IAS 16- Property Plan and Equipment

Question 1

Under IAS 16 Property, Plant and Equipment (PPE) should be recognised if it meets the following criteria:

Answer 1

• It is probable that economic benefits associated with the asset with flow into the entity; and
• The cost can be reliably measured.

Question 2

what costs are included in initial recognition

Answer 2

All costs involved in bringing the asset to it’s present condition and location

• This includes delivery costs, site preparation, installation costs etc.

• If the dismantling costs are known (when the asset will be removed) then the PRESENT VALUE of these
dismantling costs should also be recognised.

Question 3

what are the options available under IAS 16 for subsequent measurement of non current asset?

Answer 3

• Historic cost model

* Revaluation model

Question 4

what is subsequent measurement under historic cost model

Answer 4

the original cost wouldn’t change subsequently under there are subsequent expenditure relating to the asset

Question 5

what are some examples of situation where further capitalization costs can be incurred and recognised which could change the historic cost of NCA?

Answer 5

• The expenditure enhances the asset.
• A complex asset component is replaced.
• Works pre or post a major work inspection on the asset.

Question 6

at what point is depreciation charged

Answer 6

as soon as the asset becomes available for use

Question 7

under the revaluation model, what happens?

Answer 7

Under the revaluation model, the non-current assets are revalued each year and the revaluation gain or loss would usually go through the revaluation reserve.

Question 8

what step do you take if the revaluation reserve balance is low and if the journal posted will make the balance DEBIT

(the balance should be a credit)

Answer 8

you DR the remaining balance to Impairment Expense

Question 9

when an asset is revalued, what happens to depreciation?

Answer 9

When an asset is revalued, at that date any accumulated depreciation brought forward would effectively be wiped and depreciation should subsequently be calculated on the new revalued amount.

Question 10

what is an “Annual Transfer to Retained Earnings”

and why and when is used

Answer 10

This occurs primarily when you’ve got assets under the revaluation model when there is an upward revaluation

when there is a higher revaluation, the depreciation charge to the P/L increases therefore reducing the profit and hence lower dividends

therefore, companies have a policy to do an annual transfer of this additional depreciation on revalued assets from the revaluation reserve to retained earnings