Property Plant And Equipment Flashcards
Scope of IAS16
Apply the accounting for PPE except when another standard permits otherwise (e.g. asset held for sale)
applies to investment property carried on the cost model
Objective of ias 16
Accounting treatment of an entity’s PPE
Timing of recognition
Determine carrying amount
Determine depreciation and impairment losses
Property plant and equipment
Tangible items that are held for use in the production or supply of goods or services, for rental to others, admin purposes, and are expected to be used for more than one period
Recognition
Initial recognition
subsequent recognition
Recognition criteria
It is probable that future economic benefits associated with the item will flow to the entity and the cost of the item can be measured reliably
Recognition of safety and environmental costs
Do not directly increase the future economic benefits of existing PPE, but they are necessary to ensure that the entity obtains the future economic benefits from its other assets
Recognition of subsequent costs
Parts/components replaced regularly are recognised separately
Derecognise old parts when the replacement occurs.
Major inspection: recognise cost in the carrying amount of PPE
Initial measurement
Purchase price (includes import duties, non-refundable taxes, and excludes trade discounts)
Directly attributable costs
asset dismantling removal and restoration costs
borrowing costs on qualifying assets
Directly attributable cost definition
Costs that are necessary to bring the asset to the location and condition necessary for it to operate as intended by management
Examples of directly attributable costs
Cost to prepare the site
handling and delivery costs
installation and assembly cost
professional fees
cost of testing
Self-constructed assets
Costs that are directly linked to the construction of assets are capitalised onto the cost of assets
Examples of directly attributable cost for self-constructed assets
Direct labour
raw materials used
depreciation
overheads and fixed costs
Direct professional fees
Costs not included
Opening new facility
Introducing new products (ads and promos)
New location (staff training)
Administrative and overheads
Operating losses
Relocation
Deferred payment
PPE is initially measured at cash price equivalent
The difference between total deferred payment and cash price equivalent is interest
Measurement at fair value
When fair value of asset given up can be determined reliably and has commercial substance
Measurement at carrying amount
When they value of asset given up cannot be determined reliably and has no commercial substance
Commercials substance
Risks, timing, and amount of cash flows of the asset received differ from the asset given up
Entity specific value of the portion of the entity’s operations affected by the transaction changes
Components
Identify significant components
recognise significant components separately using recognition criteria
allocate cost to components
when replaced, derecognize old and recognise new
major inspections are capitalised
Measurement models
Cost model
Revaluation model
Cost model
Cost less accumulated depreciation and accumulated impairment losses
Revaluation model
Fair value at date of revaluation less subsequent accumulated depreciation and accumulated impairment losses
Depreciation
Systematic allocation of depreciable amount of an asset over the useful life
Depreciable amount
Cost less residual value
When do we begin depreciating
When the asset is available for use and continues until the asset is de-recognised, even if it is idle
Residual value is less than carrying amount
Useful life
The period an asset is expected to be available for use
Systematic allocation
The depreciation has to charge according to the methods and policies about those methods
Depreciation methods
Straight line
diminishing balance
units of production
Where is depreciation recognised
Charged to profit or loss
Common errors of depreciation
Wrong date
wrong remaining useful life
no apportionment
residual value not deducted for depreciation
residual value is deducted from the final carrying amount
Revaluation model approaches
Market approach
cost approach
income approach
Revaluation of non depreciable asset
If the carrying amount is increased through a revaluation, the increase is recognised in comprehensive income and accumulated in equity (OCI)
When do we derecognize an asset
Disposed of assets
no future economic benefits are expected from use or disposal of asset
Presentation and Disclosure
Statement of financial position: non-current asset PPE
Statement of profit or loss: depreciation, amortisation, and impairment losses
PPE note
