Reference no: EM133855375

Advanced Financial Accounting

Workshop - Property Plant and Equipment

During Workshop

Activity 1

What assets constitute property, plant and equipment?
What are the recognition criteria for property, plant and equipment?

Activity 2

Magpie Ltd uses many kinds of machines in its operations. It constructs some of these machines itself and acquires others from the manufacturers. The following information relates to two machines that it has recorded in the 2020-21 period. Machine A was acquired, and Machine B was constructed by Magpie Ltd itself.

Required
Determine the amount at which each of these machines should be recorded in the records of Magpie Ltd. For items not included in the cost of the machines, note how they should be accounted for.

Activity 3

Mama's Fried Chicken bought equipment on 1 July 2022 for $39,000. The equipment was expected to remain in service for four years to perform 11,000 fry jobs. At the end of the equipment's useful life, Mama's estimates that its residual value will be $6,000.

The equipment performed 1,100 jobs in Year 1, 3,300 jobs in Year 2, 4,400 jobs in
Year 3, and 2,200 in Year 4.

Prepare a schedule of depreciation expense per year for the equipment under 3 depreciation methods. (for diminishing value method, use 37.3716%)
Which method tracks wear and tear on the equipment most appropriately?

After Workshop

Activity 1

How should items of property, plant and equipment be measured at point of initial recognition?

Activity 2

What is meant by ‘residual value' of an asset?

Activity 3

How does an entity choose between depreciation methods, for example, straight-line versus diminishing balance models?

Activity 4

Recently Sea Eagle Ltd experienced a strike that affected a number of its operating plants. The group accountant of Sea Eagle Ltd indicated that it was not appropriate to report depreciation expense during this period as the equipment was not used during the strike. She stated that during the strike the equipment did not depreciate and an inappropriate matching of costs and revenues would result if depreciation were charged. She based her position on the following points.

It is inappropriate to charge the period with costs for which there are no related revenues arising from production.
The basic factor of depreciation in this instance is wear and tear, and because the equipment was idle, no wear and tear occurred.

Required
You are a part of the auditing team that analyses the accounts of Sea Eagle Ltd. Write a report to your supervisor in relation to the views of the group accountant of Sea Eagle Ltd. Get Professional Assignment Help Service Now!

Activity 5

Corella Ltd has acquired a new machine which it has had installed in its factory. Assess which of the following items should be capitalised into the cost of the building. Provide a reason for your conclusions.
Labour and travel costs for managers to inspect possible new machines and for negotiating for a new machine.
Freight costs and insurance to get the new machine to the factory.
Costs for renovating a section of the factory, in anticipation of the new machine's arrival, to ensure that all the other parts of the factory will have easy access to the new machine.
Cost of cooling equipment to assist in the efficient operation of the new machine.
Costs of repairing the factory door, which was damaged by the installation of the new machine.
Training costs of workers who will use the machine.

Activity 6

Wader Ltd constructed a building for use by the administration section of the company. The completion date was 1 July 2012, and the construction cost was $840 000. The company expected to remain in the building for the next 20 years, at which time the building would probably have no real salvage value. In December 2018, following some severe weather in the city, the roof of the administration building was considered to be in poor shape so the company decided to replace it. On 1 July 2019, a new roof was installed at a cost of $220 000. The new roof was of a different material to the old roof, which was estimated to have cost only $140 000 in the original construction, although at the time of construction it was thought that the roof would last for the 20

years that the company expected to use the building. Because the company had spent the money replacing the roof, it thought that it would delay construction of a new building, thereby extending the original life of the building from 20 years to 25 years. Required
Discuss how you would account for the depreciation of the building and how the replacement of the roof would affect the depreciation calculations.