PPE

PPE

1. Components method

   • The cost of any asset is the sum of all the costs incurred to bring the asset to inded uses
     • Asset Retirement Obligation
     • Major Inspections and overhaul

2. Depreciation methods

   • Straight Line
     • Depreciation = (cost-residual value) * (1/ useful life)
       • An office building or machine
   • Double Declining Balance
     • Depreciation = Bookvalue * (1/useful life) *2
       • A gold mine
         • Generate more money in the beginning of the useful life
   • Units of production
     • Depreciation = (cost-residual value ) * (number of items produced/ expected total number of items produced)
       • Independent of Time
       • Smooth profit
       • Often used for assets that wear out because of pysical use instead of obsolescence
   • Residual value = value of asset after its useful life
     • Useful Life
       • Expected usage of the asset
       • Expected physical wear and tear
       • Technical or commercial obsolescence
       • Legal or similar limits on the use of the asset
   • Partial year
     • 1) Dep for full year 2) dep* fraction of year
   • Changes in Useful Lives Or Residual Values
     • Assets remaining depreciable book value/ New Estimated useful life remaining

3. Tax Depreciation and defered Tax

   • Deferred Tax
     • Difference in the usful life in financial statement and useful life that is allowed to be used in tax filings
       • Example: incentives of sustainable equipment
       • Bring costs forward and rather pay less taxes today
   • Prefer DBB over straightline

4. Impairment Test

   • Carrying amount is higher than its recoverable amount
   • Intangible: test every year
   • PPE: whenever there's an indication
   • Internal sources of impairment indications
     • Obsolescence
       • Physical damage
         • Asset is idle
           • Plants to restructure the operation
             • Plans to dispose earlier
               • Performance of the asset is worse than expected
                 • Net cash flows generated with the asset are lower than budgeted
   • External
     • Market price reduced
       • Adverse changes in the technological market
         • Market interest rates have increased

5. Recoverable amount

   • The higher of fair value less cost to sell and value in use

6. Cash generating unit

   • Group of assets that can generate cash flows that are largely independent of other assets
     • Albert Heijn Store
     • A chemical plant

7. Pro rata allocation

   • In accordance to the book value
     • Intangible + PPE

8. Depreciation

   • Accumulated Depreciation
     • Allocation of a PPE's cost over its useful life
     • The amount that has been accumulated over the years
       • Difference between PPE's cost and acc.dep= carrying cost (book value)

9. Amortization

   • costs intangible assets
     • Accept goodwill and assets with indefinite useful life

10. Natural resources = Depletion

    • Units of production method
      • Total depletion= Depletion rate * the amount of units used
        • Accumulated depletion is a contra account

11. Capital Expenditures

    • expenditures that increase the assets capacity or extend its life spand

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