Question

At December 31, 2020, Cord Company's plant asset and accumulated depreciation and amortization accounts had balances as follows:

Category	Plant Asset				Accumulated Depreciation and Amortization
Land	$	185,000			$	—
Buildings		2,000,000				338,900
Equipment		1,625,000				327,500
Automobiles and trucks		182,000				110,325
Leasehold improvements		236,000				118,000
Land improvements		—				—

Depreciation methods and useful lives:
Buildings—150% declining balance; 25 years.
Equipment—Straight line; 10 years.
Automobiles and trucks—200% declining balance; 5 years, all acquired after 2017.
Leasehold improvements—Straight line.
Land improvements—Straight line.

Depreciation is computed to the nearest month and residual values are immaterial. Transactions during 2021 and other information:

1. On January 6, 2021, a plant facility consisting of land and building was acquired from King Corp. in exchange for 35,000 shares of Cord's common stock. On this date, Cord's stock had a fair value of $60 a share. Current assessed values of land and building for property tax purposes are $255,000 and $595,000, respectively.
2. On March 25, 2021, new parking lots, streets, and sidewalks at the acquired plant facility were completed at a total cost of $252,000. These expenditures had an estimated useful life of 12 years.
3. The leasehold improvements were completed on December 31, 2017, and had an estimated useful life of eight years. The related lease, which would terminate on December 31, 2023, was renewable for an additional four-year term. On April 30, 2021, Cord exercised the renewal option.
4. On July 1, 2021, equipment was purchased at a total invoice cost of $335,000. Additional costs of $11,000 for delivery and $60,000 for installation were incurred.
5. On September 30, 2021, Cord purchased a new automobile for $13,500.
6. On September 30, 2021, a truck with a cost of $25,000 and a book value of $11,000 on date of sale was sold for $12,500. Depreciation for the nine months ended September 30, 2021, was $2,475.
7. On December 20, 2021, equipment with a cost of $22,000 and a book value of $3,225 at date of disposition was scrapped without cash recovery.

Required:

1. Prepare a schedule analyzing the changes in each of the plant asset accounts during 2021. Do not analyze changes in accumulated depreciation and amortization.

Prepare a schedule analyzing the changes in each of the plant asset accounts during 2021. Do not analyze changes in accumulated depreciation and amortization. CORD COMPANY Analysis of Changes in Plant Assets For the Year Ending December 31, 2021 Balance Balance 12/31/2021 12/31/2020 Increase Decrease Land 2$ 185,000 Land improvements Buildings 2,000,000 Equipment 1,625,000 Automobiles and trucks 182,000 Leasehold improvements 236,000 4,228,000

Answer 1

Given case is related to Property, Plant and Equipment. IAS 16(International Accounting Standard) deals with Property, Plant and Equipment. As per IAS 16, Property, Plant and Equipment are recognised as Assets, if and only if,

1. Held for use in the production/supply of goods or services, or rental to others, or for administrative purposes

(AND)

2. Are expected to be used more than one period

Transaction wise analysis:

1. On January 6, 2021, a plant facility consisting of land and building was acquired from King Corp. in exchange for 35,000 shares of Cord's common stock. On this date, Cord's stock had a fair value of $60 a share. Current assessed values of land and building for property tax purposes are $255,000 and $595,000, respectively.

Ans:

As per IAS 16, when one or more assets are acquired in exchange of Non-Monetary assets, or a combination of monetary and non-monetary assets, then the cost of asset acquired is measured at fair value of asset given up.

Hence Increase in Land and Buildings: $35,000*60 = $ 2,100,000

Apportioned on the basis of value assessed for property tax purposes

Land = $2,100,000*255000/850000 = $630,000

Building = ($2,100,000 - $630,000) = $1,470,000

2. On March 25, 2021, new parking lots, streets, and sidewalks at the acquired plant facility were completed at a total cost of $252,000. These expenditures had an estimated useful life of 12 years.

Ans:

Increase in Land Improvements: $252,000

Assuming it shall be used in supply of goods or services

3. The leasehold improvements were completed on December 31, 2017, and had an estimated useful life of eight years. The related lease, which would terminate on December 31, 2023, was renewable for an additional four-year term. On April 30, 2021, Cord exercised the renewal option.

Ans:

As per IFRS 16: Leases, Since the lease period was renewed during 2021, it shall be added to the lease term, Total Lease period 10 Years. (6+4)

Increase in leasehold Improvements: $236,000*4/8 = $118,000

4. On July 1, 2021, equipment was purchased at a total invoice cost of $335,000. Additional costs of $11,000 for delivery and $60,000 for installation were incurred.

Ans:

As per IAS 16, Equipment should be recognised at cost incurred to bring the asset to its present condition (Ready to use). Hence all costs incurred should be recognised as Equipment.

Increase in Equipment: $335,000 + $11,000 + $60,000 = $406,000

5. On September 30, 2021, Cord purchased a new automobile for $13,500

Ans:

As per IAS 16, Entire cost of new automobile should be recognised as Asset.

Increase in automobiles = $13,500

6. On September 30, 2021, a truck with a cost of $25,000 and a book value of $11,000 on date of sale was sold for $12,500. Depreciation for the nine months ended September 30, 2021, was $2,475.

Ans:

As per IFRS 5, Non-Current Assets held for sale and discontinued operations, Assets which are available for immediate sale in present condition and sale is highly probable, then it shall be classified as Non-Current Assets held for sale.

Decrease in value of Truck: $25,000

7. On December 20, 2021, equipment with a cost of $22,000 and a book value of $3,225 at date of disposition was scrapped without cash recovery.

Ans:

As per IFRS 5, Decrease in value of Equipment: $22,000

Analysis of changes in each of the plant asset accounts during 2021

CORD COMPANY
Analysis of Changes in Plant Assets
For the Year Ending December 31, 2021
	Balance			Balance
	12/31/2020	Increase	Decrease	12/31/2021
Land	$            185,000	$     630,000		$     815,000
Land improvements	$                         -	$     252,000		$     252,000
Buildings	$         2,000,000	$   1,470,000		$   3,470,000
Equipment	$         1,625,000	$     406,000	$ 22,000	$   2,009,000
Automobiles and trucks	$            182,000	$         13,500	$ 25,000	$     170,500
Leasehold improvements	$            2,36,000	$     118,000		$     354,000
Total	$       4,228,000	$ 2,889,500	$ 47,000	$ 7,070,500