IAS 16- Non Current Assets

Question 1

38-Colat

Answer 1

• Destruction of Non-Current Assets (NCA):
  
  • Destruction of an NCA results in its derecognition, not impairment, as there are no future economic benefits expected from its use or disposal.
  • NCA with a value of $250 million would be derecognized.
• Decommissioning of Power Plant:
  
  • IAS 37 requires recognition of a liability as soon as the obligation arises, usually at commencement of operations.
  • IAS 16 mandates inclusion of estimated dismantling and removal costs in the initial cost of property, plant, and equipment.
• Effect on Decommissioning Liability Due to Change in Useful Life:
  
  • Shortening the useful life of the power plant increases the present value of the decommissioning liability due to shorter discounted cash flows.
  • This increase is added to the carrying amount of the asset and tested for impairment.
  • Remaining carrying amount is then depreciated prospectively over the following eight years.

Question 2

Q.58-Kayte- Residual Value

Answer 2

Vessels: Residual Values
* IAS 16 definition of residual value: Estimated amount from disposal of asset minus disposal costs.

• Residual value review requirement: Annually; no depreciation if residual value exceeds carrying amount.
• Vessels with 10-year useful life: Residual value calculation not acceptable; new model needed based on broker valuations.
• Vessels with 30-year useful life: Acceptable to base residual value on scrap value of steel; depreciated over 30 years.
• Major planned maintenance: Costs capitalized; engine overhaul treated as new asset, depreciated over 10 years.
• Early maintenance: Remaining carrying amount of old engine and overhaul cost expensed immediately.

Funnels
* Initial carve-out of components: Includes major maintenance events over vessel’s economic life.
* Inadequate initial allocation: Replacement cost and accumulated depreciation used; significant carrying amount written off when capitalized.

Selection of KPIs
* - Integrated Reporting Framework guidance on KPIs: Focused on material matters, consistent with internal KPIs.

• Presentation of KPIs: Comparative figures, targets, future projections.
• Industry consistency: KPIs aligned with industry standards.
• • Consistency and materiality: Same KPIs reported each period unless no longer material; consistent calculation method.
• • Qualitative information: Contextual discussion including assumptions and reasons for trends.
• Interpretation of KPIs
• Average employee salary increase: Below inflation rate suggests real wage decrease, potential dissatisfaction.
• Revenue per employee increase: Indicates efficiency improvement, possible strain on employees.
• Sick days per employee increase: Suggests stress or dissatisfaction, potentially impacting productivity.
• Employee turnover increase: Exceeding industry average implies dissatisfaction, potential loss of skilled workforce.
• Implications for Kayte: Need to address absenteeism and retention to maintain quality and reputation.
• Long-term prospects: Pessimism regarding sustainability if workforce issues not addressed.

Question 3

32.Juan

Answer 3

• Commitment to Change and Adaptation:
  
  • Juan Co is committed to changing and adapting its business activities, including research and development (R&D).
  • Increased costs are expected for improving energy efficiency in existing buildings.
• Accounting Treatment according to IAS 16 and IAS 38:
  
  • IAS 16 specifies requirements for recognizing costs related to improving energy efficiency as assets.
  • IAS 38 requires disclosure of research and development expenditure recognized as an expense and capitalized during the reporting period.
• Impact of Climate Change on Assets:
  
  • Climate change may affect estimated residual values and expected useful lives of assets due to obsolescence or compliance with law changes.
  • Subsidiaries in regions prone to weather extremes may experience additional wear and tear on assets.
• Requirements under IAS 16 and IAS 38:
  
  • Companies must review residual values and useful lives of assets at least annually according to IAS 16 and IAS 38.
  • Changes in residual values and useful lives should be reflected in depreciation and amortization charges.