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Questions and Answers
What should be done annually regarding the selected depreciation method?
What should be done annually regarding the selected depreciation method?
- It must be reviewed to ensure appropriateness. (correct)
- It should be permanently fixed.
- It should be changed to a different method.
- It needs to be documented in the financial statements.
Which asset type is not subject to depreciation?
Which asset type is not subject to depreciation?
- Machinery
- Buildings
- Vehicles
- Freehold land (correct)
What must entities do if the fair value of an asset falls below its carrying value?
What must entities do if the fair value of an asset falls below its carrying value?
- Record the asset at cost.
- Impair the asset to its fair value. (correct)
- Ignore the fair value change.
- Revalue the asset upward.
Which financial principle requires the disclosure of the measurement basis for property, plant, and equipment?
Which financial principle requires the disclosure of the measurement basis for property, plant, and equipment?
Which of these is not included in the reconciliation of carrying value for non-current assets?
Which of these is not included in the reconciliation of carrying value for non-current assets?
What does an impairment loss represent in financial statements?
What does an impairment loss represent in financial statements?
What method must entities select for each class of asset for depreciation purposes?
What method must entities select for each class of asset for depreciation purposes?
What is required for assets held at fair value?
What is required for assets held at fair value?
What is the accumulated depreciation for the buildings at 31 December 201X after accounting for the annual depreciation?
What is the accumulated depreciation for the buildings at 31 December 201X after accounting for the annual depreciation?
What is the total cost of plant and machinery after considering the disposal and additions for the year?
What is the total cost of plant and machinery after considering the disposal and additions for the year?
How much depreciation expense was recorded for the plant during the year?
How much depreciation expense was recorded for the plant during the year?
What is the total cost of motor vehicles after the replacement of the old vehicles?
What is the total cost of motor vehicles after the replacement of the old vehicles?
What is the accumulated depreciation for the motor vehicles at 31 December 201X after accounting for depreciation for the year?
What is the accumulated depreciation for the motor vehicles at 31 December 201X after accounting for depreciation for the year?
What is the primary objective of IAS 16?
What is the primary objective of IAS 16?
Which of the following accurately defines 'depreciation'?
Which of the following accurately defines 'depreciation'?
What is considered the 'residual value' of an asset?
What is considered the 'residual value' of an asset?
What must occur for an item of property, plant, and equipment to be recognized as an asset?
What must occur for an item of property, plant, and equipment to be recognized as an asset?
Which costs are included in the initial measurement of property, plant, and equipment?
Which costs are included in the initial measurement of property, plant, and equipment?
How is 'carrying value' defined in relation to an asset?
How is 'carrying value' defined in relation to an asset?
Which of the following treatments for property, plant, and equipment is allowed by IAS 16?
Which of the following treatments for property, plant, and equipment is allowed by IAS 16?
Which of the following costs is excluded from the definition of cost for property, plant, and equipment?
Which of the following costs is excluded from the definition of cost for property, plant, and equipment?
Flashcards
Residual Value
Residual Value
The amount an entity expects to receive when an asset is sold at the end of its useful life.
Depreciation
Depreciation
The systematic allocation of an asset's depreciable amount over its useful life.
Depreciable Amount
Depreciable Amount
The cost of an asset minus its residual value.
Useful Life
Useful Life
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Property, Plant & Equipment
Property, Plant & Equipment
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Carrying Value
Carrying Value
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Fair Value
Fair Value
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Derecognition
Derecognition
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Straight-line Depreciation
Straight-line Depreciation
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Reducing Balance Depreciation
Reducing Balance Depreciation
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Asset Revaluation
Asset Revaluation
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Impairment Loss
Impairment Loss
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Opening balance
Opening balance
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Additions
Additions
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Disposals
Disposals
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Depreciation charge
Depreciation charge
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Reducing balance method
Reducing balance method
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Study Notes
IAS 16 Property, Plant and Equipment
- IAS 16 outlines accounting for property, plant, and equipment to help users assess a company's investment in non-current assets.
- It defines criteria for recognizing assets, calculating carrying values, and handling depreciation and impairment.
- Property, plant, and equipment are assets used in producing or supplying goods/services over more than one accounting period.
- Depreciable amount is the asset's cost minus its residual value.
- Depreciation allocates the depreciable amount over the asset's useful life.
- Useful life estimates the period an asset remains in service.
- Residual value is the estimated net selling price at the end of its useful life.
- Carrying value is the asset's balance sheet amount after deducting accumulated depreciation and impairment.
- Fair value represents the exchanging amount between informed, willing parties in an arm's-length transaction.
- Assets are recognized when future economic benefits are probable and the cost is measurable.
- Disposed assets are removed from the balance sheet.
- Property, plant and equipment can be recorded at cost less accumulated depreciation or at fair value.
- Initial recording is at cost, including purchase price, related costs for location/condition (e.g., import duties, site prep, delivery).
- General administrative and start-up costs (advertising, promotional) are excluded from the cost.
- Freehold land is not subject to depreciation.
- Revaluation of an asset to fair value is possible and a revaluation reserve is created.
- Regular reviews ensure carrying value matches fair value.
- Assets below fair value are considered impaired, with impairment loss recognized in profit or loss.
Depreciation Methods
- Entities choose suitable depreciation methods for each asset class annually, reviewed for accuracy.
- Straight-line and reducing balance methods are common.
- Disclosure requirements for property, plant and equipment (PPE) in financial statements include:
- Measurement basis (cost or fair value)
- Depreciation method
- Asset useful lives/depreciation rates
- Beginning and ending carrying value amounts
- Reconciliation of movements (additions, disposals, revaluations/impairments, and depreciation).
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Description
This quiz covers the key aspects of IAS 16, focusing on the accounting treatment for property, plant, and equipment. Learn about asset recognition, depreciation, impairment, and how to calculate carrying and fair values. Understanding these principles is essential for assessing a company's investment in non-current assets.
