PPT - IAS-16 Property, Plant & Equipment PowerPoint Presentation, free AB Ltd. paid for the plant within four weeks of the order, therefore, obtained an early settlement discount of 3%. Any exchange differences arising on translation of foreign currency assets. IAS 16 applies to the accounting for property, plant and equipment, except where another standard requires or permits differing accounting treatments, for example: assets classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations IAS 40 states that an entity must always choose to measure investment property at fair value. If an entity acquires an item of property, plant and equipment in exchange for a non-monetary asset, then the cost of the asset acquired in exchange will be determined as follows: The transaction of exchange will deem to have commercial substance if: In such circumstances the entity will determine the cost of the asset acquired in exchange as: (a) The fair value of asset transferred cash. It is the systematic allocation of the depreciable amount of an asset over its related useful life. However, IAS 16 is applicable to the property, plant & equipments, which are used to maintain or develop the biological assets under IAS 4 and mineral rights and reserves such as oil and gas and other non-regenerative resources which are covered under IFRS 6. 1144 0 obj On 1 April 20X3 the company revalued the building to its fair value of $120,000. [IAS 16.5], The standard does apply to bearer plants but it does not apply to the produce on bearer plants. Depreciation should be charged to the income statement, unless it is included in the carrying amount of another asset.
IAS 16 considers the question of how individual items may be identified and the extent to which itemsmay be aggregated. [IAS 16.62A], The depreciation method should be reviewed at least annually and, if the pattern of consumption of benefits has changed, the depreciation method should be changed prospectively as a change in estimate under IAS 8. If this is not the case, then a reserves transfer is not necessary. If the carrying value of asset exceeds its recoverable value, the excess is known as impairment loss. More information about IFRS COURSE (CLICK), An investment property is also an asset held for, However, if an entity holds properties for sale in the short term, In this way, if the entity subsequently decides that the asset is connected to housing construction, it must reclassify this asset to an, However, from the perspective of the entity that owns it, the property is, Therefore, the lessor treats the property as investment property in its, Thus, the building is not classified as an investment property item in the parent companys, Such financial statements present the controlling entity and its, Therefore, the consolidated group accounts for the building as an item of, On the other hand, in the parents separate financial statements, the building is classified as an, In other words, it is a property held for, In this example, entity B must recognize a, This is why the definition of investment property of paragraph 5 of, In that case, it must use the cost model of, How the impairment of assets held for sale is calculated. 1132 0 obj [IAS 16.20A], If payment for an item of property, plant, and equipment is deferred, interest at a market rate must be recognised or imputed. With much of what is examinable feeding though from theFinancial Accountingexam, you must ensure that you are comfortable with the basics of dealing with PPE as well as the more advanced aspects. Statement of profit or loss and other comprehensive income. reconciliation of the carrying amount at the beginning and the end of the period, showing: acquisitions through business combinations, net foreign exchange differences on translation, restrictions on title and items pledged as security for liabilities, expenditures to construct property, plant, and equipment during the period, contractual commitments to acquire property, plant, and equipment. 100,000 (with no breakdown of component parts). An entity leases a building for 5 years with payments of 20,000 per year and an implicit interest rate of 9%. A machine was purchased on 1 April 20X0 for $120,000. Any claim for compensation from third parties for impairment is included in profit or loss when the claim becomes receivable. 3. 1124 0 obj This recognition principle is applied to all property, plant, and equipment costs at the time they are incurred. Required - This Standard is not applicable:
Determining abnormal costs could be challenging in the pre-production phase. QUESTION TWO: A plant and machinery was bought for $ 215,000. (a) That are held for use in the production, supply of goods or services, rental
Cost of site preparation. it will be the sum of Material, Labor and Overhead cost of such asset. It is essential to clarify that if the type of lease were not operating but financial, it would not be an investment property; it would be an account receivable. However, IAS 16 is dedicated to treating non-current assets used for business operations whereas IAS 40 is predominantly concerned with non-current assets held for rental, capital appreciation or . 4. #$*))m%Mp"FU!UNqI8cvcTIE3b#L`|D3%DyD:`JhE)!$X] The carrying amount of Zen Cos property at the end of the year amounted to $108,000 (cost/value $125,000 and accumulated depreciation $17,000). Required hb```%``B-BP Yf\lx9rrOb?>w?\@]>2E+3c>@a,y$K6Qg (c) Revaluation should be performed regularly enough, so that the carrying value of asset should not be materially different from its revalued amount. In the exam you must make sure that you pay attention to the date that the revaluation takes place. Any legal restriction on the asset in terms of its use. The item which meets the following criteria will be treated as property plant and equipment as the standard prescribes: (a)These are tangible items;
In this example, entity B must recognize a right-of-use asset as a consequence for the building leased from entity A. PDF IFRS 16 - An overview This group listed and narrates the policy adopted and also indicate the life span of all PPE to indicate how they have been accounted for base on the IAS 16. (a) To the property, plant and equipment which are classified as held for sale and are covered under IFRS 5
AB Ltd. acquired a plant at a cost of $15 million. IAS 40 Notes and class examples financial accounting 300 ias 40: investment property department of accounting notes and class examples up kotze material already . (See 'Related links' for the solution to Example 4.). Depreciation begins when the asset is available for use and continues until the asset is derecognised, even if it is idle. All residual values can be taken as nil. An entity will de-recognize the asset from statement of financial position when:
If an item is revalued, the entire class of assets to which that asset belongs should be revalued. If the exchange rate fluctuates significantly, the use of an average rate is not appropriate (IAS 21.22). The upgrade work took a total of two days where new components were added to the machine. On 1 March 20X2, Yucca Co purchased an upgrade package from Plant Co at a cost of $18,000 for the machine it originally purchased in 20X0 (Example 1). If the asset requires an inspection after a specified interval as per industry laws (such as airline industry) then the entity will recognize the cost of such inspection in the carrying value of related asset, if its economic benefits are for more than one accounting period. BC1-BC4) Welcome to another episode of The New Quantum Era Podcast hosted by Kevin Rowney and Sebastian Hassinger. The plant and machinery is expected to produce 40M goods as follows; year Number of goods in millions 1 15 2 10 3 8 4 5 5 2 . Ias 16 Practice Qns - Ias 16 Property Plant and Equipment IFRS 16 Leases: A Simple Illustration for Understanding A company purchased a building on 1 April 20X1 for $100,000. Financial Accounting Study Text, Study Text: January 23, 2022: . The risk, timing and amount of cash flows related to the asset acquired are different from the asset transferred; The exchange has resulted in the change in the entity specific value of that operational portion of the entity. endstream Required (f) Any compensation received from the third parties in respect of any impairment related to the asset. which means carry the asset at its cost less depreciation OR as per revaluation model which means Fair. Reserves transfer 14 Key Points on Ind AS 16 Property, Plant and Equipment (PPE) (d) A statement reconciling the carrying value at the start of the period to the carrying value at reporting date which includes: (e) Any expense on the asset during the year which was capitalized as part of the carrying amount of the asset. [IAS 16.3], Items of property, plant, and equipment should be recognised as assets when it is probable that: [IAS 16.7]. The rectification cost of the error is charged to statement of profit or loss as expense. ;aQU`G$1
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vTN,C8XLI1EK\d+Kg`/{nP^juc Dr Accumulated depreciation [eliminate any accumulated depreciation] 16 Practical Example - 1. endstream Then, the consolidated entity uses the building for the supply of goods. Paragraph 16(b) of IAS 16 states that the cost of an item of property, plant and equipment (PPE) includes costs directly attributable to bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management1. At 1 April 20X1, HD Co carried its office building in its financial statements at its original cost of $2 million less accumulated depreciation of $400,000 (based on its original life of 50 years). PPT Slide 1 not reflected in period end financial statements). Therefore, the initial purchase price of the asset should be:
Practical example 6 IAS 40: Investment properties according to IAS 16 In January of year 1, an entity acquires a building to earn rentals under operating leases. EXAMPLE 6 O"*"P+$gy^rm7Yln>%QHiL+JOI=`OpGea5JgE7}:CzIG^tJo-sHtY/
!..iH#BtE*BSQI+PKtC;}Z[C? Moreover, click here to Download IAS 16 summary pdf, The objective of IAS 16 property plant and equipment (PPE) is to prescribe the accounting treatment for property, plant and equipment. The gain or loss on disposal is the, The International accounting standards 16 pdf is available to download. DrRevaluation surplus [to maximum of original gain/balance in revaluation surplus if lower] The course is designed to be interactive, with quizzes, case studies, and practical examples to help you retain the information and apply it in the real world. Proposed Solution: As per IAS 16, PPE should be measured at cost at time of recognition of the same in books of accounts. IAS 16 principles <>]>>/Pages 1114 0 R/Type/Catalog>> (200 0 / 40,000 hrs) 30,000 hrs, Charge to profit or loss on replacement, Current yr Dep. Our course is led by industry experts who have years of experience in the field, providing you with the most up-to-date and relevant information. Any impairment will be determined as per the requirements of IAS 36. AB Ltd. exchanged a land with a carrying value of $15 million and fair value of $ 20 million, for an imported plant. [IAS 16.3], The cost model in IAS 16 also applies to investment property accounted for using the cost model under IAS40 Investment Property. 2 D1{?A4uDMX":Br|XgF`4&_pt(F1l ^d/ Gcwj`\ An item of property, plant, or equipment shall not be carried at more than recoverable amount. If you are looking for a practical overview of IFRS 16, or just a refresher, you've come to the right place. 9 key takeaways on IAS 40 Investment Property | TheAccSense Factsheet 3 - ts purpose is to protect the child's rights to develop his or her full cognitive. The Fault-Tolerance Threshold with Dorit Aharonov-The New Qu
This will then become assumed knowledge for the SBR exam. AB Ltd. is a private limited company that operates an aircraft. 1119 0 obj Property held for intended sale in the ordinary course of business or in the process of construction or development . IAS 16 applies to the accounting for property, plant and equipment, except where another standard requires or permits differing accounting treatments, for example: The standard does apply to property, plant, and equipment used to develop or maintain the last three categories of assets. Ind AS-116 practical cases with accounting entry - Business At this point, two elements in the analysis must be kept in mind. (h) If depreciation charge on the basis of revalued amount exceeds the original depreciation charge, then the excess will be transferred out of the revaluation surplus to the retained earnings as realization of the revaluation surplus. PDF STAFF PAPER December 2017 IASB Meeting - IFRS IAS-16 Property, Plant & Equipment Examples of Directly Attributable Costs: Cost of employee benefits. These adjustments are indicated below. Please visit our global website instead. [IAS 16.39], A decrease arising as a result of a revaluation should be recognised as an expense to the extent that it exceeds any amount previously credited to the revaluation surplus relating to the same asset. Dep. The entity will apply the initial recognition rule to the following items as follows: - Normally these are treated as inventory and their cost will be charged to the statement of profit or loss as expense when these are consumed by the entity. (a) Prepare any necessary journal entries to account for this building during the year ended 31 March 20X2. Revaluations must also be carried out with sufficient regularity so that the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period. Subsequent costs related to an item of PPE can only be recognised if they meet the normal recognition criteria: (a) it is probable that future economic benefits associated with the item will flow to the entity; and. Items of property, plant and equipment should be recognized as assets when: Assets recognized under IAS 16 Property, Plant and Equipment must be initially recognized at cost. Here are what the standard said, Visit our Leases hot topics page for more insight on lease accounting under IFRS Standards Paragraph 17 of IAS 16 specifies examples of directly attributable costs. the cost of the asset can be measured reliably. (b) The entity should review the depreciation method opted at each reporting date and if there is any change in the pattern of consumption of economic benefits related to the asset, then the entity should change the depreciation method in accordance with the new pattern of consumption of economic benefits and such change will be accounted for as change in accounting estimate, which will be applied prospectively from that date. Subsequent costs PDF IAS 16 Property, plant and equipment 2017 - 07 The companys policy is to make a transfer to retained earnings in respect of excess depreciation. If the revaluation takes place at the start of the year, then the revaluation should be accounted for immediately and depreciation should be charged in accordance with the rule above. (j) The entity should disclose the date of revaluation, involvement of the expert and the revaluation surplus in respect of the assets which are revalued in the current period. (PDF) Concise aspects regarding the accounting treatment for property Recognition of Fixed Assets: Fixed assets recognition is one of the most important things to know as it can be confused you when and how much the fixed assets should be capitalized. 2. This can be found by comparing the difference between: When the disposal proceeds are greater than the carrying amount there is a gain on disposal and when the disposal proceeds are less than the carrying amount there is a loss on disposal. We introduced the key differences for lessee accounting under IAS 17 and IFRS 16, provided an example of a lessee amortization schedule and the related journal entries, and discussed the required disclosures. This is why the definition of investment property of paragraph 5 of IAS 40, the standard refers to a right-of-use asset. E[-htV_ylwicESlgnZFD8P_~gy:,o%Fn:=O|R\tz>-P,UDkq $Oys1<09:}^p/(>W[0{MZf8]}. Depreciation should be charged to profit or loss, unless it is included in the carrying amount of another asset [IAS 16.48]. endobj <> However, if an entity holds properties for sale in the short term in the ordinary course of business and thus obtains a profit, we would not be talking about an investment property but the sale of inventory. Sir David Tweedie, 16 June 2011. A company purchased a property with an overall cost of $100m on 1 April 20X1. Some assets may comprise more than one significant part (ie where the cost of each part is significant in relation to the total cost of the item). Solution to Example 1: In accordance with IAS 16 Property, plant and equipment, all costs required to bring an asset to its present location and condition for its intended use should be capitalised. The change in (a) and (b) above is material. If Transaction of Exchange does not have Commercial Substance: If the transaction of exchange does not have commercial substance or the fair value of asset transferred and the asset acquired both are not determinable, then the new asset will be recognize at the carrying value of asset transferred, which will result in no gain or loss on exchange. EXAMPLE 2 Definition : Property, plant & Equipment (PPE)Definition : Property, plant & Equipment (PPE) Property Plant and Equipment defines Property Plant and Equipment as tangible assets that- 1) are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and 2) are expected to be utilized in . Any additions and disposals during the year, Any assets acquired as part of a business combination, Any impairment loss recognized in the current year, Assets classified as held for sale under IFRS 5. Downloads latest study texts Mindmaplab Thisis a particularly important area of the Financial Reporting (FR) syllabus and is also important assumed knowledge for the Strategic Business Reporting (SBR) exam. 3. IAS 16 Property, Plant and Equipment permits TWO accounting models: Cost Model - The asset is carried at cost less accumulated depreciation and impairment. Dep. IAS 16 Examples and questions This is relating to FRK 201 content University University of Pretoria Course Financial accounting 201 (FRK 201) 224 Documents Academic year:2020/2021 Helpful? Examples of directly attributable costs are: (a) costs of employee benefits (as defined in IAS 19 Employee Benefits) arising directly from the construction or acquisition of the item of property, plant and equipment; (b) costs of site preparation; (c) initial delivery and handling costs; (d) installation and assembly costs; Say Lease expense is 25,000 per month or 3lacs a year . At the year-end of 31 March 20X6, the company revalued the building to its fair value of $98,000. *E|![eZVx?W7 ^
mH`g.)Le|aslp DrNon-current asset cost [difference between valuation and original cost/valuation] On 1 March 20X0 Yucca Co acquired a machine from Plant Co under the following terms: In addition to the above information, Yucca Co was granted a trade discount of 10% on the initial list price of the machine and a settlement discount of 5% if payment was received within one month of purchase. (See 'Related links' for the solution to Example 7.). {PS0ge2mLveUWy>0\_KnC7+\{9ZKdzIb"o[M"Xe{.vlnXU9\(^%2$DPl?U2n>o[Y^_|f9j)l"&S(o3mn 7WVCf0mU+d$I2e }Ll7d It was estimated that the asset had a residual value of $20,000 and a useful life of 10 years at this date. Revaluations should be made with sufficient regularity to ensure the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period. The aircraft was acquired on 1 January 2001. (b) Each component of property, plant and equipment having substantial cost will be depreciated separately. However, if an entity indentifies that it will enhance the economic benefits of related asset then its cost will be capitalized as part of property, plant & equipment. Required Prepare the extracts of the statement of financial position and statement of profit or loss for the year ended 31 March 20X2. This is the first of three articles which consider the main features of IAS 16, Property, Plant and Equipment. endobj Even though the asset has not yet been brought into use, IAS 16 states depreciation of an asset begins when it is available for use, ie when it is in the location and condition necessary for it to be capable of operating in the manner intended by management. The loan carried an interest rate of 8% per annum and is repayable on 1 April 20X4. -The future economic benefits related to the asset are probable, to flow to the entity and
The property does not qualify as investment property in the consolidated financial statements because the property is owner-occupied from the groups perspective. Manufacturers or distributors list price. IAS 36. Paragraph IAS 16.17 provides examples of directly attributable costs that can be included in the cost of PP&E. Note that directly attributable costs do not need to be incremental. How the plant will be recognized in the financial statements of the AB Ltd.? IAS 21 Notes and class examples.pdf - 1 FINANCIAL The transfer to retained earnings should not be made through profit or loss. whether an independent valuer was involved, for each revalued class of property, the carrying amount that would have been recognised had the assets been carried under the cost model. Property, Plant & Equipment It is the period of time or number of production units for which asset will be used by the management. The objective of IAS 16 is to prescribe the accounting treatment for property, plant, and equipment. The asset must continue to be depreciated following the revaluation. Accounting for subsequent expenditure on property, plant and equipment Each word should be on a separate line. The entity is uncertain whether it will use the asset to build a luxury housing project or whether it will use the asset to generate capital gains. - However, the cost of major spare parts will be capitalized as property, plant & equipment if these: These do not enhance the economic benefits of related asset, therefore, their cost will be charged to statement of profit or loss as expense such as fire alarms, sound proof equipments and smoke filters. It is the value at which asset will be presented in the statement of financial position and it is determined as Cost less Accumulated Depreciation and Accumulated Impairment Loss. We want to introduce you to our IFRS course, which has a new methodology based on answers and questions using videos and training tests. - The requirements of this standard are applicable for the accounting treatment of property, plant and equipment. Practical tip: disposals When an asset is to be disposed of, its cash inflows will be independent of the cash inflows of other assets. In other words, depreciation applies the accruals concept to the capitalised cost of a non-current asset and matches this cost to the period that it relates to. Property, plant and equipment may be requiring the replacement of some component parts during the useful life (such as the spare parts of a plant or walls of a building). Cost of Plant, Property and Equipment (PPE) shall be . endobj
If necessary, the estimated cost of a future similar inspection may be used as an indication of what the cost of the existing inspection component was when the item was acquired or constructed. The cost of day to day or ongoing repair and maintenance will be charged to the statement of profit or loss as expense. Any gain or loss on the exchange transaction will be charged to the statement of profit or loss. IAS-16 Property, Plant & Equipment The International accounting standards 16 pdf is available to download. IAS16 Property, Plant and Equipment requires impairment testing and, if necessary, recognition for property, plant, and equipment. B/VK9\9[gZ.7g;(+,-6VIaQq9S&(*l9kZA ^ZX;URf2sriGVbs6J}&'y(x0YI,IB+pll_6AOMRi:K,uNPo2::=@d3(E@Wc`q( Calculate the value at which the plant will be measured at initialrecognition in the financial statements of the AB Ltd. Electrical cable placement (28,000 12,000), Dismantling and restoration costs (30,000 + 6,000).