Reference no: EM132623475

On 1 January 2013, Sally plc bought a ship for K 192,000 million. The ship as a whole should last for 25 years. The engines, however, will need replacing after 7 years. The cost price of K 192,000 included about K 22,400 million in respect of the engines

Problem a) Discuss factors that an entity should take into account when judging the useful life of an asset

Problem b) Calculate the total depreciation charge that is be charged to the income statement for the year ended 31 December 2013

Problem c) If Sally decides to replace the engines on 31 December 2018 and if the costs of replacing the ship with a new engine is K24,000 million and Sally sells the old engine at K 4,000 million

i. What will be the carrying amount of the whole ship on 31 December 2018

ii. How much profit or loss will be made on the sale of the old engine?

iii. Calculate the total depreciation charge that will be charged to the income statement for the year ended 31 December 2019 if the new engine will need to be replaced after 6 years but the useful life of the rest of the ship remains unchanged

Problem d) IAS16 Property, Plant and Equipment allows a choice between the cost model and the revaluation model for measuring property, plant and equipment subsequent to initial recognition while IAS 40 Investment Property requires an entity to choose between fair value model and cost model subsequent to initial recognition of Property, Plant and Equipment.

Required

Discuss the differences in the way gains and losses are accounted for under the revaluation model in IAS 16 Property Plant and Equipment and the fair value model in IAS 40 Investment property subsequent to initial recognit