Ch 4 Recording PPE - IAS16 Flashcards
Which IAS relates to PPE?
IAS 16
What types of Depn are used for PPE?
1) Straight Line
2) Reducing Balance
How do you calculate Carrying Value?
Original Cost - Accumulated Depreciation
What are Tangible Non-Current Assets?
Long Term
With Physical Form
Land/Building/Machinery/Cars
What are Intangible Non-Current Assets?
Long term
None Physical
Patents/Licences/Goodwill
What is Capital Expenditure?
Expenditure on NCA’s or improvements of NCA’s.
Capital purchases recorded on the SOFP as assets.
What is Revenue Expenditure?
All other expenditure not Capital.
Repairs & renewals.
Maintenance not improvements.
Which costs are to be Capitalised?
Cost of Site Clearance Cost of Materials used in Asset Cost of Delivery of Materials used in Asset Necessary Legal Fees - Licence to Operate Machine Cost of Materials - Wasted in a Flood Cost of Labour used in Asset Cost of Industrial Dispute Cost of Paint to Repaint the Site
CAPITALISED
Cost of Site Clearance
Cost of Materials used in Asset
Cost of Delivery of Materials used in Asset
Necessary Legal Fees - Licence to Operate Machine
Cost of Labour used in Asset
ABNORMAL COSTS
Cost of Materials - Wasted in a Flood
Cost of Industrial Dispute
RESTORATION E.G. REPAIR NOT AN ASSET
Cost of Paint to Repaint the Site
What makes up the Depreciable Amount?
Cost-Residual Value
Why is land not depreciated?
Not expected to have a FINITE LIFE.
Lasts forever.
What is UEL?
Useful Economic Life
Period which economic benefits are expected to be derived from the asset.
UEL of TANGIBLE NCA’s - Reviewed at the end of each reporting period & should be changed if expectations are significantly different from previous estimates.
What is RESIDUAL VALUE?
Amount the asset is expected to be sold for at the end of it’s UEL.
If MATERIAL a TANGIBLE NCA’s - Reviewed at the end of each reporting period & should be changed if expectations are significantly different from previous estimates of it’s residual value.
What is the formula for Straight Line Depn?
Depn Expense =
Cost - Residual Value
_________________
Useful Economic Life
What is the formula for Diminishing/Reducing Balance Depn?
Depn Expense = CV x %
(CV = Cost of Asset - Acc Depn)
Note - Higher amount charged in earlier years compared to later years
What is the formula for Units of Production Depn?
(Cost-Residual Value)
________________________ x Current yrs activity
Expected activity in useful life
Costs to Capitalise
Purchase of the NCA
Installation Costs & Testing
Delivery costs
Legal & professional fees
Where the value of the asset is enhanced
Where a major component of the asset is replaced or restored
Where it is a major inspection or overhaul of the asset
What is the double entry for Acquisitions?
DR NCA - Asset ^
DR VAT Control Acct - Liability ^
CR Bank/Payable - Asset \/
DISPOSALS DOUBLE ENTRY
How do you remove the original cost of the asset?
SOFP
Step 1
DR Disposals - Asset ^
CR NCA Cost - Asset \/
DISPOSALS DOUBLE ENTRY
How do you remove the accumulated depn of the asset?
SOFP
Step 2
DR Acc Depn - Taking out the depn
CR Disposals - Asset \/
DISPOSALS DOUBLE ENTRY
How do you record the proceeds of the asset?
SPL
Step 3
DR Bank/Receivables - Asset^
CR Disposals - Asset \/
Balance of with Profit or loss on disposal DR Profit CR Loss
What are the 4 Revaluation guidelines?
SOFP & Other Comprehensive Income
1) Policy choice, not mandatory.
2) All assets of the same class must be revalued
e. g. ALL BUILDINGS
3) Revalue at regular intervals (MV)
4) Still depreciate the asset over remaining UEL
DOUBLE ENTRY
3 Steps for revaluation - increase
Step1 - Restate the asset to revalued amount
DR PPE@cost - Asset ^ increases the cost
Step2 - Eliminate acc depn to date
DR Acc Depn - removes depn
Step3 - Establish or update the revaluation surplus
CR Revaluation Surplus - Gain in value of asset
DOUBLE ENTRY
What is the treatment for excess depn annual transfer within SOCIE?
The effect is to regard part of revaluation surplus as being realised.
DR Revaluation Surplus - Asset ^
CR Retained Earnings - Capital ^
