A company recently replaced a significant part of equipment carried at cost.Which action would be consistent with AASB 116?

Question

Quizplus · Accepted Answer

AASB 116 requires the derecognition of the carrying amount of the part replaced and the inclusion of the cost of the replacement part in the asset's carrying amount. This is because the replacement part is considered to have increased the asset's future economic benefits and therefore should be capitalized. Option A is incorrect because the carrying amount of the replaced part should be derecognized. Option B is incorrect because AASB 116 does not require the revaluation of an asset before recognizing a replacement part. Option D is incorrect because capitalization is required under AASB 116 and treating the cost as an expense would be inconsistent with the standard.

A Company Recently Replaced a Significant Part of Equipment Carried