Please enable JavaScript.
Coggle requires JavaScript to display documents.
Property, Plant and Equipment Pt 2 - Coggle Diagram
Property, Plant and Equipment Pt 2
Subsequent Measurement
- If an item of PPE is revalued, the entire class to which it belongs must be revalued, and revaluations must be done regularly to ensure the carrying amount of the asset does not differ substantially from the fair value at the end of the reporting period.
- The Carrying Amount of an Asset is calculated by
- Subtracting Accumulated Depreciation, Accumulated Impairment Losses, and Any Residual Value from the Cost/Revalued Amount.
- When an item of property, plant and equipment (PPE) is recognized as an asset
-
- Aspects such as Depreciation, Impairment, and Useful Life are important in the Measurement process of PPE, regardless of the Model used.
Depreciation
- Depreciable amount refers to the Cost of an Asset, Less Residual Value.
- Residual value is the estimated amount that the entity would currently obtain from the disposal of the asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life.
- The Depreciable amount is calculated by Subtracting the Estimated Current Residual Value from the historical cost (or Revalued Amount) of an asset.
- Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life.
- Three aspects should be considered when deciding on the amount of depreciation allocated:
-
-
-
-
-
Revaluation Model
- Frequency of revaluations depends on change in fair value
- Fair value of PPE measured using revaluation model should be determined according to IFRS 13
-
According to IFRS 13, fair value should reflect 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.
- Property, plant, and equipment items are Initially Measured at Cost
-
-
- Three widely used valuation techniques to determine fair value According to IFRS 13
-
-
-
- Revaluation Surplus must be Viewed and Disclosed as Part of Equity
- Revaluation surplus can only be used to Absorb Subsequent Revaluation Deficits or Impairment Losses or for Capitalization Issues
- Deficits of one item cannot be set off against surpluses of another, even if they are from the same category
Impairment
- The Carrying Amount of a PPE is recovered systematically over its useful life through usage
In other words, the Cost of the asset is recognized as an expense in the financial statements over the period that it is being used.
- If an item or group of similar items are impaired by damage, obsolescence or economic factors, the recoverable amount may be less than its carrying amount, and the carrying amount is written down to its recoverable amount
-
-
- IAS 36 is used to determine whether there has been a decline in the value of an item of PPE
- Difference between Depreciation and Impairment
Depreciation
Depreciation refers to the systematic allocation of the purchase price of an asset to the profit or loss statement over time
Impairment
While impairment refers to the permanent diminution in value of an asset and is recognized in the profit or loss statement
- If an item of PPE is impaired, destroyed, or lost, any compensation received for that item should be recognized as income in the period in which it is received, but only up to the carrying amount of the asset
If compensation is received for future operating losses or for the restoration of an asset, it should be recognized as revenue over the period necessary to compensate for the loss or restoration of the asset
-
-
Compensation received for PPE that was impaired, lost, or given up must be included in the profit or loss statement when received
Derecognition
-
-
The disposal of an item of property, plant and equipment may occur in a variety of ways, such as
-
-
- Entering into a Finance Lease
-
When an item of property, plant and equipment is sold, the amount of money that the seller expects to receive from the buyer is recognized as revenue at its
-
-
-
Disclosure
International Accounting Standard (IAS) 16 outlines requirements for disclosing information related to property, plant, and equipment (PPE)
Disclosures include:
-
Information about revaluations, such as whether revaluation surplus realizes through use
-
-
-
Additional information required for revalued PPE, including:
-
-
-
Revaluation surplus, including movement and limitations on distributions to shareholders