Chapter 6 Flashcards
What is PPE?
Are tangible items that:
Held for use in production or supply of goods or services
Are expected to be used in more than one period
When should PPE be recognised as an asset?
It is probable that future economic benefits associated with the item will flow to the entity.
The cost can be measured reliably
What is the cost of an asset?
Purchase price (including import duties and non refundable taxes)
LESS: any trade discounts
PLUS: any directly attributable costs
What is included as a directly attributable cost?
Cost of employees involved in constructing the item
Cost of site preparation
Initial delivery and handling costs
Installation and assembly costs
Cost of testing functionality of the asset
Professional fees
What is NOT included in directly attributable costs?
Admin or general overhead costs
Advertising or staff training costs.
Double entry for maintenance/ repairs?
DR Expense account
CR Bank
What is the double entry for where the expenditure improved the performance of the asset so there will be improved future economic benefit?
DR Asset
CR Bank
What so the cost model for measurement of asset value after recognition?
An item carried at historical cost less accumulated depreciation
What is the revaluation method as a measurement after recognition?
An item is carried at fair value less any subsequent accumulated depreciation (common for land / buildings)
What is fair values?
The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants and the measurement date? MARKET VALUE OF ASSET ESSENTIALLY
How to account r for revaluation gains?
DR NCA cost account 2
DR ACC. DEPRECIATION. 1
CR Revaluation (Balancing Fig)
Accounting for revaluation losses?
DR SPL (Balancing figure) DR Accumulated Depreciation 2
CR NCA cost account (to make cost = to valuation (decrease asset) 1
How to account for loss on revaluation if the asset was previously revalued upwards?
CR NCA Cost (make cost = to valuation) 1
DR Accumulated Depreciation
DR Revaluation Reserve (value equal to credit balance)
DR SPL (balancing figure)
What does IAS 16 require in terms of disclosures for items of PPE stated at revalued amounts?
The effective date of revaluation
Whether an independent valuer was involved
For each revaluation class, the carrying amount that would’ve been recognised If not revalued
The revaluation surplus
How to change the method of depreciation?
Carrying amount of the asset will be depreciated using the new method over the assets remaining useful life, beginning in the period in which the change is made.
When should a tangible non current asset be derecognised (disposed)?
When it is sold or when there are no more economic benefits to be gained from the asset
Where is the resulting gain or loss from disposal recognised?
Resulting gain or loss is recognised in cost of sales, administrative or distribution expenses, depending on the function of the asset.
