Non-Current Assets: Acquisition and Depreciation

Question 1

The Nature of PPE

Answer 1

their use for the future production of goods and services sets them apart from other assets

their future economic benefit will be received over two or more periods and the depreciable amount must be allocated in a systematic manner

Question 2

Cost of PPE

Answer 2

must determine the fair value of the cost of the items given up to acquire the asset

Question 3

Operating Lease

Answer 3

one where the lessor effectively retains substantially all the risks and rewards attaching to ownership of the leased asset

Question 4

Finance Lease

Answer 4

one where substantially all those risks and rewards are effectively transferred from the lessor to the lessee, even though legal ownership remains with the lessor

Question 5

Comparison of Depreciation Methods

Answer 5

the straight‐line method produces uniform charges to depreciation over the life of the asset

the benefits received from the use of the asset are assumed to be received evenly throughout the asset’s life

the units‐of‐production method produces depreciation charges that may vary significantly from one accounting period to another as the use of the asset varies

Question 6

Subsequent Costs

Answer 6

the initial cost and subsequent costs of an item of property, plant and equipment should only be recognised as an asset if future economic benefits are probable and the costs can be measured reliably

Question 7

Subsequent Costs: Leasehold Improvements

Answer 7

it is commonplace for the entity to incur additional costs to ensure that the asset is suitable for its own intended use

Question 8

Subsequent Costs: Spare Parts and Service Equipment

Answer 8

an entity’s supply of spare parts and/or service equipment for an asset may become redundant and should therefore be treated as a separate item of property, plant and equipment