IAS 16 Property, Plant and Equipment

Question 1

Objective of IAS 16

Answer 1

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.

Question 2

This standard does not apply to:

Answer 2

(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

Question 3

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

Answer 3

Bearer plant

Question 4

The amount at which an asset is recognized after deducting any accumulated depreciation and accumulated impairment losses

Answer 4

Carrying amount

Question 5

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

Answer 5

Cost

Question 6

The cost of an asset, or other amount substituted for cost, less its residual value

Answer 6

Depreciable amount

Question 7

The systematic allocation of the depreciable amount of an asset over its useful life

Answer 7

Depreciation

Question 8

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

Answer 8

Entity-specific value

Question 9

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

Answer 9

Fair value

Question 10

The amount by which the carrying amount of an asset exceeds its recoverable amount

Answer 10

Impairment loss

Question 11

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

Answer 11

Property, plant and equipment

Question 12

The higher of an asset’s fair value less costs of disposal and its value in use

Answer 12

Recoverable amount

Question 13

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

Answer 13

Residual value

Question 14

The period over which an asset is expected to be available for use by an entity

Answer 14

Useful life

Question 15

The cost of an item or property, plant and equipment shall be recognized as an asset if, and only if:

Answer 15

(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

Question 16

How should be an item of PPE that qualifies for recognition as an asset shall be measured at?

Answer 16

Cost

Question 17

Spare parts, stand-by equipment and servicing equipment are recognized in accordance with?

Answer 17

IAS 16 (this standard), if they meet the definition of PPE; otherwise, they are classified as inventory

Question 18

Initial items of PPE may be acquired for?

Answer 18

safety and environmental reasons

Question 19

What does an entity not recognize in the carrying amount of an item of PPE?

Answer 19

The costs of the day-to-day servicing of the item; these costs are recognized in profit or loss incurred

Question 20

Primarily the costs of labor and consumables and may include the cost of small parts

Answer 20

Costs of day-to-day servicing

Question 21

When does an entity recognize the carrying amount of an item of PPE the cost of replacing part of such item?

Answer 21

When the cost is incurred if the recognition criteria is met

Question 22

The cost of an item of PPE comprises?

Answer 22

(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

Question 23

Examples of directly attributable costs (DACs)

Answer 23

(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

Question 24

Costs that are not costs of an item of PPE

Answer 24

(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

Question 25

Costs that are not included in the carrying amount of an item of PPE:

Answer 25

(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

Question 26

The cost of an item of PPE is?

Answer 26

The cash price equivalent at the recognition date

Question 27

An entity shall choose either what models as its accounting policy and shall apply that policy to an entire class of PPE?

Answer 27

Cost model or revaluation model

Question 28

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

Answer 28

Cost Model

Question 29

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

Answer 29

Revaluation model

Question 30

If an item of PPE is revalued, what happens to the entire class?

Answer 30

The entire class of PPE to which that asset belongs shall be revalued

Question 31

A grouping of assets of a similar nature and use in any entity’s operations

Answer 31

A class of PPE

Question 32

Examples of separate classes:

Answer 32

(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

Question 33

If an asset’s carrying amount is INCREASED as a result of revaluation, the increase shall be recognized in?

Answer 33

Other comprehensive income and accumulated in equity under the heading of revaluation surplus

Question 34

If an asset’s carrying amount is DECREASED as a result of revaluation, the decrease shall be recognized in?

Answer 34

Profit or loss

Question 35

Each part of an item or PPE with a cost that is significant in relation to the total cost of the item shall be?

Answer 35

Depreciated separately

Question 36

Shall be recognized in profit or loss unless it is included in the carrying amount of another asset

Answer 36

Depreciation charge for each period

Question 37

Depreciable amount shall be allocated on?

Answer 37

On a systematic basis over its useful life

Question 38

Should a depreciation be recognized even if the fair value of the asset exceeds its carrying amount?

Answer 38

Yes, as long as the asset’s residual value does not exceed its carrying amount

Question 39

What shall the depreciation method used reflect?

Answer 39

The pattern in which the asset’s future economic benefits are expected to be consumed by the entity

Question 40

When shall the depreciation method applied to asset be reviewed?

Answer 40

At least each financial year-end

Question 41

Compensation from third parties for items of PPE that were impaired, lost, or given up shall be included in?

Answer 41

Profit or loss when the compensation becomes receivable

Question 42

The carrying amount of an item of PPE shall be derecognized:

Answer 42

(1) on disposal; OR
(2) when no future economic benefits are expected from its use or disposal

Question 43

The gain or loss arising from the derecognition of PPE shall be included in?

Answer 43

Profit or loss when the item is derecognized; gains shall not be classified as revenue

Question 44

The gain or loss arising from the derecognition of an item of PPE shall be determined as?

Answer 44

The difference between the net disposal proceeds, if any, and the carrying amount of the item