Chapter Four: Property, Plant & Equipment Flashcards
What should the initial measurement of PP&E be?
The initial measurement should be at cost.
What should the at cost measurement of PP&E include?
All costs directly attributable to bringing the asset into working condition for it’s intended use e.g. direct labour costs, delivery fees, legal fees & testing costs.
When should subsequent expenditure on an asset be capitalised?
If it enhances the economic benefits in excess of it’s previously assessed standard of performance e.g. an extension to a building.
How does IAS 16 describe depreciation?
The depreciable amount (cost less residual value) of a tangible non-current asset should be allocated on a systematic basis over it’s useful life.
What factors need to be considered when determining the useful life, residual value & depreciation method of an asset?
Expected usage or idle (non-productive) time, expected physical wear and tear, economic or technological obsolescence, legal or similar limits on use, such as the expiry dates of leases.
When should the useful economic life & residual value of a tangible NCA be reviewed?
At the end of each reporting period.
When should the useful economic life & residual value of a tangible NCA be revised?
If expectations are significantly different from previous estimates.
Should all assets of the same class be revalued if a revaluation policy is chosen?
Yes.
If a company decides to revalue it’s NCA assets what must it do?
Have periodic revaluations so as the value stated in the FS is relevant and reliable.
If an asset is revalued over what should it be depreciated?
It should continue to be depreciated over it’s remaining estimated useful life.
What procedure should be followed when accounting for revaluation of PPE?
Restate the asset to the revalued amount, eliminate the accumulated depreciation to date on that asset, establish or update the revaluation surplus.
What is the journal entry for the annual transfer of excess depreciation?
Dr: Revaluation Surplus
Cr: Retained Earnings
Where are gains and losses on disposal of tangible NCA shown?
The statement of profit or loss and other comprehensive income.
How is the gain or loss on disposal of a tangible NCA calculated?
The difference between the disposal proceeds and carry amount at the date of sale.
What should happen to the revaluation surplus if a previously revalued asset is disposed?
The revaluation surplus balance should be transferred to retained earnings.
