IAS 16 Property, Plant and Equipment Flashcards
Objective of IAS 16
To prescribe the accounting treatment for PPE so that users of the financial statements can discern information about an entity’s investment in its PPE and the changes in such investment.
This standard does not apply to:
(1) PPE classified as held for sale in accordance with IFRS 5
(2) biological assets related to agricultural activity other than bearer plants; but does not apply to the produce on bearer plants
(3) the recognition and measurement of exploration and evaluation assets
(4) mineral rights and mineral reserves such as oil, natural gas, and similar non-regenerative resources
Is expected to bear produce for more than one period and has remote likelihood of being sold as agricultural produce, except for incidental scrap sales
Bearer plant
The amount at which an asset is recognized after deducting any accumulated depreciation and accumulated impairment losses
Carrying amount
The amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire an asset at the time of its acquisition or construction or the amount attributed to that asset
Cost
The cost of an asset, or other amount substituted for cost, less its residual value
Depreciable amount
The systematic allocation of the depreciable amount of an asset over its useful life
Depreciation
The present value of the cash flows an entity expects to arise from the continuing use of an asset and from its disposal at the end of its useful life or expects to incur when settling a liability
Entity-specific value
The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date
Fair value
The amount by which the carrying amount of an asset exceeds its recoverable amount
Impairment loss
Tangible items that are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes and are expected to be used during more than one period
Property, plant and equipment
The higher of an asset’s fair value less costs of disposal and its value in use
Recoverable amount
The estimated amount that an entity would currently obtain from disposal of the asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life
Residual value
The period over which an asset is expected to be available for use by an entity
Useful life
The cost of an item or property, plant and equipment shall be recognized as an asset if, and only if:
(1) it is probable that future economic benefits associated with the item will flow to the entity
(2) the cost of the item can be measured reliably
How should be an item of PPE that qualifies for recognition as an asset shall be measured at?
Cost
Spare parts, stand-by equipment and servicing equipment are recognized in accordance with?
IAS 16 (this standard), if they meet the definition of PPE; otherwise, they are classified as inventory
Initial items of PPE may be acquired for?
safety and environmental reasons
What does an entity not recognize in the carrying amount of an item of PPE?
The costs of the day-to-day servicing of the item; these costs are recognized in profit or loss incurred
Primarily the costs of labor and consumables and may include the cost of small parts
Costs of day-to-day servicing
When does an entity recognize the carrying amount of an item of PPE the cost of replacing part of such item?
When the cost is incurred if the recognition criteria is met
The cost of an item of PPE comprises?
(1) its purchase price, including import duties, and non-refundable purchase taxes, AFTER deducting trade discounts and rebates
(2) any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management
(3) the initial estimate of the costs of dismantling and removing the item and restoring the sire on which it is located
Examples of directly attributable costs (DACs)
(1) cost of employee benefits arising directly from the construction or acquisition of the item of property, plant and equipment
(2) costs of site preparation
(3) initial delivery and handling costs
(4) installation and assembly costs
(5) costs of testing whether the asset is functioning properly
(6) professional fees
Costs that are not costs of an item of PPE
(1) costs of opening a new facility
(2) costs of introducing a new product or service
(3) costs of conducting business in a new location or with a new class of customer
(4) administration and other general overhead costs
Costs that are not included in the carrying amount of an item of PPE:
(1) costs incurred while an item capable of operating in the manner intended by management has yet to be brought into use or is operated at less than full capacity
(2) initial operating losses, such as those incurred while demand for the item’s output builds up
(3) costs of relocating or reorganizing part or all of an entity’s operations
The cost of an item of PPE is?
The cash price equivalent at the recognition date
An entity shall choose either what models as its accounting policy and shall apply that policy to an entire class of PPE?
Cost model or revaluation model
The model wherein, after recognition as an asset, an item of PPE shall be carried at its cost less any accumulated depreciation and any accumulated impairment losses
Cost Model
The model wherein, an item of PPE whose fair value can be measured reliably shall be carried at a revalued amount, being its FV at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses
Revaluation model
If an item of PPE is revalued, what happens to the entire class?
The entire class of PPE to which that asset belongs shall be revalued
A grouping of assets of a similar nature and use in any entity’s operations
A class of PPE
Examples of separate classes:
(1) land
(2) land and buildings
(3) machinery
(4) ships
(5) aircraft
(6) motor vehicles
(7) furniture and fixtures
(8) office equipment
(9) bearer plants
If an asset’s carrying amount is INCREASED as a result of revaluation, the increase shall be recognized in?
Other comprehensive income and accumulated in equity under the heading of revaluation surplus
If an asset’s carrying amount is DECREASED as a result of revaluation, the decrease shall be recognized in?
Profit or loss
Each part of an item or PPE with a cost that is significant in relation to the total cost of the item shall be?
Depreciated separately
Shall be recognized in profit or loss unless it is included in the carrying amount of another asset
Depreciation charge for each period
Depreciable amount shall be allocated on?
On a systematic basis over its useful life
Should a depreciation be recognized even if the fair value of the asset exceeds its carrying amount?
Yes, as long as the asset’s residual value does not exceed its carrying amount
What shall the depreciation method used reflect?
The pattern in which the asset’s future economic benefits are expected to be consumed by the entity
When shall the depreciation method applied to asset be reviewed?
At least each financial year-end
Compensation from third parties for items of PPE that were impaired, lost, or given up shall be included in?
Profit or loss when the compensation becomes receivable
The carrying amount of an item of PPE shall be derecognized:
(1) on disposal; OR
(2) when no future economic benefits are expected from its use or disposal
The gain or loss arising from the derecognition of PPE shall be included in?
Profit or loss when the item is derecognized; gains shall not be classified as revenue
The gain or loss arising from the derecognition of an item of PPE shall be determined as?
The difference between the net disposal proceeds, if any, and the carrying amount of the item
