Page 7 - 3. COMPILER QB - INDAS 16

Depreciation

Option a – Since the Gross Block has been restated, the depreciation charge will be Rs25 per annum (Rs250 /
10 years).
Option b – Since the Revalued amount is the revised Gross Block, the useful life to be considered is the

remaining useful life of the asset which results in the same depreciation charge of Rs25 per annum as per

Option A (Rs150 / 6 years).

Q5. (Nov. 20)

Entity X has a warehouse which is closer to the factory of Entity Y and vice versa. The factories are located in
the same vicinity. Entity X and Entity Y agree to exchange their warehouses. The carrying value of warehouse of
Entity X is Rs. 1,00,000 and its fair value is Rs. 1,25,000. It exchanges its warehouse with that of Entity Y, the
fair value of which is Rs. 1,20,000. It also receives cash amounting to Rs. 5,000. How should Entity X account
for the exchange of warehouses?

SOLUTION
In the given case, the transaction lacks commercial substance as the company‖s cash flows are not expected to

significantly change as a result of the exchange because the factories are located in the same vicinity i.e. it is
in the same position as it was before the transaction. Hence, Entity X will have to recognise the assets received
at the carrying amount of assets given up, i.e. Rs. 1,00,000 being the carrying amount of the existing warehouse
of Entity X and Rs. 5,000 received will be deducted from the cost of property, plant and equipment. Therefore,
the warehouse of Entity Y is recognised as property, plant and equipment with a carrying value of Rs. 95,000 in

the books of Entity X.

Q6. (May. 21)

An entity has the following items of property, plant and equipment:
● Property A — a vacant plot of land on which it intends to construct its new administration headquarters;
● Property B — a plot of land that it operates as a landfill site;
● Property C — a plot of land on which its existing administration headquarters are built;
● Property D — a plot of land on which its direct sales office is built;

● Properties E1–E10 — ten separate retail outlets and the land on which they are built;
● Equipment A — computer systems at its headquarters and direct sales office that are integrated with the
point of sale computer systems in the retail outlets;
● Equipment B — point of sale computer systems in each of its retail outlets:

● Furniture and fittings in its administrative headquarters and its sales office;
● Shop fixtures and fittings in its retail outlets.
How many classes of property, plant and equipment must the entity disclose?
SOLUTION

To answer this question, one must make a materiality judgment.
A class of assets is defined as a group of assets of a similar nature and use in an entity‖s operations.
The nature of land without a building is different to the nature of land with a building.
Consequently, land without a building is a separate class of asset from land and buildings. Furthermore, the

3.6