IAS 16 - Property Plant and Equipment

Transcription

1 IAS 16 - Property Plant and Equipment Measurement, recognition, depreciation, impairment de-recognition and disclosure requirements for fixed assets. The following chart identifies the most salient points of the standard, describes the key issues for each and then offers some notes related to the integrated solution available in Activa. More information on these subjects is contained in related pages; Item Context Notes Recognition of property, plant and equipment An item of property, plant and equipment is only recognised if it has future benefits, is in the control of the organisation and the cost can be measured reliably. Activa recognises owned, finance leased, hire purchased, operating leased, trust and loaned assets. It provides for separate acquisition dates and acquisition values for each depreciation book with appropriate processes for defining the acquisition event. Property, plant and equipment includes the replacement of major parts, replacement as a whole or refurbishment. Naturally, redundant or replaced parts are separated from the original asset record using the asset 'Splitting' function and then usually disposed. All new assets whether replacement parts for existing asset items, or major refurbishment works, are always created as separate records in their own right to maintain their acquisition integrity. Property, plant and equipment includes major inspections and condition assessment but excludes day to day servicing. Any 'related' assets in the system can be grouped using a special facility called 'Functional Units'. Additional parts or components of an existing asset are also created as separate new records and then grouped with their parent asset using the `Functional Unit`. 10/11/2018 page 1/6

2 Measurement at recognition The elements of the initial cost of an item of property, plant and equipment includes all of the costs of acquisition, construction, installation and commissioning. The initial cost excludes promotional, advertising, administrative or general overhead expenses including re-location or operating costs. The cost of an item of property, plant and equipment is the cash equivalent price or, in the case of a item with no cost, its fair value at the date of acquisition. The entire chain of project documentation, budget appropriations, management approvals, supplier purchase orders and invoice transaction inputs combine to form a permanent and reliable record of asset acquisition. Costs related to non-capital activities are excluded from the final capitalisation process and are expensed as operating costs. Where an asset is acquired at little or no cost, a fair-value revaluation is applied to bring its carrying value to an appropriate level. Measurement after recognition Measurement of asset carrying values may be determined by one of two methods; the cost model or the revaluation model. The carrying value for the cost model is the initial cost less accumulated depreciation less any accumulated impairment losses Periodic re-assessment of asset carrying values and any resulting adjustments can be applied in one of two ways; the impairment adjustment method or using the revaluation method. Impairment losses are applied to individual assets as an `Impairment Adjustment` in the appropriate period and will result in a positive adjustment to the depreciation charge for that period. For the revaluation model the asset is carried at a revalued amount less any accumulated depreciation less any accumulated impairment losses. The revaluation model uses the Activa revaluation function to adjust the written down value. Activa Revaluation generates accounting journals for each asset on a case basis taking into account any Capital Revaluation Reserve balances and the prior history of the asset concerned. 10/11/2018 page 2/6

3 Depreciation The fair-value of an asset from time to time is usually determined from market based information and determined by professional appraisal. If an item of property, plant and equipment is revalued then the entire class of equipment to which it belongs will also be revalued. Net revaluation increments for a class of assets shall be credited to the capital revaluation reserve. Net revaluation decrements shall be recognised in the P&L. Each item of property plant and equipment will be depreciated separately over its useful life. Except where recognised elsewhere, an asset will depreciate systematically over its useful life down to its residual value and the periodic charge will be recognised in the P&L. Residual values and useful life will be re-assessed at a minumum of once per annum. Fair-value valuations can be applied to assets using the Activa revaluation function. Multiple successive revaluations can be applied over the life of an asset. Assets can be revalued one by one or by using a bulk revaluation facility. This simplifies the process considerably and ensures that all assets in the class are included. This process is automatically journalised in the 'General Ledger Interface'. Net revaluation values for any class can be viewed on-line at any time. All items are considered individually in the depreciation process and the periodic charges calculated on a daily basis. Resulting values are displayed on-line for the entire life of the asset. Asset records depreciate down to their nominated residual value and then cease. Periodic depreciation charges are automatically journalised to the P&L in the General Ledger Interface run. The residual value, depreciation method, depreciation rate and useful life are directly related. These can be adjusted for an individual asset in edit mode, for a group of nominated assets through the Global Change function, or by mass import from a CSV format file. 10/11/2018 page 3/6

4 Depreciation Method The depreciation method applied to any asset shall reflect the anticipated depletion of the future economic benefits of the asset to the organisation. Activa incorporates multiple depreciation methods and these include Prime Cost [Straight Line], Diminishing Value [Reducing Balance], Units of Use [Units of Production, Life of Mine], Economic Depreciation, Sum of the Digits, Non-depreciating and Write-Off. Depreciation templates define elected methods for any given asset type to permit standardisation and consistency. Depreciation methods should be reviewed annually and changed to reflect changing patterns of future utility. The depreciation methods applied to assets can be reviewed at any time and may be varied using a variety of convenient methods. Any change gives rise to complete history and audit trail. The standard rates applied to Depreciation Templates can be reviewed as required. Impairment Derecognition The difference between the determined recoverable amount of an asset and its carrying value will be applied as an impairment loss or reversal. The gain or loss arising from the sale, abandonment, demolition or other disposal of an asset will be recognised in the P&L. Impairment losses or reversals are applied to individual assets as an 'Impairment Adjustment' in the appropriate period. Activa incorporates multiple disposal types; Sold, Damaged, Stolen, Missing At Audit, Scrapped, Obsolete, Replaced Under Warranty, Traded In, Returned to Owner (Loaned), Demolition, Capital Credit, Abandoned, Donated, all of which denote derecognition in one form or another. In all cases disposals give rise to periodic journals to recognise any profit or loss on disposal. Capital Credit is a special case where the journals reverse out the acquisition and depreciation charges as an over-capitalisation. 10/11/2018 page 4/6

5 Disclosures Cost bases for existing assets, additions and disposals, revaluations, impairment adjustments, depreciation details and FX adjustments by asset class. Financial disclosures relating to restrictive covenants or securities, capitalised expenses, contractual commitments, and unaccounted recoveries made against asset disposals. Revaluation details including valuers, fair-value methdologies employed and historical cost carrying values. These are general reporting disclosures. The sum of the asset costs determines the gross carrying amount at any time and incorporates all additions and any increases or decreases resulting from revaluations. The accumulated depreciation, useful lives, depreciation methods and rates form part of the disclosure requirements. All of these values are available for inclusion in any of the standard reporting sets. Restrictive covenants would not necessarily be known unless specifically declared. Nor would any recoveries against asset losses. Contractual commitments are known in detail through un-invoiced CapEx Purchase Orders as would also be capitalised expenditure. The valuation and revaluation functions require both the valuer and basis of valuation to be recorded. Invariably, reference is drawn to the official valuation documentation for each asset included in the revaluation. Activa also calculates the original cost components and revalued cost components of each revalued asset in order to report the attributable charges. 10/11/2018 page 5/6

6 Article last updated : Jul :35AM 10/11/2018 page 6/6