1. AC120 lecture 38 Completion of suspense accounts
Thomas chapter 18
Try 18.4 and 18.8
FRS 15 tangible fixed assets

2. Suspense account example
A trial balance reveals that the sum of the debit balances exceeds the sum of the credit balances by €2,509. A suspense account is opened. Subsequently the following errors are discovered:
Debit side of cash book overcast by €1,000
Goods bought by cheque for €200 credited to the cash book but not entered to the purchases account
Rent paid €50 credited to the cash book and also credited in error to the rent account
Car repairs of €23 debited to the motor expenses account as €32 in error
Balance on sales account is €2000 but is shown as €200 in the trial balance

3. Tangible Fixed Assets Source: FRS 15 Issued February 1999
Effective 23 March 2000

4. FRS 15 Tangible Fixed Assets
Objectives
Consistent principles are applied to the initial measurement of TFA
Where an entity chooses to re-value tangible fixed assets the valuation is performed on a consistent basis and kept up-to-date
Depreciation of TFA is calculated in a consistent manner
Sufficient info. is disclosed in the FS to enable users to understand the impact of the entity’s accounting policies regarding initial measurement, valuation and depreciation

5. FRS 15 Tangible Fixed Assets
Initial Measurement
Valuation
Depreciation
Disclosure

6. FRS 15 Tangible Fixed Assets
Initial Measurement
A TFA should be initially measured at cost
Only those costs directly attributable to bringing the asset into working condition for its intended use should be included.
Cost = Net purchase price + directly attributable costs
Net purchase price = purchase price after any trade discounts and rebates

7. Tangible Fixed Assets – FRS 15
Directly Attributable Costs
Labour costs of own employees arising directly from construction/acquisition of the TFA
Incremental costs to the entity that would otherwise have been avoided if the TFA had not been constructed/acquired

8. FRS 15 Tangible Fixed Assets
Cease capitalisation of directly attributable costs when:
Substantially all the activities that are necessary to get the TFA ready for use are complete. (even if the TFA has not yet been brought into use)

9. FRS 15 Tangible Fixed Assets
Example:
A manufacturing company commissions the building of a new factory. The associated costs are as follows:
Site selection €30,000
Site purchase €1,000,000
Architects fees €50,000
Engineers fees €150,000
Legal fees €50,000
Construction costs €1,500,000
Testing & checking of machinery €250,000
Included in testing and checking of machinery costs was €50,000 in connection with a 6 monthly diagnostic check of machinery

10. FRS 15 Tangible Fixed Assets
Solution:
Site Cost €1,000,000
Construction Cost €1,500,000
Architect’s Fees €50,000
Legal Fees €50,000
Engineer’s fees €150,000
Testing costs (note 1) €200,000
Total Cost €2,950,000

11. FRS 15 Tangible Fixed Assets
Amount Initially Recognised:
If the amount recognised when a TFA is acquired or constructed exceeds its recoverable amount, it should be written down to its recoverable amount.

12. FRS 15 Tangible Fixed Assets
Subsequent Expenditure on an Asset:
Expenditure to ensure that the TFA maintains its previously assessed standard of performance:
Recognise in the P&L as it is incurred
i.e. Repairs and Maintenance

13. FRS 15 Tangible Fixed Assets
Capitalise subsequent expenditure in 3 cases:
1. Where the subsequent expenditure provides an enhancement of the economic benefits of the TFA in excess of the previously assessed standard of performance
2. Where a component of the TFA that has been treated separately for depreciation purposes and depreciated over its individual UEL, is replaced or restored
 3. Where the subsequent expenditure relates to a major inspection or overhaul of a TFA that restores the economic benefits that have been consumed and reflected in depreciation

14. FRS 15 Tangible Fixed Assets
Examples of Enhancement of Economic Benefits:
Modification of an item of plant to extend its UEL or increase its capacity
Upgrading machine parts to achieve a substantial improvement in the quality of output.

15. FRS 15 Tangible Fixed Assets
Some assets require substantial expenditure every few years for major refits or refurbishment
Entity should account separately for major components that have substantially different UELs from the rest of the asset