Property, Plant and Equipment

Question 1

PPE defintion

Answer 1

tangible asset with future benefit greater than 1 year and held to produce goods/services to others

Question 2

Residual value

Answer 2

proceeds - disposition costs

Question 3

Salvage value

Answer 3

assumes end of life and value as scrap

Question 4

Asset life

Answer 4

the estimated length of time the asset will last

Question 5

Useful life

Answer 5

period of time that the asset produces economic benefit to the company

Question 6

PPE is recognized when:

Answer 6

1) probable future economic benefit
2) cost of item reliably measured

Question 7

PPE measurement

Answer 7

1) purchase price
2) directly attributable costs (borrowing costs capitalized under IFRS, and choice under ASPE)
3) decomisioning costs and asset retirement obligations

Question 8

Componentization

Answer 8

• the idea that some parts of the PPE have shorter UL than others
• should group all parts with similar UL together
• this is required under IFRS and ASPE
• think of a plane; the different parts have different UL

Question 9

Methods of depreciation

Answer 9

1) SL method
2) declining balance
3) units of production
- there is options to: Pro-rate depreciation based on days in year, take half year depreciation in the acquired year, and no depreciation on disposal year

Question 10

SL method

Answer 10

• cost - NRV / Est UL
• however under ASPE, it is the greater of the above and Cost - SV / asset life

Question 11

Declining balance method

Answer 11

• cost x depreciation rate (rate determined by management)
• based on the idea that benefit is higher in initial years

Question 12

Units of Production method

Answer 12

• Units produced by machine during year x per-unit depreciation rate
• Per unit depreciation rate = cost - NRV / estimated total units to be generated over UL

Question 13

Subsequent measurement

Answer 13

• cost and depreciation each year (IFRS and ASPE)
• revaluation model: FMV and depreciation each year based on FMV (IFRS only)

Question 14

Revaluation method requirements

Answer 14

• must be applied to all assets in the class
• FMV must be reliably measured
• valuations must be done regularly, as revaluation is required when material difference is identified

Question 15

Revaluation journal entries

Answer 15

• When increase to FMV: 1) record to NI to the amount of losses previously recorded, 2) record the remaining gain to OCI
• When decrease to FMV: 1) record to OCI, to the amount of gain previously recorded to OCI, 2) record the remaining gain to NI

Question 16

Asset adjustment under revaluation method

Answer 16

• Elimination method: set acc. dep back to 0 and adjust asset value to FMV
• Proportional method: adjust cost and acc. dep to net to the new value of the FMV

Question 17

Betterment costs

Answer 17

• costs to enhance service, capitalized and depreciated accordingly with the asset
• physical output increase, service capacity increase, lowered operating costs, extended useful life, quality increase