Class 1
Class 1
Class 1
Underlying assumption
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Recognition criteria:
• Meet the definition
• It is probable (certainty) that any future economic benefit
associated with the item will flow to or from the entity
• The item has a cost or value that can be measured with
reliability
Advantage Disadvantages
A business can present its financial The cost of implementing IFRS
statements on the same basis as its foreign
competitors,
making comparison easier
Cross-border listing will be facilitated, The lower level of detail in IFRS
making it easier to raise capital abroad
• No longer permitted
• Cost is the amount of cash or cash equivalents paid or the fair value
of the other consideration given to acquire an asset at the time of its
acquisition or construction.
• Residual value is the net amount which the entity expects to obtain
for an asset at the end of its useful life after deducting the expected
costs of disposal.
• Entity specific value is the present value of the cash flows an entity
expects to arise from the continuing use of an asset and from its
disposal at the end of its useful life, or expects to incur when settling a
liability.
• Fair value is the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market
participants at the measurement date. (IFRS 13)
• E.g. tools, dies and moulds are sometimes classified as inventory and
written off as an expense
• Major components or spare parts, however, should be recognised
as PPE.
• Necessary for the entity to obtain future economic benefits from its
other assets
• Are recognised as assets
• Original assets plus the safety equipment should be reviewed for
impairment regularly
• Cost model
• Revaluation model
• In the case of plant and equipment, fair value can also be taken as
market value
• When an item of property, plant and equipment is revalued, the
whole class of assets to which it belongs should be revalued
• All the items within a class should be revalued at the same time, to
prevent selective revaluation of certain assets and to avoid
disclosing a mixture of costs and values from different dates in the
financial statements.
The original cost was $15,000, revalued upwards to $20,000 two years
ago. The value has now fallen to $13,000
DEBIT -----------------------------------?
DEBIT -----------------------------------?
CREDIT-------------------?
DEBIT -----------------------------------?
DEBIT -----------------------------------?
CREDIT-------------------?
• Land and buildings are dealt with separately even when they are
acquired together
• Land normally has an unlimited life and is therefore not depreciated
• In contrast buildings do have a limited life and must be depreciated
• Any increase in the value of land on which a building is standing
will have no impact on the determination of the building's useful life
• should be carried out at least at each financial year end and the
depreciation charge for the current
• Future periods should be adjusted if expectations have changed
significantly from previous estimates
• Changes are changes in accounting estimates and are accounted
for prospectively as adjustments to future depreciation.
Required
Calculate depreciation at the end of the first year, in which 150 flights
totalling 400 hours were made
• Measurement bases
• Depreciation methods
• Useful lives or depreciation rates
• Gross carrying amount and accumulated depreciation (aggregated
with accumulated impairment losses) at the beginning and end of the
period
• Reconciliation of the carrying amount at the beginning and end of
the period
• Depreciation
• Depreciable assets (used for more than one accounting period,
limited useful life and value derived from use rather than sell)
• Useful life (time-based or unit-based)
• Depreciable amount (cost/revaluation amount less residual value)
• Spreading the cost of a non-current asset over its useful life, and so
matching the cost against the full period during which it earns profits
for the business.
• Depreciation charges are an example of the application of the accrual
assumption to calculate profits.
• IAS 16 also requires the following to be disclosed for each major class
of depreciable asset.
• Depreciation methods used
• Useful lives or the depreciation rates used
• Total depreciation allocated for the period
• Gross amount of depreciable assets and the related accumulated
depreciation
Required
Work out the depreciation to be charged each year under:
(a) The straight line method
(b) The reducing balance method (using a rate of 35%)
(c) The machine hour method
(d) The sum-of-the digits method
Property that would be classified as PPE but is held to earn rentals or for
capital appreciation or both rather than:
a) Use in the production or supply of goods or services or for
administrative purposes, or
b) Sale in the ordinary course of business
• Fair value is the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market
participants at the measurement date
• Owner-occupied property is property held by the owner (or by the
lessee under a finance lease) for use in the production or supply of
goods or services or for administrative purposes.
Rich Co owns a piece of land. The directors have not yet decided
whether to build a factory on it for use in its business or to keep it and
sell it when its value has risen.
Required:
Would this be classified as an investment property under IAS 40?
Choice between:
• The fair value model
• A gain or loss arising from a change in the fair
value of an investment property should be
recognised in net P/L for the period in which it
arises.
• The cost model – Same as IAS 16, PPE
Asset A Asset B
$000 $000
1 January 2006 250 500
1 July 2006 250 500
The loan rate was 9% and Stremans Co can invest surplus funds at 7%.
Required:
Ignoring compound interest, calculate the borrowing costs which may be
capitalised for each of the assets and consequently the cost of each asset
as at 31 December 20X6.
BPP LEARNING MEDIA
Capitalisation rate
Acruni Co had the following loans in place at the beginning and end
of 20X6.
1 January 31 December
2016 2016
$m $m
8.9% Bank Loan payable 2017 120 120
10% Bank Loan payable 2018 80 80
9.5% Bank Loan payable 2019 – 150
The 8.9% debenture was issued to fund the construction of a
qualifying asset (a piece of mining equipment), construction of which
began on 1 July 20X6.