Topic 6 non current assets Flashcards
Under IAS 16 Property, Plant and Equipment (PPE) should be recognised if it meets the following criteria:
- It is probable that economic benefits associated with the asset with flow into the entity; and
- The cost can be reliably measured.
what is the initial measurement of PPE and double entry
at cost
Dr NCA
Cr Bank
what costs are included in initial recognition of PPE
All costs involved in bringing the asset to it’s present condition and location
• This includes delivery costs, site preparation, installation costs etc, TESTING
• If the dismantling costs are known (when the asset will be removed) then the PRESENT VALUE of these
dismantling costs should also be recognised.
what are the options available under IAS 16 for subsequent measurement of non current asset?
- Historic cost model
* Revaluation model/ Fair value
what is subsequent measurement under historic cost model
the original cost wouldn’t change subsequently under there are subsequent expenditure relating to the asset
what are some examples of situation where further capitalization costs can be incurred and recognised which could change the historic cost of NCA?
3 reasons
- The expenditure enhances the asset.
- A complex asset component is replaced.
- Works pre or post a major work inspection on the asset.
at what point is depreciation charged
as soon as the asset becomes available for use
what are the methods of depreciation
straight line
reducing balance
under which situation is a depreciation policy change allowed
The new depreciation policy would give the users of the financial statements a more accurate and fairer presentation of the assets at each reporting date
is a change in depreciation policy a change in
Accounting policy or an Accounting estimate?
Accounting estimate
under the revaluation model, what happens?
Under the revaluation model, the non-current assets are revalued each year and the revaluation gain or loss would usually go through the revaluation reserve.
what are the double entry for an increase to an asset value i.e. revaluation gain
DR Non-current Asset X
CR Revaluation reserve X (Also shown in OCI)
what are the double entry for an decrease to an asset value i.e. revaluation loss
DR Revaluation reserve X (Also shown in OCI)
CR Non-current Asset X
what step do you take if the revaluation reserve balance is low and if the journal posted will make the balance DEBIT
i.e. show the Dr Cr
(the balance should be a credit)
you DR the remaining balance to Impairment Expense
when an asset is revalued, what happens to depreciation?
When an asset is revalued, at that date any accumulated depreciation brought forward would effectively be wiped and depreciation should subsequently be calculated on the new revalued amount.
what is an “Annual Transfer to Retained Earnings”
and why and when is used
This occurs primarily when you’ve got assets under the revaluation model when there is an upward revaluation
when there is a higher revaluation, the depreciation charge to the P/L increases therefore reducing the profit and hence lower dividends
therefore, companies have a policy to do an annual transfer of this additional depreciation on revalued assets from the revaluation reserve to retained earnings
what is the double entry for doing the annual transferr to retained earnings
Dr Reval reserve
Cr retained earnings
IAS 23 says borrowing cost can be capitalized but only if they are a qualifying asset.
what is a qualifying asset? and give example
a qualifying asset is one that takes substantial amount of time to get ready to use or sell..
e.g. house, building a machine
borrowing cost can be capitalised once three qualities are met, what are they
- Expenditure for the asset has started to be incurred.
- Borrowing costs/ finance costs has started to be incurred
- Activity on the asset has commenced (to construct)
if the company has taken out a variety of loans for various projects, what borrowing rate do you capitalise?
give formula
a weighted average of the borrowing costs on the general loans taken out may need to be calculated.
(200.05)+(150.4)
___
total loan e.g. 20m+15m
at what point do you stop caitalising borrowing cost?
- Construction of the asset has suspended temporarily for some reason (legal reasons etc)
- Construction of the asset is complete and ready for it’s use or sale
IAS 20 Accounting for government grants and disclosures of government assistance
when is a grant recognised
when there is reasonable assurance that
a) The entity will comply with the conditions attaching to them; and
b) The grants will be received
what is capital gratns
it’s capital- it’s to purchase or replace a capital Item
what are the two methods of presenting in the financial statements of capital grants
a) Set up the grant as deferred income and recognise income on a systematic basis over the useful life of the
asset
b) Deduct the grant from the cost of the asset and recognise as part of the depreciation charge
