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Slide 1 IAS 16 PROPERTY, PLANT AND EQUIPMENT Presented by March 8th, 2019 OVERVIEW Objective and scope Recognition Initial Measurement Subsequent Measurement Measurement after recognition (CM, RM) Der.
IAS 16 PROPERTY, PLANT AND EQUIPMENT Presented by : th March , 2019 OVERVIEW Objective and scope Recognition Initial Measurement Subsequent Measurement Measurement after recognition (CM, RM) Derecognition Disclosure OBJECTIVES Timing of the recognition of assets Determination of assets carrying amounts using both the cost model and the revaluation model Depreciation charges and impairment losses to be recognized Disclosure requirements SCOPE OF THE STANDARD IAS 16 applies to the accounting for property, plant and equipment, except where another standard requires or permits differing accounting treatments SCOPE OF THE STANDARD SCOPE OF THE STANDARD IAS 16 applies to all PPE except Assets Held for Sale and Discontinued Operations (IFRS 5) Biological assets (IAS 41) Exploration and evaluation assets (IFRS 6) Investment Property (IAS 40) Mineral rights and mineral reserves such as oil, natural gas and similar non-regenerative resources DEFINITION : PROPERTY, PLANT & EQUIPMENT Property, Plant & Equipment defines Property Plant and Equipment as tangible assets that - Held for use in the production or supply of goods or services for rental to others, or administrative purposes Expected to be utilized in more than one period OTHER IMPORTANT DEFINITIONS Cost: Cost is the amount of cash and cash equivalent paid to acquire an asset at the time of its acquisition and construction Fair Value: Fair value represents the present market price of an asset Carrying amount: Carrying amount is the amount at which an asset is recognized after deducting any accumulated depreciation of losses Formula: Carrying amount = Acquisition cost – Accumulated Depreciation MEASUREMENT of RECOGNITION An item of Property, Plant & Equipment that qualifies for recognition as an asset shall be measured at its cost Element of Cost: Its purchase price and duties paid Directly attributable costs Initial estimate of the cost of dismantling and removing the item and restoring the site Materials, labour and other inputs for sell constructed assets MEASUREMENT of RECOGNITION Items of property, plant, and equipment should be recognised as assets when it is probable that: It is probable that the future economic benefits associated with the asset will flow to the entity The cost of the asset can be measured reliably MEASUREMENT at RECOGNITION COST NEVER TO BE CAPITALIZED Costs of opening the facility Costs of introduce new product or service Costs of conducting business in the new location or with new class of customer Administration and other general overhead costs Costs incurred in using or redeveloping an item Amounts related to certain incidental operations MEASUREMENT after RECOGNITION REVALUATION MODEL (RM) RM accounting - what happens if an decrease in asset’s carrying amount? At 31/12/2018, the carrying amount of DAF’s equipment amounted to $130,000 On this day company intends to switch to revaluation model and carries out a revaluation exercise which estimates the fair value of the equipment to be $102,000 The balance of the revaluation surplus relating to the original gain of the equipment was $10,000 What is the double entry to record the revaluation? Solution Entry Carrying amount $130,000 Dr Revaluation reverse $10,000 Fair Value $102,000 Dr Impairment loss Revaluation surplus $10,000 $12,000 Cr Non-current asset $22,000 MEASUREMENT after RECOGNITION REVALUATION MODEL (RM) Debits and credits to Revaluation Surplus are reported in OCI Choice of entries to revalue assets and accumulated depreciation: Proportionately, or Eliminate existing accumulated depreciation MEASUREMENT after RECOGNITION REVALUATION MODEL (RM) DAF Co purchased a equipment July 2018 for $800,000 At acquisition, the useful life of equipment was years Depreciation is calculated on the straight line basis 31 Dec 2018, the equipment was revalued to $900 ,000 31 Dec 2018 due to the slump in market, equipment was revalued at only $700,000 Banjo Co has a policy of transferring the excess depreciation on revaluation from the revaluation surplus to retained earnings What is the double entry to record the revaluation at 31 Dec 2018 and 31 Dec 2019 MEASUREMENT after RECOGNITION REVALUATION MODEL (RM) 31/12/2018 Proportion after Before Revaluation revaluation Equipment $800,000 x900/750 $960,000 Accumulated Depreciation ($50,000) x900/750 ($60,000) $750,000 x900/750 $900,000 ($800,000/8)*6/12 Carrying amount Revaluation amount: $900,000 After revaluation amounts = 900/750 of before revaluation amounts MEASUREMENT after RECOGNITION REVALUATION MODEL (RM) 31/12/2018 Revaluation gain Proportional Method Dr Non-current assets Cr Accumulated Depreciation $160,000 $10,000 Cr Revaluation Surplus/reserve $150,000 After Revaluation Dr Depreciation expenses $60,000 Cr Accumulated depreciation $60,000 Reserves transfer Dr Revaluation surplus: $10,000 Cr Retain earning: $10,000 MEASUREMENT after RECOGNITION REVALUATION MODEL (RM) 31/12/2018 Gross carying amount Method Eliminate the accumulated depreciation: Dr Accumulated Depreciation Cr Non-current assets $50,000 $50,000 ( Equipment is now 800,000-50,000=750,000) Adjust is equipment to revalued amount: Dr Equipment $150,000 Cr Revaluation (OCI) $150,000 MEASUREMENT after RECOGNITION REVALUATION MODEL (RM) Balance sheet Presetation, 31/12/2018 Equipment $960,000 Equipment Accumulated depreciation ($60,000) Accumulated depreciation $900,000 New depreciation rate is needed as of January 1, 2019 $900,000 carrying amount = $120,000 per year 7.5 NRV $900,000 $900,000 MEASUREMENT after RECOGNITION REVALUATION MODEL (RM) 31/12/2019 Before Revaluation Proportion after revaluation Equipment $960,000 x700/840 $800,000 Accumulated Depreciation ($120,000) x700/840 ($100,000) $840,000 x700/840 $700,000 ($900,000/7.5) Carrying amount Revaluation amount: $700,000 After revaluation amounts = 700/840 of before revaluation amounts MEASUREMENT after RECOGNITION REVALUATION MODEL (RM) 31/12/2019 Revaluation loss Proportional Method Entry: Dr: Revaluation Surplus Dr: Accumulated Depreciation $140,000 $20,000 Cr: Non-current assets $160,000 Balance of Revaluation Surplus at 31/12/2018 is $150,000-$10,000=$140,000 Balance of Revaluation Surplus at 31/12/2019 is MEASUREMENT after RECOGNITION REVALUATION MODEL (RM) 31/12/2019 Revaluation loss Gross carying amount Method Entry: Dr: Accumulated Depreciation $120,000 Dr: Non-current assets $120,000 Dr Revaluation Surplus (OCI) $140,000 Cr Non-current assets $140,000 Balance of Revaluation Surplus at 31/12/2018 is $150,000-$10,000=$140,000 Balance of Revaluation Surplus at 31/12/2019 is Depreciation expense = $700,000/6.5 = $107,700 per year MEASUREMENT after RECOGNITION REVALUATION MODEL (RM) Balance sheet Presetation, 31/12/2019 Equipment Accumulated depreciation NRV $800,000 ($100,000) $700,000 Building Accumulated depreciation NRV $700,000 $700,000 Depreciation expense = $700,000/6.5 = $107,700 per year MEASUREMENT after RECOGNITION REVALUATION MODEL (RM) Revaluation Surplus account? As asset is used, transfer difference between depreciation taken using RM and amount if CM had been used directly to Retained Earnings, OR Transfer directly to Retained Earnings when asset derecognized DERCOGNITION When disposed of, or when no future economic benefits to be received from use or disposal Remove carrying amount from statement of Gain or loss = difference between carrying proceeds on disposal financial position amount of asset (or part of asset if a replacement) and net DISCLOSURE Whether CM or RM : Depreciation methods used Depreciation rate or useful lives Beginning and ending balances and depreciation and impairment losses reconciliation of the two for gross amount and total of accumulated CONGATULATION! In three words I can sum up everything I’ve learned about life: it goes on ― Robert In three words I can sum up everything I’ve learned about life: it goes on ― Robert Frost Frost ... reserves such as oil, natural gas and similar non-regenerative resources DEFINITION : PROPERTY, PLANT & EQUIPMENT Property, Plant & Equipment defines Property Plant and Equipment as tangible assets... model and the revaluation model Depreciation charges and impairment losses to be recognized Disclosure requirements SCOPE OF THE STANDARD IAS 16 applies to the accounting for property, plant and. .. dismantling and removing the item and restoring the site Materials, labour and other inputs for sell constructed assets MEASUREMENT of RECOGNITION Items of property, plant, and equipment should