The document discusses property, plant and equipment (PPE). It defines PPE and outlines the costs that are included in the initial valuation of PPE, such as purchase price, freight charges, installation costs. It also discusses subsequent accounting treatments, including depreciation methods like straight-line and diminishing balance. The document provides examples of calculating depreciation expense and the accounting for disposal of PPE items.
A presentation on Property, Plant & Equipment (PPE)-IAS 16, Prepared by a few students of Dept. of Accounting & Info. Systems, Jahangirnagar University, Savar, Dhaka
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Fall in the Value of a Tangible Asset i.e. Depreciation has been discussed. The reasons of such fall, Objectives of recording depreciation in Accounting has been explained. We have also considered the different methods of charging depreciation. Some useful concepts like Change in method of depreciation, Asset’s life or estimated useful life are discussed.
A presentation on Property, Plant & Equipment (PPE)-IAS 16, Prepared by a few students of Dept. of Accounting & Info. Systems, Jahangirnagar University, Savar, Dhaka
CA NOTES ON DEPRECIATION
FREE AFFIDAVITS AND NOTICES FORMATS
FREE AGREEMENTS AND CONTRACTS FORMATS
FREE LLB LAW NOTES
FREE CA ICWA NOTES
FREE LLB LAW FIRST SEM NOTES
FREE LLB LAW SECOND SEM NOTES
FREE LLB LAW THIRD SEM NOTES
FREE LLB LAW FOURTH SEM NOTES
FREE LLB LAW FIFTH SEM NOTES
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FREE CA ICWA FOUNDATION NOTES
FREE CA ICWA INTERMEDIATE NOTES
FREE CA ICWA FINAL NOTES
KANOON KE RAKHWALE INDIA
HIRE LAWYER ONLINE
LAW FIRMS IN DELHI
CA FIRM DELHI
VISIT : https://www.kanoonkerakhwale.com/
VISIT : https://hirelawyeronline.com/
Fall in the Value of a Tangible Asset i.e. Depreciation has been discussed. The reasons of such fall, Objectives of recording depreciation in Accounting has been explained. We have also considered the different methods of charging depreciation. Some useful concepts like Change in method of depreciation, Asset’s life or estimated useful life are discussed.
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AssignmentComplete the following problems You must show your.docxssuser562afc1
Assignment:
Complete the following problems: You must show your work and complete both problems to get any credit!
1) (Chapter 10) Identify which of the following costs are fixed and which are variable:
a) Electricity for machinery in a plant
b) Sales commission
c) Property taxes on a factory building
d) Property taxes on an administrative building
e) Factory fire insurance
f) Regular maintenance on machinery and equipment
g) Wages paid to temporary or seasonal workers
h) Salaries paid to design engineers
i) Heat and air conditioning in a plant
j) Basic raw materials used in production
2) (Chapter 11) A machine costing $80,000 to buy and $6,000 per year to operate will save mainly labor expenses in packaging over five years. The anticipated salvage value of the machine at the end of five years is $4,000.
a) If a 12% return of investment (rate of return) is desired, what is the minimum required annual savings in labor from this machine?
b) If the service life is four years instead of five, what is the minimum required annual savings in labor for the firm to realize a 12% return on investment?
c) If the annual operating cost increases 10%, say from $6,000 to $6,600, what will happen to the answer in (a)?
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Accounting for Depreciation
Depreciation
Depreciation is the loss of value of fixed assets over time.
Depreciation accounting is to account for the cost of fixed assets in a pattern that matches their decline in value over time.
The process of depreciating an asset requires that we know some things:
What is the cost of the asset?
What is the depreciable life of the asset?
What is the asset’s value at the end of its useful life?
What method of depreciation do we choose?
Depreciable Property
A depreciable asset is property for which a firm may take depreciation deductions against income.
U.S tax law requires the depreciable property must:
Be used in business or held for the production of income
Have a definite service life, which must be longer than 1 year
Be something that wears out, decays, gets used up, becomes obsolete, or loses value from natural causes
Depreciable Property
Depreciable property includes buildings, machinery, equipment, vehicles, a ...
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This webinar will introduce you to my framework, highlighting the key competencies I identified from my research. It will also show how anybody involved in language teaching (any language, not just English!), teacher training, managing schools or developing language learning materials can benefit from using the framework.
2. Learning objectives
Describe property, plant and equipment and costs included in its initial valuation,
Describe the accounting treatment for costs subsequent to acquisition.
Explain the concept of depreciation.
Identify the factors involved in the depreciation process.
Compare activity, straight line and decreasing charge methods of depreciation.
Describe the accounting treatment for the disposal of property, plant and equipment.
3. Definition
According to Shuvo et.al (2017) Property Plant and Equipment are
defined as tangible assets 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 utilized in more than one period.
4. Assets
An asset is a resource controlled by an entity as a result of past event and
from which future economic benefits will flow to the entity.
According to Jain (2017) the cost of an item of Property, Plant and
Equipment shall be recognized as an asset if:
• It is probable that future economic benefits from PPE will flow to the entity;
• The cost of the item can be measured reliably.
5. Property, plant and equipment
These are fixed assets which actually lasts for a period of more than one
year.
Includes land, building, structures, machinery, vehicles and equipment.
They are not held for resale.
They are long term and are subject to depreciation (except land).
They are tangible meaning you can actually touch and see them.
6. Measurement of PPE
They are measured at historical cost.
Historical cost means that assets should be recorded in the accounts of the
business at the amount that was originally paid for them.
According to Harrison (2011) historical cost is the basis for determining
cost of Property Plant and Equipment.
Historical cost includes:
The asset’s cash or cash equivalent price, and
The cost of readying the asset for use, this means all cost related to bringing
the asset in to use.
7. Reasons why PPE should be valued at
historical cost
According to Aziz (2011) PPE should be valued at Historical Cost because:
Historical cost is reliable.
Companies should not anticipate gains and losses but should recognize
gains and losses only when the asset is sold.
8. What to include in the cost PPE items
Cost of land,
Cost of buildings and,
Cost of equipment.
10. Cost of land
Includes all costs to acquire land and ready it for use. The costs typically
include:
The purchase price;
Closing costs, such as title to the land, attorney’s fees, and recording fees;
Costs of grading, filling, draining, and clearing;
Additional land improvements that have an indefinite life.
12. Cost of building
Includes all costs related directly to acquisition or construction. The costs
typically include:
Materials, labor, and overhead costs incurred during construction and
Professional fees and building permits.
14. Cost of equipment
Include all costs incurred in acquiring the equipment and preparing it for
use. The costs typically include:
Purchase price,
Freight and handling charges
Insurance on the equipment while in transit,
Cost of special foundations if required,
Assembling and installation costs, and
Costs of conducting trial runs.
15. Other PPE items not mentioned
above
Vehicles and machinery are not mentioned above because the costs to
be included are the same as the costs of equipment.
Measurement of PPE items can also be called initial recognition.
18. Example on how to calculate cost
AC Entity is a business that is well known for AC supplies. On 1 January
2017 AC Entity purchased a machine for R1 271 930. during January 2017,
AC Entity incurred the following costs;
Delivery cost to deliver machine amount to R125 000
Installation costs by an external service provider amount to R225 000
Preparation cost for the machine to function amount to R150 000
The present value of the dismantling and rehabilitation costs was
estimated at R215 000.
19. Solution to the above example
Purchase price R1 271 930
Delivery cost R125 000
Installation cost R225 000
Preparation cost R150 000
Present value of dismantling and rehabilitation costs R215 000
Total cost of machinery R1 986 930
This means that the machine will be recognised at R1986 930.
20. Subsequent measurement of PPE
items
Land at cost price less any accumulated impairment losses; and
Other PPE items: cost price less accumulated depreciation and less any
accumulated impairment losses. In this slides I will not discuss anything
about impairment losses.
In other words all PPE items are subsequently measured at Carrying
amount.
21. Important terms
Carrying amount and depreciation and residual value
According to Sonia (2015) Carrying amount is the amount at which an
asset is recognised after deducting any accumulated depreciation and
accumulated impairment losses.
Residual value is the estimated amount that would currently be obtained
from the disposal of a PPE item after deducting cost of sale.
Depreciation is the systematic allocation of the depreciable amount of an
asset over its useful life. This can also be the loss of value of an asset due
to wear and tear.
22. Two common methods of accounting
for depreciation
Straight line method
Depreciable amount divide by useful
life or multiply by depreciation rate.
Depreciable amount x depreciation
rate.
Depreciable amount is cost price less
residual value.
Diminishing balance method
Cost price less accumulated
depreciation multiply by depreciation
rate.
Cost – accumulated depreciation =
carrying amount
Then carrying amount x depreciation
rate.
23. Example on straight line method
On 1 January 2017 AC Entity purchased an equipment R 500 000,
depreciation is calculated at 20% per annum on the straight line method.
On the purchased date the residual value was estimated to be R100 000.
Required
Calculate the depreciation expense for the reporting date 31 December
2017.
24. Solution
Cost R500 000
Residual value R100 000
Therefore Depreciable amount to R400 000 (R500 000-R100 000)
Depreciation= R400 000 X 20/100= R80 000.
25. Example on the diminishing balance
method
On 1 January 2017 AC Entity had an equipment costing R 500 000, with
an accumulated depreciation of R100 000. Depreciation is calculated at
20% per annum on the diminishing balance method.
Required
Calculate the depreciation expense for the reporting date 31 December
2017.
27. Disposal of a PPE item
When a PPE item no longer satisfies the definition and recognition criteria
of an asset, then the item can no longer be accounted for as an asset.
This will occur at the stage when the PPE item is sold, or when it no
longer bring the economic benefits to the entity.
Therefore the entity has to derecognise the item at its original cost price.
28. Disposal of assets(PPE items)
According to Muhandiram (2014) all disposals should be identified and
the disposal profit or loss should be separately calculated.
Inspect the sales invoices and bank statements for sales receipts.
Document the details.
Year of purchase,
Cost of the assets
Sales proceeds
Accumulated depreciation
Profit or loss on disposals
29. Example on disposal of PPE item
On 31 December 2017 the AC Entity sold an equipment which was no
longer economically useful at R80 000. On 1 January 2017 the cost was of
the equipment was R150 000 and an accumulated depreciation of R30
000. depreciation is calculated at 20% per annum on cost.
Required
Calculate the profit or loss on sale of the equipment.
30. Solution
First thing is to calculate current year depreciation
Depreciation R150 000 x 20/100 = R30 000
Therefore cost less accumulated depreciation= carrying amount
R150 000-R30 000-R30 000= R90 000
Carrying amount- amount received= profit or loss
NB if carrying amount is greater than amount received/selling price we have
a loss and if it is less we have a profit.
R90 000-R80 000= R10 000 loss on sale of equipment.
31. References
Aziz, J.K. (2011) Acquisition and Disposition of Property, Plant and
Equipment. Available from Slideshare at
https://www.slideshare.net/umargul786/acquisition-and-disposition-of-
property-plant-and-equ?qid=e475757f-4aaf-4d1f-abeb-
cd146180ad37&v=&b=&from_search=5 (Accessed 7 September 2017)
Harrison, B. (2011) Accounting for Property, Plant and Equipment. Available
from Slideshare at https://www.slideshare.net/Fordlovers/9-property-plant-
and-equipment?qid=90f7409c-13a3-475f-8cf8-
3144c4655386&v=&b=&from_search=4 (Accessed 7 September 2017).
32. References
Jain, M. (2017) Property, Plant and Equipment. Available from Slideshare at
https://www.slideshare.net/ManulJain2/ind-as-16-property-plant-and-
equipment?qid=224334e8-3ed2-426c-990e-
a63f3fc7d93c&v=&b=&from_search=6 (Accessed 7 September 2017)
Muhandiram, K.M.T.N. (2014) Property, Plant and Equipment. Available
from Slideshare at https://www.slideshare.net/TharinduNishshankaMu/lkas-
16-property-plant-amp-equipment?qid=4a37f389-1431-43e6-a173-
3549726a84c3&v=&b=&from_search=9 (7 September 2017)
33. References
Shuvo, J, Rahman, S, Hasan, K, Ripon, H.S, Amin, R, Rana, M. (2017)
Property, Plant and Equipment. Available from Slideshare at
https://www.slideshare.net/Jahid_2974/ias-16-property-plant-equipment-
ppe?qid=7e263b91-0866-4a84-aa41-
d0daf5bdd75a&v=&b=&from_search=1 (Accessed 7 September 2017)
Sonia, S. (2015) Property, Plant and Equipment. Available from Slideshare
at https://www.slideshare.net/MdMoazzemHossain/property-plant-
equipment-ias-16?qid=52213479-c812-428e-83ef-
2d8b1af8a637&v=&b=&from_search=3 (7 September 2017)