Property, plant and equipment

Question 1

What is the initial recognition for PPE?

Answer 1

1. Probable future economic benefits will flow to the entity
2. Cost can be measured reliably.

Question 2

What constitutes as PPE?

Answer 2

1. Held for use in production or supply of goods or services, for rental to others or for administrative purposes.
2. Are expected to be used during more than one period (continuing basis).
3. Not intended for sale in the ordinary course of business.

Question 3

What is the measurement at recognition for PPE?

Answer 3

PPE are measured at cost.

Apply case facts to determine relevant components of cost that may be capitalized.

Explicitly discuss elements that should not be included in cost.

Question 4

What exactly do costs include?

Answer 4

• Purchase price, including import fees and taxes.
• Directly attributable costs (ie: delivery fees, professional fees, costs of site preparation, installation and assembly costs)
• Estimate costs of dismantling and removing the item and restoring the site which it was located.

Question 5

Subsequent measurement of PPE under ASPE and IFRS?

Answer 5

ASPE uses the cost model exclusively for PPE.

IFRS allows a choice between the cost model and revaluation model.

Question 6

What’s the difference between the cost model and the revaluation model?

Answer 6

Cost model: PPE is carried at cost - accum dep - impairment losses

Revaluation model: PPE is carried at a revalued amount, which is FV at date of revaluation less subsequent accum depreciation.
FV must be measured reliably.

Can only use revaluation model when FV can be measured reliably

Question 7

What are major inspections & replacements (IFRS)?

Answer 7

There is no such thing as a betterment in IAS16, instead there are major inspections and replacements.

Major inspections: PPE may require regular major inspections regardless of whether parts of the item are replaced (ie: inspecting an aircraft regularly)
- If the PPE criteria is met, the major inspection costs can be capitalized.

Major replacements: PPE may require more regular replacements (ie: Aircraft interiors require replacement several times during their lifespan)
- If the PPE recognition criteria is met, the major replacement costs can be capitalized.

Question 8

What is a betterment? (ASPE)

Answer 8

Betterments are costs incurred to enhance the service potential of an item of PPE.

The criteria is:
- Physical output or capacity is increased.
- Operating costs are lowered.
- Useful life is extended
- Quality of output is improve.