Flashcards
3. Assets For Continued Use
Cards in this deck (34)
- 1What is IAS 16 concerned withPPE
- 2Define PPETangible items that are both:
- held for use in the production or supply of goods and services for rental to others or for admin purposes
- expected to be used during more than one period - 3What are the conceptual framework elements which relate to PPEAsset - must have control as a result of past events.
Income / gains - Increase in net assets but not as a result of transactions i.e disposals
Expenses / Losses - decrease in net assets but not due to distribution to the owners i.e impairment or disposal - 4When should PPE be recognisedWhere it is probable that future economic benefits will flow to the entity and their cost can be measured reliably
- 5Which subsequent costs should be capitalised and which shouldn'tRepairs and maintenance is not capitalised and is recognised in the P&L.
Replacement parts should be recognised provided they enhance economic benefits. - 6What do you do when capitalising a replacement part for PPEThe original cost of the items they replace should be derecognised at the time of the replacement
- 7How do you depreciate different parts of an asset i.e engine and seats in a planeTreated as separate components and capitalised separately
- 8Define capitalisinga method of accounting where the value of an asset is expensed over the useful life of that asset, and not just during the period of incurring the cost
- 9What elements are included in the cost of PPEPurchase price
Directly attributable costs
Estimated of dismantling and site restoration costs - 10which models do IAS 16 set out to value PPEThe cost model - an item of PPE is carried at cost less accumulated depreciation and impairment losses
The revaluation model - an item of PPE is carried at the revalued amount, being fair value less accumulated depreciation and impairment losses. - 11When does depreciation commenceWhen the asset is in the location and condition necessary for it to be capable of operating in the manner intended
- 12What do you do if there are changes to: - Depreciable amount (estimated residual value changes) - estimated economic life of the asset - method (i.e from reducing to straight line)As it is a change in accounting estimate IAS 8 states it needs to be applied prospectively (so apply to last year's opening balance)
- 13What standard links in with fair value for the revaluation model and what is the definition of fair valueIFRS 13 (fair value measurement) and it is the price that would be received to sell and asset in an orderly transaction between market participants
- 14In the revaluation model, how frequently should revaluations be carried outSufficient regularity to ensure the carrying amount does not differ materially from that which wold be determined using fair value at the end of the reporting period
- 15How do you account for revaluations when there's an increase in valueDebit - cost / valuation to revalued amount
Debit - accumulated depreciation to eliminate it
Credit - OCI / Revaluation surplus - 16How do you account for a decrease in value (revaluation model) when there's not been a previous increaseIt is recognised as an expense and charged to P&L
Debit - P&L expense
Credit - PPE - 17What do you do when there's a decrease in fair value but was previously an increaseRecognise in OCI to the extend of any remaining balance on revaluation surplus relating to the asset (it cannot go below 0) (Dr)
So if there's any excess it is recognised in the P&L (Dr)
Make sure the new amount is also reflected in PPE (Cr) - 18What is the treatment for am increase in value when there was a previous decreaseCredit - P&L by the amount of surplus left after working out the below
Credit - OCI / revaluation surplus by the amount as if the previous downward revaluation never took place (work out the CA of asset if there was no initial valuation and minus that number from the fair value
Debit - PPE cost
Debit - acc depreciation for the year - 19What is best practise in IAS 16 regarding deprecation arising as a result of revaluationsTo make a transfer between reserves of the excess depreciation
- 20How do you transfer reserves for excess depreciationDebit revaluation surplus
Credit retained earnings
Calculated by:
- revaluation surplus divided by the remaining useful life of the asset - 21What is IAS 36 concerned withImpairment of Assets
- 22What does IAS 36 apply toAll assets apart from those specifically excluded. Most commonly PPE and intangible assets
- 23What assets must be tested for impairment annually, regardless of indications of impairmentAn intangible asset which has not been amortised (as it is not available for use yet or has indefinite useful life)
goodwill acquired in a business combination - 24Recoverable amount of an asset can be determined by...The higher of:
- fair value less costs to sell
- it's value in use (present value of future cash flows expected from the asset) - 25What is the impairment charge of an asset in terms of recoverable amount and carry amountIf the recoverable amount of an asset is less than the carrying amount, the difference is the impairment loss
- 26Where is impairment loss recognisedP&L
- 27What do you do if there's an impairment charge for an asset previously valued upwardsIt's first charged to OCI / revaluation surplus until that is 0
Any further amount is charged to P&L as an expense - 28What does IAS 23 concernBorrowing costs
- 29What does IAS 23 state regarding borrowing costs for assetsThe finance costs that are directly attributable to the acquisition, construction or production of a qualifying asset form part of the costs of that asset
- 30What is a qualifying asset (IAS 23)An asset that necessarily takes a substantial period of time to get ready for is intended use or sale
- 31What are borrowing costs which must be capitalisedFunds borrowed specifically for construction - calculate the specific costs of this borrowing and reduce by any income earnt from any money not used immediately
construction financed out of the general borrowing of the entity - calculated by the weighted average cost of the general borrowings - 32When should capitalisation commenceWhen the entity meets all three of the following conditions:
- incurs expenditures for the asset
- incurs the borrowing costs
undertakes activities which are necessary to prepare the asset for its intended use or sale - 33With IAS 23 what disclosure should be madeRelates to Borrowing costs
- the costs which have been capitalised in the current period
- the capitalisation rate used to determine the amount of borrowing costs - 34What judgements are required for IAS 23The "substantial period of time"
Borrowing costs which are directly attributable
Activities necessary to prepare the qualifying asset
The point at which capitalisation should start
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- ACA FAR Flashcards on 3. Assets For Continued Use, created by Liam Johnson on 06/10/2024.
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- Liam Johnson
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