Property Plant Equipment

1210 WordsMay 4, 20135 Pages
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. • • 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…show more content…
6 13/08/2012 The revaluation model: Revaluation increments • Revaluation increments and their related tax effects are initially recorded in other comprehensive income and then transferred to equity. • The revaluation increment for Plant A would be recorded as follows: Dr Cr Removal of existing accumulated depreciation prior to revaluation Dr Cr Revaluation of plant to fair value These entries can be combined into a single entry The revaluation model: Revaluation increments Dr Cr Tax effect of revaluation gain • The entry to transfer the gain to equity is as follows: Dr Cr Cr Accumulation of net revaluation gain in equity 7 13/08/2012 The revaluation model: Revaluation decrements • The accounting treatment of a revaluation decrement is as follows: • Immediate recognition of an expense • No extra tax-effect entries beyond the tax-effect worksheet • The revaluation of Plant B would be recorded as follows: Dr Dr Cr Devaluation of plant to fair value The revaluation model: Reversing previous increments • A decrement reversing a previous increment eliminates any surplus before recognising an expense. • In relation to Plant B, assume that a gross revaluation increment of $15,000 had been made in 2010. • The journal entries required are as follows: Dr Accum. depreciation Cr Plant Dr Dr Cr Devaluation of plant to fair value 40,000 40,000 Removal of existing accumulated
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