FAC3702 IAS 16 - PPE Revaluation model

Transcription

1 FAC3702 IAS 16 - PPE Revaluation model

2 Measurement after Recognition An entity shall choose, after the initial recognition of a PPE item, either the Cost Model (Calculation of CA = Cost price Less accumulated depreciation Less accumulated impairment losses) OR the Revaluation Model (Calculation of CA= Net replacement value on date of revaluation Less accumulated depreciation Less accumulated impairment losses) Its accounting policy and applies to an entire class of property, plant and equipment (Buildings, land etc.)

3 Determining the Replacement Value Gross replacement value is the replacement cost (market value) of a similar, new asset. Net replacement value is the equivalent fair market value of a similar asset of the same age and/or condition.

4 When to Revalue IAS 16 does not specify the date that the revaluation of the asset should take place. If the revaluation is performed at the end of the financial year, the revalued amount is worked back to the beginning of the year in order to calculate the revaluation surplus. Depreciation for the current year is based on the latest recalculated, revalued amount. Stipulated in the accounting policy of the company.

5 Gross Replacement Value (GRV) STEP 1: Determination of replacement value - the gross replacement value is regarded as the cost price of a similar, new asset on acquisition date. STEP 2: Restate GRV to net replacement value (NRV) on revaluation date. STEP 3: Calculate the revaluation surplus = (Revalued amount Carrying amount of asset on revaluation date) STEP 4: Disclose the revaluation surplus in the PPE note (if required)

6 GRV- Example Manufacturing building ABC Ltd owns a property located in Gauteng which is used for the manufacturing of its products. The property was purchased on 1 October 2014 for R (land: R ; building: R ) and was available for use, as intended by management, on that date. On that date, the useful life of the building was estimated to be 35 years.a residual value of R was allocated to the building. On 31 December 2017 the property was revalued for the first time by an independent sworn appraiser, who holds a recognised and relevant professional qualification and who has recent experience in the location and category of the property being valued. The gross replacement value of the property on this date was estimated to be R (land: R ; building: R ). These values were determined by reference to current market evidence. The residual value and remaining useful life of the property remained unchanged. No decision has been made by the company to sell this property. Year end is 31 December 2017.

7 Manufacturing building Details on a Timeline Useful life = 420 Useful life = 393 Useful life = October January December 2017 Date purchased and ready for use Beginning of current financial End of current financial year 27 months 12 months Cost price Land Gross replacement value Land Cost price Building Gross replacement value Building Residual value Financial Depreciable amount year Period Months Oct Dec 14 3 Useful life 35 years Jan Dec Useful life 420 months Jan Dec Total months 27

8 Restate GRV to NRV Use the following formula: [(GRV at revaluation residual value) / Total useful life x useful life at beginning of current financial year] + residual value From the example this will be: = [( ) / 420 months x 393 months] = [( ) / 420 months x 393 months] Therefore NRV at 1 January 2017 = R

9 Revaluation Surplus at the beginning of Current Financial Year Building cost price Residual value ( ) Depreciable amount Accumulated depreciation beginning of current financial year: / 420 months useful life x 27 months in use = Building cost price Accumulated depreciation ( ) Carrying amount beginning of year Revaluation surplus building = Net replacement value beginning of year Carrying amount beginning of year = = R revaluation surplus Revaluation surplus land = = R revaluation surplus

10 Net Replacement Value - NRV STEP 1: Determination of replacement value - the net replacement value is the equivalent fair market value of a similar asset of the same age and/or condition. STEP 2: Restate net replacement value at the end of the financial year to net replacement value at the beginning of the financial year. STEP 3: Calculate the revaluation surplus that must be recognised in OCI= (Revalued amount Carrying amount of asset on revaluation date) STEP 4: Disclose the revaluation surplus in the PPE note (if disclosure is required)

11 NRV - Example Manufacturing building ABC Ltd owns a property located in Gauteng which is used for the manufacturing of its products. The property was purchased on 1 November 2015 for R (land: R ; building: R ) and was available for use, as intended by management, on that date. On that date, the useful life of the building was estimated to be 30 years.a residual value of R was allocated to the building. On 30 June 2017 the property was revalued for the first time by an independent sworn appraiser, who holds a recognised and relevant professional qualification and who has recent experience in the location and category of the property being valued. The net replacement value of the property on this date was estimated to be R (land: R ; building: R ). These values were determined by reference to current market evidence. The residual value and remaining useful life of the property remained unchanged. No decision has been made by the company to sell this property. Year end is 30 June 2017.

12 Manufacturing building Details on a Timeline Useful life = 360 Useful life = 352 Useful life = November July June 2017 Date purchased and ready for use Beginning of current financial End of current financial year 8 months 12 months Cost price Land Net replacement value Land Cost price Building Net replacement value Building Residual value Depreciable amount Year Period Months Nov Dec 15 2 Useful life 30 years Jan Jun 16 6 Useful life 360 months Total months 8

13 Restate the NRV at year-end to beginning of the year Use the following formula: [(NRV at revaluation residual value) / useful life at end of financial year x useful life at beginning of current financial year] + residual value From the example this will be: = [( ) / 340 months x 352 months] = [( ) / 340 months x 352 months] Therefore the NRV at 1 July 2016 = R

14 Revaluation Surplus at the beginning of Current Financial Year Building cost price Residual value ( ) Depreciable amount Accumulated depreciation beginning of current financial year: / 420 months useful life x 8 months in use = Building cost price Accumulated depreciation (32 667) Carrying amount beginning of year Revaluation surplus building = Net replacement value beginning of year Carrying amount beginning of year = = R revaluation surplus Revaluation surplus land = = R revaluation surplus

15 Contact us The course telephone number: Please send all e mails to: FAC S1@unisa.ac.za (Semester 1) or FAC S2@unisa.ac.za (Semester 2)

16