TOPIC 4: Non-current assets: every asset that is not current. Current assets: realised/settled in entity’s normal business cycle, purpose of trading, and realised/settled within 12 months. They may include: property, plan and equipment, intangible assets including goodwill, investment property, agricultural produce and biological assets. Carrying amount: amount to which an item is carried or shown in the financial statement; amount at which the asset is recognised after deducting any accumulated depreciation and accumulated impairment losses (written down value). Property, plant and equipment: tangible assets that are held for use in the production or supply of goods and services, for rental to others, or for administrative purposes; they are expected to be used during more than one period: “Used in operations” and not for resale – Long-term in nature and usually depreciated – Possess physical substance. It includes: land, building structure, equipment. Recognition: recognised as an asset if and only if criteria are met: It is probable that future economic benefits associated with the investment property will flow to the enterprise; The cost of the investment property can be measured reliably. Measurement at cost (historical): Purchase price; Cost attributable to bringing the asset to the location and the conditions necessary to operate for it; Initial estimate of the costs of dismantling and removing the item and restoring the site.
Buildings: all costs related directly to acquisition or construction including materials, labour, overhead costs, professional fees and building permits. Equipment: all costs incurred in acquiring the equipment and preparing it for use, including purchase price, freight and handling charges, insurance on the equipment while in transit, cost of special foundations if required, assembling and installation costs, trial runs. Spare parts: carried as inventory and recognised in profit or loss. Major spare parts and stand-by equipment are qualified as PPE when an entity expects to use them during more than one period or if they can be used only in connection with an item of property. Deferred payment: difference between the cash price equivalent and the total payment is recognised as interest over the period of credit unless such interest is capitalised in accordance with IAS 23. Costs excluded: costs of opening a new facility, of introducing a new product or service (including costs of advertising and promotional activities), of conducting business in a new location or with a new class of customer, administration and other general overhead costs, of staff training, initial operating losses (starting and under-capacity losses). Self-constructed assets: costs include materials and direct labour; overhead can be handled in two ways: assign no fixed overhead or assign a portion of all overhead to the construction process (preferred). Costs subsequent to acquisitions: when the costs can be measured reliably and it is probable that the company will obtain future economic benefits (increases in useful life, quantity of production and quality). Cost model: = cost – any accumulated depreciation – accumulated impairment losses. Under this model for PPE asset is depreciated if estimated useful life can be determined: need for depreciable base, assets useful life and depreciation method; the asset also need to be impaired if needed. Depreciable base = acquisition cost – residual value. IFRS requires that each part of an item of PPE that is significant to the total cost of the asset must be depreciated separately. Useful life: service life offers differ from physical one; companies retire assets for two reasons: physical factors or economic factors (causality, expiration). Method for depreciation, it needs to be systematic and rationale: Activity method: Depreciable base/tot units produced; Straight-line method: Depreciable base/years of production; Diminishing (accelerated) charge method: sum of the years,