IAS16 - PPE

Question 1

what is IAS16 about?

Answer 1

PPE

Question 2

what is IAS36 about?

Answer 2

impairment of assets

Question 3

does measurement of PPE include asset dismantlement costs?

Answer 3

yes

cost of dismantlement, removal or restoration

Question 4

measurement at recognition for assets that have been exchanged for other assets?

Answer 4

fair value initially

subsequently revaluation model

Question 5

is depreciation calculated identically for each significant part of an item of PPE?

Answer 5

no, depreciation charge is separate for each significant part of an item of PPE

Question 6

residual amount?

Answer 6

the amount expected to be received once useful life is lived

Question 7

depreciation period begins when?

Answer 7

when the item is available for use

ends when derecognised or no longer expected to give future economic benefits

Question 8

how does derecognition work?

Answer 8

derecognition occurs either when:
- no more economic benefits are expected
- put up for sale/disposed of

Question 9

objective of IAS16?

Answer 9

to prescribe the treatment for PPE in FSs

Question 10

cost of PPE?

Answer 10

amount of cash paid to acquire an asset at the time of its acquisition

Question 11

depreciable amount?

Answer 11

the cost of an asset less its residual value

Question 12

depreciation?

Answer 12

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

Question 13

entity-specific value / VIU?

Answer 13

the PV of future cash flows an entity expects to arise from the use of an asset and from its disposal

Question 14

fair value?

Answer 14

the price that would be received for the asset in an orderly transaction today

Question 15

impairment loss?

Answer 15

the amount by which the carrying amount exceeds the recoverable amount

Question 16

PPE?

Answer 16

tangible items that:
- are held for use in production of goods/services, rental to others or admin purposes
- are expected to be used during more than one period

Question 17

recoverable amount?

Answer 17

higher of:
- VIU
- fair value less costs to sell

Question 18

residual value?

Answer 18

the estimated amount that an entity would obtain on disposal of the asset at the end of its useful life

Question 19

useful life?

Answer 19

the period over which an asset is available for use by an entity

or

the number of production/similar units expected to be obtained by an entity from the asset

Question 20

when should an item of PPE be recognised?

Answer 20

• if its probable that future economic benefits will flow from the asset
• if the cost can be measured reliably

Question 21

how are servicing costs recognised?

Answer 21

in the P&L as expenses

Question 22

how are items of PPE measured at recognition?

Answer 22

cost

Question 23

elements of cost?

Answer 23

• purchase price
• cost of dismantling
• cost of bringing the asset to location & making it usable

Question 24

measurement of PPE after recognition?

Answer 24

cost or revaluation model

Question 25

cost model?

Answer 25

asset is carried at cost less depreciation less impairment losses

Question 26

revaluation model?

Answer 26

asset is carried at fair value less depreciation less impairment losses

Question 27

if an item of PPE is revalued…

Answer 27

the entire class of PPE should be revalued

Question 28

class of ppe?

Answer 28

grouping assets of a similar nature

e.g., separate classes:
- land
- land & buildings
- machinery
- aircraft
- motor vehicles
- furniture & fixtures
- office equipment

Question 29

are assets within a class of PPE revalued simultaneously?

Answer 29

yes

Question 30

if an asset’s carrying amount increases…

Answer 30

the increase is recognised in other comprehensive income and accumulated in equity under ‘revaluation surplus’

Question 31

if an asset’s carrying amount decreases as a result of revaluation..

Answer 31

the decrease is recognised in the profit & loss

the decrease should be recognised in other comprehensive income to the extent of the credit balance in revaluation surplus with respect to that asset

this reduces the accumulated revaluation surplus

Question 32

where does the revaluation surplus included in equity transferred to when the asset is derecognised?

Answer 32

retained earnings

Question 33

how often should residual value and useful life of PPE be reassessed?

Answer 33

at the end of each financial year

Question 34

how is a change in expectations surrounding useful life or residual value treated?

Answer 34

accounted for as a change in accounting estimate and dealt with prospectively

Question 35

depreciation method used should reflect the…

Answer 35

the pattern in which the asset’s expected to be used

Question 36

how often should the depreciation method be reassessed?

Answer 36

at the end of each financial year

Question 37

s-l method?
declining balance method?
units of prod. method?

Answer 37

• straight-line = equal amount each year
• declining = varying amount each year
• units of prod - generally equal unless change in asset’s usage

Question 38

how is a change in depreciation method accounted for?

Answer 38

as an accounting estimate

prospectively

Question 39

when is an item of PPE derecognise?

Answer 39

• on disposal
• when no future economic benefits are expected

Question 40

how is the gain/loss arising from derecognition of an item of PPE treated?

Answer 40

recognised in the P&L under other comprehensive income

gains are not revenue

Question 41

how is the gain on disposal of PPE calculated?

Answer 41

proceeds less carrying amount

Question 42

what should the FS disclose regarding PPE?

Answer 42

• measurement bases used
• depreciation method used
• useful life/depreciation rates
• carrying amount & acc. depreciation