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BPP Revision Kit Q43, 44
ELITE LEISURE (E.L) – CBE Style OTQ case
Scenario:
E.L is a private limited liability company that operates a single cruise ship. This ship was acquired on 1 October 20W6. Details of the cost of the ships’s components and their estimated useful lives are:Component Original Cost Depreciation Basis
$m
Ship’s fabric (hull,decks etc) 300 25 years straight-line
Cabins & entertainment area fittings 150 12 years straight-line
Propulsion system 100 Useful life of 40,000 hoursAt 30 September 20X4 no further capital expenditure had been incurred on the ship.
The measured expired life of the propulsion system at 30 Sep 20X4 was 30,000 hrs. Due to the unreliability of the engines, a decision was taken in early October 20X4 to replace the whole of the propulsion at a cost of $140 million. The expected life of the new propulsion was 50,000 hours & in the year ended 30 Sep 20X5 the ship had used its engines for 5,000 hrs.
At the same time as the propulsion system replacement, the entity too the opportunity to do a limited upgrade to the facilities at a cost of $60million and repaint the ship’s fabric at a cost of $20 million. After the upgrade of the facilities it was estimated that their remaining life was 5 years (from date of upgrade). For the purpose of calculating depreciation, all the work on the ship can be assumed to have been completed on 1 October 20X4. All the residual values can be taken as nil.
Question 43: What is the amount of depreciation that should be charged in respect of the propulsion system for the year ended 30 Sep 20X5?
Answer 43: $14m (140m x 5,000/50,000)
I cannot understand the 5,000 is the remaining 5,000 or the 5,000 used out of the 10,000??
Question 44: Apart depreciation, what is the total charge to profit or loss for the year ended 30 Sep 20X5?
Answer 44: $45m (Repainting $20m + Loss on disposal $25m)
I cannot understand why the $60m is not included & how he gets the Loss on disposal figure of $25m.
The old propulsion system is gone. The new one is worth 140 million. 5000 hours (of 50,000 hours) are depreciated for the year. i.e. 140m * 5000/50,000 as per answer.
Repainting is an expenses of 20 million. The carrying value of the old propulsion system was 25 million when the new one was brought in. It doesn’t mention anything about it being scrapped for money, so therefore 25 million is the loss recorded when it was replaced by the new one.
Use this case study to answer Question 1 – 13
Nam Leisure is a private limited liability company that operates a single cruise ship. The ship was acquired on 1 October 2010. Details of the cost of the ship’s components and their estimated useful lives are:
Component Original cost Deprecation basis
($ million)
Ship’s fabric (hull, decks etc) 300 25 years straight–line
Cabins and entertainment area fittings 150 12 years straight–line
Propulsion system 100 Useful life of 40,000 hours
At 30 September 2018 no further capital expenditure had been incurred on the ship.
In the year ended 30 September 2018 the ship had experienced a high level of engine trouble which had cost the company considerable lost revenue and compensation costs. The measured expired life of the propulsion system at 30 September 2018 was 30,000 hours. Due to the unreliability of the engines, a decision was taken in early October 2018 to replace the whole of the propulsion system at a cost of $140 million. The expected life of the new propulsion system was 50,000 hours and, in the year, ended 30 September 2019 the ship had used its engines for 5,000 hours.
At the same time as the propulsion system replacement, the company took the opportunity to do a limited upgrade to the cabin and entertainment facilities at a cost of $60 million and repaint the ship’s fabric at a cost of $20 million. After the upgrade of the cabin and entertainment area fittings it was estimated that their remaining life was five years (from the date of the upgrade). For the purpose of calculating depreciation, all the work on the ship can be assumed to have been completed on 1 October 2018. All residual values can be taken as nil.
Question: The carrying amount of the cruise ship at September 30 2019 is
Select one:
a. $280 million
b. $279 million
c. $406 million
d. None of the answers is correct
Clear my choiceUse this case study to answer Question 1 – 13
Nam Leisure is a private limited liability company that operates a single cruise ship. The ship was acquired on 1 October 2010. Details of the cost of the ship’s components and their estimated useful lives are:
Component Original cost Deprecation basis
($ million)
Ship’s fabric (hull, decks etc) 300 25 years straight–line
Cabins and entertainment area fittings 150 12 years straight–line
Propulsion system 100 Useful life of 40,000 hours
At 30 September 2018 no further capital expenditure had been incurred on the ship.
In the year ended 30 September 2018 the ship had experienced a high level of engine trouble which had cost the company considerable lost revenue and compensation costs. The measured expired life of the propulsion system at 30 September 2018 was 30,000 hours. Due to the unreliability of the engines, a decision was taken in early October 2018 to replace the whole of the propulsion system at a cost of $140 million. The expected life of the new propulsion system was 50,000 hours and, in the year, ended 30 September 2019 the ship had used its engines for 5,000 hours.
At the same time as the propulsion system replacement, the company took the opportunity to do a limited upgrade to the cabin and entertainment facilities at a cost of $60 million and repaint the ship’s fabric at a cost of $20 million. After the upgrade of the cabin and entertainment area fittings it was estimated that their remaining life was five years (from the date of the upgrade). For the purpose of calculating depreciation, all the work on the ship can be assumed to have been completed on 1 October 2018. All residual values can be taken as nil.
Question: The accumulated depreciation of the propulsion system at the year end 30 September 2019 amounted to
Select one:
a. $14 million
b. $75 million
c. $89 million
d. $25 million
Clear my choiceUse this case study to answer Question 1 – 13
Nam Leisure is a private limited liability company that operates a single cruise ship. The ship was acquired on 1 October 2010. Details of the cost of the ship’s components and their estimated useful lives are:
Component Original cost Deprecation basis
($ million)
Ship’s fabric (hull, decks etc) 300 25 years straight–line
Cabins and entertainment area fittings 150 12 years straight–line
Propulsion system 100 Useful life of 40,000 hours
At 30 September 2018 no further capital expenditure had been incurred on the ship.
In the year ended 30 September 2018 the ship had experienced a high level of engine trouble which had cost the company considerable lost revenue and compensation costs. The measured expired life of the propulsion system at 30 September 2018 was 30,000 hours. Due to the unreliability of the engines, a decision was taken in early October 2018 to replace the whole of the propulsion system at a cost of $140 million. The expected life of the new propulsion system was 50,000 hours and, in the year, ended 30 September 2019 the ship had used its engines for 5,000 hours.
At the same time as the propulsion system replacement, the company took the opportunity to do a limited upgrade to the cabin and entertainment facilities at a cost of $60 million and repaint the ship’s fabric at a cost of $20 million. After the upgrade of the cabin and entertainment area fittings it was estimated that their remaining life was five years (from the date of the upgrade). For the purpose of calculating depreciation, all the work on the ship can be assumed to have been completed on 1 October 2018. All residual values can be taken as nil.
Question: The accumulated depreciation of the propulsion system at the year end 30 September 2019 amounted to
Select one:
a. $14 million
b. $75 million
c. $89 million
d. $25 million
Clear my choiceUse this case study to answer Question 1 – 13
Nam Leisure is a private limited liability company that operates a single cruise ship. The ship was acquired on 1 October 2010. Details of the cost of the ship’s components and their estimated useful lives are:
Component Original cost Deprecation basis
($ million)
Ship’s fabric (hull, decks etc) 300 25 years straight–line
Cabins and entertainment area fittings 150 12 years straight–line
Propulsion system 100 Useful life of 40,000 hours
At 30 September 2018 no further capital expenditure had been incurred on the ship.
In the year ended 30 September 2018 the ship had experienced a high level of engine trouble which had cost the company considerable lost revenue and compensation costs. The measured expired life of the propulsion system at 30 September 2018 was 30,000 hours. Due to the unreliability of the engines, a decision was taken in early October 2018 to replace the whole of the propulsion system at a cost of $140 million. The expected life of the new propulsion system was 50,000 hours and, in the year, ended 30 September 2019 the ship had used its engines for 5,000 hours.
At the same time as the propulsion system replacement, the company took the opportunity to do a limited upgrade to the cabin and entertainment facilities at a cost of $60 million and repaint the ship’s fabric at a cost of $20 million. After the upgrade of the cabin and entertainment area fittings it was estimated that their remaining life was five years (from the date of the upgrade). For the purpose of calculating depreciation, all the work on the ship can be assumed to have been completed on 1 October 2018. All residual values can be taken as nil.
Question: The depreciation of the cruise ship for the year ended September 30 2018 is
Select one:
a. $39 million
b. $38 million
c. $49 million
d. $48 million
Clear my choice
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