Replacement of parts

Learning objectives

• Determine the treatment of the replacement of a major part.L2
• Calculate the carrying amount of the replaced part to be derecognised.L2, L3
• Record the replacement and the derecognition of the replaced part.L2, L3

Normative references

• IAS 16 §13Replacement of parts: cost recognised in the carrying amount if the recognition criteria are met; carrying amount of the replaced parts derecognised (paras. 67 to 72).
• IAS 16 §70If the cost of a replacement is recognised in the carrying amount (paras. 7 and 13), the carrying amount of the replaced part is derecognised, whether or not it had been depreciated separately; if that carrying amount cannot practicably be determined, the cost of the replacement may be used as an indication of what the cost of the replaced part was at the time it was acquired or constructed.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

1 question

• The inner lining of an industrial furnace is a separately depreciated component. It is replaced before the end of its useful life; the new lining costs {new_lining_cost}, paid in cash, and meets the recognition criteria. The old lining had a cost of {old_lining_cost} and accumulated depreciation of {old_lining_depreciation}; it is scrapped with no salvage value. Record the entry.L3