Lecture 6 - PPE Flashcards
(34 cards)
Define PPE.
Property Plant and Equipment. Tangible items held for use in production/supply of goods/services and expected to be used in more than one time period.
When should PPE be recognised as an asset? (2 points)
1) PROBABLE that future economic benefit will flow to the entity
2) Cost can be reliably measured
How is PPE measured?
At cost
What are the 3 elements of PPE cost?
1) Purchase price
2) Import Duties
3) Non-refundable purchase taxes
What is the journal entry for a NON-current asset?
Dr Non-Current asset (@cost)
Cr Cash OR loan payable
What is a DEPRECIABLE asset?
A NON-current asset with a finite useful life
What is the “depreciable amount”?
cost - residual value
What is residual value?
Estimated amount from disposal - disposal costs
What are two possible measures of useful life?
1) The period over which an asset is expected to be available for use
OR
2) Number of production units expected
What is the Journal entry for depreciation?
Dr Depreciation Expense
Cr Accumulated Depreciation
What type of asset is Accumulated Depreciation?
A contra asset -> A negative asset account that offsets the balance in the asset account with which it is paired. The purpose of a contra asset account is to store a reserve that reduces the balance in the paired account.
Carrying Amount is the amount recognised in financial statements, what is it analogous to and how is it calculated?
Analogous to Book Value.
Equal to Asset - Accumulated Depreciation
What are 3 methods of Depreciation?
1) Straight Line
2) Reducing Balance
3) Production units
What is the rate of depreciation for the reducing Balance method?
Rate = 1 - (Salvage value/original cost)^(1/number of years)
What are the two models used to update value of Assets when they INCREASE?
1) Cost Model
2) Revaluation Model
What is the carrying amount for the cost model of asset revaluation?
CA = Cost - accumulated depreciation - accumulated impairment loss
What is the carrying amount for the revaluation model of asset revaluation?
CA = Fair value @ date of revaluation - subsequent accumulated depreciation - subsequent accumulated impairment losses
What are the three requirements for revaluations under the revaluation model?
Revaluations must:
1) Be measured RELIABLY
2) Be made for the entire PPE class
3) Be made with sufficient regularity
In the Revaluation method there are three key steps. What is the first step and its associated Journal Entry?
Record Current Period Depreciation to Date
Dr Depreciation Expense
Cr Accumulated depreciation (for PPE class)
In the Revaluation method there are three key steps. What is the second step and its associated Journal Entry?
Write-back accumulated depreciation to asset amount
Dr Accumulated depreciation
Cr PPE (i.e. buildings)
In the Revaluation method there are three key steps. What is the third step and its associated Journal Entry IF ASSET VALUE INCREASES?
Record Revaluation
Dr PPE (i.e. Buildings)
Cr Revaluation surplus
In the Revaluation method there are three key steps. What is the third step and its associated Journal Entry IF ASSET VALUE DECREASES?
Record Revaluation
Dr Loss on Revaluation
Cr PPE Class (i.e. Buildings)
What are the 3 steps to revalue under the revaluation method?
1) Record current period depreciation
2) Write-back accumulated depreciation to asset account
3) Record revaluation
What are the 3 Journal entries for Revaluation when asset value INCREASES?
1) Dr Depreciation Expense
Cr Accumulated Depreciation (PPE Class)
2) Dr Accumulated Depreciation (PPE Class)
Cr PPE Class (i.e. Buildings)
3) Dr PPE Class (i.e. Buildings)
Cr Revaluation Surplus
