PAS 16 Flashcards
What is PAS 16?
Property, Plant, and Equipment
What are characteristics of PPE?
a. Tangible assets – items of PPE have physical substance
b. Used in normal operations – items of PPE are used in the production or supply of goods or services, for rental, or for administrative purposes
c. Long-term in nature – items of PPE are expected to be used from more than a year
Give examples of items of PPE?
a. Land used in business
b. Land held for future plant site
c. Building used in business
d. Equipment used in the production of goods
e. Equipment held for environmental and safety reasons
f. Equipment held for rentals
g. Major spare parts and long-lived stand-by equipment
h. Furniture and fixture
i. Bearer plants
The cost of an item of property, plant and equipment shall be recognized as an asset only if:
a. it is probable that future economic benefits associated with the item will flow to the
entity; and
b. the cost of the item can be measured reliably.
An item of PPE is initially measured at its cost
Initial measurement
Elements of cost?
- Purchase price, including non-refundable purchase taxes, after deducting trade discounts and rebates.
- Costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by the management.
- Present value of decommissioning and restoration costs to the extent that they are recognized as obligation
Examples of directly attributable costs:
- Costs of employee benefits arising directly from the
construction or acquisition of PPE; - Costs of site preparation;
- Initial delivery and handling costs (e.g., freight costs);
- Installation and assembly costs;
- Testing costs, net of disposal proceeds of samples
generated during testing; and - Professional fees.
Recognition of costs in the
carrying amount of an item of PPE ceases when the item is _____________________________.
in the location and condition necessary for it to be capable of operating in the manner intended by management.
The cost of an item of PPE is the ___________________________ at the recognition date.
cash price equivalent
If payment is deferred beyond normal credit terms, the difference between the cash price equivalent and the total payment is recognized as _____________________________________________________________.
interest over the period of credit unless such interest is capitalized in accordance with PAS 23 Borrowing Costs.
Acquisition through exchange
- If the exchange has commercial substance, the asset received from the exchange is measured using the following order of priority:
a. Fair value of asset Given up
b. Fair value of asset Received
c. Carrying amount of asset Given up
If the exchange lacks commercial substance, the asset received from the exchange is measured at __________________________________________.
c. Carrying amount of asset Given up
Subsequent to initial recognition, an entity shall choose either:
as its accounting policy and shall apply that policy to an __________________.
(a) the cost model or
(b) the revaluation model
entire class of PPE.
__________ =
After recognition, an item of PPE is measured at its ________________________.
Cost Model
cost less any accumulated depreciation and any accumulated impairment losses.
the systematic allocation of the depreciable amount of an asset over its estimated useful life.
Depreciation
When computing for depreciation, each part of an item of PPE with a cost that is significant in relation to the total cost of the item shall be _______________________.
depreciated separately
Depreciation begins when the asset is _______________, i.e., when it is in the location and condition necessary for it to be capable of operating in the manner intended by management
available for use
Depreciation ceases when the asset is _____________ or when it is classified as “_______________” under PFRS 5, whichever comes earlier.
derecognized
held for sale
There are various methods of depreciation. The entity shall select the method that most __________________ the expected pattern of consumption of the future economic benefits embodied in the asset.
closely reflects
A depreciation method that is based on revenue that is generated by an activity that includes the use of an asset is________________ .
not appropriate
depreciation is recognized evenly over the life of the by dividing the depreciable amount by the estimated useful life of the
Straight line method
What is formula for depreciation in straightline method?
(Historical cost – Residual value) /
Estimated useful life
A change in depreciation method, useful life, or residual value is a change in accounting estimate accounted for ______________.
prospectively
Prospective accounting means the change affects only the _________________. The change does ______________ past periods.
current period and/or future periods
not affect
__________________ =
* After recognition as an asset, an item of PPE whose fair value can be measured reliably shall be carried at a ______________, being its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses.
Revaluation Model
revalued amount
Revaluation surplus formula:
Fair value* xx
Less: Carrying amo (xx)
Revaluation surplus – gross of tax xx
The ____________ is determined using an appropriate valuation technique, taking into account the principles set forth under PFRS 13.
fair value
____________________ =
- For items with significant and volatile changes in fair value, ____________ is necessary.
- For items with insignificant changes in fair value, revaluation may be made every _______________.
Frequency of revaluation
annual revaluation
3 or 5 years
Revaluation applied to all assets in a class
- If an item of PPE is revalued, the entire class of PPE to which that asset belongs shall be __________.
- The items within a class of PPE are revalued simultaneously to avoid _________________ of assets and the reporting of amounts in the financial statements that are a mixture of costs and values as at different dates.
revalued
selective revaluation
initially recognized in other comprehensive income unless the revaluation represents impairment loss or reversal of impairment loss, in which case it is recognized in profit or loss.
Revaluation
Subsequently, the revaluation surplus is accounted for as follows:
- If the revalued asset is non-depreciable, the revaluation surplus accumulated in equity is transferred directly to ____________ when the asset is derecognized.
- If the revalued asset is depreciable, a portion of the revaluation surplus may be transferred periodically to ______________ is being used.
retained earnings
retained earnings as the asset
The carrying amount of an item or PPE shall be derecognized:
a. on disposal; or
b. when no future economic benefits are expected from its use or disposal
