PPE ASPE 3061 IAS 16

Question 1

What can be included in the cost of a capital asset?

Answer 1

ASPE 3061

• Purchase price and other acquisition costs such as:
  broker’s commissions, installation costs including
  architectural, design and engineering fees, legal
  fees, survey costs, site preparation costs, freight
  charges, transportation insurance costs, duties,
  testing and preparation charges.
• For basket purchase (i.e., when a group of assets
  is acquired for a single amount), cost is
  determined by allocating the price paid for the
  basket to each item on the basis of its relative fair
  value at the time of acquisition.
• For assets constructed over time cost includes
  direct materials and labor, overhead directly
  attributable to construction and carrying costs
  e.g., interest if it is the entity’s policy to capitalize
  carrying costs
  (this is a choice) (capitalization of carrying costs
  ends when the asset is ready for use)
• Admin and overhead are not included in the cost
  of an asset

IAS 16/IAS 23

• Same except that borrowing
  costs related to acquisition/construction of a
  qualifying asset (one that requires substantial time to
  get ready for use) must be capitalized (no choice like
  under ASPE)

Question 2

How are subsequent expenditures on capital
assets treated?

Answer 2

ASPE 3061

• Cost incurred to enhance the service potential is a betterment and is capitalized

‒ Increase in physical output or service capacity
‒ Operating costs are lowered
‒ The life or useful life is extended
‒ The quality of output is improved

• The cost incurred in the maintenance of the service
  potential of an item of property, plant and equipment is a repair, not a betterment and is expensed

IAS 16

• Day to day servicing is expensed
• Major repairs, overhauls, replacement of parts, major inspections etc. are capitalized
• Replaced components would be amortized over the useful life of the component (may not be the
  same as the asset itself) and the component being replaced is derecognized (even if component
  was previously not recognized separately, estimate the cost of the original component and
  derecognize)
• Inspections are amortized over
  period until next major inspection

Question 3

How are property plant and equipment measured
subsequent to acquisition?

Answer 3

ASPE 3061
* Cost model (historical cost less accumulated
amortization less any impairment loss recognized)

IAS 16
* Choice between:

• Cost model (historical cost less accumulated amortization and any impairment loss recognized)
• Revaluation model
• Must be able to reliably measure value of the asset
• Recorded at fair value (must revalue often enough so that carrying value is not materially
  different than fair value)
• Decreases in value are recorded in net income and increases in value to OCI except to the extent that
  they reverse a previous deficit/surplus

Question 4

How is depreciation calculated?

Answer 4

ASPE 3061
Greater of:
* Cost less salvage value over the life of the asset
* Cost less residual value over the useful life of the asset

IAS 16
* Cost less residual value over useful life

Question 5

What are the requirements for separately depreciating components/parts of an asset?

Answer 5

ASPE 3061
* The cost of an asset is allocated to individual
parts/components when practicable and when the
useful life of the separate components can be made

IAS 16
* If an asset has a number of parts/components that are significant in relation to the total cost of the asset then the cost should be allocated to each part and they should be depreciated separately based
on their useful life