IAS 16- PPE

Question 1

What does IAS 16 govern

Answer 1

IAS 16 governs the treatment of tangible non-current assets (fixed assets)

Question 2

Tangible non current assets are:

Answer 2

• held by an entity for use in the production or supply of goods or services and expected to be used during more than one period

Question 3

Tangible non current assets should be measured at…

Answer 3

• cost

Question 4

Calculating depreciation can be seen to have three components

Answer 4

• cost
• residual value
• useful life

Question 5

purchased assets cost will include

Answer 5

• the invoice price of the asset
• any delivery costs
• installation or erection costs
• dismantling and restoring costs
• professional fees

Question 6

Residual value is

Answer 6

• the estimated amount that an entity would currently obtain from disposing of the asset, after deducing the estimated cost of disposal, if the assets were already of the age and in the condition expected at the end of its useful life

Question 7

Useful life is

Answer 7

• the period of time over which an asset is expected to be used by the enterprise
• normally shorter than the actual life of the asset
• IAS 16 requires that expected lives be reviewed at least annually
• if the expected life of an asset change its net book value should be depreciated over its revised life

Question 8

Depreciation is

Answer 8

• the systematic allocation of the depreciable amount of a tangible non-current asset over its estimated useful life

Question 9

What is the purpose of depreciation

Answer 9

• to match up the costs and benefits of holding a non-current asset.
• depreciation should be provided on all tangible non-current assets that have a finite useful economic life (indefinite life-> freehold land)

Question 10

Advantages of revaluing PPE

Answer 10

• realistic values in accounts, market value

- can strengthen SFP and this helps raise finance as higher valued assets can be used as security

Question 11

Disadvantages of revaluing PPE

Answer 11

• mixture of assets at cost, old valuations and new valuations, lack of consistency
• higher depreciation charge, lower profits
• smaller profit reported on disposal (value will be closer to current market value)
• revaluations can be costly (professional valuations will be needed)
• valuations and market prices can be volatile, they go down as well as up

Question 12

IAS 16 allows organisations to revalue PPE subject to:

Answer 12

• the policy of whether or not to revalue must be applied consistently by class of asset

Question 13

What does IAS 16 suggest but not require?

Answer 13

• that revaluations be undertaken by independent, professionally qualified values

Question 14

Depreciation charged on a revalued asset will be based on the…

Answer 14

• revalued amount