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Financial accounting - Math Problem Example

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I received your email only yesterday and I was happy to see your curiosity over these issues. In the first part of the email you asked me how to treat land and building which have a lower NRV than their book value. As accountants we follow accounting concepts…
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Financial accounting
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Type here Your module here Your here Depreciation Charge = Depreciation of Building + Depreciation of Plant + Depreciation of Motor Vehicle
Depreciation of Building:
4 Million / 50 = $80000
Depreciation of Plant and Machinery:
1000000/10 = $100,000
100,000/10 = $10,000
$ 110,000
Depreciation of Motor Vehicle:
20,000 * 20% = $4000
(50,000-20,000)/ 8 = $3750
Total $7750
I. Depreciation Charge for the year = 80,000 + 110,000 + 7750 = $197750
II. Depreciation for M.V will be charge for two years = 2 * 0.2 * 16000 = $6400
NBV of M.V sold = 16000 - 6400 = $9600
Loss on Disposal = 8000 - 9600 = ($1600)
III. Impairment Loss = 40,000 - 90,000 = ($50000)
IV. Grant = (0. 4 * 1000,000)/ 10 = $40,000
V. Surplus on Revaluation = 6 M - (4500,000 - 200,000 ) = $1.7 M
b) Notes complying with IAS 16 Requirements:
Land and Building
Cost of Land 1.5 Million
Cost of Building 3 Million
Total 4.5 Million
Depreciation (200,000)
Subtotal 4.3 Million
Surplus 1.7 Million
Revaluation Value 6 Million
Depreciation For the Year (80,000)
Balance Sheet Value 5920,000
Plant and Machinery
Historical Cost 1980,000
Accumulated Depreciation (436,000)
Subtotal 1544000
Depreciation for the year 110,000
Value at the end of the year 1434,000
Hello Peter,
I received your email only yesterday and I was happy to see your curiosity over these issues. In the first part of the email you asked me how to treat land and building which have a lower NRV than their book value. As accountants we follow accounting concepts. According to accounting concepts, as long as business is going concern it should state all its assets on book value rather than on NRV. This means that since we have no intention of closing down, we are going to write it down at the book value, regardless of what our NRV is. You should not provide impairment losses in the financial statement as these will decrease our reported profit and may be misleading for tax authorities and shareholder. We have a responsibility of disclosing fair and accurate information, therefore we should not provide for impairment losses until we want to close our operations.
Our business investment buildings will be included at their fair value according to the judgment of auditors in the balance under long-term leases head. This will be done according to IAS 16 principles which calls for fair-value to be include in the balance sheet. Fair value consists of costs less depreciation less impairment losses. Since, we are not charging any depreciation, we can simply state these building at their NRV that according to you come around $2.5 Million.
You have also asked me about how to treat grants. You are right about the fact that we can treat it as deferred income. IAS 20 allows us to treat it as deferred income. However, this option may increase will increase our profit and will also result in more tax payments. So, it is better to not treat it as tax income and instead amortize it completely by adjusting it with the purchase of fixed assets.
Harold Randall. (1995). Accounting. Lett's Educational
Robert Meigs and Hakka Bettner (1996) . Accounting: The Basis of Decision Making. McGraw-Hills Read More
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