ACCA Audit and Assurance (F8) Practice Exam

Which financial statement disclosure is crucial for compliance with IAS 16 regarding land and buildings?

1. The amount paid for the asset

2. Depreciation charge for the year

3. Future sales projections

4. Maintenance costs for the asset

The correct answer is: Depreciation charge for the year

The crucial financial statement disclosure for compliance with IAS 16 regarding land and buildings is the depreciation charge for the year. IAS 16 governs the accounting treatment for property, plant, and equipment, of which land and buildings are significant components. One of the key requirements of IAS 16 is to allocate the depreciable amount of an asset over its useful life. This ensures that the financial statements reflect the usage and consumption of the asset over time, thereby providing a more accurate representation of the asset's value and the company's financial position. The depreciation charge for the year directly impacts both the balance sheet and the profit and loss statement. It affects the carrying amount of the asset and indicates how much of the asset's value has been expensed in that reporting period. This disclosure is essential not only for compliance with the standards but also for providing stakeholders with an understanding of the company’s cost structure and asset management. The other options, although they relate to the asset, do not fulfill the specific requirements of IAS 16 in terms of mandatory disclosures essential for demonstrating proper accounting treatment for land and buildings. The amount paid for the asset may be relevant for initial recognition but is not an ongoing requirement. Future sales projections and maintenance costs, while important for operational planning and assessment,