Acca aaa s21 Notes

September 2021 to June 2022 exams
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(3)
Non-current asset schedule:
$000
Motor vehicles
Freehold land and 
buildings
Computers
Cost b/f
260
10,000
2,000
Additions
50
–
600
Disposals
70
–
400
Cost c/f
240
10,000
2,200
Depreciation b/f
180
600
1,400
Disposals
80
–
100
Charge for year
60
200
220
c/f
160
800
1,520
Depreciation rates (all straight line): cars 25%, land and buildings 2%, computers 10%. Cars are 5 
years old when sold.
‣
Assess depreciation rates. Are these usual for the classes of assets. 10% for computers looks 
low.
‣
Following up that point, the cost of computers disposed off is 400, but the accumulated 
depreciation is only 100. This implies under-depreciation
‣
Freehold land and buildings presumably contain freehold items so these should not be 
depreciated. Depreciation of 2% has been applied to the total amount.
(4)
A television company has built a small village to be used in the filming of a popular and long-
running TV program. The village has been build in an area of natural beauty and permission to 
build was granted on the condition that the village is demolished and the site landscaped on 
the earlier of filming ceasing and 20 years.
‣
Examine the legal agreement with respect to planning permission and the requirement to 
demolish.
‣
The demolition costs must be capitalised as part of the construction costs and a long-term 
provision set up (FRS15). A difficult estimate
‣
However, this amount needs to be the estimated demolition cost discounted for 20 years at 
the company’s cost of capital. Cost of capital will have to be estimated.
‣
The discounting on the provision and the amount capitalised have to be ‘unwound’ over the 
life of the asset.
‣
A depreciation rate of 5% is probably appropriate.
‣
Investigate any borrowing costs incurred during construction as these have to be capitalised 
also (from commencement of construction to when the asset is first brought into use.)