Non Current Assets Flashcards
What is PPE
Property Plant and Equipment
Define Property Plant and Equipment
- Tangible Assets
- Held for use in production/ supply of goods or services, for rental or administrative purposes
- Expected to be used for more than one period
What are the recognition criteria of a non-current asset in IFRS (IAS 16)?
- Probable that future economic benefits associated with the asset will flow to the entity
- And the cost of assets can be measured reliably
What is the initial measurement of PPE in SOFP?
- Should be initially recognised at Cost
What factors does the cost of PPE include?
- Purchase Price - discounts
- Import duties and non-refundable taxes
- Directly Attributable costs (cost of preparation, delivery, installation, assembly handling, testing and professional fees etc)
- Decommissioning costs
When does IAS16 not apply for non-current assets?
-When an entity constructs its own assets that are similar to its normal course of business eg. building company building it’s office
- Cost of the asset will only include cost of production
How are non-current assets that are exchanged instead of purchased recognised?
- Measured at fair value
- Unless the fair value cannot be measured reliably then the cost is measured at the carrying amount of the asset given up
When is subsequent spending on assets recognised in its price in the SOFP?
- When further expenditure improves the earning capacity of PPE
- Should be capitalised and added to the carrying amount
- New elements should be treated separately from depreciation costs,
When is additional spending for an asset recognised as an expense?
- Ongoing repairs, maintenance - costs of using assets are seen as an expense
What two models can be used for subsequent measurement of NCA after initial recognition?
- Cost Model
- Revaluation Model
What is the cost model of measuring asset
Asset carried at:
Cost - Accumulated depreciation - accumulated impairment losses
What is the Revaluation model?
Asset carried at:
Revalued amount (fair value) - Accumulated depreciation - accumulated impairment losses
Define Fair Value
Price that would be received to sell an asset or paid to transfer a liability between market participants at measurement date
If market value is not possible for a fair value, how can specialised items of PPE be measured?
Depreciated replacement costs (costs of an identical new asset - adjustments to reflect wear and tear of the current asset)
Define Depreciation
The result of the systematic allocation of the depreciable amount of an asset over its useful life
What is the depreciable amount?
The cost or revalued amount of an asset - Residual Value
Why are depreciation methods used?
To reflect the pattern in which the assets’ economic benefit is consumed by the entity
What are the entries in the journal for depreciation?
Debit: Depreciation Expense (SPL) ( recorded as cost of sale/admin expense/distribution cost)
Credit: Accumulated Depreciation (SOFP)
What are the examples of depreciation methods?
Straight line
Reducing Balance
Machine hours method
How is depreciation vaue adjusted?
Prospectively- By calculating the carrying amount of the assset at date usefule life/method changes and then depreciating this value using the new depreciation method
What is meant by derocognition
When asset (PPE) is withdrawn from use, solf or scrapped so is no longer an economic resource- removed from the SOFP
What are the steps of derecognition
- Remove asset cost/value
- Remove accumulated depreciation
- Record disposal proceeds
- Calculate gain or loss as balancing figure
How do you work out Carrying amount?
Cost - Accumulated Depreciation
When is revaluation carried out
To ensure carrying amount of asset is not materially different from it’s fair value
- all assets in same class should be revalues in order to prevent selective choice to inflate position
Where is gains from revaluation recorded on financial statements
- Revaluation Surplus
- Under other comprehensive income
- In SPL
What are the journal entries of revaluation
Dr: Asset Cost/Valuation (revalued amount - original cost)
Dr: Accumulated depreciation (to date)
Cr: Revaluation Surplus
What are the steps of revaluation
- increase asset cost/value to revalued amount
- Remove accumulated depreciation charged to date
- Record difference in revaluation surplus as a balancing figure
How do you depreciate revalued assets?
- Charged on revalued amount
- Most cases- depreciation charged will be higher
- Excess depreciation may be transferred from revaluation surplus to retained earnings
What happens to revaluation surplus when an asset is disposed
Remaining balance is transferred to retained earnings
What disclosures do IAS16 require following class of PPE
- Measurement Bases (of determining carrying amount)
- Depreciation Methods
- Useful lives/depreciation rate
- Gross Carrying amount
- Reconciliation
Acquisitions - Restrictions of title of assets
What is reconciliation diclosure
Reconciliations of the carrying amount at befinning and end of period with
- additions
- disposals and held for sale assets
- acquisitions
- increases/decreases during period from revaluations and from impairment losses
- imparirement losses recognised/ reversed in profit or loss
- depreciation
What other disclosures do revalued assets require
- Revaluation surplus
- Basis used to revalue
- Effective date of revaluation
- Whether independent valuer was involved
- Carrying amount of each class of PPE if they had not been revalued
