1 / 15

LECTURE WK 12

Property, Plant and Equipment (PP&E). LECTURE WK 12. Measurement after Recognition. recognized at cost of acquisition. 2 model to be adopted as PPE accounting policy: (1) Cost model (Para 30, FRS 116) (2) Revaluation model (Para 31, FRS 116). Cost Model.

josie
Download Presentation

LECTURE WK 12

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Property, Plant and Equipment (PP&E) LECTURE WK 12

  2. Measurement after Recognition • recognized at cost of acquisition. • 2 model to be adopted as PPE accounting policy: (1) Cost model (Para 30, FRS 116) (2) Revaluation model (Para 31, FRS 116)

  3. Cost Model -- PP&E shall be carried at its cost less any accumulated depreciation and any accumulated impairment losses (Para 6, FRS 136) Revaluation Model -- PP&E shall be carried at a revalued amount -- Fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses

  4. Revaluation of PP&E Land and buildings are determined from market-based evidence (market value) by appraisal e.g. qualified valuers. in the event where there is no market-based evidence of fair value, estimation of fair value shall based on income or depreciated replacement cost. After an item of PP&E is revalued, the whole class of PP&E (similar nature and use in an entity’s operations) shall be revalued. When the fair value of a revalued asset differs materially from its carrying amount, it should be revaluated

  5. Under Para 35 (a) and (b) of FRS 116…Acc Dep Restated proportionately with the change in the gross carrying amount of the asset , so that CA after revaluation equals its revalued amount. Eliminated against the gross carrying amount of the asset and the net amount restated to the revalue amount of the asset Accounting Treatment

  6. Revaluation Surplus / Deficit Revaluation of Asset: • Material differences bet assets CA and fair value: • FV > CA = Surplus on Revaluation • Credit Equity as Revaluation Reserve (Para 39) • Subsequent sale/disposal of asset, surplus transferred to P&L • CA > FV = Deficit on Revaluation • Debit P&L - Prudence Concept : It’s considered as loss

  7. Add. Note: Actg Treatment –Revaluation Surplus on Revaluation Taken to P&L when reverses revaluation decrease Deficit on revaluation Debited revaluation reserve to any credit balance remaining (Para 40) Derecognition of surplus As asset used, portion of surplus transferred to P&L (i.e. The difference bet depreciation based on revalued and original cost of asset)

  8. Class of property • Grouping of assets of a similar nature and used in an entity’s operation. • --Land • -- Land and buildings • -- Machinery • -- Ships • -- aircraft • -- Motor vehicles • -- Furniture and fixtures • -- Office equipment

  9. Depreciable vs Non-Depreciable PPE Depreciation ~ Systematic allocation of depreciable amt of asset over useful life Depreciable amt ~ Cost or Revalued Amt LESS Residual Value Residual and Useful life of asset reviewed end of each finl yr end. Residual Value > CA, dep is 0. Cost of land is not depreciated but costs related to its dismantlement, removal and restoration aare depreciated. Eg :Cost of land RM10 Mil, Restoration Cost = RM5 Mil. Total cost of land RM15 Mil. Only the RM5Mil cost is depreciated

  10. Impairment of Assets (FRS 136) • When there is external (i.e. mkt, economy) and/or internal evidence (fire,obsolete) • Impairment loss – When CA < Recoverable amt, their difference is the loss • Recoverable amt – Take higher of • Net selling price (Selling Price – Selling Cost) • Value in Use – Discounted of Future Cash Flow • Reversal of Impairment Loss • When evidence value of asset improved • Max up to CA value if there’s no impairment

  11. Eg: Impairment Loss Cost of PPE 100K (Useful life 10yrs). In year 3 CA of PPE 70K, Net Selling Price 40K and Value in Use 48K, Recov Amt: Take Higher – Value in Use 48K Impairment loss = CA(Yr 3) – Val in Use = 70K – 48K = 22K Dr Impairment Loss (P&L) 22K Cr Asset 22K

  12. Reversal of Impairment Loss • PPE has been improved to better state, recoverable amt is 55K or 65K • Reversal of impairment? If Recov. Amt = 55K CA of asset in yr 4 if previously not impaired =60K Original cost – (Acc Dep + Impairment Loss) - (previous Rec Amt/ 6yrs) + reversal = 55k (take lower of CA vsrec amt) 100K – (30K + 22K) – (48/6)+ X = 55K; X = 15 If Recov Amt is 65K? X = 20K

  13. Johari Corporation acquired 2 lands (PP&E) for RM10 millions each in 20x0. In 20x1, the revaluation occurred: 20x0 20x1 20x2 20x3 ‘000 ‘000 ‘000 ‘000 Land A 10,000 8,000 12,000 8,000 Land B 10,000 12,000 14,000 8,000 Illustration 3

  14. Land A Land B (RM’000) (RM’000) Balance b/d 10,000 10,000 Revaluation surplus/(deficit) year1 (2,000 Dr P&L) 2,000 (Cr RR) Balance as at year 1 8,000 12,000 Revaluation surplus/(deficit) year2 4,000 (Cr P&L & RR) 2,000 (Cr RR) Balance as at year 2 12,000 14,000 Revaluation surplus/(deficit) year 3 (4,000)(Dr RR, Dr P&L) (6,000)Dr RR Dr P&L Balance as at year 3 8,000 8,000 Surplus and Deficit (Illustration 3)

  15. Land A land B (RM’000) (RM’000) Balance b/d 0 0 Revaluation surplus/(deficit) year1 0 2,000 Balance as at year 1 0 2,000 Revaluation surplus/(deficit) year2 2,000 2,000 Balance as at year 2 2,000 4,000 Revaluation surplus/(deficit) year 3 (2,000) (4,000) Balance as at year 3 0 0 The revaluation reserve account (Illustration 3)

More Related