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Questions and Answers
What happens to the carrying amount of the previous major inspection after a new inspection is recognised?
What happens to the carrying amount of the previous major inspection after a new inspection is recognised?
When recognising the cost of a major inspection, what criteria must be satisfied?
When recognising the cost of a major inspection, what criteria must be satisfied?
How should land and buildings be accounted for when they are acquired together?
How should land and buildings be accounted for when they are acquired together?
What can be used as an indication of the cost of the existing inspection component?
What can be used as an indication of the cost of the existing inspection component?
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What is the recognition treatment for costs associated with a major inspection as part of property, plant, and equipment?
What is the recognition treatment for costs associated with a major inspection as part of property, plant, and equipment?
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Under what conditions should the cost of an item of property, plant and equipment be recognized as an asset?
Under what conditions should the cost of an item of property, plant and equipment be recognized as an asset?
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How should spare parts and servicing equipment be classified if they do not meet the definition of property, plant and equipment?
How should spare parts and servicing equipment be classified if they do not meet the definition of property, plant and equipment?
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What should an entity do when part of a property, plant, and equipment item is replaced and it provides incremental future benefits?
What should an entity do when part of a property, plant, and equipment item is replaced and it provides incremental future benefits?
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When is it acceptable for an entity to estimate the carrying amount of a replaced part?
When is it acceptable for an entity to estimate the carrying amount of a replaced part?
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How should the initial cost of an asset be treated when its major components have different consumption patterns?
How should the initial cost of an asset be treated when its major components have different consumption patterns?
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Study Notes
Recognition of Property, Plant, and Equipment (PPE)
- Items are recognized as assets only if future economic benefits are probable and costs can be measured reliably.
- Spare parts, standby equipment, and servicing equipment are recognized as PPE if they meet the definition; otherwise, they are classified as inventory.
Replacement and Derecognition
- Costs for replacing parts of PPE that provide incremental future benefits increase the asset's carrying amount.
- Carrying amounts of replaced parts are derecognized, irrespective of whether these parts were previously depreciated.
- If identifying the carrying amount of replaced parts is impractical, use the current replacement cost adjusted for depreciation and impairment.
Componentization of Assets
- When assets have major components with different economic consumption patterns, initial costs must be allocated to these components, each being depreciated separately over its useful life.
Major Inspections for Continuing Operation
- Regular major inspections are necessary for certain PPE (e.g., buses) to ensure continued operation, regardless of parts replacement.
- Costs of major inspections can be added to the carrying amount if recognition criteria are satisfied, with the previous inspection's carrying amount being derecognized.
- Estimated future inspection costs may serve as a proxy for initial inspection cost when determining carrying amounts.
Separable Assets
- Land and buildings should be treated as separate assets for accounting purposes, even when acquired together.
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Description
This quiz focuses on the recognition criteria for property, plant, and equipment as outlined in paragraph 2.27. It addresses the conditions under which costs can be recognized as assets and the importance of measuring costs reliably. Test your understanding of these concepts in relation to economic benefits.
