Accounting standard IAS16 Property, Plant and Equipment makes a number

Accounting standard IAS16 Property, Plant and Equipment makes a number of recognition, measurement and disclosure requirements with regard to tangible non current assets. The term "non-current asset" is defined in accounting standard IAS1 Presentation of Financial Statements. The information given below relates to two companies, both of which prepare accounts to 31 December.

Alpha Ltd

Alpha Ltd bought a factory machine on 30 June 2017 and paid a total of £420,000. The supplier's invoice showed that this sum was made up of the following items:
                                                                                                   £
Manufacturer's list price.......................................................380,000
Less: Trade discount................................................................38,000
                                                                                             –––––––
                                                                                            342,000
Delivery charge............................................................................ 6,800
Installation costs....................................................................... 29,600
Maintenance charge for year to 30 June 2018................. 27,000
Small spare parts.......................................................................14,600
                                                                                             –––––––
                                                                                             420,000
                                                                                             –––––––
Beta Ltd

On 1 January 2007, Beta Ltd bought freehold property for £800,000. This figure was made up of land £300,000 and buildings £500,000. The land was non-depreciable but it was decided to depreciate the buildings on the straight-line basis, assuming a useful life of 40 years and a residual value of £nil.

On 1 January 2017, the land was revalued at £400,000 and the buildings were revalued at £450,000. The company decided to incorporate these valuations into its accounts. The previous estimates of the buildings' useful life and residual value remain unchanged.


Required:
(a) Distinguish between current assets and non-current assets, giving TWO examples of each type of asset.

(b) Explain, with appropriate examples, the difference between capital expenditure and revenue expenditure.
(c) If a company incorrectly classified an item of capital expenditure as revenue expenditure, what effect would this have on the company's accounts in the year of the expenditure and in subsequent years?
(d) In accordance with the rules of IAS16, calculate the cost figure at which the machine bought by Alpha Ltd should initially be measured. Also explain the correct accounting treatment of any component of the £420,000 expenditure which cannot be treated as part of the machine's cost.
(e) Write journal entries for the revaluation of Beta Ltd's freehold property on 1 January 2017. Also calculate the amount of depreciation which should be charged in relation to the buildings for the year to 31 December 2017.

(CIPFA)

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