Petroleum Development Oman is the leading crude oil production company within the Sultanate of Oman.

The Corporate delivers the bulk of the country's crude oil production and fossil fuel supply. It exports oil to the complete world. They need the subsequent scenario within the financial year 2012.

Case (a) The Company buys an oil tanker ship for OMR 14,000,000. Under civil harbor rules, the ship requires a major inspection every three years at a cost of OMR 320,000. Three years after the purchase of the ship it undergoes its first major inspection. The costs in relation to the inspection amounted to OMR 370,000. In the same manner six years after the purchase of the ship the cost of inspection was reduced to OMR 280,000. Due to this effect the increase in revenue was OMR 76,000.

Case (b) On 1 August, 2012, the company spent OMR 230,000 to replace the wall lining of one of its two furnaces in its oil refining unit. The furnace had been acquired four years previously and had a carrying value, at 1 August 2012, amounting to OMR 966,000. Of this amount, OMR 46,000 related to the original wall lining. On 15th November, 2012 the carrying value of second furnace was OMR 856,000 which was purchased three years back.

The wall lining of the second furnace also replaced for OMR 180,000 which is included with the value of original wall lining of OMR 32,000.

Case (c) On 1st January, 2011 the Petroleum Development Oman Company acquired a machine at a cost of OMR 506,000 and the machine was fit to use on the same day. The useful life of that equipment was for 3 years. The machine was not producing as expected So, the company decided to dispose off that machine after its useful life.

The estimated cost of disposal of that machine was OMR 213,000. The discount rate was at 5 percent per annum as on 31st December, 2013. On 31st December, 2012 the estimated value of cost of disposal was OMR 144,900. The amount of estimates corresponds with the amount finally settled on 31st December, 2013.

Required:

Assess the above cases on the role of an internal auditor and explain how each of these matters should be accounted for in accordance with the requirements of IAS 16. Also justify with your answer which part of the costs has to recognize and which part of the costs has to be de-recognized.

Answer rating: 100% (QA)

So IAS 16 deals with Property Plant and Equipement which specifies the treatment of property plant and equipement and its accounting treatment in respect of its intial cost measurement subsequent meas... View the full answer