Accounting For Assets Flashcards
What is IAS 16?
It is a standard that sets out the accounting treatment for property plant and equipment. These are non current tangible assets such as land and buildings machinery office equipment shop fittings.
What does IAS 16 cover under its principles?
Recognition initial measurement cost and revaluation models cost depreciation derecognition
Define an asset under the conceptual framework for financial reporting
it is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity
Define property plant and equipment
They are tangible assets held for use in the production or supply of goods and services which are expected to be used for more than one period i.e. 12 months
Define depreciation
It is the systematic and allocation of the depreciable amount of an asset over its useful life
Define depreciable amount
It is the cost or valuation of the asset less any residual value
Define useful life
It is the length of time or the number of units of production for Which an asset is expected to be used
Define fair value
It is the price that would be received to sell an asset or paid to transfer the liability in an orderly transaction between market participants at the measurement date i.e. the date of the valuation
Define impairment loss
It is the amount by which the carrying amount of an asset exceeds its recoverable amount
Define carrying amount
It is the amount at which an asset is recognised on the statement of financial position after deducting any accumulated appreciation and impairment losses
Define a recoverable amount
It is the higher of the assets fair value less costs to sell ,and its value in use
Define the value in use
It is the present value of the future cash flows expected to be derived from an asset
When can an item be recognised as an asset?
If it is probable that future economic benefits will flow to the entity
and the cost of the assets can be measured reliably
What is to be included in the cost of an asset?
Cost is the purchase price including any import duties and other taxes plus any costs directly attributable to bring the Asset to the location and condition for its intended use plus the estimated costs of dismantling and removing the asset at the end of its useful life
What are attributable costs that can be included in the cost of the asset
Cost of site preparation initial delivery and handling costs installation and assembly costs costs of testing the asset professional fees eg engineers and architects
After acquisition a PPE of an entity can be carried at either of these two models what are they?
Cost model where the asset is carried at cost less accumulate appreciation and impairment losses
or
Revaluation model where it is carried on the statement of financial position at a revalued amount being the fair value less any subsequent depreciation and impairment losses
When an item of property plant and equipment is to be revalued, does the entire class of assets to which it belongs have to be revalued at the same time?
Yes when a model is chosen this accounting policy must be applied to the entire class of property plant and equipment. therefore when one item of this class is revalued, the whole class has to be revalued.
What does IAS 16 say about depreciation of property plant and equipment?
I AS 16 states that the depreciable amount of an asset is to be allocated on a systematic basis over its useful life
How often does a company have to review the residual value,useful life and depreciation method of its tangible assets?
Annually
Define derecognition
Derecognition occurs when item of property plant and equipment is disposed of or when no future economic benefits are expected from its use or disposal
What are the three steps of impairment review?
Step1 : what is the carrying amount?
Step2: what is the recoverable amount? I.e. The higher of fair value and value in use
Step3: if recoverable amount is less than carrying amount
