Chapter 3 - PPE Flashcards
What is PPE?
Tangible non current assets
- used to produce/supply goods and services
- expected to be used for more than one period
When do you recognise PPE?
- probably economic benefit to entity
- cost reliably measured
How do you initially measure PPE?
Cost
Initial cost of PPE includes:
Purchase price + Directly attributable costs
Initial cost of PPE includes:
Purchase price + Directly attributable costs
What is included in Purchase price?
Import duties
Non refundable taxes
Discounts
Initial cost of PPE includes:
Purchase price + Directly attributable costs
What is included in Directly attributable costs?
Employee benefit
Site prep/ clearance
Delivery/Handling
Installation/Assembly
Testing (minus proceeds from selling any samples)
Professional fees
- direct cost of construction: material, labour, borrowing cost
- PV of dismantling
What costs are excluded?
Admin/General overhead
Abnormal costs
Costs after normal operation
What do you do with incidental income of PPE?
other income in p/l
What do you do with subsequent costs of PPE?
capitalise if increase in economic benefit
What are borrowing costs?
Interest on loan to construct asset
What is the calculation for specific borrowings?
Borrowing cost - Income from investment of surplus borrowings (deposit)
PRO RATE FOR HOW MANY MONTHS THE WORK GOES ON FOR
What is the calculation for general borrowings?
Weighted average cost of borrowing x Expenditure on asset
PRO RATE FOR HOW MANY MONTHS THE WORK GOES ON FOR
What period do you capitalise borrowing cost?
When the work on the asset starts to when it is completed
What period do you depreciate?
after complete/ready for use
Can replacing components be capitalised?
Yes
Derecognise old component
How do you depreciate inspections?
inspection interval = UL
What is the accounting entry for UPWARD revaluation?
Dr cost (increase cost)
Dr accumulated depreciation (remove)
Cr revaluation surplus
What is the accounting entry for RESERVES TRANSFER?
Dr revaluation surplus
Cr Retained Earnings
What is the accounting entry for DOWNWARD revaluation?
Cr CA (cost)
Dr revaluation surplus
Dr P or L (after using up reval surplus)
When should you assess for impairment?
Annually
if any indications (external or internal)
Impairment has happened if:
relationship between CA and recoverable amount
CA < Recoverable amount
What is the recoverable amount (impairment)
GREATER of
Fair value less cost to sell
Value in use = PV of future cash flow expected
Impairment loss is similar to which revaluation?
DOWNWARD
cost and reval 7
For a non current asset to be classed as HELD FOR SALE
- Available for immediate sale in present condition
- Will be sold in 1 year after classified as HFS
- Management committed to a plan
- Active programme to locate buyer
- Actively marketed
- unlikely plan will change
How should you measure an asset HELD FOR SALE?
Lower of CA and FAIR VALUE LESS COSTS TO SELL
What is the accounting entry for HELD FOR SALE?
Dr HFS
Dr impairment loss
Cr PPE
