Property, Plant & Equipment: Measurement After Recognition

CAF 5 – IAS 16
Property, Plant &

IAS 16 Equipment 01
Page | 1
MEASUREMENT AFTER RECOGNITION
IAS 16 allows choice of accounting treatment:
Cost model Cost – accumulated depreciation – accumulated impairment losses
Revaluation Revalued amount – subsequent accumulated depreciation
model Revalued amount is fair value (FV) at the date of revaluation.
RECORDING REVALUATION
Elimination of Dr. Accumulated depreciation
1.
depreciation Cr. Asset
Recording gain or Dr. Asset Dr. Loss on revaluation
2.
loss Cr. Gain on revaluation Cr. Asset
SPL OR OCI – WHERE THE GAIN OR LOSS SHOULD BE RECOGNISED?

Asset carried at cost
SPL
revalued downwards
Asset carried at cost
OCI (and added to Revaluation Surplus)
revalued upwards
Asset carried at OCI [up to the balance in revaluation surplus account (usually
revaluation surplus after incremental depreciation)]
revalued downwards SPL [Remaining amount]
Asset carried at SPL [up to the asset’s carrying amount had the
revaluation deficit impairment/revaluation loss never occurred]
revalued upwards OCI [Remaining amount]
DEPRECIATION OF REVALUED ASSETS

Depreciation The depreciation is charged on revalued amount.
The extra depreciation charged on the revalued amount (as compared to
cost) may be transferred from revaluation surplus to retained earnings (and
Incremental
this is shown in statement of changes in equity).
depreciation
= Depreciation after revaluation – Depreciation before revaluation
= Revaluation surplus / remaining useful life
CONDITIONS FOR REVALUATION MODEL
If the revaluation model is adopted, the following two conditions need to be fulfilled:
When an item of PPE is revalued, the entire class of assets to which the items
Class wise
belongs must be revalued. For example, if a plant is revalued all the plant and
application
machineries held by entity should be revalued.
After first revaluation, subsequent revaluations must be made with sufficient
Sufficient regularity to ensure that the carrying amount does not differ materially from the
regularity fair value at each reporting date. Revaluations need not necessarily be made
at each year – end.
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CAF 5 – IAS 16
DERECOGNITION
= Net disposal proceeds – carrying amount at the time of disposal
Rs.
Sale proceeds on disposal (Cash received) XX
Page | 2 Sale proceeds (part-exchange asset received) XX
Less: Disposal costs and cash paid (X)
Gain or Net disposal proceeds XX
loss Asset at cost XX
Less: Accumulated depreciation (XX)
Carrying amount at date of disposal (XX)
GAIN (LOSS) ON DISPOSAL XX/(XX)
The gain or loss is recognised in profit or loss but gain is not classified as
revenue.
The carrying amount of replaced part is derecognised on disposal even if the
Replaced
replaced part was not depreciated separately. The cost of replacement may
part
be used as an indication for carrying amount of the replaced part.
Revaluation The revaluation surplus related to the asset disposed of is transferred
surplus to retained earnings.
Trade-in
The value of old asset agreed in exchange of assets.
value
JOURNAL ENTRIES – DISPOSAL
Dr. Disposal
1. Transfer the cost of non-current asset
Cr. PPE
Dr. Accumulated depreciation
2. Transfer the accumulated depreciation
Cr. Disposal
Dr. Bank / Receivable
3. Sale proceeds (cash received)
Cr. Disposal
Dr. PPE (new)
4. Part-exchange (asset received)
Cr. Disposal
Dr. Disposal
5. Disposal costs
Cr. Bank / Payables
Dr. Disposal
6. Cash paid in part exchange
Cr. Bank
Dr. Disposal
Gain or loss (balance on disposal Cr. Gain (PL)
7.
account) Dr. Loss (PL)
Cr. Disposal
Realisation of revaluation surplus on Dr. Revaluation Surplus
8.
disposal Cr. Retained Earnings
The entry 1 to 7 may be combined as follows:
Dr. Accumulated depreciation
Dr. Bank (received)
Dr. PPE (new)
1 to 7. Dr. Loss (balancing figure)
Cr. Bank (paid)
Cr. PPE (old)
Cr. Gain (balancing figure)
Latest update: March 2020

CAF 5 – IAS 16
DISCLOSURE
 Measurement bases for determining gross carrying amount (Cost
model or revaluation model)
 Depreciation method
For each class
 Useful lives or depreciation rates
of PPE Page | 3
 Gross carrying amount and accumulated depreciation at beginning
and at end of the period and reconciliation thereof [PPE
Schedule]
 the existence and amounts of restrictions on title, and PPE pledged
as security for liabilities
Circumstantial  capital work in progress
disclosure  the amount of contractual commitments for the acquisition of PPE
 the amount of compensation from third parties for items of PPE
that were impaired, lost or given up.
Change in The nature and financial effect of the change in residual values, estimated
estimate dismantling costs, useful lives and depreciation method is to be disclosed.
 the effective date of the revaluation
 whether an independent valuer was involved
 the extent to which items’ fair values were determined directly by
reference to observable prices in an active market or recent market
For revalued transactions or were estimated using other valuation techniques.
assets  for each revalued class of PPE, the carrying amount that would
have been recognised had the assets been carried under the cost
model
 the revaluation surplus, indicating the change for the period and
any restrictions on the distribution of the balance to shareholders.
 the carrying amount of temporarily idle PPE
 the gross carrying amount of any fully depreciated PPE that is still
in use;
Optional
 the carrying amount of PPE retired from active use and not
disclosures
classified as held for sale in accordance with IFRS 5
 when the cost model is used, the fair value of PPE when this is
materially different from the carrying amount.
Motor
PPE SCHEDULE (SPECIMEN) Premises Total
vehicles
Cost Rs. m
At beginning of period 500 250 750
Additions 20 10 30
Acquisition through business combination 50 25 75
Revaluation effect 40 20 60
Impairment losses (30) (15) (45)
Disposals (60) (30) (90)
Assets classified as held for sale (IFRS 5) (10) (5) (15)
At the end of period 510 255 665
Accumulated depreciation
At beginning of period 100 50 150
Depreciation expense 40 20 60
Revaluation effect (10) (5) (15)
Disposals / Transfers (20 (10) (30)
At the end of period 110 55 165
Carrying amount 400 200 600
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CAF 5 – IAS 16
ACCOUNTING POLICIES
IAS 1 requires the disclosure of accounting policies used that are relevant
to an understanding of the financial statements. Property, plant and
Requirement
equipment often includes the largest numbers in the statement of financial
Page | 4 of IAS 1
position and results in significant expense in the statement of
comprehensive income.
Illustrative example: Accounting policy – Property, plant and equipment

Property, plant and equipment comprises freehold and lease hold land and buildings, plant
and machinery, fixtures and fittings, vehicles, office equipment and capital work in progress.
Land and buildings

Land and buildings comprise mainly factories, warehousing and offices. Freehold land and
buildings are shown at their fair value less accumulated depreciation. Valuations are
performed with sufficient regularity to ensure that the fair value of a revalued asset does not
differ materially from its carrying amount.
Increases in the carrying amount arising on revaluation of land and buildings are credited to
other comprehensive income. Decreases that offset previous increases of the same asset
are charged directly to other comprehensive income. Any amounts not so covered are
recognised in profit or loss for the period.
Depreciation is based on the carrying amount of the asset after the revaluation. The
incremental depreciation is the difference between the depreciation based on historical cost
and depreciation based on fair value. Each year this amount is transferred from the
revaluation surplus to accumulated profits. Any accumulated depreciation at the date of
revaluation is eliminated against the gross carrying amount of the asset, and the net amount
is restated to the revalued amount of the asset.
When revalued assets are sold, the amounts included revaluation surplus in respect of that
asset is transferred to accumulated profits. Freehold land has an indefinite useful life and is
not depreciated. Freehold buildings are depreciated on a straight-line basis over their useful
economic lives over as shown below.
Leasehold land and buildings are all depreciated on a straight-line basis over the lease term.
Other tangible non-current assets

All other property, plant and equipment is carried at historical cost less accumulated
depreciation and accumulated impairment losses. Historical cost includes expenditure that is
directly attributable to the acquisition of the items, the cost of replacing parts of the plant and
equipment and borrowing costs capitalised in accordance with IAS 23: Borrowing costs.
Depreciation is calculated using the straight-line method to allocate their cost or revalued
amounts to their residual values over their estimated useful lives, as follows:
Buildings 35-50 years
Machinery 5 to15 years
Vehicles 3 years
Furniture, fittings and equipment 5 to 10 years
The residual values and useful lives of assets are reviewed on an annual basis and adjusted
as appropriate.

CAF 5 – IAS 16
SYLLABUS
Reference Content/Learning outcome
C2 IAS 16 Property, plant and equipment (revaluation and disclosure)

Present property, plant and equipment after recognition under revaluation Page | 5
LO3.2.1
model using data and information provided.
Compute depreciation for assets carried under revaluation models using
LO3.2.2
information provided.
Account for de-recognition of property, plant and equipment recognised earlier
LO3.2.3
under revaluation methods
Understand the disclosure requirements and prepare extracts of necessary
LO3.2.4
disclosures.
Proficiency level: 2
Testing level: 2
Past Paper Analysis

A14 S15 A15 S16 A16 S17 A17 S18 A18 S19 A19 S20
CAF 5
25 14 15 13 17 04 18 17 12 16 141 122
Objective Type - 02
CAF 7
15 17 - 13 - - - 20 03 -
1
Total marks 17 (including IAS 23)
2
Total marks 20 (including IAS 20 and IAS 40)
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CAF 5 – IAS 16
PRACTICE Q&A
Sr.# Description Marks Reference
REVALUATION
1H Basic Incremental Depreciation calculation 05 KA
Page | 6 2C *Surplus  Deficit – without transfer 10 KA
3C *Surplus  Deficit – with transfer 10 KA
4C *Deficit  Surplus 10 KA
5H Derecognition 04 CI
6C Derecognition of revalued asset 04 KA
7H Adjustments Limited – Effects of changes in depreciation 15 QB
8H Rooney: Complex asset loss on revaluation and reversal 12 QB
9H Ehtisham: Revaluation loss and reversal of loss 10 QB
10C SK Limited: JE for revaluation gain, reversal of gain and
11 PE S18
reversal of loss
11C PQR Enterprises: Disclosures and JE for revaluation
15 PE A15
including incremental depreciation with change in estimate
12H Shahzad Textile Mills Limited: JE for incremental
depreciation, revaluation gain, reversal of gain and reversal 15 PE A14
of losses
13H Omega Chemicals Limited: Revaluation gain and losses –
17 PE S15
detailed
14H Piano Limited: Depreciation and Revaluation entries 16 PE S19
DISCLOSURES
15H Carly: PPE Schedule 18 QB
16H Disclosure of revalued assets: Theory 04 PE S17
17C Sherdil Limited: PPE schedule / disclosure note
18 PE A17
(comprehensive)
18H Fam: Disclosure note 16 QB
19H Abid Limited: PPE Disclosure note with revaluation 13 PE S16
20C Orchid Limited: Disclosures PPE and change in
20 PE S18
depreciation method
21C Abbas Limited – Journal entries and disclosures 20 QB
22H Games Limited – Journal entries and disclosures 20 QB

CAF 5 – IAS 16
QUESTION 01
A company revalued its buildings at the start of the year to Rs. 6 million. The property cost
was Rs. 4 million and it was bought 10 years ago. Its total useful life of 50 years is
unchanged. The company policy is to make an annual transfer of realised amounts to
retained earnings.
What is amount of incremental depreciation? (05) Page | 7
QUESTION 02
On 1 January 2001, M Limited purchased a building for Rs. 100,000 with nil residual value
and 10 years useful life. The company policy is not to transfer incremental depreciation.
On 31 December 2001, the building was revalued to Rs. 108,000.
On 31 December 2002, due to slump in the property market, the building was again revalued
but this time the worth was only Rs. 55,000.
REQUIRED
Pass the journal entries from 1 January 2001 to 31 December 2002. (10)
QUESTION 03
On 1 January 2001, M Limited purchased a building for Rs. 100,000 with nil residual value
and 10 years useful life.
On 31 December 2002, due to slump in the property market, the building was again revalued
but this time the worth was only Rs. 55,000.
REQUIRED
QUESTION 04
On 1 January 2001, J Limited purchased premises for Rs. 100,000 with nil residual value
and 10 years useful life.
On 31 December 2002, due to surge in the property market, the building was again revalued
but this time the worth was Rs. 92,000.
REQUIRED
QUESTION 05
Entity X has several motor cars that are accounted for as property, plant and equipment. As
at 1 January Year 5, the cost of the entity’s cars was Rs.200,000 and the accumulated
depreciation was Rs.80,000.
On 2 January Year 5, Entity X bought a new car costing Rs.50,000. The car dealer accepted
a car owned by Entity X in part-exchange, and the part-exchange value of this old car was
Rs.4,000. This car originally cost Rs.30,000 and its accumulated depreciation is Rs.25,000.
Required
Calculate the gain or loss on disposal of the old car (04)
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CAF 5 – IAS 16
QUESTION 06
A revalued asset with a carrying amount of Rs. 70,000 (after deducting accumulated
depreciation of Rs. 30,000) was sold for Rs. 95,000. There is a Rs. 40,000 revaluation
surplus relating to this asset.
Required:
Page | 8 Pass the journal entries on disposal. (04)
QUESTION 07
Adjustments Limited has carried out a review of its non-current assets.
(a) A lathe was purchased on 1 January 2009 for Rs. 150,000. The plant had an
estimated useful life of twelve years, residual value of nil. Depreciation is charged on
the straight line basis. On 1 January 2015, when the asset’s net book value is Rs.
75,000, the directors decide that the asset’s total useful life is only ten years.
(b) A grinder was purchased on 1 January 2012 for Rs. 100,000. The plant had an
estimated useful life of ten years and a residual value of nil. Depreciation is charged
on the straight line basis. On 1 January 2015, when the asset’s net book value is Rs.
70,000, the directors decide that it would be more appropriate to depreciate this
asset using the sum of digits approach. The remaining useful life is unchanged.
(c) The company purchased a fifty year lease some years ago for Rs. 1,000,000. This
was being depreciated over its life on a straight line basis. On 1 January 2015, when
the net book value is Rs. 480,000 and twenty-four years of the lease are remaining,
the asset is revalued to Rs. 1,500,000. This revised value is being incorporated into
the accounts.
Required
Explain the effects of these changes on the depreciation for the year to 31 December 2015.
(15)
QUESTION 08
Rooney manufactured a press for Rs. 30 million. The press comprises two significant parts,
the hydraulic system and the ‘frame’. The hydraulic system has a three year life and the
‘frame’ has an eight year life. Rooney depreciates plant on a straight line basis. The cost of
the hydraulic system is 30% of the total cost of manufacture.
Rooney uses the IAS 16 revaluation model in accounting for diamond presses and revalues
these assets on an annual basis.
Revaluation surpluses or deficits are apportioned between the hydraulic system and the
‘frame’ on the basis of their year-end book values before the revaluation.
Required
Explain the IAS 16 rules on accounting for significant parts of property, plant and equipment
and show the accounting treatment of the diamond press in the financial statements for the
financial years ending:
(i) 31st March 2016 (assume that the press has a fair value of Rs. 21million)
(ii) 31st March 2017 (assume that the press has a fair value of Rs. 19.6 million).
(12)

CAF 5 – IAS 16
QUESTION 09
The following information relates to the financial statements of Ehtisham for the year to 31
March 2015.
The head office of Ehtisham was acquired on 1 April 2012 for Rs.1 million. Ehtisham intend
to occupy the building for 25 years. On 31 March 2014 it was revalued to Rs. 1.15 million.
On 31 March 2015, a surplus of vacant commercial property in the area had led to a fall in Page | 9
property prices and the fair value was now only Rs. 0.8 million.
Required
Explain the correct accounting treatment for the above (with calculations if appropriate).
(10)
QUESTION 10
Following information pertains to a building acquired by SK Limited (SKL) on 1 July 2012 for
Rs. 360 million:
(i) The building is being depreciated on straight-line basis over 10 years.
(ii) SKL uses revaluation model for subsequent measurement of buildings. It accounts
for revaluation on net replacement value method. The details of revaluations as
carried out by independent valuer are as follows:
Fair value
Revaluation date
(Rs. in million)
31 December 2013 323
(iii) There is no change in useful life of the building.
(iv) SKL transfers the maximum possible amount from the revaluation surplus to retained
earnings on an annual basis.
(v) SKL’s financial year ends on 31 December.
Required:
Prepare entries to record revaluation surplus/loss on each of the above revaluation date.
(Entries to record depreciation expense, incremental depreciation and elimination of
accumulated depreciation are not required) (11)
QUESTION 11
(a) When a company follows revaluation model for subsequent measurement of its
Property, Plant and Equipment, it is required to provide certain additional disclosures
(as compared to cost model). Specify such disclosures as have been mentioned in
IAS 16 ‘Property, Plant and Equipment’. (03)
(b) PQR Enterprises was incorporated on 1 July 2012. The company depreciates its
property, plant and equipment on straight line basis over their useful life. It uses
revaluation model for subsequent measurement of the property, plant and equipment
and has a policy of revaluing these after every two years.
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CAF 5 – IAS 16
Following information pertains to its property, plant and equipment:

Value as Useful life in years
determined
Cost WDV
by
as on as on Remaining
Assets professional
01-07-2013 01-07-2013 Original at as
valuer on
Page | 10 30-06-2014 acquisition determined
by valuer
---------------- Rs. in million ----------------
Office building 6,000 5,500 5,750 12 8
Factory building 4,400 3,960 3,320 10 9
Warehouse 4,500 4,050 3,350 10 8
During the year there were no addition or deletion in the above assets.
As per policy, PQR transfers the maximum possible amount from the revaluation surplus to
retained earnings on an annual basis.
Required:
Prepare necessary journal entries for the year ended 30 June 2014 and 2015. (12)
QUESTION 12
Shahzad Textile Mills Limited (STML) purchased a plant for Rs. 500 million on 1 July 2010.
The plant has an estimated useful life of 10 years and no residual value.
STML uses revaluation model for subsequent measurement of its property, plant and
equipment and accounts for revaluations on net replacement value method. The details of
revaluations performed by an independent firm of valuers are as follows:
Revaluation date Fair value
1 July 2011 Rs. 575 million
Required:
Prepare journal entries to record the above transactions from the date of acquisition of the
plant to the year ended 30 June 2014. (Ignore tax implications) (15)
QUESTION 13
On 31 December 2013, Omega Chemicals Limited (OCL) changed its valuation model from
cost to revaluation for its buildings. The following information pertains to its buildings as at 31
December 2013:
Prior to revaluation as at 31-12-2013 Revalued
Estimated
amount as
useful life Accumulated
Cost per valuation
as originally depreciation*
report
estimated
-----------------------Rs. in million---------------------------
Factory buildings 20 years 100.00 37.50 52.00
Office buildings 25 years 164.50 26.32 149.94
*Including depreciation for the year ended 31 December 2013
As per the report of the professional valuer, there was no change in estimated useful life of
the buildings. OCL recorded revaluation effect for the office buildings on 31 December 2013
as per the valuation report. However, no valuation effect was incorporated for the factory
buildings as the change in their value was considered to be temporary by OCL.

CAF 5 – IAS 16
On 1 July 2014, one of the office buildings was sold for Rs. 30 million. On 31 December
2013, written down value before revaluation and revalued amount of the sold building
amounted to Rs. 27.72 million and Rs. 31.92 million respectively.
On 31 December 2014, factory buildings were revalued at Rs. 64 million whereas there was
no change in value of the office buildings. Page | 11
OCL uses straight line method of depreciation which is charged from the date the asset is
available for use up to the date of disposal. Revaluation is to be accounted for by using net
replacement value method.
Required:
In the light of the requirements of the International Financial Reporting Standards, prepare
accounting entries from the above information for the year ended 31 December 2014
including correcting entries. (Ignore taxation) (17)
QUESTION 14
The following information pertains to Piano Limited (PL):
Plant Equipment
Acquisition
 Date of acquisition 1 January 2015 1 July 2015
 Cost Rs. 500 million Rs. 360 million
 Estimated useful life 10 years 12 years
 Residual value Rs. 60 million Nil
 Depreciation method Straight line method Straight line method
Revaluation on 31 December 2016
 Fair value Rs. 526 million Rs. 280 million
Revaluation on 31 December 2018
 Fair value Rs. 310 million Rs. 275 million
Additional information:
(i) PL uses revaluation model for subsequent measurement and accounts for
revaluation on net replacement value method.
(ii) There is no change in useful life of plant. The remaining useful life of equipment was
estimated as 15 years and 10 years in 2016 and 2018 respectively.
(iii) PL transfers maximum possible amount from the revaluation surplus to retained
earnings on an annual basis.
(iv) PL’s financial year ends on 31 December.
Required:
(a) Calculate depreciation on each asset for 2015 to 2018. (08)
(b) Prepare entries to record revaluation in 2018. (Entries to record depreciation
expense, incremental depreciation and elimination of accumulated depreciation are
not required. Further, entries prior to 2018 are also not required.) (08)
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CAF 5 – IAS 16
QUESTION 15
The following is an extract from the financial statements of Carly on 31 December 2014.
Property, plant and equipment
Land and Plant and Computers Total
buildings equipment
Rs. Rs. Rs. Rs.
Page | 12 Cost
On 31 December 2014 1,500,000 340,500 617,800 2,458,300
On 31 December 2014 600,000 125,900 505,800 1,231,700
Carrying amount
On 31 December 2014 900,000 214,600 112,000 1,226,600
Accounting policies
Depreciation
Depreciation is provided at the following rates.
On land and buildings 2% per annum straight line on buildings only
On plant and equipment 25% reducing balance
On computers 33.33% per annum straight line
During 2015 the following transactions took place.

(1) On 31 December the land and buildings were revalued to Rs. 1,750,000. Of this
amount, Rs. 650,000 related to the land (which had originally cost Rs. 500,000).
The remaining useful life of the buildings was assessed as 40 years.
(2) A machine which had cost Rs. 80,000 and had accumulated depreciation of Rs.
57,000 at the start of the year was sold for Rs. 25,000 in the first week of the year.
(3) A new machine was purchased on 31 March 2015. The following costs were
incurred:
Rs.
Purchase price, before discount, inclusive of reclaimable sales tax of
Rs. 3,000 20,000
Trade discount 1,000
Delivery costs 500
Installation costs 1,050
Interest on loan taken out to finance the purchase 300
(4) On 1 January it was decided to change the method of providing depreciation on
computer equipment from the existing method to 40% reducing balance.
Required
Produce the analysis of property, plant and equipment as it would appear in the financial
statements of Carly for the year ended 31 December 2015. (18)
QUESTION 16
State the disclosure requirements for assets carried at revalued amounts, as referred to in
IAS – 16 ‘Property, Plant and Equipment’. (04)
QUESTION 17
The following information pertains to Sherdil Limited (SL):
(i) Buildings and equipment were acquired on 1 January 2014 for Rs. 450 million and
Rs. 50 million respectively.
(ii) The relevant information relating to both assets is summarised below:

CAF 5 – IAS 16
Depreciation Subsequent
Assets Life/rate
method measurement
Buildings Straight line 20 years Annual revaluation
Equipment Reducing balance 10% Cost
SL transfers the maximum possible amount from revaluation surplus to retained

earnings on an annual basis. Page | 13
(iii) The revalued amount of buildings as determined by Accurate Valuers (Private)

Limited, an independent valuation company, on 1 January 2015 and 2016 was Rs.
456 million and Rs. 378 million respectively.
(iv) Equipment costing Rs. 35 million was purchased on 1 August 2015. Half of the
equipment purchased on 1 January 2014 was disposed off on 30 June 2016.
Required:
In accordance with International Financial Reporting Standards, prepare a note on ‘Property
plant & equipment’ (including comparative figures) for inclusion in SL’s financial statements
for the year ended 31 December 2016. (18)
QUESTION 18
Fam had the following tangible fixed assets at 31 December 2014.
Cost Depreciation NBV
Rs. 000 Rs. 000 Rs. 000
Land 500 – 500
Buildings 400 80 320
Plant and machinery 1,613 458 1,155
Fixtures and fittings 390 140 250
Assets under construction 91 – 91
2,994 678 2,316
In the year ended 31 December 2015 the following transactions occur.

(1) Further costs of Rs. 53,000 are incurred on buildings being constructed by the
company. A building costing Rs. 100,000 is completed during the year.
(2) A deposit of Rs. 20,000 is paid for a new computer system which is undelivered at
the year end.
(3) Additions to plant are Rs. 154,000.
(4) Additions to fixtures, excluding the deposit on the new computer system, are Rs.
40,000.
(5) The following assets are sold.
Cost Depreciation Proceeds
brought forward
Rs. 000 Rs. 000 Rs. 000
Plant 277 195 86
Fixtures 41 31 2
(6) Land and buildings were revalued at 1 January 2015 to Rs. 1,500,000, of which land
is worth Rs. 900,000. The revaluation was performed by Messrs Jackson & Co,
Chartered Surveyors, on the basis of existing use value on the open market.
(7) The useful economic life of the buildings is unchanged. The buildings were
purchased ten years before the revaluation.
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CAF 5 – IAS 16
(8) Depreciation is provided on all assets in use at the year end at the following rates.
Buildings 2% per annum straight line
Plant 20% per annum straight line
Fixtures 25% per annum reducing balance
Required
Page | 14 Show the disclosure under IAS 16 in relation to fixed assets in the notes to the published
accounts for the year ended 31 December 2015. (16)
QUESTION 19
Abid Limited (AL) uses the revaluation model for subsequent measurement of its property,
plant and equipment and has a policy of revaluing its assets on an annual basis using the
net replacement value method.
The following information pertains to AL’s buildings:
(i) Four buildings were acquired in same vicinity on 1 January 2012 at a cost of Rs. 300
million. The useful life of the buildings on the date of acquisition was 20 years.
(ii) AL depreciates buildings on the straight line basis over their useful life.
(iii) The results of revaluations carried out during the last three years by Premier
Valuation Service, an independent firm of valuers, are as follows:
Fair value
Revaluation date
Rs in Million
1 January 2013 323
1 January 2014 252
1 January 2015 272
(iv) On 30 June 2015, one of the buildings was sold for Rs. 80 million.
Required:
Prepare a note on “Property, plant and equipment” (including comparative figures) for
inclusion in AL’s financial statements for the year ended 31 December 2015 in accordance
with International Financial Reporting Standard. (Ignore taxation) (13)
QUESTION 20
The following information pertains to property, plant and equipment of Orchid Limited (OL), a
listed company:
Cost Subsequent
Date of Original Depreciation
Description Rs. in measurement
purchase useful life method
million model
Buildings 1-Jan-15 600 30 years Straight line Revaluation
Plant 1-Jan-15 475 25 years Straight line Cost
Buildings
The revalued amount of buildings as determined by Shabbir Associates, an independent
valuer, on 31 December 2015 and 2017 was Rs. 700 million and Rs. 463 million
respectively.
On 30 June 2017 a building having original cost of Rs. 66 million was sold to Baqir Limited
for Rs. 85 million. It was last revalued at Rs. 87 million. OL incurred a cost of Rs. 2 million on
disposal.
OL transfers the maximum possible amount from revaluation surplus to retained earnings on
an annual basis.

CAF 5 – IAS 16
Plant
On 31 December 2016 the recoverable amount of the plant was assessed at Rs. 360 million
with no change in useful life.
During 2017, OL has decided to change the depreciation method for plant from straight line
to reducing balance. The new depreciation rate would be 10%.
Page | 15
Required:
Prepare following notes (along with comparative figures) to be presented in the financial
statements of OL for the year ended 31 December 2017 in accordance with the
requirements of relevant IFRSs and Companies Act, 2017:
(a) Property, plant and equipment (18)
(b) Change in depreciation method (02)
QUESTION 21
Abbas Limited (AL) is engaged in the business of manufacturing near the Karachi-
Hyderabad Motorway. Its Property, Plant and Equipment comprises of land and buildings,
plant and machinery, and equipment and fittings. Details for the period up to 30 June 2018
are as follows:
(i) The balances as at 30 June 2018 are given below:
Gross Carrying Amount Accumulated Depreciation
Assets
(Rs. Million) (Rs. Million)
Land 12 N/A
Buildings 125 38
Plant and Machinery 500 300
Equipment 100 36
(ii) The relevant information pertaining these assets is given below:
Assets Depreciation Method Subsequent Measurement Model
Land N/A Fair Value
Buildings Straight-line Cost
Plant and Machinery Units of Production Cost
Equipment Written down value Cost
(iii) Abbas Limited uses proportionate policy to depreciate its Property, Plant and
Equipment.
(iv) All of the plant and machinery pertains to factory use whereas all the equipment
pertains to office use. However, floor areas occupied by factory and office are in the
ratio 60:40 respectively.
(v) The equipment was purchased on 1 July 2016. No disposals and acquisitions took
place in the period up to 30 June 2018.
(vi) Until 30 June 2018, 12,000 units had been produced by Abbas Limited in its factory.
The plant and machinery do not have any residual value. No additions or disposals of
plant and machinery took place till this date.
(vii) The buildings were acquired on 1 July 2014 with a residual value of Rs. 11 million.
No additions and disposals took place till 30 June 2018.
(viii) The land had actually cost Rs. 15 million on the date of its acquisition.
(ix) It is assumed that value of land and buildings is spread evenly across the area
occupied.
The following information pertains to the year ended 30 June 2019:
(i) On 1 July 2018, land was revalued to Rs. 20 million on 1 July 2018. The value was
determined by an independent firm M/s Ashfaq& Co. Chartered Accountants.
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CAF 5 – IAS 16
(ii) This year, 5,000 units were produced in the factory of AL.
(iii) On January 1, 2019, AL disposed 25% of its area comprising of land and buildings at
a price of Rs. 90 million. The portion of land was sold at its fair value as determined
on 1 July 2018. The legal costs of drafting transfer agreements were Rs. 0.1 million.
It is assumed that this disposal will not affect the proportion of areas occupied by
factory and office.
Page | 16
(iv) Further equipment costing Rs. 60 million was acquired on 1 November 2018.
(v) In the meeting of its board of directors, it was decided to open a new factory
premises near Lahore-Islamabad motorway. An expenditure of Rs. 20 million was
spent of the construction of the factory on 1 December 2018, financed by a loan
obtained from the bank at the rate of 12% per annum. The construction had not been
completed at the end of the year.
(vi) Moreover, the directors also made a contract with M/s Uni Power& Co. to purchase
plant and machinery worth Rs. 35 million once the construction of factory building is
completed.
Required:
(a) Prepare journal entries to record the revaluation of land and disposal of land and
buildings.
(b) Prepare the disclosure under IAS 16 in relation to Property, Plant and Equipment in
the notes to the published accounts for the year ended 30 June 2019. (20)
QUESTION 22
Games Limited (GL) commenced a business of preparing and burning video game CDs on 1
July 2015. The following information pertains to the year ended 31 March 2016:
(i) GL purchased 30 computers on the date of commencement of business at a cost of
Rs. 20,000 each, purely for the task of burning CDs. The management of GL
estimates that since the computers are subject to obsolescence, more of its benefit
can derived in its early life. The total useful life at the date of acquisition was
estimated to be 4 years and residual value was estimated to be Rs. 4,802 for each
computer.GL decided to adopt historical cost model for subsequently measurement
of computers.
(ii) GL purchased an office building at the date of start of business worth Rs. 3 million.
GL decided to adopt fair value model due to fluctuations in property prices. 80% of
the building is occupied by computer labs, whereas 20% is used by administrative
and selling departments. The useful life is estimated to be 10 years at the date of
acquisition with no residual value, and the economic benefits are expected to be
derived evenly over its useful life. At the end of the year, the fair value of office
buildings was assessed to be Rs. 3,237,500.
(iii) GL also purchased fittings for its administrative and selling departments, costing Rs.
120,000 on 1 July 2015. It is to be depreciated over 10 years using the straight-line
method, with no residual value.
(iv) GL made a contractual commitment with Al-Karim Computers to purchase 6
computers of Rs. 20,000 each to be delivered at GL’s premises on 1 May 2017.
The following information pertains to the year ended 31 March 2017:

(i) The computers were delivered at the GL’s premises by Al-Karim Computers at the
said date. It was decided to use the same method and same rate to depreciate these
computers. However, no further space was utilised by the computer labs.

CAF 5 – IAS 16
(ii) At the end of the year, the fair value of office building was assessed to be Rs. 2
million. At the yearend GL mortgaged entire building with JS Bank to obtain a loan
worth Rs. 1.75 million for prospective investments in other divisions.
(iii) Fittings with a cost of Rs. 30,000 were disposed of for Rs. 22,000 on 1 January 2017.
The Suzuki Driver was paid Rs. 1,000 to transfer the fittings to customer’s premises.
(iv) The fair values of the office building were determined by an independent firm M/s Page | 17
Hafeez Yasir Chartered Accountants& Co. Moreover, GL uses proportionate policy to
depreciate its assets.
Required:
(a) Prepare the disposal account to record the sale of fittings on 1 January 2017.
(b) Prepare the disclosure under IAS 16 in relation to Property, Plant and Equipment in
the notes to the published accounts for the year ended 31 March 2017 (comparatives
are required). (20)
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CAF 5 – IAS 16
Page | 18

CAF 5 – IAS 16
ANSWER 01
Rs.
Depreciation per year (before revaluation) Rs. 4,000,000 / 50 years 80,000
Accumulated depreciation at revaluation Rs. 80,000 x 10 years 800,000
Carrying amount before revaluation Rs. 4,000,000 – 800,000 3,200,000
Page | 19
Gain on revaluation Rs. 6,000,000 – 3,200,000 2,800,000
Deprecation – current year Rs. 6,000,000 / 40 years 150,000
Rs. 150,000 – 80,000 70,000
Incremental depreciation
Rs. 2,800,000 / 40 years 70,000
ANSWER 02
Date Particulars Dr. Rs. Cr. Rs.
01.01.01 Building 100,000
Bank 100,000
31.12.01 Depreciation 10,000
Accumulated depreciation 10,000
(Rs. 100,000 / 10 years) = Rs. 10,000
31.12.01 Accumulated depreciation 10,000
Building 10,000
31.12.01 Building 18,000
Gain on revaluation (OCI) 18,000
(Rs. 108,000 / 9 years) = Rs. 12,000
Building 12,000
31.12.02 Loss on revaluation (OCI) 18,000
Revaluation loss (P&L) 23,000
Building (cost) 41,000
ANSWER 03
Date Particulars Dr. Rs. Cr. Rs.
01.01.01 Building 100,000
Bank 100,000
(Rs. 100,000 / 10 years) = Rs. 10,000
Building 10,000
31.12.01 Building 18,000
(Rs. 108,000 / 9 years) = Rs. 12,000
31.12.02 Revaluation Surplus 2,000
Retained earnings 2,000
(Rs. 12,000 – 10,000 = Rs. 2,000 OR Rs. 18,000 / 9 years)
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CAF 5 – IAS 16

Building 12,000
31.12.02 Loss on revaluation (OCI) [18,000 – 2,000] 16,000
Revaluation loss (P&L) 25,000
Page | 20
ANSWER 04
Date Particulars Dr .Rs. Cr. Rs.
01.01.01 Building 100,000
Bank 100,000
(Rs. 100,000 / 10 years) = Rs. 10,000
Revaluation/Impairment loss (P&L) 27,000
(Rs. 63,000 / 9 years) = Rs. 7,000
Reversal of revaluation loss (P&L) 24,000
(now carrying amount Rs. 56,000 to HCA Rs. 80,000)
ANSWER 05
Rs.
Sale proceeds on disposal (Cash received) 0
Sale proceeds (part-exchange asset received) 50,000
Less: Disposal costs and cash paid [Rs. 50,000 – 4,000 trade in] (46,000)
Net disposal proceeds 4,000
Asset at cost 30,000
Less: Accumulated depreciation (25,000)
Carrying amount at date of disposal (5,000)
(LOSS) ON DISPOSAL (1,000)
ANSWER 06
Date Particulars DrRs. Cr. Rs.
XXX Accumulated depreciation 30,000
Cash 95,000
Asset 100,000
Gain on disposal (Other income) 25,000
XXX Revaluation surplus 40,000

CAF 5 – IAS 16
ANSWER 07
Part (a)
The lathe was purchased in 2009 and was originally being written off over an estimated
useful life of twelve years. As at 1 January 2015 six of the years have elapsed with a further
six years remaining. It was decided that the machine will now only be usable for a further
four years.
Page | 21
IAS 16 requires that where the original estimate of useful life is revised, adjustments should
be made in current and future periods (not in prior periods). The unamortized cost of the
asset should be charged to revenue over the remaining useful life of the asset. The net book
value of Rs. 75,000 should therefore be charged over the remaining four years of useful life,
giving an annual depreciation charge of Rs. 18,750. The revision is not a change in
accounting policy, or a fundamental error but a change in accounting estimate. It is therefore
not appropriate to deal with any excess depreciation by adjusting opening retained earnings.
Part (b)
The grinder was purchased in 2012 and was originally being depreciated on a straight line
basis. It has now been decided to depreciate this on the sum of digits basis.
IAS 16 requires that depreciation methods be reviewed periodically and if there is a

significant change in the expected pattern of economic benefits, the method should be
changed. Depreciation adjustments should be made in current and future periods. This
change might be appropriate if, for instance, usage of the machine is greater in the early
years of an asset’s life when it is still new and consequently it is appropriate to have a higher
depreciation charge. If the change is implemented, the unamortized cost (the net book
value) of the asset should be written off over the remaining useful life commencing with the
period in which the change is made.
The depreciation charge for the remaining life of the asset will therefore be as follows.
Year No of digits Depreciation
2015 7 (7/28 x 70,000) 17,500
2016 6 (6/28 x 70,000) 15,000
2017 5 12,500
2018 4 10,000
2019 3 7,500
2020 2 5,000
2021 1 2,500
½ x 7 (7 + 1) 28 70,000
Disclosure will need to be made in the accounts of the details of the change, including the
effect on the charge in the year.
Part (c)
IAS 16’s allowed alternative treatment in respect of measurement of property plant and
equipment (subsequent to initial recognition), is that of revaluation. Revaluation is made at
fair value. Where any item of property plant or equipment is revalued, the entire class to
which the asset belongs should be revalued. Revaluations must be kept up to date. Where
there are volatile movements in fair value, the revaluation should be performed annually.
Where there are no such movements, revaluations every three to five years may be
appropriate.
Accumulated depreciation at the date of revaluation is either:

(i) Restated proportionately with the change in the gross carrying amount so that the
carrying amount after the revaluation equals the revalued amount (e.g. where
revaluations are made to depreciated replacement cost using indices)
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CAF 5 – IAS 16
(ii) Eliminated against the gross carrying amount of the assets and the net amount
restated to the revalued amount of the asset (e.g. where buildings are revalued to
their market value).
AS 16 requires that the subsequent charge for depreciation should be based on the revalued
amount. The annual depreciation will therefore be Rs. 62,500, i.e. Rs. 1,500,000 divided by
Page | 22 the 24 years of remaining life. There will then be a difference between the revalued
depreciation charge and the historical depreciation charge. The resulting excess
depreciation may be dealt with by a movement in reserves, i.e. by transferring from the
revaluation reserve to retained earnings a figure equal to the depreciation charged on the
revaluation surplus each year.
ANSWER 08
IAS 16 requires that each part of an item (that has a cost that is significant in relation to the
total cost) is depreciated separately. Therefore, the cost recognized at initial recognition
must be allocated to each part accordingly.
(i) 31st March 2016
Hydraulic System Frame Total
Carrying amount 1-4-2015 9,000 21,000 30,000
Depreciation (3,000) (2,625) (5,625)
Carrying amount
6,000 18,375 24,375
31-3-2016
6,000 / 24,375 x 3,375 = 18,375 / 24,375 x
Loss on revaluation
(831) 3,375 = (2,544) (3,375)
Fair value 5,169 15,831 21,000
(ii) 31st March 2017

Carrying amount 1-4-2016 5,169 15,831 21,000
Depreciation (2,585) (2,262) (4,847)
Carrying amount
2,584 13,569 16,153
31-3-2017
2,584 / 16,153 x 3,447 = 13,569 / 16,153 x
Gain on revaluation
551 3,447 = 2,896 3,447
Fair value 3,135 16,465 19,600
IAS 36 implications
Loss recognised last year 831 2544 3375
Depreciation reduced by (416) (363) (779)
Loss reversal possible
415 2,181 2596
through PL
Gain in OCI 136 715 851
Total 551 2896 3,447
ANSWER 09
The original depreciation was Rs. 40,000 (Rs. 1,000,000/25 years) per annum.
On 31st March 2014 the asset is two years old. Its carrying value before revaluation was
therefore Rs. 1million less accumulated depreciation of Rs. 80,000 (2/25 × Rs. 1million).
Cost/valuation 1,000,000
Accumulated depreciation (80,000)
Net book value 920,000

CAF 5 – IAS 16
In order to effect the revaluation, the cost is uplifted to fair value of Rs. 1.15m, the
accumulated depreciation is eliminated, and the uplift to the net book value is credited to a
revaluation surplus account.
Cost / Valuation 80,000
Page | 23
Cost/valuation 2300,000
Revaluation surplus 230,000
The asset is depreciated over its remaining useful economic life of 23 years giving a charge
of Rs. 50,000 (Rs. 1,150,000/23 years) per annum in the year to 31st March 2015.
Cost/valuation 1,150,000
Accumulated depreciation (50,000)
Net book value 1,100,000
Transfer from revaluation surplus to retained earnings:

Revaluation surplus (230,000 / 23) 10,000
Fall in fair value to 0.8 million:
Asset 50,000
Profit or loss 80,000
Asset 300,000
ANSWER 10
Debit Credit
Date Description
Rs. M
31 Dec 2013 Accumulated depreciation 18 + 36 54
Building 54
Building 17
Revaluation Surplus (OCI) 17
31 Dec 2015 Accumulated depreciation 38+38 76

Building 76
Revaluation Loss (PL) 26
Building 39
31 Dec 2017 Accumulated depreciation 32+32 64

Building 64
Building 23
Revaluation loss reversal (PL) 18
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CAF 5 – IAS 16
Workings Building OCI PL

Rs. m Rs. m Rs. m
Cost 1 Jul 2012 360
2012 Depreciation 360 / 10 years x 6/12 (18)
2013 Depreciation 360 / 10 years x 12/12 (36)
306
Page | 24 Gain on revaluation (balancing figure) 17 17
Fair value on 31 December 2013 323 17
2014 Depreciation 323 / 8.5 years (38) (2)
2015 Depreciation (same) (38) (2)
247 13
Loss on revaluation (balancing figure) (39) (13) (26)
Fair value on 31 December 2015 208 0 (26)
2016 Depreciation 208 / 6.5 years (32) 4
2017 Depreciation (same) (32) 4
144 (18)
Gain on revaluation (balancing figure) (23) 5 18
Fair value on 31 December 2017 167 5 0
ANSWER 11
Part (a)
When items of property, plant and equipment are stated at revalued amounts, the following
additional disclosure should be made:
 the effective date of the revaluation;
 whether an independent valuer was involved;
 for each revalued class of property, plant and equipment, the carrying amount that would
have been recognised had the assets been carried under the cost model; and
 the revaluation surplus, indicating the change for the period and any restrictions on the
distribution of the balance to shareholders.
Part (b)
Journal entries
Date Particulars Debit Credit
Rs. in million
30-Jun-14 Depreciation for the year (W-1) 1,390
Accumulated depreciation – Office building 500
Accumulated depreciation – Factory building 440
Accumulated depreciation – Warehouse 450
30-Jun-14 Accumulated depreciation – Office building (W-1) 1,000
Accumulated depreciation – Factory building (W-1) 880
Accumulated depreciation – Warehouse (W-1) 900
Office building 1,000
Factory building 880
Warehouse 900
30-Jun-14 Office building (W-1) 750
Loss on impairment – buildings and warehouse 450
Surplus on revaluation 750
Factory building (W-1) 200
Warehouse (W-1) 250
30-Jun-15 Depreciation expense (W-1) 1,507
Accumulated depreciation – Office building 719
Accumulated depreciation – Factory buildings 369
Accumulated depreciation – Warehouse 419
30-Jun-15 Surplus on revaluation (750÷8) 94
Retained earnings (incremental depreciation) 94

CAF 5 – IAS 16
W-1:
Acc. Revaluation
Dep. for Revalued Dep. for
Dep. surplus/
Cost (A) WDV (B) the year amount the year
Assets D=A- (impairment)
2014 (C) (E) 2015
B+C F=E-(A-D)
---------------------------------- Rupees in million ----------------------------------
Office Page | 25
6,000 5,500 500 1,000 5,750 750 719
building
Factory
4,400 3,960 440 880 3,320 (200) 369
building
Warehouse 4,500 4,050 450 900 3,350 (250) 419
1,390 1,507
ANSWER 12
Debit Credit
Date Particulars
(Rs. m) (Rs. m)
1-Jul-10 Plant 500.00
Bank 500.00
Record purchase of plant
30-Jun-11 Depreciation 50.00
Accumulated depreciation - Plant 50.00
(Record depreciation for the year 2010-11)
Working: Rs. 500m ÷ 10 = Rs. 50m
1-Jul-11 Accumulated depreciation - Plant 50.00
Plant 50.00
(Reversal of prior years’ depreciation)
1-Jul-11 Plant 125.00

Revaluation Surplus 125.00
(Increase in value through revaluation)
Working: Rs. 575m - Rs. 450m = Rs. 125m

Accumulated depreciation – Plant 63.89
Working: Rs. 575m ÷ 9 = Rs. 63.89m
30-Jun-12 Revaluation surplus 13.89

Retained earnings 13.89
(Reversal for excess depreciation)
Working: Rs. 125m ÷ 9 = Rs. 13.89m
1-Jul-12 Accumulated depreciation – Plant 63.89

Plant 63.89
(Reversal of prior year depreciation)
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CAF 5 – IAS 16
1-Jul-12 Revaluation Surplus 111.11

Revaluation expense (balancing) 10.00
Plant 121.11
(Decrease in value through revaluation)
Surplus. = Rs. 125m - Rs. 13.89m = Rs. 111.11
Plant [Rs. 575m - Rs. 63.89m] - Rs. 390m =Rs.
Page | 26 121.11

Working: Rs. 390m ÷ 8 = Rs. 48.75m
1-Jul-13 Accumulated depreciation – Plant 48.75

Plant 48.75
1-Jul-13 Plant 38.75

Revaluation income 8.75
Revaluation surplus (balancing) 30.00
Working:
Revaluation income = Rs. 10m-[Rs. 50m - Rs.
48.75m] = Rs.8.75m
Plant: Rs. 380m - [Rs. 390m - Rs. 48.75m] = Rs.
38.75m

Working: Rs. Rs. 380m ÷ 7 = Rs. 54.29m
30-Jun-14 Revaluation surplus 4.29

(Reversal for excess depreciation)
Working: Rs. 30m ÷ 7 = Rs. 4.29m
ANSWER 13
Omega Chemicals Limited
Accounting entries for the year ended 31 December 2014
Debit credit
Date Description
Rs. in million
31-Dec-13 FACTORY BUILDINGS
Accumulated depreciation-Factory buildings 37.50
Factory building 37.50
(Reversal of accumulated depreciation on revaluation of
factory buildings on 31 December 2013 – correcting entry)
31-Dec-13 Retained earnings (2013 Impairment) [52 – (100 – 37.5)] 10.50
Factory buildings 10.50
(2013 Impairment of factory buildings accounted for in 2014 –
correcting entry)
31-Dec-14 Depreciation expense(52÷12.5W1) 4.16
Accumulated depreciation-Factory buildings 4.16
(Depreciation expenses for the year ended 31 December
2014)

CAF 5 – IAS 16
31-Dec-14 Accumulated depreciation-Factory buildings 4.16

Factory buildings 4.16
(Reversal of accumulated depreciation on revaluation
of factory buildings on 31 December 2014)
31-Dec-14 Factory buildings[64 – (52 – 4.16)] 16.16
PL account (Impairment) [10.5-(10.5÷12.5W1)] 9.66
Revaluation surplus - Factory buildings (Bal.) 6.50 Page | 27
(Revaluation of factory buildings on 31 December 2014
and reversal of previous impairment)
OFFICE BUILDINGS
1-Jul-14 Depreciation expense[31.92 ÷ 21 × 0.5] 0.76
Accumulated depreciation-Office buildings 0.76
(Depreciation expenses for the six months ended 1 July
2014 for the office building block sold)
1-Jul-14 Revaluation surplus [(31.92-27.72=4.2) ÷ 21 × 0.5] 0.10
(Transfer of incremental depreciation for the six months
ended 31 December 2014 to retained earnings)
1-Jul-14 Bank 30.00
Revaluation surplus(4.2 – 0.1) 4.10
Accumulated depreciation 0.76
Loss on sale of Office buildings 30– (31.92-0.76) 1.16
Office buildings 31.92
(Sale of office building)
31-Dec-14 Depreciation expense (149.94 – 31.92) ÷ 21 5.62
Accumulated depreciation-Office buildings 5.62
(Depreciation expenses for the year ended 31 December
2014)
Revaluation surplus- Office building[149.94-(164.5-26.32)-
31-Dec-14 4.2]÷21 0.36
(Transfer of incremental depreciation for the year ended
31 December 2014 to retained earnings)
W1 – Remaining useful life of the buildings on revaluation date of 31 December 2013

Years
Factory buildings 20 – [(37.5 ÷ (100÷ 20)] 12.50
Office buildings 25 – [(26.32 ÷ (164.5÷ 25)] 21.00
ANSWER 14
Part (a)
Plant Equipment
----- Rs. in million -----
Cost 500 360
Depreciation 2015 [(500–60)/10] ; [(360/12)×(6/12)] (44) (15)
456 345
Depreciation 2016 [(456–78)/9], [345/15] (42) (23)
414 322
Revaluation–surplus/(loss) 2016 (balancing) 112 (42)
Fair value 526 280
Depreciation 2017 [(526–78)/8], [280/14] (56) (20)
470 260
Depreciation 2018 [(470–64)/7], [260/10] (58) (26)
412 234
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CAF 5 – IAS 16
Part (b)
Piano Limited
Accounting entries for revaluation
Date Particulars Dr. Rs. m Cr. Rs. m
31-Dec-18 Revaluation loss (PL) 18
Revaluation surplus (OCI) 84
Page | 28 Plant 102
31-Dec-18 Equipment 41
Revaluation gain (PL) 35.1
Revaluation surplus (OCI) 5.9
Plant Equipment
W1: Revaluation surplus/(impairment): ----- Rs. in million -----
Fair value 310 275
Book value [From part(a)] (412) (234)
Increase / (Decrease) in asset (102) 41
Adjustment for previous:
Revaluation surplus 112–(112÷8)– (112÷8) 84
Revaluation loss 42–(42÷14)–(39÷10) (35.1)
Revaluation surplus/(Revaluation loss) (18) 5.9
ANSWER 15
Financial statements for the year ended 31 December 2015 (extract)
Property, plant and equipment
Land and Plant & Computer Total
buildings machinery equipment
Cost
At 1 January 2015 1,500,000 340,500 617,800 2,458,300
Revaluation 250,000 - - 250,000
Additions W2 - 17,550 - 17,550
Disposals - (80,000) - (80,000)
At 31 December 2015 1,750,000 278,050 617,800 2,645,850
At 1 January 2015 600,000 125,900 505,800 1,231,700
Charge for the year W1 20,000 51,191 44,800 115,991
Revaluation (620,000) - - (620,000)
Disposals - (57,000) - (57,000)
At 31 December 2015 Nil 120,091 550,600 670,691
Carrying Amount
At 31 December 2014 900,000 214,600 112,000 1,226,600
At 31 December 2015 1,750,000 157,959 67,200 1,975,159
Workings:
W1 -Depreciation charges
Buildings = (1,500,000 – 500,000) x 2% 20,000
Plant and machinery:
New machine (17,550 x 25% x 9/12) 3,291
Existing plant (((340,500 – 80,000) – (125,900 – 57,000)) x 25%) 47,900
Total 3,291 + 47,900 51,191
Computer equipment = 112,000 x 40% 44,800

CAF 5 – IAS 16
W2 - Cost of new machine

Purchase price (20,000 – 3,000 – 1,000) 16,000
Delivery costs 500
Installation costs 1,050
17,550
Interest on loan taken out to finance the purchase will be charged to profit or loss.
Page | 29
ANSWER 16
When items of property, plant and equipment are stated at revalued amounts the following
must be disclosed:
 The effective date of the revaluation;
 Whether an independent valuer was involved;
 For each revalued class of property, plant and equipment, the carrying amount that
would have been recognised had the assets been carried under the cost model; and
 The revaluation surplus, indicating the change for the period and any restrictions on the
ANSWER 17
Property, plant & 2016 2015
equipment Building Equipment Total Building Equipment Total
Rs. in million
Cost / Revalued amount
1 Jan 456 85 541 450 50 500
Revaluation - cancellation (24) (24) (22.5) (22.5)
Revaluation surplus
28.5 – 28.5/19 (27) (27) 28.5 28.5
Revaluation loss (27) (27)
Additions 35 35
Disposal [50 x 50%] (25) (25)
31 December 378 60 438 456 85 541
1 Jan 24 10.96 34.96 22.5 5 27.5
Revaluation - cancellation (24) (24) (22.5) (22.5)
Disposal W2 (5.76) (5.76)
Depreciation W1 21 6.39 27.39 24 5.96 29.96
31 Dec 21 11.59 32.59 24 10.96 34.96
Carrying amount 357 48.41 405.41 432 74.04 506.04
Carrying amount 382.5 405

(cost model)
(450 less depreciation)
Building Equipment
Measurement basis Revaluation model Cost model
Useful life / depreciation rate 20 years 10%
Depreciation method Straight line Reducing balance
The revaluation was performed on 1 January 2016 by Accurate Valuers (Private) Limited, an
independent firm of valuers. The entity transfers effect of incremental depreciation from
revaluation surplus to retained earnings on annual basis.
© kashifadeel.com
CAF 5 – IAS 16
W1 – Depreciation Rs. m
2015 – Building [456 / 19 years] 24
2015 – Equipment [45 x 10% = 4.5] + [35 x 10% x 5/12 = 1.46] 5.96
2016 – Building [378 / 18 years] 21
2015 – Equipment [74.04 – 20.25] x 10% + 1.01 6.39
Page | 30
W2 – Depreciation on disposed equipment Rs. m
Cost 50 x 50% 25
Depreciation 2014 10% (2.5)
22.5
Depreciation 2015 10% (2.25)
20.25
Depreciation 2016 10% x 6/12 (1.01)
19.24
Accumulated depreciation related to disposed equipment 2.5 + 2.25 + 1.01 5.76
ANSWER 18
Accounting policies
(a) Property, plant and equipment is stated at historical cost less depreciation, except
land and building which is stated at revalue amount less subsequent accumulated
depreciation.
(b) Depreciation is provided on all assets, except land, and is calculated to write down
the cost or valuation over the estimated useful life of the asset.
The principal rates are as follows:

Buildings 2% pa straight line
Plant and machinery 20% pa straight line
Fixtures and fittings 25% pa reducing balance
Fixed Assets Movements:
Land & Plant & Fixture Assets
buildings machinery & under Total
fittings construction
Cost
Cost at 1 January 2015 900 1,613 390 91 2,994
Revaluation adjustment 600 - - - 600
Additions - 154 40 73 (W1) 267
Reclassifications 100 - - (100) -
Disposals - (277) (41) - (318)
Cost at 31 December 2015 1,600 1,490 389 64 3,543
Depreciation
At 1 January 2015 80 458 140 - 678
Revaluation adjustment (80) - - - (80)
Depreciation for the year (W2) 17 298 70 - 385
Disposal - (195) (31) - (226)
At 31 December 2015 17 561 179 - 757
Net Book Value
At 31 December 2015 1,583 929 210 64 2,786
At 31 December 2014 820 1,155 250 91 2,316
Land and buildings have been revalued during the year by Messer Jackson & Co on the
basis of an existing use value on the open market.

CAF 5 – IAS 16
The corresponding historical cost information is as follows.

Land & Building
Cost
Brought forward 900
Reclassification 100
Carried forward 1,000
Depreciation Page | 31
Brought forward (80)
For the year (10)
Carried forward (90)
NBV 910
W1 - Additions to assets under construction

Additions to assets under construction 53
Deposit on computer 20
73
W2 – Depreciation for the year

Depreciation on buildings 600/40 + (100 x 2%) 17
2% straight line depreciation is equivalent to a 50-year life. The buildings are ten
years old at valuation and therefore have 40 years remaining.
Depreciation on plant (1,613 + 154 – 277) x 20% 298
Depreciation on fixtures (390 + 40 – 41 – 140 + 31) x 25% 70
ANSWER 19
4 - Property, plant and equipment
2015 2014
----- Rs. in million ----
Gross carrying amount 252 323
Accumulated depreciation and impairment losses (323÷19) = 17 (14) (17)
Net carrying amount 238 306
Additions - -
Revaluation (expense)/Income (P/L)
[272- {300-(300÷20*3)}] and (306-252-36) 17 (18)
Revaluation surplus increase/(decrease) (OCI)
(272-238-17) and [{323-(300-15)} -(38÷19)] 17 (36)
Depreciation [(204÷17)+(68÷17×6÷12)] and (252÷18) (14) (14)

Disposal [68 - (68÷17×6÷12)] and 0 (66) -
192 238
Gross carrying amount 204 252
Accumulated depreciation and impairment losses (12) (14)
Net carrying amount 192 238
Useful life 20 years 20 years
The last revaluation was performed on 1 January 2015 by M/s Premier Valuation Services,
an independent firm of valuers. Revaluations are performed annually.
© kashifadeel.com
CAF 5 – IAS 16
2015 2014
… Rs in million …
Carrying value had the cost model been used instead
[225 – (225÷20× 4)] and [300 – (300÷20×3)] 180 255
Page | 32 4.1 - Details of property, plant and equipment disposed of during the year
Cost /
Accumulated Carrying Sale
Revalued Mode of Particulars of
depreciation amount proceeds
amount disposal buyers
……… .Rs in million………
Building 68 2 66 80 Not mentioned Not mentioned
ANSWER 20
Orchid Limited
Notes to the financial Statements
For the year ended 31 December 2017
Property, plant & equipment 2017 2016
Building Plant Total Building Plant Total
Rs. in million
Cost / Revalued amount
1 Jan 700 475 1,175 700 475 1,175
Disposal (87) (87)
Revaluation – cancellation (42.28) (42.28)
Revaluation loss (OCI & PL) W1 (107.72) (107.72)
31 December 463 475 938 700 475 1,175
Acc. depreciation/Impairment
1 Jan 24.14 115 139.14 0 19 19
Disposal W2 (4.5) (4.5)
Depreciation W1 22.64 36 58.64 24.14 19 43.14
Revaluation (Cancellation) (42.28) (42.28)
Impairment W1 77 77
31 Dec 0 151 151 24.14 115 139.14
Carrying amount 463 324 787 675.86 360 1,035.86
Carrying amount (cost model)

Cost [after disposal] [ Before] 534 600
Accumulated Depreciation (53.4) (40)
480.6 560
Building Plant
Measurement basis Revaluation model Cost model
Useful life / depreciation rate 30 years 10%
Depreciation method Straight line Reducing balance
The last revaluation was performed on 31 December 2017 by Shabbir Associates, an independent
firm of valuer.
Cost /
Book Sale
Assets Rev. Gain Mode of
Purchaser Value Price
disposed amount disposal
Rs. in million
Building Baqir Ltd 87.00 82.50 85.00 0.5 Tender
Cost of disposal Rs. 2 m

CAF 5 – IAS 16
Change in estimate
Due to significant change in the expected pattern or consumption of the future economic
benefits in the Plant assets, therefore, the company has decided to change the depreciation
method of plant from straight line to reducing balance method. The new depreciation rate is
10%.
Had the deprecation method been not changed, profit of 2017 would have been higher by Page | 33
Rs. 20.35 million. [Rs. 360 x 10% - 360 /23 years]
W1 – Depreciation / Impairment / Revaluation Surplus Rs. m

Building
2015 – Depreciation [600 / 30 years] 20
2015 – Revaluation Gain [700 – [600 – 20]] 120
2016 – Depreciation [700 / 29 years] 24.14
2017 – Depreciation [[700 – 24.14] – 84] / 28 years + [84 / 28 years x 6/12] W2 22.64
2017 – Revaluation 463 FV – [(700 – 87 Cost) – 42.28 Acc. Dep.] (107.72)
Plant
2016 – Impairment [475 – 19 – 19] – [360 Recoverable amount] 77
2017 – Depreciation [360 x 10% reducing balance] 36
W2 – Depreciation and Revaluation on disposed equipment Rs. m Rs. m

Cost 66
Depreciation 2015 [66 / 30 years] eliminated on revaluation (2.2)
63.8
23.2 23.2
Revalued 31 Dec 2015 87
Depreciation 2016 [87 / 29 years] (3) (0.8)
84
Depreciation 2017 [87 / 29 years x 6/12] (1.5) (0.4)
82.5 22
Accumulated depreciation related to disposed equipment 3 + 1.5 4.5
ANSWER 21
Part (a)
Dr Cr.
Date Particulars
R. 000 Rs. 000
July 1, 2018 Land 8,000
Reversal of revaluation loss (other income) 3,000
Jan 1, 2019 Cash [90m – 0.1m] 89,900
Acc. Dep. [(125 - 11) x 25% / 12 years x 4.5 years] 10,687.5
Buildings [125m x 25%] 31,250
Land [20m x 25%] 5,000
Gain on disposal (Other income) 64,337.5
Jan 1, 2019 Revaluation surplus 1,250
© kashifadeel.com
CAF 5 – IAS 16
Part (b) Abbas Limited

Notes to Financial Statements for the year ended 30 June 2019
4. Property, Plant and Equipment:
4.1 Abbas Limited uses the following subsequent measurement bases to value its
Property, Plant and Equipment, and methods to calculate its depreciation.
Assets Depreciation Useful life/ Residual Subsequent
Page | 34 method value/ Rate Measurement
Land N/A N/A Fair value
Building Straight – line 12 years / 8.8% Cost less Acc dep
Plant & machinery Units of production Rs. 25,000 per unit W2 Cost less Acc dep
Equipment Written down value Rate of 20% W3 Cost less Acc dep
4.2 Schedule of movement in property, plant and equipment

Plant &
Land Building Equipment Total
machinery
Cost Rs. 000
At 1 July 2018 12,000 125,000 500,000 100,000 737,000
Acquisition - - - 60,000 60,000
Revaluation 8,000 - - - 8,000
Disposals (5,000) (31,250) - - (36,250)
At 30 June 2019 15,000 93,750 500,000 160,000 768,750
Accumulated dep.
At 1 July 2018 - 38,000 300,000 36,000 374,000
For the year - 8,312.5 W4 1250,000 20,800 W5 154,112.5
Revaluations - - - - -
Disposals - (10,687.5) - - (10,687.5)
At 30 June 2019 - 35,625 425,000 56,800 517,425
Carrying amount 2019 15,000 58,125 75,000 103,200 251,325

Carrying amount 2018 12,000 87,000 200,000 64,000 363,000
4.3 An amount of expenditure of Rs. 20 million was incurred on the construction of a

factory near Lahore – Islamabad Motorway on 1 December 2018. This amount was
capitalized as capital work – in – progress.
A further borrowing costs of Rs. 1.4 million (W6) were capitalized in respect of
interest on loan obtained from the bank to finance this project.
4.4 A contract was made with M/s Uni Power & Co. to purchase plant and machinery
worth Rs. 35 million once the construction of factory building is complete.
4.5 The following depreciations are either made part of inventory or expenses out in
statement of profit or loss:
Assets COS Rs. 000 Admin Rs. 000 Total Rs. 000
Building 4,987.5 3,325 8,312.5
Plant & machinery 125,000 - 125,000
Equipment - 20,800 20,800
Total 129,987.5 24,125 154,112.5
4.6 Revaluation disclosures:
The revaluation of land took place on 1 July 2018. The value was determined by an
independent firm M/s Ashfaq & Co. Chartered Accountants.
The carrying amount of land had the revaluation not taken place:
Rs. Million
At 1 July 2018 15
Disposals during the year (3.75)
At 30 June 2019 11.25

CAF 5 – IAS 16
Revaluation surplus
Rs. Million
At 1 July 2018 -
Revaluation of land 5
Transfer to retained earnings (1.25)
At 30 June 2019 3.75 Page | 35
A further reversal of revaluation loss of Rs. 3 million was reversed during the year.
Workings
1. Annual depreciation on building = Rs. 38m / 4 years (2014 to 2018) = Rs. 9.5
Original useful life = Depreciable amount / Depreciation = (125 – 11) / 9.5 = 12 years
2. (Accumulated depreciation 300,000,000/12,000 units) = Rs. 25,000 per unit
3.
100 − 36
= 1− = 20%
100
4. Depreciation on buildings
On disposed [(125-11) x 25% / 12 years x 6/12] = Rs. 1,187.5
On other [(125-11) x 75% / 12 years x 12/12] = Rs. 7,125
Total = Rs. 8,312.5
5. Depreciation on equipment
On addition 60 x 20% x 8/12 = Rs. 8,000
On other (100 – 36) x 20% x 12/12 = Rs. 12,800
Total = Rs. 20,800
6. Borrowing costs capitalised
20 million x 12% x 7/12 = 1.4 million
ANSWER 22
Part (a)
Disposal account – Fittings
Rs. Rs.
Jan 1 Fittings – cost 30,000 Jan 1 Acc dep – fittings W1 4,500
Jan 1 Cash (disposal costs) 1,000 Jan 1 Cash (sale proceeds) 22,000
Mar 31 SPL – loss on disposal 4,500
31,000 31,000
W1 30,000 x 9/12 x 2 x 10% = 4,500
Part (b) Games Limited

Notes to the Financial Statements for the year ended 31 March 2017
4. Property, Plant and Equipment
4.1 Games Limited (GL) uses the following subsequent measurement bases to value its
Property, Plant and Equipment, and methods to calculate its depreciation.
Assets Deprecation method Rate Subsequent measurement
Building Straight – line 10% Fair value
Computers Written down value 30% W1 Cost less acc dep
Fittings Straight – line 10% Cost less acc dep
Furthermore, Games Limited uses proportionate policy to depreciate its assets.
© kashifadeel.com
CAF 5 – IAS 16
4.2 Schedule of movements in Property, Plant and Equipment

2017 2016
Buildings Computers Fittings Buildings Computers Fittings
Cost Rs.
1 April 3,237,500 600,000 120,000 - - -
Acquisition - 120,000 - 3,000,000 600,000 120,000
Page | 36 Revaluations (1,237,500) - - 237,500 - -
Disposals - (30,000) - - -
31 March 2,000,000 720,000 90,000 3,237,500 600,000 120,000
Acc. dep
1 April - 135,000 9,000 - - -
For the year 350,000 172,500 11,250 225,000 135,000 9,000
Revaluations (350,000) - - (225,000)
Disposals - - (4,500)
31 March - 307,500 15,750 - 135,000 9,000
Net 2,000,000 412,500 74,250 3,237,500 465,000 111,000

Net – last year 3,237,500 465,000 111,000 - - -
4.3 The entire office building was mortgaged with Js Bank on 31 March 2017, to obtain a
bank loan worth Rs. 1.75 million for prospective investments in other divisions.
4.4 No contractual commitments were made during the year ended 31 March 2017 to
purchase Property, plant and equipment.
A contract was made with AL – Karim Computers during the year ended 31 March
2016 to purchase 6 Computers of Rs. 20,000 each to be delivered on 1 May 2017.
4.5 The following depreciations are either made part of inventory or expensed out in
statement of profit or loss:
2017 2016
Assets COS Admin Total COS Admin Total
Rs.
Buildings 280,000 70,000 350,000 180,000 45,000 225,000
Computers 172,500 - 172,500 135,000 - 135,000
Fittings - 11,250 11,250 - 9,000 9,000
Total 452,500 81,250 533,750 315,000 54,000 369,000
4.6 Revaluation disclosures
The revaluation of office building took place on 31 March 2017 and 31 March 2016
respectively. The fair values of the office building were determined by an
independent firm M/s Hafeez Yasir Chartered Accountants & Co.
The carrying amount of buildings had the revaluation not taken place:
2017 2016
Rs. Rs.
Cost at the start of the year 3,000,000 -
Acquisitions - 3,000,000
Disposals - -
At end of the year 3,000,000 3,000,000
Accumulated depreciation at start 225,000 -
Depreciation for the year 300,000 225,000
Disposals - -
At the end of the year 525,000 225,000
Carrying amount at year end 2,475,000 2,775,000
Carrying amount at year start 2,775,000 -

CAF 5 – IAS 16
Revaluation Surplus
2017 2016
Rs. Rs.
At start of the year 462,500 -
Revaluation of building (412,500) 462,500
Transfer to retained earnings (350,000-300,000) (50,000) - Page | 37
At end of the year - 462,500
Furthermore, a revaluation loss of Rs. 475,000 was recognized in profit or loss at 31

March 2017.
Workings
1.
4802
= 1− = 30%
20000
2. Depreciation – Building
2017  3,237,500 / 9.25 = Rs. 350,000
2016  3,000,000 / 10 x 9/12 = Rs. 225,000
3. Depreciation – Computers
2017  Acquisitions (120,000x30%x11/12) = Rs. 33,000
+ Remaining [(600,000 - 135,000) x30%] = Rs. 139,500
= Rs. 172,500
2016  600,000 x 30% x 9/12 = 135,000
4. Depreciation – Fittings
2017  Disposals (30,000x10%x9/12) = Rs. 2,250
+ Remaining (90,000x10%) = Rs. 9,000
= Rs. 11,250
2016  120,000/10 x 9/12 = 9,000
© kashifadeel.com
CAF 5 – IAS 16
Page | 38

CAF 5 – IAS 16
ICAP OBJECTIVE BASED QUESTIONS

01. An entity purchased a property 15 years ago at a cost of Rs. 100,000 and have been
depreciating it at a rate of 2% per annum, on the straight-line basis. The entity has had the
property professionally revalued at Rs. 500,000.
What is the revaluation surplus that will be recorded in the financial statements in respect of this
property? Page | 39
(a) Rs. 400,000
(b) Rs. 500,000
(c) Rs. 530,000
(d) Rs. 430,000
02. An entity owns two buildings, A and B, which are currently recorded in the books at carrying
amounts of Rs. 170,000 and Rs. 330,000 respectively. Both buildings have recently been valued
as follows:
Building A Rs. 400,000
Building B Rs. 250,000
The entity currently has a balance on the revaluation surplus of Rs. 50,000 which arose when
building A was revalued several years ago. Building B has not previously been revalued.
What double entry will need to be made to record the revaluations of buildings A and B?
(a) Dr Non-current assets Rs. 150,000
Dr Statement of profit or loss Rs. 80,000
Cr Other comprehensive income (revaluation surplus) Rs. 230,000
(b) Dr Non-current assets Rs. 150,000
(c) Dr Non-current assets Rs. 150,000
(d) Dr Non-current assets Rs. 150,000
03. An entity purchased property for Rs. 6 million on 1 July 2013. The land element of the purchase
was Rs. 1 million. The expected life of the building was 50 years and its residual value nil. On 30
June 2015 the property was revalued to Rs. 7 million, of which the land element was Rs. 1.24
million and the buildings Rs. 5.76 million. On 30 June 2017, the property was sold for Rs. 6.8
million.
What is the gain on disposal of the property that would be reported in the statement of profit or
loss for the year to 30 June 2017?
(a) Gain Rs. 40,000
(b) Loss Rs. 200,000
(c) Gain Rs. 1,000,000
(d) Gain Rs. 1,240,000
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CAF 5 – IAS 16
04. Which of the following statements are correct?

1. If the revaluation model is used for property, plant and equipment, revaluations must
subsequently be made with sufficient regularity to ensure that the carrying amount does
not differ materially from the fair value at each reporting date.
2. When an item of property, plant and equipment is revalued, there is no requirement that
the entire class of assets to which the item belongs must be revalued.
Page | 40
(a) Only statement 1 is correct
(b) Only statement 2 is correct
(c) Both statements are correct
(d) None of the statement is correct
05. The following trial balance extract relates to a property which is owned by Maira Limited as at 1
April 2014.
Dr Cr
Rs. 000 Rs. 000
Property at cost (20 year original life) 12,000
Accumulated depreciation as at 1 April 2014 3,600
On 1 October 2014, following a sustained increase in property prices, Maira Limited revalued its
property to Rs. 10.8 million.
What will be the depreciation charge in Maira Limited’s statement of comprehensive income for
the year ended 31 March 2015?
(a) Rs. 540,000
(b) Rs. 570,000
(c) Rs. 700,000
(d) Rs. 800,000
06. A company purchased a building on 1 April 2007 for Rs. 10,000,000. The asset had a useful
economic life at that date of 40 years. On 1 April 2009 the company revalued the building to its
current fair value of Rs. 12,000,000.
What is the double entry to record the revaluation?
(a) Dr. Building 1,500,000
Dr. Accumulated depreciation 500,000
Cr. Other comprehensive income 2,000,000
(b) Dr. Building 2,000,000
Cr. Profit or loss 2,500,000
(c) Dr. Building 2,000,000
Cr. Other comprehensive income 2,500,000
(d) Dr. Building 1,500,000
Cr. Profit or loss 2,000,000

CAF 5 – IAS 16
07. The carrying value of property at the end of the year amounted to Rs. 108 million. On this date
the property was revalued and was deemed to have a fair value of Rs. 95 million. The balance
on the revaluation reserve relating to the original gain of the property was Rs. 10 million.
What is the double entry to record the revaluation?
(a) Dr. Profit or loss 3 million Page | 41
Dr. Other comprehensive income 10 million
Cr. Property 13 million
(b) Dr. Profit or loss 10 million
(c) Dr. Profit or loss 13 million
(d) Dr. Profit or loss 13 million
08. A company revalued its property on 1 April 2009 to Rs. 20m (Rs. 8m for the land). The property
originally cost Rs. 10m (Rs. 2m for the land) 10 years ago. The original useful economic life of
40 years is unchanged. The company’s policy is to make a transfer to realized profits in respect
of excess depreciation.
At which amount the property be presented at as at 31 March 2010?
(a) Rs. 20 million
(b) Rs. 19.6 million
(c) Rs. 12 million
(d) Rs. 11.6 million
09. A company revalued its property on 1 April 2009 to Rs. 20m (Rs. 8m for the land). The property
originally cost Rs. 10m (Rs. 2m for the land) 10 years ago. The original useful economic life of
40 years is unchanged. The company’s policy is to make a transfer to realized profits in respect
of excess depreciation.
What is amount of balance in revaluation surplus account as at 31 March 2010?
(a) Rs. 12 million
(b) Rs. 10 million
(c) Rs. 9.8 million
(d) Rs. 11.8 million
10. Which of the following is an optional disclosure requirement of IAS 16?

(a) Measurement bases for determining gross carrying amount
(b) Depreciation method
(c) Useful lives or depreciation rates
(d) The carrying amount of temporarily idle PPE
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CAF 5 – IAS 16
11. Following information is available for equipment account of a business on 1st January 2018:
Opening balance of equipment, a/c (Revalued amount) Rs. 7,500,000
Surplus on revaluation of equipment a/c Rs. 2,000,000
At start of year company sold equipment for Rs. 90,000,000.
Page | 42
Company has a policy of charging 20% depreciation on straight line basis.
What will be treatment of revaluation surplus at disposal of asset?
(a) Dr Surplus on revaluation Rs. 2,000,000
Cr Retained earnings Rs. 2,000,000
(b) Dr Retained earnings Rs. 2,000,000,
Cr Surplus on revaluation Rs. 2,000,000
(c) Dr Surplus on revaluation Rs. 3,500,000
Cr Retained earnings Rs. 3,500,000
(d) Dr Surplus on revaluation Rs. 2,0000,000
Cr Equipment account Rs. 2,000,000
12. A non–current asset costing Rs. 216,000 and carrying value Rs. 145,000 is revalued to Rs.
291,000.
How should revaluation be recorded?
(a) Dr Asset a/c Rs. 75,000,
Cr Surplus on revaluation Rs. 75,000
(b) Dr Asset a/c Rs. 75,000,
Dr Accumulated Depreciation Rs. 71,000,
(c) Dr Surplus on revaluation Rs. 146,000,
Cr Asset a/c Rs. 75,000,
Cr Accumulated Depreciation Rs. 71,000
(d) Dr Accumulated depreciation Rs. 146,000,
13. When items of property, plant and equipment are stated at revalued amounts the following must
be disclosed:
(i) the effective date of the revaluation
(ii) whether an independent valuer was involved
(iii) the methods and significant assumptions applied in estimating the items’ fair values
(iv) the extent to which the items’ fair values were determined directly by reference to
observable prices in an active market or recent market transactions on arm’s length
terms or were estimated using other valuation techniques
(v) for each revalued class of property, plant and equipment, the carrying amount that
would have been recognised had the assets been carried under the cost model;
(vi) the revaluation surplus, indicating the change for the period and any restrictions on the

CAF 5 – IAS 16
(a) (i), (ii) and (vi) only

(b) (i), (ii), (v) and (vi) only
(c) (i), (ii), (iii) and (iv) only
(d) (i) to (vi) all
Page | 43
14. IAS 16 encourages disclosure of the following information as users of financial statements might
find it to be useful.
(i) the carrying amount of temporarily idle property, plant and equipment
(ii) the gross carrying amount of any fully depreciated property, plant and equipment that is
still in use
(iii) the carrying amount of property, plant and equipment retired from active use and held
for disposal
(iv) when the cost model is used, the fair value of property, plant and equipment when this
is materially different from the carrying amount
(a) (i), (ii) and (iii) only
(b) (i), (ii) and (iv) only
(c) (i), (iii) and (iv) only
(d) (i) to (iv) all
15. Which of the following statements is correct?

(a) An entity may present PPE at gross carrying amount or net carrying amount under IAS
16
(b) Either useful lives or depreciation rates are to be disclosed, both are not required.
(c) Under revaluation model, PPE are revalued at end of each year
(d) If an entity chooses revaluation model, it must apply revaluation model to all of its PPE.
16. Waqas Limited purchased a machine for Rs. 30,000 on 1 January 2015 and assigned it a useful
life of 12 years. On 31 March 2017 it was revalued to Rs. 32,000 with no change in useful life.
What will be depreciation charge in relation to this machine in the financial statements for the
year ending 31 December 2017?
Rs. ___________
17. A business purchased building costing Rs. 7,500,000 on 1 January 2018.
The policy of business is to charge straight line depreciation over its useful life of 20 years.
On 31 December 2020, building was revalued to Rs. 7,650,000.
What is the amount of incremental depreciation to be transferred to retained earnings at year
ending 31 December 2021?
Rs. ___________
18. A business purchased an asset on 1 January 2016 costing Rs. 5,000,000 having a useful life of
10 years with nil residual value. On 1 January 2018 balance of accumulated depreciation was
Rs. 1,000,000. Asset is revalued to Rs. 4,500,000 on 1 January 2018 (start of the year).
Business has a policy to charge straight line depreciation.
© kashifadeel.com
CAF 5 – IAS 16
What is the depreciation charge for the year ended 31 December 2018?
Rs. ___________
Page | 44 Rs. 1,000,000. Asset is revalued to Rs. 4,500,000 on 1 January 2018 (start of the year).
What is the amount of revaluation surplus at the date of revaluation?
Rs. ___________
Rs. 1,000,000. Asset is revalued to Rs. 4,500,000 on 1 January 2018 (start of the year).
What is the amount of incremental depreciation for the year ended 31 December 2018?
Rs. ___________
21. A revaluation gain is credited into?

(a) Revaluation reserve
(b) Capital reserve
(c) Profit and loss
(d) Any of the above
22. After initial recognition, an entity has a choice to choose cost and?
(a) Realizable model
(b) Replacement model
(c) Revaluation model
(d) Carrying value model
23. When an item of property, plant and equipment is revalued, what should be revalued?
(a) A selection of assets decided by management
(b) The whole class of assets to which it belongs
(c) The individual asset
(d) A selection of assets picked at random
24. If an asset increases in value, the increase is noted as?

(a) An increase in net profit in the SOCI
(b) An increase in retained earnings in SOFP
(c) An increase in revaluation surplus in the SOFP and other comprehensive income in the
SOCI
(d) An increase in “other profit” in SOCI

CAF 5 – IAS 16
25. Which of the following is not a valid reason for reporting non-current assets at revaluation
amount rather than cost?
(a) To prevent long life assets from being reported at out of date historical costs
(b) To keep owners of the business better informed of their equity in the business.
(c) To report performance correctly by matching earnings with the proper costs of assets
used. Page | 45
(d) To avoid having to pay higher taxes
26. An entity has a policy of revaluing its PPE. An asset cost Rs.5m on 1 January 2020 and has a
useful life of five years and is depreciated on a straight-line basis to a zero residual value. The
value of the asset at 31 December 2020 was Rs.3.8m. The fall in value will be accounted for as
follows?
(a) Depreciation Rs.1m and fall in value of Rs.200,000 both to the reserves
(b) Depreciation Rs.1m to the income statement and fall in value of Rs.200,000 ignored
until there is a revaluation surplus
(c) Depreciation Rs.1m to income statement and fall in value of Rs.200,000 to the reserves
(d) Depreciation Rs.1m and fall in value of Rs.200,000 both to the income statement
27. During the financial year, Akmal Ltd had the following increases in reserves:
i. Rs. 5 million from a revaluation of freehold premises
ii. Rs.10 million in share premium
iii. Rs.25 million from trading profit retained
Which of these are increases in capital reserves?
(a) i only
(b) ii only
(c) i. and ii. Only
(d) iii. only
28. The following gains may legally be withdrawn from the company by shareholders:
i. gains that arise from the upward revaluation of non-current assets
ii. gains that arise from the sale of non-current assets
What is the validity of each statement?
(a) Both i. and ii are true
(b) i. is true and ii. is false
(c) Both i. and ii are false
(d) ii. is true and i. is false
29. The financial statements of Saadi Limited for the most recent year indicated the following:
i. a bonus issue of shares
ii. a transfer of profit retained to retained earnings
iii. an increase in the revaluation reserve due non-current assets
iv. a rights issue of shares
Which of the above involved a movement of cash?
© kashifadeel.com
CAF 5 – IAS 16
(a) i. and ii
(b) ii. and iii.
(c) iii only
(d) iv only
Page | 46
30. An apartment is revalued upwards by Rs. 1 million. It was acquired 5 years ago for Rs. 5 million.
Its useful life remains same as 10 years.
What is the revised depreciation charge for the year after revaluation?
(a) Rs. 500,000
(b) Rs. 600,000
(c) Rs. 700,000
(d) Rs. 800,000
31. A building is revalued upwards by Rs. 2 million. It was acquired five years ago for Rs.10 million.
Its useful life remains same as 20 years. What is the incremental depreciation charge for the
year?
(a) Rs.100,000
(b) Rs.133,333
(c) Rs.166,667
(d) Rs.200,000
32. An IT equipment being carried at revaluation model has revaluation reserve balance of Rs.
50,000. During the year, it reduces its value due to technological obsolescence. It has Rs.
70,000 decrease in value. What would be the impact of this revaluation decrease?
(a) The decrease of Rs.50,000 is debited to revaluation reserve and Rs.20,000 to profit or
loss for the year
(b) The decrease of Rs.50,000 is debited to profit and loss account and Rs.20,000 to
revaluation reserve for the year
(c) The whole decrease is debited to revaluation reserve
(d) The whole decrease is debited to profit or loss for the year

CAF 5 – IAS 16
OBJECTIVE BASED ANSWERS

01. (d) Rs.
Current value 500,000
Carrying amount
(100,000 – (100,000 × 2% × 15 yrs)) (70,000) Page | 47
Revaluation gain 430,000
02. (a)
Building A Building B
Current value 400,000 250,000
Carrying amount (170,000) (330,000)
Revaluation gain/(loss) 230,000 (80,000)
The gain on Building A will be credited to other comprehensive income and

the revaluation surplus.
The loss on Building B will be debited to the statement of profit or loss
expenses because we do not have a balance on the revaluation surplus in
respect of building B to offset the loss.
We make an overall debit to non-current assets of Rs. 230,000 – Rs.
80,000 = Rs. 150,000
03. (a) Land Buildings Total
Rs. Rs. m Rs. m
Cost 1 July 2013 1.00 5.00 6.00
Building depreciation
Rs. 5 million/50 years x 2 years (0.2) (0.2)
Carrying amount 30 June 2015 1.00 4.80 5.80
Revaluation gain 0.24 1.96 1.20
Revalued amount 1.24 5.76 7.00
Building depreciation
Rs. 5.76m/48 years x 2 years (0.24) (0.24)
Carrying amount 30 June 2017 1.24 5.52 6.76
Disposal proceeds 6.80
Gain on disposal 0.04
The gain on disposal is Rs. 40,000. The Rs. 1.2 million balance on the
revaluation reserve is transferred from the revaluation reserve to another
reserve account (probably retained earnings) but is not reported through the
statement of profit or loss for the year.
04. (a) IAS 16 (para 31) states that when the revaluation model is used,
revaluations should be made with sufficient regularity to ensure that the
carrying value of the assets remains close to fair value. IAS 16 also states
(para 36) that, if one item in a class of assets is revalued, all the assets in
that class must be revalued.
© kashifadeel.com
CAF 5 – IAS 16
05. (c) Six months’ depreciation to the date of the revaluation will be Rs. 300,000
(12,000/20 years × 6/12). Six months’ depreciation from the date of
revaluation to 31 March 2015 would be Rs. 400,000 (10,800/13.5 years
remaining life × 6/12). Total depreciation is Rs. 700,000.
06. (c) Building a/c

Page | 48 Particulars Rs. Particulars Rs.
b/d 10,000,000 Acc. dep 500,000
Surplus 2,500,000 c/d 12,000,000
12,500,000 12,500,000
Building net debited by Rs. 2,000,000 (2,500,000 – 500,000)
07. (a) Total loss Rs. 13 million, Rs. 10 will be charged to revaluation surplus and
remaining to profit or loss.
08. (b) Depreciation (20 – 8) / 30 years = Rs. 0.4 million

Carrying amount Rs. 20 million less 0.4 million = Rs. 19.6 million
09. (d) Depreciation Now (20 – 8) / 30 years = Rs. 0.4 million

Depreciation Cost (10 – 2) / 40 years = Rs. 0.2 million
Revaluation surplus
= Land Rs. 6 million + Building Rs. 6 million - incremental depreciation 0.2
million = Rs. 11.8 million
10. (d) The carrying amount of temporarily idle PPE
11. (a) On disposal of a revalued asset, the full balance of surplus on revaluation is
transferred to retained earnings.
12. (b) Accumulated depreciation = Rs. 216,000-Rs. 145,000=Rs. 71,000

Surplus = Rs. 291,000-Rs. 145,000=Rs. 146,000
Net amount debited to asset = Rs. 146,000-Rs. 71,000=Rs. 75,000
13. (d) All of items are required to be disclosed.
14. (d) All of items are required to be disclosed.
15. (b) Either useful lives or depreciation rates may be disclosed, both are not
required.
16. Rs. 3,087 The machine has been owned for 2 years 3 months, so the remaining
useful life at 31 March 2017 was 9 years 9 months.
Prior to revaluation it was being depreciated at Rs. 2,500 pa (30,000/12), so
the charge for the first three months of 2017 was Rs. 625.
The machine will now be depreciated over the remaining 9 years 9 months
= 117 months. So, the charge for the remaining 9 months of 2017 is Rs.
2,462 ((32,000 / 117) × 9).
So total depreciation for the year ended 31.12.17 is (625 + 2,462) = Rs.
3,087
17. Rs. 75,000 Incremental depreciation = depreciation on revalued amount – depreciation

at cost
Dep. before revaluation = Rs. 7,500,000 / 20 years = Rs. 375,000

CAF 5 – IAS 16
Dep. after revaluation = Rs. 7,650,000 / 17 years = Rs. 450,000

Incremental depreciation = Rs. 75,000
18. Rs. 562,500 Depreciation = Rs. 4,500,000/8= Rs. 562,500
19. Rs. 500,000 Revaluation surplus = Rs. 4,000,000 – 4,500,000= Rs. 500,000
20. Rs. 62,500 Incremental depreciation = Dep on revalued amount – Dep on cost
Page | 49
= (4,500,000/8)– (5,000,000/10)
=Rs. 562,500 – 500,000 = 62,500
Alternatively, Rs. 500,000 surplus / 8 years = Rs. 62,500
21. (a) Revaluation reserve (surplus)
22. (c) Revaluation model
23. (b) The whole class of assets to which it belongs
24. (c) Increase in OCI in SOCI

Increase in Surplus in SOFP
25. (d) Revaluation does not affect tax payable or refundable.
26. (d) Depreciation Rs. 1 million (i.e. Rs. 5 million / 5 years)  SPL
Revaluation loss Rs. 3.8 million – (5 – 1) million = Rs. 0.2 million  SPL
27. (c) Revaluation reserve and share premium are capital reserves.
28. (d) Gain from sale of non-current assets may be withdrawn because these are
realised gains. Revaluation gains are not considered realised.
29. (d) Right issue of shares only. All other transactions do not involve cash.
30. (c) Before revaluation Rs. 5 million / 10 years x 5 years = Rs. 2.5 million
After revaluation Rs. 2.5m + 1m = Rs. 3.5 million
Depreciation Rs. 3.5 million / 5 years = Rs. 0.7 million
31. (b) Annual depreciation before revaluation = Rs. 10m / 20 years = Rs. 0.5m
Before revaluation Rs. 10 million – (0.5m x 5 years) = Rs. 7.5 million
After revaluation Rs. 7.5m + 2m = Rs. 9.5 million
Depreciation Rs. 9.5 million / 15 years = Rs. 633,333
Incremental depreciation Rs. 633,333 – 500,000 = Rs. 133,333
32. (a) Rs. 50,000 charge to Revaluation surplus

Remaining Rs. 20,000 to be charged to profit or loss
© kashifadeel.com

Property, Plant & Equipment: Measurement After Recognition

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CAF 5 – IAS 16

Property, Plant &

SPL OR OCI – WHERE THE GAIN OR LOSS SHOULD BE RECOGNISED?

DEPRECIATION OF REVALUED ASSETS

Latest update: March 2020

Illustrative example: Accounting policy – Property, plant and equipment

Land and buildings

Other tangible non-current assets

Latest update: March 2020

Reference Content/Learning outcome

C2 IAS 16 Property, plant and equipment (revaluation and disclosure)

Past Paper Analysis

Latest update: March 2020

What is amount of incremental depreciation? (05) Page | 7

On 31 December 2001, the building was revalued to Rs. 108,000.

Latest update: March 2020

Following information pertains to its property, plant and equipment:

Latest update: March 2020

During 2015 the following transactions took place.

(ii) The relevant information relating to both assets is summarised below:

Latest update: March 2020

SL transfers the maximum possible amount from revaluation surplus to retained

(iii) The revalued amount of buildings as determined by Accurate Valuers (Private)

In the year ended 31 December 2015 the following transactions occur.

Latest update: March 2020

The following information pertains to the year ended 31 March 2017:

Latest update: March 2020

Latest update: March 2020

31.12.02 Accumulated depreciation 12,000

Latest update: March 2020

IAS 16 requires that depreciation methods be reviewed periodically and if there is a

Accumulated depreciation at the date of revaluation is either:

(ii) 31st March 2017

Latest update: March 2020

Transfer from revaluation surplus to retained earnings:

31 Dec 2015 Accumulated depreciation 38+38 76

31 Dec 2017 Accumulated depreciation 32+32 64

Workings Building OCI PL

Latest update: March 2020

1-Jul-11 Plant 125.00

30-Jun-12 Depreciation 63.89

30-Jun-12 Revaluation surplus 13.89

1-Jul-12 Accumulated depreciation – Plant 63.89

1-Jul-12 Revaluation Surplus 111.11

30-Jun-13 Depreciation 48.75

1-Jul-13 Accumulated depreciation – Plant 48.75

1-Jul-13 Plant 38.75

30-Jun-14 Depreciation 54.29

30-Jun-14 Revaluation surplus 4.29

Latest update: March 2020

31-Dec-14 Accumulated depreciation-Factory buildings 4.16

W1 – Remaining useful life of the buildings on revaluation date of 31 December 2013

Latest update: March 2020

W2 - Cost of new machine

Carrying amount 357 48.41 405.41 432 74.04 506.04

Carrying amount 382.5 405

Accumulated depreciation related to disposed equipment 2.5 + 2.25 + 1.01 5.76

The principal rates are as follows:

Latest update: March 2020