Question

Botho Ltd prepares its financial statements to 31 December each year. At 1 January 2017 the following balances existed in the records of Botho Ltd.

P'000

Land – cost                                                                                         1,000

Buildings – cost                                                                                                    500

Buildings: accumulated depreciation                                          210

Plant and equipment – cost                                                             40

Plant and equipment – accumulated depreciation                 24

The company's depreciation policies are as follows.

- Land – no depreciation.

- Buildings – depreciation provided at 2% per annum on cost on the straight-line basis.

- Plant and equipment – depreciation provided at 25% per annum on the reducing balance basis.

- A full year's deprecation is charged in the year of acquisition of all assets and none in the year of disposal.

During the year to 31 December 2017 the following transactions took place.

1 March                Office equipment which had cost P8,000 and with a carrying amount of P2,000 was sold for P3,000.

10 June                 Office equipment purchased for P16,000. This equipment was to replace some old items which were given in part exchange. Their agreed part exchange value was P4,000. They had originally cost P8,000 and their carrying amount was P2,000. The company paid the balance of P12,000 in cash.

8 October            An extension was made to the building at a cost of P50,000.

In preparing the financial statements at 31 December 2017 it was decided to revalue land upwards by P200,000 to reflect a recent survey.

Required: Prepare a Property, Plant and Equipment note for Botho Ltd as it will appear in the explanatory notes to their financial statements.                                                                                                     

Answer 1

Notes to the financial statements:

Property, Plant and Equipment:

Initial Recognition:

PP&E is to be recognized if the future economic benefits associated with these assets will flow to the company and the cost of the asset can be reliably measured. The initial measurement of these assets are at cost. This includes all the costs necessary to bring the asset to working condition for its intended use. After the initial recognition, the property, plant and equipment is stated at cost less accumulated depreciation.

Additional expenditure:

When the recognition criteria as per GAAP are met, any additional costs will be added to the carrying amount of the assets or recognized as a separate asset. Depreciation is charged for the full year in the year of acquisition.

Disposal:

On disposal of an item of property, pland and equipment, the difference between the sale proceeds and carrying amount is recognized as profit or loss under the head "Gain or loss on sale if fixed assets". No depreciation is charged on such assets in the year of sale. Any amount in revaluation reserve relating to that asset is transferred to retained earnings.

Land is freehold land. It has been revalued by independent professional valuers whenever the carrying amounts are likely to be materially different from their revalued amounts. Increase in the carrying amounts owing to revaluation are recognized under asset revaluation reserve.

Depreciation policies:

Freehold Land is not depreciated

Buildings: Buildings are depreciated over straight line basis based on the estimated life of the asset.

Plant and Equipment are depreciated over reducing balancing method based on the estimated life of the asset.

Below are the estimated useful lives:

Building - 25 - 50 Years

Plant and equipment 5-15 years