PPE

Question 1

PPE definition criteria

Answer 1

• Held for use in production/supply of goods/services, for rental to others, or for admin purposes.
• Are expected to be used during more than one period.

Question 2

PPE recognition criteria

Answer 2

• Probable future economic benefits
• Cost can be reliably measured

Question 3

Costs to include

Answer 3

• All costs to acquire, construct, and bring the asset to its location and condition necessary for use.
• Purchase price, import duties, non-refundable taxes, after deducting discounts and rebates
• delivery
• installation
• testing

Exclude: training, general maintenance

Once asset is available for use, any costs going forward are excluded.

Question 4

Costs attributable to land

Answer 4

Directly attributable costs -> land.

• Commissions
• legal fees
• title search
• property transfer taxes
• costs to bring land to usable state: removal of old buildings

Land and building - costs must be allocated separately based on FMV

Question 5

Costs to include for assets being constructed

Answer 5

all directly attributable costs of the construction

• contruction permits
• site survey costs
• construction costs including labour, direct mgmt salaries, and materials
• direct borrowing costs incurred to finance the construction (ASPE has the option)
• professional fees

Question 6

Spare parts…

Answer 6

Spare parts that are immaterial and short life span -> inventory

Major spare parts -> PPE

Question 7

Straight-line

Answer 7

Cost - residual value )/ useful life

Question 8

Declining balance method

Answer 8

assumes that the benefit derived from the asset is higher in its initial years and less as the asset ages

Depreciation = dep rate * cost of asset

Subsequent years: dep rate * NBV

Question 9

Units of production method

Answer 9

Matches the cost of the machine wiht the benefit that is derived from the machine by allocating the cost in proportion to the fraction of production capacity used

First: estimate the total units that will be generated by the machine over its estimated useful life

Per unit depreciation rate = (cost - residual value) * total estimated # of units

Depreciation = # of units in period * depreciation rate

Question 10

Revaluation model

Answer 10

Only available under IFRS

Assets are recorded at fair value, still depreciated

must be applied to each CLASS of assets

FMV must be reliably measured in order to use this method. if not, use cost method.

Revaluations should be done regularly

Question 11

How to account for gains/losses: revaluation model

Answer 11

Gain recorded in p/l , only to the extent of losses previously recorded

Remaining gain -> OCI

Loss recorded in OCI, only to the extent of gains previously recorded

Remaining loss -> p/l

Question 12

Betterments (ASPE)

Answer 12

• costs incurred that enhance the service potential of an item of PPE

Service potential is enhanced when:

• Increase in physical output/capacity
• Operating costs are lowered
• Useful life is extended
• Quality of outputs improved