Assets - PPE

Question 1

What counts as an asset?

Answer 1

• controlled by the company
• as a result of past events
• future economic benefits (cash) probable/potential to produce future economic benefits
• can be measured reliably

Question 2

How can the asset be measured reliably?

Answer 2

• cost
• fair value - price the asset could be sold for
• present value - of future cash flows

Question 3

What does IAS 16 say about intial recognition?

Answer 3

Capitalise as part of PPE asset:
- cost of asset and subsequent replacement parts
- costs directly attributable to bringing the asset into working use (costs to obtain and make it work)
- costs to dismantle asset and restore land (provision)

Expense to P&L:
- costs not meeting the asset definition
- costs not directly attributable to bringing the asset into working use

Question 4

What can be included in costs that are directly attributable to the asset?

Answer 4

• interest costs on loans used to construct the asset
• capitalise from when expenditure incurred on asset and work begins to construct

Question 5

What costs do not meet the definition of an asset?

Answer 5

• repairs as they will not produce additional future economic benefits
• planned future expenditure is not a result of past events

Question 6

What is the cost model?

Answer 6

• asset depreciated over useful economic life when it is ready for use (except land), UEL, residual values and depn method reviewed annually
• PPE carrying amount on SFP = fair value - accumulated depreciation

Question 7

What does IAS 36 say about impairment?

Answer 7

• indicator of impairment - physical damage, fall in fair value, change in market, interest rate increase
• impairment expense if the recoverable amount is less than the carrying amount

Question 8

What is the recoverable amount of an asset?

Answer 8

the amount of cash the business could generate from the asset

Question 9

What is the recoverable amount valued at?

Answer 9

the higher of:
- FV minus costs to sell
- value in use

Question 10

What is value in use?

Answer 10

• present value of future cash flows that will be generated from the asset
• cash flow forecast over a maximum of 5 years, excluding tax and financing costs

Question 11

What does IFRS 5 say about the classification of assets held for sale? (these classifications are in OB)

Answer 11

• asset available for sale in present condition
• sale highly probable within 12 months
• management committed to sale
• actively advertising asset at a reasonable price
• unlikely that the plan to sell will change

Question 12

What happens to assets measured under revaluation model before being classified as AHfS?

Answer 12

they are remeasured to fair value

Question 13

When are assets held for sale impaired?

Answer 13

if fair value minus costs to sell are less than the carrying amount

Question 14

What happens when an asset is held for sale?

Answer 14

no further depreciation on the asset

Question 15

What does it mean by discontinued operations?

Answer 15

division or subsidiary which has already been disposed of or is held for sale
- separate geographical area of business/separate market
- must be able to separate financial information from the rest of the business

P&L results presented as a single ‘profit from discontinued operations’ line
- included P&L impairment expense from assets classified as AHfS

Question 16

What does IAS 16 say about disposal?

Answer 16

• Dr cash with the proceeds received
• Cr CA (asset is no longer controlled so derecognise on SFP)
• Cr/Dr P&L on disposal (cash received larger than value of asset on SFP = profit)
• any amounts in revaluation reserve transferred to retained earnings (Dr RR, Cr RE)