IAS 16 PPE

Question 1

This Standard does not apply to

Answer 1

(a) PPE classified as HFS; (b) biological assets related to agricultural activity; (c) the recognition and measurement of exploration and evaluation assets; (d) mineral rights and mineral reserves such as oil, natural gas and similar non-regenerative resources.

Question 2

Carrying amount

Answer 2

the amount at which an asset is recognised after deducting any accumulated depreciation and accumulated impairment losses

Question 3

Cost

Answer 3

the amount of cash or cash equivalents paid/the fair value of the other consideration given to acquire an asset at the time of its acquisition or construction, or, where applicable, the amount attributed to that asset when initially recognised in accordance with the specific requirements of other IFRSs, eg IFRS 2 Share-based Payment.

Question 4

Depreciable amount

Answer 4

the cost of an asset, or other amount substituted for cost, less its residual value

Question 5

Depreciation

Answer 5

the systematic allocation of the depreciable amount of an asset over its useful life.

Question 6

Entity-specific value

Answer 6

the present value of the cash flows an entity expects to arise from the continuing
use of an asset and from its disposal at the end of its useful life or expects to incur when settling a
liability

Question 7

Fair value

Answer 7

the amount for which an asset could be exchanged between knowledgeable, willing parties
in an arm?s length transaction

Question 8

Impairment Loss

Answer 8

the amount by which the carrying amount of an asset exceeds its recoverable amount

Question 9

Property, plant and equipment are tangible items that

Answer 9

(a) are held for use in the production or supply of goods or services, for rental to others, or for
administrative purposes; and
(b) are expected to be used during more than one period

Question 10

Recoverable amount

Answer 10

the higher of an asset?s fair value less costs to sell and its value in use.

Question 11

Residual Value

Answer 11

the estimated amount that an entity would currently obtain from 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

Question 12

Useful Life:

Answer 12

(a) the period over which an asset is expected to be available for use by an entity; or
(b) the number of production or similar units expected to be obtained from the asset by an entity

Question 13

The cost of an item of property, plant and equipment shall be recognised as an asset if, and only if:

Answer 13

(a) it is probable that future economic benefits associated with the item will flow to the entity;
and
(b) the cost of the item can be measured reliably.

Question 14

T/F: Under the recognition principle in paragraph 7, an entity does not recognise in the carrying amount of an item of property, plant and equipment the costs of the day-to-day servicing of the item. Rather, these costs are recognised in profit or loss as incurred.

Answer 14

True.

Question 15

An item of property, plant and equipment that qualifies for recognition as an asset shall be measured at its ____

Answer 15

cost

Question 16

The cost of an item of property, plant and equipment comprises

Answer 16

(a) its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates.
(b) any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.
(c) the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, the obligation for which an entity incurs either when the item is acquired or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that period.

Question 17

Examples of directly attributable costs are:

Answer 17

(a) costs of employee benefits (as defined in IAS 19 Employee Benefits) arising directly from the construction or acquisition of the item of property, plant and equipment;
(b) costs of site preparation;
(c) initial delivery and handling costs;
(d) installation and assembly costs;
(e) costs of testing whether the asset is functioning properly, after deducting the net proceeds from
selling any items produced while bringing the asset to that location and condition (such as samples
produced when testing equipment); and
(f) professional fees.

Question 18

An entity applies IAS 2 Inventories to the costs of obligations for dismantling, removing and restoring the
site on which an item is located that are incurred during a particular period as a consequence of ______

Answer 18

having used the item to produce inventories during that period.

Question 19

Examples of costs that are not costs of an item of property, plant and equipment are

Answer 19

(a) costs of opening a new facility;
(b) costs of introducing a new product or service (including costs of advertising and promotional
activities) ;
(c) costs of conducting business in a new location or with a new class of customer (including costs of staff training); and
(d) administration and other general overhead costs.

Question 20

Recognition of costs in the carrying amount of an item of property, plant and equipment ceases when the
item is in the location and condition necessary for it to be capable of operating in the manner intended by
management. Therefore, costs incurred in using or redeploying an item are not included in the carrying
amount of that item. For example, the following costs are not included in the carrying amount of an item of
property, plant and equipment:

Answer 20

(a) costs incurred while an item capable of operating in the manner intended by management has yet to be brought into use or is operated at less than full capacity;
(b) initial operating losses, such as those incurred while demand for the item?s output builds up; and
(c) costs of relocating or reorganising part or all of an entity?s operations.

Question 21

T/F: The cost of abnormal amounts of wasted material, labour, or other resources
incurred in self-constructing an asset is not included in the cost of the asset

Answer 21

True.

Question 22

T/F: The cost of an item of property, plant and equipment is the cash price equivalent at the recognition date. If
payment is deferred beyond normal credit terms, the difference between the cash price equivalent and the
total payment is recognised as interest over the period of credit unless such interest is capitalised in
accordance with IAS 23.

Answer 22

True.

Question 23

The cost of such an item of property, plant and equipment is measured at fair value
unless

Answer 23

(a) the exchange transaction lacks commercial substance or (b) the fair value of neither the asset received nor the asset given up is reliably measurable.

Question 24

T/F: If an entity is able to determine reliably the fair value of either the asset received or the asset given up,
then the fair value of the asset received is used to measure the cost of the asset given up unless the fair value
of the asset given up is more clearly evident.

Answer 24

False. If an entity is able to determine reliably the fair value of either the asset received or the asset given up, then the fair value of the asset given up is used to measure the cost of the asset received unless the fair value of the asset received is more clearly evident.

Question 25

2 Models of Measurement After Recognition:

Answer 25

1.) Cost Model 2.) Revaluation Model

Question 26

Cost Model

Answer 26

After recognition as an asset, an item of property, plant and equipment shall be carried at its cost less any accumulated depreciation and any accumulated impairment losses.

Question 27

Revaluation Model

Answer 27

After recognition as an asset, an item of property, plant and equipment whose fair value can be
measured reliably shall be carried at a revalued amount, being its fair value at the date of the
revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Revaluations shall be made with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period.

Question 28

The fair value of land and buildings is usually determined from ____

Answer 28

market-based evidence by appraisal that is normally undertaken by professionally qualified valuers.

Question 29

The fair value of items of plant and equipment is usually ___

Answer 29

their market value determined by appraisal.

Question 30

When an item of property, plant and equipment is revalued, any accumulated depreciation at the date of the
revaluation is treated in one of the following ways:

Answer 30

(a) restated proportionately with the change in the gross carrying amount of the asset so that the carrying amount of the asset after revaluation equals its revalued amount. This method is often used when an asset is revalued by means of applying an index to determine its depreciated replacement cost.
(b) eliminated against the gross carrying amount of the asset and the net amount restated to the revalued amount of the asset. This method is often used for buildings

Question 31

A class of property, plant and equipment is a grouping of assets of a similar nature and use in an entity?s
operations. The following are examples of separate classes:

Answer 31

(a) land;
(b) land and buildings;
(c) machinery;
(d) ships;
(e) aircraft;
(f) motor vehicles;
(g) furniture and fixtures; and
(h) office equipment.

Question 32

T/F: If an item of property, plant and equipment is revalued, the entire class of property, plant and
equipment to which that asset belongs shall not be revalued.

Answer 32

False. The entire class of PPE to which that asset belongs shall be revalued (par 36)

Question 33

If an asset?s carrying amount is increased as a result of a revaluation, the increase shall be recognised
in ________ under the heading of ______. However, the increase shall be recognised in profit or loss to the extent that it ________________________________.

Answer 33

other comprehensive income and accumulated in equity, revaluation surplus, reverses a revaluation decrease of the same asset previously recognised in profit or loss

Question 34

If an asset?s carrying amount is decreased as a result of a revaluation, the decrease shall be recognised
in ___________. However, the decrease shall be recognised in other comprehensive income to the
extent of _______________________________.

Answer 34

profit or loss, any credit balance existing in the revaluation surplus in respect of that asset.

Question 35

T/F: The revaluation surplus included in equity in respect of an item of property, plant and equipment may be
transferred directly to retained earnings when the asset is derecognised

Answer 35

True.

Question 36

However, some of the surplus may be transferred as the asset is used by an entity. In such a case, the amount of the surplus transferred would be the difference between depreciation based on __________ and depreciation based on ___________.

Answer 36

the revalued carrying amount of the asset, the asset?s original cost.

Question 37

The depreciation charge for each period shall be recognised in profit or loss unless ______________.

Answer 37

it is included in the carrying amount of another asset.

Question 38

The depreciation of manufacturing plant and equipment is included in the ___________.

Answer 38

costs of conversion of inventories

Question 39

T/F: The residual value and the useful life of an asset shall be reviewed at least at each financial year-end
and, if expectations differ from previous estimates, the change(s) shall be accounted for as a change in
an accounting policy.

Answer 39

False. What makes it false is the last statement. It shall be accounted for as a change in an accounting method

Question 40

Depreciation is recognised even if the fair value of the asset exceeds its carrying amount, as long as ____________________.

Answer 40

the asset?s residual value does not exceed its carrying amount

Question 41

Compensation from third parties for items of property, plant and equipment that were impaired, lost
or given up shall be included in profit or loss when __________

Answer 41

the compensation becomes receivable.

Question 42

The gain or loss arising from the derecognition of an item of property, plant and equipment shall be
included in ____ when the item is derecognised

Answer 42

profit or loss

Question 43

The financial statements shall disclose, for each class of property, plant and equipment:

Answer 43

The financial statements shall disclose, for each class of property, plant and equipment:
(a) the measurement bases used for determining the gross carrying amount;
(b) the depreciation methods used;
(c) the useful lives or the depreciation rates used;
(d) the gross carrying amount and the accumulated depreciation (aggregated with accumulated
impairment losses) at the beginning and end of the period; and
(e) a reconciliation of the carrying amount at the beginning and end of the period showing:
(i) additions;
(ii) assets classified as held for sale or included in a disposal group classified as held for
sale in accordance with IFRS 5 and other disposals;
(iii) acquisitions through business combinations;
(iv) increases or decreases resulting from revaluations under paragraphs 31, 39 and 40
and from impairment losses recognised or reversed in other comprehensive income
in accordance with IAS 36;
(v) impairment losses recognised in profit or loss in accordance with IAS 36;
(vi) impairment losses reversed in profit or loss in accordance with IAS 36;
(vii) depreciation;
(viii) the net exchange differences arising on the translation of the financial statements
from the functional currency into a different presentation currency, including the translation of a foreign operation into the presentation currency of the reporting
entity; and
(ix) other changes.

Question 44

(4 additional disclosures) The financial statements shall also disclose:

Answer 44

(a) the existence and amounts of restrictions on title, and property, plant and equipment pledged as security for liabilities;
(b) the amount of expenditures recognised in the carrying amount of an item of property, plant
and equipment in the course of its construction;
(c) the amount of contractual commitments for the acquisition of property, plant and equipment; and
(d) if it is not disclosed separately in the statement of comprehensive income, the amount of
compensation from third parties for items of property,

Question 45

If items of property, plant and equipment are stated at revalued amounts, the following shall be
disclosed:

Answer 45

(a) the effective date of the revaluation;
(b) whether an independent valuer was involved;
(c) the methods and significant assumptions applied in estimating the items? fair values;
(d) the extent to which the items? fair values were determined directly by reference to observable
prices in an active market or recent market transactions on arm?s length terms or were
estimated using other valuation techniques;
(e) for each revalued class of property, plant and equipment, the carrying amount that would
have been recognised had the assets been carried under the cost model; and
(f) the revaluation surplus, indicating the change for the period and any restrictions on the
distribution of the balance to shareholders.