Chapter 12 Flashcards
When should an asset be classified as a current asset?
- expected to be realized in, or is intended for sale or consumption in, the normal course of the entity’s operating cycle
- held primarily to be traded
- expected to be realized within 12 months after the reporting period
- cash or cash equivalent, unless it is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period.
When should an asset be classified as a non-current asset?
A non-current asset is not an asset with a long life. However, a non-current asset is an asset that the owner intends to use within the business over an extended period to assist their daily operating activities.
When is an item recognised as an asset in the statement of financial position?
When the item meets the definition of an asset and if the recognition provides useful information such that it results in relevant information about the asset being recognized and a faithful representation of the asset.
Which two elements does the criteria of recognition have?
Relevance and faithful representation.
When should biological asset be classified as PPE?
- is used in the production or supply of agricultural produce.
- Is expected to bear produce for more than one period.
- Has a remote likelihood of being sold as agricultural produce.
What is the definition of PPE? In terms of IAS 16.
Property, plant and equipment are tangible items that are held for use in the production or supply of goods and services, for rental to others or administrative purposes and are expected to be used during more than one period.
Where does IAS 40 deal with?
With tangible assets held for rental purposes.
When is the cost model for investment property PPE used and recognized as an asset if:
- Future economic benefits associated with the item will probably flow to the entity.
- The cost of the item can be measured reliably.
How should PPE be measured?
PPE should be measured at costs.
Which three components does IAS 16 specify which need to be included in the cost of the asset at initial measurements?
Purchase price, directly attributable costs of bringing the asset to its working condition and dismantling costs.
How do dismantling costs arise?
The dismantling costs arise from the obligation which is incurred when the asset is acquired or as a consequence of using the asset for purposes other than producing inventories.
Which costs are not included in the carrying amount of an item of PPE?
- administration and other general overhead costs
- costs incurred while the asset is capable of operating in the manner intended by management but has yet to be brought into use or is being operated at less than full capacity
- initial operating losses, such as those incurred while demand for the asset’s output is being established
- costs of relocating or reorganizing part or all of an entity’s operations
- costs of opening a new facility or costs of conducting business in a new location or with a new class of customer (including costs of staff training)
- costs of introducing a new product or service (including costs of advertising and promotional activities).
What is the principle of the costs that need to be included in the carrying amount of an item of PPE?
The costs should be directly attributable to costs and the recognition of costs should cease when the item of PPE is in the location and condition necessary for it to be capable of operating in the manner intended by management.
What is a major problem regarding depreciation?
Is to agree on what it is and what it is for.
What benefit do fixed tangible assets have regarding depreciation?
The benefit from fixed tangible assets is spread over several years. This means that the total expense for the asset’s life is spread over the total beneficial life in proportion to the pattern of benefit.
