Property, Plant and Equipment Revaluation
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Questions and Answers

What is the total cost incurred for fixing the machine, testing, and removing the old machine?

  • Rs. 415,000 (correct)
  • Rs. 415,015
  • Rs. 400,000
  • Rs. 420,000

    • 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.

    <p>Cost</p> Signup and view all the answers

    What is the purpose of the insurance policy obtained?

    <p>To cover future losses resulting from the machine</p> Signup and view all the answers

    The revaluation model measures an asset at its fair value.

    <p>True</p> Signup and view all the answers

    Match the following types of expenditure with their treatment in accounting:

    <p>Modification to extend machine's useful life = Capitalized Repair and maintenance = Expensed</p> Signup and view all the answers

    What is the initial cost of the machine?

    <p>Rs. 400,000</p> Signup and view all the answers

    What is the objective of LKAS 16: Property, Plant and Equipment?

    <p>To prescribe the accounting treatment for property, plant and equipment</p> Signup and view all the answers

    LKAS 16: Property, Plant and Equipment applies to biological assets.

    <p>False</p> Signup and view all the answers

    What are the two conditions that must be met for an item of PPE to be recognised?

    <p>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.</p> Signup and view all the answers

    An item of PPE is initially measured at _______________________.

    <p>cost</p> Signup and view all the answers

    Match the following types of assets with their corresponding accounting standards:

    <p>Investment property = LKAS 40 Biological assets = LKAS 41 Property, plant and equipment = LKAS 16 Leases = SLFRS 16</p> Signup and view all the answers

    What is the scope of LKAS 16: Property, Plant and Equipment?

    <p>Applies to property, plant and equipment used to develop or maintain certain assets</p> Signup and view all the answers

    LKAS 16: Property, Plant and Equipment applies to discontinued operations.

    <p>False</p> Signup and view all the answers

    What is the definition of property, plant and equipment?

    <p>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.</p> Signup and view all the answers

    How often should an item of property, plant and equipment be revalued unless otherwise necessary?

    <p>Every three or five years</p> Signup and view all the answers

    The land part of a business premise is depreciated.

    <p>False</p> Signup and view all the answers

    What is the main reason for derecognizing the carrying amount of an item of property, plant and equipment?

    <p>When no future economic benefits are expected from its use or disposal.</p> Signup and view all the answers

    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.

    <p>class</p> Signup and view all the answers

    What is disclosed for each class of property, plant and equipment?

    <p>The measurement basis, depreciation method, and useful life</p> Signup and view all the answers

    What is the revaluation model used by Stylish Ltd in the example?

    <p>Revaluation Model</p> Signup and view all the answers

    Match the following disclosures with the relevant information for each class of property, plant and equipment:

    <p>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</p> Signup and view all the answers

    The carrying amount of an item of property, plant and equipment is derecognized on disposal.

    <p>True</p> Signup and view all the answers

    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)

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    Description

    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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