Tangible non-current assets

Question 1

PPE measurement at acquisition

Answer 1

All PPE are initially recognised at cost, cost includes:

Price (less discounts, import duties and excl. VAT)

Directly attributable costs of bringing asset to location and condition necessary to operate (includes site prep, delivery costs, installation, testing)

Estimated dismantle / restore to site cost

Finance cost which qualify for capitalisation

Question 2

PPE capitalisable costs

Answer 2

Regular interval replacements are known as “Complex assets” i.e. a furnace which requires relining after X many hours. These subsequent costs are capitalizable.

Day to day servicing costs such as repairs and maintenance are not capitalised and are put to expense.

Question 3

PPE measurement after acquisition

Answer 3

After initial recognition at cost the entity must choose either the cost or the revaluation modes:

Cost: PPE carried at cost less depreciation and impairment losses

Revaluation: Fair value less subsequent depreciation and impairment

Question 4

Depreciation - Straight Line and Reducing Balance

Answer 4

Straight Line = (Cost-residual value) / Useful life

Reducing balance = % depreciation rate x NCA

Question 5

Investment property valuation

Answer 5

Either value as a normal non-current asset or

Fair value which is revalued each year end, any gain/losses are recognised in P&L (depreciation not charged)

Question 6

How to calculate impairment of assets

Answer 6

Occurs if carrying amount is greater than recoverable amount, where the recoverable amount is the higher of:

Fair value - less cost of disposal. Or
Value in use (present value of the future cash flows that the asset is expected to generate)

Reconsidered annually

Question 7

Causes of impairment

Answer 7

External:
Fall in market value
Recession
Increase in market interest rates that reduces value in use

Internal:
Obsolescence or physical damage
Asset not used as much any more
Asset performance worse than expected

Question 8

Dr and Cr’s of impairment

Asset carried at historical cost

Revaluation

Answer 8

Historical cost:
Dr (P&L) depreciation
Cr (SFP) NCA

Revaluation
Dr (SFP) revaluation reserve
Dr (P&L) depreciation
Cr (SFP) NCA

Question 9

Reversing impairments

Answer 9

Impairments can be reserved excepted if the asset is goodwill

Question 10

NCA “held for sale” definition and criteria

Answer 10

An asset is ‘held for sale’ if the entity plans to recover its value by selling it rather than using it in the business.

To be classified as ‘held for sale’ it must meet the following:

SALE!
Seeking a buyer 
Available for immediate sale in present condition 
Likely it will be sold 
Expected to sell within 1 year

Question 11

“Held for sale” process post classification

Answer 11

Depreciate up to date of classification and revalue

Remeasure at lower of carrying amount and fair value less selling cost. Any loss is recognised in P&L.

Present as seperate classification of asset in SFP, plus move to current assets from NCA)

Cease depreciate from classification date