was 50 years. A fair value was obtained on the rented day which valued the building at $750,500. At the year-end of 2010, the fair value of the building was $1,150,000. What will be the revaluation gain at 31st December 2010? (FIB)3613151270000$ (2 marks)

Q17. Boric Co opened a machine on 1st July 2006. The plant was expected to run for four years until 30th June 2010. After the expected life the machine would be decommissioned and the area will be restored nearest to its original state. The cost of decommissioning was expected to be $3.3 million in four years.

This estimate was calculated on 1st July 2006. To calculate the present value the company will use a 12% discount rate. Calculate the total charge for the cost to be taken into year-end 30th June 2007 profit ; loss account? (MCQ)$251,856$272,844$524,700$776,556(2 marks)

Q18. Bing Co has purchased a land ; building worth $12 million on 1st January 2005. The land valued at $4 million. The buildings total life was ten years with no residual value. On 31st December 2007, the land ; building were revalued to $16 million where the land valued at $6.75 million. The land ; building was fully sold by 30th December 2009 for $10.5 million. Calculate the gain/loss on disposal? (MCQ) $4,472,000 (Loss)$1,600,000 (Loss)$1,028,000 (Gain)$5,600,000 (Gain)(2 marks)

Q19. Jazzy Co has opened a new factory with the help of a government grant of $580,600. The life of the plant is fifteen years. Other than granting the installed equipment in the plant cost $20,400. All equipment is depreciated at 25% per annum on reducing balance basis. Calculate the value of government grant taken into Year 1 current liability using deferred income method? (MCQ)$15,300$20,400$145,150$150,250(2 marks)

TANGIBLE NON-CURRENT ASSETS (ANSWERS)

Q1. $10,150 Capitalized Cost = 6,000 + 200 + 100 + 1,200 + 2,500 + 150 = $10,150

Q2. CInterest = (8 × 6%) = 0.48 + (18 × 9%) = 1.62 = 2.1(2.1 ÷ 26) × 100 = 8.08%3,000,000 × 8.08% × 9/12 = 181,8004,000,000 × 8.08% × 5/12 = 134,667Total = 181,800 + 134,667 = $316,467

Q3. B60,000 × 10% × 10/12 = 5,00013,000 × 3% × 4/12 = (130)Total = 5,000 - 130 = $4,870

Q4. DThis is known as overhauling where maintenance, inspection or any repair is required. It is capitalized in the asset ; depreciated over its useful life in this case the life of wheels.

Q5. CDepreciation till 31st March = (375,000 ÷ 20) = 18,750 × 3/12 = $4,687Years = 20 – 2.25 = 17.75 remainingDepreciation till 31st December = (390,000 ÷ 17.75) = 21,972 × 9/12 = $16,479Total = 4,687 + 16,479 = $21,167

Q6. BDepreciation = (500,000 ÷ 25) × 8.5 = 170,000Cost – Depreciation = 500,000 – 170,000 = 330,000Revaluation Gain = 400,600 – 330,000 = 70,600

Q7. CDepreciation = 6,000,000 × 0.735 = 4,410,000 ÷ 4 = 1,102,500 Finance Cost = 4,410,000 × 8% = 352,800Total = 1,102,500 + 352,800 = $1,455,300

Q8.The entire class of PPE has to be revalued whenever a single equipment in the respective class undergoes revaluation TRUE If a revaluation model is used revaluation must be made regularly to ensure carrying amount has a material difference from the fair value FALSEThe difference between carrying amount ; the fair value should be immaterial when applying revaluation model.

Q9. AWorkings are done in $000.Depreciation (Building) = (4,000 ÷ 20) × 2 = 400Cost = 7,000 – 400 = 6,600 Revalued to 9,000 with gain of 2,400Depreciation (Building) = (5,184 ÷ 18) × 2 = 576Building value = 5,184 – 576 = 4,608Property value = (4,608 Building) + (3,816 Land) = 8,424Loss on disposal = 8,424 – 6,500 = 1,924

Q10.A government grant is recognized in the profit ; loss over an assets useful life (Correct)A repayment of a government grant received in previous years is a prior period adjustment; all adjustments are to be dealt prospectively A marketing advice from the government does not constitute under the definition of government grant (Correct)The grant received for an asset must be excluded from the carrying amount of the asset; a deferred income method can be used also

Q11. AThe deferred income method:Year 0Equipment Dr. (90+20) $110,000Bank Cr $90,000Government Grant Cr $20,000Year 1Depreciation for equipment = 110,000 × 20% = $22,000Government Grant = 20,000 × 20% = $4,000 (Current Liability)

Q12. CThe gain of $200,000 will be recorded as in fair value model no depreciation is charged.

Q13.Interest = (11 × 9%) = 0.99 + (29 × 13%) = 3.77 = 4.76(4.76 ÷ 40) × 100 = 11.9%8,000,000 × 11.9% × 9/12 = 714,0009,000,000 × 11.9% × 5/12 = 446,250Total = 714,000 + 446,250 = $1,160,250Q14. $2,98525,000 × 15% × 10/12 = 3,1256,000 × 7% × 4/12 = (140)Total = 3,125 - 140 = $2,985

Q15. $16,300Depreciation till 31st March = (258,990 ÷ 20) = 12,950 × 3/12 = $3,238Years = 20 – 2.25 = 17.75 remainingDepreciation till 31st December = (310,000 ÷ 17.75) = 17,465 × 9/12 = $13,099Total = 3,238 + 13,099 = $16,337Nearest to $000 = $16,300

Q16. $85,836Depreciation = (800,800 ÷ 50) × 8.5 = 136,136Cost – Depreciation = 800,800 – 136,136 = 664,664Revaluation Gain = 750,500 – 664,664 = $85,836

Q17. DDepreciation = 3,300,000 × 0.636 = 2,098,800 ÷ 4 = 524,700 Finance Cost = 2,098,800 × 12% = 251,856Total = 524,700 + 251,856 = $776,556

Q18. AWorkings are done in $000.Depreciation (Building) = (8,000 ÷ 10) × 2 = 1,600Cost = 12,000 – 1,600 = 10,400 Revalued to 16,000 with gain of 5,600Depreciation (Building) = (9,250 ÷ 18) × 2 = 1,028Building value = 9,250 – 1,028 = 8,222Land ; Building value = (8,222 Building) + (6,750 Land) = 14,972Loss on disposal = 14,972 – 10,500 = 4,472

Q19. CThe deferred income method:Year 0Equipment Dr. (580,600 + 20,400) $601,000Bank Cr $20,400Government Grant Cr $580,600Year 1Depreciation for equipment = 601,000 × 25% = $150,250Government Grant = 580,600 × 25% = $145,150 (Current Liability)

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