Non Current Assets

Question 1

What is PPE

Answer 1

Property Plant and Equipment

Question 2

Define Property Plant and Equipment

Answer 2

• Tangible Assets
• Held for use in production/ supply of goods or services, for rental or administrative purposes
• Expected to be used for more than one period

Question 3

What are the recognition criteria of a non-current asset in IFRS (IAS 16)?

Answer 3

• Probable that future economic benefits associated with the asset will flow to the entity
• And the cost of assets can be measured reliably

Question 4

What is the initial measurement of PPE in SOFP?

Answer 4

• Should be initially recognised at Cost

Question 5

What factors does the cost of PPE include?

Answer 5

1. Purchase Price - discounts
2. Import duties and non-refundable taxes
3. Directly Attributable costs (cost of preparation, delivery, installation, assembly handling, testing and professional fees etc)
4. Decommissioning costs

Question 6

When does IAS16 not apply for non-current assets?

Answer 6

-When an entity constructs its own assets that are similar to its normal course of business eg. building company building it’s office
- Cost of the asset will only include cost of production

Question 7

How are non-current assets that are exchanged instead of purchased recognised?

Answer 7

• Measured at fair value
• Unless the fair value cannot be measured reliably then the cost is measured at the carrying amount of the asset given up

Question 8

When is subsequent spending on assets recognised in its price in the SOFP?

Answer 8

• When further expenditure improves the earning capacity of PPE
• Should be capitalised and added to the carrying amount
• New elements should be treated separately from depreciation costs,

Question 9

When is additional spending for an asset recognised as an expense?

Answer 9

• Ongoing repairs, maintenance - costs of using assets are seen as an expense

Question 10

What two models can be used for subsequent measurement of NCA after initial recognition?

Answer 10

1. Cost Model
2. Revaluation Model

Question 11

What is the cost model of measuring asset

Answer 11

Asset carried at:
Cost - Accumulated depreciation - accumulated impairment losses

Question 12

What is the Revaluation model?

Answer 12

Asset carried at:
Revalued amount (fair value) - Accumulated depreciation - accumulated impairment losses

Question 13

Define Fair Value

Answer 13

Price that would be received to sell an asset or paid to transfer a liability between market participants at measurement date

Question 14

If market value is not possible for a fair value, how can specialised items of PPE be measured?

Answer 14

Depreciated replacement costs (costs of an identical new asset - adjustments to reflect wear and tear of the current asset)

Question 15

Define Depreciation

Answer 15

The result of the systematic allocation of the depreciable amount of an asset over its useful life

Question 16

What is the depreciable amount?

Answer 16

The cost or revalued amount of an asset - Residual Value

Question 17

Why are depreciation methods used?

Answer 17

To reflect the pattern in which the assets’ economic benefit is consumed by the entity

Question 18

What are the entries in the journal for depreciation?

Answer 18

Debit: Depreciation Expense (SPL) ( recorded as cost of sale/admin expense/distribution cost)
Credit: Accumulated Depreciation (SOFP)

Question 19

What are the examples of depreciation methods?

Answer 19

Straight line
Reducing Balance
Machine hours method

Question 20

How is depreciation vaue adjusted?

Answer 20

Prospectively- By calculating the carrying amount of the assset at date usefule life/method changes and then depreciating this value using the new depreciation method

Question 21

What is meant by derocognition

Answer 21

When asset (PPE) is withdrawn from use, solf or scrapped so is no longer an economic resource- removed from the SOFP

Question 22

What are the steps of derecognition

Answer 22

1. Remove asset cost/value
2. Remove accumulated depreciation
3. Record disposal proceeds
4. Calculate gain or loss as balancing figure

Question 23

How do you work out Carrying amount?

Answer 23

Cost - Accumulated Depreciation

Question 24

When is revaluation carried out

Answer 24

To ensure carrying amount of asset is not materially different from it’s fair value
- all assets in same class should be revalues in order to prevent selective choice to inflate position

Question 25

Where is gains from revaluation recorded on financial statements

Answer 25

• Revaluation Surplus
• Under other comprehensive income
• In SPL

Question 26

What are the journal entries of revaluation

Answer 26

Dr: Asset Cost/Valuation (revalued amount - original cost)
Dr: Accumulated depreciation (to date)
Cr: Revaluation Surplus

Question 27

What are the steps of revaluation

Answer 27

1. increase asset cost/value to revalued amount
2. Remove accumulated depreciation charged to date
3. Record difference in revaluation surplus as a balancing figure

Question 28

How do you depreciate revalued assets?

Answer 28

• Charged on revalued amount
• Most cases- depreciation charged will be higher
• Excess depreciation may be transferred from revaluation surplus to retained earnings

Question 29

What happens to revaluation surplus when an asset is disposed

Answer 29

Remaining balance is transferred to retained earnings

Question 30

What disclosures do IAS16 require following class of PPE

Answer 30

• Measurement Bases (of determining carrying amount)
• Depreciation Methods
• Useful lives/depreciation rate
• Gross Carrying amount
• Reconciliation
  Acquisitions
• Restrictions of title of assets

Question 31

What is reconciliation diclosure

Answer 31

Reconciliations of the carrying amount at befinning and end of period with
- additions
- disposals and held for sale assets
- acquisitions
- increases/decreases during period from revaluations and from impairment losses
- imparirement losses recognised/ reversed in profit or loss
- depreciation

Question 32

What other disclosures do revalued assets require

Answer 32

• Revaluation surplus
• Basis used to revalue
• Effective date of revaluation
• Whether independent valuer was involved
• Carrying amount of each class of PPE if they had not been revalued