Accounting For Assets

Question 1

What is IAS 16?

Answer 1

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.

Question 2

What does IAS 16 cover under its principles?

Answer 2

Recognition 
initial measurement 
cost and revaluation models cost
depreciation 
derecognition

Question 3

Define an asset under the conceptual framework for financial reporting

Answer 3

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

Question 4

Define property plant and equipment

Answer 4

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

Question 5

Define depreciation

Answer 5

It is the systematic and allocation of the depreciable amount of an asset over its useful life

Question 6

Define depreciable amount

Answer 6

It is the cost or valuation of the asset less any residual value

Question 7

Define useful life

Answer 7

It is the length of time or the number of units of production for Which an asset is expected to be used

Question 8

Define fair value

Answer 8

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

Question 9

Define impairment loss

Answer 9

It is the amount by which the carrying amount of an asset exceeds its recoverable amount

Question 10

Define carrying amount

Answer 10

It is the amount at which an asset is recognised on the statement of financial position after deducting any accumulated appreciation and impairment losses

Question 11

Define a recoverable amount

Answer 11

It is the higher of the assets fair value less costs to sell ,and its value in use

Question 12

Define the value in use

Answer 12

It is the present value of the future cash flows expected to be derived from an asset

Question 13

When can an item be recognised as an asset?

Answer 13

If it is probable that future economic benefits will flow to the entity
and the cost of the assets can be measured reliably

Question 14

What is to be included in the cost of an asset?

Answer 14

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

Question 15

What are attributable costs that can be included in the cost of the asset

Answer 15

Cost of site preparation 
initial delivery and handling costs 
installation and assembly costs 
costs of testing the asset 
professional fees eg engineers and architects

Question 16

After acquisition a PPE of an entity can be carried at either of these two models what are they?

Answer 16

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

Question 17

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?

Answer 17

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.

Question 18

What does IAS 16 say about depreciation of property plant and equipment?

Answer 18

I AS 16 states that the depreciable amount of an asset is to be allocated on a systematic basis over its useful life

Question 19

How often does a company have to review the residual value,useful life and depreciation method of its tangible assets?

Answer 19

Annually

Question 20

Define derecognition

Answer 20

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

Question 21

What are the three steps of impairment review?

Answer 21

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