CAF-05 Property, Plant and Equipment

Lecture 1

Q.1) Following Account Balances are appearing on 1.1.18:

Asset A/C 300,000
Acc. Dep 120,000
Details of additions:
Date of Purchase Cost
1.March.2018 30,000
1.June.2018 50,000
Details of disposals:
Date of Purchase Date of sale Cost Sale Proceeds
1.October.2015 30.June.2018 40,000 12,000

Required: Prepare Asset, Acc. Dep. & disposal A/Cs as on 31st December 2018 along with relevant journal
entries.

Homework:
Class work question

Lecture 2

Q.1) Following Balances are appearing on 1.1.2017:

Asset A/C 50,000
Acc. Dep A/C 20,000
Additions of Rs. 30,000 took place on 1st September 2017. Further an asset costing Rs. 25,000 which was
purchased on 1st July 2015 is disposed off on 30th September 2017 for Rs. 3,000 only. Rate of depreciation is
20% S.L method.

Required: Prepare Asset, Acc. Dep. & disposal A/Cs as on 31st December, 2017 along with journal entry of
disposal.

Q.2) Following balances are appearing on 1.1.13.

Asset A/C 70,000
Acc. Dep A/C 20,000
Additions:
Date Cost
1.Mar.2013 10,000
Disposals:
D.O.P D.O.S Cost Sale Proceeds
1.Apr.09 30.Jun.13 5,000 1,000
1.Jul.10 30.Sep.13 2,000 500

Required: Prepare Asset, Acc. Dep. & disposal A/Cs as on 31.12.13 and 14. Rate is 10% S.L.

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CAF-05 Property, Plant and Equipment
Homework:

Q.1) Following balances are appearing on 1.7.13.

Asset 280,000
Acc. Dep. 100,000
Additions:
1.apr.14 30,000
Disposal:
D.O.P D.O.S Cost Sale Proceed
1.Apr.2008 31.Dec.13 50,000 12,000
Required: Prepare Asset, Acc. Dep. & disposal A/Cs as on 30th June 14 and 15 along with journal entries of
disposals. Rate is 10% S.L.

Q.2) Following details are provided on 1.1.2010.

Asset A/C 90,000
Acc. Dep. A/C 50,000
An asset costing Rs. 10,000 is added on 1.mar.2010. Further an asset which was purchased on 1.4.2008 costing
Rs. 20,000 is disposed off on 30.6.2010 for Rs. 10,000 only. Dep rate is 10% S.L.
Required: Prepare Asset, Acc. Dep. & disposal A/Cs as on 31.12.10 along with journal entries of disposals.

Lecture 3

Q.1)
Cost of asset 100,000
Residual value 10,000
Useful life 4 years
Date of purchase 1.1.2016
Required:
Calculate depreciation expense for the whole life of asset under both straight line and reducing balance
methods.

Q.2) Following balances are appearing in the books of Rehmat as on 1.1.12.

Asset 900,000
Acc. Dep. 200,000
Additions of Rs.90,000 is made on 1.8.12. Further an asset costing Rs.80,000 as on 1.4.09 is disposed of on
30.6.12 for Rs. 45,000 only. Rate is 10% WDV.
Required: Prepare Asset, Acc. Dep. & disposal A/Cs as on 31.12.12.

Q.3) Following balances are appearing on 1.1.2014.

Plant A/C 400,000
Acc. Dep. A/C 150,000
Addition of Rs.30,000 took place on 1st March 2014. An asset which was purchased on 1st May 2011 costing
Rs.90,000 was disposed off on 30th September 2014 for Rs.12,000 only. Dep rate is 20% WDV.
Required: Prepare Asset, Acc. Dep. & disposal A/Cs as on 31.12.14.

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CAF-05 Property, Plant and Equipment
Homework:

Q.1) Following balances are appearing on 1.Oct.13.

Cost 30,000
Acc. Dep. 12,000
Details of Disposal:
D.O.P D.O.S Cost Sale Proceed
1.3.2011 31.12.13 10,000 2,000
1.2.2010 31.3.14 4,000 1,000
Required: Prepare Asset, Acc. Dep. & disposal A/Cs as on 30.Sep.14. Rate is 10% WDV.

Lecture 4
Exchange of Assets.

Q.1) Mr. Qasim owns a mobile nokia 3310 which he purchased on 1.4.2012 for Rs.3,000. On 1.1.14, He went
to Hafeez Center where He saw a Samsung galaxy. He said, “Oh! What a beautiful mobile it is”. It bore a price
label of Rs.50,000. He immediately decided to exchange the old sick mobile with the new one. The value
assigned by the shopkeeper to old mobile was Rs.1200 only. Resultantly, he paid Rs.48,800 for new mobile.
The rate of depreciation is 10%.
Required: Pass the journal entry for exchange on 1.1.2014.

Q.2) On 1.4.2012 we exchanged two old cars with a new car. The cost of one old car is Rs.400,000. These
were purchased 4 years back (1.4.2008). The trade in allowance (exchange allowance) is Rs.180,000 per car.
The cost of new car is 1,200,000. Rate is 10% S.L
Required: Pass the journal entry for exchange.

Q.3) Following ledger balances are appearing on 1.1.15.

Asset 200,000
Acc. Dep. 80,000
i. Addition of 10,000 took place on 1.3.15
ii. An old asset costing Rs.50,000 which was purchased on 1.7.2013 is exchanged with a new asset costing
Rs.90,000. The transaction took place on 30th September, 2015 and T.I.A is Rs30,000. Rate is 10% S.L.
Required: Prepare Asset, Acc. Dep. & disposal A/Cs as on 31st December 2015 along with journal entry.
Homework:

Q.1) The following information is available in respect of machines of Akmal Brothers: (September 5, 2018)
(i) The balances of cost and accumulated depreciation of machines as on 1 January 2017 were Rs. 800,000
and Rs. 333,000 respectively.
(ii) A machine acquired on 1 January 2014 having net book value of Rs. 31,935 on 1 January 2017 was sold
for Rs. 34,000 on 30 April 2017. Cost of disposal incurred was Rs. 5,000.
(iii) On 1 July 2017, a machine having fair value of Rs. 40,000 on that date was exchanged for a new
machine. The balance of the purchase price was paid through a cheque of Rs. 80,000. The list price of the new
machine was Rs. 130,000. The old machine had been acquired at a cost of Rs. 65,000 on 1 October 2015.
(iv) Machines are depreciated at 15% per annum using the reducing balance method.
Required:
Prepare the following ledger accounts pertaining to the machines for the year ended 31 December 2017:
(a) Cost (03)
(b) Accumulated depreciation (05)
(c) Gain/loss on disposal

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CAF-05 Property, Plant and Equipment
Q.2) Following information pertains to three exchange transactions relating to fixed assets:
(i) (ii) (iii)
--------- Rs. in million ---------
Cash received/(paid) 1.1 (2.1)
Assets given-up:
Original cost 10.3 12.4 14.5
Book value 6.4 7.3 3.4
Estimated fair value 8.5 6.6 4.6
Assets received:
Estimated fair value 7.1 9.0 4.1

Additional information:
 In case of transaction (i), fair values of both assets are reliably measurable.
 In case of transaction (ii), fair value of the asset received is clearly more evident.
 In case of transaction (iii), fair value of neither asset is reliably measurable.

Required:
Compute gain or loss on disposal of fixed assets in each of the above transactions. (March 7,2018) (06)

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CAF-05 Property, Plant and Equipment

Lecture 5 & 6
1) Determining date of addition/disposal if asset is purchased or disposed during a month, using an
example in class.
2) Calculation of cost if it is missing in question and book value and date of purchase is given.
3) Determination of cost of new asset in an exchange transaction. (3 scenarios).
 If Fair value of Both Assets or Fair value of only Old Asset is given than:
Cost of new Asset = Fair value of old asset Cash.
 If Fair value of Only New Asset is given than:
Cost of new Asset = Fair value of new Asset.
 If Fair value of both assets is NOT given OR Transaction lacks Commercial substance (Means no
Cash Flow change expected after exchange e.g. Truck for Truck)
Cost of new Asset = Book value of old asset Cash.
Example-1
Old Asset Cost 200
Old Asset Accumulated Depreciation (80)
WDV 120
Other Information
1. Fair value of Old Asset 200
2. Fair value of New Asset 150
3. Cash Paid 12

Required: Calculate the cost of new Asset under following Scenarios.

4) Change in estimate:
Q.1) Mr. Umar purchased an asset costing Rs.20,000 on 1.1.2012. Life of asset is 10 years and its R.V is
Rs.2,000.
On 1.1.2014 it is estimated that its remaining life is only 6 years / its total life is 8 years.
Required: Calculate depreciation expense for the years ended December 31, 2012-13-14.
Q.2) On 1.12015 an asset costing Rs.90,000 is purchased with an R.V of 10,000 and life of 16 years. On
1.1.2018 it is estimated that total life is 10 years and new R.V is 5,000 only.
Required: Calculate depreciation for the years ended December 31, 2015 to 2019.
Q.3)
D.O.P Cost R.V Rate
1.1.15 100,000 20,000 10% S.L
On 1.1.17 the Dep method is changed to WDV with a new rate of (?). There is no change in R.V.
Required: Calculate Depreciation for the years ended December 31, 2015 to 2018.
Q.4)
D.O.P Cost R.V Rate
1.7.16 200,000 20,000 20% WDV
On 1.7.18 the Dep method is changed to S.L with total life of 10 years (30.6.2016-17-18-19)
Required: Calculate Depreciation for the years ended 30th June 2017 to 2019.
Q.5)
D.O.P Cost R.V Life
1.1.10 50,000 10,000 10 years
Method used is WDV. On 1.1.12 the total life is estimated at 5 years with no change in method and R.V
Requirement: Calculate Depreciation for the years ended December 31, 2010 to 2013.
5) Discussion of share capital and retained earnings with a simple example in class.
Homework:

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CAF-05 Property, Plant and Equipment

Lecture 7
1) Revaluation
Q.1) Company X purchased a building costing Rs.100 million on 1.1.2015. Its useful life is 20 years. It is
revalued on 1.1.2016 at Rs.120 million.
Required: Pass journal entries and prepare relevant ledgers.
Q.2) An entity owns following asset:
Cost (1.1.2018) Rs.500
Life 10 years
Asset was revalued on 1.1.19 at Rs.900.
Required: Pass journal entries and prepare relevant ledgers.

Homework:
Q.1) Details of an asset are:
Cost (1.1.2015) Rs.800
Life 20 years
Revalued amount on 1.1.17 Rs.1000.
Required: Pass journal entries and prepare relevant ledgers.

Lecture 8
Q.1) Mr. Umer purchased a building costing Rs.500 million on 1.1.15, having life of 10 years.
Revaluations details:
 1.1.16 Rs.900M
 1.1.17 Rs.360M
Required: Pass journal entries and prepare relevant ledgers.
Q.2) Details of an asset are:
D.O.P. COST LIFE
1.1.18 200 20years
Revaluations details:
 1.1.19 Rs.900
 1.1.20 Rs.120
Required: Pass necessary journal entries.

Homework:
Q.1) An entity own following asset:
D.O.P. COST LIFE
1.1.10 100M 10years
Revaluations details:
 1.1.12 Rs.120M
 1.1.14 Rs.40M
Required: Pass necessary journal entries.
Q.2) Cost of an asset on 1.1.15 is Rs.600. Life of the asset is 6 years. On 1.1.16 asset is revalued at Rs.400
with remaining life of 10 years.
Required: Pass necessary journal entries.

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CAF-05 Property, Plant and Equipment

Lecture 9
Q.1)
Asset purchased on 01-01-12
Cost of Asset 500
Useful life 20 Years
Revaluation Details:
01-01-14 800
01-01-16 250
01-01-18 600
Required: Prepare Journal entries from 2012 to 2018.
Q.2)
Asset Purchased on 1-07-08
Cost Rs.600
Useful Life 30 Years
It is revalued on 1.7.22 at Rs.800
Required: Prepare note of 2023 (i.e. 30.06.23)
Homework:
Q.1) Shahzad Textile Mills Limited (STML) purchased a plant for Rs. 500 million on 1 July 2010. The plant
has an estimated useful life of 10 years and no residual value.
STML uses revaluation model for subsequent measurement of its property, plant and equipment and
accounts for revaluations on net replacement value method. The details of revaluations performed by an
independent firm of valuers are as follows:
Revaluation date Fair value
1 July 2011 Rs. 575 million
1 July 2012 Rs. 390 million
1 July 2013 Rs. 380 million
Required: Prepare journal entries to record the above transactions from the date of acquisition of the plant to
the year ended 30 June 2014. (Ignore tax implications) (15)
{Autumn 2014, Q# 4, CAF-05}

Q.2) ABC Limited purchased a plant for Rs. 350,000 on 1 July 2010. The plant has an estimated useful life of
20 years and no residual value.
ABC uses revaluation model for subsequent measurement of its property, plant and equipment and
accounts for revaluations on net replacement value method. The details of revaluations performed by an
independent firm of valuers are as follows:
Revaluation date Fair value
30 June 2011 Rs. 475,000
30 June 2012 Rs. 390,000
30 June 2013 Rs. 380,000
Required:
a) Prepare journal entries to record the above transactions from the date of acquisition of the plant to the year
ended 30 June 2013. (16)
b) Prepare asset and accumulated depreciation account to record the above transactions from the date of
acquisition of the plant to the year ended 30 June 2013. (08)
c) Assume the plant was sold for Rs. 350,000 on 01 July, 2013. Prepare journal entry to be recorded on
disposal.
(02)

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CAF-05 Property, Plant and Equipment

Lecture 10
Fixed asset schedule / Note of PPE / Disclosure of PPE under IAS-16 (Property, Plant and equipment)
1) Started preparing note of PPE using ledgers on handout (without revaluation).
2) Prepared note of PPE of Q#1 of lecture 9.
Homework:
Prepare note of PPE in Q#1 (lecture 7); Q#1 (lecture 8); Q#1 (lecture 9).

Lecture 11
Prepared note without ledgers (i.e. directly from question and revaluation working.)
1) Prepare note of PPE for the year ended December 31, 2016 in Q#1 (lecture 7).
2) Prepare note of PPE for the year ended December 31, 2017 in Q#1 (lecture 8).
3) Prepare note of PPE for the year ended December 31, 2018 in Q#1 (lecture 9).
4) Solve Q#2 (lecture 9).
Homework:
Q.1) Q#2 (lecture 9).
Q.2) The following is an extract from the financial statements of Carly on 31 December 2014.
Property, plant and equipment
Land and Plant and Computers Total
buildings equipment
Rs. Rs. Rs. Rs.
Cost
On 31 December 2014 1,500,000 340,500 617,800 2,458,300
Accumulated depreciation
On 31 December 2014 600,000 125,900 505,800 1,231,700
Carrying amount
On 31 December 2014 900,000 214,600 112,000 1,226,600

(1) Depreciation is provided at the following rates.

On land and buildings Over 50 years on straight line basis on buildings only
On plant and equipment 25% reducing balance
On computers 33.33% per annum straight line
(2) On 31 December 2015 the land and buildings were revalued to Rs. 1,750,000. Of this amount, Rs.650,000
related to the land (which had originally cost Rs. 500,000). The remaining useful life of the buildings was
assessed as 40 years.
(3) A machine which had cost Rs. 80,000 and had accumulated depreciation of Rs. 57,000 at the start of the
year was sold for Rs. 25,000 in the first week of the year.
(4) A new machine was purchased on 31 March 2015. The following costs were incurred:
Rs.
Purchase price, before discount, inclusive of reclaimable sales tax of Rs.3,000 20,000
Trade Discount 1,000
Delivery costs 500
Installation costs 750
Interest on loan taken out to finance the purchase 300
(5) On 1 January it was decided to change the method of providing depreciation on computer equipment from
the existing method to 40% reducing balance.
Required: Produce the analysis of property, plant and equipment as it would appear in the financial
statements of Carly for the year ended 31 December 2015. (ICAP Question bank 7.4)

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CAF-05 Property, Plant and Equipment

Lecture 12
Q.1) Moin purchased a plant for Rs. 300 million on 1 January 2010. The plant has an estimated useful life of
10 years and no residual value.
Revaluation date Fair value
1 January 2011 Rs. 500 million
The plant is sold for Rs. 750 million on March 31, 2011.
Required: Prepare journal entries to record the above transactions.
Q.2) Umer Limited (UL) uses the revaluation model for subsequent measurement of its property, plant and
equipment and has a policy of revaluing its assets on an annual basis using the net replacement value
method.
The following information pertains to UL‟s buildings:
(i) 10 buildings were acquired in same vicinity on 1 January 2015 at a cost of Rs.500 million. The
useful life of the buildings on the date of acquisition was 10 years.
(ii) AL depreciates buildings on the straight line basis over their useful life.
(iii) The results of revaluations carried out during the last three years by Expert Valuation Service, an
independent firm of valuers, are as follows:
Fair value
Revaluation date
Rs. in million
1 January 2016 800
1 January 2017 300
1 January 2018 600
(iv) On 31 March 2018, 4 buildings were sold for Rs. 80 million each.
Required: Prepare a note on “Property, plant and equipment” (including comparative figures) for inclusion in
UL‟s financial statements for the year ended 31 December 2018 in accordance with International Financial
Reporting Standards. (Ignore taxation) (13)
Homework:
Q.1) Abid Limited (AL) uses the revaluation model for subsequent measurement of its property, plant and
equipment and has a policy of revaluing its assets on an annual basis using the net replacement value
method.
The following information pertains to AL‟s buildings:
(i) Four buildings were acquired in same vicinity on 1 January 2012 at a cost of Rs.300 million.
The useful life of the buildings on the date of acquisition was 20 years.
(ii) AL depreciates buildings on the straight line basis over their useful life.
(iii) The results of revaluations earned out during the last three years by Premier Valuation Service,
an independent firm of valuers, are as follows:
Fair value
Revaluation date
Rs. in million
1 January 2013 323
1 January 2014 252
1 January 2015 272
(iv) On 30 June 2015, one of the buildings was sold for Rs. 80 million.
Required: Prepare a note on “Property, plant and equipment” (including comparative figures) for inclusion in
AL‟s financial statements for the year ended 31 December 2015 in accordance with International Financial
Reporting Standards. (Ignore taxation) (13)
{Spring-16 CAF-07, Q.2}

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CAF-05 Property, Plant and Equipment

Lecture 13
Q.1) Solve CW Question # 2 (Umar limited) of Lecture 12.
Q.2) KL uses the revaluation model for subsequent measurement of its property, plant and equipment.
(i) 5 buildings were acquired in same vicinity on 1 January 2010 at a cost of Rs.200 million. The
useful life of the buildings on the date of acquisition was 20 years.
(ii) The results of revaluations carried out is as follows:
Revaluation date Fair value (Rs. in million)
1 January 2016 480
(iii) On 31 March 2016, 3 buildings were sold for Rs. 30 million each.
Required: Prepare a note on “Property, plant and equipment” for the year ended 31 December 2016 in
accordance with International Financial Reporting Standards. (Ignore taxation) (6)

Homework:
Q.1) Lecture # 12 HW Question # 1 (Abid Limited).

Lecture 14
Q.1) Following information pertains to a building acquired by SK Limited (SKL) on 1 July 2012 for Rs. 360
million:
(i) The building is being depreciated on straight-line basis over 10 years.
(ii) SKL uses revaluation model for subsequent measurement of buildings. It accounts for
revaluation on net replacement value method. The details of revaluations as carried out by independent
value are as follows:
Revaluation date Fair value(Rs. in million)
31 December 2013 323
31 December 2015 208
31 December 2017 167
(iii) There is no change in useful life of the building.
(iv) SKL transfers the maximum possible amount from the revaluation surplus to retained earnings on
an annual basis.
(v) SKL‟s financial year ends on 31 December.
Required: Prepare entries to record revaluation surplus/loss on each of the above revaluation date. (Entries to
record depreciation expense, incremental depreciation and elimination of accumulated depreciation are not
required). (11)
{Spring 2018, Q #
6(a)}

Homework:

Q.1) Lecture # 9 HW Question # 2 (ABC Limited).

Q.2) Lecture # 11 HW Question # 2 (Carly).

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CAF-05 Property, Plant and Equipment

Lecture 15

1) Discussion of test 1 question 2 (FAM).

Lecture 16
Q.1) On 31 December 2018, Omega Chemicals Limited (OCL) changed its valuation model from cost to
revaluation for its buildings. The following information pertains to its buildings as at 31 December 2018:

Prior to revaluation as at 31-12-2018

Estimated useful Accumulated
Revalued
life as originally Cost depreciation*
amount
estimated
-------------------------Rs. In million ---------------------
Office buildings 20 Years 600 150 800
*Including depreciation for the year ended 31 December 2018
As per the report of the professional valuer, there was no change in estimated useful life of the buildings.
OCL recorded revaluation effect for the office buildings on 31 December 2018 as per the valuation report.

On 1 April 2019, one of the office buildings was sold for Rs. 45 million. On 31 December 2018, written
down value before revaluation and revalued amount of the sold building amounted to Rs. 80 million and
Rs. 95 million respectively.

OCL uses straight line method of depreciation which is charged from the date the asset is available for
use upto the date of disposal. Revaluation is to be accounted for by using net replacement value method.

Required: In the light of the requirements of the International Financial Reporting Standards, prepare
accounting entries from the above information for the year ended 31 December 2019. (10)

Homework:

Q.1) On 31 December 2013, Omega Chemicals Limited (OCL) changed its valuation model from cost to
revaluation for its buildings. The following information pertains to its buildings as at 31 December 2013:
Prior to revaluation as at 31-12-2013
Estimated useful Revalued
Accumulated
life as originally Cost amount as per
depreciation*
estimated valuation report
-------------------------Rs. In million ---------------------
Factory buildings 20 Years 100.00 37.50 No revaluation
required
Office buildings 25 Years 164.50 26.32 149.94
*Including depreciation for the year ended 31 December 2013
As per the report of the professional valuer, there was no change in estimated useful life of the buildings. OCL
recorded revaluation effect for the office buildings on 31 December 2013 as per the valuation report. On 1 July
2014, one of the office buildings was sold for Rs. 30 million. On 31 December 2013, written down value
before revaluation and revalued amount of the sold building amounted to Rs. 27.72 million and Rs. 31.92
million respectively.On 31 December 2014, factory buildings were revalued at Rs. 64 million whereas there
was no change in value of the office buildings.OCL uses straight line method of depreciation which is charged
from the date the asset is available for use upto the date of disposal. Revaluation is to be accounted for by using
net replacement value method.

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CAF-05 Property, Plant and Equipment
Required: In the light of the requirements of the International Financial Reporting Standards, prepare
accounting entries from the above information for the year ended 31 December 2014 including correcting
entries. (15)
{Spring-15 CAF-07, Q.2}

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CAF-05 Property, Plant and Equipment

Lecture 17
MID OF YEAR REVALUATION
Q.1) Usama Limited (UL) purchased a plant for Rs. 1,000 million on 1st January 2017. The plant has an
estimated useful life of 10 years and no residual value.
UL uses revaluation model for subsequent measurement of its property, plant and equipment and
accounts for revaluations on net replacement value method. The details of revaluations performed by an
independent firm of valuers are as follows:

Revaluation date Fair value

1st April,2017 Rs. 1,080 million
Required: Prepare journal entries and note on “Property, plant and equipment” for inclusion in UL‟s
financial statements for the year ended 31 December 2017 in accordance with International Financial
Reporting Standards. (Ignore taxation)

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CAF-05 Property, Plant and Equipment
Homework:
Abbas Limited (AL) is engaged in the business of manufacturing near the Karachi-Hyderabad Motorway. Its
Property, Plant and Equipment comprises of land and buildings, plant and machinery, and equipment and
fittings.
Details for the period up to 30 June 2018 are as follows:
1. The balances of the Property, Plant and Equipment as at 30 June 2018 are given below:
Gross Carrying Amount Accumulated Depreciation
Assets
(Rs. Million) (Rs. Million)
Land 12 N/A
Buildings 125 38
Plant and Machinery 500 300
Equipment 100 36
2. The relevant information pertaining these assets is given below:
Subsequent Measurement
Assets Depreciation Method
Model
Land N/A Fair Value
Buildings Straight-line Cost
Plant and Machinery Units of Production Cost
Equipment Written down value Cost
3. Abbas Limited uses proportionate policy to depreciate its Property, Plant and Equipment.
4. All of the plant and machinery pertains to factory use whereas all the equipment pertains to office use.
However floor areas occupied by factory and office are in the ratio 60:40 respectively.
5. The equipment was purchased on 1 July 2016. No disposals and acquisitions took place in the period up
to 30 June 2018.
6. Until 30 June 2018, 12,000 units had been produced by Abbas Limited in its factory. The plant and
machinery does not have any residual value. No additions or disposals of plant and machinery took place
till this date.
7. The buildings were acquired on 1 July 2014 with a residual value of Rs. 11 million. No additions and
disposals took place till 30 June 2018.
8. The land had actually cost Rs. 15 million on the date of its acquisition.
9. It is assumed that value of land and buildings is spread evenly across the area occupied.
The following information pertains to the year ended 30 June 2019:
1. On 1 July 2018, land was revalued to Rs. 20 million on 1 July 2018. The value was determined by an
independent firm M/s Ashfaq & Co. Chartered Accountants.
2. This year, 5,000 units were produced in the factory of AL.
3. On January 1, 2019, AL disposed 25% of its area comprising of land and buildings at a price of Rs. 90
million. The portion of land was sold at its fair value as determined on 1 July 2018. The legal costs of
drafting transfer agreements were Rs. 0.1 million. It is assumed that this disposal will not affect the
proportion of areas occupied by factory and office.
4. Further equipment costing Rs. 60 million was acquired on 1 November 2018.
5. In the meeting of its board of directors, it was decided to open a new factory premises near Lahore-
Islamabad motorway. An expenditure of Rs. 20 million was spent on the construction of the factory on 1
December 2018, financed by a loan obtained from the bank at the rate of 12% per annum. The
construction had not been completed at the end of the year.
6. Moreover, the directors also made a contract with M/s UniPower& Co. to purchase plant and machinery
worth Rs. 35 million once the construction of factory building is completed.
Required: (a) Prepare journal entries to record the revaluation of land and disposal of land and
buildings.

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CAF-05 Property, Plant and Equipment
(b) Prepare the disclosure under IAS 16 in relation to Property, Plant and Equipment in the
notes to the published accounts for the year ended 30 June 2019.
Lecture 18
1) Discussion of Abbas Limited and distribution of its solution.

Lecture 19

1) Discussion of remaining sub notes of Abbas Limited.

2) Reading of disclosures from book.
3) Discussion of cost determination (Initial and subsequent).
4) Gross replacement method of revaluation: This method involves restating proportionally the cost
account and the accumulated depreciation so that the net carrying amount equals the net replacement
value (fair value).
Example
A Hydroelectric power plant owned by a company is carried at Rs. 30 million (Cost of Rs. 40 million
less accumulated depreciation of Rs. 10 million. The company‟s policy is to apply the revaluation
model to all of its property, plant and equipment. A current valuation of this plant is now Rs. 50
million.
Required: Pass journal entry of revaluation.

Umair Sheraz Utra, ACA P a g e | 15

CAF-05 Property, Plant and Equipment

Lecture 20
1) Fully depreciated asset concept (PQ 42 page 551 of RISE book)

2) Self-constructed asset (page 518 of RISE book)

Example: Roads International Limited constructed its own specially designed „road bulldozer‟. Details
of related costs incurred are as follows:
Description of cost: Rs.
Cost of raw materials purchased 500,000
Cost of raw materials used in construction of road bulldozer 100,000
Over head costs incurred on building road bulldozer 40,000
Tests to ensure road bulldozer safe before brought into use 20,000
Factory labour costs 300,000
Additional information:
 80% of the total labour costs for the year were incurred on building roads and 20% thereof were
incurred in construction of the road bulldozer.
 The road bulldozer was first brought into use on a contract that started on 1 November 20X2,
although it was available for use from 1 October 20X2.
 The company uses the straight-line method to depreciate its road bulldozer. This vehicle is
expected to be sold for Rs. 7,000 at the end of its expected useful life of 5 years.
Required: Journalise transactions related to tarring vehicle for the year ended 31 December 20X2.

3) Parts of an asset, Determination of cost, Commencement of depreciation (page 525 of RISE book)
Example: Ancient Waters Limited is a company involved in bottling spring water. The company
purchased a bottling plant on 2 January 20X2. The plant is made up of three significant components, the
cost of which is as follows:
Description of component Cost price Residual value Expected useful life
Rs. Rs.
Engine 1,500,000 500,000 5 years
Conveyor belt and fittings 2,000,000 0 8 years
Other structure 800,000 50,000 3 years
“Other costs” incurred in relation to the bottling plant are as follows:
Description of cost Rs. Transaction date
Delivery and installation 783,000 5 January 20X2
Staff training 60,000 16 January 20X2
Other information:
 The plant was available for use in production on 1 February 20X2, although production only
began on 1 March 20X2.
 The plant was temporarily idle during October 20X2 when the factory closed down for its annual
holiday period.
 The company uses the straight-line method when depreciating its bottling plant.
 All „other costs‟ are considered to be incurred evenly between the three significant components
of the bottling plant (i.e. where appropriate, a third of the cost is allocated to each component).
Required: Show all related journal entries relating to the bottling plant for the year ended 31 December
20X2 and 31 December 20X3.

Umair Sheraz Utra, ACA P a g e | 16