L3 | Non-Current (Tangible) Assets Flashcards
Which IAS is titled Property, Plant and Equipment?
IAS 16
What does revenue expenditure go down as?
Expenses
If something is seen as an expense which financial document does it appear on?
Statement of Profit or Loss
What does capital expenditure go down as?
Assets
If something is seen as an asset, which financial document does it appear on?
Statement of Financial Position
According to IAS 16, property, plant and equipment is defined as
- tangible items
- held for use in the production or supply of goods or services, for rental to others, or for administrative purposes
- expected to be used during more than one period.
When should an item of property, plant and equipment be recognised as an asset?
Only if:
- it is probable that future economic benefits associated with the item will flow to the entitiy.
- the cost of the item to the entity can be measured reliably
How should an item of property, plant and equipment that qualifies for recognition as an asset be initially measured?
at its cost
What does the cost of an item of PPE comprise of?
- purchase price (incl. import duties and non-refundable purchase taxes)
- any directly attributable costs of bringing the asset to working condition for its intended use
- the initial estimate of the costs of dismantling
What are some examples of directly attributable costs?
- cost of site preparation
- initial delivery and handling costs
- installation and assembly costs
- professional fees such as for architects and engineers
- the estimated cost of dismantling and removing the asset and restoring the site, to the extent that it is recognized as a provision under IAS 37 Provisions, Contingent Liabilities and Contingent Assets.
What are some costs not included in the carrying amount of an item of PPE?
- costs incurred while an item capable of operating in the manner intended by management has yet to be brought into use or is operated less than full capacity
- initial operating losses, i..e those incurred while demand for the item’s output builds up
- costs of relocating or reorganising part or all of an entity’s operations
- costs of opening a new facility
What are some elements not included in the cost of a PPE?
- costs of introducing a new product or service (incl. costs of advertising and promotional activities)
- costs of conducting business in a new location or with a new class of customers (inc. costs of staff training)
- administration and other general overhead costs
How does IAS 16 describe the cost model?
cost less any accumulated depreciation and any accumulated impairment losses
How does IAS 16 describe the revaluation model?
- fair value (at a revalued amount) at date of revaluation less subsequent accumulated depreciation and any impairment losses
- revealed assets must continue to be depreciated
What is the ‘no cherry-picking’ rule?
if an item of PPE is revalued, the entire class of PPE to which the item belongs is revalued.
