PPE for Oran Question

What are the 3 main sections of a PPE note?

1. Cost/valuation 2. Accumulated depreciation 3. Net book value (NBV)

What is the basic PPE note equation?

NBV = Cost or valuation − Accumulated depreciation

What is the usual layout of the cost/valuation section?

Opening balance + Additions − Disposals ± Revaluations = Closing balance

What is the usual accumulated depreciation layout?

Opening AD − AD on disposals − AD eliminated + current depreciation = closing AD

What final check should you do on every PPE category?

Closing cost/valuation − closing accumulated depreciation = closing NBV

What is the first calculation before a revaluation?

Find the asset's NBV immediately BEFORE revaluation.

How do you calculate NBV before revaluation?

Cost/valuation − accumulated depreciation

How do you find the revaluation increase or decrease?

Compare the old NBV with the new revalued amount.

New value is above old NBV. What happened?

Revaluation increase ↑: Asset ↑ and usually Revaluation Reserve ↑

Journal for a revaluation increase?

Dr PPE ↑ | Cr Revaluation Reserve ↑

Why is PPE debited for a revaluation increase?

PPE is an asset. A debit increases an asset balance.

Why is Revaluation Reserve credited on an increase?

Revaluation Reserve is equity. A credit increases equity.

New value is below old NBV. What happened?

Revaluation decrease ↓: the asset's carrying amount must decrease.

Revaluation decrease with an existing reserve: journal?

Dr Revaluation Reserve ↓ | Cr PPE ↓

Why debit Revaluation Reserve for a decrease?

It reduces the existing equity reserve: Revaluation Reserve ↓

Why credit PPE for a revaluation decrease?

PPE is an asset; a credit reduces an asset: PPE ↓

What if a revaluation decrease exceeds the existing reserve?

Use the reserve first; remaining loss goes to the Income Statement.

Revaluation loss with no available reserve: journal?

Dr Revaluation Loss/Expense ↑ | Cr PPE ↓

What usually happens to existing accumulated depreciation on revaluation?

It is eliminated against the asset before recording the new revalued amount.

Journal to eliminate accumulated depreciation?

Dr Accumulated Depreciation ↓ | Cr PPE ↓

Why debit accumulated depreciation when eliminating it?

It is a contra-asset with a credit balance; debit makes it ↓.

What does accumulated depreciation do to an asset's NBV?

Accumulated depreciation ↑ → NBV ↓

Normal depreciation journal?

Dr Depreciation Expense ↑ | Cr Accumulated Depreciation ↑

Why debit depreciation expense?

Expenses increase with debits: Expense ↑ → Profit ↓

Why credit accumulated depreciation?

It is a contra-asset; its credit balance ↑, causing NBV ↓.

Straight-line depreciation formula using a percentage?

Cost/revalued amount × depreciation rate

If a building is €650k and depreciation is 2%, charge?

€650k × 2% = €13k depreciation

After revaluation, what value is depreciation based on?

The revalued carrying amount, over its remaining useful life.

Why is land normally not depreciated?

Land normally has an indefinite useful life.

When an asset is disposed of, what two PPE figures must leave?

Its original cost AND its related accumulated depreciation.

What happens to PPE cost when an asset is disposed of?

PPE ↓ by the disposed asset's original cost.

What happens to accumulated depreciation on disposal?

Accumulated Depreciation ↓ by the amount relating to that asset.

Basic disposal journal before considering proceeds?

Dr Accumulated Depreciation ↓ | Cr PPE ↓

How do you calculate an asset's NBV at disposal?

Original cost − accumulated depreciation relating to that asset

How do you calculate profit/loss on disposal?

Disposal proceeds − NBV at date of disposal

Proceeds are greater than NBV. What results?

Profit on disposal ↑

Proceeds are below NBV. What results?

Loss on disposal ↑

Journal for cash received on disposal?

Dr Cash/Bank ↑ because an asset (cash) has increased.

If a question says no depreciation in year of disposal?

Do NOT charge current-year depreciation on the disposed asset.

If full depreciation is charged in year of acquisition?

Charge a full year's depreciation even if purchased during the year.

New plant costs €200k with €30k trade-in. PPE addition?

€200k. Record the new asset at full cost, not the net cash paid.

€200k new asset less €30k trade-in: cash paid?

€170k cash paid.

Why isn't a €200k asset recorded at €170k after trade-in?

€170k is cash paid; €30k is consideration from the old asset.

What should a revaluation working show?

Old NBV → new value → increase/decrease → reserve/IS treatment → new depreciation

What should a disposal working show?

Cost → accumulated depreciation → NBV → proceeds → profit/loss

What should a depreciation working show?

Depreciable amount × rate, or depreciable amount ÷ remaining useful life

Which accounts normally have DEBIT balances?

Assets and Expenses: increases are normally debits.

Which accounts normally have CREDIT balances?

Liabilities, Equity and Income: increases are normally credits.

Asset increases: Dr or Cr?

Dr ↑

Asset decreases: Dr or Cr?

Cr ↓

Expense increases: Dr or Cr?

Dr ↑

Equity increases: Dr or Cr?

Cr ↑

Equity decreases: Dr or Cr?

Dr ↓

Accumulated depreciation ↑: Dr or Cr?

Cr ↑ — it is a contra-asset.

Accumulated depreciation ↓: Dr or Cr?

Dr ↓ — e.g. disposal or elimination on revaluation.

Best order for tackling a PPE exam question?

Opening balances → additions/disposals → revaluations → depreciation → closing NBV

Why should revaluations be worked out before depreciation?

Depreciation may need to be calculated using the new revalued amount.

Why should disposals be worked out before depreciation?

You must know what cost and accumulated depreciation leave the PPE note.

What is the key principle behind double entry?

Every transaction has equal debits and credits.

What do ↑ and ↓ mean beside a journal account?

They show whether that ACCOUNT BALANCE increases or decreases.

Does ↑ always mean debit?

No. Asset/expense ↑ = Dr; equity/liability/income ↑ = Cr.

Does ↓ always mean credit?

No. Asset ↓ = Cr, but equity ↓ = Dr.

What is the quickest way to understand a journal?

Ask: What accounts changed? Is each ↑ or ↓? Then apply Dr/Cr rules.

Exam check: what must every journal do?

Total Debits = Total Credits

Exam check: what must every PPE note do?

Cost/valuation − accumulated depreciation = NBV for each column.