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PPE - IAS 161 PROPERTY, PLANT & EQUIPMENT [IAS 16] LECTURE OBJECTIVES: Cost determination of assets Subsequent expenses Rehabilitation & Decommissioning.

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Presentation on theme: "PPE - IAS 161 PROPERTY, PLANT & EQUIPMENT [IAS 16] LECTURE OBJECTIVES: Cost determination of assets Subsequent expenses Rehabilitation & Decommissioning."— Presentation transcript:

1 PPE - IAS 161 PROPERTY, PLANT & EQUIPMENT [IAS 16] LECTURE OBJECTIVES: Cost determination of assets Subsequent expenses Rehabilitation & Decommissioning Accounting for component assets Major components Collective components Revaluation of assets Gross & net replacement methods Implementation dates Treatment of reserves Impairment of assets Disclosure requirements

2 PPE - IAS 162 PPE [IAS 16] DEFINITION [p6] NATURE OF PPE Used to generate revenue Use in production/supply of goods Administrative purposes More than one financial period CLASSIFICATION Nature of assets Land & buildings Recognised separately Determine costs separately Expected useful lives Land not depreciated

3 PPE - IAS 163 PPE [IAS 16] COMPONENTS CRITERIA: p10 Separately identifiable Different useful lives Significant w.r.t. measurement RECOGNITION: p43 & 44 Significant Separate asset/component Similar = group [Depreciate = separately p44] Insignificant Aggregate individual items [Appropriate rate p45] Part of remaining principle asset [Depreciate = principle asset]

4 PPE - IAS 164 PPE [IAS 16] COMPONENTS REPLACEMENT OF PARTS [p70] INITIALLY RECOGNISED Derecognised replaced part –Carrying amount Recognise replacement part –Cost at initial recognition NOT RECOGNISED Derecognise the replaced part –At deemed carrying amount –Based on replacement cost –Depreciated cost [used asset] Recognise replacement part

5 PPE - IAS 165 PPE [IAS 16] SPARE PART & STAND-BY RECOGNITION: p8 Inventory [insignificant] Expensed via profit & loss Major spare part & stand-by Qualify as PPE Specific to plant & equipment Meet asset criteria RECOGNITION [p10] Significant Separate asset/component Similar = group Insignificant Aggregate individual items Part of remaining principle asset

6 PPE - IAS 166 PPE [IAS 16] EXCHANGE OF ASSETS DEFINITION: p25 Commercial value Cash flows differ Value of entity changes Difference in fair value of assets Nature & type of assets exchanged Similar = no exchange Dissimilar = transaction MEASUREMENT: p24 & 26 Fair value at date of exchange Fair value of asset given No fair value of asset given up Fair value of asset receive No fair value [both assets] Carrying amount of asset given

7 PPE - IAS 167 PPE [IAS 16] MAJOR INSPECTION DEFINITION: Required for continuation of use [License to operate] Regular periods specified RECOGNITION: Meet definition criteria [asset] Capitalised & amortised Not a separate asset [Related to specific asset] De-recognised at end of life

8 PPE - IAS 168 PPE [IAS 16] DISMANTLING COST DEFINITION: p16(c) Future costs Provision [IAS 37] Legal or constructive obligation Present obligation RECOGNITON & MEASUREMENT: Capitalised as part of asset cost Estimated future costs Present value [effective rate] Fair value obligation at year end [Not affect asset cost] [Only provision]

9 PPE - IAS 169 PPE [IAS 16] DISMANTLING COST RE-ASSESMENT: [IFRIC 1] Estimated cost Discount rate Changes occur Adjust provision Treated as change in estimate Adjusted from beginning of year ACCOUNTING TREATMENT: Cost model Adjust cost of asset Revaluation model Equity account Other comprehensive income

10 PPE - IAS 1610 PPE [IAS 16] AFTER RECOGNITION COST MODEL: p30 Carrying amount Subsequent adjustments Depreciation Impairment REVALUATION MODEL: p31 Fair value measured reliably Revalued amount at valuation Revaluation Regularly [periodic] Minimise material differences Subsequent adjustment Depreciation Impairment

11 PPE - IAS 1611 PPE [IAS 16] REVALUATION GROSS REPLACEMENT COST: p35 Based on an index Fair value of new asset Adjust accumulated depreciation Proportionately Against revaluation reserve NET REPLACEMENT COST: p35(b) Based on market value Fair value = current condition 2 nd hand market Eliminated accum depreciation Against cost of asset Restated at carrying amount Asset has no history

12 PPE - IAS 1612 PPE [IAS 16] REVALUATION IMPLEMENTATION: p36 - 38 All assets in a category/class Avoid selective revaluation Date of implementation Beginning of the year End of the year TREATMENT: p39 - 40 Other comprehensive income Deferred tax: OCI Closing transfer Net amount to balance sheet

13 PPE - IAS 1613 PPE [IAS 16] REVALUATION TREATMENT OF SURPLUS [p41] Deferred tax is not affected Transfer net amount Directly to retained earnings Transfer via SOCE Transfer [IAS 1 p96] Not reclassification Realised on disposal Transfer on derecognition Released method Amortised over remaining life

14 PPE - IAS 1614 PPE [IAS 16] IMPAIRMENT DEFINITION [IAS 36 p6] Carrying amount > recoverable amount Recognised in P & L Impairment [IAS 16 p40] Initial impairment Recognised in P & L Subsequent impairment Loss based on historical cost Reversal of revaluation surplus –Limited to surplus balance –Via OCI True impairment loss –Via P & L


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