Chapter 3 - PPE

Question 1

What is PPE?

Answer 1

Tangible non current assets

• used to produce/supply goods and services
• expected to be used for more than one period

Question 2

When do you recognise PPE?

Answer 2

• probably economic benefit to entity

- cost reliably measured

Question 3

How do you initially measure PPE?

Answer 3

Cost

Question 4

Initial cost of PPE includes:

Answer 4

Purchase price + Directly attributable costs

Question 5

Initial cost of PPE includes:
Purchase price + Directly attributable costs

What is included in Purchase price?

Answer 5

Import duties

Non refundable taxes

Discounts

Question 6

Initial cost of PPE includes:
Purchase price + Directly attributable costs

What is included in Directly attributable costs?

Answer 6

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

Question 7

What costs are excluded?

Answer 7

Admin/General overhead

Abnormal costs

Costs after normal operation

Question 8

What do you do with incidental income of PPE?

Answer 8

other income in p/l

Question 9

What do you do with subsequent costs of PPE?

Answer 9

capitalise if increase in economic benefit

Question 10

What are borrowing costs?

Answer 10

Interest on loan to construct asset

Question 11

What is the calculation for specific borrowings?

Answer 11

Borrowing cost - Income from investment of surplus borrowings (deposit)

PRO RATE FOR HOW MANY MONTHS THE WORK GOES ON FOR

Question 12

What is the calculation for general borrowings?

Answer 12

Weighted average cost of borrowing x Expenditure on asset

PRO RATE FOR HOW MANY MONTHS THE WORK GOES ON FOR

Question 13

What period do you capitalise borrowing cost?

Answer 13

When the work on the asset starts to when it is completed

Question 14

What period do you depreciate?

Answer 14

after complete/ready for use

Question 15

Can replacing components be capitalised?

Answer 15

Yes

Derecognise old component

Question 16

How do you depreciate inspections?

Answer 16

inspection interval = UL

Question 17

What is the accounting entry for UPWARD revaluation?

Answer 17

Dr cost (increase cost)

Dr accumulated depreciation (remove)

Cr revaluation surplus

Question 18

What is the accounting entry for RESERVES TRANSFER?

Answer 18

Dr revaluation surplus

Cr Retained Earnings

Question 19

What is the accounting entry for DOWNWARD revaluation?

Answer 19

Cr CA (cost)

Dr revaluation surplus

Dr P or L (after using up reval surplus)

Question 20

When should you assess for impairment?

Answer 20

Annually

if any indications (external or internal)

Question 21

Impairment has happened if:

relationship between CA and recoverable amount

Answer 21

CA < Recoverable amount

Question 22

What is the recoverable amount (impairment)

Answer 22

GREATER of

Fair value less cost to sell

Value in use = PV of future cash flow expected

Question 23

Impairment loss is similar to which revaluation?

Answer 23

DOWNWARD

cost and reval 7

Question 24

For a non current asset to be classed as HELD FOR SALE

Answer 24

• 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

Question 25

How should you measure an asset HELD FOR SALE?

Answer 25

Lower of CA and FAIR VALUE LESS COSTS TO SELL

Question 26

What is the accounting entry for HELD FOR SALE?

Answer 26

Dr HFS

Dr impairment loss

Cr PPE