Example 1a

  • Understanding Costs Associated with Assets

    • Purchase Price: The purchase price is included in the asset cost.

    • Shipping Costs: Incurred shipping costs (97,000) are included as they are directly related to getting the asset ready for use.

    • Rights and Responsibilities Transfer: Transfer occurs when the asset is onboard the ship in Germany. Any loss occurring after this point is the buyer's responsibility.

  • Cost Components When Shipping an Asset

    • Marine Insurance: Costs (7,800) for marine insurance are included as it directly ties to making the asset ready for use.

    • Loading Costs in Germany: Loading costs for getting on the ship are excluded. Ownership doesn't transfer until the item is on the ship.

    • Loading Costs from Ship to Destination: These costs are included because ownership has passed when on the ship.

  • Repair Work Related to Damage

    • Damage During Shipping: If an asset is damaged during the shipment window, costs for repair are capitalized.

    • Damage Before Ownership Transfers: If damage occurs before ownership transfer and repaired after transfer, it is not capitalized; it is expensed.

  • Installation Costs: These costs are included as they are necessary for preparing the asset for its intended use.

  • Consumables Costs: Incurred from June 15 to December 15; capitalization stops when asset is ready for use on June 30. Cost attributable to two months need to be calculated.

    • Initial consumables incurred (180,000) over six months: R30 per month calculation necessary.

    • Capitalization window: Only half of the total need to be capitalized, remaining expenses need to be recorded as expensed.

  • Incidental Income and Expenses

    • Definition: Costs incurred to maintain an asset (e.g. municipal rates) that are unrelated to the main purpose are termed incidental expenses.

    • Incidental Income: Income received from utilizing an asset for purposes unrelated to its main use (e.g. parking fees for land intended for building).

    • Reporting: Incidental income excluded from IAS 16, reported as other income; expenses recorded in the statement of comprehensive income.

  • Self-Constructed Assets: Follow initial measurement rules same as purchased assets. Capitalization period is from ownership transfer until asset is ready for use.

  • Deferred Payments and Time Value of Money

    • Importance of considering time value of money in multiple cash flow scenarios is emphasized. Applicable costs must be recognized at present value for accurate financial statements.

  • Subsequent Measurement

    • Depreciation Start: Begins when an asset is ready for use, not necessarily when first used.

    • Residual Value: Amount expected to remain at the end of an asset's useful life; critical for calculating depreciable amount.

    • Depreciable Amount: Calculated as cost minus residual value.

  • Recognition of Costs

    • Assess costs as they relate to readiness and usefulness of the asset at each phase of its lifecycle.

  • Practical Questions

    • Analyze hypothetical examples to practice determining what should be included or excluded from asset costs based on the concepts learned. Understand how different terms are applicable based on their definitions and contextual usage.

  • Final Points on Derecognition: Deferred to the next session for detailed discussion.