(b) The underlying asset is not highly dependent on, or highly interrelated with, other assets. Recoverable amount is the higher of an … And if expectations differ from previous estimates, any change is accounted for prospectively as a change in estimate under IAS 8. ... an entity that chooses the cost model shall measure all of its investment property using the cost model in IAS 16 Property, Plant and Equipment (i.e. 9. Spread the word. Back to Course Next Lesson. The election needs to be made for relevant leased assets on a ‘class-by-class’ basis. | Riaduzzaman, ACCA Course Instructor AMTRAS 4 Depreciation - Depreciation : o Depreciation = Systematic allocation of the depreciable amount of an asset over its useful life (IAS 16.50). The IASB is engaged in a project to make a narrow-scope amendment to IAS 16 to clarify that where items produced before an item of PPE is available for use, the proceeds of sale may not be deducted from the cost of the PPE. IFRS 16 requires that the ‘right of use asset’ and the lease liability should initially be measured at the present value of the minimum lease payments. I also talk about how to answer ACCA SBR questions on IFRS 15. When an entity purchases or constructs an asset, it may take on a contractual or statutory obligation to decommission the asset or restore the asset site. If part of an asset is replaced, then the part it replaces is derecognised, regardless of whether it has been depreciated separately or not. The discount rate used to determine present value should be the rate of interest implicit in the lease. September 16 MCQ 16-20 Telepath Co has a year end of 30 September and owns an item of plant which it uses to produce and package pharmaceuticals. The assessment is not affected by the size, nature or circumstances of the lessee. The interest cost of $55,056 will be taken to the statement of profit or loss as a finance cost. IAS 16 Property, plant and equipment 2017 - 07 2 Cost is the amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire an asset at the time of its acquisition or construction or, where applicable, the amount attributed to that asset when Lessees will recognise a right of use asset and an associated liability at the inception of the lease. Free IFRS Quizzes IAS 16 – Property Plant and Equipment Quiz ) , () ) Previous Lesson. IFRS 16 states that a customer has the right to direct the use of an identified asset if either: Example – the right to direct the use of an asset. Contact information for your local office, Virtual classroom support for learning partners. Therefore the residual would be regarded as a ‘lease rental’ at an amount of $159,878 ($200,000 – $40,122). IAS 16 Property, Plant and Equipment & 41 Agriculture (amendments to IAS 16 and IAS 41 effective for annual periods beginning on or after 1 January 2016) This article presents the amendments to IAS 16 and IAS 41 in relation to bearer plants. 2.2 The right to direct the use of the asset. Conclusion: The contract is a lease. The residual value of an item of PPE is based on the estimated amount that an entity would currently obtain from the asset's disposal, less estimated selling costs, if the asset were already of the age and in the condition expected at the end of its useful life. The goods will occupy substantially all of the capacity of the truck. Asset shall be recognized under recognition criteria of IAS 16 Property Plant and Equipment or IAS 40 Investment Property i.e. An estimate of any costs to be incurred by the lessee in dismantling and removing the underlying asset, or restoring the site on which it is located (unless the costs are incurred to produce inventories, in which case they would be accounted for in accordance with IAS 2 –. The recognition and measurement of exploration and evaluation assets is set out in IFRS 6, Exploration for and Evaluation of Mineral Resources. The right to direct the use of the asset. ACCA Diploma in IFRS (DipIFR) is an international qualification in IFRS developed by the leading professional accounting organisation Association of Chartered Certified Accountants (ACCA). An entity using the revaluation model accounts for changes effectively through the revaluation reserve. September 17, 2013 Oxford Brooks University BSc. Bearer plants will fall under the scope of IAS 16 while the produce grown on the plants will remain under IAS 41. If the transaction does constitute a ‘sale’ under IFRS 15 then the treatment is as follows: If the fair value of the consideration for the sale of an asset does not equal the fair value of the asset, or if the payments for the lease are not at market rates, an entity shall make the following adjustments to measure the sale proceeds at fair value: Entity X sells a building to entity Y for cash of $5 million. The depreciable amount (cost less prior depreciation, impairment and residual value) should be allocated on a systematic basis over the asset's useful life. At the same time, X enters into a contract with Y for the right to use the building for 20 years, with annual payments of $200,000 payable at the end of each year. There is an identified asset. IAS 16 PPE - Basics from ACCA F3 (104:58) Start; 10. IAS 16, ‘Property, plant and equipment’ includes guidance on how to account for property carried at cost. When the trucks are not in use, they are kept at L’s premises. Interest of CU 1 167, plus; Depreciation of CU 7 780, plus ; Expense for cleaning services of CU 1 429. Property plant and equipment (PPE) are tangible assets that an entity holds for its own use or for rental to others, and that the entity expects to use during more than one period. To find this figure, we look at the remaining balance following the payment in year two. The purpose of this article is to summarise the key changes introduced by IFRS 16 from the perspective of the lessee and how these impact on their financial reporti… The transfer to retained earnings should not be made through the income statement so as to prevent 'recycling'. IAS 38 Intangible Assets February 17, 2020 at 8:21 pm. … IAS 40 Investment Property (13:52) Start; 12. IFRS 15 Revenue from Contracts with Customers is very important in accounting practices. ACCA Financial Reporting (FR) - Non-current assets IAS16 - Practice Questions - Chapter 5 Free ACCA Financial Reporting (FR) Tests Acca questions and answers on ias 16. IFRS 16 Leases will start to apply on all the financial years starting after 1 st January, 2019. Donate. Further, non-current assets can be classified as tangible and intangible non-current assets. IAS 40 Investment Property. IAS 20 - Accounting for Government Grants and Disclosure of Government Assistance F7 Kaplan 2019 Exam Kit by (www.ACCAGlobalBox.com) IAS 16 ACCA F7 - Financial Reporting Study Text 2018 ACCA F7 - Financial Reporting Revision Kit 2018 ACCA F7 - Financial Reporting Study Text 2017-18 IAS 16 standard specifies property, plant and equipment's detailed accounting and disclosure requirements. These costs should be capitalised at the date on which the entity becomes obligated to incur them. Any above-market terms shall be accounted for as additional financing provided by the buyer-lessor to the seller-lessee. In these circumstances the seller does not ‘transfer’ the asset and continues to reconise it, without adjustment. Otherwise, and other than on default by L, P cannot retrieve the trucks during the six-year period. IAS 16 Property, Plant and Equipment. An item of property, plant, or equipment shall not be carried at more than recoverable amount. Neither are investments in subsidiaries, associates and joint ventures. L can use the trucks for another purposes if it so chooses. The global body for professional accountants, Can't find your location/region listed? Temporary idle activity does not preclude depreciating the asset, as future economic benefits are consumed not only through usage but also through wear and tear and obsolescence. The related credit is recognised in provisions. Any payments made to the lessor at, or before, the commencement date of the lease, less any lease incentives received. C is prohibited from hiring another haulier to transport the goods or operating the truck itself. IAS 16 Property, Plant and Equipment requires impairment testing and, if necessary, recognition for property, plant, and equipment. Si Claro hombre/mujer - It´’s still an IAS 40 Investment property if the supply is small and insignificant. Reader Interactions. IAS 16 Property, Plant and Equipment outlines the accounting treatment for most types of property, plant and equipment. Archived from the original on 2013-09-27; International Accounting Standards Board (2011). Given the IFRS 15 treatment as a ‘sale’ B would almost certainly regard the lease of the building as an operating lease. London: IFRS Foundation. Examples of low-value underlying assets can include tablet and personal computers, small items of office furniture and telephones. IAS 16 – Depreciation – ACCA (SBR) lectures. 3.4 A simplified approach for short-term or low-value leases. Si Claro hombre/mujer - It´’s still an IAS 40 Investment property if the supply is small and insignificant. The objective of IAS 16 is to prescribe the accounting treatment for property, plant, and equipment. Last updated: 30 August 2020. The current liability element is therefore $26,441. The residual value and the useful life of an asset should be reviewed, at least, at each financial year end. The above normally occurs when the risks and rewards of the asset have passed to the entity. Donate. Impairment indicators are more likely to be prevalent at the present time, therefore requiring assets to be evaluated for impairment. Any below-market terms shall be accounted for as a prepayment of lease payments; and. . C has the same rights regarding the use of the truck as if it were one of many customers transporting goods using the truck. An entity that uses the cost model records changes in the existing liability and changes in the discount rate, adjusting the cost of the related asset in the current period. IAS 2 Inventories; IAS 7 Statement of Cash Flows; IAS 8 - Accounting Policies, Changes in Accounting, Estimates and Errors; IAS 12 - Income Taxes; IAS 16 – Property, Plant and Equipment; IAS 23 Borrowing costs; IAS 27 - Separate financial statements; IAS 36 Impairment of assets; IAS 37 - Provisions, contingent liabilities and contingent assets However, if an asset is revalued, then the entire class of asset must be revalued. IAS 16 does not use the value to the business model. ... IAS 17 Leases IFRS 16 Leases Session 6 IFRS 15 Revenue from contracts with customers The global body for professional accountants, Can't find your location/region listed? PPE is derecognised on disposal or when no future economic benefit is expected from its use or disposal. To find out more, see our Cookies Policy Terms & Conditions Articles. The treatment of sale and leaseback transactions depends on whether or not the ‘sale’ constitutes the satisfaction of a relevant performance obligation under IFRS 15 – Revenue from Contracts with Customers. IAS 16 is applied in accounting for property, plant and equipment. As the lease is being paid off over 20 years, some of this liability will be paid off within a year and should therefore be classed as a current liability. IAS 38 - Intangible Non Current Assets (66:09) Start; 13. 11 Comments. 1.1 Definition and recognition criteria of Asset And before a resource is treated as an asset and recorded in the […] IFRS 16 Leases . If you’re still confused about the differences between old standards and new, the information below will help. International Financial Reporting Standards: required for annual periods beginning on 1 January 2012. THE INITIAL MEASUREMENT OF PPE H operates and maintains the truck and is responsible for the safe delivery of the goods. The interest rate implicit in the lease is 6% per annum. Back to Course Next Lesson. IAS 16 and IAS 38 allow a policy choice when measuring PP&E or intangible assets subsequently to their initial recognition – cost model or revaluation model (IAS 16.29; IAS 38.72).. The ACCA DipIFR is an IFRS qualification by the Association of Chartered Certified Accountants (ACCA), the leading global accounting body involved in the development of IFRS. This is done in the following table: At the end of year one, the carrying amount of the right of use asset will be $895,470 ($942,600 less $47,130 depreciation). Immediately before the transaction, the carrying amount of the building in the financial statements of entity X was $3.5 million. Hello Sir, First question is about having a legal obligation. [IAS 16.48.] The amount capitalised as part of the asset's cost will be the amount estimated to be paid, discounted to the date of initial recognition. Early application of the IFRS 16 Leases is only allowed with IFRS 15. Comments. An item of PPE should be recognised as an asset, if it is probable that future economic benefits associated with the asset will flow to the entity and the cost of the item can be measured reliably. In other words, after taking account of normal depreciation that would have been charged had no impairment occurred. Under IFRS 16, the impact on profit or loss in the year 1 was:. Enroll Now. Under a contract between a local government authority (L) and a private sector provider (P), P provides L with 20 trucks to be used for refuse collection on behalf of L for a 6-year period. If a particular truck needs to be serviced or repaired, P is required to substitute a truck of the same type. Please visit our global website instead. The most significant are: New definition of the leasecan cause that some contracts previously treated as “service contracts” can now be treated as “lease contracts”, 5. o Depreciable amount = Cost of asset – residual value o Depreciation begins when the asset is available for use and continues until the asset is derecognized, even if it is idle. However, there are difficulties of obtaining a market value for plant and equipment that are recognised in IAS 16. The standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or … In order to help us with the example in the following section, we will measure the lease liability up to and including the end of year ten. Acca Questions And Answers On Ias 16 IAS Exam Notification has been published online to recruit candidates to the Indian Administrative Services. Biological assets, intangible assets and investment property are not PPE. IAS 16 Property, Plant and Equipment states that the recognition criteria for PPE are based on the probability that future benefits will flow to the entity from the asset and that cost can be measured reliably. IFRS 16 leases. These assets are called PP&E, that is property, plant and equipment. Can it still be an IAS 40 Investment property if we are involved in the building still by giving services to it? Lease payments are $80,000 per year during the initial term and $100,000 per year during the optional period, all payable at the end of each year. Its goods will occupy substantially all of the capacity of the truck, thereby preventing other parties from obtaining economic benefits from use of the truck. Accounting for assets, impairments and grants. ACCA Articles. The total lease liability at the end of year one will be $892,656. The fair value of property is its market value. The standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or … Under the revaluation model, an asset is carried at its fair value (i.e. IFRS 3 Goodwill (23:09) Start A lease of an underlying asset does not qualify as a lease of a low-value asset if the nature of the asset is such that, when new, the asset is typically not of low value. The present value of the lease payments is $917,600. IAS 16 Property, Plant and Equipment states that the recognition criteria for PPE are based on the probability that future benefits will flow to the entity from the asset and that cost can be measured reliably. Accounting for assets, impairments and grants. 4. Depreciation ceases at the earlier of its derecognition (sale or scrapping) or its reclassification as 'held for sale' and should be reviewed at least at each year end. ACCA P2 考试： IAS 40 Investment Property. - If you own assets with zero carrying amount, but they are still in use, there's something wrong about it. These changes in estimate may be because of changes in legislation, technology and timing of the decommissioning and or management's assumptions. Reader Interactions. Mineral rights and exploration and evaluation assets are specifically excluded from the scope of PPE. The Prelims is a qualifying nature exam which helps a candidate to move to the next stage of the recruitment. In order for such a contract to exist the user of the asset needs to have the right to: One essential feature of a lease is that there is an ‘identified asset’. The relevant performance obligation would be the effective ‘transfer’ of the asset to the lessor by the previous owner (now the lessee). Any initial direct costs incurred by the lessee. The residual value and the useful life of an asset shall be reviewed at least at each financial year-end and, if expectations differ from previous estimates, the change(s) shall be accounted for as a change in an accounting estimate in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. The recruitment process comprises 2 steps- Prelims (Written Test) and Mains (Interview). IAS 16 - Property, Plant & Equipment Enrol The learning outcomes from this CPD accounting standards course includes establishing the principles for recognising property, plant and equipment as assets and m easuring carrying amounts. 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. 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. ACCA F7 Financial Reporting IAS 16 Property, Plant and Equipment Non-current assets The cost might also include transfers from equity of gains/losses on qualifying cashflow hedges that are directly related to the acquisition of property, plant and equipment. This Standard deals with the accounting treatment of Property, Plant & Equipmentincluding the guidance for the main issues related to the recognition & measurement, determination of carrying value, depreciation charges, any impairment loss and de-recognition aspects for the property, plant & equipment in the financial statements of an entity.
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