Property, Plant and Equipment

Question 1

Define PPE:
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Answer 1

PPE are physical tangible assets: 
used in the production of goods and services
used in rentals to others
for administrative purposes
and for more than one period

Question 2

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Answer 2

It is probable that there would be inflow of economic benefits to the entity from the asset
the costs can be reliably measured

Question 3

Acceptable and unacceptable costs
Training cost for employees
Cost to clear site for the asset
Import duties
Cost of clean up
Cost of benefits to employees for set up of asset
Professional costs
Cost incurred before asset is at full capacity
Borrowing costs
Idle time cost
Cost of relocation/reorganization
Overhaul costs
Cost of testing the asset

Answer 3

Acceptable: 
Cost to clear site for asset
Import duties
PV of cost of clean up
Cost of benefit to employees for setup
Professional costs
Borrowing costs
Overhaul cost
Cost of testing asset (less revenue from sale of test)

Unacceptable:
Training cost for employees
Cost before asset is at full capacity
Idle time cost
Cost of relocation/reorganization

Question 4

Asset Exchange rules

• with commercial substance
• without commercial substance

Answer 4

With commercial substance: (a) cost of acquired asset is the FV of asset given up, except FV isn’t known or the costs can be switched like that, (b) cost of acquired asset is its own FV., except its FV isn’t known either…
Without commercial substance: Cost of asset acquired equals the carrying amount of asset given up.

Question 5

Principles of PPE (8)
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Answer 5

• Dep is an accrual technique of allocating depreciable amounts (Cost/Carrying Amount - Residual Value) over the useful life of an asset.
• Dep must be systematic and based on the pattern of the asset’s economic life and not its revenue generation.
• Useful life and Residual value are subjective, they should both be reviewed at the end of each reporting period
• Residual value is the amount obtainable for an asset at the end of its useful life, less selling costs.
• Dep formula; Straightforward method = (cost(carrying amount) - residual value) / useful life or reducing balance = (% of carrying amount) where % is 100/total useful life.
• An asset with components with different useful lives would depreciate the different economic lifetimes of the asset separately.
• After revaluation, the increase goes to OCI (items not to be recycled to the P/L) or to P/L if there was a previous write down. OR vice versa
• Revaluation surplus can be put in the retained earnings.