Non Current Assets Flashcards
Would an asset held under a lease agreement be recognised as an asset on that entity’s BS?
Yes, PPE is recognised when the future economic benefits are enjoyed by that entity.
There are some exceptions of leases that would not be classified as assets
Should replacement parts of assets be capitalised?
Yes, provided the original cost of the item they replace is derecognised.
e.g replacing an engine
This is distinct from repairs and renewals that would not be capitalised
How would you deal with an asset that was purchased and required to be inspected every 6 months?
The cost of the asset would be capitalised and depreciated over its useful life
The cost of the inspections will be capitalised and depreciated over the next 6 months, until the next inspection when the cost will again be capitalised and depreciated over the length of time the inspection covers
Which of the following costs should be capitalised?
- Reorganisation costs
- Initial estimates of dismantling
- Site restoration costs
- Site preparation costs
- Costs of introducing new products
- Costs of conducting business in a new location
- Administration and general overheads
- Installation and assembly costs
- Testing costs
- Design error costs
- Servicing costs
Capital costs
- Initial estimates of dismantling
- Site restoration costs
- Site preparation costs
- Installation and assembly costs
- Testing costs
Not included in capital costs
- Reorganisation costs
- Costs of introducing new products
- Costs of conducting business in a new location
- Administration and general overheads
- Design error costs
- Servicing costs
When constructing a new asset, when should capitalisation of costs cease?
When the item is CAPABLE of operating in the manner intended
Even if it is not actually used then
How are inspection costs treated differently to expected dismantling costs?
Inspection costs are only capitalised when incurred, and released going forward until the next inspection. Dismantling costs are capitalised in advance and depreciated over the assets life
What constitutes a directly attributable borrowing cost?
Where funds from loan capital finance the construction of the asset. These form part of the asset whilst other borrowing costs are treated as an expense
How do you capitalise specific funds borrowed for the production of an asset?
( Funds * interest rate ) - less any interest income earned = cost to capitalise
When do you need to calculate a weighted average cost of borrowing
When the cost of constructing an asset has been funded by different sources of borrowing
How do you calculate the weighted average cost of borrowing?
Interest * (loan / total loans) = %
do this for each loan, then the summed % is applied to the borrowed amount to give the weighted average cost of borrowing
When should capitalisation commence?
When all three of the following conditions are met;
- The entity incurs expenditure for the asset
- The entity incurs borrowing costs for the asset
- The entity prepares the asset for sale (construction, plans for construction, obtaining planning permission)
a) What is the cost model
b) What is the revaluation model
c) Is the choice of model an accounting estimate or policy?
a) PPE is measured at cost less depreciation
b) PPE is measured at its revalued amount; FV
c) the choice of model is an accounting policy choice and thus should be applied across a whole class
When the useful economic life of an asset changes, how do you calculate depn
CA - residual value / useful economic life
whereas normally its cost - residual value
Is a change in depreciation policy an accounting policy change or a change in accounting estimate?
Change in accounting estimate - CA is depreciated under the new method
a) List the journal for revaluing P&M upwards where there has been no prior devaluations
b) List the journal for revaluing P&M upwards (of 35,0000) when there has been a prior devaluation in the P/L (of 10,000)
c) List the journal for revaluing P&M downwards (of 35,0000) when there has been a prior revaluation gain in the OCI (of 10,000)
a)
DR Asset
DR Acc dep
CR Reval surplus (OCI) w/ balance
b)
DR Asset 35,000
CR P/L 10,000
CR reval OCI with balance 25,000
Revaluation losses in the P/L are reversed before taking gains to the OCI
Gains hit OCI first unless there has been a prior P/L devaluation that needs to be eliminated
c)
CR Asset 35,000
DR Reval OCI 10,000
DR P/L with balance 25,000
When there is a revaluation loss following a previous revaluation gain, the Reval gain in OCI is eliminated before P/L expense incurred
Losses hit P/L first unless there is a prior OCI gain that needs to be eliminated
Impairment losses follow the same treatment
