IAS 16

Question 1

What is the definition of Property, Plant and Equipment (PPE)?

Answer 1

Tangible items used in business that are expected to be used for more than one year.

Question 2

What are the two conditions to recognise PPE?

Answer 2

Probable future economic benefits AND cost must be measured reliably.

Question 3

How is PPE Initially measured

Answer 3

at cost

Question 4

What is included in the initial cost of PPE?

Answer 4

Purchase price, delivery, installation, site prep, testing,dismantling and restoration costs.

Question 5

Give 3 examples of directly attributable costs for PPE.

Answer 5

Site prep, delivery, installation, testing.

Question 6

What other cost may be added under IAS 37?

Answer 6

Cost to dismantle and restore the site (if required).

Question 7

What is a “qualifying asset”

Answer 7

asset which takes substantial amount of time to get ready for use

Question 8

What about finance costs on construction?

Answer 8

Finance costs must be capitalised if the asset takes time to be ready (IAS 23).

Question 9

When do you start and stop capitalising borrowing costs?

Answer 9

Start when spending and work begin; stop when asset is ready.

Question 10

How do you calculate capitalised borrowing costs using general borrowings?

Answer 10

Step 1: Avg rate = [(Loan1 × Rate1) + (Loan2 × Rate2)] ÷ Total borrowings

Step 2: Capitalised interest = rate × asset expenditure

Question 11

How do you calculate the weighted average interest rate on general borrowings?

Answer 11

Weighted Avg Rate = (Total Interest Expense ÷ Total Borrowings)

Question 12

Are maintenance costs capitalised?

Answer 12

No, regular maintenance must be expensed.

Question 13

What are the two models for valuing PPE after purchase?

Answer 13

Cost model and revaluation model.

Question 14

What is the cost model?

Answer 14

Keep cost minus depreciation and impairment.

Question 15

What is the revaluation model?

Answer 15

Use fair value minus depreciation and impairment.

Question 16

What is fair value?

Answer 16

The price to sell the asset in an orderly market.

Question 17

How often must assets be revalued?

Answer 17

As often as needed to reflect fair value accurately.

Question 18

What must happen if one asset in a class is revalued?

Answer 18

All similar assets in that class must be revalued too.

Question 19

What happens if the value increases on revaluation?

Answer 19

It goes to Other Comprehensive Income (OCI) and revaluation reserve.

Question 20

What happens if the value decreases?

Answer 20

It reduces any revaluation reserve, and extra loss goes to profit/loss.

Question 21

How do you calculate depreciation?

Answer 21

(Cost or value - residual value) ÷ useful life.

Question 22

When does depreciation begin and end?

Answer 22

Starts when ready to use, ends when sold or held for sale.

Question 23

Is land depreciated?

Answer 23

No, land is not depreciated.

Question 24

What is component depreciation?

Answer 24

Depreciate each part with a different useful life separately.

Question 25

When must useful life and depreciation method be reviewed?

Answer 25

At least once a year.

Question 26

If the asset’s life or residual value changes, what happens?

Answer 26

Update depreciation moving forward (change in estimate).

Question 27

When do you capitalise further costs?

Answer 27

Only if they improve or replace part of the asset AND meet the recognition rules.

Question 28

When do you remove PPE from the books?

Answer 28

When it is sold or won't give future benefits anymore.

Question 29

How do you calculate profit or loss on disposal?

Answer 29

Sale price minus the asset’s book value.

Question 30

Where is an upward revaluation usually recorded?

Answer 30

In other comprehensive income (OCI).

Question 31

When is an upward revaluation recorded in profit or loss?

Answer 31

When it reverses a previous downward revaluation recorded in profit or loss.

Question 32

What happens if an upward revaluation exceeds the amount of a previous loss?

Answer 32

The extra amount goes to OCI after reversing the loss in profit or loss.

Question 33

Where is a downward revaluation normally recorded?

Answer 33

In profit or loss as an impairment loss.

Question 34

When is a downward revaluation recorded in OCI?

Answer 34

When it reverses a previous upward revaluation recorded in OCI.

Question 35

What happens if a downward revaluation exceeds the OCI surplus?

Answer 35

The extra amount is recorded in profit or loss.