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NON-CURRENT ASSETS I - IAS 16 - PROPERTY PLANT AND EQUIPMENT

6 important questions on NON-CURRENT ASSETS I - IAS 16 - PROPERTY PLANT AND EQUIPMENT

What is meant by recognition and how does it apply for PPE?

In this case, recognition means incorporating the item in the business' accounts.

Recognition of PPE depends on 2 criteria:
-probable future economic benefits associated with the asset will flow to the entity
-the cost of the asset to the entity can be measured reliably

Which two methods are allowed for capitalizing subsequent expenditures?

IAS 16 allows for two possible treatments, choice between COSTS and revalueing it to FAIR VALUE:

1. Costs Model - Carry the asset at its costs less accumulated depreciation and any accumulated impairment losses.
2. Revaluation Model - Carry the asset at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses.

The REVALUATION MODEL is only available if the fair value of the item can be measured reliably.

How should a change in depreciation method be dealt with?

Depreciation methods are to be reviewed yearly.

If the is a significant change in the way the asset is used, the method should be changed.

This should be accounted for as a change in accounting estimate under IAS8 and accounted for prospectively.

How should the useful life and residual value be reviewed and changed?

Reviews are to be done yearly

Changes are to be done prospectively

How should an impairment loss be treated?

In the same way as a revaluation decrease:
-the decrease should be recognised as an expense, but should be charged against any related revaluation surplus for the same asset

Similarly, a reversal of an impairment loss should be treated a REVALUATION INCREASE

Explain how to retire and dispose of assets

An assets can be withdrawn from use, sold, or scrapped.

The assets should fully be removed from the entity books and the gains and losses (difference between net disposal process and the carrying amount) should be recognised as income or expense in the P&L.

The question on the page originate from the summary of the following study material:

CIMA F1 Financial Reporting and Taxation | 9781472734129 | BPP Learning

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