IAS 16 · Case studies (Step 3 of 5)
Case study
Fonderie Valmont (a fictitious company) manufactures mechanical parts and its reporting date is 31 December. It applies the cost model to its property, plant and equipment. In 20X1 it acquires a computer-controlled machining centre to increase its production capacity. You are asked to account for the acquisition using the documents in the file below.
Your assignment
Using the supplier invoice, the schedule of expenditure and the technical memo, deal with the following points in order. The tasks are guided: each step builds on the previous one.
Work on this file as you would in practice: read the situation, open the documents, sort the useful information, then carry out the work requested. The solution is revealed once you submit.
Fundamental level: the method, help and references are shown.
Method
File checklist
Document 3
Document 3
3 documents: open each one to read it.
Document 1Invoice
Invoice No. F-218 dated 15 February 20X1. Machining centre, list price: 240,000. Trade discount of 5%: 12,000. Net price: 228,000. VAT at 20%: 45,600, fully recoverable by Fonderie Valmont. Total payable: 273,600, due in 60 days.
The figures of the documents, gathered for your work.
| Item | Value | Found in |
|---|---|---|
| List price | €240,000.00 | |
| Trade discount | €12,000.00 | |
| Net invoiced price | €228,000.00 | |
| Recoverable VAT | €45,600.00 | |
| Invoice total, payable to the supplier | €273,600.00 | |
| Transport and delivery | €6,000.00 | |
| Floor preparation | €9,000.00 | |
| Installation and assembly | €14,000.00 | |
| Testing of proper functioning | €3,000.00 | |
| Commissioning engineer's fees | €5,000.00 | |
| Operator training | €4,000.00 | |
| Advertising | €2,500.00 | |
| Administrative overheads | €1,500.00 | |
| Date available for use | April 1 20X1 | |
| Production start date | May 1 20X1 | |
| Useful life | 10 years | |
| Residual value | €15,000.00 |
Not every document matters: identify those that affect the accounting treatment.
Part 1 · Classification · Analysis
Sort each document: does it affect the accounting treatment?
Drag each item into its category, or tap the category under the item.
Machine supplier invoice
Schedule of other project expenditure
Technical commissioning memo
7 tasks in the order of the file. Calculations, entries and effects on the financial statements are marked; written answers are self-assessed against the solution.
Task 1Analysis
Does the machine meet the definition of property, plant and equipment and the recognition criteria? On what basis is it measured initially?
Set out the facts, the question raised, then your analysis.
This answer is not marked automatically: after submitting, you will compare it with the solution.
Task 2Calculation
Determine the initial cost of the machine and the total expenditure to be recognised as an expense.
Start from the data in the pieces, set the formula, check the unit and the order of magnitude.
Part 1 · Calculation
Determine the initial cost of the machine and the total expenditure to be recognised as an expense.
Result: Expenditure recognised as an expense
Task 3Calculation
Calculate the depreciable amount and the annual depreciation charge.
Start from the data in the pieces, set the formula, check the unit and the order of magnitude.
Part 1 · Calculation
Calculate the depreciable amount and the annual depreciation charge.
Result: Annual depreciation charge
Task 4Calculation
From what date does depreciation begin? Calculate the depreciation charge for 20X1.
Start from the data in the pieces, set the formula, check the unit and the order of magnitude.
Part 1 · Calculation
From what date does depreciation begin? Calculate the depreciation charge for 20X1.
Task 5Journal entries
What journal entries do you record in 20X1?
Identify the accounts affected and the direction of each movement; check the balance.
Part 1 · Journal entry · Journal entries
Entry 1 of 3
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Line 3
Line 4
Part 2 · Journal entry · Journal entries
Entry 2 of 3
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Part 3 · Journal entry · Journal entries
Entry 3 of 3
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Task 6Effects on the financial statements
What is the impact of these entries on the financial statements at 31 December 20X1?
For each financial statement, state the line affected, the direction and the amount.
Part 1 · Calculation
What is the impact of these entries on the financial statements at 31 December 20X1?
Part 2 · Classification · Analysis
State the direction of the effect on each financial statement aggregate.
Financial position (balance sheet)
Profit or loss
Other comprehensive income
Equity
Notes
Part 3 · Calculation · Analysis
Quantify the effect on the aggregates concerned.
Result: Amount of the effect — Equity
Task 7Conclusion
Write the conclusion to be kept in the acquisition file.
Write a conclusion that cites the facts and the treatment chosen.
This answer is not marked automatically: after submitting, you will compare it with the solution.
Your working draft for this file: points noted, leads, intermediate calculations.
Saved on this device only; never graded.
Complete every item of the file to submit it (0 / 12).
Document this file
These working papers use the data and results of this case.
Normative references