IAS 16 Property, Plant and Equipment Flashcards
What is the PPE Life Cycle?
Initial Recognition, Subsequent expenditures, Subsequent Measurement, Impairment, Derecognition
What is Initial Recognition?
Items of PPE are initially recognized either at acquisition or manufacturing costs.
What are Subsequent Expenditures?
For subsequent expenditures into already existing PPE items, a distinction between CAPEX (Capital expenditures= a company´s major, long term expenses) and OPEX (Operating expenses = a company´s day to day expenses; maintenance) is needed.
What is the Subsequent Measurement?
If PPE with finite useful life: Scheduled depreciation is needed. The general idea behind scheduled depreciation is to distribute the initial investment over the beneficial life of PPE in order to match the investment expense against the benefit from the continued usage of the PPE.
If PPE with indefinite useful life:
No scheduled depreciation needed, as those assets do not lose value as time progresses. This is mostly relevant for Land and PPE in progress (construction is not finished yet).
What is Impairment?
In case PPE has lost in value extraordinarily, the carrying amount exceeds the recoverable amount (= present value of the expected cash flows that are to arise from the sale or use of the asset).
CA > recoverable amount
What is Derecognition?
An item of PPE is derecognized after it has been disposed of or wen no future economic benefit can be expected from its future use or disposal.
The definition of PPE
IAS 16.6; since its held for use PPE is always non-current!
How is depreciation calculated?
1) What is the depreciable base? (= How much are the acquisition or manufacturing costs of the asset?)
2) How long does the entity expect to be using the asset? (Consider economic, technical, legal life; always choose shortest timeframe)
3) What is the estimated residual selling value of the asset at the end of the useful life? (= the residual value (aka scrap value) reduces the depreciable amount)
4) Which depreciation method reflects this pattern best? (=always assume linear depreciation technique)
5) When is the asset ready to use? (=Start of depreciation, depreciation has to be pro rata temporis!)
What is the straight line method?
The asset losses the same amount of value every year. The depreciable amount is allocated on a straight line basis, i.e. an equal amount is allocated to each year of the useful life.
What is the impairment of assets IAS 36?
1) Check if there is any indication that the asset may be impaired (triggering event - IAS 36.9 ff)
2) Only if triggering event is identified, an impairment test shall be performed ( Impairment = book value > recoverable amount)
What is the impairment loss and where is impairment loss recognized?
An impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable amount)
Recognized in Profit or Loss (if cost model is applied)
