Compensating for Opposing Asset Movements

34 Questions

Which type of assets represents goods that have been bought or produced during the year but have not been sold at the end of the year?

Inventory

Which type of assets are used by the company to run its business, such as machineries and buildings?

Property plant and equipment

Which type of assets are intangible assets used in production, such as trademarks, company names, or software?

Intangibles

According to IFRS 9, which types of assets are regulated?

Investments for short term activity and account receivable

Which of the following is NOT a criterion for the determination and classification of assets?

According to the value of the asset

What are fixed assets primarily used for?

Generating income

How are property, plant, and equipment (PP&E) initially measured?

Historical cost

Which principle does OIC 16 provide only the cost valuation model for?

Revaluation

Which principle allows revaluation defined by law?

IAS 36

Which principle states that lands are not subject to depreciation?

OIC 16

Which method is used to allocate the cost of an asset over its useful life?

Depreciation method

When does the depreciation of an asset begin?

When it is available for use

What happens to the depreciation of an asset when it is classified as held for sale?

It ceases

When should the residual value and useful life of an asset be reviewed?

At the end of each financial year

Which method of accounting for property, plant, and equipment allows for revaluation based on fair value?

Revaluation method

When should the cost of a self-constructed asset be determined?

After the first year of recognition

What happens to the carrying amount of property, plant, and equipment under the cost method?

It is carried at its cost less any accumulated depreciation and impairment losses

When should revaluations of property, plant, and equipment be made?

At the end of the reporting period

Which of the following items are recognized as property, plant and equipment according to this IFRS?

All of the above

When are items such as spare parts, stand-by equipment, and servicing equipment recognized as inventory?

When they are not needed for the operation of the company

How are property, plant and equipment costs evaluated under this recognition principle?

At the time they are incurred

What is the cost of an item of property, plant and equipment?

Any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating

Which of the following methods can be used to calculate depreciation?

The units of production method

When should the depreciation method applied to an asset be reviewed?

Every financial year-end

What factors can contribute to the impairment of a fixed asset?

Obsolescence of the asset

How is the recoverable amount of a fixed asset calculated?

Initial cost minus accumulated depreciation

Which one of these is the correct definition of PPE?

PPE refers to tangible items used in the production or supply of goods or services.

Which one of these is the correct definition of cost?

Cost is the amount of cash or cash equivalents paid to acquire an asset.

Which one of these is the correct definition of useful life?

Useful life is the period over which an asset is expected to be available for use by an entity.

Which one of these is the correct definition of carrying amount?

Carrying amount is the amount at which an asset is recognized after deducting any accumulated depreciation and accumulated impairment losses.

According to IAS 16, can changes in value of assets be compensated at the portfolio level?

No, changes in value of assets cannot be compensated at the portfolio level.

According to IAS 16, how should the impairment of an asset be recorded?

The impairment should be booked only for the exceeding part of identified loss.

According to IAS 16, how should a loss and a reimbursement be recorded for a partially destroyed plant?

Record the loss of value of the asset, the reimbursement when it becomes receivable, and the restoring costs when they occur.

According to IAS 16, when should the carrying amount of an item of property, plant and equipment be derecognized?

On disposal or when no future economic benefits are expected from its use or disposal.

Study Notes

Assets Classification

Inventory represents goods that have been bought or produced during the year but have not been sold at the end of the year.
Property, Plant, and Equipment (PP&E) are used by the company to run its business, such as machineries and buildings.
Intangible assets used in production, such as trademarks, company names, or software, are classified as Intangible Assets.

Regulation and Valuation

IFRS 9 regulates Financial Assets.
OIC 16 provides only the Cost Valuation Model for PP&E.
The Revaluation Model allows revaluation defined by law.
The Cost Principle states that lands are not subject to depreciation.

Depreciation

Depreciation allocates the cost of an asset over its useful life.
Depreciation begins when an asset is available for use.
When an asset is classified as held for sale, its depreciation ceases.
The residual value and useful life of an asset should be reviewed annually.

Property, Plant, and Equipment (PP&E)

PP&E is initially measured at cost.
The Revaluation Model allows revaluation based on fair value.
The carrying amount of PP&E under the Cost Method remains unchanged over time.
Revaluations of PP&E should be made regularly.

Recognition and Cost

Items such as spare parts, stand-by equipment, and servicing equipment are recognized as Inventory.
PP&E costs are evaluated under the Recognition Principle.
The cost of an item of PP&E includes all costs necessary to bring the asset to its present location.
Depreciation methods include the Straight-Line Method, the Reducing Balance Method, and the Units-of-Production Method.

Impairment and Derecognition

Factors contributing to the impairment of a fixed asset include physical damage, changes in market, and obsolescence.
The recoverable amount of a fixed asset is the higher of its fair value less costs to sell and its value in use.
The carrying amount of PP&E should be derecognized when it is no longer expected to generate economic benefits.

Definitions

Property, Plant, and Equipment (PP&E) are tangible items held for use in the production or supply of goods or services.
Cost is the amount of cash or cash equivalents paid or the fair value of other consideration given to acquire an asset.
Useful Life is the period over which an asset is expected to generate economic benefits.
Carrying Amount is the amount at which an asset is recognized in the statement of financial position.

IAS 16

Changes in value of assets cannot be compensated at the portfolio level according to IAS 16.
Impairment of an asset should be recorded as an expense.
A loss and a reimbursement should be recorded for a partially destroyed plant according to IAS 16.
The carrying amount of an item of PP&E should be derecognized when it is no longer expected to generate economic benefits.

Test your knowledge on how to compensate for opposing movements in asset values according to IAS 16. Learn about the limitations on portfolio level compensation and the possibility of compensating impairment with previous revaluation.

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