Chapter 4 - IAS 16 - Property, Plant, Equipment Flashcards
Definition
- Depreciable Amount
Cost less Residual Value
Definition
- Useful Life
- The period over which an asset is expected to be available for use by an entity
Or;
- The number of production units expected to be obtained from the asset
Definition
- Depreciation
The systematic allocation of the depreciable amount over an asset’s useful life
Definition
- Impairment Loss
The amount at which the carrying amount exceeds its recoverable amount
Definition
- Carrying Amount
The amount at which the asset is recognised after deducting any accumulated depreciation and impairment losses
Definition
- Value in Use
The present value of the future cash flows the entity expects to arise from the continuing use of an asset
Definition
- Fair Value
The price that would be received to sell an asset or paid to transfer a liability in an orderly business transaction between two market participants at the measurement date
Definition
- Recoverable Amount
The higher of an asset’s fair value less costs of disposal and the value in use
Depreciation Valuation Models
COST = Carried at cost less accumulated depreciation and impairment losses
REVALUATION = An asset is carried at the revalued amount, being its fair value at the date of revaluation less accumulated depreciation and impairment
De-recognition should be recognised when:
- On disposal
Or;
- When no future economic benefits are expected from its use or disposal
For each class of Property, Plant & Equipment, the following must be disclosed:
- Basis for measuring carrying amount
- Depreciation methods used
- Useful lives or depreciation rates (%)
- Gross carrying amount; Accumulated Depreciation; and impairment
+ Reconciliation of carrying amount at the beginning and end of the period, showing:
- Additions
- Disposals
- Acquisitions through business combinations
- Revaluation increases or decreases
- Impairment losses
- Reversals of impairment losses
- Depreciation
- Other changes
- Two Criteria for Recognition of PPE:
- FUTURE ECONOMIC BENEFITS = Probable that future economic benefits will flow to the entity
- MEASURED RELIABLY = The cost can be measured reliably
Definition
- Cost
Purchase price of asset, including import and direct costs to bring the asset to location and condition for its intended use, plus the cost of dismantling and removing the asset at the end of its useful life.
Attributable costs:
- Site preparation
- Delivery and handling
- Installation and assembly
- Testing costs
- Professional fees - e.g; engineers, architects
NON-Attributable costs:
- Admin and general overheads
- Advertising and marketing
- Start up costs for new business section
Points a Company must consider when accounting for IAS 16:
- Initially to be measured at cost
- Choose the cost or revaluation model
- Cost = Cost - Accumulated Dep’ - Impairment
- Revaluation = Fair Value - Depreciation - Impairment
- Residual value and useful life reviewed annually
- Depreciation continues even if fair value exceeds CA
- Depreciation can be applied to different parts of asset
How a Revaluation Surplus Arises:
- Revaluation Surplus is a Capital Reserve
- Arises from the revaluation of the NC tangible Assets
- Credited on the SPL as Other Income
- Credited to Revaluation Surplus
- A Revaluation Surplus is non Distributable
