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Accounting For Assets PDF
Accounting For Assets PDF
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Definition of assets
3 essential characteristics:
1. Expected to provide future economic benefits
2. Must be controlled by the entity
3. Transaction or event giving rise to the control
must have occurred
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Definition of assets (cont.)
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Recognition of assets (cont.)
• If, at a given time, the asset is not able to generate any future
economic benefits then the asset should be expensed
EXAMPLE
Sun Ltd has purchased UV equipment for ultraviolet tanning for
$1,000 in 2015. In the same year, the Australian government
has banned the practice of ultraviolet tanning. As a
consequence, the equipment is not going to generate any
future economic benefit and it is written off from Sun’s
Statement of Financial position.
Dr Impairment Loss 1,000
Cr Accumulated impairment loss 1,000
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Classification of assets
• The choice falls into the presentation that provides more reliable
and relevant information (i.e. specific industries)
• Minimum content
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Measurement of Property, plant and
equipment
Cost of acquisition
*Examples: costs for installation, assembly, delivery and handling,
testing, professional fees etc…
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Acquisition cost of assets: illustration
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Acquisition cost of assets: illustration
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Construction cost of an asset: illustration
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Construction cost of an asset: illustration
A $ 150,000
B $ 125,000
C $ 90,000
D $ 115,000
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Construction cost of an asset: illustration
A Elimination of costs
B Capitalisation of costs
C Reclassification of costs
D Balancing costs with asset
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Subsequent measurement of PPE
Next lecture
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Cost Model (AASB116, PPE)
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Why is an asset depreciated?
Future economic
benefits
Y1 Y2 Y3 Y4
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When and How is an asset impaired?
Future economic
benefits Impairment
Y1 Y2 Y3 Y4
When
recoverable amount carrying amount
(= remaining future (= cost – accumulated
economic benefits) depreciation)
How
• Carrying amount is reduced up to recoverable amount
• A loss (impairment loss) is recorded in income statement
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Calculation of carrying amount
cost of asset
– accumulated depreciation
– accumulated impairment losses (if impaired before)
= CARRYING AMOUNT
(net value of asset)
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Calculation of recoverable amount
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Practice: cost model
A $52 850
B $53 350
C $54 550
D $54 150
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Practice: cost model
Purchase
Purchase price
price 52 850
Delivery
Delivery $500
Install
Install $1 200
Total
Total $54 550
The journal entry for the acquisition of the machine will be:
Dr Machinery 54,550
Cr Cash 54,550
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Practice: impairment test
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