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IAS 16 - PPE (Important definitions for IAS 16 (Useful life ((a) the…
IAS 16 - PPE
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Measurement
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Included in cost is
--> Cost necessary in bringing the asset to the location and in the condition necessary for it to operate in a way as intended by management
Self constructed assets
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--> If one asset (A1) is used in the production of another asset (A2), the depreciation of (A1) during the period of construction is capitalised as part of the cost of A2
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Exchange of PPE Items
RULE:
The cost of the asset acquired in an exchanged transaction must be measured at the fair value of the asset given up
--> CP asset acquired = FV of the asset given up
--> The difference between the FV and CP is recognised as a gain or a loss
Exception 1
If the fair value of the asset acquired in an exchange transaction is more evident, then the asset acquired must be measured at its FV
--> CP asset acquired = FV of the asset acquired
Exception 2
If the exchange transaction lacks commercial substance and/or the FV of both the asset acquired and the asset given up cannot be estimated reliably then the asset acquired is measured at the CA of the asset given up
--> CP asset received = CA of asset given up
--> No gain or loss
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Depreciation
Allocation of cost
--> The purpose of depreciation is to systematically allocate the depreciable amount of an asset over its useful life in relation to income generated by the asser
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Only ceases when asset is derecognised
--> Does not cease if asset is idle or retired from active use
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