Question

IAS 16. Fixed Assets. We are a graphic arts company, and at the beginning of 2016, we acquired a new printer. The price of this printer was 25,000 euros. The additional expenses of the purchase were as follows:

• Installation and assembly: 3.000 euros.
• Transportation and delivery: 1.150 euros.

All operations have a 21% VAT (not included), and the payment of the amounts is made by bank check.

During January, the assembly and installation of the new printer takes place, which is in perfect working condition from February the 1st.

The useful life expectancy of the printer is estimated at 10 years, and its amortisation will be carried out following the linear method. Additionally, at the end of its useful life, the company will have to face the costs of dismantling and rehabilitation of the place. Estimating said costs in 5,000 euros. Besides, said machinery requires specialised weekly maintenance, amounting to 250 euros per month.

Calculate:

• The initial cost of the acquisition.
• The amortization fees.
• The costs derived from daily maintenance.

IAS 36. Impairment of assets. We are a photo studio, and due to the increase in work and staff, we have had to acquire three new cameras and accessories. The acquisition occurred in January 2018. The prices of the cameras are as follows:

• Camera 1: 1.750 euros
• Camera 2: 3.500 euros
• Camera 3: 1.950 euros
• Accessories: 4.550 euros

Calculate:

• The impairment loss of the asset at the end of 2020, taking into account that the recoverable amount of the acquisitions is:
  • Camera 1: 575 euros
  • Camera 2: 1.500 euros
  • Camera 3: 750 euros
  • Accessories: 2.200 euros

IAS 38. Intangible Assets. On March 1, 2016, we obtained a patent for 7,500 euros.

At the close of the fiscal year, on December 31, 2016, the fair value of the patent was 9,000 euros.

As of December 31, 2017, the fair value of the patent stands at 8,000 euros.

The criterion we use for valuation after the initial recognition of the asset is the revaluation model.

Formulate:

Make the accounting entries corresponding to the acquisition of the asset and at each accounting close.

Answer 1

IAS 16. Fixed Assets.

• The initial cost of the acquisition : 29,500 (25,000+3,000+1,500) Note : It is assumed that 21% vat incurred on all expenses is subject to input credit and can be utilised against vat output liability of business and hence not a cost to be capitalised
• The amortization fees. : 3,450 (29500+5000)/10 Note : The estimated cost incurred at end of life of asset
• The costs derived from daily maintenance : 250 Euros a month

IAS 36. Impairment of assets.

Note : Impairment of asset is equal to reduction in carrying value of asset to make it equal to recoverable value of asset when recoverable value of asset is lower than carrying value.

Here cameras are purchased in 2018 and impairment needs to be determined in 2020. The Camera would be subject to depreciation however we have not been provided any detail about useful lives and method of depreciation hence the below response considers that acquisition value is equal to carrying value of asset in 2020

Assets	Acqusition Value (Refer Note)	Recoverable Value	Impairment
Camera 1:	1,750.00	575.00	1,175.00
Camera 2:	2,500.00	1,500.00	1,000.00
Camera 3:	1,950.00	750.00	1,200.00
Accessories	4,550.00	2,200.00	2,350.00
Total	10,750.00	5,025.00	5,725.00

IAS 38. Intangible Assets.

IAS 38 provides either cost model or revaluation model approach for valuation of intangible subsequant to initial recongnition. Under revaluation model, at each balance sheet asset is revalued at fair value with reference to active market and and any difference is accounted revaluation surplus. Revaluaiton surplus is part of "comprehensive Income" and not considered for Income statement.

1-Mar-16	Patent	7,500.00
	Cash / Bank		7,500.00
	(Acquistion of patent)
31-Dec-16	Patent	1,500.00
	Revaluation Surplus		1,500.00
	(To record revaluation of patent)
31-Dec-17	Revaluaiton Surplus	1,000.00
	Patent		1,000.00
	(To record revaluation of patent)