Replaced parts

Learning objectives

• Account for the replacement of a part: the new part is recognised as an asset and the replaced part is derecognised.L2, L3
• Calculate, from the case data, the amount relating to replaced parts and justify the basis of calculation.L2, L3
• Record the entry relating to replaced parts and state its effect on the financial statements.L2, L3

Normative references

• IAS 40 §68Replacement of a part: the cost of the replacement is recognised in the carrying amount (recognition principle in para. 16) and the carrying amount of the replaced part is derecognised.

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

3 questions

• When a part of an investment property is replaced, the carrying amount of the replaced part stays on the balance sheet in addition to the cost of the new part.L2
• Jovane, which applies the cost model, replaces the lift of an investment property. The new lift costs {replacement_cost} and meets the recognition criteria. The old lift was carried at {carrying_amount_of_replaced_part} (case data) and has no disposal value. Calculate the loss to recognise on the replaced part and the net change in the carrying amount of the property.L3
• Kelvane replaces the roof of an investment property. The new roof, which meets the recognition criteria, costs {replacement_cost}, paid in cash. The old roof was included in the carrying amount of the property at {carrying_amount_of_replaced_part} (case data) and has no disposal value. The entity applies the cost model. Record the entry.L3