Chapter 4 Flashcards
IAS 16 - Property plant and equipment
are 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
Depreciation
is the systematic allocation of the depreciable amount of an asset over its useful life.
IAS 16 - Property plant and equipment
Depreciable amount
is the cost or valuation of the asset, less any residual value.
IAS 16 - Property plant and equipment
Useful life
is 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
Carrying amount
is the amount at which an asset is recognised on the statement of financial position, after deducting any accumulated depreciation and impairment losses.
Questions to be asked when dealing with assets:
1) Is this an asset?
2) Is it to be recognised on the statement of financial position?
3) What method is to be used to measure it or to value it?
An item of property plant and equipment (PPE) is to be recognised as an asset when:
1) it is probable that future economic benefits will flow to the entity; and
2) the cost of the asset can be measured reliably
Further costs spend on PPE:
1) The costs of day-to-day servicing of the asset
2) Where parts of the asset require replacement at regular intervals
3) Where regular inspections have to be carried out to continue operating an asset
Measurement of property plant and equipment:
How is it measured initially and what includes?
Initially PPE are measured at cost on the statement of financial position.
Cost is a purchase price including:
1) any import duties and taxes, plus
2) any costs directly attributable to bring the asset to the location and condition for its intended use, plus
3) the estimated costs of dismantling and removing the asset at the end of its useful life.
Measurement of property plant and equipment
after adquisition - Cost model
The asset is carried at cost less accumulated depreciation and impairment losses.
Measurement of property plant and equipment
After adquisition - Revaluation model
The asset is carried on the statement of financial position at a revalued amount, being its fair value less any subsequent depreciation and impairment losses.
Revaluations are dealt with as follows: increase in value
Any increase in value is recognised in other comprehensive income and is credited within equity to a revaluation surplus (if it reverses a previous decrease it is income).
Revaluations are dealt with as follows: reduction in value
Any reduction in value is recognised as an expense in the statement of profit or loss and other comprehensive income (if it reverses a previous increase it is debited to the revaluation surplus).
Revaluations are dealt with as follows: Derecognition
Derecognition occurs when an item of PPE is disposed of, or when no future economic benefits are expected from its use or disposal.
What is an intangible asset? Give examples
Is an identifiable non-monetary asset without physical substance.
Examples include computer software, patents, copyrights, customer lists, licences and marketing rights.
INTANGIBLE ASSETS - The three key elements are:
1) Identifiability
2) Control
3) Future economic benefits
INTANGIBLE ASSETS - Recognition:
How they come about?
How are they recognised in the financial statements?
Intangible assets come about from two main sources: either they are purchased, or they are internally generated.
In both cases the intangible asset is recognised initially in the financial statements at cost price when:
1) It is probable that the expected future economic
benefits that are attributable to the asset will flow to
the entity; and
2) The cost of the asset can be measured reliably.
Research
Research is original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding.
Development
Development is the application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems or services before the start of commercial production or use.
Development costs: when are they capitalised as an intangible asset? 1 to 3
The entity has to demonstrate all of the following:
1) The technical feasibility of completing the intangible
asset so that it will be available for use or sale.
2) Its intention to complete the intangible asset and to
use or sell it.
3) Its ability to use or sell the intangible asset.