Dear sir,
In this question, the company has vessels which it uses. These vessels have an engine that requires to be overhauled every 10 years.
In the answer they mentioned, that the engine should be separately classified as an asset and the cost of the overhaul should be capitalized and depreciated over the useful life of 10 years.
Till this part of the answer I understood. What they mentioned next si what I need help on.
They then mentioned, that any previous carrying value of the engine should be derecognized. I don't understand why?
For ex:
Vessel cost $100 (20 is the value of engine)
Over haul cost 50
So as per the answer:
I should recognise 80 as vessel
50 as engine
And derecognize 20.
Could you explain why do we derecognize 20?
Thanks
Ask the Tutor ACCA SBR
IAS 16 - Q Kayte
5y ago#1Numbers make no sense to me.
We would treat the vessel (hull) and engine as separate assets.
When they replace the engine, they will derecognise it - because it will go for scrap- and recognise the new engine.
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