IAS 16 and IAS 36 Flashcards
What is IAS 16?
Property, plant and equipment - these are tangible assets that:-
- are held by an entity for use in the production or supply of goods or services, for rental to others, or for administrative purposes, and
What is Carrying Amount?
The amount in the SOFP is correspondingly reduced with the depreciating expense, the remaining balance after accumulated depreciation is deducted is referred to as the CARRYING AMOUNT.
What is Cost?
The amount given to acquire the asset.
Depreciable amount?
The cost of an asset, or other amount substituted for cost, less its residual value.
Depreciation?
The systematic allocation of the depreciable amount of an asset over its useful life.
Fair Value
The price that would be received to sell an asset or paid to transfer a liability.
What is IAS 36?
Impairment of Assets - defined as a loss if the recoverable amount is less than the carrying amount.
What if the residual value is greater than the carrying amount?
If the residual value is GREATER than the carrying amount the depreciation charge is Zero.
What is residual value?
The estimated disposal value of the asset at the end of its useful life - after deducting the estimated costs of disposal.
Explain IMPAIRMENT?
An asset may be impaired if its RECOVERABLE AMOUNT is less than its CARRYING AMOUNT in the financial statements.
Indications that an asset may be impaired include:-
* obvious damage
* obsolescence
* lack of use, so that the asset is not creating value for the entity.
Explain the RECOVERABLE AMOUNT ?
Represents the best use of the assets and is the higher of :-
- NET SELLING VALUE - fair value less costs of disposal
or - VALUE IN USE - generated income by continuing to use the asset in the business AND disposal of asset.
When should subsequent expenditure be CAPITALISED for PPE?
PPE - subsequent expenditure should be capitalised when:-
- the expenditure improves the future economic benefits that the asset will generate
- it replaces a component of an asset and the carrying amount of the component replaced is DERECOGNISED e.g. overhaul of a furnace or a roof (where both are separately identified as assets)
- it is the cost of a major inspection for faults and the carrying amount of the previous insepection is derecognised.
The costs of day-to-day servicing should be recognised in the SOPL (expense)
Explain derecognition?
Derecognition is the process of removing an asset or liability, or part of one from an entities financial statement.
What is recognised in the financial statements of an initial cost of assets PPE?
Only DIRECTLY attributable costs to be included in SOFP for PPE - NOT admin costs, general costs or annual maintenance contract.
What can be capitalised regarding additional expenditure?
- Costs to upgrade and enhance the machine above its original performance.
- Annual maintenance is and expense in the P&L
- Repairs to previous performance is maintenance expenditure in the P&L