Far.104 Ppe Acquisition And Subsequent Expenditures

Financial Accounting and Reporting FAR.104-Property, Plant and Equipment – Acquisition and Subsequent Expenditures

DISCUSSION PROBLEMS 1. Property, plant and equipment are a. Identifiable non-monetary assets without physical substance. b. Properties held to earn rentals or for capital appreciation or both. c. Assets held for sale in the ordinary course of business. d. 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. 2. The cost of an item of property, plant and equipment comprises: I. Its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates. II. 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. III. The initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, the obligation for which an entity incurs either when the item is acquired or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that period. a. b. c. d.

I, II, and III I and II only I and III only I only

3. 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 exclude a. Costs of employee benefits arising directly from the construction or acquisition of the item of property, plant and equipment. b. Costs of site preparation. c. Initial delivery and handling costs d. Administration and other general overhead costs. 4. 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 exclude a. Installation and assembly costs. b. Costs of testing whether the asset is functioning properly. c. Professional fees. d. Costs of opening a new facility. 5. Costs of an item of property, plant and equipment include a. Costs of introducing a new product or service. b. Costs of advertising and promotional activities. c. Costs of conducting business in a new location or with a new class of customer. d. Professional fees.

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6. Extra Corporation is installing a new plant at its production facility. It has incurred these costs: Purchase price of plant Initial delivery and handling costs Cost of site preparation Consultants used for advice on the acquisition of the plant Estimated dismantling costs to be incurred after 7 years Operating losses before commercial production

P2,500,000 200,000 600,000 700,000 300,000 400,000

The total costs that can be capitalized in accordance with PAS 16 is a. P4,900,000 c. P4,300,000 b. P4,500,000 d. P3,600,000 7. Cabiao Company purchased a new printing machine on December 2, 2017 at an invoice price of P4,000,000 with terms 2/10, n/30. On December 10, 2017, Cabiao paid the required amount for the machine. The installation costs were P50,000 and the employees received training on how to use the machine, at a cost of P20,000. Before using the machine to print customers’ orders, a test was undertaken and the paper and ink cost P5,000. What amount should be capitalized as cost of the machine? a. P4,075,000 c. P3,975,000 b. P3,995,000 d. P3,970,000 8. Seller Co. sold a used asset to Buyer Co. for P800,000, accepting a five-year 6% note for the entire amount. Buyer's incremental borrowing rate was 14%. The annual payment of principal and interest on the note was to be P189,930. The asset could have been sold at an established cash price of P651,460. The present value of an ordinary annuity of P1 at 8% for five periods is 3.99. The asset should be capitalized on buyer's books at a. P949,650 c. P757,820 b. P800,000 d. P651,460 P216 Kimwell/aicpa 11.82 9. The cost of an item of property, plant and equipment is the cash price equivalent at the recognition date. If payment is deferred beyond normal credit terms, the difference between the cash price equivalent and the total payment is recognized as a. Interest over the period of credit unless such interest is capitalized in accordance with PAS 23. b. Part of the carrying amount of the asset. c. Either as interest over the period of credit or as part of the carrying amount of the asset depending on the entities accounting policy. d. Interest at the recognition date. 10. Imus Company acquired two items of machinery as follows:  On January 1, 2017, Imus Company acquired used machinery by issuing to the seller a three-year, 12% interest note for P3,000,000.

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FAR.104

EXCEL PROFESSIONAL SERVICES, INC. 

On December 30, 2017, Imus Company purchased a machine in exchange for a noninterest bearing note requiring three payments of P1,000,000. The first payment was made on December 30, 2017, and the others are due annually on December 30. The prevailing rate of interest for this type of note at date of issuance was 12%. The present value of an ordinary annuity of 1 at 12% is 1.69 for two periods and 2.40 for three periods.

What is the total cost of the machinery? a. P4,820,000 c. P5,690,000 b. P5,400,000 d. P6,000,000 11. Cavite Company acquired land and building by issuing 60,000, P100 par value, ordinary shares. On the date of acquisition, the shares had a fair value of P150 per share and the land and building had fair value of P2,000,000 and P6,000,000 respectively. During the year, Cavite also received land from a shareholder to facilitate the construction of a plant in the city. Cavite paid P100,000 for the land transfer. The land’s fair value is P1,500,000. As a result of these acquisitions, Cavite Company’s equity had a net increase of a. P10,500,000 c. P9,400,000 b. P 9,500,000 d. P7,400,000 12. Which statement is incorrect regarding acquisition of items of property, plant and equipment in exchange for a non-monetary asset, or a combination of monetary and non-monetary asset? a. An entity determines whether an exchange transaction has commercial substance by considering the extent to which its future cash flows are expected to change as a result of the transaction. b. For the purpose of determining whether an exchange transaction has commercial substance, the entity-specific value of the portion of the entity’s operations affected by the transaction shall reflect pre-tax cash flows. c. The cost of such an item of property, plant and equipment is measured at fair value. d. If the acquired item is not measured at fair value, its cost is measured at the carrying amount of the asset given up.

Use the following information for the next two questions. Company A had a machine with a carrying amount of P450,000. Company B had a delivery vehicle with a carrying amount of P300,000. Companies A and B exchanged the machine and vehicle, and Company B paid an additional P90,000 cash as part of the exchange. Assume that the fair value of the delivery vehicle is P420,000. The exchange has commercial substance. 13. How much gain or loss should be recorded by Company A? a. P30,000 loss c. P120,000 loss b. P60,000 gain d. P120,000 gain 14. How much gain or loss should be recorded by Company B? a. P30,000 loss c. P120,000 loss b. P60,000 gain d. P120,000 gain Use the following information for the next two questions. Payor Inc. and Recipient Co. have an exchange with no commercial substance. The asset given up by Payor Inc. has a book value of P12,000 and a fair value of P15,000. The asset given up by Recipient Co. has a book value of P20,000 and a fair value of P19,000. Boot of P4,000 is received by Recipient Co. 15. Payor Inc. should record the asset received at a. P15,000 c. P19,000 b. P16,000 d. P20,000 16. Recipient Co. should record the asset received at a. P15,000 c. P19,000 b. P16,000 d. P20,000 P121-122 C10 Kieso IFRS TB 17. A used delivery truck was traded in for a new truck. Information relating to the trucks follows: Used truck: Cost Accumulated depreciation Estimated current fair value New truck: List price Cash price without trade-in Cash price with trade-in

Exchange – No Boot With commercial substance 1) FV of asset given up (AGU) 2) FV of asset received 3) Carrying amount of asset given up Gain (loss) = FV of asset given – CA of asset given No commercial substance Carrying amount of asset given up No gain or loss on exchange Exchange – With Boot

18. To be consistent with the historical cost principle, overhead costs incurred by an entity constructing its own PPE should be a. Allocated on the basis of lost production. b. Eliminated completely from the cost of the asset. c. Allocated on an opportunity cost basis. d. Allocated on a pro rata basis between the asset and normal operations. 19. The Royal Furniture Mfg. Co. fabricated furniture and fixtures for its office use in the company’s plant during 2017. The following data were taken from the company’s records:

With commercial substance Payor = FV of AGU + cash paid = FV of AR Recipient = FV of AGU - cash received = FV of AR

Payor = CA of AGU + cash paid Recipient = CA of AGU – cash received

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2,000,000 1,900,000 1,560,000

The amount that should be capitalized as the cost of the new truck is a. P1,560,000 c. P1,880,000 b. P1,900,000 d. P1,960,000 rpcpa 5/86 (P220 Kimwell)-AMP

LECTURE NOTES:

No commercial substance

P1,600,000 1,200,000 320,000

Finished goods Office furniture & fixtures

Materials P100,800 67,200

Direct Labor P151,200 50,500

Factory overhead amounted to P134,000. Normal production of finished goods results to 420 units. Due

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FAR.104

EXCEL PROFESSIONAL SERVICES, INC. to the fabrication of office furniture and fixtures, finished goods produced totaled 294 units only in 2017. The assets are to be charged with the overhead which would have been apportioned to the 126 units which were not produced. What is the total cost of office furniture and fixtures? a. P117,600 c. P175,029 b. P157,900 d. P251,600 RPCPA 1085 20. Which statement is incorrect regarding land and buildings? a. Land and buildings are separable assets and are accounted for separately, even when they are acquired together. b. Land normally has an unlimited useful life and therefore is not depreciated. c. Buildings have a limited useful life and therefore are depreciable assets. d. An increase in the value of the land on which a building stands affects the determination of the depreciable amount of the building. 21. An entity acquired a piece of land with existing building with the intention to demolish the old building right away in order to construct a new building on its site as part of its planned redevelopment. In accordance with PIC Q&A No. 2012-02, it is appropriate for the entity to account for the carrying value of the old building as part of the cost of the new building a. That will be used as an owner-occupied property b. That will be held as an investment property c. That will be sold as an inventory d. None of the above. 22. An entity acquired a piece of land with existing building with the intention to initially use the old building as an owner-occupied property and then demolish it in a future period and replace it with a new building. In accordance with PIC Q&A No. 2012-02, it is appropriate for the entity to account for the carrying value of the old building as part of the cost of the new building a. That will be used as an owner-occupied property b. That will be held as an investment property c. That will be sold as an inventory d. None of the above. 23. In accordance with PIC Q&A No. 2012-02, the costs incurred in relation to demolition (or the physical tearing down) of the old building to give way for the construction of the replacement building should preferably be a. Expensed. b. Capitalized as part of the cost of land. c. Capitalized as land improvements. d. Capitalized as part of the cost of the new building. 24. Lenny Corporation purchased for P690,000 a tract of land on which a warehouse and office building were located. The following data were collected concerning the property: Current Assessed Vendor's Valuation Original Cost Land P280,000 P180,000 Warehouse 320,000 315,000 Office Building 200,000 129,000 P800,000 P624,000 Determine the appropriate amount that Lenny should charge to land. a. P690,000 c. P241,500 b. P280,000 d. P199,000

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LECTURE NOTES: Land Acquired with Building Before PIC Q&A No. 2012-2 Old building demolished RIGHT AWAY: • Total cost charged to Land including demolition costs Old building USED INITIALLY before demolition: • Total cost allocated to land and building pro rata based on fair values • Demolition of old building accounted for as derecognition (ie the difference between the proceeds and carrying amount recognized as gain or loss) • Demolition costs are included in computing gain or loss on derecognition In accordance with PIC Q&A No. 2012-2 • • •

Total cost allocated to land and building pro rata based on fair values REGARDLESS of intention Allocated cost or CA of old building generally recognized in profit or loss as loss on derecognition Exception, old building demolished right away and the new building is inventory

25. Reiley Co. purchased land as a factory site for P1,000,000. Reiley paid P40,000 to tear down two buildings on the land. Salvage was sold for P5,400. Legal fees of P3,480 were paid for title investigation and making the purchase. Income of P8,000 was earned through using the land as a car park before construction started. Architect's fees were P41,200. Title insurance cost P2,400, and liability insurance during construction cost P2,600. Excavation cost P10,440. The contractor was paid P2,400,000. An assessment made by the city for pavement was P6,400. Interest costs during construction were P170,000. The cost of the land that should be recorded by Reiley Co. is a. P1,040,480 c. P1,046,880 b. P1,032,480 d. P1,038,880 P33 Kieso TB10 11th-AMP Use the following information for the next two questions. Hawks Corporation’s Property, Plant and Equipment section of its statement of financial position as of December 31, 2016 included the following: Land Buildings

P

400,000 3,200,000

The following transactions occurred during 2017: 

Land site number 102 was acquired for P4,000,000. Additionally, to acquire the land the entity paid a P240,000 commission to a real estate agent. Costs of P60,000 were incurred to clear the land. During the course of clearing the land, timber and gravel were recovered and sold for P20,000.



A second tract of land (site number 103) with a building was acquired for P1,200,000. Based on reliable information at the time of acquisition, fair value of land is P800,000 and the building P400,000. Shortly after acquisition, the building was demolished at a cost of P120,000. A new building was constructed for P1,600,000 plus the following costs: Excavation fees Architectural design fees Building permit fee

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P 44,000 32,000 4,000

FAR.104

EXCEL PROFESSIONAL SERVICES, INC. The building was September 1, 2017. 

completed

and

occupied

on

A third tract of land (site number 104) was acquired for P2,400,000. The entity is undecided regarding its future use.

QUESTIONS: Determine the balance of the following as of December 31, 2017 in accordance with PIC Q&A 2012-02: 26. Land a. P5,600,000 b. P5,480,000

c. P6,000,000 d. P7,880,000

27. Buildings a. P5,400,000 b. P5,280,000

c. P5,000,000 d. P4,880,000

28. Dasmariñas Company has a production assembly line to manufacture furniture. In 2017 Dasmariñas purchased a new machine and rearranged the assembly line to install this machine. The rearrangement did not increase the estimated useful life of the assembly line but it did result in significantly more efficient production. The following expenditures were incurred in connection with this project: Machine Labor to install new machine Parts added in rearranging the assembly line to provide future benefits Labor and overhead to rearrange the assembly line

P5,000,000 400,000 2,000,000 600,000

What amount of the above expenditures should be capitalized in 2017? a. P8,000,000 c. P5,400,000 b. P7,400,000 d. P2,600,000 29. The financial statements shall disclose, for each class of property, plant and equipment I. The measurement bases used for determining the gross carrying amount II. The depreciation methods used III. The useful lives or the depreciation rates used IV. The gross carrying amount and the accumulated depreciation (aggregated with accumulated impairment losses) at the beginning and end of the period V. A reconciliation of the carrying amount at the beginning and end of the period a. b. c. d.

I, II, III IV and V I, II, III and IV only I, II and III only II, III, IV and V only

30. The financial statements shall disclose, for each class of property, plant and equipment a. The carrying amount of temporarily idle property, plant and equipment. b. The gross carrying amount of any fully depreciated property, plant and equipment that is still in use. c. The carrying amount of property, plant and equipment retired from active use and not classified as held for sale in accordance with PFRS 5. d. Acquisitions through business combinations. - now do the DIY drill -

DO-IT-YOURSELF (DIY) DRILL 1. PAS 16 applies to a. Property, plant and equipment classified as held for sale in accordance with PFRS 5 b. Biological assets related to agricultural activity c. Mineral rights and mineral reserves such as oil, natural gas and similar non-regenerative resources. d. Property, plant and equipment used to develop or maintain biological assets and mineral rights and mineral resources 2. PAS 16 does not apply to a. An entity using the cost model for investment property. b. Depreciation of leased assets. c. Recognition and measurement of exploration and evaluation assets. d. All of these. 3. Which statement is incorrect regarding spare parts and servicing equipment? a. Spare parts and servicing equipment are usually carried as inventory and recognized in profit or loss as consumed. b. Major spare parts and stand-by equipment qualify as property, plant and equipment when an entity expects to use them during more than one period. c. Spare parts and servicing equipment that can be used only in connection with an item of property, plant and equipment are accounted for as property, plant and equipment. d. None of the above.

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4. Items of property, plant and equipment acquired for safety or environmental reasons a. Qualify as assets because the acquisition of such property, plant and equipment directly increases the future economic benefits of existing item of property, plant and equipment. b. Qualify as assets because they enable an entity to derive future economic benefits from related assets in excess of what could be derived had those items not been acquired. c. Do not qualify as assets because the acquisition of such property, plant and equipment does not directly increase the future economic benefits of existing item of property, plant and equipment. d. Do not qualify as assets because the acquisition of such property, plant and equipment is not necessary for an entity to obtain the future economic benefits from its other assets. 5. A condition of continuing to operate an item of property, plant and equipment (for example, an aircraft) may be performing regular major inspections for faults regardless of whether parts of the item are replaced. When each major inspection is performed, its cost is a. Recognized in profit or loss as incurred. b. Often described as for the ‘repairs and maintenance’ of the item of property, plant and equipment. c. Recognized in other comprehensive income as incurred. d. Recognized in the carrying amount of the item of property, plant and equipment as a replacement if the recognition criteria are satisfied.

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FAR.104

EXCEL PROFESSIONAL SERVICES, INC. 6. Newcastle Ltd uses many kinds of machines in its operations. It constructs some of these machines itself and acquires others from the manufacturers. The following information relates to machine A that it has recorded during the current year. Cash paid for equipment, including VAT of P9,600 Costs of transporting machine - insurance and transport Labor costs of installation by expert fitter Labor costs of testing equipment Insurance costs for current year Costs of training for personnel who will use the machine Costs of safety rails and platforms surrounding machine Costs of water devices to keep machine cool Costs of adjustments to machine to make it operate more efficiently

P89,600 3,000 5,000 4,000 1,500 2,500 6,000 8,000 7,500

Determine the amount at which machine A should be recorded in the records of Newcastle Ltd. a. P105,500 c. P113,500 b. P116,000 d. P121,500 Applying IAS 7. Sunflower Company acquired some new equipment. The following data have been made available to you: List price of the equipment Cash discount available but not taken on purchase Freight paid on the new equipment Cost of removing the old equipment Installation costs of the new equipment Testing costs before the equipment was put to regular operation (including P120 in wages of the regular equipment operator) Loss on premature retirement of the old equipment Estimated cost of manufacturing similar equipment in the company's own plant, including overhead

P14,000 200 250 170 430

295 120

Cleveland Ltd acquired real estate for the construction of a building and other facilities. Operating equipment was also purchased and installed. The company's accountant, who was not sure how to record some of the transactions, opened a Property ledger account and recorded debits and (credits) to this account as follows. Cost of land purchased as a building site Architect's fee for design of new building Paid for the demolition of an old building on the building site purchased above Paid land tax on the real estate purchased as a building site Paid excavation costs for the new building Made the first payment to the building contractor Paid for equipment to be installed in the new building Received from sale of salvaged materials from demolishing the old building Made final payment to the building contractor Paid interest on building loan during construction Paid freight on equipment purchased Paid installation costs of equipment Paid for repair of equipment damaged during installation Property ledger account balance

P170,000 23,000 28,000 1,700 15,000 250,000 148,000 (6,800) 350,000 22,000 1,900 4,200 2,700 P1,009,700

Compute for the following: 13,800

What amount should be capitalized as the cost of the new equipment? a. P14,775 c. P14,975 b. P28,865 d. P15,065 8. On September 1, 2017, Ron Corporation issued 10,000 shares of its P25 par treasury ordinary shares for a parcel of land intended as a future plant site. The treasury shares were acquired by Ron at a cost of P30 per share. Ron's ordinary share had a fair market value of P40 per share on September 1, 2017. Ron received P50,000 from the sale of scrap when an existing structure on the site was razed. At what amount should the land be carried? a. P400,000 c. P300,000 b. P350,000 d. P250,000 P231 Kimwell/aicpa 5.82; 5.83; 5.87 9. Winn Company exchanged an old machine having a carrying amount of P16,800, and paid a cash difference of P6,000 for a new machine having a total cash price of P20,500. The cash flows from the new machine are expected to be significantly different than the cash flows from the old machine. What amount of loss should Winn recognize on this exchange? a. P0 c. P3,700 b. P2,300 d. P6,000 P11 M11 pp. 377 Wiley12-13

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10. Parr Company traded in a used delivery truck with a carrying amount of P54,000 for a new delivery truck having a list price of P160,000 and paid a cash difference to the dealer of P75,000. The used truck has a fair value of P60,000 on the date of the exchange. At what amount should the new truck be recorded on Parr's books? a. P160,000 c. P129,000 b. P135,000 d. P106,000 P221 Kimwell/aicpa 5/85 and 11/86 Use the following information for the next two questions.

11. Land a. P191,900 b. P163,200

c. P207,900 d. P192,900

12. Building a. P694,000 b. P660,000

c. P653,200 d. P666,800 P8.7 Applying IAS 13. Under PAS16 Property, plant and equipment, which two of the following costs relating to non-current assets should be capitalized? I. Replacement of a building's roof every 15 years II. Maintenance of an asset on a three-monthly basis III. Installation and assembly costs IV. Replacement of small spare parts annually a. I and III c. III and IV b. II and IV d. I and II 14. In relation to the financial statements, PAS 16 Property, Plant and Equipment, requires that the following disclosures be made for each class of asset: I. The carrying amount at the beginning and end of the reporting period. II. Accumulated depreciation. III. Total additions and disposals. IV. The total of impairment losses. V. Fair value at reporting date. a. b.

I, III and IV only I, II III and IV only

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c. I, II, IV and V only d. II, III, IV and V only

- done -

FAR.104

EXCEL PROFESSIONAL SERVICES, INC.

LECTURE NOTES SUMMARY OF PAS 16 PROPERTY, PLANT AND EQUIPMENT Objective The objective of PAS 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 recognised in relation to them. Scope PAS 16 applies to the accounting for property, plant and equipment, except where another standards requires or permits differing accounting treatments, for example:  assets classified as held for sale in accordance with PFRS 5  biological assets related to agricultural activity accounted for under PAS 41  exploration and evaluation assets recognised in accordance with PFRS 6  mineral rights and mineral reserves such as oil, natural gas and similar non-regenerative resources. The standard does apply to property, plant, and equipment used to develop or maintain the last three categories of assets. [PAS 16.3]

equipment as a replacement if the recognition criteria are satisfied. If necessary, the estimated cost of a future similar inspection may be used as an indication of what the cost of the existing inspection component was when the item was acquired or constructed. [PAS 16.14] Initial measurement An item of property, plant and equipment should initially be recorded at cost. [PAS 16.15] Cost includes all costs necessary to bring the asset to working condition for its intended use. This would include not only its original purchase price but also costs of site preparation, delivery and handling, installation, related professional fees for architects and engineers, and the estimated cost of dismantling and removing the asset and restoring the site (see PAS 37). [PAS 16.16-17] If payment for an item of property, plant, and equipment is deferred, interest at a market rate must be recognised or imputed. [PAS 16.23] If an asset is acquired in exchange for another asset (whether similar or dissimilar in nature), the cost will be measured at the fair value unless (a) the exchange transaction lacks commercial substance or (b) the fair value of neither the asset received nor the asset given up is reliably measurable. If the acquired item is not measured at fair value, its cost is measured at the carrying amount of the asset given up. [PAS 16.24]

Recognition Items of property, plant, and equipment should be recognised as assets when it is probable that: [PAS 16.7]  it is probable that the future economic benefits associated with the asset will flow to the entity, and  the cost of the asset can be measured reliably. This recognition principle is applied to all property, plant, and equipment costs at the time they are incurred. These costs include costs incurred initially to acquire or construct an item of property, plant and equipment and costs incurred subsequently to add to, replace part of, or service it. PAS 16 does not prescribe the unit of measure for recognition – what constitutes an item of property, plant, and equipment. [PAS 16.9] Note, however, that if the cost model is used (see below) 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 must be depreciated separately. [PAS 16.43] PAS 16 recognises that parts of some items of property, plant, and equipment may require replacement at regular intervals. The carrying amount of an item of property, plant, and equipment will include the cost of replacing the part of such an item when that cost is incurred if the recognition criteria (future benefits and measurement reliability) are met. The carrying amount of those parts that are replaced is derecognised in accordance with the derecognition provisions of PAS 16.67-72. [PAS 16.13] Also, continued operation of an item of property, plant, and equipment (for example, an aircraft) may require regular major inspections for faults regardless of whether parts of the item are replaced. When each major inspection is performed, its cost is recognised in the carrying amount of the item of property, plant, and

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Measurement subsequent to initial recognition PAS 16 permits two accounting models: 

Cost model. The asset is carried at cost less accumulated depreciation and impairment. [PAS 16.30]



Revaluation model. The asset is carried at a revalued amount, being its fair value at the date of revaluation less subsequent depreciation and impairment, provided that fair value can be measured reliably. [PAS 16.31]

The revaluation model Under the revaluation model, revaluations should be carried out regularly, so that the carrying amount of an asset does not differ materially from its fair value at the balance sheet date. [PAS 16.31] If an item is revalued, the entire class of assets to which that asset belongs should be revalued. [PAS 16.36] Revalued assets are depreciated in the same way as under the cost model. If a revaluation results in an increase in value, it should be credited to other comprehensive income and accumulated in equity under the heading "revaluation surplus" unless it represents the reversal of a revaluation decrease of the same asset previously recognised as an expense, in which case it should be recognised in profit or loss. [PAS 16.39] A decrease arising as a result of a revaluation should be recognised as an expense to the extent that it exceeds any amount previously credited to the revaluation surplus relating to the same asset. [PAS 16.40]

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FAR.104

EXCEL PROFESSIONAL SERVICES, INC. When a revalued asset is disposed of, any revaluation surplus may be transferred directly to retained earnings, or it may be left in equity under the heading revaluation surplus. The transfer to retained earnings should not be made through profit or loss. [PAS 16.41] Depreciation (cost and revaluation models) The depreciable amount (cost less residual value) should be allocated on a systematic basis over the asset's useful life [PAS 16.50]. The residual value and the useful life of an asset should be reviewed at least at each financial year-end and, if expectations differ from previous estimates, any change is accounted for prospectively as a change in estimate under PAS 8. [PAS 16.51] The depreciation method used should reflect the pattern in which the asset's economic benefits are consumed by the entity [PAS 16.60]; a depreciation method that is based on revenue that is generated by an activity that includes the use of an asset is not appropriate. [PAS 16.62A] Note: The clarification regarding the revenue-based depreciation method was introduced by Clarification of Acceptable Methods of Depreciation and Amortisation, which applies to annual periods beginning on or after 1 January 2016. The depreciation method should be reviewed at least annually and, if the pattern of consumption of benefits has changed, the depreciation method should be changed prospectively as a change in estimate under PAS 8. [PAS 16.61] Expected future reductions in selling prices could be indicative of a higher rate of consumption of the future economic benefits embodied in an asset. [PAS 16.56] Note: The guidance on expected future reductions in selling prices was introduced by Clarification of Acceptable Methods of Depreciation and Amortisation, which applies to annual periods beginning on or after 1 January 2016. Depreciation should be charged to profit or loss, unless it is included in the carrying amount of another asset [PAS 16.48]. Depreciation begins when the asset is available for use and continues until the asset is derecognised, even if it is idle. [PAS 16.55]

Derecognition (retirements and disposals) An asset should be removed from the statement of financial position on disposal or when it is withdrawn from use and no future economic benefits are expected from its disposal. The gain or loss on disposal is the difference between the proceeds and the carrying amount and should be recognised in profit and loss. [PAS 16.67-71] If an entity rents some assets and then ceases to rent them, the assets should be transferred to inventories at their carrying amounts as they become held for sale in the ordinary course of business. [PAS 16.68A] Disclosure Information about each class of property, plant and equipment For each class of property, plant, and equipment, disclose: [PAS 16.73]  basis for measuring carrying amount  depreciation method(s) used  useful lives or depreciation rates  gross carrying amount and accumulated depreciation and impairment losses  reconciliation of the carrying amount at the beginning and the end of the period, showing: - additions - disposals - acquisitions through business combinations - revaluation increases or decreases - impairment losses - reversals of impairment losses - depreciation - net foreign exchange differences on translation - other movements Additional disclosures The following disclosures are also required: [PAS 16.74]  restrictions on title and items pledged as security for liabilities  expenditures to construct property, plant, and equipment during the period  contractual commitments to acquire property, plant, and equipment  compensation from third parties for items of property, plant, and equipment that were impaired, lost or given up that is included in profit or loss. IAS 16 also encourages, but does not require, a number of additional disclosures. [PAS 16.79]

Recoverability of the carrying amount

Revalued property, plant and equipment

PAS 16 requires impairment testing and, if necessary, recognition for property, plant, and equipment. An item of property, plant, or equipment shall not be carried at more than recoverable amount. Recoverable amount is the higher of an asset's fair value less costs to sell and its value in use. Any claim for compensation from third parties for impairment is included in profit or loss when the claim becomes receivable. [PAS 16.65]

If property, plant, and equipment is stated at revalued amounts, certain additional disclosures are required: [PAS 16.77]  the effective date of the revaluation  whether an independent valuer was involved  for each revalued class of property, the carrying amount that would have been recognised had the assets been carried under the cost model  the revaluation surplus, including changes during the period and any restrictions on the distribution of the balance to shareholders.  - end of FAR.104 - 

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FAR.104