T6 Non Current Assets

Question 1

What is IAS 16?

Answer 1

IAS 16 - Property, Plant and Equipment (PPE)

Question 2

When shoudl IAS 16 PPE be recognised?

Answer 2

Economic benefit Associated with the asset with flow into th entity. and costs can be reliably measured.

Question 3

What is the initial method?

Answer 3

DR Assets
CR Bank

Question 4

What can and can’t be included when initially recognising PPE?

Answer 4

All costs involved bring the asset to it’s present form or location. Delivery, Site preperation, installation costs
Dismantling costs - if you know how much it will cost when it gets dismantled in the future, you can include by working out the present value fo dismantling it.

Can’t include staff training fees.

Question 5

What is Historical cost accounting?

Answer 5

The asset stays the same price apart from if it gets enhanced then it goes up and less depreciation.

Question 6

What is and what is the difference between straight line depreciation and reducing balance?

Answer 6

Straight line is the simpler method you divide the initial amount by the economic life and deduct teh same every year.
Reducing balance takes the percentage of the net book value so it drops more at the beginning and less at the end. whereas straight line is constant throughout the assets economic life.

Question 7

What is a deprecition policy change an example of?

Answer 7

NOT - Accounting policy
YES - A change in an accounting estimate.

Question 8

What are the rules with Revaluation reserve?

Answer 8

you can have as high as you need credit balance in revaluation but not a debit balance it would have to go to impairment on the P&L if its a loss on assets but we clear teh revlaution account first.

Question 9

What would shareholder opinion by on a asset being revalued higher? and what can be done?

Answer 9

The higher the revaluation the higher the depreciation which lowers profits, what can be done is the excess depreciation can be taken out of revaluation and transferred to retained earnings so it does not affect the P&L

Question 9

Where does the credit go when including dismantling costs in to the initial cost of a NCA? and what happens in the future?

Answer 9

Provision of Dismantling costs.
We have to unwind the provision by adding back at the present value rate by DR Finance costs and CR teh provision so once the economic life is complete the provision should be at the original cost set.

Question 10

What is IAS 23? And what is it for?

Answer 10

IAS 23 - Borrowing Costs
Businesses will borrw money to buy assest to construct, if the borrowing costs meet the set out criteria, the business MUST CAPITALISE any finance costs.

Question 11

What is the criteria an asset must comply with where the finance costs MUST be CAPITALISED?

Answer 11

A qaulifying asset is one which takes a subtantial amount of time to get ready to use or sell.
Borrowing costs start to be capitalised once all of teh following are met :
Expenditure for the asset has started to be incurred.
Borrowing costs/ interest cosst have started to be incurred.
The construction on the asset has begun.

Question 12

How much of the finance costs can be capitalised?

Answer 12

If it is a specific loan where it is the only loan the business has for the asset then it is just the interest rate.
However, if the business has multiple loans for the project, as most do, we take the weighted average of all the loans.

Question 13

How to work out the weighted average of the how much to capitalise when a business has multiple loans?

Answer 13

( (Loan 1 x Loan 1 Interest) + ( Loan 2 x Loan 2 Interest) ) /Total loans

Question 14

When should borrowing be no longer capitalised?

Answer 14

If the construction has suspended temporarily, if you are still incurring costs, they go to the P&L.
The Asset has been constructed and ready for use of sale.

Question 15

What is IAS 20?

Answer 15

Accounting for government grants and disclosure of government assistance

Question 16

What is a governement grant?

Answer 16

Assistance by governement in the form of a transfer of resources in return for future or past compliance.

Question 17

What is Governement assistance?

Answer 17

Receive money as along as we meet certain condition, if we dont we may have to pay the grant back.

Question 18

When should a grant be recognised?

Answer 18

When the entity agrees to the conditions attached to the grant and when the grant is received.

Question 19

What are the two types of grants? and how to account for them?

Answer 19

Capital grant - to help toward purchasing a new asset. you account for this with two methods.
Revenue grant - Spending revenue items e.g employing need staff and advertising.

Question 20

What are the methods to account for Capital grants?

Answer 20

Method one is Deferred Income - We record the asset as normal and we set up deferred income account for the grant so we can release the income over the useful life of the asset so we dont have a massive increase in income in one year.
Method 2 - We deduct the grant off the net book value of the asset and depreciate at the new asset value.

Question 21

What are the methods to account for Revenue grants?

Answer 21

We would place the grant in deferred tax and then each year of the grant terms we would place a proportion in the P&L either with its own code or against the related expense

Question 22

What is IAS 40?

Answer 22

IAS 40 - Investment Properties

Question 23

What are the two subsequent models used to account for investment properties?

Answer 23

Historical cost model - The asset stays the same price apart from if it gets enhanced then it goes up and less depreciation.
Fair value model - Same as IAS 16 apart from any gains or losses on the revaluation of the investment property are taken directly to the P&L (Not revaluation reserve like IAS16) and there is no depreciation

Question 24

How to transfer an investment property to PPE?
How to transfer an PPE to investment property?

Answer 24

Up until the date of transfer, treat under the old standard and depreciate as normal. Transfer the investement at ist carrying amount and depreciate at the new rate.
Same as before unless is the Fair value model is being used then asset need revaluing before being transferred to rid of any depreciation and also the revaluation reserve need to be included.