Lecture 9 - PPE

Question 1

PPE characteristics

Answer 1

1. Acquired and held for use, not sale
2. Long term, usually subject to depreciation
3. Tangible

Question 2

What to do with borrowing costs: ASPE vs IFRS

Answer 2

ASPE capitalize or expense

IFRS borrowing costs directly attributed to acquisition, construction or production of assets should be capitalized

Question 3

Deferred payment contracts

Answer 3

Assets purchased through long term credit are recorded at PV of consideration exchanged

Question 4

Lump sum purchase

Answer 4

Cost of assets purchased in lump sum purchase is allocated based on their relative fair market values

Question 5

Share based payment

Answer 5

Fair value of asset received or fair value of shares given up is used for cost of asset

Question 6

Exchange of non monetary assets

Answer 6

Received asset is valued at FV of asset given up

Gain/loss recorded on income statement

Question 7

Contribution of assets: how to assign cost

Answer 7

Fair value

Question 8

2 approaches to recording contribution of assets

Answer 8

Capital approach

Income approach

Question 9

Capital approach

Answer 9

For shareholder contributions
Debit equipment
Credit donated capital

Question 10

Income approach

Answer 10

For non owner contributions

Question 11

2 ways to recognize government grants

Answer 11

Cost reduction method

Deferral method

Question 12

Cost reduction method journal entry

Answer 12

Debit cash
Credit equipment

Benefit is recognized through reduction of depreciation expense

Question 13

Deferral method journal entry

Answer 13

Debit cash

Credit deferred revenue

Question 14

What to do with costs subsequent to acquisition

Answer 14

If the costs extend useful life or achieve future benefit, capitalize the costs
If not, expense the costs

Question 15

Land costs include 5 things

Answer 15

Purchase price 
Closing costs
Getting ready for use
Assumption of loans 
Additional improvements

Question 16

Biological assets under IFRS

Answer 16

Measure at fair value less costs to sell, with changes in values going through the income statement

Question 17

3 methods to measure after acquisition

Answer 17

1. Cost model ASPE
2. Revaluation model
3. Fair value

IFRS use CM or FVM for investment property, anything else use CM or Rm

Question 18

Revaluation model

Answer 18

Carried at fair value at date of revaluation less accumulated depreciation and impairment loss

If carrying value increases, credit revaluation surplus
If carrying value decreases, debit revaluation surplus

Question 19

Fair value model

Answer 19

Investment property is measured at cost at acquisition but at fair value subsequent to acquisition