PROPRERTY, PLANT AND EQUIPMENT (IAS 16)

Question 1

What is property, plant and equipment? (Definition)

Answer 1

Property, plant and equipment are tangible items that:
‐ Are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes, and
‐ Are expected to be used during more than one period

Question 2

When an entity should recognise an asset as PPE? are any exception of accounting treatment?

Answer 2

Recognized when it is probable that:
- The future economic benefits associated with this asset will flow to the entity; and
- The cost of the asset can be reliably measured.

Applies to accounting for all items PPE except when another Standard requires or permits a different accounting treatment, such as:
‐ IAS 17 Leases
‐ IAS 40 Investment Property
- PPE classified as held for sale

Question 3

Is IAS 16 apply to PPE used to develop or mantain above assets?

Answer 3

Yes

Question 4

How are PPE initially recognised?

Answer 4

Initially recognized at cost, comprising:
- Purchase price plus import duties and taxes;
- Any cost directly attributable to bring the asset to the location and condition necessary for it to be capable of operating in a manner intended by management.

Question 5

Which costs are classified as directly attributable costs?

Answer 5

‐ Costs of employee benefits arising directly from the construction or acquisition of the item of PPE
‐ Costs of site preparation
‐ Initial delivery and handling costs
‐ Installation and assembly costs
‐ Costs of testing
‐ Professional fees

Question 6

Which costs are not included in direct attributable costs?

Answer 6

‐ Costs of opening a new facility
- Repairs and mantainanceù
- Service costs included in a purchase contract

Question 7

Are cost “hidden” in PPE purchase contracts capitalise?

Answer 7

Service costs included in a purchase contract for PPE should not be capitalised

Question 8

How are PPE measured after recognition?

Answer 8

MEASUREMENT AFTER RECOGNITION:

1. COST MODEL: Cost - accumulated depreciation - impairment losses
2. REVALUATION MODEL: Fair Value (at the time of revaluation) - subsequent depreciation

Question 9

How are increases/decreases in value of PPE accounted for?

Answer 9

An increase in value is credited to other comprehensive income under the heading revaluation surplus unless it represents the reversal of a revaluation decrease of the same asset previously recognized as an expense, in this case the increase in value is recognized in profit or loss).

Question 10

When an entity should start to depreciate a PPE?

Answer 10

When the asset is available for use (in the manner intended by managemnt)

Question 11

Which are the component accounting to be depreciated?

Answer 11

Component accounting:
- significant parts/components are required to be depreciated over their estimated useful life;
- costs of replacing components are required to be capitalized