Tangible non-current assets

Question 1

How can be recognised property, plant and equipment as an asset?

Answer 1

• it is probable that future economic benefits associated with the asset will flow to the entity
• the cost of the asset can be measured reliably

Question 2

Measure of the cost of an item of property, plant and equipment

Answer 2

• include all costs involved in bringing the asset into working conditions
• initial cost capital: cost of site preparation, delivery costs, installation costs, borrowing costs
• expense items: fuel, training, warranty
• dismantling costs

Question 3

Dismantling cost calculation

Answer 3

1 divided by in the brackets( 1 +r) where r is a interest rate on little n and n is number of the years to settlement

Question 4

Subsequent expenditure what can be treated as part of the cost

Answer 4

• enhances the economic benefits provided by the asset
• it relate to an overhaul or required major inspection of the asset
• it is replacing a component of an asset made up of a number of components

Question 5

Subsequent expenditure what can be treated as part of the cost

Answer 5

• enhances the economic benefits provided by the asset
• it relate to an overhaul or required major inspection of the asset
• it is replacing a component of an asset made up of a number of components

Question 6

What is the depreciation?

Answer 6

• is the systematic allocation of the depreciable amount of an asset over its useful life
• is the cost of an asset, or other amount substituted for cost, less its residual value

Question 7

Depreciation methods

Answer 7

• straight line
• reducing balance
• machine hours

Question 8

Choice of accounting treatment for property, plant and equipment?

Answer 8

• the cost model
• the revaluation model

Question 9

The cost model

Answer 9

Property, plant and equipment should be valued at cost less accumulated depreciation

Question 10

The revaluation model

Answer 10

Property, plant and equipment may be carried at a revalued amount less any subsequent accumulated depreciation

Question 11

Conditions with revaluations

Answer 11

• carrying amount does not differ materially from the fair value at each reporting date
• when it’s revalued, the entire class of assets to which the item belongs must be revalued

Question 12

Steps accounting for a revaluation

Answer 12

• restate asset’s cost to the new valuation
• eliminate any existing accumulated depreciation for the assets
• show the total increase in Other Comprehensive Income, at the foot of the statement of profit or loss. This would then be taken to the revaluation surplus

Question 13

Journal entry assuming revalued amount is greater than original cost

Answer 13

DR Non-current assets costs/valuation (revalued amount - cost)
DR Accumulated depreciation ( eliminate accumulated balance)
CR Other Comprehensive Income ( revaluation surplus)

Question 14

Where are recorded revaluation gains and revaluation losses?

Answer 14

Revaluation gains - statement of profit or loss and other comprehensive income, gain is carried in a revaluation surplus within equity
Revaluation losses - impairement of the asset value, statement of profit or loss, any excess of impairment - impairement expense

Question 15

Depreciation of revalued assets

Answer 15

• depreciation must be charged
• the whole charge must go to the statement of profit or loss
• an annual reserves transfer may be made ,from revaluation surplus to retained earnings, for the additional depreciation charged
• this transfer would be shown on the Statement of changes in equity

Question 16

Journals for the depreciation of revalued assets

Answer 16

DR Statement of profit or loss - depreciation charge
CR Accumulated depreciation
DR Revaluation surplus
CR Retained earnings

Question 17

Two steps to disposing of a revalued asset

Answer 17

• accounted for in the statement of profit or loss
• any balance on the revaluation surplus relating to this asset should be transferred to retained earnings

Question 18

IAS20 Accounting for Government Grants what it could be?

Answer 18

• revenue grants, e.g. contribution towards payroll costs
• capital grants, e.g. contribution towards purchase of non-current asset

Question 19

Two general principles of IAS20

Answer 19

• Prudence: conditions for receipt need to be complied and there is reasonable assurance the grant will be received
• Accruals: grants should be matched with the expenditure towards which they were intended to contribute

Question 20

Presentation of revenue grants

Answer 20

• presented as a credit in the statement of profit or loss
• deducted from the related expense

Question 21

Capital grants / treatments

Answer 21

• write off the grant against the cost of the non-current asset and depreciate the reduced cost
• threat the grant as a deferred credit and transfer a portion to revenue each year, so offsetting the higher depreciation charge on the original cost

Question 22

Borrowing costs IAS23

Answer 22

• borrowing costs must be capitalised a part of the cost of an asset is a qualifying asset (necessarily takes a substantial period of time to get ready for its intended use or sale)

Question 23

Conditions of commencement of capitalisation

Answer 23

• expenditure for the asset is being incurred
• borrowing costs are being incurred
• activities that are necessary to prepare the asset for its intended use or sale are in progress

Question 24

Capitalisation of borrowing costs should cease:

Answer 24

• substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete
• construction is suspended

Question 25

Investment Property IAS 40

Answer 25

-held to earn rentals or for capital appreciation or both