LKAS 16 - Theory

LKAS 16.
Property,Plant & Equipment Theory |1
Sri Lanka Accounting Standards LKAS – 16
Property, Plant and Equipment
Objective
The objective this standard is to prescribe the accounting treatment for property, plant and equipment so that
users of the financial statements can discern information about an entity’s investment in its property, plant and
equipment and the changes in such investment. The principal issues in accounting for Property, plant and
equipment are the recognition of the assets, the determination of their carrying amounts and depreciation charges
and impairment losses to be recognized in relation to them.
This standard does not apply to:
a) Property, Plant and equipment classified as held for sale in accordance with SLFRS 5 Non-current assets
held for sale and discontinued operations;
b) Biological assets related to agricultural activity.
c) The recognition and measurement of exploration and evaluation assets.
Definitions
The following terms are used in this standard with the meanings specified
Property, Plant and Equipment and tangible assets that:
a) Are held for sale for use in the production or supply of goods or services, for rental to others of for
administrative purposes and
b) Are expected to be used during more than one period
Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life.
Depreciable amount is the cost of an asset, or other amount substituted for cost in the financial statements less its
residual value
Useful life is either;
a) The period over which an asset and is expected to be available for use by an entity or
b) The number of production or similar units expected to be obtained from the asset by an entity
Cost is the amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire an
asset at the time of its acquisition or construction.
Cost will include
•
•
•
•
•
M.Shafee Ibrahim Advanced Level - Accounting Academy of Education

LKAS 16.Property,Plant & Equipment Theory |2
•
•
•
•
Residual Value of an asset is the estimated amount that an entity would currently obtain from disposal of the
asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition
expected at the end of its life.
Fair Value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an
arm’s length transaction.
Carrying Amount is the amount at which an asset is recognized after deducted any accumulated depreciation and
accumulated impairment losses
Recoverable amount the amount which the enterprise expects to recover from the future of an asset, including its
residual on disposal.
An impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable amount
Entity specific value is the present value of the cash flows an entity expects to arise from the continuing use an
asset and from its disposal at the end of its useful life or expects to incur when settling a liability.
Recognition
The cost of an item of Property, Plant and equipment shall have recognized as an asset if, and only if;
a) It is probable that future economic benefits associated with the item will flow to the entity and
b) The cost of the item can be measured reliably
Components of Cost
The cost of an item of Property, Plant and equipment comprises its purchase price, including import duties and
non- refundable purchase taxes and any directly attributable costs of bringing the asset to working condition for its
intended use; any trade discounts and rebates are deducted in arriving at the purchase price. Examples of directly
attributable costs are:
a) The cost of site preparation;

b) Initial delivery and handling cost
c) Installation cost
d) Professional fees such as for architects and engineers
Retirements and disposals
An item of Property, plant and equipment should be eliminated from the balance sheet on disposal or when the
asset is permanently withdrawn from use and no future economic benefits are expected for its disposal. Gains or
losses arising from the retirement or disposal of an item of property, plant and equipment should be determined
as the difference between the estimated net disposal proceeds and the carrying amount of the asset and should b
recognized as income or expenses in the income statement.

Disclosure
The financial statements should disclose in respect of each class of property, plant and equipment.
a) The measurement bases used for determining the gross carrying amount
b) The depreciation methods used;
c) The useful lives or the depreciation rates used;
d) The gross carrying amount and the accumulated depreciation at the beginning and end of the period;
e) A reconciliation of the carrying amount at the beginning and end of the period showing;
i. Additions
ii. Disposals
iii. Acquisitions through business combinations
iv. Depreciation
When items of property, plant and equipment are stated at revalued amounts, the following should be
disclosed:
a) The effective date of the revaluation

b) Whether an independent valuer was involved
c) The revaluation surplus, indicating the movement for the period and any restrictions on the distribution
of the balance to the shareholders

Depreciation Methods
The depreciation method selected should be applied constantly from period to period unless altered
circumstances justify a change. In an accounting period in which the method is changed, the effect should be
quantified and disclosed and the reason for the change should be stated
The two main methods in use are the;
1. Straight line method (Fixed installment method)

2. Reducing balance method.
Straight line method
In this method the asset is deemed to lose value by an equal amount each year. To calculate how much to be
depreciated per year the following formulas can be used.
It is to be noted that if any capital expenditure such as installation cost, carriage inwards is there, that is to add
with cost in order to achieve the correct cost value of fixed assets.
1) Cost and useful life is given
Annual depreciation = Cost

Useful life
2) Cost, residual value and useful life is given
Annual depreciation = Cost – Residual Value

Useful life
3) Cost and depreciation % is given
Annual depreciation = Cost x X
100
4) Cost, residual value and % is given
Annual depreciation = Cost [Cost – Residual Value] x X
100
Ex.01
The company bought a motor vehicle for Rs.50 000 on 1st January 2005. Useful life of the asset is 5 years. Calculate
the annual depreciation charges.
Ex.02
A Gill, purchased a notebook PC for Rs.260 000. It has an estimated life of 4 years and a scrap value of Rs.20 000.
Calculate annual depreciation charges

Ex.03
A car costs Rs.960 000. Depreciation rate is 10% per annum. Calculate the annual depreciation.
Reducing Balance Method
Under this method the asset is deemed to lose a greater part of its value in the early years of its use compared to
later years.
Ex.04
A machine costs Rs.12 500. Depreciation rate is 20%. Show the calculations of the figures for depreciation for each
of the 5 years using the reducing balance method
Ex.05
A photocopier costs Rs.25 000and rate of depreciation is 25%. Show the calculations of the figures for depreciation
for each year using the reducing balance
Ex.06
The following information relates to the machinery owned by Kandox Manufacturing, for the year ending 31
December 2008
Purchase of machinery:
High speed printer machine (machine number 515)
• Purchased on 31st December 2008 for Rs.60 000 plus Rs.4 000 installation cost
• Estimated economic life 8 years
• Residual value Rs.8 000
• Depreciation is to be charged using the straight line method
A director of Kandox Manufacturing has requested that the calculation for depreciation on machinery be changed
from the present straight line method to the reducing balance method. The reducing balance method would be
calculated at the rate of 25% per annum.
Calculate for the high speed printer (machine no.515) the annual depreciation for the first three years of
ownership,2009,2010 and 2011, using the;
• Straight line method

• Reducing balance method
Double Entry Records for Depreciation
Depreciation is an expense of the business and has to be charged against any period during which depreciation
occurs.
There are two methods to record the depreciation in the books

1. Written down method/ Direct method
a) Annual Depreciation
Depreciation account Dr
Asset account Cr
b) Transferring depreciation amount to P & L

P & L account Dr
Depreciation account Cr
2. Provision for depreciation method
Under this method fixed assets accounts are always kept for showing the asset cost at price. The depreciation
is shown accumulating in a provision for depreciation account.
Double Entries are:
i. Depreciation account Dr
Provision for depreciation Cr
ii. P & L account Dr

Depreciation account Cr
Balance in the provision for depreciation account will be recorded in the balance sheet under accumulated
depreciation column.
Ex.07
A company starts in business on 1st January 2007. You are to write up the motor van account and the provision for
depreciation account for the year ended 31st December 2009 from the information given below. Depreciation is at
the rate of 20% per annum on cost using the basis of one month’s ownership needs one month’s depreciation.
2007 Bought two motor vans for Rs.1 200 each on 1st January
Bought one motor van for Rs.1 400 on 1st July

Ex.08
Black and Blue Ltd depreciates its forklift trucks using straight line method at the rate of 25%. Its accounting year
end is 31st December 2006, it owned 4 forklift trucks:
a) Purchased on 1st January 2003 for Rs.240 000

b) Purchased on 1st July 2004 for Rs.250 000
c) Purchased on 1st October 2004 for Rs.320 000
d) Purchased on 1st April 2006 for Rs.360 000
Required: -
Calculate the depreciation provision for the year ending 31st December 2003,2004,2005 and 2006.
Ex.09
A company starts in business on 1st January 2003, the financial year end being 31st December. You are to show:
a) The machinery account

b) The provision for depreciation account
c) The balance sheet extracts for each of the years 2003, 2004, 2005 and 2006
The machinery bought was:
2003 1st January 1 machine costing Rs.800

2004 1st July 2 machines costing Rs.500 each
1st October 1 machine costing Rs.600
2006 1st April 1 machine costing Rs.200
Depreciation is at the rate of 10% per annum, using the straight line method, machines being depreciated for each
proportion of a year.
Ex.10
Senaka Ltd. Purchased a machine from overseas country for Rs.150 000, on the 1st of July 1995. Freight charges on
the machine amounted to Rs.20 000 while customs duty and handling charges were Rs.13 000. Installation costs
were Rs.8 000 and a further sum of Rs.9 000 was spent on trial production runs. The machine has an estimated
useful life of five years and a scrap value of Rs.15 000.
On 1st of July 1997, improvements were made to the machine at a cost of Rs.20 000 and it was estimated that this
would increase the useful life of the machine by 2 years.
The residual value is not expected to change. Depreciation is charged using the straight line method.
You are required to prepare the following ledger accounts for the 3 years ending the 30th June 1998
1) Machinery account
2) Machine depreciation account
3) Provision for machine depreciation account

Ex.11
a) Star systems Ltd. Purchased a land on 1st January 2007 for Rs.2 000 000
i. The following expenses were incurred in relation to the purchase of land
Lawyers fee Rs.21 000

Surveyor’s fee Rs.25 000
ii. Charges for levelling the land and removing an unwanted construction are Rs.54 000
iii. The watcher of the land has been paid an annual salary of Rs.60 000 during the year
iv. On 1st April 2007, the company commenced construction of a new building on this land. The
construction of the building was completed by 1st October 2007 at a cost of Rs.3 750 000 and it is
available for use from this date.
v. The company also incurred the following expenses during the year
Construction of a wall around the boundary of the land Rs.250 000

Making and fixing a name board for the building Rs. 20 000
Fixing a special security lighting system on the ground Rs. 60 000
Landscaping Rs.100 000
vi. The company depreciates its noncurrent assets on the straight line method. Expected useful life
of the building and construction is 50 years and they have no residual value
vii. The accounting year of the company ends on 31st December.
Required: -
1) Determine the cost of the land and the building separately on 31.12.2007
2) Calculate the amount of depreciation of the property for the year 2007.
b) Villa Ltd. Purchased a building for Rs.700 000 and provides depreciation on straight line method based on
a useful life of 30 years. The expected residual value of the building was estimated as Rs.100 000 on the
date of purchase. After using this building for 15 years, the company has realized that the balance useful
life of the building would be 5 years and its estimated residual value would be Rs.175 000.
Required: -
1. Calculate the depreciation amount of the building for years 15 and 16 separately
2. Show the balance sheet extracts relating to building at the end of the 16th year

Ex.12
Alfie purchased a noncurrent asset for $ 100 000 on 1 January 20X2 and started depreciating it over five years.
Residual value was taken as $ 10 000.
At 1 January 20X3 a review of assets lives was undertaken and the remaining useful life of the asset was estimated
at eight years from 5 years Residual value was estimated to be nil.
Calculate the depreciation charge for the year ended 31 December20X3 and subsequent years.
Ex.13
Alberto bought a wood-burning oven for his pizza restaurant for $30 000 on 1 January 20X0. At the time he
believed that the oven’s useful life would be 20 years after which it would have no value.
On 1 January 20X3, Alberto revises his estimations: he now believes that he will use the oven in the business for
another 12 years after which he will be able to sell it second- hand for $ 1 500.
What is the depreciation charge for the year ended 31 December 20X3

LKAS 16.Property,Plant & Equipment T h e o r y | 10
Disposal of an Asset / Exchange of Fixed Assets
1. Eliminate the cost value of the disposed asset
Asset disposal account Dr

Asset account Cr
2. Eliminate the provision for depreciation of the disposed asset
Provision for depreciation Dr

Asset disposal account Cr
3. Any cost on asset disposal
Asset disposal account Dr

Cash Cr
4. Cash received on disposal
Cash Dr
Asset disposal Cr
• Finally, the balance in the asset disposal account will be transferred to the Profit and Loss account.
Ex.14
A business whose financial year ends on 31 December. Purchased on 1 January 2007, a machine for Rs.5 000. The
machine was to be depreciated by ten equal installments. On 1st January 2009 the machine was sold for Rs.3 760
Prepare:
a) Machinery account for the year ended 31.12.2009

b) Provision for depreciation accounts for the year ended 31.12.2009
c) Machinery disposal account

Ex.15
Anil and Company Ltd. Purchased a vehicle for Rs.70 000. The useful economic life time of the vehicle was
estimated as 6 years and the residual value as Rs.10 000. However, at the end of the second year, it was estimated
that the useful economic life of the vehicle is confined to only 2 more years.
Assuming that the vehicle is depreciated on straight line method.
Answer the following questions:
i. At the end of the second year, what is the amount appearing in provision for depreciation account?
ii. At the end of the second year, what is the depreciate value of the vehicle?
iii. What is the annual depreciation for the third year?
iv. If at the end of the third year, the vehicle was sold for Rs.10 000. What is the Profit or Loss on this
transaction?
v. Write the journal entries in relation to (iv) above.
Ex.16
a) On 1.4.2005 Sugath purchased a machine for Rs.30 000. Installation cost of the machine was Rs.5 000. The
useful life of the machine is 10 years and the residual value is Rs.7 000. Depreciation is to be provided
annually on the straight line method.
Calculate the annual depreciation charge and give the journal entry to record it.
b) On 1.4.2007 Sugath bought another machine for Rs.50 000. Transaction was settled by paying Rs.18 000
in cash and transferring the old machine purchased on 1.4.2005. The transfer value of the old machine
was Rs.32 000. You are required to give journal entries to record above transactions.
Ex.17
Arunasiri company purchased a delivery van at a cost of Rs.154 000. Estimated life of the van is 5 years. The scrap
value of this vehicle is 4 000. The company has decided to use the straight line method of depreciation for vehicles.
The company maintained a depreciation provision account.
You are required to: -
1. Calculate the annual depreciation charge and give the journal entry to record it.
2. Give the journal entries to record the following transactions. At the end of 3rd year a new lorry was
purchased by transferring above van at a valuation of Rs.90 000 and paying cash Rs.50 000

Ex.18
The following information is related to two items of property, plant and equipment of Kamalan Plc as at
31.03.2011
Asset Cost Carrying amount Expected useful life

(Rs. ‘000’) (Rs. ‘000’) (Years)
Buildings 2 000 1 000 20
Office Equipment 500 400 5
These assets are depreciated at cost on straight line method. (Ignore their residual value)
The following transactions / events took place during the year ending 31.03.2012 in relation to these assets.
Date Transaction / Event
01.04.2011 Buildings were renovated incurring Rs.800 000. As a result the

remaining useful life of the buildings was re – estimated as 15 years.
31.03.2012 New office equipment was acquired for Rs.600 000 by exchanging the
existing equipment and paying in addition a cash amount of Rs.300
000. The expected useful life of the new equipment is 5 years.
Required: -
1. Journal entries to record above transactions and events (including cash)

2. Impact of above transactions and events on profit for the year ending 31.03.2012

Accounting for Revaluation
How to calculate revaluation loss or profit?
• If land compare cost and revalued amount
• If other assets compare carrying value with revalued amount
Step 1
Cancel any existing depreciation
Provision for depreciation debit
Asset credit
Step 2
Make closing value of the asset revalued amount
Step 3
Calculate the balancing figure to be profit or loss revaluation
Revaluation of Non – Current Assets
Illustration - 1
Vanguard owns land which originally cost $250,000. No depreciation has been charged on the land in accordance
with IAS 16. Vanguard wishes to revalue the land to reflect its current market value, which it has been advised is
$350,000.
How is this reflected in the financial statements?
Illustration - 2
Hamstrung runs a kilt making business in Scotland. It has run the business for many years from a building which
originally cost $300,000 and on which $100,000 accumulated depreciation has been charged to date. Hamstrung
wishes to revalue the building to $750,000.
How is this reflected in the financial statements?

Test Your Understanding - 3
Max owns a fish finger factory. The premises were purchased on 1 January 20X1 for $450,000 and depreciation
charged at 2% pa on a straight-line basis.
Max now wishes to revalue the factory premises to $800,000 on 1 January 20X7 to reflect the market value.
What is the balance on the revaluation surplus after accounting for this transaction?
A. $350,000
B. $395,000
C. $404,000
D. $413,000
Double entries for revaluation gain
Asset debit
Revaluation reserve credit (O.C.I)
Expenses credit (where applicable)
Double entries for revaluation loss
Revaluation reserve debit (O.C.I)
Expense debit (where applicable)
Asset credit

How to account for revaluation deficit/ Loss?
Step 1
calculate the loss
Step 2
Search for a previos year revalaution surplus ( for
part 2 questions check the trial balance )
Step 3
sett off / cover possible losses through other
comprehensive income ( O.C.I ) / revaluation reserve
Step 4
Transfer balance losses to other expenses
Situation 1
Revaluation loss – 1,000,000
Previous year surplus – 1,500,000
Situation 2
Previous year surplus – 500,000
Situation 3
Previous year surplus – Nil

How to account for revaluation Surplus / Profit ?
Step 1
calculate the profit
Step 2
Search for a previos year revalaution loss ( the
question should specifially state a previous year loss)
Step 3
Recover previous losses through other expenses (
negative amount )
Step 4
Transfer balance profits to Other comprehensive
income ( revalaution Surplus )
Situation 1
Revaluation profit – 1,000,000
Previous year surplus – 1,500,000
Situation 2
Previous year loss – 500,000
Situation 3
Previous year loss – 1,200,000

Ex.19
Some of the transactions and events carried out by a business during the year ended 31.12.2008 are given below
Transaction Date Transaction / Event

No.
1 01.01.2008 Incurred Rs.400 000 for the renovation of a building owned by the business. It
is expected that the useful life of the building will increase by 8 years due to
this renovation. This building had been acquired for Rs.800 000 on 01.01.2000
and its useful life was estimated on this date as 40 years.
2 01.04.2008 Purchased a land for Rs. 1 000 000 in cash
3 30.06.2008 Disposed an equipment which had a carrying value of Rs.60 000 as at

01.01.2008 for Rs.50 000. The cost of this equipment was Rs.100 000. The
depreciation applicable for this equipment for the period from 01.01.2008 to
30.06.2008 is Rs.10 000
4 01.07.2008 Purchased office furniture for Rs.350 000. The expected useful life of this asset
is 6 years and its residual value is Rs.50 000. Depreciation is charged on
straight line method
5 31.12.2008 The land which was bought on 01.04.2008 was revalued at Rs.1 150 000
Required : -
1. The carrying amount of the building as at 31.12.2008, by referring to transaction 1

2. Journal entries to record Transaction No.2 and 5 including cash
3. Equipment disposal account by referring to Transaction No.3
4. Depreciation on office furniture for the year ended 31.12.2008 with respect to transaction 4

Ex.20
The following transactions and events for the year ended 31st March 2010 relate to a company
Transaction Date Transaction / Event

No.
1 01.04.2009 Made structural changes to a building, which had a cost of Rs.360 000 and
accumulated depreciation of Rs.160 000 on this date, by incurring Rs.120 000.
This led to the extension of the useful life of the building to 36 years from its
original estimated life of 30 years. However , the residual value of the building
Rs.60 000 will remain same even after the structural changes
2 01.07.2009 Exchanged a block of land of the company that had a cost of Rs.900 000 with a
high tech machine. The fair value of both land and machine on this date was
Rs.1 000 000 each. The machinery is depreciated 20% per annum on cost
3 01.10.2009 Equipment which has a cost of Rs. 1 000 000 and accumulated depreciation of
Rs.300 000 on 31.03.2009, was revalued at Rs.600 000. Equipment is
depreciated at 25% per annum on straight line basis
4 01.01.2010 A machine which had been acquired for Rs.300 000 was sold for Rs.25 000.
Accumulated depreciation of this machine as at 31 March 2009 was Rs.300 000
Required
1. Total depreciation for the year ended 31 March 2010 related to above transactions
2. The amount by which the profit for the year increased or decreased due to above transactions
3. The amount by which cash increased or decreased during the year due to above transactions

Ex.21
The following information relates to PPE pf Nathan Plc as at 31.03.2012
Asset Cost Carrying amount Residual value Useful life
Land 3 500 3 000 - -
Building 2 500 1 000 - 25
Motor vehicle 5 000 3 200 500 5
Office equipment 500 400 100 4
On this date the company owned only one motor vehicle. The assets are depreciated at cost on Straight line
method. Revaluation loss on land for the year ending 31.03.2012 was Rs.500 000
The following transactions took place during the year ending 31.03.2013 in relation to these assets.
01.04.2012 constructed an extension to building incurring Rs.1 250 000. As a result the remaining useful life
o of the building increased from 10 to 15 years.
01.10.2012 sold the motor vehicle for Rs. 3 000 000 and bought a new motor vehicle for Rs. 4000 000 the
expected useful life of the new motor vehicle is 6 years and residual value is Rs.400 000
01.01.2013 incurred Rs.50 000 to repair the office equipment
31.03.2013 Revalued the land for land for Rs. 4 000 000
Equity of the business as at 31.03.2013 before adjusting the above transactions was Rs.1000 000
Required-
1. Calculate depreciation of each item of PPE for the year ending 31.03.2013
2. Calculate equity of the company as at 31.03.2013 after adjusting the above transactions.

1. The following information relates to a machine acquired by a company, which is registered

for Value Added Tax (VAT)
Date Description Amount (Rs.)
01.04.2017 Importing the machine (including 15% VAT) 575 000
15.04.2017 Transporting the machine to the company 40 000
30.04.2017 Preparing the site and installing the machine 60 000
15.05.2017 Conducting a test run and ensuring thereby 80 000
that the machine is functioning properly
15.05.2017 Receiving cash from sale of items produced 30 000
in the test run
30.06.2017 Conducting the opening ceremony 20 000
The cost of this machine at recognition and the date of commencing depreciation of the
machine as per LKAS 16 (Property, Plant and Equipment)
Cost Date
i. 540 000 15.04.2017
ii. 650 000 15.05.2017
iii. 650 000 30.06.2017
iv. 725 000 30.06.2017
v. 755 000 15.05.2017
2. A land was acquired by a company on 01.10.2012 to construct a restaurant. In this respect

the following costs were incurred
Rs. ‘000
Purchase price of the land 4 000
Stamp duty and legal fees 200
Cost of removing the old building in the land 200
Cost of preparing the land for construction 250
Annual maintenance cost of the land 100
Further, the materials removed from the old building were sold for Rs. 50 000.
What is the cost of the land as at 31.03.3013 as per LKAS 16- Property, Plant and
Equipment?
i. Rs. 4 400 000 iv. Rs. 4 600 000
ii. Rs. 4 450 000 v. Rs. 4 700 000
iii. Rs. 4 550 000

3. The following information relates to the acquisition of a machine on 01.03.2014 by a

company which is registered for Value Added Tax (VAT)
Rs.
List price of the machine 800 000
VAT paid 86 400
Cost of transportation 30 000
Cost of site preparation 20 000
Cost of installation 40 000
Cost of initial testing 50 000
A trade discount of 10% was received at the time of acquisition. 100 units manufactured
during the initial testing were sold as Rs. 300 per unit
The cost of the machine as initial recognition as per LKAS 16 (Property, Plant and
Equipment):
i. Rs. 830 000 iv. Rs. 910 000
ii. Rs. 860 000 v. Rs. 916 400
iii. Rs. 896 400
4. The following information relates to the acquisition of a machine on 31.03.2017 by a

business. This business is not registered for Value Added Tax (VAT)
Description Rs.
Price paid inclusive of 15% VAT 230 000
Transport cost from supplier’s company to the business 15 000
Cost of installation and assembly 30 000
Cost of dismantling and removing the old machine 2 000
Cost of testing prior to the use of the machine 8 000
Cost of training employees on the use of the machine 12 000
What is the cost of the machine as recognition as per LKAS 16 (Property, Plant and
Equipment)?
i. Rs. 255 000 iv. Rs. 285 000
ii. Rs. 267 000 v. Rs. 297 000
iii. Rs. 283 000

Property plant and equipment related adjustment from Past Papers (2012-2016)
1. The following relates to PPE
Land at cost 2 200

Furniture and fittings 4 000
Accumulated depreciation - furniture and fittings as

at 01.04.2011 400
a) Land has been revalued at Rs. 2 500 000 on 31. 03.2012 by a professional valuer.
b) Furniture and fittings is to be depreciated at 10% per annum on cost on straight line method.
Property plant and equipment table
Details ( Cost )
Opening balance
(+) Additions
(+/-) Revaluations
(-) Adjustment to revaluation
(-) Disposal
(=) Closing balance
Details ( Depreciation )
Opening balance
(+) Depreciation for the year
(-) Disposal
(=) Closing balance

2. The following relates to PPE

a) The composition of property. plant and equipment as at 31.03.2013 is as follows:
Asset Cost Accumulated Carrying amount

Rs.'000 depreciation Rs.'000
Rs.'000
Building 2000 1200 800
Motor vehicle 2400 - 2400
(acquired on 1.4.2012
under a finance lease)
Furniture and fittings 1000 400 600
Office equipment 2000 400 1600
(acquired on 1.4.2012)
7400 2000 5400
b) The depreciation on property, plant and equipment for the year ending 31.03.2013 consists of the following
items. All assets are used for administration purposes.
Assets Depreciation (Rs.'000)
Building 200
Furniture and fittings 100
Office equipment 400
700
Depreciation has not yet been provided for the motor vehicle acquired under the finance lease.
c) The following adjustments have to be made before the preparation of financial statements for the year
ending 31.03.2013.
1. The building was sold on 31.03.2013 for Rs. 1 000 000 on cash. This amount has been debited to the bank
account and credited to the sales account. The cost and accumulated depreciation of the building has not
been removed from the accounts.

1. The composition of property, plant and equipment and other related information is as follows.
Assets Cost as at 31.03.2014 Accumulated depreciation Useful life

as at 1.4.2013 (years)
Building 6000 1500 20
Motor vehicle (acquired on 1.4.2013 4000 -- ?
under a finance lease)
Furniture and fittings 800 320 5
12000 2060
The motor vehicle is used for distribution of goods and all other assets are used for administration purposes.
Depreciation has to be provided for the current year.
The building and office equipment were revalued for the first time on 31.03.2014 at their fair values of Rs. 4 800
000 and Rs. 600 000 respectively
Details ( Cost )
Opening balance
(+) Additions
(+/-) Revaluations
(-) Disposal
(=) Closing balance
Opening balance
(-) Disposal
(=) Closing balance

1. The composition of PPE and other related information as at 1/4/2015 is as follows,
Assets Cost Acc. depreciation

Land (at fair value) 4 500 -
Building 4 000 800
Motor vehicle 2 000 -
Property, plant and equipment are depreciated on straight line method at 20% per annum. Depreciation has to be
provided for the current year.
2. The land was revalued for the second time on 31/03/2016 at its fair value of Rs. 6 000 000 (cost of the land
was Rs. 5 000 000)
Details ( Cost )
Opening balance
(+) Additions
(+/-) Revaluations
(-) Disposal
(=) Closing balance
Opening balance
(-) Disposal
(=) Closing balance

The composition of property, plant and equipment and their accumulated depreciation as at 1.4.2014 is as follows:
Description Cost value (Rs.'000) Accumulated depreciation (Rs.'000)

Land at fair value 6 000 -
Motor vehicle (leasehold basis) 3 000 600
Total 10 000 1000
All depreciable property, plant and equipment are depreciated on straight line method at 20% per annum.
Depreciation has to be provided for the current year.
(iii) The land was revalued on 31.03.2015 at Rs. 4 500 000 by a professional valuer.
Details ( Cost )
Opening balance
(+) Additions
(+/-) Revaluations
(-) Disposal
(=) Closing balance
Opening balance
(-) Disposal
(=) Closing balance

i. The composition of Property, plant and equipment and their accumulated depreciation as at 01.04.2015
were as follows.
Description Cost/Value Accumulated Carrying Amount

(Rs.’000) Depreciation (Rs.’000)
(Rs.’000)
Motor vehicles – Lease hold basis – at 6 000 2 400 3 600
cost
Office Equipment – Fair value 2 500 1 000 1 500
Furniture and fittings – at cost 1 500 600 900
Total 10 000 4 000 6 000
All assets (including assets on lease) have been acquired on 01.04.2013 and on this date, their useful life
was estimated as 5 years. They are depreciated on straight line method.
ii. On 01.04.2015, the remaining useful life of furniture and fittings was revised as 6 years. Further, the office
equipment was revalued at market value of Rs.1 800 000 on 31.03.2016.

LKAS 16 - Theory

Uploaded by

Copyright:

Available Formats

LKAS 16 - Theory

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

LKAS 16 - Theory

Uploaded by

Copyright:

Available Formats

LKAS 16.

Property,Plant & Equipment Theory |1

Sri Lanka Accounting Standards LKAS – 16

Property, Plant and Equipment

This standard does not apply to:

Property, Plant and Equipment and tangible assets that:

Useful life is either;

Cost will include

M.Shafee Ibrahim Advanced Level - Accounting Academy of Education

a) The cost of site preparation;

Retirements and disposals

M.Shafee Ibrahim Advanced Level - Accounting Academy of Education

a) The effective date of the revaluation

M.Shafee Ibrahim Advanced Level - Accounting Academy of Education

The two main methods in use are the;

1. Straight line method (Fixed installment method)

Straight line method

1) Cost and useful life is given

Annual depreciation = Cost

Annual depreciation = Cost – Residual Value

Annual depreciation = Cost x X

4) Cost, residual value and % is given

Annual depreciation = Cost [Cost – Residual Value] x X

M.Shafee Ibrahim Advanced Level - Accounting Academy of Education

Reducing Balance Method

High speed printer machine (machine number 515)

• Straight line method

Double Entry Records for Depreciation

There are two methods to record the depreciation in the books

M.Shafee Ibrahim Advanced Level - Accounting Academy of Education

1. Written down method/ Direct method

b) Transferring depreciation amount to P & L

2. Provision for depreciation method

Double Entries are:

ii. P & L account Dr

Bought one motor van for Rs.1 400 on 1st July

M.Shafee Ibrahim Advanced Level - Accounting Academy of Education

a) Purchased on 1st January 2003 for Rs.240 000

a) The machinery account

The machinery bought was:

2003 1st January 1 machine costing Rs.800

M.Shafee Ibrahim Advanced Level - Accounting Academy of Education

i. The following expenses were incurred in relation to the purchase of land

Lawyers fee Rs.21 000

Construction of a wall around the boundary of the land Rs.250 000

M.Shafee Ibrahim Advanced Level - Accounting Academy of Education

M.Shafee Ibrahim Advanced Level - Accounting Academy of Education

Disposal of an Asset / Exchange of Fixed Assets

1. Eliminate the cost value of the disposed asset

Asset disposal account Dr

2. Eliminate the provision for depreciation of the disposed asset

Provision for depreciation Dr

3. Any cost on asset disposal

Asset disposal account Dr

4. Cash received on disposal

a) Machinery account for the year ended 31.12.2009

M.Shafee Ibrahim Advanced Level - Accounting Academy of Education

Assuming that the vehicle is depreciated on straight line method.

Answer the following questions: