Summary Property, plant and equipment Ias16 and Ifric1
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Course
Chartered Accountant (ACCC371)
Institution
North-West University (NWU)
This document summarizes all the important aspects of the topic Property, plant and equipment which is Ias16 in the international financial reporting standards. This document includes cost model and revaluation model. It also has provision for rehabilitation cost including journal entries, deferred...
Property, plant and
equipment (PPE)
IMPORTANT TO REMEMBER: Imports (shipping terms):
− FOB (free on board): use exchange rate on date when stock is loaded on ship
− CIF (customs, insurance, freight): use exchange rate on date of arrival of the ship in SA port
− DAT (delivered at terminal): use exchange rate on date stock unloaded at port
2.1. IAS 16
− Definitions:
o PPE = Tangible asset used in production or supply of goods or services; Rental to others; Admin purposes AND is
expected to be used for more than one period
o Cost model: asset is carried at CP less accumulated depr and impairment losses
o Revaluation model: Asset is carried at revalued amount; therefore FV on date of revaluation, minus subsequent
depr, provided that the FV can be measured reliably
− Disclosure (accounting policy): depreciation methods; service life; model (e.g. cost model)
Cost
− PPE cost price = purchase price + directly attributable costs + initial estimates of future costs
− Purchase price:
o Includes: Import tax and non-refundable tax
o Excludes: Discounts and rebates received
− Directly attributable costs:
o To get the asset to its current location and condition so that it can be used as intended by management
o Examples: costs for site preparation; initial delivery and handling costs; installation and assembly costs; professional
fees; employee benefits directly related to construction or acquisition; cost to test whether asset is functioning
properly (net of proceeds earned from sale of items produced during testing)
− Dismantling, removal and restoration costs:
o Future costs arising from acquisition: Capitalised as initial cost measured by its PV
o Future costs that arise due to use: Capitalised as a subsequent cost, unless the asset has reached the end of its
useful life, in case future costs are recognized in P/L; is measured against PV
− Subsequent costs:
o Day to day maintenance → always expense
o Replacement of parts: Remove CA of old/damaged part (damage = first test for impairment); Recognise new
component separately; Component not previously recognised separately → estimate CA; Component not
significant → expense
o Major inspections: Recognised as an asset and depreciated over useful life (period until next inspection)
SUMMARY:
− CAPITALISE: Purchase price (paid in cash immediately); Non-refundable import taxes; VAT which is not recoverable from
SARS; Delivery cost on purchase; Installation costs; Maintenance cost which is not day-to-day maintenance costs; [Initial
testing costs – Proceeds on sale from products on initial testing]; Major inspection costs; Compulsory costs of dismantling and
removing at PV; Professional costs for registration of property
− DON’T CAPITALISE: VAT which is recoverable from SARS; Introductory costs; Day-to-day maintenance costs; Initial operating
losses; Costs of relocating; Administrative costs; Advertisements costs; Personnel training for new machine
IMPORTANT TO REMEMBER:
− Repairs/restoration to be capitalised to asset = capitalise on date work finished/completed
− Deferred payment finance costs (AMRT period interest) when journal entries are asked
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