=

PPE
- Tangible asset
- Held in the production of goods and services
- Administrative purposes
- Rental to others
- Held for > 1 period

RECOGNITION

- Recognition criteria
- Spare parts
- Asset doesn’t directly produce FEB, but entity is required for safety/environment reasons to on ->
enables other assets to produce FEB

SUBSEQUENT COSTS

• Do not recognise cost of day-to-day servicing (expense)

• Parts/ components replaced regularly are recognised separately

• Can use cost of new replacement part to estimate day 1 cost

• Derecognise old part when the replacement occurs

• Costs of MAJOR inspections incurred are recognised in the carrying amount of PPE

• Significant cost

• >1 year apart (e.g. airplane maintenance inspections)

INITIAL MEASUREMENT

• Purchase price

• Import duties and non-refundable taxes

• Asset dismantling, removal and restoration cost (IFRIC 1)

• Borrowing costs on qualifying assets (IAS 23)

• Costs directly attributable to bringing the asset to the location and condition necessary for it to be
capable of operating in the manner intended by management

• Recognition of cost ceases when the item is in the location and condition as intended by
management.

DIRECTLY ATTRIBUTABLE COSTS

• Cost to prepare the site (clearing land / foundations)

• Initial handling & delivery cost

• Installation & assembly cost (putting it together before use)

• Professional fees i.e. architects, engineers

• Cost of testing asset

• Note: should also deduct any proceeds (income) from selling samples produced while testing
the asset

If building own asset

• This is not specifically stated in IAS 16, but you can apply cost accounting principles from FinMan

• Cost must directly link to asset being constructed

• I.e . You can capitalise the following (list is not exhaustive)

• Direct labour

• Raw materials used

• Depreciation of other PPE used to construct new assets

• Specific / direct overheads and fixed costs

• Direct professional fees

COSTS SPECIFICALLY EXCLUDED

• Cost of opening a new facility

• Cost of introducing a new product or service (like advertising cost)

• Cost of conducting business in a new location or with a new customer

• This includes related staff training

• Administrative and other general overheads

• Cost incurred when asset is ready for use and

• Has not been brought into use as intended or

• Does not run at full capacity

• Initial operating losses

• Cost of relocating or re-organising part or all of the business

• Cost which is incurred but not necessary for the final purpose

• Abnormal waste

COST

Cash price equivalent at recognition date

• If payment is deferred beyond normal credit terms, the difference between the cash price equivalent
and the total payment is recognised as interest

• NB! General principle in IFRS that you will find across a number of standards.

• Assets and Liabilities are accounted for at the present values, i.e. discounted future values

DISMANTLING, REMOVAL, RESTORATION COSTS

Can capitalize pv of the future costs. Credit provision

IFRIC 1

Change in future estimate – adjust provision value capitalized to the asset

SCOPE
• Only existing decommissioning, restoration & similar liabilities
o i.e. liability already recognised
• Those liabilities recognised as part of the cost of an item of PPE
o i.e. not liabilities created through the production of inventories / direct link to asset
construction

PPE – COST MODEL

 Cannot reduce the asset below zero

• Trigger event: consider whether asset is impaired or not if cost increases

DEPRECIATION & UNWINDING OF PROVISION

• Any change to carrying amount of the asset affects the depreciable amount

• NB! Unwinding of discount (on liability) shall be recognised in profit & loss and it CANNOT be
capitalised i.t.o. IAS 23 Borrowing Costs

NON-MONETARY EXCHANGE

1. FV asset given up
2. FV asset received
3. CA if exchange lacks commercial substance
4. FV’s cant be reliably measured

COMMERCIAL SUBSTANCE

1. The risk, timing and amount of cash flows of asset received differs from asset given up

OR

2. The entity specific value of the portion of the entity’s operations affected by the txn changes

AND

The difference in (1) or (2) is significant relative to the fair value of the assets exchanged

COMPONENTISATION

• Recognise significant components separately; can use cost of new replacement part to estimate cost
on day 1

• When replaced: derecognize remaining CA of old component and recognise new component

• Can recognise MAJOR inspections as a PPE component

IAS 16.43 - 48:

o Identify the different components

o Different parts with different useful lives

o Depreciate each part separately

SUBSEQUENT MEASUREMENT

Cost model

= Cost less acc. depreciation and acc. impairment losses

Revaluation model
=

Carried at revalued amount

=Fair value* at date of revaluation less subsequent acc. depreciation and acc. impairment losses

* IFRS 13

REVALUATION MODEL

• If an item of PPE is revalued, the entire class of PPE to which the asset belongs, is revalued

• If an asset’s CA is increased from revaluation, the increase is recognised in comprehensive income and
accumulated in equity.

• Revaluation surplus in equity transferred to retained earnings upon derecognition for land

• A devaluation (revaluation decrease) is recognised in P/L, unless the decrease is reversing a

• Then recognised in comprehensive income and reduces the amount accumulated in equity

• If a valuation increase reverses a devaluation previously recognised in P/L, then the increase is
recognised in P/L first before charging OCI

• Therefore, a revaluation reserve (equity) is only created if new CA is greater than historical amount

DEPRECIATION AND IMPAIRMENT

DEPRECIATION

• The systematic allocation of the depreciable amount of an asset over its useful life

• Depreciable Amount

• The cost of an asset less the residual value of the asset

• Systematic Allocation

• Three Methods of allocating the depreciable amount

1) The straight-line method

2) The diminishing balance method

3) Units of production method

• Depreciation is allocated from the date the asset is available for use even if put into use at a later
date

• Depreciation does not stop if asset becomes idle

• Depreciation is recognised as long as:

residual value NOT > carrying amount

• Tax allowances given when asset is brought into use

• When to stop / not depreciating an asset?

- IFRS 5

- CA = zero

- Residual > CA

- Units of production method, and no production

Common errors
• The useful life is calculated incorrectly

• Remaining useful life is wrong

• No apportionment for part of a year

• Residual value is not deducted for depreciation

• Residual value if deducted for BOTH depreciation workings and calculation of carrying amount

• Residual value = estimated amount that an entity would currently obtain from disposal of the asset,
after deducting the estimated costs of disposal, if the asset were already of the age and in the
condition expected at the end of its useful life

IMPAIRMENT – IAS 36

• Compensation from 3rd parties for impairment?

• E.g. insurance payments

• Included in SP/L

• Impairments and related proceeds are not netted off;

• Show each component separately in SP/L

• I.e. dr Impairment and cr accumulated imp

• Dr bank ; cr proceeds from insurance

• Dr asset cr bank (restoration

DERECOGNITION

• Carrying amount derecognised when:

• Disposed

• No future economic benefits expected from use or disposal

• Included in SPL when derecognised

• Accounted for in P/L on a net basis (difference between proceeds and carrying amount)

• If dispose of asset part-way through a year, remember to first account for depreciation to calculate
the carrying amount on the disposal date

• IF asset that is held for rental to others, where similar assets are sold in ordinary course of business, is
held for sale, transfer to inventories at carrying amount

DISCLOSURE

• Note discussion (policy, methods, etc.)

• Reconciliation (#s)

• Revaluation info discussion

(By who, what, when, how, etc.)

MISC WORKING NOTES