Chapter 23 (Valix) Flashcards
How are spare parts, servicing equipment, and stand-by equipment accounted for?
Minor spare parts and servicing equipment are usually carried as inventory and are expensed when consumed.
Major spare parts and stand-by equipment are classified as PPE when they are expected to be used for more than 1 year.
On initial recognition, at what should PPE be measured?
at cost
This is the amount of cash or cash equivalent paid and the fair value of the other consideration given to acquire an asset at the time of acquisition or construction.
Cost
How are proceeds from samples accounted for?
With the amendment of the PAS 16, the proceeds are accounted for in profit or loss and are not deducted from the cost of the PPE.
If they are not yet sold, they are accounted for as inventory.
How is PPE accounted for after initial recognition?
Cost model
Revaluation model
True or False: If an entity chooses cost model as the accounting policy for its PPE after initial recognition, it may also choose revaluation model to account for some of its PPE.
False.
An entity shall apply such accounting policy to an entire class of PPE.
This model or accounting policy means that the PPE are carried at cost less any accumulated depreciation and any accumulated impairment loss.
Cost model
This model or accounting policy means that the PPE are carried at revalued carrying amount.
Revaluation model
This is the fair value at the date of revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment loss.
Revalued carrying amount
The cost of PPE on a cash basis acquisition is?
Cash paid plus directly attributable costs
The cost of PPE acquired on account is?
Invoice price less cash discount (regardless whether the discount was taken or not)
When measuring the cost of PPE on account and the cash discount was not availed, how is it accounted for?
The cash discount lost is charged to purchase discount lost (or other expense) account which is an expense account.
What is the reason for automatically deducting the cash discount when a PPE is availed on credit?
A reasonably wise management would take advantage of all discounts.
The cost of PPE acquired on long-term deferred payments terms or with a note payable or on installment basis is?
The cash price of the PPE (not the installment price)
If the cash price of the PPE is not given in an installment based acquisition or with a note payable, how is the cost measured?
The cost is the fair value of the note or the present value of all the payments using an implied interest rate (market rate).
The cost of PPE acquired through he issuance of share capital, the cost is?
The cost of the PPE is measured in the order of priority:
1. Fair value of the property received
2. Fair value of the shares issued
3. Par value of the shares issued
The cost of PPE acquired through the issuance of bonds payable is?
The cost of the PPE is measured in the order of priority:
1. Fair value of bonds payable
2. Fair value of the asset received
3. Face amount of the bonds payable
When the exchange lacks commercial substance and/or the the FV of the asset received or the asset given is not reliably measured, how is the exchange measured?
It is measured using carrying amount.
This is a new notion and is defined as the event or transaction causing the cash flows of the entity to change significantly by reason of the exchange.
Commercial Substance
This is the present value of the cash flows expected to arise form the continuing use of an asset and from the disposal at the end of the useful life or expected to be incurred when settling a liability.
Entity-specific value
The cost of PPE in an exchange is?
On the part of the payor: Fair value of the PPE given plus the cash paid
On the part of the recipient: fair value of the PPE given minus the cash received
This involves a non dealer acquiring an asset from a dealer.
Trade in
The cost of PPE in a trade in is?
The PPE is measured in the order of priority:
1. Fair value of the asset given plus cash paid
2.) Trade in value of asset given plus cash payment
True or False: The IFRS adresses donation or contribution.
False.
The cost of PPE donated is?
measured at fair value
When PPE is donated by a shareholder, how is it accounted for?
It is accounted for as a credit in donated capital account.
When PPE is donated by a nonshareholder, how is it accounted for?
It is accounted for as income.
True or False: The cost of a self-constructed asset is determine the same way as an entity would for an acquired asset.
True
This means that the cost of the PPE together with the related accumulated depreciation shall be removed from the accounts.
Derecognition
How should the gain or loss arising from derecognition accounted for?
It is accounted for in profit or loss.l
When can an item of PPE be classified as held for sale?
If the asset is available for immediate sale in the present condition within one year from the date of classification as held for sale.
When an item of PPE is now classified as held for sale, how is it accounted for?
It is now accounted for as current assets under inventory and is removed from PPE.
True or False: A noncurrent asset classified as held for sale shall not be depreciated.
True
