PRC-1 · Chapter 6 · Question 93 of 100
What is the correct journal entry if a business replaces a major component of an asset (like an aircraft engine)?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Capitalize the new engine cost and derecognize the carrying amount of the old engine.
Explanation
Under IAS 16, when a major component is replaced, the cost of the replacement is capitalized, and the carrying amount of those parts that are replaced must be derecognized (removed from the books).
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