Module 3 Property Plant and Equipment Flashcards
What is the cost model accounting policy for PPE?
Under the cost model, after recognition of an asset, an item of PPE shall be carried at its cost less any accumulated depreciation
What is depreciation?
Depreciation is an expense, a cost that is systematically allocated to the cost of PPE (less residual value) over its useful life - this is dictated by accrual accounting
What is the depreciable amount?
This is the cost of an asset less its residual value
What is the straight line method?
This is depreciable amount divided by the useful life of asset
Straight line depreciation is a constant charge on the cost on asset over the useful life
When is depreciation recognised?
A full years charge is recognised in year of purchase
No charge is recognise in the year of disposal
What is the carrying amount?
PPE is presented on balance sheet at its carrying amount
This is cost less accumulated depreciation
What is the diminishing balance method?
The carrying amount (cost less accumulated depreciation) of an asset is multiplied by a constant percentage per annum
What happens when useful life or residual value changes?
The depreciation charge should change to reflect this and the remaining depreciable amount should be depreciated over the remaining useful life
What are additions?
These are additional items of PPE capitalised during the relevant financial period
Additions will increase the depreciable amount for straight line method and increase carrying amount for diminishing balance method
What are disposals?
Items of PPE that are sold or scrapped during the relevant financial period and so the cost and accumulated depreciation must be removed from the nominal ledger
The carry amount should be compared to the disposal value and determine if a gain or loss is made
What are the VAT rules with PPE?
Recognised exclusive of VAT (net amount capitalised)
One exception:
VAT on a lorry, van or other commerical vehicle can be recoverd if it is supplied to a registered person and it is used for purpose fo business
Company cars are recognised inclusive of VAT (gross amount)
