Module 3 Flashcards
What are PPE?
Tangible items that are held for use in the production or supply of goods or services. Expected use more than one period.
When should PPE be recognised?
if it is probable that future economic benefits associated with the item will flow to the entity and the cost of the item can be measured reliably.
How is PPE capitalised?
At its cost
What are the journal entries when an entity recognises an item of PPE?
Dr Property, plant and equipment -cost. (economic resource–asset)
Cr Bank
What are the two accounting policies that can be applied to PPE?
cost model
revaluation model
What does the cost model entail?
after recognition of an asset, an item of PPE shall be carried at its cost less any accumulated depreciation.
What are the journal entires recorded when the depreciation charge on an item of PPE is recognised?
Dr P&L -depreciation charge
Cr - PPE -accumulated depreciation (decreasing value of an asset)
What is the straight line method?
Decide the depreciable amount by useful life. Constant charge of the useful life.
What is the carrying amount?
The amount at which an asset is recognised after deducting any accumulated depreciation.
What is the diminishing balance method?
We multiply the carrying amount of the asset by a constant percentage per annum.
Depreciable amount, useful life and residual value are incorporated in the percentage.
What happened if there is a change in the useful life or residual value?
The depreciation charge should reflect this.
The remaining depreciable amount should be depreciated over the remaining useful life!
What are additions?
Additional items of PPE capitalised during the period.
Additions will increase the depreciation charge for the period .
What are disposals?
Items of PPE that are sold or scrapped during the period and so must be removed from the nominal ledger.
When is a gain recognised on disposal?
if the carrying amount is less than the proceeds
When is a loss recognised on disposal?
if the carrying amount is more than the proceeds
