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Non-current assets | Long Term Assets | Fixed Assets


Learning Objectives 
1. IAS 16 Property, plant and equipment
2. IAS 20 Accounting for Government Grants and Disclosure of Government Assistance
3. IAS 40 Investment Property
4. IAS 23 Borrowing costs

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1. IAS 16 Property, plant and equipment


Definition:
Property, plant and equipment are tangible assets held by an entity for more than one accounting period for use in the production or supply of goods or services, for rental to others, or for administrative purchases.
Recognition:
• Cost of asset can be reliably measured
• Probable that future economic benefits associated with the assets will flow to the entity
Initial measurement:

  • Purchase price-Price, Import duties, Non-refundable purchase taxes LESS Trade discounts/rebates
  • Directly attributable costs: Site preparation, Delivery/handling, Testing and Professional fees
  • Other costs: Estimate of dismantling/removal costs and site restoration (IAS 37) and Finance costs (IAS 23)

Subsequent expenditure:
Same criteria as initial costs. Otherwise do not capitalise but charge to profit or loss. E.g the cost of an extension to a building should be capitalised ( capital expenditure) as economic benefits will increase with greater space.

Subsequent measurement:
IAS 16 allows a choice of accounting treatment for property, plant and equipment:
i. Cost model
Cost less accumulated depreciation and accumulated impairment losses
ii. Revaluation model
 Revalued amount (fair value at the date of revaluation) less subsequent accumulated depreciation and impairment Losses
 Revalue sufficiently regularly so carrying amount not materially different from fair Value
 All items of same class should be revalued
Depreciation:
• Systematic basis over useful life reflecting pattern of use of asset’s economic benefits
• Periodic review of useful life and depreciation method and any change accounted for as change in accounting estimate


IAS 20 ACCOUNTING FOR GOVERNMENT GRANTS AND DISCLOSURE OF GOVERNMENT ASSISTANCE


Government Grants could be:

  • Revenue grants
  • Capital grants. E.g. purchase of non-current assets

Presentation of revenue grants:

  • Credit in income statement (Cr. other income) or
  • Deducted from the related expense (Cr. expense)

Capital Grants:  :

It has two options for capital grants.

  •  Write off the grant against the cost of the non-current asset and depreciate the reduced cost.( Cr. reduce of fixed asset )
  • Treat the grant as a deferred credit and transfer a portion to revenue each year, so offsetting the higher depreciation charge on the original cost.(Cr. deferred income)

IAS 40 Investment Property


Investment Property is property held to earn rentals or for capital appreciation or both, rather than for:

  • use in the production or supply of goods or services or for administrative purposes
  • sale in the ordinary course of business

Owner – occupied property cannot be classified as investment property.
Accounting treatment :
An entity can choose to hold investment property under either:

  • the fair value model- no depreciation; or
  •  the cost model- depreciation under IAS 16
    This choice will apply to all of its investment property.

IAS 23 Borrowing costs


  • The standard deals with borrowing costs for self-constructed assets.
  • Interest and other costs incurred by an entity in connection with the borrowing of funds. Capitalisation is mandatory if the costs are directly attributable to the acquisition, construction or production of a qualifying asset. A qualifying asset that necessarily takes a substantial period of time to get ready for its intended sale or use.

Reference:

-ACCA, F7 Financial Reporting by KAPLAN PUBLISHING

-ACCA, F7 Financial Reporting by BPP

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