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
