24 Questions
What is the total cost incurred for fixing the machine, testing, and removing the old machine?
Rs. 415,000
Subsequent expenditure on a machine is always capitalized.
False
What is the net sales value of the samples produced during the test run?
Rs. 175,000
The _____ model measures an asset at its cost less accumulated depreciation and impairment losses.
Cost
What is the purpose of the insurance policy obtained?
To cover future losses resulting from the machine
The revaluation model measures an asset at its fair value.
True
Match the following types of expenditure with their treatment in accounting:
Modification to extend machine's useful life = Capitalized Repair and maintenance = Expensed
What is the initial cost of the machine?
Rs. 400,000
What is the objective of LKAS 16: Property, Plant and Equipment?
To prescribe the accounting treatment for property, plant and equipment
LKAS 16: Property, Plant and Equipment applies to biological assets.
False
What are the two conditions that must be met for an item of PPE to be recognised?
The two conditions are: (a) It is probable that future economic benefits associated with the asset will flow to the entity, and (b) The cost of the asset to the entity can be measured reliably.
An item of PPE is initially measured at _______________________.
cost
Match the following types of assets with their corresponding accounting standards:
Investment property = LKAS 40 Biological assets = LKAS 41 Property, plant and equipment = LKAS 16 Leases = SLFRS 16
What is the scope of LKAS 16: Property, Plant and Equipment?
Applies to property, plant and equipment used to develop or maintain certain assets
LKAS 16: Property, Plant and Equipment applies to discontinued operations.
False
What is the definition of property, plant and equipment?
Property, plant and equipment are tangible items that: (a) are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and (b) are expected to be used during more than one period.
How often should an item of property, plant and equipment be revalued unless otherwise necessary?
Every three or five years
The land part of a business premise is depreciated.
False
What is the main reason for derecognizing the carrying amount of an item of property, plant and equipment?
When no future economic benefits are expected from its use or disposal.
The entire __________ of property, plant and equipment to which that asset belongs shall be revalued if an item of property, plant and equipment is revalued.
class
What is disclosed for each class of property, plant and equipment?
The measurement basis, depreciation method, and useful life
What is the revaluation model used by Stylish Ltd in the example?
Revaluation Model
Match the following disclosures with the relevant information for each class of property, plant and equipment:
Measurement basis = Gross carrying amount Depreciation method = Straight-line method Useful life = 40 years Reconciliation = Carrying amount at the beginning and end of the period
The carrying amount of an item of property, plant and equipment is derecognized on disposal.
True
Study Notes
Property, Plant, and Equipment (PPE)
- PPE are tangible items held for use in production, supply, rental, or administrative purposes, expected to be used over more than one period.
Recognition of PPE
- Recognized when:
- Future economic benefits will likely flow to the entity
- Asset cost can be reliably measured
- Individually insignificant assets (e.g., tools, moulds) can be aggregated for recognition as PPE
Initial Measurement
- Initially measured at cost
Revaluation Model
- Frequency of revaluations depends on changes in fair values of PPE
- Unless otherwise necessary, revaluation occurs every 3-5 years
- Entire class of PPE must be revalued when one item is revalued
Depreciation
- Depreciation methods used must be disclosed
- Useful lives or depreciation rates used must be disclosed
- Reconciliation of carrying amount at the beginning and end of the period must be disclosed
Derecognition
- Carrying amount of PPE shall be derecognized:
- On disposal
- When no future economic benefits are expected
Subsequent Costs
- Subsequent expenditure is added to carrying amount when probable future economic benefits exceeding original performance standards will flow to the entity
- Examples:
- Modifying PPE to extend useful life
- Upgrading machine parts to improve output quality
- Adopting new production process to reduce operating costs
- Repairs and maintenance are recognized as expenses in the period incurred
Subsequent Measurement
- Choose either cost model or revaluation model as accounting policy and apply to entire class of PPE
- Revaluation: measured at fair value at revaluation date, less subsequent depreciation and accumulated impairment losses
Objective and Scope
- Objective: prescribe accounting treatment for PPE to provide information on investment and changes in investment
- Scope: applies to PPE used for production, supply, rental, or administrative purposes, excluding specific items (e.g., non-current assets held for sale, biological assets, exploration for mineral resources, leases, investment property)
This quiz covers the revaluation model for property, plant and equipment. It discusses the frequency of revaluations and the requirements for revaluing entire classes of assets.
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