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Unit 2 ACC 21 - Coggle Diagram
Unit 2 ACC 21
IAS 16 (PPE)
Important definitions
An asset is a resource controlled by the entity; that originated as a result of past events, that will result in future economic benefits flowing to the entity
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Initially recognised at cost, including:
Purchase price, including import duties and non-refundable purchase taxes, after the deduction of trade discounts and rebates. VAT not included if VAT registered. Included if not VAT registered or no input VAT can be claimed on the asset.
Directly attributable costs of bringing the asset to the location and condition necessary for it to operate in the way management intended.
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Inspection costs
Costs of inspections may be capitalised and recognised as a separate component of the asset upon initial recognition.
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IAS 23- Borrowing costs
Borrowing costs directly attributable to acquisition or production of qualifying asset shall be capitalised
Borrowing costs- Interest and other costs that an entity incurs in connection with the borrowing of funds
Qualifying assets- An asset that necessarily takes a substantial period of time to get ready for its intended use
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Recognition
Borrowing costs that are directly attributable and would have been avoided had expenditure not been incurred relating to the acquisition, construction or production of a qualifying asset are capitalised as part of the cost of the asset if it is probable that:
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Date
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Suspended- when development is interrupted for extended periods, unless temporary or unavoidable
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Two types
Specific
Actual borrowing costs less investment income earned on any temporary investment of those borrowings
General
Expenditure on the asset multiplied by the capitalisation rate (weighted average rate on general borrowings) limited to actual borrowing costs incurred during the period
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IAS 36- Impairment
Important definitions
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Carrying amount - The amount at which an asset is recognised in the SFP after deduction accumulated depreciation or amortisation and accumulated impairment losses thereon
Fair value- 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
Cost of disposal- Direct incremental costs attributable to the disposal of the asset, excluding finance costs and income tax, but including legal costs, costs to remove asset, transaction costs, etc.
Value in use- The PV of future cash flows expected to be derived from an asset. These cash flows include both those from continuing use of the asset as well as from the eventual disposal of the asset at the end of its useful life.
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Recoverable amount
Higher of
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Value in use
Estimated future cash flows generated by this asset (Continued use/ sale of asset at end of useful life)
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Measurement of PPE
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If payment is deferred, interest at a market related rate must be recognised
If an asset is acquired in exchange for another, the cost of the new asset will be at fair value of the asset given up unless
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The fair value of neither the asset received nor given up can be reliably measured, in which case the cost of the new asset is measured at the carrying amount of the asset given up
IAS 16 Continued...
Depreciation
The systematic allocation of the depreciable amount (cost, less residual value) of an asset over its useful life
residual value- estimated amount that the entity would currently obtain from the disposal of an asset after deducting estimated costs of disposal.
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Depreciation begins when the asset is available for use, not when it is bought into use.
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Impairment
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Where such a decline has occurred, the carrying amount of the asset is written down to its recoverable amount and the reduction will be recognised as an expense immediately
Derecognition
An item of PPE will be derecognised in the SFP on disposal or when no future economic benefits are expected to flow from its use or disposal
The profit or loss on disposal or retirement of the PPE will be calculated as the difference between the net disposal proceeds and the carrying amount of the asset and included in profit or loss for the period
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If payment is deferred, the consideration received is recognised initially at the cash price equivalent on the transaction date and the interest income is recognised using the effective interest rate method
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