Non-Current Assets Flashcards
What is IAS 16 NCA?
Property, plant and equipment
What is IAS36 NCA?
Impairment of assets
What is IAS16 PPE?
Property, plant and equipment are tangible items
held by entity for use in the production or supply of goods or services
for rental to others
or for administrative purposes
AND
are expected to be used during more than one period
How do you recognise an asset?
Carrying amount
The amount at which an asset is recognised, after deducting any accumulated depreciation and impairment losses – net book value
Recognise when:
Probable that future economic benefits will flow to the entity
Cost of the asset can be measured reliably
Measurement at initial recognition:
Cost = purchase price
plus directly attributable costs to bring asset to location and condition necessary for it to be capable of operating
plus estimated costs of dismantling and removing item and restoring site where obligation exists to do this.
What is additional PPE expenditure?
Capitalisation when:
Expenditure improves the future economic benefits the asset will generate
Replaces a component of an asset and the carrying amount of the component replaced is derecognised
Is the cost of a major inspection for faults and the carrying amount of the previous inspection is derecognised
What are the types of depreciation and how do they affect assets?
Systematic allocation of depreciable amount over life of asset
Depreciable amount - Cost/ valuation less residual value
Only general exception to depreciating an asset is LAND (infinite useful life)
N.B. Buildings have a FINITE useful life, so ARE depreciated
Repair and maintenance does not negate need to depreciate
If residual value > carrying value, depreciation charge is zero
Methods -Straight line or reducing balance
An asset was purchased three years ago for £50,000 at which time it was thought that the asset had a residual value of £5,000 and a useful economic life of ten years. The directors have decided that as a result of using the asset more than was originally planned the remaining useful economic life is only five years as at 1 July 2018. Their estimate of residual value has remained unchanged. The asset is depreciated on the straight line basis.
Calculate the depreciation charge for the year ending 30 June 2019 in respect of this asset.
Original depreciation based
cost – residual value/ useful life = £50000- £5000 / 10 = £4500 pa
Asset depreciated 3 years change of useful economic life(UEL) carrying value
cost £50000 – (3 x 4500) = £36500
Carrying value of SOFP used to recalculate depreciation
Carrying value – residual value/ useful economic life = £36500-5000/5 =£6300pa
What is revaluation?
Revalued amount = Fair value at date of revaluation
Fair Value usually market value
Write off accumulated depreciation at date of revaluation to revaluation reserve
Depreciation calculated on revised amount
Frequency revaluation dependent on volatility / requires professionally qualified valuation
What are the steps to account for revaluation?
Restate asset cost to the revalued amount
Remove any existing accumulated depreciation
Transfer the increase in the cost account and the existing accumulated depreciation to the revaluation surplus account within equity
Recalculate current year’s depreciation on the revalued amount
How do you calculate up-ward revaluation?
DR Asset cost (revalued amount-original cost)
DR Accoumulated depreciation (depn up to revaluation date)
CR Revaluation surplus
Revaluation surplus in the equity section of SOFP
What is revaluation reserve transfer?
Permitted to transfer an amount equal to the excess annual depreciation from the revaluation reserve to retained earnings each year.
Double entry:
DrRevaluation reserve
CrRetained earnings
EG:
Annual depreciation before revaluation = £2,000
Annual depreciation after revaluation = £3,000
Double entry:
DrRevaluation reserve £1,000
CrRetained earnings £1,000
Transfer seen in SOCIE
How do you calculate downwards revaluation after a previous upwards revaluation?
DR Revaluation surplus (only to reverse previous revaluation)
DR P/L (with excess once revaluation increase is reversed)
CR PPE-Cost account
Any revaluation made that affects revaluation reserve shown on SOPL as other comprehensive income.
How do you calculate a downwards revaluation then an upwards revaluation?
Downwards Reduce cost to reflect new FV and reverse accumulated depreciation AND charge the change immediately to p/l. Dr P/L DR Accumulated depreciation CR Asset cost Example: cost 100,000 Accumulated depn 20,000 Revaluation down to 60,000 DR P/L 20,000 DR Accum depn 20,000 CR Asset cost 40,000
Then upwards:
Increase asset cost , reverse charge to P/L then show excess in revaluation reserve.
DR Asset cost
DR accumulated depn
CR P/L
CR Revaluation surplus
Cost 50,000
Accumulated depn 10,000
Revaluation to 70,0000
DR COST 20,000
DR Accum. Depn 10,000
CR P/L 20,000
CR Revaluation reserve 20,000
What are retirement/ disposals?
Retirement / disposals
Eliminate on disposal or permanently withdrawn from use
Record gain/(loss) = Net disposal proceeds – carrying value
If asset has been revalued in the past it still has unrealised gain in revaluation surplus.
Transfer this from revaluation surplus to retained earnings in SOCIE.
Under IAS16 Requirement to disclose detailed movement of each class of PPE
Taker’s Ltd originally purchased a piece of land on 01/01/05 for £100,000. On the 31/12/06 the land was revalued to £150,000.
The land was sold for £180,000 on 31/12/11
Calculate the profit or loss on disposal to be shown in the statement of profit or loss and any revaluation adjustments that need to be made.
When the land was re valued the entries would be made as follows: Asset increased in value from £100,000 to £150,000.
Dr Asset - Cost £50,000
Cr Revaluation reserve £50,000
When the asset was sold the carrying value was £150,000
The gain on disposal would be £30,000 (£180,000 -£150,000)
Dr Bank 180,000
CR Land 150,000
CR P/L 30,000
Release revaluation surplus to retained earnings:
Dr Revaluation reserve £50,000
Cr Retained earnings £50,000
