IFA-I Chapter 5 PDF

Chapter 5: Property, Plant, and Equipment (IAS 16) Acquisition and Disposition of Property, Plant, and Equipment  Characteristics of property, plant, and equipment  Acquisition & valuation of property, plant and equipment  Costs subsequent to acquisition  Disposition of property, plant...

Chapter 5: Property, Plant, and Equipment (IAS 16) Acquisition and Disposition of Property, Plant, and Equipment  Characteristics of property, plant, and equipment  Acquisition & valuation of property, plant and equipment  Costs subsequent to acquisition  Disposition of property, plant and equipment Depreciation, Impairments, and Revaluations 1 RELEVANT STANDARDS Topic List Standards Property, plant and equipment IAS 16 Fair Value IFRS 13 Impairment IAS 36 2 1. Objective The objective of IAS 16 is to prescribe the accounting treatment for property, plant, and equipment. The principal issues are the recognition of assets, the determination of their carrying amounts, and the depreciation charges and impairment losses to be recognized in relation to them. 3 Definition & Scope Property, Plant and Equipment are tangible items that :  Are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes  Are expected to be used during more than one period. 4 Scope This Standard does not apply to:  Property, plant and equipment classified as held for sale in accordance with IFRS 5.  Biological assets related to agricultural activity (covered by IAS 41 –Agriculture) other than bearer plants.  Mineral rights and mineral reserves such as oil, gas, and similar ‘non-regenerative’ resources 5 Recognition General Property, Plant and Equipment shall be recognized as an asset if, and only if: a)It is probable that future economic benefits associated with the item will flow to the entity; this can be judged with reference to the fact whether the entity ability to restrict the access of others to those benefits b)The cost of the item can be measured reliably 6  Different Aspects of PP&E Recognition An item of inventory is accounted for as an item of PP&E a) Items such as spare parts, stand-by equipment and servicing equipment are inventory unless they meet the definition of PP&E b) In general, an item of inventory is accounted for as an item of PP&E if it:  Is not held for sale or consumed in a production process or during the process of rendering services;  Is necessary to operate or benefit from an asset during more than one operating cycle 7  Examples for items of PPE not consumed and consumed in the production process a) For Items of PP&E not consumed in the production process An entity operates an oil refining plant. In order for the refining process to take place, the plant must contain a certain minimum quantity of oil. This can only be taken out once the plant is abandoned and would then be polluted to such an extent that the oil’s value is significantly reduced In this example the part of the crude that is necessary to operate (in technical terms) the plant and cannot be recouped (or can be recouped but would then be significantly impaired), even when the plant is abandoned, should be considered as an item of PP&E and amortized over the life of the plant b) For Items of inventory consumed in the production process An entity sells gas and has at any one time a certain quantity of gas in its gas distribution network. In this example the gas in the pipeline is not necessary to operate the pipeline. It is held for sale or to be consumed in the production process or process of rendering services. Therefore this gas is accounted for as inventory 8 Environmental and safety equipment Cost incurred for Environmental protection and safety equipment can be capitalised when there is a constructive (self imposed) obligation to invest in the equipment. For example when the entity by legislation or voluntarily invest on environmental & protection equipment 9 Transfers of assets from customers Our entity receives from a customer, or another party, an item of PP&E (or cash for the acquisition or construction of such items) and then use either to connect the customer to a network or to provide the customer with ongoing access to a supply electricity services. While we do this we should recognize such type PP&E items in our books of records, since it full fills the following PP&E recognition criteria  Future economic benefits associated with the PP&E item will flow to the entity; our entity ability to restrict the access of others to those benefits The cost of the item can be measured reliably 10 Bearer Plants Bearer plants (for example the root part of Eucalyptus trees) that are used in the production or supply of agricultural produce (wood pole trees used to install our electric line), are expected to bear produce for more than one period and have a remote likelihood of being sold as a plant or harvested as agricultural produce are classified under PPE within the scope of IAS 16. 11 Minor items Of PP&E A very large number of minor items of PP&E such as spare parts, tools, staplers, clip meters and …etc., which nevertheless are used in more than one accounting period. There are practical problems in recording them on an asset- by-asset basis in an asset register; they are difficult to control and frequently lost. The main consequence is that it becomes very difficult to depreciate them. In General we will write off such immaterial assets as expenses in the period of addition 12 The right to use of Land As per our country land policy, all Lands are owned by the government, but currently in so many places our entity uses lands free of any charge and this should be recognized initially in our books as asset as long as they fulfil the asset recognition criteria 13 Measurement Of PPE General Measurement is the process of determining monetary amounts at which elements are recognized, this refers to PPE:  Initial recognition  Cost incurred Subsequent to Acquisition Subsequent recognition 14 Initial recognition of PPE General Initial recognition for PPE refers to its Historical cost that is whenever an entity initially incurs expense to acquire asset through purchase or construction or production or through exchange or if the payment for PPE deferred (postponed)) 15 Elements of cost The cost of an item of property, plant and equipment comprises a) Its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates. b) Any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. c) The initial estimate of the costs of dismantling and removing the item 16 Cost of PP&E Includes continued d) Construction cost of material, labor & over head incurred during the PPE construction period plus: e) Cost of employee benefits arising directly from the construction or acquisition of PPE f) Cost of site preparation g) Installation and assembly cost h) Testing cost (by deducting any net proceed from sell any items produced while bringing the asset to its location) i) Cost of professional fees j) Borrowing cost 17 Cost that are not an item PPE will includes Cost incurred for the project research activity Training costs When an item of PPE is constructed by an entity abnormal amounts of waste of material, labor and other resources Start up and pre-operating costs unless those costs are necessary to bring the asset to its working condition Loss incurred before the asset reaches its planned performance level Administrative and other General over head costs 18 Other Issues of Recognition Asset acquired through production Include Costs directly related to the units of production, e.g. direct materials, direct labor and Fixed and variable production overheads that are incurred in converting materials into finished goods Assets acquired through exchange If the PPE asset acquired through exchange should be measured at its fair value, but if the acquired item can’t be measured due to various reason at its fair value, its cost will be measured at carrying amount of the asset given 19 Payment for PPE deferred for latter period If the payment for an item of PPE deferred (postponed) for a later period (i.e., for over 2 years period) , the value for PPE should be discounted by a difference between present value of future payment Example No. 1: If for example our entity purchase a machine, that will going to be paid on the following Instalment base Total cost of the Machine Birr 800,000.00 Additional cost incurred during transit Birr 60,000.00 (already paid) Advance payment to be Birr 200,000.00 The remaining to be paid in 5 years Birr 600,000.00 Yearly payment made beginning of year Birr 120,000.00 Incremental borrowing rate is 5% PVOA of 1 for 5 installment at 5%=4.32948 20 Payment differed continued The present value of the remaining five future liability payments of 120,000 ETB, discounted at 5% will be equal to ETB 519,538 (120,000 X 4.32948) The Initial total cost of the machine will be 779,538.00= 519538 + 200,000 + 60,000 We will recognize the machine Initially: Dr Cr PP&E 779,538.00 Local purchase payable 519,538.00 Cash at bank (advance) 200,000.00 Cash at bank/material/labor etc., 60,000.00 21 A B C D E F G H I E=D X F=D + E G=I H=G1/5 I=G - H 5% Begi periodic Principal Beg. Interest Bal. with Beg. Bal. Depreciatio End Bal. nnin payt. at payment Liability expense(5 accrued n g of the balance %) interest year beginning after principal payment 1 - 519,538 25,976.90 545,514.90 779,538.0 (155,907.6 623,630. 0 0) 40 2 120,000 446,790.65 98,724.25 425,514.90 21,275.75 623,630.4 (155,907.6 467,722. 0 0) 80 3 120,000 343,130.18 103,660.4 326,790.65 16,339.53 467,722.8 (155,907.6 311,815. 7 0 0) 20 4 120,000 234,286.69 108,843.4 223,130.18 11,156.51 311,815.2 (155,907.6 155,907. 9 0 0) 60 5 120,000 5,714.35 120,000.00 0.00 103,000.0 114,286.69 155,907.6 (155,907.6 0 0 0) 10 120,000 0 0 0 0 0.00 (779,538.0 0 0 22  Subsequent accounting action that should be taken at the end of each fiscal period End of first year/Beginning of 2nd year: End of 3rd year/Beginning of 4th year: Dr Dr Cr Cr Local purchase Pay. 94,023.10 Local purchase Pay. 103,660.47 Fin. charge (interest)… 25,976.90 Fin. charge (interest) 16,339.53 Cash at bank Cash at bank 120,000.00 120,000.00 Dr Cr End of 4th year/Beginning of 5th year: Depreciation expense 155,907.60 Dr Cr Accumulated depreciation 155,907.60 Local purchase Pay. 108,843.49 Fin. charge (interest) 11,156.51 Cash at bank Remark: Depreciation expense will have 120,000.00 similar amount for 5 years End of 5th year/Beginning of 6th year: End of 2 nd year/Beginning of 3 year: rd Dr Dr Cr Cr Local purchase Pay. 114,286.00 Local purchase Pay. 98,724.25 Fin. charge (interest) 5,714.00 Fin. charge (interest) 21,275.75 Cash at bank Cash at bank 120,000.0 120,000.00 23 Subsequent Expenditures a) Capitalized If The additional Expenditure incurred  The expenditure meets the definition of an asset  If the entity can demonstrate that the equipment is likely to increase the economic life or efficiency of the related asset b) Exclude: Additional cost paid on a fully depreciated asset, even if it is major, is not capitalized. It is considered as expense in the year in which the amount is paid Ordinary repairs (Replacement of minor parts, lubrication, adjustments, cleaning and painting) are expenditures made to maintain assets in operating condition; these maintenance costs are not capitalized 24 De-recognition of PP&E  In general, the carrying amount of PPE shall be derecognized  Whenever we dispose the asset (that is either on sale of the asset or transfer it by donation) Or  When an asset has no future economic benefit from its use due to the asset removal or disposal, it should be de-recognized  Whenever it is not practical to determine the carrying amount of the replaced part, the standard allows we can use the cost of the replacement as an indication of what the cost of the replaced part was at the time it was acquired or constructed 25 Example 2: Recognition and De-recognition of parts Our entity had constructed a 66 KV substation with an estimated useful life 20 years for Birr 30 million due to the damage reached on the part of the substation a decision made to replace the badly damaged power transformer by a new one at a cost of 5 million birr. Our entity couldn’t know the original cost of the replaced transformer therefore it uses the cost of the replacement part to estimate the carrying value of the original transformer. With the help of the supplier, it estimates that the cost would have been approximately 3 million Birr and that this would have a remaining carrying value after 12 year’s depreciation will be 1.2 million=(3million X8/20) 26 De-recognition example cont.. Assuming that the damaged transformer returned to our store, the accounting action for Recognition and De- recognition the replaced transformer will be as follows Dr CR PPE new S/S P/Transformer 5,000,000.00 Accumulated depreciation 1,800,000.00 Stock Account Transformer 1,200,000.00 Cash at Bank/ Payables 5,000,000.00 PPE old S/S P/Transformer 3,000,000.00 27 Accounting action for gain/loss on disposal For any Gain on disposal of For any loss on disposal of PPE PPE Dr Dr CR CR Accumulated depreciation Accumulated depreciation xxx xxx Gain/loss on sale of PPE Cash at Bank/ Receivable xxx xxx PP&E PP&E xxx xxx Gain/loss on sale of PPE xxx 28 PPE Subsequent Measurement General IAS 16 allows one of two alternatives to be chosen as the accounting policy for measurement of PP&E after initial recognition. These are:  Cost model  Revaluation model 29  The choice made must be applied to an entire class of PP&E, which means that not all classes are required to have the same policy. [IAS 16.29]. Under cost model carrying value of the asset will be determined as follows Carrying value = Cost of PPE – accumulated depreciation – Accumulated impairment loss On the other hand, under Revaluation model carrying value of the asset will be determined as follows Carrying value = Fair value of PPE – accumulated depreciation – Accumulated impairment loss The difference between the two model is, when we use the cost model we get the carrying value of PPE by deducting from the initial cost of PPE While when we use revaluation model we will reach to the carrying value of PPE by deducting from fair value of the asset 30 Fair value Fair Value:- is the price that would be received to sell an asset or paid to transfer liability in an ordinary transaction between market participant at a measurement date. IFRSs permit or require entities to measure or disclose the fair value of assets, liabilities or equity instruments, to measure fair value the IASB or the Board issued IFRS 13 Fair value is an exit price in the principal market, i.e. the market with the highest volume and level of activity for the asset or liabilty. Active market: is a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis In the absence of a principal market, it is assumed that the transaction to sell the asset or transfer the liability would occur in the most advantageous market. The most advantageous market is the market that would maximize the amount that would be received to sell an asset or minimize the amount that would be paid to transfer a liability, taking into account transport and transaction costs. In either case, the entity must have access to the market on the measurement date. 31 The fair value hierarchy The fair value The fair value hierarchy classifies the inputs used to measure fair value into three levels, Level 1 Level 2 Level 3 Definition Is there a Quoted Inputs other than Unobserva prices quoted prices ble inputs (unadjusted) in included for the active within level 1 that asset or markets for are liability identical observable for the assets or asset or liability, liabilities that the either directly or entity can access indirectly at the measurement date Examples The price for a Interest rates and Projected 32 financial asset or yield cash flows  Fair value valuation technique(s) The fair value hierarchy focuses on prioritising the inputs used in valuation techniques, not the techniques themselves. [IFRS 13.74]. a) Valuation adjustments In certain instances, adjustments to the output from a valuation technique may be required to appropriately determine a fair value measurement in accordance with IFRS 13. An entity makes valuation adjustments if market participants would make those adjustments b) Market Approach The market approach uses prices that market participants would pay or receive for the transaction, for example, a quoted market price. The market price may be adjusted to reflect the characteristics of the item being measured, such as its current condition and location, and could result in a range of possible fair values. c) Cost approach(current Replacement cost approach The cost approach reflects the amount that would be required currently to replace the service capacity of an asset’ 33 Fair value continued The measurement of amounts (whether recognized or only disclosed) that are based on fair value will include the following:  A non-current asset (or disposal group) held for sale measured at fair value less costs to sell in accordance with IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations – where the fair value less costs to sell is lower than its carrying amount;  Inventories are measured at lower of cost or Net realizable value (fair value less costs to sell), as per IAS 2;  PP&E, Intangible asset and Investment property measured by using cost or revaluation model  Biological assets, agricultural produce and produce growing on a bearer plant measured at fair value less costs to sell in accordance with IAS 41 – Agriculture. 34 Depreciation & useful life Depreciation Deprecation:- is the result of systematic allocation of the depreciable amount of an asset over estimated life. The deprecation method will include Straight line, Diminishing Balance, Number of units of production Components of a depreciable item must be depreciate separately if the items have : Materially different consumption patterns Different useful life The item amount is significant compared with the total cost (for Example engine of an air craft) 35 Depreciation continued Deprecation of PPE start when the asset is ready for use Depreciation of an asset ceases at earlier of the date that  The asset classified as held for sale or  Included in a disposal  The date the asset derecognized An entity does not stop depreciating an asset merely because  It has become idle  Has been retired from active use (unless the asset is fully depreciated) We don’t depreciate the land because land has an indefinite life. But, in relation to leased lands since its service potential is consumed with time it will depreciate during the lease term period (for example, if we have a 99 year lease right to use the land 36 Useful Life  Useful life: is a) The period over which an asset is expected to be available for use by an entity; or b) The number of production or similar units expected to be obtained from the asset by an entity  Useful life, depreciable amount and deprecation method should be reviewed at least at the end of each financial year, if there is any change it should be accounted as a change in estimate, the effect of the changes to be recognized prospectively over the remaining life of the asset, without restatement of previous period. 37 Example : We will try to look by the following example, how to take accounting action whenever the change in PPE life years estimate occurs: At the beginning of 2008 the Equipment was purchased by birr 600,000.00. Estimated life of the equipment initially was 6 years, But, at the end of 2010 when we review the life year of this asset it was found to be 5 years 38  2008 E.C. 2009 E.C. 2010 E.C. Initial Cost of PPE 600,000.00 600,000.00 600,000.00 Initial life year 6 years 6 years estimate Initial Deprecation 100,000.00 100,000.00 Reviewed life year 5 years Cost of the asset ………………… …………………… 600,000.00 …………….. ……………........ ……. 200,000.00 Less Accumulated................ …………………… 400,000.00 Deprecation Net ………………… ….. Carrying value ……….. …………………… Calculating new ….. deprecation value 133,333.33 Depreciation using the new expense Yearly adjustment amount to be useful remaining made lifefordeprecation the next remaining for remaining 3years willwill be as follows: be ……………….. years 400,000/3= Dr Cr Depreciation Expense 133,333.33 Accumulated depreciation 133,333.33 39 Impairment of PPE General In principle an asset is impaired when an entity will not be able to recover that asset’s carrying value, either through using it or selling it. If circumstances arise which indicate assets might be impaired, a review should be undertaken of their cash generating abilities either through use or sale. The purpose of the impairment review is to ensure that tangible assets are not carried at a figure (i.e., carrying value) greater than their recoverable amount (RA). This recoverable amount is compared with the carrying value (CV) of the asset to determine if the asset is impaired 40 Carrying Recoverable Compared with Value Amount Higher Of Fair value less cost Value In of Disposal use 41 Two sources of information for impairment Internal sources External sources  Obsolescence or physically damaged goods  The fall in the asset market value  Significant changes in extent that is more significant than would normally expected from or manner in which an asset the passage of time or normal use is used (such as Idle asset,  A significant change in plans to dispose & technological, market, legal or discontinued operation of an economic environment of the asset sooner than expected ) business  Internal reporting, indicates  An increase in market interest or that the economic market rate of return on performance of an asset is or investment likely to affect the will be worse than expected discount rate  the carrying amount of the net assets of the entity exceeds its market capitalisation 42 Cost Model  How to determine the carrying value of PPE at year end  Cost model assumes that at the end of an entity accounting period PPE should be carried at its carrying value less Accumulated depreciation and accumulated impairment loss.  In order to investigate if there are any indicators for the Impairment on our asset :  First, we will estimate the recoverable amount and compare it with asset carrying amount  To get the recoverable amount, we should first compare Fair value less cost of sale with Value in use and take the higher from these two amounts. 43 Cost model continued  Then, to find the carrying value of the PP&E asset, we will deduct from the cost of PPE accumulated depreciation and Accumulated impairment loss.  Then, if the carrying value is higher than the recoverable amount, we will conclude that there is asset impairment and then this difference will be written off as impairment loss in the statement of profit or loss.  Finally, in order to determine carrying value of the PPE that should be shown on our balance sheet at the end of the accounting period, we will deduct from the previous period carrying value of the PPE asset the amount we find as accumulated depreciation and Accumulated impairment loss 44  Example of subsequent measurement of using cost model  Assume that, at the end of year one, we have the following information to check whether there is an asset impairment :  Initial cost of the PPE: Birr 600,000.00  PPE total Life years : 5  Discount rate : 5%  Deprecation Per year: Birr 120,000.00  Accumulated depreciation for year 1 was Birr 120,000.00  Fair value less costs to sell is assessed as Birr 450,000.00  Value in use: is an estimate of cash flow the entity expects to drive from the asset:  Based on the information we get, the PPE is expected to generate cash flow in each year birr 125,000 and for 4 years at a discount rate of 5% (see the present value of annuity table)  The present value for the asset will be 125,000 x3.5460=443,250 45 Answer Based on the information given above, at the end of year one we would we check If there are any indicators for the Impairment of our asset, to do this first we will find the recoverable amount in the following way: The Recoverable amount = will be the higher of the two amounts shown below: i.e., 450,000.00 Fair value less cost of sale = 450,000.00 Value in use = 443,250.00 Then, we will compare recoverable amount (the higher amount we found in the above) with the carrying amount of the asset The Carrying Amount (CA) = Net value of the asset Carrying Value =Initial Cost –accumulated Depreciation - accumulated Impairment 480,000.00 = 600,000 - 120,000 – 0.00 (no accumulated impairment) Based on this example, the carrying value of the asset of Birr 480,000 is greater than the recoverable amount of Birr 450,000.00, therefore we can conclude that there is asset impairment loss of birr 30,000. 46 Example continued Based on this example, the carrying value of the asset of Birr 480,000 is greater than the recoverable amount of Birr 450,000.00, therefore we can conclude that there is asset impairment loss of birr 30,000. Based on this information, to recognize this impairment loss we will take the following accounting action at the end of year one: Dr CR Impairment loss 30,000.00 Accumulated impairment 30,000.00 47 Impairment Reversal  The impairment reversal will take place, only when the condition that leads to their original impairment lifted  In the previous section, we have said that if the recoverable amount (RA) less than the carrying amount (CA) of the asset, we say there is impairment due to a fall in the value of the asset and therefore value of the asset should be written down to its recoverable amount and should be charged as an expense in the profit and loss statement.  On the other hand, if the recoverable amount greater than the carrying value the impairment reversal will take place. But, this happen up to ceiling (if there no any previous impairment loss balance on the impairment loss account do nothing)  The principle applied in here is that the asset should not be carried above their recoverable amount  In general, when the Recoverable Amount greater than the Carrying amount, the impairment reversal will take place. But, this happen up to ceiling through profit/loss statement. 48  Example for Impairment Reversal Initial information: Similar On the 2nd year the condition for Asset Value: 600,000.00 Impairment lifted: Life years : 5 years Recoverable Amount Residual value: 0 500,000 Carrying value: At the end of year 1 Accumulated Impairment balance The asset impaired: (30,000) Cost of asset 600,000 Accumulated Depreciation: For the 1st year Accumulated Depreciation 120,000 120,000 Carrying value 480,000 For the 2nd year 600,000- 120,000-30,000= 450,000/4 = Vs 112,500 Recoverable value 450,000 Accumulated depreciation = (232,500) Asset Impairment 30,000 CV=600,000-30,000-232,500= Impairment Adjustment 337,500 Dr Cr Since RA > CA , impairment have been Loss on Impairment 30,000 lifted, because the recoverable Accumulated Impairment 30,000 amount (500,000) greater than the carrying value 337,500 but the adjustment should not exceed the ceiling 49 Example continued Ceiling at the end of each year will The ceiling at the end of year 2 is be calculated by deducting the initial 360,000 deprecation amount 120,000 The carrying value Year Ceiling 337,500 Impairment to be lifted will be 600,000 22,500 End of year 1 480,000 Adjustment for impairment End of year 2 360,000 recovery ceiling End of year 3 240,000 End of year 4 Dr Cr 120,000 Accumulated impairment End of year 5 0 22,500 Impairment Loss 22,500 50 Revaluation model General If we choose to use this model, revaluation are to occur with sufficient regularity that will be at the end of each accounting period. The frequency of revaluations depends upon the changes in fair values of PPE For PPE only with insignificant changes in fair value, it is necessary to revalue the item only every three or five year Once an item of PPE is revalued all items of the same class to be revalued. The carrying value of PPE will be revalued to its fair value (usually it will be the current market value of PPE). PPE whose fair value can be measured reliably shall be carried at a revalued amount The revalued amount is fair value of the asset at the date of revaluation less any subsequent accumulated depreciation and subsequent accumulated Impairment losses 51 Rules of revaluation  During Initial Revaluation  Gains – goes to other comprehensive income – revaluation surplus (OCI)  Loss – goes to profit & loss (P&L)  During subsequent revaluation  Gains – goes to P&L to the extent of reversing previous losses; the remainder goes to OCI  Losses – goes to OCI to the extent of reversing gains in OCI; the remainder goes to P&L  The decrease recognized in OCI reduces the amount accumulated in equity under the heading of Revaluation Surplus 52 Example for Revaluation PPE start at a cost of Birr 100,000.00 For an upward revaluation T3 T1 Revalued to Birr Dr 120,000.00 CR T2 Revalued to Birr PP&E 20,000.00 90,000.00 Revaluation surplus T3 Revalued to Birr 10,000.00 110,000.00 Loss on Revaluation T4 Revalued to Birr 10,000.00 140,000.00 For an upward revaluation T1 Dr CR For an upward revaluation T4 PP&E 20,000.00 Dr Revaluation surplus CR 20,000.00 PP&E 30,000.00 Revaluation surplus 53 Advantages and disadvantages of using the revaluation method Advantages Disadvantages Higher asset value = Higher deprecation = stronger balance lower net income sheet Losses go through P&L Better debt to equity No benefit on ultimate Better comprehensive sale since asset income if asset already valued at FV; increase in value little or no gain on sale of asset on P&L 54 Terms definitions Term Definition PP&E’s are Property, Plant & Equipment assets held for use in the production or supply of goods or services, for rental to others, or for administrative purposes Asset An asset is a resource: [IAS 38.8] (a) controlled by an entity as a result of past events; and (b) from which future economic benefits are expected to flow to the entity Control The power to obtain the future economic benefits flowing from the underlying resource and to restrict the access of others to those benefits Capitalization shall mean the process of recording of the cost of acquisition, construction, major rehabilitation & maintenance and other subsequent costs as PP&E or intangible assets in the book of our accounts 55  Terms definitions Term Definition Deprecation Is the result of systematic allocation of the depreciable amount of an asset over estimated life. Impairment The amount by which the carrying amount of the loss asset exceeds its recoverable amount Carrying The amount at which the asset is recognized in the amount statement of financial position after deducting any accumulated amortization and accumulated impairment losses thereon Value in use Is an estimate of cash flow the entity expects to drive from the asset 56  Definition continued Fair value The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date Active market A market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis 57 The end -5 Thank you 58