Accountin for Asset
Essay by review • July 23, 2011 • Study Guide • 816 Words (4 Pages) • 3,484 Views
Demolition CostsвЂ" New Policy• Demolition costs included in cost of new buildings as site preparation only whereвЂ" No legal or constructive obligation to restore вЂ" Formal management commitment to demolish and build on the site • Demolition costs expensed where no intention to rebuild on the site
--------------------------------------------------------------------------------
Page 17
Subsequent Expenditure• Major replacements and regular major inspections (which are a condition of continued operation) are capitalised (AASB 116 paras 13-14)• Repairs and maintenance are expensed as is day to day servicing (AASB 116 para 12)
--------------------------------------------------------------------------------
Page 18
VALUATION
--------------------------------------------------------------------------------
Page 19
Cost vs Valuation вЂ" AASB 116 (para 29) allows (by class) use of eitherвЂ" Cost model or вЂ" Valuation model • Non-Current Asset Policies override вЂ" mandate the valuation model all physical assets вЂ" Plant and equipment and WIP exceptions
--------------------------------------------------------------------------------
Page 20
• Cost model вЂ" carried at cost less accumulated depreciation less impairment losses (AASB 116 para 30)• Valuation model вЂ" revalued amounts less accumulated depreciation less impairment losses вЂ" regular revaluation (AASB 116 para 31)
--------------------------------------------------------------------------------
Page 21
Fair Value• Fair value definitionthe amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction • If an item is revalued, the entire class shall be revalued (AASB 116 para 36)
--------------------------------------------------------------------------------
Page 22
Accounting for Revaluations• Increments taken to the asset revaluation reserve (equity), except where they reverse a previous decrement recognised in profit or loss, they are taken to profit or loss
--------------------------------------------------------------------------------
Page 23
• Revaluation decrements are recognised in profit or loss, unless there is balance in the revaluation reserve• On transition to IFRS вЂ" For-profit entities now account for revaluations on an asset by asset basisвЂ" Not-for-profit entities still on a class basis
--------------------------------------------------------------------------------
Page 24
Revaluation and Depreciation• AASB 116 provides two options for accumulated depreciation (AASB 116 para 35)вЂ" Restate proportionately (gross method) orвЂ" Eliminate (net method)• The Non-current Asset Policies override this choice and mandate the gross method
--------------------------------------------------------------------------------
Page 25
DEPRECIATION
--------------------------------------------------------------------------------
Page 26
• Depreciation (AASB 116 para 6)The systematic allocation of the depreciable amount of an asset over its useful life
--------------------------------------------------------------------------------
Page 27
• Depreciable amountIs the cost of an asset, or other amount substituted for cost, less its residual value
--------------------------------------------------------------------------------
Page 28
• Residual valueThe estimated amount an entity would currently obtain from disposal of the asset, after deducting estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life
--------------------------------------------------------------------------------
Page 29
• Useful lifeThe period over which an asset is expected to be available for use by an entity: or the number of production units expected to be obtained from the asset by the entity
--------------------------------------------------------------------------------
Page 30
Depreciation Methods• Depreciation method chosen must reflect the pattern in which the assets’ future economic benefits are expected to be consumed (AASB 116 para60)
--------------------------------------------------------------------------------
Page 31
• Time based depreciation вЂ" Straight line (Depreciation = c-r/n)вЂ" Reducing balance (Depreciation Rate=1-nв?љr/c) n=estimated useful life in yearsr=estimated residual valuec=gross carrying amount
--------------------------------------------------------------------------------
Page 32
вЂ"Output/Service method•p/qx cp=actual outputs during periodq=estimated useful life in outputsc=gross carrying amountCertain other methods of depreciation not permitted under AASB 116
--------------------------------------------------------------------------------
Page 33
Review of Depreciation• At least at the end of each annual reporting period must review:вЂ" Method of depreciation (AASB 116 para 61)вЂ"
...
...