Question

You are provided with an extract from the notes to the financial statements No. 14 (Property, plant, and equipment) for BOC Kenya Limited 2016 annual report.

2016	Land & Buildings	Plant & Machinery	Motor vehicles	Cylinders	Furniture & equipment	Capital	Total
Cost
At 1 January, 2016	113,169	515,260	207,760	729,356	51,168	32,549	1,649,262
Transfers	-	-	31,482	1,067	-	(32,549)	-
Reallocation	300	-	-	-	-	-	300
Additions	-	24,362	13,329	19,373	4,837	14,830	76,731
Assets removed	-	-	(45,638)	-	-	-	(45,638)
Disposals	-	-	(1400)	(5,342)	-	-	(6,742)
At 31 Dec, 2016	113,469	539,622	205,533	744,454	56,005	14,830	1,673,913
Depreciation
At 1 Jan. 2016	(56,094)	(407,697)	(108,726)	(333,853)	(43,797)	-	(950,167
Reallocation	(300)	35,097	(35,097)	-	-	-	(300)
Charge for the year	(2,944)	(21,096)	(11,660)	(24,810)	(3,314)	-	(63,824)
Assets removed	-	-	45,638	-	-	-	45,638
Disposals	-	-	1,400	2,886	-		4,286
At 31 Dec.2016	(59,338)	(393,696)	(108,445)	(355,777)	47,111	-	964,368
Carrying value: At 31 Dec.2016	54,131	145,925	97,088	388,677	8,894	14,830	709,545

During the year, the company received compensation of kshs 4,078,138 (2015: 568,637) from third parties for lost cylinders and disposal of replaced trucks. The net book value of the disposed assets was kshs 2,455,204.

Included in property, plant and equipment are assets with a gross value of KShs 359,440,852 (2015: KShs 342,719,812) which are fully depreciated but still in use. The notional depreciation charge on these assets would have been KShs 51,780,882 (2015: KShs 45,489,450). There were no idle assets at 31 December, 2016 and 2015.

Required;

(a) What is meant by (i) depreciation, (ii) carrying value. (iii) Capital work in progress, (iv) transfers, (v) disposals?

(b) Illustrate how the carrying values of the assets are arrived at.

(c) What were the different components of plant, property, and equipment for the year 2016?

(d) What was the depreciation expenses for motor vehicles during the year?

(e) What was the accumulated depreciation for motor vehicles as at 31 December 2016. What does this figure represent?

Answer 1

(a).

(i) Depreciation is the decrease in the value of the asset due to usage / lapse of time.

(ii) Carrying value is the net value of the asset as at date after reducing the depreciation on the asset.

(iii) Capital work in progress , is the expenditure incured on capital assets before they are put inot use or operation. Example for capital work in process : Construction of a new factory building, which may take more than one - year to complete. The expenditure incurred on the building each period, is capitalised as capital work-in-progress until the building is put to use.

(iv) Transfers normally involves , the tarnsfer of the value of an asset from capital work-in-progress to a specific asset group.

(v) Disposal of an asset is the removal of the asset form the aset list , due to sale or obsolescence.

(c) Components of Property,Plant and Equipment are

i. Land and buildings

ii. Plant and Machinery

iii. Motor Vehilces

iv. Furniture and fixtures.

(d) Depreciation expense for motor vehilces during the year = 11,660.

(e) Accumulated Depreciation as at December 31, 2016 = $108,445.

This figure represents the depreciation charged over the period on the motor vehicles which are in use as at Dec.31, 2016.