3. PPE Flashcards
Do you depreciate assets under construction?
No
Initial cost of PPE can include:
Purchase price
Import duties
Non-refundable purchase taxes
Less trade discounts
Less rebates
Costs directly attributable to:
Bringing asset to
1. Location
2. Condition
Necessary to operate in manner intended by management
Directly attributable PPE costs include:
- Wages
Directly for construction & acquisition - Site preparation
- Initial delivery and handling
- Instillation and assembly
- Testing
Less net proceeds from items produced
E.g. samples - Professional fees
-
Direct construction costs
Materials
Labour - Borrowing costs
-
Present Value of initial estimate of costs to:
Dismantle and remove asset
Restore site at end of useful life
If there is an obligation to
DE for PV of dismantling PPE?
- At start:
DR asset (PV)
CR provision - Each year:
DR Finance cost
CR Provision (one year interest)
Capitalisation: Excluded costs
- Admin
- General overheads
- Abnormal costs
Labour strikes, planning errors - Costs after asset capable of normal operation
Unless subsequent cost
Capitalisation: Incidental income: Include?
No
E.g. Building site pre-car park
Capitalisation: Subsequent costs: Can only be capitalised when?
Enhances economic benefit provided by the item
UK treatment of borrowing costs
May capitalise
IFRS treatment of borrowing costs
Must capitalise
Borrowing costs: Interest calculation
Costs
MINUS
Income from temporary investment of supplies borrowings
(I.e. net interest)
Borrowing costs calculation: When taken from general borrowings
Weighted average of cost of borrowing
X
Expenditure on asset
(PRO RATED)
(For period of capitalisation.)
Three things for PPE borrowing costs to commence
- Expenditure
AND - Borrowing cost
AND - Preparation for use/sale
PPE borrowing costs should cease when:
Substantially all activities done
(READY not necessarily USING)
Immediately start depn
When does depn commence?
When asset AVAILABLE for use
Reval: What to charge further depn to when it’s changed
Carrying amount
At date of change
Property revaluation DE
DR Cost
DR Accum depn (All)
CR Revaluation surplus
Is a reserve transfer compulsory?
No
What does a reserve transfer do
Add the excess depn from upward revaluation to retained earnings
(If NO revaluations)
What happens in a downwards revaluation
P&L charged
(CA - fair value)
Reval surp charged first if exists
Specific to THAT asset
When should an impairment review happen?
Annually for some assets
E.g. goodwill
When signs of impairment
Recoverable amount =
GREATER of:
- Fair value less costs to sell
- Value in use
PPE: Value in use =
Present value of future cash flows expected to be generated by the asset
PPE: Impairment loss =
Carrying amount
Less
Recoverable amount
When must an impairment happen?
When recoverable amount is less than carrying amount
Impaired assets with a revaluation surplus treatment?
Use the surplus first before charging impairment charge to the P&L
UK treatment of NCAHFS
Don’t exist
2 important conditions for NCAHFS
- Committed to sale
- No work/maintenance required
NCAHFS process
- Calculate CA
- Impairment review
- Stop depn
- Move to NCAHFS
NCAHFS process: Extra step for revaluation model assets
Recognise costs to sell as impairment loss
(To arrive at fair value as fair value less costs to sell)
NCAHFS FS classification
CURRENT asset
(Because selling soon)
Profit/loss on disposal =
Difference between:
PROCEEDS
CARRYING AMOUNT
PPE disclosures beyond table format
Depn rates
Amounts promised as security
Revaluations & movements in surp
Impairment 2 things to be disclosed
- P&L loss
- Reval surp loss
