FR - Property, Plant & Equipment Flashcards
Explain what Property, Plant and Equipment is defined as
PP&E is defined as :
1. Are held for use in production or supply of goods / services for rental or other purposes
2. Are expected to be used during more than one year
Tangible asset - long lived resources that have physical substance, used in operation of business and is not included to sale of customer
What is the Handbook Section used for PP&E for IFRS & ASPE
IFRS - IAS 16
ASPE - 3061
When should the asset be recognized for PP&E
The initial measurement when both apply
1. It is probable that future economic benefit associated with the item will flow to the entity
2. Cost of the item can be measured reliably
Economic benefit - considers the range of ways in which the asset can directly or indirectly benefit the entity
What cost are capitalized for PP&E
- Purchase price, including import duties, less trade discount and rebates, refundable to not include taxes
- Any cost directly attributed to bring the asset to the location and condition necessary for it to be capable
- Initial estimate of the cost of dismantling and removing the item & restore the site
- General cost & operating cost not included
Dr. Equip xx
Cr. A/P, cash xx
Provide 4 types of costs that are to be included in purchasing the asset
- Delivery & Handling asset
- Site preparation
- Installation of asset
- Professional fees
- Testing of assets for operation
- Useful life - asset must be brought to PV of recording date
- Cost going towards once asset is in use are not capitalized
Explain how the purchase of land is determined
Cost is directly attributable would be:
1. Commission
2. Legal fees
3. Transfer fees
4. Fees to search for property
-If the total purchase price is for the land and building, it would have to be separated
- Preparation for cost of land, drainage/ removal of all building, included
What is componentization
- PP&E have different usage of assets, and useful life is different
Ex. The fuel of the airplane has a different useful life than the engine of the plane
Residual value - estimate NRV of asset at end of useful life
Explain what self-constructed asset is
- Directly attributed & construction permit, site serving cost, construction cost, labour, management salaries - Capitalized
Not capitalized - wastage that is abnormal, profit of internal labour
What is borrowing cost
IAS 23 - requires capitalization that directly attributable to the acquisition
- Also include tangible non-current asset are being constructed & intangible assets during development
How do you calculate the capitalization for borrowing cost
- Calculate the weighted average investment
- An interest cost on borrowing is considered
- Calculate the capitalization rate to be applied
- General borrowing interest costs and are applied to the difference between the investment principal of asset and the average
- Sum of interest asset-specific and general borrowing to be capitalized
Explain what spare parts standby and bearer plan is
Spare part stands - Are included if they have more than one year of usage as they are on tangible asset
Bearer plan - 1. They are used in the production of supply of agricultural product
2. They are expected to produce more than one period
3. THey have a remote likelihood of themselves being sold as agricultural produce.
What are the two method for measuring PP&E
- Cost method
- Asser are recorded at historical cost, depreciation is taken each year , asset report of original cost less Accum. Deprec. - Revaluation method
- asset is recorded at FMV and still depreciated each year
Requirement -class of transaction - made up of all similar assets in nature, building, land, machinery
- Entity has sufficiently reliable estimate for FMV, revaluation then needs to be determined
Explain the process of revaluation for PP&E
Revaluation - result of gain or loss of asset written up or down to FMV
- Principal of some asset classes and not of others that have difference between PMV and depreciation cost
Asset written up - Gain is recorded to N/I, up to the amount of losses, previously recorded to N/I
2. Remaining gain is recorded at OCI
Asset wirrten down 1. Loss is recorded first to OCI up to the amount of gain that was previously recorded
2. The remaining loss is recorded to N/I
What two method are used for adjustment
- Elimination method
- Accumulated is first reset back to zero and asset cost is adjusted accordingly - Proportional method
- both cost & accumulated depreciation are adjusted proportionally to achieve an overall carrying amount equal to FMV
Explain how repairs and maintenance is recorded as well as replacement
Repairs and maintenance are recorded as expenses rather than being capitalized
REplacement - professional judgment, based on criteria if asset useful life beyond originally expected life or to improve efficiency or effectiveness of asset capitalized
