IAS 16 Property, Plant And Equipment |

Equity reserves

Equity is defined as follows: The residual interest in the assets of the enterprise after deducting all of its liabilities.

Equity consists of several components such as Share capital, Treasury shares (issued shares held by the entity in a buyback), Share premium account (or Additional paid-in capital), Retained earnings and Non-controlling interest. But there is more…. Equity reserves – separated equity components

  • Translation reserve (foreign currency translation reserve), that arises from the change in FX rates from translation of foreign operating entities (in other than the consolidationEquity reserves Equity reserves Equity reserves currency) from reporting period to reporting period, When realised the result is reclassified from OCI (and translation reserve) to profit or loss,
  • Cash flow hedge reserve (hedging reserve). Hedging reserves arise as a
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Cost of self-constructed assets

IAS 16 22 sets out the core principle for determining the cost of a self-constructed asset.

The cost of a self-constructed asset is determined using the same principles as applicable to an purchased asset. If an entity makes similar assets for sale in the normal course of business, the cost of the asset is usually the same as the cost of constructing an asset for sale. Any internal profits are eliminated in arriving at such costs. Similarly, the cost of abnormal amounts of wasted material, labour, or other resources incurred in self-constructing an asset is not included in the cost of the asset.

Elements of cost for a purchased asset and self-constructed asset are the same. For internally generated input … Read more

Inventory or Equipment?

Inventory or Equipment – This distinction is important because inventory is current and equipment is non-current property plant and equipment. Inventory is cash flow from operating activities, equipment is cash flow used in investing activities. Inventory is cost of sales and equipment is depreciation. Inventory or Equipment

Equipment is recognised component-wise. This means each significant part is treated just like a non-current asset. When that part is replaced, it is derecognised (or scrapped) and the new part is purchased and capitalised. Inventory or Equipment

Therefore, the stocks of such significant parts are not classified as inventories. They are just like capital ‘work in progress’. The stock of significant parts awaiting utilisation may be classified as for example equipment … Read more

PPE – Components and parts

A complex asset is comprising of many major and small parts. Its cost excluding directly attributable costs is CU 1,000,000. One of its part costs CU 120,000 and another CU 180,000. All other parts cost less than CU 100,000.

Estimated useful life of the main asset and two parts are as follows: – Main Asset 30 years; Part1 10 years; Part 2 30 years. PPE – Components and parts

In this case, the company shall classify these parts in the following manner: PPE – Components and partsPPE - Components and parts PPE - Components and parts PPE - Components and parts PPE - Components and parts

  • Complex asset: cost CU 1,000,000 – Useful life 30 Years, residual value 5% PPE – Components and parts

    • Main asset: cost CU 1,000,000 (including another part of CU 180,000) – Useful life 30

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What is Property, plant and equipment?

Property, plant, and equipment (PP&E) is tangible items that are expected to be used in more than one period and that are used in production, for rental, or for administration. This can include items acquired for safety or environmental reasons. In certain asset-intensive industries, PP&E is the largest class of assets.

PP&E items are commonly grouped into classes, which are groups of assets having a similar nature and use. Examples of PP&E classes are buildings, furniture and fixtures, land, machinery, and motor vehicles. Items grouped within a class are typically depreciated using a common depreciation calculation.

When recording an item within PP&E, include in its cost the purchase price of the asset and related taxes, as well as any related … Read more

Purchase price of PPE

THE CASE Purchase price of property

Entity K purchased a plant for a gross price of CU 200 million. The seller granted a 0.5% rebate. The gross price includes excise duty CU 18 million for which the buyer entity will get a tax refund and non-refundable VAT of CU 10 million. The company has also incurred CU 15 million for transportation costs, handling charges and insurance, CU 5 million for installation and CU 3 million for testing and technical engineering fees. It has earned CU 0.2 million from selling goods produced out of testing. The company borrowed CU 100 million for financing the new purchase @ 10%. The entire process of purchase to ‘Go live’ into (normal) production took nearly Read more