PPE Flashcards
PPE definition criteria
- Held for use in production/supply of goods/services, for rental to others, or for admin purposes.
- Are expected to be used during more than one period.
PPE recognition criteria
- Probable future economic benefits
- Cost can be reliably measured
Costs to include
- All costs to acquire, construct, and bring the asset to its location and condition necessary for use.
- Purchase price, import duties, non-refundable taxes, after deducting discounts and rebates
- delivery
- installation
- testing
Exclude: training, general maintenance
Once asset is available for use, any costs going forward are excluded.
Costs attributable to land
Directly attributable costs -> land.
- Commissions
- legal fees
- title search
- property transfer taxes
- costs to bring land to usable state: removal of old buildings
Land and building - costs must be allocated separately based on FMV
Costs to include for assets being constructed
all directly attributable costs of the construction
- contruction permits
- site survey costs
- construction costs including labour, direct mgmt salaries, and materials
- direct borrowing costs incurred to finance the construction (ASPE has the option)
- professional fees
Spare parts…
Spare parts that are immaterial and short life span -> inventory
Major spare parts -> PPE
Straight-line
Cost - residual value )/ useful life
Declining balance method
assumes that the benefit derived from the asset is higher in its initial years and less as the asset ages
Depreciation = dep rate * cost of asset
Subsequent years: dep rate * NBV
Units of production method
Matches the cost of the machine wiht the benefit that is derived from the machine by allocating the cost in proportion to the fraction of production capacity used
First: estimate the total units that will be generated by the machine over its estimated useful life
Per unit depreciation rate = (cost - residual value) * total estimated # of units
Depreciation = # of units in period * depreciation rate
Revaluation model
Only available under IFRS
Assets are recorded at fair value, still depreciated
must be applied to each CLASS of assets
FMV must be reliably measured in order to use this method. if not, use cost method.
Revaluations should be done regularly
How to account for gains/losses: revaluation model
Gain recorded in p/l , only to the extent of losses previously recorded
Remaining gain -> OCI
Loss recorded in OCI, only to the extent of gains previously recorded
Remaining loss -> p/l
Betterments (ASPE)
- costs incurred that enhance the service potential of an item of PPE
Service potential is enhanced when:
- Increase in physical output/capacity
- Operating costs are lowered
- Useful life is extended
- Quality of outputs improved
