Property Plant Equipment
13/08/2012
Topic 3 Property, Plant & Equipment
The nature of PP&E
• AASB 116 defines property, plant & equipment (PP&E) as: • tangible items • with a specific use within the entity • that are expected to be used during more than one period AASB 116 specifically excludes assets held for re-sale PP&E is normally divided into classes. Common classes include land, buildings, machinery, motor vehicles.
• •
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13/08/2012
Initial recognition of PP&E
• Cost of an item is recognised as an asset if: • it is probable that economic benefits will flow to the entity, and • the cost can be reliably measured Where future economic benefits are not expected to flow to the entity, costs incurred should be expensed. Component parts (with different useful lives) are required to be separately accounted for. • . Eg. An aircraft –
•
•
Initial measurement of PP&E
PP&E is initially measured at cost, which includes:
• Purchase price (at fair value) • Directly attributable costs required to bring the asset to
the location and condition necessary for it to operate
Refer section 7.3.2 of text for detailed lists of items specifically included and excluded from this component
• Initial estimate of costs of dismantling, removing the
item or restoring the site
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13/08/2012
Measurement subsequent to initial recognition
• • • • • • AASB 116 allows a choice of two possible measurement models: Cost model Revaluation model Accounting policy choice of this decision based primarily on relevance of information. The policy that is chosen must be applied to a whole class of assets May change policy, but only if results in more relevant/ reliable information
The cost model
• AASB 116 requires that assets are carried at cost less any accumulated • depreciation • impairment losses • Repair and maintenance costs are expensed as incurred, not capitalised – • Capitalisation requires (at time of expenditure) increased probable future economic benefit –
3
Topic 3 Property, Plant & Equipment
The nature of PP&E
• AASB 116 defines property, plant & equipment (PP&E) as: • tangible items • with a specific use within the entity • that are expected to be used during more than one period AASB 116 specifically excludes assets held for re-sale PP&E is normally divided into classes. Common classes include land, buildings, machinery, motor vehicles.
• •
1
13/08/2012
Initial recognition of PP&E
• Cost of an item is recognised as an asset if: • it is probable that economic benefits will flow to the entity, and • the cost can be reliably measured Where future economic benefits are not expected to flow to the entity, costs incurred should be expensed. Component parts (with different useful lives) are required to be separately accounted for. • . Eg. An aircraft –
•
•
Initial measurement of PP&E
PP&E is initially measured at cost, which includes:
• Purchase price (at fair value) • Directly attributable costs required to bring the asset to
the location and condition necessary for it to operate
Refer section 7.3.2 of text for detailed lists of items specifically included and excluded from this component
• Initial estimate of costs of dismantling, removing the
item or restoring the site
2
13/08/2012
Measurement subsequent to initial recognition
• • • • • • AASB 116 allows a choice of two possible measurement models: Cost model Revaluation model Accounting policy choice of this decision based primarily on relevance of information. The policy that is chosen must be applied to a whole class of assets May change policy, but only if results in more relevant/ reliable information
The cost model
• AASB 116 requires that assets are carried at cost less any accumulated • depreciation • impairment losses • Repair and maintenance costs are expensed as incurred, not capitalised – • Capitalisation requires (at time of expenditure) increased probable future economic benefit –
3