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define IAS 16 Property, Plant and Equipment with example ???

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Jul 22 at 17:50:29
Abdul
Abdul
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IAS 16 establishes principles for recognising property, plant and equipment as assets, measuring their carrying amounts, and measuring the depreciation charges and impairment losses to be recognised in relation to them. 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; and
are expected to be used during more than one period.
Property, plant and equipment includes bearer plants related to agricultural activity.

The cost of an item of property, plant and equipment is recognised as an asset if, and only if:

it is probable that future economic benefits associated with the item will flow to the entity; and
the cost of the item can be measured reliably.
An item of property, plant and equipment is initially measured at its cost. Cost includes:

its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates;
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; and
the estimated costs of dismantling and removing the item and restoring the site on which it is located, unless those costs relate to inventories produced during that period.

Dismentling cost

The present value of these costs should be capitalized , with an equivalent liability set up. The discount on this liability would then be unwound over the period until the costs are paid.This means that the liability increases by the interest rate each year with the increase taken to finance costs in the statment of profit or loss.

you may need to use the interest rate given and apply the discount friction where R is the interest rate & N the number of years to settlment

1 / ( 1 + r )n

After recognition, an entity chooses either the cost model or the revaluation model as its accounting policy and applies that policy to an entire class of property, plant and equipment:

under the cost model, an item of property, plant and equipment is carried at its cost less any accumulated depreciation and any accumulated impairment losses.
under the revaluation model, an item of property, plant and equipment whose fair value can be measured reliably is carried at a revalued amount, which is its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Revaluations must be made regularly and kept current. Revaluation increases are recognised in other comprehensive income and accumulated in equity, unless they reverse a previous revaluation decrease. Revaluation decreases are recognised in profit or loss unless they reverse a previous revaluation increase.
Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life. Depreciable amount is the cost of an asset, or other amount substituted for cost, less its residual value. Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item is depreciated separately. The depreciation charge for each period is recognised in profit or loss unless it is included in the carrying amount of another asset. The depreciation method used reflects the pattern in which the asset’s future economic benefits are expected to be consumed by the entity. To determine whether an item of property, plant and equipment is impaired, an entity applies IAS 36.

Depreciation is a depreciable amount of an asset reducing the value of an asset over time.
And it depends on the business that which method of depreciation they are adopting either
Reducing balance or straight line.

Example of depreciation calculation :

for example the business using the straight line method</qb> & the asset buy has value of 200,000 in 2010 & 15% depreciation we have to charge every month so the total depreciation at the end of 2011 would be 60,000 & asset remaining value would be 140,000.

calculation :

in 2010 asset cost : 200,000-30,000=170,000
in 2010 depreciation : (200000x15%) (30,000)

carryng value : 170,000-30,000=140,000
in 2011 depreciation : (200000x15%) (30,000)
in 2011 carrying value 140,000

Accounting Entries Would be in 2010

Depreciation 30,000 (debit)
Acc Depreciation 30,000 (credit)

Accounting Entries in 2011 Would be again same

Depreciation 30,000 (debit)
Acc Depreciation 30,000 (credit)
Jul 22 at 18:18:16
Muhammadbilal
Muhammadbilal
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