SU7 - Property Plant & Equipment Flashcards
How is PPE presented in financial statements?
Shown as carrying amount, which is equal to historical cost minus accumulated depreciated and impairment losses.
When does depreciation start on PPE?
when PPE are placed in operation and begin to contribute economic benefits.
As an example, for a vehicle, what is the difference between the costs of replacing an engine versus the costs of ordinary repairs on the vehicle?
The costs of the engine repair are capitalized, and therefor increase in the carrying amount of the vehicle ( because it improved the future service potential of the asset). And the ordinary repairs are simply expensed for the period.
Layout the two step impairment test for assets.
Recoverability test. The carrying amount of a long-lived asset to be held and used is not recoverable if it exceeds the sum of the undiscounted future cash flows expected from the use and disposition of the asset.
Determination of an Impairment Loss
1. Events or changes in circumstances indicate a possible loss
2. Carrying amount > Sum of undiscounted cash flows
3. Loss = Carrying amount – Fair value