Question

IAS 16, Property, Plant, and Equipment, requires assets to be initially measured at cost. Subsequently, assets may be carried at cost less accumulated depreciation, or they can be periodically revalued upward to current value and carried at the revalued amount less accumulated depreciation. If revalued, the adjustment is reported in other comprehensive income. Subsequent depreciation is based on the revalued amount. ASPE does not allow assets to be revalued at an amount exceeding historical cost less accumulated depreciation.

ABC Ltd., a private company, can report in accordance with either ASPE or IFRS. On January 1, Year 1, it acquired an asset at a cost of $10.8 million, which will be amortized on a straight-line basis over an estimated useful life of 24 years. On January 1, Year 3, the company hired an appraiser, who determined the fair value of the asset (net of accumulated depreciation) to be $12.1 million. The estimated useful life of the asset did not change. (Leave no cells blank - be certain to enter "0" wherever required. Enter your answers in dollars and not in millions of dollars. Answers must be numerical. Round your intermediate computations and final answers to nearest whole dollar value.)

Required:

(a) Determine the depreciation expense recognized in Year 2, Year 3, and Year 4 under

(i) the revaluation treatment allowed under IAS 16, and

	IAS 16
Year 2	$
Year 3	$
Year 4	$

(ii) ASPE.

	ASPE
Year 2	$
Year 3	$
Year 4	$

(b) Determine the carrying amount of the asset under the two different sets of accounting requirements at January 2, Year 3; December 31, Year 3; and December 31, Year 4.

	Jan 2/Yr3	Dec31/Yr3	Dec31/Yr4
IAS 16	$	$	$
ASPE	$	$	$

(c) Determine the differences in profit and shareholders’ equity over the 24-year life of the asset using the two different sets of accounting requirements. Assume that future appraisals indicated that the fair value of the asset was equal to carrying amount.

Difference in profit	$
Difference in shareholders’ equity	$

*Please provide the exact answers and include the calculations. Part a,b, c.*

Answer 1

Statement of Depreciation and Written Down Value As per IAS 16 Year Wrritten Down Value Depreciation 31 December Year 1 31 December Year 2 31 December Year 3 31 December Year 4 31 December Year 5 31 December Year 6 31 December Year 7 31 December Year 8 31 December Year 9 31 December Year 10 31 December Year 11 31 December Year 12 31 December Year 13 31 December Year 14 31 December Year 15 31 December Year 16 31 December Year 17 31 December Year 18 31 December Year 19 31 December Year 20 31 December Year 21 31 December Year 22 31 December Year 23 31 December Year 24 10,350,000 9,900,000 11,550,000 11,000,000 10,450,000 9,900,000 9,350,000 8,800,000 8,250,000 7,700,000 7,150,000 6,600,000 6,050,000 5,500,000 4,950,000 4,400,000 3,850,000 3,300,000 2,750,000 2,200,000 1,650,000 1,100,000 550,000 450,000 450,000 550,000 550,000 550,000 550,000 550,000 550,000 550,000 550,000 550,000 550,000 550,000 550,000 550,000 550,000 550,000 550,000 550,000 550,000 550,000 550,000 550,000 550,000 ASPE Difference in Difference Wrritten Down Shareholder's Depreciation in Profit Value Equity 10,350,000 450,000 9,900,000 450,000 9,450,000 450,000 100,000 2,100,000 9,000,000 450,000 100,000 2,000,000 8,550,000 450,000 100,000 1,900,000 8,100,000 450,000 100,000 1,800,000 7,650,000 450,000 100,000 1,700,000 7,200,000 450,000 100,000 1,600,000 6,750,000 450,000 100,000 1,500,000 6,300,000 450,000 100,000 1,400,000 5,850,000 450,000 100,000 1,300,000 5,400,000 450,000 100,000 1,200,000 4,950,000 450,000 100,000 1,100,000 4,500,000 450,000 100,000 1,000,000 4,050,000 450,000 100,000 900,000 3,600,000 450,000 100,000 800,000 3,150,000 450,000 100,000 700,000 2,700,000 450,000 100,000 600,000 2,250,000 450,000 100,000 500,000 1,800,000 450,000 100,000 400,000 1,350,000 450,000 100,000 300,000 900,000 450,000 100,000 200,000 450,000 450,000 100,000 100,000 450,000 100,000

Working Note:

ASPE 1 January year 1 31 December year 1 10,800,000 (450,000) 10,350,000 (450,000) 9,900,000 31 December year 2 1 January year 3 31 December year 3 31 December year 4 31 December year 5 31 December year 6 31 December year 7 31 December year 8 31 December year 9 31 December year 10 31 December year 11 As per IAS 16 10,800,000 (450,000) 10,350,000 (450,000) 9,900,000 2,200,000 (550,000) 11,550,000 (550,000) 11,000,000 (550,000) 10,450,000 (550,000) 9,900,000 (550,000) 9,350,000 (550,000) 8,800,000 (550,000) 8,250,000 (550,000) 7,700,000 (550,000) 7,150,000 (550,000) 6,600,000 (550,000) 6,050,000 (550,000) 5,500,000 (550,000) 4,950,000 (550,000) 4,400,000 (550,000) 3,850,000 (550,000) 3,300,000 (550,000) 2,750,000 (550,000) 2,200,000 (550,000) 1,650,000 (550,000) 1,100,000 (550,000) 550,000 (550,000) Cost of an asset Less: Depreciation during the year Written Down Value Less: Depreciation during the year Written Down Value Add: Revaluation Profit Less: Depreciation during the year Written Down Value Less: Depreciation during the year Written Down Value Less: Depreciation during the year Written Down Value Less: Depreciation during the year Written Down Value Less: Depreciation during the year Written Down Value Less: Depreciation during the year Written Down Value Less: Depreciation during the year Written Down Value Less: Depreciation during the year Written Down Value Less: Depreciation during the year Written Down Value Less: Depreciation during the year Written Down Value Less: Depreciation during the year Written Down Value Less: Depreciation during the year Written Down Value Less: Depreciation during the year Written Down Value Less: Depreciation during the year Written Down Value Less: Depreciation during the year Written Down Value Less: Depreciation during the year Written Down Value Less: Depreciation during the year Written Down Value Less: Depreciation during the year Written Down Value Less: Depreciation during the year Written Down Value Less: Depreciation during the year Written Down Value Less: Depreciation during the year Written Down Value Less: Depreciation during the year Written Down Value 31 December year 12 31 December year 13 (450,000) 9,450,000 (450,000) 9,000,000 (450,000) 8,550,000 (450,000) 8,100,000 (450,000) 7,650,000 (450,000) 7,200,000 (450,000) 6,750,000 (450,000) 6,300,000 (450,000) 5,850,000 (450,000) 5,400,000 (450,000) 4,950,000 (450,000) 4,500,000 (450,000) 4,050,000 (450,000) 3,600,000 (450,000) 3,150,000 (450,000) 2,700,000 (450,000) 2,250,000 (450,000) 1,800,000 (450,000) 1,350,000 (450,000) 900,000 (450,000) 450,000 (450,000) 31 December year 14 31 December year 15 31 December year 16 31 December year 17 31 December year 18 31 December year 19 31 December year 20 31 December year 21 31 December year 22 31 December year 23 31 December year 24