derecognition of PPE + AHFS

Question 1

When should PPE be derecognised?

Answer 1

When it is either disposed of or abandoned

Question 2

What is the accounting treatment when the asset is held at depreciated cost?

Answer 2

Debit cash (proceeds)
credit asset cost (remove)

debit acc depn (remove)
dr/cr loss/ gain on disposal (p/l)

Question 3

what is the accounting treatment when the asset has previously been revalued?

Answer 3

Accounting treatment is the same but any balance remaining in the reval surplus must be transferred to retained earnings.

Debit revaluation surplus (clear to zero)
credit Retained earnings

Question 4

When is an item classified as held for sale?

Answer 4

1. the asset is available for immediate sale in its present condition
2. sale must be highly probable

highly probable:
management commitment to sell the asset

active programme to find buyer

marketing for sale with reasonable price

expectation for the sale to take place within one year of date of classification

no likely hood of significant changes to plan

Question 5

How do you account for reclassifying an asset as held for sale?

Answer 5

1. asset must be measured by either cost model (cost-depn) or revaluation to fair value.
2. on classification as HFS it must be written at the lower of CA or FVLTC

any impairment charged to p/l

3. when held for sale it is not depreciated or amortised
4. presented as a single amount separately from other assets on SOFP and under current assets