Reference no: EM13500700

The following information relates to Blue plc's property, plant and equipment.  The company's financial year end is 31 December.

(1)   In January 2010 (the start of its financial year), Blue plc purchased a piece of machinery.  The following details relating to the purchase have been compiled by Blue's management. 

 

Item	€
Cost	11,000
Delivery charge	100
Installation charge	200
Maintenance charge	400
Additional component to increase capacity	100
Replacement parts	250
Total	12,050

 

(2)   Blue plc also decided to construct a new delivery depot using spare land on their existing site.  The company took out a bank loan of €1,000,000 specifically to fund construction.  It had an annual interest rate of 6.5%, and was taken out on 1 April 2010.  Construction was completed on 30 September 2010.

(3)   The company also decided to revalue their property, which consisted of one building which was purchased on 1 January 2007 for €5,000,000, and had a useful life of 50 years at purchase.  At the time of revaluation, the surveyor's report advised that the total useful life of the building was unchanged and its value as at 1 January 2010 was €6,500,000. 

(4)   On 1 January 2010, Blue plc entered into an agreement to lease another piece of machinery for 4 years. The machine would have cost €113,640 to purchase and has an expected useful life of approximately 4 years.

Blue plc will pay 4 annual instalments of €33,000; the first payment is to be made on 1 January 2010. The interest rate implicit in the agreement is 11%.

Requirement:

a)      What cost figure should be used as the basis for the depreciation charge for the year on the machine purchased in (1)?  Show your workings and explain your answer.

b)      In relation to the new delivery depot in (2) and with reference to the requirements of the relevant accounting standard, describe the appropriate treatment for the loan interest under IFRS.

c)      With regard to the building revaluation in (3), calculate

                            i.            The 2010 depreciation charge to be shown in Blue plc's financial statements

                           ii.            The net book value of the building as at 31 December 2010

                           iii.            The revaluation reserve balance as at 31 December 2010

 

d)     Assuming the lease in (4) is a finance lease, calculate for 2010:

                            i.            The interest charge (allocating interest using the actuarial method)

                            ii.            The depreciation charge (assuming straight line depreciation is used)

                           iii.            The balance sheet asset at 31 December 2010

                           iv.            The balance sheet liability at 31 December 2010