IAS 16 PPE Summary PDF

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Summary

Definition Tangible asset that is: Held for production or supply of goods and services, rental to others or admin purposes Expected to be used for more than one reporting period Recognition Recognise when the asset definition is met and control transfers Specific assets require certain things to occ...

Description

Definition Tangible asset that is: •

Held for production or supply of goods and services, rental to others or admin purposes

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Expected to be used for more than one reporting period

Recognition •

Recognise when the asset definition is met and control transfers

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Specific assets require certain things to occur for control to transfer such as a deed transfer for land and buildings or when a vehicle is registered in the entity’s name

Measurement at initial recognition •

Measured at cost price less any refundable taxes and costs not included in cost price as per IAS16

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Cost includes the following: ▪

Purchase price

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Import duties

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Brokerage fees

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Legal expenses

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Costs directly related to bring asset to location and state fit for use as deemed by management

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*Any revenue from test products or test services reduces any testing costs*

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PV of costs to dismantle and rehabilitate environment or site forms part of cost

Subsequent Measurement Depreciation

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Depreciation begins from the date the asset is ready for use and ceases when the asset is ✓ Fully written off ✓ Derecognised ✓ Disposed ✓ Transferred to Non-Current Assets held for sale (IFRS 5)

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Depreciable amount = Cost – Residual Value

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*Revisions of residual value and useful life are applicable from the beginning of the year even if taken at the end*

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Carrying Amt = Cost – Acc Dep – Acc Impairment

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Depreciation methods ✓ Straight line = Depreciable Amount x % or Depreciable Amount / Useful life (if a change in residual value or useful life occurred use Carrying Amount / Remaining useful life) ✓ Diminishing Balance = Cost x % (Do not deduct residual amount use cost) ✓ Units of production = Depreciable Amt x Units this year / Total units expected

Derecognition and Disposal remains the same as 1st year Impairment of Assets ▪

As per IAS 36 impairment is recognised when carrying amt exceeds the recoverable amt

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The recoverable amt is the higher of fair value and value in use

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Future depreciation is calculated after impairment, but impairment occurs at a point in time therefore depreciation for the current year is unchanged unless impairment is at the beginning of the year

Losses and insurance compensation ▪

Loss and compensation are not set off against each other, separate items

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Remember VAT output on insurance if VAT Vendor

Component Approach ▪

If an asset has components which have significantly different useful lives they will be recognised separately, such as a plane engine and body

The Revaluation Model ▪

PPE in the revaluation model are carried at FV – Acc Dep – Acc Imp

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Process for revaluation: ✓ Find Fair Value: Either given or Calculated ❖ To calculate fair value: Depreciable Value of new similar asset x Depreciation rate (Calculation of depreciation as if you owned this asset for the same time as your current asset) Fair value = Value of new asset – Calculated depreciation ✓ Add back depreciation and impairment to cost amount i.e. Eliminate depreciation and impairment by setting it off against Cost ❖ Journals: DR Acc Impairment DR Acc Dep CR PPE ✓ Difference between carrying amount and fair value is the revaluation gain ❖ Journals: DR PPE CR Revaluation Gain (OCI) ✓ During the year the revaluation movement (OCI) will move to a reserve (SCE) *Movements = OCI *End of Year Balance = SCE ❖ Journals: DR Revaluation Gain CR Revaluation Surplus / Reserve ✓ A new depreciation amt must be calculated based on the new revalued amount using remaining useful life ✓ The reserve can be released in two ways either through use or at sale. The release through use is more common and is shown below: ❖ The amount released per year will either be: Revaluation surplus / remaining useful life

Significant changes in fair value Upward changes ✓ A new revaluation gain will be recognised by following the above steps Downward changes ✓ Any decreases in the fair value will first be set off against the balance of the revaluation surplus ❖ Journals: CR PPE DR Reversal of Revaluation Gain ✓ At the end of the year the reversal is set off against the reserve ❖ Journals: DR Revaluation Surplus CR Reversal of Revaluation

✓ If revaluation surplus is at 0 then revaluation impairment loss is recognised ❖ Journals: DR Revaluation Impairment Loss CR PPE DR Accumulated Revaluation Impairment CR Revaluation Impairment Loss *PPE Reval surpluses cannot have a negative balance •

Revaluation losses can be reversed in the same way gains are reversed...