NCA-PPE Flashcards
Learn about PPE
When can you recognize PPE into the accounts?
1) When it is probable - bring you money/brings you economic benefit
2) When you can control
3) When there is a reliable measure - without this, how do you know how much to bring?
What gets included in PPE cost?
1) Purchase Price - what you pay for it
2) Directly attributable cost - only paid if you are using the asset
3) Future cost- never include future cost, only include the Present value
How do you calculate the Future cost in PPE? - Include double entry
1) Calculate Present Value - DR PPE CR Liability
2) Unwind the discount DR Interest CR Liability
3) End of year - DR Liability CR Cash
How can we recognize PPE during year end?
1) Using Cost model ( Cost - Depreciation)
2) Revaluation Model
Using Revaluation model, how often do we have to revalue and which assets get revalued?
Revalue regularly (3-5 years) We revalue the entire class of assets.
If we sell the asset, state the double entry including if there is a difference between PPE cost and how much we sold it for?
DR Cash, CR PPE, CR I/S
Would the revaluation surplus reserve go to I/S if we dispose of a revalued asset
No, it would go to Retained earing and it will not be transferred to the income statement
In regards to impairment, if the Value in Use was 100 and Fair value - Cost of sales was 110, what will be the recoverable amount?
FV-CTS because we choose the highest value between FV-CTS and Value in use.
If PPE cost was 130 and FV-CTS was 110 and VIU 120, what will be the impairment and other than SFP, where else would the impairment be in?
Impairment will be 10 because Recoverable amount should be higher of which in this case, it is 120.
DR P/L CR SFP
What is an impairment?
Impairment occurs when the recoverable amount of the assets is lower than its carrying amount. Therefore recoverable amount is the higher of (1)Value in Use (2) FV-CTS
What is Value in use?
It is the net cash flow over the next 5 years and they are based on current conditions of the asset and are discounted to PV using an appropriate discount rate to reflect time value
What is Cash generating unit?
These are combined group of assets that generate income for that business
What is the order of impairment in CGU?
1) Reduce any goodwill allocated to the CGU
2) Reduce the assets of the unit pro rata
What are the indicators of impairment?
1) Losses/Worse economic environment
2) Market Value declines
3) Obsolscence or physical damage
4) Changes in technology,markets,economy or laws
5) Increases in market values
6) Losses in key employees
7) Re-organising/Restructuring
