Lecture 4 - Non-current Assets

Question 1

IAS 16 is referred to as

Answer 1

Property, plant and equipment

Question 2

Define an asset under IAS 16

Answer 2

A resource owned or controlled by an entity as a result of past events from which future economic benefits are expected to flow to the entity

Question 3

IAS 16 defines PPE as tangible assets that are:

Answer 3

• Held by an entity for use in the production or supply of goods and services, for rental to others or admin purposes
• For it to be non-current and PPE it has to be used for more than one period

Question 4

IAS 16 defines a current asset as:

Answer 4

• Realise, sell or consume the asset in its normal operating cycle
• Holds the asset primarily for the purpose of trading
• Expects to realise the asset within 12 months of reporting period
• Cash or cash equivalent

Question 5

The cost of an item of PPE shall be recognised as an asset if, and only if:

Answer 5

• It is probable that future economic benefits will flow to the entity - Probable is 50%
• The cost of an item can be measured reliably

Question 6

An item of PPE that qualifies as an asset shall be measured at its cost: Per IAS 16 cost compromises -

Answer 6

• Purchase price - import duties and non-refundable purchase taxes
• Cost directly attributable to bringing and maintaining the asset
• Initial estimate of the costs of dismantling and removing an item and restoring the site on which it’s located

Question 7

Directly attributable costs include:

Answer 7

• Site preparation
• Delivery and handling costs
• Installation costs
• Professional fees
• Commissioning costs

Question 8

IAS 16 - Depreciation definition

Answer 8

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

Question 9

Does Land have deprecation?

Answer 9

No land does not depreciate

Question 10

Two depreciation methods:

Answer 10

• Straight-line depreciation

- Reducing balance

Question 11

IAS 16 allows for 2 types of accounting policies

Answer 11

• Cost model - Held at cost less accumulated deprecation and any accumulated impairment losses
• Revaluation model - Held at revalued amount less accumulated depreciation and any accumulated impairment losses

Question 12

If an asset is revalued, what else is revalued?

Answer 12

The entire class of assets must be revalued not just a single one

Question 13

Why do we revalue?

Answer 13

• Costs of non-current assets usually differ to its true market value
• Enhances non-current assets on statement of financial position for investors and acquirers