CAF-01: FAR-1 Property, plant, and equipment (IAS-16)

CHAPTER-3
INTERNATIONAL ACCOUNTING STANDARD-16
PROPERTY, PLANT, AND EQUIPMENT

SOME DEFINITIONS AND THEORETICAL CONCEPTS FROM BOOK

Property, plant and equipment are tangible items that:
(a) are held for use in the production or supply of goods or services, for rental to others, or for
administrative purposes; and
(b) are expected to be used during more than one period.
It is important to distinguish PPE from:
Intangible assets e.g., patents, software, etc. Intangible assets do not have physical substance and therefore are
classified and presented separately, although they are also held for long term and are often vital to business
operations. Intangible assets are accounted for under IAS 38 (Intangible Assets).
Inventory. Although inventory items usually have physical substance, they differ from PPE because they are
held for resale in the ordinary course of business. Inventories are accounted for under IAS 2 (Inventory).
If an entity’s main business is selling machines, those machines are inventory items and are not classified as
PPE. However, the plant and machinery used to produce the machines for sales is PPE. The same goes for
real estate businesses. Their corporate offices are PPE but the houses they sell are inventory.
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, less its residual value.

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 useful life.
Carrying amount is the amount at which an asset is recognized after deducting any accumulated depreciation
and accumulated impairment losses. (Commonly known as book value).

Useful life is the period over which:

(a) an asset 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.

Accumulated Depreciation is the depreciation charged to date (cumulative) on a non-current asset. This is
contra asset account (a negative balance of the asset).

Carrying amount (also called net book value (NBV) or written down value (WDV)) is the amount at which
an asset is presented in statement of financial position.
DEPRECIATION
(a) Each part of an item of property, plant and equipment with a cost that is significant in relation to the
total cost shall be depreciated separately.
(b) The Depreciation charge for each period shall be recognized in profit or loss unless it is included in
the carrying amount of another asset. (e.g., if machinery (PPE of the business) is used in construction
of office building, the depreciation of such machinery arising during the construction period shall be
capitalised in the cost of building.)
(c) The depreciable amount of an asset shall be allocated on a systematic basis over its useful life.
(d) The residual value and the useful life of an asset shall be reviewed at least at each financial year-end
and, if expectations differ from previous estimates, the change(s) shall be accounted for as a change in
an accounting estimate.

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CAF-01: FAR-1 Property, plant, and equipment (IAS-16)
(e) Commencement and cessation of deprecation
Depreciation of an asset begins when it is available for use, i.e. when it is in the location and condition
necessary for it to be capable of operating in the manner intended by management.
Depreciation of an asset ceases the date when the asset is disposed of. Therefore, depreciation does
not cease when the asset becomes idle or is retired from active use unless the asset is fully
depreciated. However, under usages methods of depreciation the depreciation charge can be zero
while there is no production.
(f) The following factors are considered in determining the useful life of an asset
(a) Expected usage of the asset. Usage is assessed by reference to asset’s expected capacity or
physical output
(b) Expected physical wear and tear,
(c) Technical or commercial obsolescence
(d) Legal or similar limits on the use of the asset,

(g) Land and Buildings are separable assets and are accounted for separately, even when they are
acquired together.
Land is not normally depreciated because it has indefinite life.

(h) The depreciation method used shall reflect the pattern in which the asset’s future economic benefits
are expected to be consumed by the entity.

The depreciation method applied to an asset shall be reviewed at least at each financial year-end and, if
there has been a significant change in the expected pattern of consumption of the future economic benefits
embodied in the asset, the method shall be changed to reflect the changed pattern. Such a change shall be
accounted for as a change in an accounting estimate.

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CAF-01: FAR-1 Property, plant, and equipment (IAS-16)
CONCEPT BUILDING QUESTIONS
Question-1
Mr. Atif has purchased a vehicle. Its cost on January 1, 2008 was Rs. 50,000. Its life is 4 years.
Calculate depreciation for 4 years using straight line method. Year end is December 31.
Question-2
Mr. Latif has purchased a plant. Its cost on 1.4.2008 was Rs. 50,000. Its life is 4 years. Calculate depreciation expense
for year ended December 31, 2008, 2009 and 2010.
Question-3
Mr. Arif has purchased a vehicle. Its cost on 1.5.2008 was Rs. 70,000. Its life is 5 years. Calculate depreciation expense
for 2008, 2009, 2010, 2011. Year end is December 31.
Question-4
Mr. Atif has purchased an asset on 1.4.2004 for Rs. 50,000. Its residual value is 10,000 and rate of depreciation is 25%
straight line. Year end is 31 December.
Required:
Calculate depreciation from 2004-2007.
Question-5
Mr. Zeeshan has purchased an asset on 1.7.2004 for Rs. 70,000. Its residual value is Rs. 20,000 and useful life is 4 years.
Method used is straight line.
Required:
Calculate depreciation from 2004-2006 assuming year end is December 31.
Question-6
Mr. Moin has purchased a machine costing Rs. 600,000 on 1.1.2008. Calculate depreciation for first
4 years using WDV method. Rate is 10%. The year end is December 31.
Question-7
Mr. Shaban has purchased a machine costing Rs. 60,000 on 1.4.2008. Calculate depreciation for first
3 years using WDV method. Rate is 10% and year end is 31 December.
Question-8
Mr. Umair purchased a computer on 1 March 2007.
Calculate depreciation for first 3 years on WDV method @ 15%. Cost is Rs. 200,000. Year end is December 31.
Question-9
Mr. Aamir has purchased building on 1.7.2008. Calculate depreciation on WDV method for first three years @ 20%.
Cost is Rs. 300,000. Year end is September 30.
Question-13
Mr. Babar purchased the following assets:
Date of purchase Cost
1st April 2009 200,000
1st June 2009 300,000
1st September 2010 500,000
Depreciation rate is 10% under straight line method.
Required: Prepare asset a/c and Acc. Dep a/c as on 31st December 2009 and 2010.
Question-14
Mr. Anjum has started the business on January 1, 2009 of trading in shoes. He has disclosed the following data for first
three years of his business operations which relates to additions in fixed assets:
Date of Purchase Cost (Rs.)
Year end December 31, 2009
- Asset-1 1.1.2009 30,000
- Asset-2 1.7.2009 10,000
Year end December 31, 2010
- Asset-3 1.4.2010 50,000
Year end December 31, 2011
- Asset-4 1.7.2011 60,000
Useful life of all assets is 4 years.
Required:
Prepare an asset a/c, accumulated depreciation a/c and balance sheet extracts using above mentioned information for first
three years of operations.

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CAF-01: FAR-1 Property, plant, and equipment (IAS-16)
Question-15
Mr. Sultan has started the business on January 1, 2010 of trading in computers. He has disclosed the following data for
first two years of his business operations which relates to additions in fixed assets:
Date of Purchase Cost
Year end December 31, 2010
Asset – 1 1.1.2010 30,000
Asset – 2 1.4.2010 40,000
Asset – 3 1.6.2010 50,000
Year end December 31, 2011
Asset – 4 1.3.2011 70,000
Rate of depreciation is 25% per annum using straight line method.
Required:
Prepare asset A/c, accumulated depreciation A/c for year ended December 31, 2010, 2011, 2012.
Question-16
Mr. Waqar has started the business on January 1, 2013 of trading in chairs. He has disclosed the following data for first
two years of his business operations which relates to additions in fixed assets:
Date of Purchase Cost
Year end December 31, 2013
Building – 1 1.1.2013 10,000
Building – 2 1.5.2013 15,000
Year end December 31, 2014
Building – 3 1.8.2014 13,000
Building – 4 1.9.2014 12,000
Useful life of all assets is 6 years and method used for depreciation is straight line.
Required:
Prepare asset a/c and accumulated depreciation a/c for year ended December 31, 2013 and 2014.
Question-17
Mr. Qasim purchased an asset for Rs.90 on 1st January 2010. Life is 3 years and year end is
st
31 December.
Required: Prepare B/S extracts for 2010, 2011, 2012.
Question-18
Mr. Ehsan has provided the following information as on 1.1.2012 / Following balances are appearing in the books of
Ehsan as on 1.1.2012.
Asset A/C 900,000
Acc. Dep. A/C 350,000
Following additions took place during the year ended 31.12.2012
Date of Purchase Cost (Rs)
1st May 2012 180,000
1st August 2012 130,000
Rate of Dep is 20% on straight line.
Required: Prepare Asset and Acc. Dep. a/c as on 31st December 2012 and 2013.
Question-19
Mr. Asif has informed you that following balances are appearing on 1.1.2009 in his books of accounts:
Accumulated
Cost
Depreciation
Vehicles 300,000 113,000
Following is the detail of additions during the year ended December 31, 2009:
Date of Cost
Purchase
Vehicle – ACT 1.3.2009 10,000
Vehicle – MGY 1.5.2009 15,000
Rate of depreciation is 20% per annum using straight line method.
Required:
Prepare relevant accounts for year ended December 31, 2009.

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CAF-01: FAR-1 Property, plant, and equipment (IAS-16)
Disposal of fixed assets under straight line method.
Question-20
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. Rate of depreciation is 10% S.L method
Question-21
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 1 st 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 31 st December, 2017.
Question-22
Mr. Black has provided you with following information:
Accumulated
Cost as on Rate
Depreciation
1.1.2001 as on 1.1.2001 S.L
Plant and Machinery 600,000 200,000 20%
Furniture 700,000 130,000 10%
Vehicle 800,000 170,000 25%
Following are the additions made in year ended December 31, 2001.
Date Cost
Plant and Machinery 1.1.2001 60,000
Furniture 1.6.2001 80,000
Vehicle 1.9.2001 70,000
Required:
Prepare Assets Accounts and Accumulated Depreciation account for year ended December 31, 2001 only.
Question-23
The following detail is provided by Mr. Aamir on 1.1.2007
Accumulated
Cost as on
Depreciation as on
01.01.07
01.01.07
Vehicle 1,400,000 650,000
Rate of depreciation is 15% on straight line basis
Following is the further detail for year ended December 31, 2007
Additions
Date of Purchase Cost
1.Mar.07 200,000
1.May.07 250,000
1.June.07 23,000
Disposals
Description Date of Purchase Date of Disposal Cost Sale proceeds
Vehicle – 1 1.July.05 31.Mar.07 40,000 2,300
Vehicle – 2 1.March.04 30.June.07 70,000 4,700
Vehicle – 3 1.Aug.06 30.Nov.07 90,000 6,600

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CAF-01: FAR-1 Property, plant, and equipment (IAS-16)
Required: Prepare relevant accounts for year ended December 31, 2007.
Question-24
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.
Question-25
Mr. Saim purchased an asset costing Rs. 200,000 on 1 st Jan, 2019. The asset has a residual value of
Rs. 19,850 at the end of its useful life. The asset is depreciated under Reducing Balance Method at 37%. Compute
depreciation for the year ended 31st December, 2019 to 31st December, 2023.
Question-26
Assume the data is same as in question-vi above but the asset is purchased on 1st April, 2019.
Question-27
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.
Question-28
Following balances are appearing in the books of Raheel as on 1.1.2015.
Asset A/C 50,000
Acc. Dep. A/C 20,000
Additions of 15,000 took place on 1.3.2015. Rate is 20% on WDV method.
Required: Asset and Acc. Dep A/Cs as on 31st December 2015.
Question-29
Mr. Taimoor has started the business on January 1, 2009 of manufacturing cars. He has disclosed the following data for
first three years of his business operations which relates to additions in fixed assets:
Date of Purchase Cost
Year end December 31, 2009
Asset-1 1.1.2009 30,000
Asset-2 1.7.2009 10,000
Year end December 31, 2010
Asset-3 1.4.2010 50,000
Year end December 31, 2011
Asset-4 1.7.2011 60,000
Method is WDV for depreciation and rate is 10%.
Required: Prepare relevant accounts for years ended December 31, 2009, 2010 and 2011.
Question-30
Mr. Wasif has informed you that following balances are appearing on 1.1.2013 in his books of accounts:
Accumulated
Cost
Depreciation
Building 400,000 150,000
Following is the detail of additions during the year ended December 31, 2013:
Date of Purchase Cost
Building – Defence 1.3.2013 300,000
Building – Green Town 1.8.2013 100,000

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CAF-01: FAR-1 Property, plant, and equipment (IAS-16)
Method for depreciation is WDV and rate is 20%.
Required:
Prepare relevant accounts for year ended December 31, 2013.
Question-31
Mr. Ali has informed you that following balances are appearing on 1.1.2013 in his books of accounts:
Accumulated
Cost
Depreciation
Machinery a/c 600,000 300,000

Following is the detail of additions during the year ended December 31, 2013:
Date of Purchase Cost
Cutter machine 1.3.2013 500,000
Molding machine 1.8.2013 250,000
Method for depreciation is WDV and rate is 20%.
Required:
Prepare relevant accounts for year ended December 31, 2013.
Question-32
Mr. Faiq has informed you that following balances are appearing on 1.1.2009 in his books of accounts:
Accumulated
Cost
Depreciation
Machinery a/c 600,000 200,000
Following is the detail of additions during the year ended December 31, 2009:
Date of Purchase Cost
Machinery B 1.3.2009 10,000
Machinery C 1.5.2009 70,000
Method for depreciation is WDV and rate is 30%.
Required:
Prepare relevant accounts for year ended December 31, 2009.
Question-33
Mr. Moin has provided the following details of ledger balances appearing in his books as on 1.1.2016
Asset A/C 250,000
Acc. Dep. A/C 180,000
Following additions took place
Date Cost
1st April 2016 40,000
1st June 2017 90,000
Rate of Depreciation is 20% on WDV method.
Required: Prepare Asset and Acc. Dep. a/c as on 31st December 2016 and 2017 along with income statement and balance
sheet extracts.
Disposal of fixed assets under reducing balance method.
Question-34
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.

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CAF-01: FAR-1 Property, plant, and equipment (IAS-16)
Question-35
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 30 th June 14 and 15 along with journal entries of disposals.
Rate is 10% S.L.
Question-36
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 1 st March 2014. An asset which was purchased on 1 st 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.
Question-37
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.
Question-38
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.
Question-39
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 1 st 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.
Question-40
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.

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