5.4 Accounting for property, plant and equipment

Question 1

Which standard governs the accounting of plat, property and equipment?

Answer 1

IAS16

Question 2

How are property, plant and equipment defined according to IAS16?

Answer 2

Tangible items that:

• are held for use in the production or supply of goods or services, or for rental basis, or administrative purposes
• are expected to be used for more than one accounting period.

Question 3

Under what circumstances are the costs of property, plant and equipment recognized under IAS16?

Answer 3

• it is probable that future economic benefits associated with the item will flow to the entity
• the cost of the item can be measured reliably.

Question 4

What matters are included in the calculation cost of property, plan and equipment?

Answer 4

• purchase price
• costs directly attributable to bringing the asset to the location
• the estimated costs of dismantling, removing and restoring the item to its intended site.

Question 5

What subsequent costs are associated with property, plant and equipment?

Answer 5

• day to day repair and maintenance

- inspection costs (e.g. for aircraft)

Question 6

What are the two methods of measurement for property, plant and equipment at reporting date?

Answer 6

1 Cost model

2 Revaluation model

Question 7

What is the “cost” model of measurement for property, plant and equipment?

Answer 7

After recognising as an asset, the item shall be carried at cost less any accumulated depreciation, or impairment losses.

Question 8

What is the “revaluation” model of measurement for property, plant and equipment?

Answer 8

After recognising as an asset, the item shall be carried at fair value less any subsequent accumulated depreciation/ accumulated impairment losses.

This method can only be used where a fair value can be calculated reliably.

Question 9

What is depreciation?

Answer 9

The systematic spread of the cost of an asset over its useful life (i.e. the period over which it gives benefit).

Question 10

If a piece of equipment cost £10000 , has a useful life of eight years, and a salvage value, what will be its depreciation charge?

Answer 10

£1000 (i.e. [10,000-8,000]/8)

Question 11

What is meant by “residual value” of an asset?

Answer 11

The estimated amount that an entity would obtain from disposal of the asset, after deducting estimated disposal costs, if the asset were at the end of its life.