RISE PREMIER SCHOOL OF ACCOUNTANCY

Batch: C1 Total marks: 50

Subject: FAR-1 Time allowed: 90 Minutes
Teacher: Mr. Naveed Ansari Reading time: 7.5 minutes
Assessment # 01
Date: 4th November, 2024
Syllabus: PPE + Impairment of Assets
Name: _________________________ Rise ID: _______________

Question # 01: Choose correct answers;

01. A business purchased an asset on 1 January 2016 costing Rs.5,000,000 having a useful life of 10 years with nil
residual value. On 1 January 2018 balance of accumulated depreciation was Rs.1,000,000. Asset is revalued to
Rs.4,500,000 on 1 January 2018 (start of the year). Business has a policy to charge straight line depreciation.
What is the amount of revaluation surplus at the date of revaluation?
Rs. _______________ (02)
Answer: Rs.500,000
Revaluation surplus = Rs.4,000,000 – 4,500,000 = Rs. 500,000
02. A building is revalued upwards by Rs.2 million. It was acquired five years ago for Rs.10 million. Its useful life
remains same as 20 years. What is the incremental depreciation charge for the year?
(a) Rs.100,000 (b) Rs.133,333
(c) Rs.166,667 (d) Rs.200,000 (02)
03. A machine has a carrying amount of Rs. 850,000 at the year-end of 31 March 2019. Its market value is Rs.
780,000 and costs of disposal are estimated at Rs. 25,000. A new machine would cost Rs. 1,500,000. The
company which owns the machine expects it to produce net cash flows of Rs.300,000 per annum for the next
three years. The company has a cost of capital of 8%.
What is the impairment loss on the machine to be recognised in the financial statements at 31 March?
(a) Rs.76,870 (b) Rs.95,000
(c) Rs.1,66,700 (d) Rs.220,000 (02)
Answer:
Recoverable amount is Rs. 773,130 and carrying amount is Rs. 850,000, so impairment is Rs. 76,870.
Higher of; 773,130
• Fair value – costs of disposal (780,000 – 25,000) 755,000
• Value in use: 300,000 × (1 x 1.08) -1 277,780
300,000 × (1 x 1.08)-2 257,200
-3
300,000 × (1 x 1.08) 238,150
773,130

04. IAS 36 Impairment of Assets suggests how indications of impairment might be recognised. Which TWO of the
following would be external indicators that one or more of an entity's assets may be impaired?
(a) An unusually significant fall in the market value of one or more assets
(b) Evidence of obsolescence of one or more assets
(c) A decline in the economic performance of one or more assets
(d) An increase in market interest rates used to calculate value in use of the assets (02)

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Answer Question # 02:
Date Description Debit Credit Marks
01.07.23 Impairment loss 110
02
Accumulated Impairment loss 110
01.07.24 Accumulated Impairment loss 61
02
Impairment loss 61
W-1
Recoverable amount Rs. Marks
Higher of; 220
• Fair value less cost to sell 220 01
• Value in use (W-1.1) 201

01
W-1.1: Value in use
T0 T1 T2
Inflows 80 84 88.2
Outflows (30) (33) (36.3)
Sale proceeds 100
Net Cashflows 50 51 151.9
Discount factor @ 10% 0.909 0.826 0.751
Present Value 45 42 114
Value in use 201

03

Date Description Asset Rev. Surplus P/L (SOCI)

01.07.22 Cost 380
380
30.06.23 Depreciation ( ) (47.5)
8
30.06.23 WDV 332.5
30.06.23 Revaluation Surplus (2.5) (2.5)
30.06.23 Revalued amount 330 (2.5)
01.07.23 Impairment loss (110) (110)
01.07.23 Recoverable amount 220 (112.5)
220 112.5
30.06.24 Depreciation ( )( 7 ) (31) 16
7
30.06.24 WDV 189 (96.5)
01.07.24 Reversal of Impairment loss 61 61
01.07.24 Recoverable amount/Revised Book value (W-2) 250 (35.5)

03

(W-2) Revised Book Value at 01.07.24 Rs.

Lower of; 250
• Recoverable amount 250
• WDV had the impairment never took place from last revaluation (W-2.1) 282.86

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(W-2.1) WDV had the impairment never took place from last revaluation

WDV = Revalued amount – Acc. depreciation

WDV = 330 – 47.14 (W-2.2)
WDV = 282.86

(W-2.2) Acc. Depreciation [From last revaluation date → Reversal date]

Revalued amount – RV
Acc. Depreciation = ( 𝑟𝑒𝑚𝑎𝑖𝑛𝑖𝑛𝑔 𝑙𝑖𝑓𝑒
) x Cumulative period

330 – 0
Acc. Depreciation = ( 7
) x 1 = 47.14

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Answer Question # 03:
Kids Games Limited
0.5 Notes to the Financial Statement
For the year ended December 31, 2017
19. Property, Plant & Equipment
2017 2016
Description Rs.
Building M Fittings M Computers M Building M Fittings M Computers M
Gross Carrying amount
Opening 3,237,500 0.25 120,000 0.25 720,000 0.25 3,000,000 0.25 120,000 0.25 600,000 0.25

Addition - - 0.25 - - - 120,000

Rev.
(879,779) 0.25 - - 462,500 0.25 - -
Surplus
Transfer (357,721) 0.25 - - (225,000) 0.25 - -
0
Disposal (30,000) - 0.25 - -
Closing 2,000,000 0.25 90,000 0.25 720,000 0.25 3,237,500 0.25 120,000 0.25 720,000 0.25

Acc. Dep. & Imp. Loss

Opening 262,500 0.25 18,000 0.25 539,500 0.25 150,000 0.25 6,000 0.25 210,000 0.25

Dep. for
277,039 0.25 10,500 0.25 126,700 0.25 337,500 0.25 12,000 0.25 329,000 0.25
the year
Transfer (357,721) 0.25 - 0.25 - (225,000) 0.25 - -
Disposal - (6,000) 0.25 - - - -
Imp. Loss - - - - - -
Closing (181,818) 0.25 (22,500) 0.25 (665,700) 0.25 (262,500) 0.25 (18,000) 0.25 (539,000) 0.25

WDV 1,818,182 0.25 67,500 0.25 54,300 0.25 2,975,000 0.25 102,000 0.25 181,000 0.25

01 10.1 Measurement Basis

Revaluation model Cost model Cost model
Depreciation Method Straight Line Reducing Balance Method Straight Line
Useful Life/Dep. Rate 10 Years 70% (W-3) 10 Years

10.2 Revaluation disclosure

01
10.2.1 The last revaluation of building was performed by an independent valuer "Asfii Valuers (Pvt), an
independent Valuation Company on the basis of statistical analysis." on 31. March.2017. It was previously
revalued on 31 March 2016.
10.2.2 Had there been no revaluation the carrying amount of building would have been
2017 2016
Cost 3,000,000 3,000,000
Accumulated Depreciation
3,000,000 6+12 3,000,000 6+12+12 750,000 450,000
2016: ( X ) 2017: ( X )
10 12 10 12
Carrying Amount 2,250,000 2,550,000

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10.2.3 Movement of revaluation surplus
2017 2016
Opening Balance 425,000 -
Revaluation surplus / (loss) (411,397) 462,500
Transfer to retained earnings (incremental depreciation) (13,603) (37,500)
Closing balance - 425,000
Furthermore, a revaluation loss of Rs. 475,000 was charged in profit and loss at 31 March 2017

0.5 • KGL made a contractual commitment with Bahria Town to purchase 3 buildings of Rs. 10 million each on
01.07.18.

01 WORKINGS
0.5 (W-1) Calculation of revaluation surplus & depreciation on building
Date Description Building R. Surplus
01.07.15 Cost 3,000,000
3,000,000 6
31.12.15 Depreciation ( x ) (150,000)
10 12
31.12.15 WDV 2,850,000
3,000,000 3
31.03.16 Depreciation ( x ) (75,000)
9.5 12
31.03.16 WDV 2,775,000
31.03.16 Revaluation surplus (bal.) 462,500 462,500
31.03.16 Revalued amount 3,237,500 462,500
3,237,500 9 462,500 9
31.12.16 Depreciation ( x )( x ) (262,500) (37,500)
9.25 12 9.25 12
31.12.16 WDV 2,975,000 425,000
3,237,500 3 462,500 3
31.03.17 Depreciation ( x )( x ) (95,221) (13,603)
8.5 12 8.5 12
31.03.17 WDV 2,879,779 411,397
31.03.17 Revaluation surplus (bal.) (879,779) (411,397) (468,382)
31.03.17 Revalued amount 2,000,000 (468,382)
2,000,000 9 475,000 9
31.12.17 Depreciation ( x )( x ) (181,818) 42,580
8.25 12 8.25 12
31.12.17 WDV 1,818,182 425,802
(W-2)
Accumulated Depreciation a/c (Fittings)
01.01.16 Bal. b/d (120,000 X 6
) 6,000
10 12
31.12.16 Bal. c/d 18,000 31.12.16 120,000 12,000
Dep. exp ( 10 )
18,000 18,000
30.06.17 Disposal 6,000 01.01.17 Bal. b/d 18,000
31.12.17 Bal. c/d 22,500 31.12.17 Dep. exp 10,500
28,500 28,500

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(W-2.1) Depreciation for the Year 2017
On Opening excluding disposal
120,000−30,000
= 9,000
10
On Disposal
30,000 6
= 10
X 12) 1,500
10,500

(W-2.2) Accumulated Depreciation of Disposal

30,000−0
= 10
x 2 Years = 6,000

(W-3) Depreciation Rate of Computers

01
Residual value
𝐋𝐢𝐟𝐞
𝑟𝑎𝑡𝑒 = 1 − √
Cost
𝟒 4802
𝑟𝑎𝑡𝑒 = 1 − √ = 70%
600,000

Depreciation for the year for 2015

On Opening
6
= 600,000 x 70% x 12 210,000
Depreciation for the year for 2016
On Opening
= (600,000 – 210,000) x 70% 273,000
On Addition
8 56,000
= 120,000 x 70% x
12
329,000
Depreciation for the year for 2017
On Opening
= (720,000 – 539,000) x 70% 126,700

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Answer Question # 04:

Date Description Debit Credit Marks

30.06.21 Depreciation 5,748
Accumulated Depreciation 5,748 02
(2,874 + 2,874)

Ansari & Co.

01
Statement of Comprehensive Income (extracts)
For the year ended 30.06.21
Rs. Marks
G. P
Depreciation expense (5,748) 02

Ansari & Co.

01
Statement of Financial Position (extracts)
For the year ended 30.06.21
Rs. Marks
Assets
Non-current assets
Flying Car 50,000
Less; Acc. Depreciation (10,938 + 25,806) (36,744) 02
Carrying value 13,256
W-1 Calculation of cost
Rs. Marks
List price 40,000
Less discount (40,000 x 5%) (2,000)
Insurance in transit 10,000
Non-refundable (2,000 x 70%) 1,400 02
Sample testing (1,800 – 1,200) 600
50,000

W-2 Accumulated depreciation

Cost−R.V
Acc. Depreciation = x Cumulative period
Useful life

50,000−0
Acc. Depreciation = x 1.75 (W-2.1) = 10,938
8
WDV = Cost – Acc. Depreciation = 50,000 – 10,938 = 39,062

W-2.1 Cumulative period calculation

01.10.16 ----→ 30.06.17 = 09 months
21
01.06.17 ----→ 30.06.18 = 12 months = = 1.75 years
12
21 months

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W-3 Calculation of Depreciation
Date Description Amount Marks
01.07.18 WDV 39,062
30.06.19 Depreciation (39,062 x 30.25%) (11,816)
30.06.19 WDV 27,246
30.06.20 Depreciation (27,246 x 30.25%) (8,242)
30.06.20 WDV 19,004
31.12.20 6
Depreciation (19,004 x 30.25% x 12) (2,874) 02
31.12.20 WDV 16,130
31.12.20 Impairment loss 0
31.12.20 Recoverable amount (Revised WDV) 16,130
30.06.21 6
Depreciation (19,004 x 30.25% x 12) (2,874)
30.06.21 WDV 13,256

W-3.1 (Total Accumulated depreciation)

Rs.
Before the estimate is changed 10,938
After the estimate is changed (39,062 – 13,256) 25,806
36,744

W-3.2
8.25 2000
Rate = 1 – √39,062 = 30.25%

W-4-Impairment
Recoverable amount Rs. Marks
Higher of; 20,000
• Fair value – costs of disposal 20,000 02
• Value in use (W-4.1) 10,260
As Recoverable amount > WDV so no impairment

W-4.1- Value in use

T0 T1 T2 T3
Inflows - 10,000 9,000 8,000
Outflows - (4,000) (5,000) (6,000)
Net Cashflows 6,000 4,000 2,000
Discount factor - 0.909 0.826 0.751
Present Value - 5,454 3,304 1,502
Value in use 10,260

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