IAS 16 requires that estimates of useful life and residual value be reviewed at the end of each reporting period. (a) Prepare any necessary journal entries to account for this building during the year ended 31 March 20X2. An investment property is also an asset held for capital gains. Required LsTMe)ZaK@@@QcB$967] A$OSHTM8\Vv+ !ki,0FuFe!`=P}+qUb`fCpn/ Any additions and disposals during the year, Any assets acquired as part of a business combination, Any impairment loss recognized in the current year, Assets classified as held for sale under IFRS 5. endobj In other words, it is a property held for rental purposes. Calculate the value at which the plant will be measured at initialrecognition in the financial statements of the AB Ltd. Electrical cable placement (28,000 12,000), Dismantling and restoration costs (30,000 + 6,000). Any other cost which is necessary to bring the asset into its operating use or intended use by the management. The aircraft was acquired on 1 January 2001. IAS 40 provides examples of investment property which are in the scope and outside the scope of the standard. (b) The entity should review the depreciation method opted at each reporting date and if there is any change in the pattern of consumption of economic benefits related to the asset, then the entity should change the depreciation method in accordance with the new pattern of consumption of economic benefits and such change will be accounted for as change in accounting estimate, which will be applied prospectively from that date. Revaluations must also be carried out with sufficient regularity so that the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period. However, the gain should be recognised in the statement of profit or loss to the extent that it reverses a revaluation decrease (ie a revaluation loss) of the same asset which had previously been recognised in profit or loss. <>]>>/Pages 1114 0 R/Type/Catalog>> E[-htV_ylwicESlgnZFD8P_~gy:,o%Fn:=O|R\tz>-P,UDkq $Oys1<09:}^p/(>W[0{MZf8]}. If an entity acquires an item of property, plant and equipment in exchange for a non-monetary asset, then the cost of the asset acquired in exchange will be determined as follows: The transaction of exchange will deem to have commercial substance if: In such circumstances the entity will determine the cost of the asset acquired in exchange as: (a) The fair value of asset transferred cash. Are you looking to stay ahead in the ever-changing business world and enhance your understanding of International Financial Reporting Standards (IFRS)? The entity expects that in the next 6 years, the market for the purchase and sale of this type of asset will be on the rise. An item of plant was purchased on 1 April 20X0 for $200,000 and is being depreciated at 25% on a reducing balance basis. This standard deals with the four main aspects of financial reporting of property, plant and equipment (PPE) that are likely to be of major relevance in the FR exam, namely: initial measurement. However, if an entity holds properties for sale in the short term in the ordinary course of business and thus obtains a profit, we would not be talking about an investment property but the sale of inventory. At the same time the engine was replaced, the company took the opportunity to upgrade the cabin facilities at a cost of $120 million and the exterior structure was repainted at a cost of $40 million. At the start of January 2009 a decision was taken to replace the engine at a cost of $280 million, due to the unreliability of the old engine. endstream More common errors when accounting for property, plant and equipment (IAS 16 - Part 4) IAS 16 Property, Plant and Equipment is a relatively simple standard to read and apply, yet it is a standard where preparers can easily make errors which affect amounts recognised as property, plant and equipment (PPE) in the statement of financial position. Title: Slide 1 Author: Ahsan Abbas Last modified by: shoaib ahmed . An entity will de-recognize the asset from statement of financial position when: (b) the cost of the item can be measured reliably. The following is the IAS 16 summary. B/VK9\9[gZ.7g;(+,-6VIaQq9S&(*l9kZA ^ZX;URf2sriGVbs6J}&'y(x0YI,IB+pll_6AOMRi:K,uNPo2::=@d3(E@Wc`q( In simple terms the revalued amount should be depreciated over the assets remaining useful life. Cost of site preparation. However, from the perspective of the entity that owns it, the property is investment property if it meets the definition in paragraph 5 of ias 40. The following post shows a series of illustrative examples related to IFRS 16. DrStatement of profit or loss [any additional loss] The example of those fixed assets include: Land Office Building Machinery Cars Computers Table Chair and others related. Another practical example is in the case of Clicks group where a clear treatment of PPE is illustrated with conformance to the IAS 16. In other words, depreciation applies the accruals concept to the capitalised cost of a non-current asset and matches this cost to the period that it relates to. In practice, this means that expenditure is capitalized if it improves the asset (for example, by enhancing its performance or extending its useful life). endobj IAS-16: Property, Plant and Equipment with Practical Examples in Bangla: For each class of property, plant, and equipment, disclose: [IAS 16.73]: - basis fo. The remaining useful life was reassessed at the time of valuation and is considered to be 40 years at this date. The assets which are recognized as property, plant and equipment are initially measured at Cost which is determined as: The capitalization of cost will cease when the asset becomes available for operating use or intended use by the management. IAS 16 - PDF Free Download (b) Prepare extracts from the following financial statements for the year ended 31 March 20X6: (See 'Related links' for the solution to Example 10.).
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