Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AAA Exams › Vancouver group m/j 16 part B
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Kim Smith.
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- July 23, 2018 at 4:14 pm #464375
Hi sir,
In note 1
Several old warehouses were modernised during the year. The modernisation involved the
1) redesign of the layout of each warehouse,
2) the installation of new computer systems, and the
3) replacement of electrical systems.
Could u plz make it clear for me which items should be capitalized and which should be expensed and why.
July 23, 2018 at 5:03 pm #464377In reverse order:
3. Generally, if you see “replacement” of something that is a part of a larger asset – then you can capitalise the cost of replacement as long as the asset recognition criteria are met (i.e. probable future economic benefits and reliable measurement of cost) but you would also have to derecognise the carrying amount of what it is that is replaced. (It could be that the old electrical system has no carrying amount.)
2. Initial cost, per IAS 16, includes directly attributable cost – these include “installation and assembly costs”. The computer systems are clearly new (so would be capitalised) and, if material, it would be appropriate to include the installation costs as well as the purchase costs.
1. Here you can exercise your judgement – it really depends on what you can reasonably assume about the asset recognition criteria being met. Does it have a reliable measurement of cost? Yes – this is quite likely if you paid someone to do the design. It is probably that future economic benefits will flow to Vancouver? One might argue yes simply because if it didn’t have economic benefits – why would you bother? For example, a new layout may enhance efficiency of warehouse operations.Something else you have to remember when capitalising subsequent costs is that the overall carrying amount (here of the warehouses) must not exceed recoverable amount. This effectively puts a ceiling on the maximum amount that can be carried in the SoFP.
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