C4 - Accouting For Assets Flashcards
What in an asset?
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
IAS 16 - property, plant and equipment
Definition of PPE
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.
IAS 16 - property, plant and equipment
Definition of depreciation
Systematic allocation of the depreciable amount of an asset over its useful life.
IAS 16 - property, plant and equipment
Definition of depreciable amount
The cost or valuation of the asset, less any residual value (scrap value)
IAS 16 - property, plant and equipment
Definition of useful life
The length of time, or the number of units of production, for which an asset is expected to be used.
IAS 16 - property, plant and equipment
Definition of fair value
The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the date of revaluation.
IAS 16 - property, plant and equipment
Definition of impairment loss
The amount by which the carrying amount of an asset exceeds its recoverable amount.
IAS 16 - property, plant and equipment
Definition of recoverable amount
The higher of the assets fair value less costs to sell and its value in use.
IAS 16 - property, plant and equipment
Definition of carrying amount
The amount at which an asset is recognised on the balance sheet after deducting an accumulated depreciation and impairment loss
An item of plant property and equipment is to be recognised as an asset when…??
It is probable that future economic benefits will flow to the entity
The cost of the asset can be measured reliably.
What other costs are included in the purchase of assets?
Import duties Taxes Testing costs Professional fees Dismantling asset Removing costs of asset
Any other costs that are required to bring the asset to the location and condition for its intended use.
IAS 16 - property, plant and equipment
What is a cost model as an accounting policy
The asset is carried at cost less acc depreciation and impairment losses
IAS 16 - property, plant and equipment
What is a revaluation model as an accounting policy
Carried on balance sheet as fair value at date of revaluation minus depreciation and impairment (provided that fair value can be measured reliably)
Dealing with revaluations of PPE
Double entry for increase in value??
DR asset account
CR comprehensive income account
Dealing with revaluations..
Decrease in revaluation if PPE
DR comprehensive income account
CR asset account
Can freehold land be depreciated?
No because it has an unlimited useful life.
However leasehold land can be depreciated.
Can land be depreciated??
No as they also have unlimited useful life
3 Methods of depreciation??
Straight line
Reducing (diminishing) balance
Units of production
What is straight line depreciation?
A constant depreciation charge over the assets useful life
What is reducing (diminishing) balance depreciation?
A decrease in depreciation charge over the assets useful life for example the depreciation will be higher the early years of owning the asset.
What is units of production or service depreciation?
A depreciation charge based on the expected use or output
What is derecognition?
When an item of PPE is disposed of when no future economic benefits are expected from its use or disposal.