PPE (ASPE 3061 & IAS 16) - Final exam key concepts PDF

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Final exam key concepts...

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Issue: Costs incurred classified as PPE? How much to recognize? (all, some or none) 1. 2. 3. 4.

Initial recognition – criteria Subsequent measurement- criteria Effects of capitalizing ASPE vs IFRS

PPE: Long-lived tangible assets Asset: control of resource, generates economic benefits, reliably measured PPE Asset Criteria: a. are held for use in the production or supply of goods and services, for rental to others, for administrative purposes or for the development, construction, maintenance or repair of other property, plant and equipment; b. have been acquired, constructed or developed with the intention of being used on a continuing basis; and c. are not intended for sale in the ordinary course of business. PPE = physical substance Intangible = without physical substance Inventory: held for sale, in production for the purpose of sale, to be consumed

Subsequent costs to PPE Repairs/Maintenance = expensed Capitalize subsequent costs if the cost enhances the service potential Increase in quality or quantity of output, increase in useful life, decrease in operating costs Any directly attributable costs (acquisition, construction, development, preparation costs) Capitalize = depreciation

IAS 23: Borrowing cost, such as interest, and other financing costs to get funds to acquire or develop the PPE item are capitalized. Under ASPE you have the option to expense or capitalize.

Impact from capitalizing Positive impact to both IS and BS (increase in NI as less expenses and increase in total assets) Depreciation recognized on capitalized items. Future earnings decreases IS later from depreciation expense (cost/useful life)

ASPE vs IFRS ASPE: sub .16 Cost model Borrowing = capitalize or expense Depreciation = greater of cost – residual value / useful life cost – salvage value / life of asset IFRS Cost model or revaluation model Borrowing = capitalize Depreciation = cost – residual value / useful life...