ACCA
01 technical
accounting for property, plant and equipment
RELEVANT TO ACCA QUALIFICATION PAPER F7
The accounting for IAS 16, Property, Plant and Equipment is a particularly important area of the Paper F7 syllabus. You can almost guarantee that in every exam you will be required to account for property, plant and equipment at least once.
This article is designed to outline the key areas of IAS 16,
Property, Plant and Equipment that you may be required to attempt in the F7 exam.
IAS 16, Property, Plant and Equipment overview
There are essentially four key areas when accounting for property, plant and equipment that you must ensure that you are familiar with:
¤ initial recognition
¤ depreciation
¤ revaluation
¤ derecognition (disposals).
Initial recognition
The basic principle of IAS 16 is that items of property, plant and equipment that qualify for recognition should initially be measured at cost.
One of the easiest ways to remember this is that you should capitalise all costs to bring an asset to its present location and condition for its intended use.
Commonly used examples of cost include:
¤ purchase price of an asset (less any trade discount)
¤ directly attributable costs such as:
– cost of site preparation
– initial delivery and handling costs
– installation and testing costs
– professional fees
¤ the initial estimate of dismantling and removing the asset and restoring the site on which it is located, to its original condition
(ie to the extent that it is recognised as a provision per IAS 37,
Provisions, Contingent Assets and Liabilities)
¤ borrowing costs in accordance with IAS 23, Borrowing Costs.
Example 1
On 1 March 2008 Yucca acquired a machine from Plant under the following terms: $
List price of machine
82,000
Import duty
1,500
Delivery fees
2,050
Electrical installation costs
9,500
Pre-production testing
4,900
Purchase of a five-year maintenance contract with Plant
7,000
accounting for property, plant and equipment
RELEVANT TO ACCA QUALIFICATION PAPER F7
The accounting for IAS 16, Property, Plant and Equipment is a particularly important area of the Paper F7 syllabus. You can almost guarantee that in every exam you will be required to account for property, plant and equipment at least once.
This article is designed to outline the key areas of IAS 16,
Property, Plant and Equipment that you may be required to attempt in the F7 exam.
IAS 16, Property, Plant and Equipment overview
There are essentially four key areas when accounting for property, plant and equipment that you must ensure that you are familiar with:
¤ initial recognition
¤ depreciation
¤ revaluation
¤ derecognition (disposals).
Initial recognition
The basic principle of IAS 16 is that items of property, plant and equipment that qualify for recognition should initially be measured at cost.
One of the easiest ways to remember this is that you should capitalise all costs to bring an asset to its present location and condition for its intended use.
Commonly used examples of cost include:
¤ purchase price of an asset (less any trade discount)
¤ directly attributable costs such as:
– cost of site preparation
– initial delivery and handling costs
– installation and testing costs
– professional fees
¤ the initial estimate of dismantling and removing the asset and restoring the site on which it is located, to its original condition
(ie to the extent that it is recognised as a provision per IAS 37,
Provisions, Contingent Assets and Liabilities)
¤ borrowing costs in accordance with IAS 23, Borrowing Costs.
Example 1
On 1 March 2008 Yucca acquired a machine from Plant under the following terms: $
List price of machine
82,000
Import duty
1,500
Delivery fees
2,050
Electrical installation costs
9,500
Pre-production testing
4,900
Purchase of a five-year maintenance contract with Plant
7,000