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ACC1006F: W05-W08 > PPE > Flashcards

PPE Flashcards

1
Q

What does PPE consist of?

A

tangible, non-current assets

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2
Q

PPE is held for the use in? (3)

A
  • production of goods
  • delivery of services
  • for an administrative purpose
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3
Q

What is the only asset with an indefinite useful life?

A

Land

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4
Q

True or false, once they’re no longer useful, all other classes of PPE will be sold for less than their cost, or simply scrapped

A

True

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5
Q

So how does the accounting system account for this difference between what the PPE cost and what it will be sold for?

A

“Depreciation” is charged over the period that the asset is used by the business, reducing the carrying amount in the SOFP, and creating an expense in the SOCI

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6
Q

What is the residual value (RV)?

A

It is the estimated selling price of the asset today if it were of the same age and condition as it will be at the end of it’s useful life, less estimated disposal costs

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7
Q

What is the depreciable amount (DA)?

A

COST less RV

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8
Q

What is the estimated useful life (EUL)?

A

The period over which the business expects the asset to be available for use.

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9
Q

Define depreciation

A

a systematic allocation of the depreciable amount (DA) of an asset over its estimated useful life (EUL)

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10
Q

What is the method of depreciation with an even charge over the EUL?

A

Straight line method

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11
Q

When does depreciation begin

A

When the asset is available for use

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12
Q

What is the adjusting journal entry for a depreciating asset?

A

DR Depreciation expense (P/L)

CR Accumulated depreciation: XXX (-A)

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13
Q

How does an item of PPE show indications of impairment? (2)

A
  1. Internal: damage, poor performance, a change to how it is used, etc.
  2. External: technological changes or other market forces adversely affect its value
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14
Q

How is PPE tested for impairment?

A

By calculating its recoverable amount (RA)

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15
Q

What are the two ways to get benefits from an item of PPE? (2)

A
  1. Use it

2. Sell/dispose it

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16
Q

So the recoverable amount is the higher of? (2)

A
  • The value in use

- The fair value less costs of disposal

17
Q

True or false, If the RA is lower than the current carrying amount the asset must be impaired

A

True

18
Q

Give the adjusting journal entry for the impairment of PPE

A

DR Impairment loss (P/L)

CR Accumulated impairment: XXX (-A)

19
Q

What does FVLCTS stand for?

A

The fair value less cost of sale

20
Q

What is the REC AMNT?

A

The higher amount between either the value in use of the the FVLCTS

21
Q

What is the impairment loss?

A

This the difference between the depreciable amount and the REC AMNT

22
Q

What is the difference between depreciation and impairment?

A

Depreciation is caused by use and impairment is caused by an unexpected event

23
Q

What is the JE for depreciation of PPE?

A

DR Depreciation expense (P/L)

CR Accumulated depreciation: XXX (-A)

24
Q

What is the JE for impairment of PPE?

A

DR Impairment loss (P/L)

CR Accumulated impairment: XXX (-A)

25
Q

Why is PPE impaired?

A

When the carrying amount > EB’s expected in the future

26
Q

What does IAS 16 state about PPE?

A

That PPE is initially measured at cost, but allows a choice for subsequent measurement

27
Q

What is the cost model?

A

Cost model: measurement = cost less accumulated depreciation less accumulated impairment

28
Q

What is the revaluation model?

A

Measurement = fair value (in 1st yr accounting this model is only applied to land)

29
Q

What are the revaluation model requirements? (3)

A
  1. Must be possible to reliably estimate fair value
  2. Revaluations must be done with sufficient regularity to ensure that the carrying amount is always close to the fair value
  3. Must revalue entire class
30
Q

What must the PPE: land account contain?

A

It must contain the highest measurement ever used

31
Q

What are increases in FV reported as?

A

Revaluation gains in OCI

32
Q

What are decreases in FV (if lost) reported as?

A

Revaluation losses in OCI

33
Q

What are decreases in FV (if < cost) reported as?

A

Impairment losses in P/L

34
Q

What are revaluation gains and losses closed off to?

A

They are closed off to revaluation surplus, an equity account reported in the SOFP

35
Q

What does the adjusting and closing entry look like for land that has grown R100 000?

A

DR PPE: Land 100 0000
CR Revaluation gain (OCI) 100 000

DR Revaluation gain (OCI) 100 000
CR Revaluation surplus (E) 100 000

36
Q

What does the adjusting and closing entry look like for land that has depreciated by R60 000?

A

DR Revaluation loss (OCI) 60 000
CR Accumulated impairment: Land (-A) 60 000

DR Revaluation surplus (E) 60 000
CR Revaluation loss (OCI) 60 000

ACC1006F: W05-W08 (9 decks)

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