Rapid Rail Plc (RR) has recently finished manufacturing a fleet of five trains to a new design. These trains are intended for use in its own fleet for domestic carriage purposes. The company commenced construction of the assets on 1 May 2019 and wishes to recognise them as non-current tangible assets as at 31 December 2020. The trains were completed on 1 November 2020. The company commenced to use these trains from 1 January 2021.

The costs of manufacturing the trains was $25 million, (excluding finance costs), and the company has adopted a policy of capitalising the finance costs of manufacturing non-current tangible assets. On 1 May 2019 RR had taken out a four-year loan of $20 million to part-finance the trains. Interest is payable at 10% per annum. The interest to date has not been accounted for at 31 December 2020

During the construction of the trains, certain computerised components used in the manufacture fell dramatically in price. The company estimated that on 31 December 2020 the net selling price of the trains was $25 million and their value in use was $27 million.

The engines used in the trains have a four-year life and the body parts have an eight-year life. RR has decided to depreciate the engines and the body parts over their different useful lives on the straight-line basis. The engine costs represent thirty per cent of the total cost of manufacture.

As the profits for the year ended 31 December 2020 are substantial the directors of RR would like to charge depreciation on the trains using a three-year straight-line basis.

Requirement:

Outline, with reference to the relevant accounting standards’ requirements, how the above expenditure on tangible non-current assets should be accounted for in the financial statements of Rapid Rail Plc for the year ending 31 December 2020.

Answer rating: 100% (QA)

Answer The IFRS 13 Fair Value Measurement defines the use of fair value in measurment of the assets ... View the full answer