Ias 16 Non Current Assets
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Transcript of Ias 16 Non Current Assets
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STATE UNIVERSITY OF ZANZIBAR(SUZA)
PROPERTY, PLANT AND EQUIPMENT:
IAS 16
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Related Standards
IAS 17 Leases
IAS 20 Accounting for government grants
and disclosure of government
assistance
IAS 23 Borrowing costs
IAS 36 Impairment of assets
IAS 40 Investment property
IFRS 2 Share-based payment
IFRS 5 Non-current assets held for sale and
discontinued operations
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IAS 16 - Overview
Objective and scope
Recognition
Measurement at recognition
Measurement after recognition (CM, RM)
Derecognition
Disclosure
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IAS 16 - Objective and Scope
IAS 16 objective: standards for therecognition and derecognition of PP&Eassets, measurement at and afteracquisition, and disclosures
Scoped out: assets held for sale,agricultural biological assets, non-renewable natural resource rights and
reserves Includes investment property under
construction and when ready, if costmodel applied
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IAS 16 - Objective and Scope
Property, plant and equipment (IAS 16.6):Tangibleitems that:
(a) are held for use in the production or
supply of goods or services, for rental toothers, or for administrative purposes;
and
(b) are expected to be used during morethan one period
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IAS 16Recognition Criteria
Costs are recognized as PP&E only if:1. Probable that future economic
benefits associated with the item will
flow to the entity, and2. The cost can be measured reliably.
Applies to costs at acquisition and
after acquisition.
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Spare Parts and Servicing Equipment
If yes - it will qualify as PPE
If no -it will be charged to Expenses
It is majorIt can be used only in
connection with an item ofPPE
Recognition Criteriais met
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IAS 16 - Recognition
The government requires HTY Ltd. to
affix new pollution reduction
equipment to existing equipment. Is
this a PP&E costor an expense?
Apply general principle:
1. Future economic benefits
2. Reliable measure
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IAS 16 - Recognition
Meets the future economic benefits
criterion if costs are incurred to obtain the
economic benefits or to increase the
economic benefits from other assets
Cost of pollution reduction equipment =
PP&E asset cost
Same criteria apply to major repairs and
overhauls
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Subsequent Costs Replacement Costs
Day to day expenses is charged to Profit and Loss Accountas repair and maintenance.
Major replacement cost qualify as PPE if recognition
criteria is met.
The carrying amount of those parts that are replaced isderecognised.
Inspection Cost
Where major regulation inspection is required to operate
the item of PPE, the cost of such item will qualify as PPE ifrecognition criteria is met.
Any remaining carrying amount of the cost of previous
inspection is derecognised.
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Works in combination with acomponentsapproach
- Recognize major components as separatePP&E assets and depreciate separately
- When major overhaul or replacementtakes place, remove old componentsremaining un-depreciated cost
- Recognize new component as PP&E asset- Gain/loss to income statement
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Example
- ABC & Co., has acquired a heavy road transporter
at a cost of Rs. 100,000 (with no breakdown ofcomponent parts).
- The estimated useful life is 10 years.
- At the end of the sixth year, the power trainrequires replacement, as further maintenance isuneconomical due to the off-road time required.The remainder of the vehicle is perfectly roadworthy and is expected to last for the next fouryears.
- The cost of the new power train is Rs. 45,000.- Can the cost of new power train can be recognized
as the asset, and if so, what treatment should beused?
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Measurement
An item of PPE is measured at COST
Cost Price Comprises of
Purchase Price
Costs directlyAttributable to bringingthe asset to location and
condition intended bymanagement
Initial estimate ofdismantling the assets
and restoring the site to
its original condition
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IAS 16 - Measurement at Recognition
Need to know:
1. What elements of cost are included2. How to measure cost
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Measurement cont. Only costs that are directly attributable may be capitalised.
The standard lists type that are not directly attributable Costs of opening new facility
Costs of introducing a new product or service
Costs of conducting business in a new location or with a
new class of customer Administration and other general overhead costs
Self Constructed assets is determined using the same
principles as for an acquired asset.
Exchange of Assets If fair value can be measuredcost will be measured at
fair value.
If fair value can not be measuredcost will be recognised
at carrying amount of asset given up.
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IAS 16 - Measurement at Recognition
If self-constructed:
1. Apply same principles
2. Charge abnormal costs to P or L3. Interest costs during construction: IAS
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4. Government assistance: IAS 20
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IAS 16 - Measurement at Recognition
How to measure cost?Costis defined (IAS 16.6) as:
Cash or cash equivalents paid or the FV
of other consideration given to acquireasset when acquired or constructed
Other IFRS such as IFRS 2: Share-basedpayment may have other specific
requirements
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IAS 16 - Measurement at Recognition
If non-monetary transaction, exception
to FV principle if:
1. FV cannot be reliably determined, or
2. Transaction lacks commercial substance
i.e., transaction has no economic
effect on the entity
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IAS 16 - Measurement at Recognition
Commercial substanceexists if:
1. Cash flows (amount, timing, risk) of
new asset differ from those of old
asset(s) transferred; or
2. After-tax cash flows of part of business
taking on new asset (entity specific
value) have changed; and
3. Difference in 1 or 2 is significant
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Measurement after recognition
An entity may chooseeither the cost model or the
revaluation model as its accounting policy
Cost Model
Carrying amount =Cost(Accumulated
Depreciation + AccumulatedImpairment Loss)
Revaluation Model
Carrying amount =Revalued amount
(Accumulated Depreciation +Accumulated Impairment
Loss)
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IAS 16 - Measurement after Recognition
Cost Model(CM):
PP&E are carried after acquisition at cost, less
accumulated depreciation and accumulated
impairment losses
Revaluation Model(RM):
PP&E are carried after acquisition at fair value at
date of revaluation, less any accumulateddepreciation and impairment losses afterrevaluation
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IAS 16 - Measurement after Recognition: Cost
Model (CM)Depreciation:
Each major component may have adifferent depreciation policy
Depreciable amount: carrying amount lessresidual value
Residual value defined:
- estimate of net amount entity wouldreceive now from assetsdisposal, if assetwas as old and in same condition asexpected at end of its useful life
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IAS 16 - Measurement after Recognition: Cost
Model (CM)
Depreciation (continued):
Depreciation period begins when PP&Eis in place and ready to use, continues
even if not used or is retired from activeuse
Depreciation period ends when PP&E is
derecognized or classified as held forsale (IFRS 5)
Depreciate over useful life to entity
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IAS 16 - Measurement after Recognition: Cost
Model (CM)Depreciation (continued):
Useful life consider capacity, wear and tear,
technology changes, changes in product demand,
contractual or legal limits Choose method based on pattern that assets
economic benefits are expected to be received:
SL, DB, or activity-based
If change in pattern, change method
prospectively (change in estimate)
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IAS 16 - Measurement after Recognition:
Revaluation Model (RM)
Revaluation will be made at sufficient regularity toensure that the carrying amount does not differ
materially from that which would be determined
using fair value at the end of the reporting period.
If an item of PPE is revalued, the entire class of PPE to
which that asset belongs will be revalued.
Apply only to assets whose FV can be reliably
measured Revalue often enough that carrying amount is close
to FV
Depreciate revalued amount using same principles as
for CM30
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IAS 16 - Measurement after Recognition:
Revaluation Model (RM)
RM accounting - what happens if an
increase in assets carrying amount?
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IAS 16 - Measurement after Recognition:
Revaluation Model (RM)RM accounting - what happens if a decrease
in assets carrying amount?
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IAS 16 - Measurement after Recognition:
Revaluation Model (RM)
Situation:
On January 1, Year 1, ABC Co. acquires a building
at a cost of $1,000. The building is expected tohave a 25-year life and no residual value. Theasset is accounted for under the revaluationmodel and revaluations are carried out every
three years.On December 31, Year 3, the fair value of thebuilding is appraised at $900. Prepare the entriesrequired on December 31, Year 3
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IAS 16 - Measurement after Recognition:
Revaluation Model (RM)
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IAS 16 - Measurement after Recognition:
Revaluation Model (RM)
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IAS 16 - Measurement after Recognition:
Revaluation Model (RM)
New depreciation rate is needed as of
January 1, Year 4:
$900 carrying amount = $41 per year
253 years
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IAS 16 - Measurement after Recognition:
Revaluation Model (RM)
Revaluation Surplus account?
As asset is used, transfer differencebetween depreciation taken using RM
and amount if CM had been used -directly to Retained Earnings, OR
Transfer directly to Retained Earnings
when asset derecognized
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Depreciation Method
The standard does not prescribe any depreciation method.
An entity may choose any method as per the nature of
business. However method adopted by the entity should
reflect the following principles:
The depreciation method will reflect the pattern in whichthe assetsfuture economic benefits are expected to be
consumed by the entity.
The depreciation method applied will be reviewed at
each financial year end. Any change from the previousyear will be treated as change in accounting estimates.
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IAS 16 - Derecognition
When disposed of, or when no futureeconomic benefits to be received from useor disposal
Remove carrying amount from statement offinancial position
Gain or loss = difference between carryingamount of asset (or part of asset if areplacement) and net proceeds on disposal
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IAS 16 - Disclosure
If RM used:
Date of revaluation
Independent valuation?
Methods, techniques used
Assumptions made in determining FV
Amounts if CM had been used Details of changes in Revaluation Surplus
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THANK YOU !!