PPE Flashcards
What does PPE consist of?
tangible, non-current assets
PPE is held for the use in? (3)
- production of goods
- delivery of services
- for an administrative purpose
What is the only asset with an indefinite useful life?
Land
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
True
So how does the accounting system account for this difference between what the PPE cost and what it will be sold for?
“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
What is the residual value (RV)?
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
What is the depreciable amount (DA)?
COST less RV
What is the estimated useful life (EUL)?
The period over which the business expects the asset to be available for use.
Define depreciation
a systematic allocation of the depreciable amount (DA) of an asset over its estimated useful life (EUL)
What is the method of depreciation with an even charge over the EUL?
Straight line method
When does depreciation begin
When the asset is available for use
What is the adjusting journal entry for a depreciating asset?
DR Depreciation expense (P/L)
CR Accumulated depreciation: XXX (-A)
How does an item of PPE show indications of impairment? (2)
- Internal: damage, poor performance, a change to how it is used, etc.
- External: technological changes or other market forces adversely affect its value
How is PPE tested for impairment?
By calculating its recoverable amount (RA)
What are the two ways to get benefits from an item of PPE? (2)
- Use it
2. Sell/dispose it
So the recoverable amount is the higher of? (2)
- The value in use
- The fair value less costs of disposal
True or false, If the RA is lower than the current carrying amount the asset must be impaired
True
Give the adjusting journal entry for the impairment of PPE
DR Impairment loss (P/L)
CR Accumulated impairment: XXX (-A)
What does FVLCTS stand for?
The fair value less cost of sale
What is the REC AMNT?
The higher amount between either the value in use of the the FVLCTS
What is the impairment loss?
This the difference between the depreciable amount and the REC AMNT
What is the difference between depreciation and impairment?
Depreciation is caused by use and impairment is caused by an unexpected event
What is the JE for depreciation of PPE?
DR Depreciation expense (P/L)
CR Accumulated depreciation: XXX (-A)
What is the JE for impairment of PPE?
DR Impairment loss (P/L)
CR Accumulated impairment: XXX (-A)
