2. IAS 16 PPE

What does PPE stand for?

Property, plant and equipment: tangible assets held for use over more than one period.

Two recognition conditions for PPE?

Probable future benefits; cost can be measured reliably.

Initial PPE cost formula?

Purchase price + directly attributable costs + initial restoration obligation if applicable.

Name directly attributable PPE costs.

Delivery, installation, site preparation, professional fees and eligible testing.

Name costs not capitalised in PPE.

Advertising, general administration, start-up losses and routine repairs.

Major replacement: capital or expense?

Capitalise if recognition criteria are met; derecognise replaced component.

Routine maintenance: capital or expense?

Normally expense, not capitalise.

What does carrying amount/NBV mean?

Cost or revalued amount − accumulated depreciation − impairment.

Straight-line depreciation formula?

(Cost − Residual value) ÷ Useful life.

Reducing-balance depreciation formula?

Opening carrying amount × depreciation rate.

Units-of-production depreciation formula?

(Cost − Residual value) ÷ expected units × units produced.

When does depreciation begin?

When PPE is available for use, not when first used.

Does depreciation cease if idle?

No, generally not, unless fully depreciated or held for sale under IFRS 5.

Why review depreciation annually?

Useful life, residual value and method may change as estimates.

What is component depreciation?

Depreciating significant parts with different useful lives separately.

Land usually depreciated?

Generally no; land with a finite useful life is an exception.

Normal balance of PPE cost?

Asset normal Dr: Dr ↑ increases; Cr ↓ decreases.

Normal balance of accumulated depreciation?

Contra-asset normal Cr: Cr ↑ increases; Dr ↓ decreases.

Normal balance of depreciation expense?

Expense normal Dr: Dr ↑ increases; Cr ↓ decreases.

Normal balance of revaluation surplus?

Equity normal Cr: Cr ↑ increases; Dr ↓ decreases.

Buy machinery for €90k cash: journal?

Dr PPE €90k ↑ asset; Cr Bank €90k ↓ asset.

Charge €8k depreciation: journal?

Dr Depreciation expense €8k ↑; Cr Accumulated depreciation €8k ↑ contra-asset.

Example: cost €50k, residual €5k, life 5 years. Depreciation?

(€50k − €5k) ÷ 5 = €9k each full year.

Example: cost €100k, accum dep €35k. NBV?

€100k − €35k = €65k.

Example: opening NBV €80k, rate 20% RB. Depreciation?

€80k × 20% = €16k for the period.

Disposal gain/loss equation?

Sale proceeds − carrying amount at disposal date.

Sell asset for €20k, NBV €16k: result?

Gain €4k recognised in profit or loss.

Dispose of asset: what happens to cost?

Cr PPE ↓ removes original cost from the asset account.

Dispose of asset: accumulated depreciation?

Dr Accumulated depreciation ↓ removes its credit balance.

Dispose of asset: proceeds?

Dr Bank/Receivable ↑ for sale proceeds.

Gain on disposal: Dr or Cr?

Cr Gain on disposal ↑ income; debit for a loss expense instead.

What is PPE revaluation?

Measurement to fair value for an entire class of assets, with regular updates.

Revaluation increase with no previous loss: journal?

Dr PPE ↑ asset; Cr Revaluation surplus ↑ equity, generally via OCI.

Revaluation decrease with no previous surplus: journal?

Dr Revaluation loss ↑ expense; Cr PPE ↓ asset, generally in P/L.

How is a prior revaluation gain reversed?

First Dr Revaluation surplus ↓ for same asset; any excess loss goes to P/L.

How is a prior revaluation loss reversed?

Recognise recovery in P/L up to previous loss; excess goes to OCI/surplus.

Is revaluation surplus a cash reserve?

No. It is generally unrealised, within equity.

May excess depreciation be transferred?

Yes, from revaluation surplus to retained earnings, not through profit or loss.

PPE roll-forward formula?

Closing carrying amount = Opening + additions − disposals − depreciation ± revaluation/impairment/other.

What must PPE disclosure reconcile?

Opening to closing carrying amounts by class, showing additions, disposals, depreciation, etc.

Example: opening PPE €200k + additions €60k − disposals €20k − dep €15k.

Closing carrying amount €225k, ignoring other movements.

What is the disposal exam trap?

Calculate NBV at the disposal date, not just at the prior year-end.