2 Tangible non-current assets

Question 1

What is IAS 16?

Answer 1

IAS 16, Property, Plant and Equipment

Question 2

What is property, plant and equipment?

Answer 2

Tangible assets held by an entity for more than one accounting period for use in the production or supply of goods or services, for rental or for admin purposes.

Question 3

When is a item of property, plant and equipment recognised?

Answer 3

It is probable that future economic benefits associated with the asset will flow to the entity and the cost of the asset can be measured reliably

Question 4

What should a PPE should initially be measured at?

Answer 4

Cost

Question 5

What should be included in PPE cost?

Answer 5

• All costs bringing the assets into working condition
• Initial costs e.g. Delivery costs, installation costs and borrowing costs
• Dismantling costs
• Revenue costs should be written off

Question 6

When should subsequent expenditure on PPE be capitalised?

Answer 6

• it enhances economic benefits
• relates to overhaul or major inspection if the asset
• replacing a component of a complex asset

Question 7

What is IAS 20?

Answer 7

Accounting for government grants and disclosure of government assistance

Question 8

When there is a government grant for revenue, how is this treated?

Answer 8

Gross - present as credit

Net - deduct from income

Question 9

When there is a government grant for capital, how is this treated?

Answer 9

Net - deduct from asset cost

Deferred credit - how separately

Question 10

What is IAS 23?

Answer 10

Borrowing costs

Question 11

What does IAS 23 state about borrowing costs?

Answer 11

Borrowing costs must be capitalised as part of the cost of an asset if the asset is a qualifing asset

Question 12

What is a qualifying asset?

Answer 12

One which necessarily takes a substantial time to get ready for its intended use or sale

Question 13

When does capitalisation commence under IAS 23?

Answer 13

Expenditure for the asset is being incurred, and borrowing costs are being incurred and activities that are necessary to prepare the asset for its use or sale

Question 14

What does capitalisation cease under IAS 23?

Answer 14

When all activities necessary to prepare the qualifying asset for its intended use or sale are complete and there is an unplanned suspension of construction

Question 15

Under IAS 23, what is the rate of interest to be used?

Answer 15

Actual interest rate where specific funds borrowed or weighted average of general borrowings

Question 16

What is IAS 40?

Answer 16

Investment Property

Question 17

What is the definition of investment property under IAS 40?

Answer 17

Investment property is land and/or building held for rental income and/or capital appreciation, rather than for use by the entity or for sale in the ordinary course of business

Question 18

What two models can IAS 40 use?

Answer 18

Cost mode or fair value model

Question 19

How is an asset held under IAS 40, cost model?

Answer 19

Initial cost less accumulated depreciation as per IAS 16

Question 20

How is an asset held under IAS 40, fair value model?

Answer 20

Revalued to fair value each year, any gain or loss taken to profit and loss (not comprehensive income) and no depreciation is charged.

Question 21

If an asset is revalued from investment property to PPE, under IAS 40, how should this be treated?

Answer 21

Revalue using IAS 40 rules, taking gain to profit and loss

Question 22

If an asset is revalued from PPE to investment property under IAS 40, how should this be treated?

Answer 22

Revalue using IAS 16 rules taking gain or loss to revaluation surplus or profit and loss as appropriate.