Set 1 - FR Chapter 6 - PPE Flashcards
What two criteria must be met for assets to be capitalized as PPE?
- probable that future economic benefits will flow to the entity.
- can be measured reliably
What costs are capitalized?
costs incurred to point asset available for use. includes:
- purchase costs, duties, unrecoverable taxes net of discounts and rebates
- costs to bring asset to location and condition for use
- major inspection costs
- major spare parts
- standby or servicing equipment
- dismantling, removal and restoration costs
Are sales taxes (GST/HST) capitalized?
No because they are refundable as ITC’s
Are ongoing maintenance and training costs capitalized? Are there any exceptions?
No, except when something like regular inspections occur. When each major inspection occurs, its cost is recognized as the carrying amount of the item of PPE. The remaining carrying amount of a previous inspection is then derecognized.
Explain componentization
When assets have the same length of use, they can be combined together, such as computers. If parts of an asset have different useful lives (such as fuselage on a plane) they need to be separated and depreciated at different rates.
What can be capitalized during construction of a building?
- construction permits
- site survey costs
- construction costs, including direct management salaries, labour and materials
- direct borrowing costs incurred to finance construction until occupation permit is obtained (IFRS ONLY - NOT ASPE, it is OPTIONAL UNDER ASPE)
- professional fees
Are all standby equipment capitalized? If not, how is this differentiated?
No. Immaterial items are classified as inventory. Large items which have value for longer than a year are capitalized, but ONLY when they are available for use.
Name the 3 methods of depreciation
Declining balance
Straight-line
Units of production
What are the 3 options for depreciation in year of acquisition and disposal?
- pro rate based on days in the year
- take half dep in year of acquisition
- take no dep in year of disposal
Straight-line depreciation calc for IFRS
Cost - residual value / useful life
Define residual value. How often should this be assessed? How is this treated when there is a change in value?
proceeds of sales less disposition costs
Annually, along with useful life of asset
Prospectively as a change in estimate
Define salvage value
assuming end of life and value as scrap
Define units of production method
Determine total units assumed to be produced. Determine cost - residual price. Allocate based upon useful life.
Under IFRS, there is a choice between cost and revaluation method. When an asset is increased, a gain occurs. How is this accounted for?
Gain is first recorded to net income, up to the amount of losses previously recorded to net income as a result of revaluations
Remaining gain goes to OCI
When an asset is decreased, a loss occurs. How is this accounted for?
Loss first recorded to OCI up to amount of previous gains
Remaining amount to net income
