Tangible non-current assets

Scope

IAS 16 does not apply to the following.

a) Biological assets related to agricultural activity, apart from bearer biological
assets (see below)
b) Mineral rights and mineral reserves, such as oil, gas and other non-
regenerative resources
However, the standard applies to property, plant and equipment used to develop
these assets.
Definition
1. Property, plant and equipment are tangible assets that:
a) Are held for use in the production or supply of goods or services, for rental to others, or
for administrative purposes
b) Are expected to be used during more than one period
2. Cost is the amount of cash or cash equivalents paid or the fair value of the
other consideration given to acquire an asset at the time of its acquisition or
construction.
3. Residual value is the net amount which the entity expects to obtain for an asset
at the end of its useful life after deducting the expected costs of disposal.
4. Entity specific value is the present value of the cash flows an entity expects to
arise from the continuing use of an asset and from its disposal at the end of its
useful life, or expects to incur when settling a liability.
Definition (cont.)
5. Fair value is the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market
participants at the measurement date.
6. Carrying amount is the amount at which an asset is recognised in
the statement of financial position after deducting any accumulated
depreciation and accumulated impairment losses.
7. An impairment loss is the amount by which the carrying amount of
an asset exceeds its recoverable amount.
Recognition
The recognition of property, plant and equipment depends on two
criteria:
a) It is probable that future economic benefits associated with the
asset will flow to the entity
b) The cost of the asset to the entity can be measured reliably
Costs Subsequent to Acquisition

Major Types of Expenditures

Additions. Increase or extension of existing assets.
Improvements and Replacements. Substitution of a better or
similar asset for an existing one.
Rearrangement and Reorganization. Movement of assets from one
location to another.
Repairs. Expenditures that maintain assets in condition for
operation.

LO 4
Costs Subsequent to Acquisition

In determining how costs should be allocated subsequent to acquisition,

companies follow the same criteria used to determine the initial cost of
property, plant, and equipment. They recognize costs as an asset when the
costs can be measured reliably and it is probable that the company will obtain
future economic benefits.
LO 4
Examples
• Revaluation: 1.8-1.10 page 36-37
• Depreciation: 1.11.2 page 37-38
IAS 40 : Investment Property
IAS 23: Borrowing Cost

Definition:

Borrowing costs. Interest and other costs incurred by an entity in connection

with the borrowing of funds.
Qualifying asset. An asset that necessarily takes a substantial period of time
to get ready for its intended use or sale.
Question 1
You acquired a property on 1 January 20X1 for $250,000, being
$200,000 for the building and $50,000 for the land. The building was
judged to have a useful life of
50 years. On 1 January 20X6 the property was independently valued
which resulted in an increase of $100,000 to the carrying amount of the
building and $50,000 to the carrying amount of the land. The useful life
is unchanged.
What is the depreciation charge for the year ended 31 December 20X6?
Question 2
Which of the following will be treated as part of the cost of inventories?
i. Import duties on raw materials
ii. Labour involved in production
iii. Distribution costs
iv. Fixed production overheads
v. Storage costs of finished goods
vi. Cost of wasted materials
A  i,ii,vi
B  ii, iv, v
C  iii, iv, vi
D  i, ii, iv
Explain!