IAS 16

Question 1

recognition criteria of PPE-

Answer 1

-cost can be measured reliably
-future economic benefits will flow

Question 2

initial measurement of PPE, what all can be incudeD?

Answer 2

-anything that is involved in bringing the asset to it’s working condition
-cost of preparation, delivery, installation costs, borrowing costs
-fuel, training and warranty costs shud be expensed
-dismantling costs (at PV) shud be capitalised, and liablity shud be made at the same value.
then unwind discount of liability by adding to finance cost

Question 3

formula for discount factor?

Answer 3

1 / (1 + r)^n
r= interest rate given
n= time

Question 4

subsequent expenditure on PPE can be capitalized if?

Answer 4

-it enhances economic benefits (extending life, or increasing productivity)
-it’s related to an overhaul or required safety inspection. (these shud be depreciated over time until the next overhaul/inspection)
-it is a replacement part of an asset that has a number of parts, like a plane. all parts have diff lives. in this case the old component will be derecognised

Question 5

change in dep policy

Answer 5

-allowed only if new will give fairer presentation of co’ results
-dep policy change doesnt mean accounting policy change
-it means a change in accounting estimate

Question 6

review of useful lives and residual values

Answer 6

review at end of each reporting period and revise if significant difference

Question 7

two conditions if company wants to adopt revaluation model?

Answer 7

-must be regular to ensure there is no material difference
-must be done to the whole class of assets, cherry picking not allowed

Question 8

how is accounting done for a revaluation?

Answer 8

1) bring asset to new value
2) show increase in other comprehensive income, put in revaluation surplus , for loss deduct from surplus if it exists, and charge excess on I/S, as impairment
3) remove accumulated depreciation from PPE.

Question 9

how is depreciation accounted for after revaluation?

Answer 9

-new value - less scrap value / remaining useful life
-charge to sofp (apportion 12 months)
-extra depreciation may be transferred from retained earnings to revaluation surplus (dont show on OCI, show on SOCIE only)

Question 10

how is the disposal of revalued non current assets accounted for?

Answer 10

-calculated profit or loss: net sale proceeds- carrying amount
-profit or loss goes in PNL
-any balance on revaluation surplus shud be transferred to retained earnings

Question 11

What amount should PPE be measured at

Answer 11

Lower of carrying amount and recoverable amount (which is higher of value in use and FV less costs to sell)