Ppt eit Ewing Panta), Oe Chapter 16 Property, Plant and Equipment (Part 2) Learning Objectives 1. State the subsequent measurement of PPE. 2, Define depreciation and state when depreciation commences and when it ceases. 3, Account for the revaluation of PPE, | Account for the derecognition of PPE. ‘Subsequent Measurement ‘After initial recognition, an entity chooses either the (a) cost model or the (b) revaluation model’as its accounting policy and applies that policy to an entire class of PPE! ‘ Cost model Under the ‘cost model, a PPE is carried at its cost less any accumulated depreciation and any accumulated impairment losses. Depreciation > Depreciation is “the systematic allocation of the depreciable amount of arvasset over its useful life.” (PAS 16.6) > Depreciable amount is “the ‘cost of an/asset, or other amount substituted for cost, less its residual value.” (pass) > Residual value is “the estimated amount that an entity would currently obtain from disposal of the asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life.” (pas 166) > Useful lifes: “(a) the ppetiod over which arvasset is expected to be available for/use by an! entity; or (b) the number of production or similar Units expected to be obtainéd from the asset by aflentity.” (PAs 166) The following are factors considered in determining the useful life of an asset:220. (a wa peste & Expected usage ofthe asot Expected physical wear and tea eciation separately © Obsolescence Ta ns of PE erected 4 a ieame Legal and similar limitation lation on the use ‘he government places an age limit for Public ut Kinds of depreciation 1. Physical depreciation — This relat to an oe ies 2 ple, the oss) cam ly. (profit To epi a recoizd 28 epee in| ring ater ass For —— sn the cont of Prosar nll in the 2g et fi en heat avaiable or ws i 'unctional or economic depreciation vy jan starts wt mae promi hehe HE, > Chetan mnt pene catnip a ming no . der PERS: oF , outa The olowingaretype of een oe ef ads ae ERTS hen is Functional > Occurs when an iasset las ally epee pu ts residual tale. However, duets outdated design, bane a ya dese bow te carying amount. he > Kacational or Ezmomic”obiclscense — occurs whe fdas ogee as an aditiona depreciation, Prpberty loses value because of negative tall recog cause ive in Src, yams" amattvichan ast mn thence chan SPOT oF allway tack and Weller sor edie any acum” depres < epesby ae, {curt impale oes (8166) rn ~ occurs when new predat becomes lle iets MBE Rane, abacus epoca when he at cme) calculator, “ cated maine se 4. Physic beled - and and bung are acount for separately ever in hy ae acquired together. Land is not deprecated because chs an anata si (wth certain exceptions, such as. ‘us and andl ste), Buildings are deprecated because they ve SEAN. te Bd aug gd q DeecatonMatods | i» fishin med Thee ue varius dpration methods, PAS 16 mentions thee mos amy staghine met dng blac mea ‘eds of podton maid. However, PAS. 16. does. Mot ay peiiemetod The cote of depreciation method management's june. ory fe vk te mae | sgt a fie mre medbodl'iewie date, Sure | | |— tea IE. When: et rt Sela of 72000 oes oo nro ofeasipment Although PAs ePreciation method, it preg Ina is cd an POMS he a isto 280 feast 1600 we 5000 ei 200 Pr rd ca Dosim 1600 S40 eon als 10 00 eee 0 ee rare ih mcd crear I dated fom the inating ama + Tel dca over th ie he eulpent equa the rece an of FD, This cus theresa ale ‘ce am e decile anata 0 el ae the ‘ld egal het et ~ ath shal abe eying in wl be Rothe Asin wh it te ly dei as i he stron ‘Sep nat as ial ah, syn wl be (em went cn filly de Straight tine metnog Under this methods depreciating ME ones Me Serta eee ee ee SSa ry Journal entries Cn the fist tv years): se 5D denominator may aso Be sage sts J syD = life * [ _ decor ‘+ Accurate depreciation om Dee, 31, 2012: (80,000 x 2/5. eernrare ‘edges annt the ped pr and Sty aig aout on De, 20080038 + 200 = 6.000; Wh ‘he dpe mea the nee ped: 3 tee a gal esumotyeas gis mene’ ment (OF seer pe cnt 0" i ad ack ole, ‘The equipment is estins a a Prelate PND = Accelerated depreciation methods al ‘Under accelerated depreciation methods (d isa ot srl ot of epment am ‘methods), depreciation charges decrease over the useful lied) Rest valve am Asset, meaning depreciation is higher in the early years of dp Deprecsheomoun! ‘ets and erin he era Tas eb talons Poop tt the capacy of an af TSO ue) declines ‘Thus, ‘i +1)* 2), tmp ely yr a rs ot cap» Saree, SH! ‘higher revenues are generated. The following are application ariek accelerated deprecation: ~ ‘The depreciat + = cumulated — Carrying & Sum-of-the-years’ digits (SYD) Togitt) 2 % '. Double delning balance Pr er ‘Sumt.the years digits (SYD) i000 Sumftheyens' digits (SYD) depreciation — depreciation 4 viii ‘imputed by applying a series of fractions to the iit mommy sn5 2606718867 7303 mount of thease, aoe gm is 7130 so SD A faction is derived by dividing the asset's namo mao 3n3 16000 ‘eft fey te samo igs retire coe foot wom 2s 106877467 53H Foreample anasset witha 3yearnacfalife would MONS som 15 53 and 2.000 4 sumotyean’ digits of 6 @ 2-1). The sees of fraction? oan then be 3/6, 2/6, and 1/6, with 3/6 asthe fraction used in Yar of thease’ usefl life, 216 in the 2 year, and 30 OF creasing factions are multiplied 1 the deretable amon! ‘he amet determine the accelerated depectae Nett epnsedpresin charges are decreasing: ~ .Journal entries (in the firs to sehen | Depreciation 5 oe S si ease Ss Must 1; Double declining balance met eer a < ea "eed a piece of eguiPmen eo int aime ste Accumulated dey 1 a om tc = ype dob dings computed follows: Pout declining ate=2* Lie > Poubledetningsate=2*5~ AU oni a a “wire epee mca on _ adam, Splenicnc nmewaeret mi re iqeat neni Se ered ps: 15 te eden caesar oP SN cigs 40,000 resale Yat ian) aon goa ino -40000 ; Double dectining balance method am 0000-2400) 4400 the amount derived for cm ‘Sra ting balance method — ie sts ge cma ae eae i ot ea Peale aa te sig Seat ‘evga dosnt il lw te ei oe continuing the calculations above, ante etd manana 400-1) 4-1 hls ARNG ‘he earn amount of the-emuipment. on Decs 31 woul fal Below the #200 residual wale: com «no saa 4» 1280 caring amor o. 20000 real ie, ThE imum earying amount ofan asst with a residual value 5 ul tote real vale, Accordingly, only the excess of the ‘tulpmens carving amount as of Dec. 31, 20x3.0ver the residual, ‘aloes recopnaed as depreciation in 20x. This is computed as The double ble dectining rate is computed as follows: follows: Double decining ate = [ . ] =e Canina on 2018 0 -a- 24-1 ; sie ase wm) 21460 ‘Variation 1 Of the double decining i the 250% det Tine 2t — balance met ance method. The rate is computed as follows: The ast 150% detinin 1s fly depreciated in 20x4; Therefore, no es fy Aoatin rit 3 The depen be Life8 Date Depreciation Accumulated Teta Dec 31.200 4000 Denia amy S00 Dre32m3— 14409 73,400 Desa y6t0 80,000 Dc 32, 2 80,000 000 ding * Cee emo De, 22 m6 ct = toca cat adi Senay hrs tr i is thre istration: =PIOUONN Usa ie 5 yrs Re Residual value= 720,000 query tuk we huge the deiceny of BY as depreation 0 ma 552 000-1648) “tl depresaton Sage = Dec. 31, 20x5 equal we do ht the deprecation for 20N5 would be P25, 920 ca seus obs + 1550) which is igher than the “pect of 1728 in 2d, This would violate the concept of Se ch dole dein lance metho “Sng or which he dol ) When Oe dob Snel pr Teer he engamout on De 31, 2063 sept pate spied oer he sto Yost and 205) : tote ih ia eho. carrying amt a enya 5203 asm) 20 Iastration: 2 ne Sh ine dpe or 28 and 20S zo out tte <5 Double dectning ate e-sramtttmy SY a? oo Reigate ae oe es131 a cay, ‘Accumulated per 21,2081 For PAO,000- station ine on Septem an a useful ie of 4 YER" and a oon 2-50 on 1-18.00 roo <2 tnx 902-7500 Wag Correct Paria hen eagieition pase aloes Year deprecatig tet © disposed of during the yea, hei in 'spronated race, the ted in order to achieve proper see a 800 i normally done ee | ane s month, ‘on the basis 9 [ses | =o srsonama=28i250 sm x9ii2= 1895 sip 22s afte ant, Acconingy 6 seam a ‘treated + a5 ifit has been of rattan 1 individual 368 in a Flatively Homogeneous group are lsposed of during the lst #44) aly sured and disposed of, one of ihe folowing cmap Ted flyers eptnin hyenas on 4, Haeineyeot dsp or nee in the year of acquisition ition inthe year of @spos ‘known as half-year convention). booms ok tr a SS Sy 2 Se st ree Seen on gon March 1, = hws ~~ ‘eiwe 133 ocd) tid Conse om is PO amated total wis a cn tn eet Go rte cena ecg. This ig Aung the period, no Depreciation rate =(80.000* 200 asoperumit ofontpit Ctr depreiton methods acho PEs epee separately an for ante of PE tht fas giant pan, each of those pats is depreciated Sunt. Howee, an tem-byitem depreciation may not be ‘oydin fr umerous items of FPE tht are low-raued and ae play acute and disposed fn the inkrest of cost-benefit Depreciation rate= Deprun > Depreciation rate ~ 800003 syne *Etinated total oA > Depreciation ate = 2perhowea Po> Composite rate~ xrreata 2280+ Annual depreciate Depreciation is computed. i Dividing the total depreag P0Up by the compose mpgs the assets is a + Total cost asian: Compost method Cot Residual value Use Taam 70 200 (Syer Mere 1000 1m Sys Reintecenines 3000 2 year ‘The compote and compost rat are computed as follows:& Composite life Depreciableamount+ Annual de ‘Composite life = 63,000 + 14,000 = 45 years 7 & "Composite rate = Anrwal deprecation +Total cost Composite rate = 14,000 = 66,000 = 21.21% Depreciation is computed as follows: ‘Subsequent replacement and addition In 20%2, old returnable containers costing 5,000 were replay new containers costing 6,000, ] Accumulated depredation Returnable containers | _ tdi cnt se i ols wt nga sto Seon et ein ook cared Se ac proceeds, only when the aset is eel ‘Meee av a sn in heads When the st is place, the cost of the replacement is charged as ‘expense net of any proceeds from disposal. When anew asset is acquired but no existing asset is ‘piano expense is recogrized. On the other hand, when an tig sis eted but not replaced, the cost ofthat asset is dared expense, net of any proceeds from disposal ‘lasation: Retirement and Replacement methods Islomation on an entity's acquisitions and disposals of tools ing year isasfllows:Tatainen wolsocqured 10,000 ont fd tok reid 6000 Panes fom le ofl tools 500 ase Retiement method ‘The depreciation expense is computed as follows: guseletanmc menos : peircaccane tenn ero ops ey ial Depreciation ‘eample, an ent 000 or more and charge 25 €X} Soe tn Fy = deo su Te Case 2: Replacement method — ‘Thedepecation expense is computed as follows: Cos new ols acuied as replacements (1020 « 22000) Cov ofall tired but not replaced Freres fom sl fad tools 0 «9 +1200) esta mprovemets ade by a tenant 18 epee ae tons me ig te renova Depreciation expense leet rs oe re ar ace ise Te meres ae test “ wees " 7 - cramnd fare necessarily transferred without charge to 1 moos, ee inn gen fe Improves a thon eae wh Non renal » are not leasehold improvements but rather ‘pon of the lease) Depron s computed as the equipment, 2% the difference between the or See iran rs edited to a “eased ‘etry nl end the improve Period, juste for the cod are hd any proceeds from assct disposal secant and deprecated over thes I of Ut sii renry method Prams, 2S Of an entity has a beginning’ balance 1 naltion of tools during the year totaled P60. Hine lsporals of old tools were P25,000. The balance Physical count at year-end was P10,000, ‘nec tpt, Sin Inschold-improvernens- are transferred t0-the Ladin dl vale nore Some consider leasehold improvements a intangible assels forthe run tht, because they are necessarily transferred to the ldo! at le expiration, they are more of a “right” than Piyseal ats. Others, however, eat leasehold improvements as _PEtcase they have physical Substance - this is usually the ase ‘coved in prac. We will us the ater approach: Te Screiton expense is computed a ollows:* eg bat G ae Kiang BB)” TT Prods trom set depos 100 | 75,00. Depeiation queese) © Lito end ta (per py coun) —0 ‘Mlustration: Leaschold improvements metnod, useful ie, 8 in depreciation useful life, oF ‘On January 1, 20x1, ABC Co. signed a in depresintion method fox prospectively: oe tere 2 ten-year lease fa etna ts A ey the Sveyear period. In the first half of Janus 7a? addin A cing mens he a et incur the following costs: MATY 2022, Ane ero sar fur periods. peiods prior 10 oe ort ation charges made in Past ‘sera improvements to the leased, pat pes ‘improvement have an estima “be int of the asset as ofthe beginning °° vith an etnies Te ant ve ma tenyears ‘sal el of a on mcd, wef oF esi + F290000 for portale (movable) walls eg bem ‘ie five yeas, mae we alo he allowing procedures when acount , oe cargos acounting estimates: ABC Co. reasonably certain to tte eee ra pe Gaing amount ofthe assat as at the eyecare pe) cay ps ei al teens and he ting neue dufing 2 painter pe he Si oan amped at he ening of tat smtp fegs Apel be ange oes ing freer 272 Depth ying amount computed in Sky 1 sing she vad depreciation method, useful ie or esidual ‘he sao: Changes in acounting estimates ‘Onn 120, amenity acquired a machine for ¥2,000,00. The ache was eimated to have a useful Wf of 10 years and a "ida valu of 2.000000. Only the #500800 geen, = 2 leasehold improvement. The ther eens are recorri red istures. Swe mppind as fr ‘Se Change eprection method (fom DDB to SLA ec =| tine wat ial depretedwsng, he dsb | tin med In 2b, th erly ange | nti meio tothe stag ne ete ~, Sale|"vin at cept Step 1: : amount 3s atthe + Double dangtatns sae of the Carying anton Jens 20st Ub)orawingre vine S162 Apply the change (hey Siming amount njan (se fom DDB to SL.np Senge Bette eb ym 3 depreciation ye) ation al eldeenyeate ‘Accateied depen, Carrying amt. onan 1-5) Step 2: Apply the change Ge, Carrying amt. on Jan. 3,200” "5° 9 Dpp) Multiply by: Double deciing ra, Double declining depreciation neg uy in: Solution: 2047 Period ofc, ‘method Ghom SYD to DDB) ‘corte sing the me entity changed its Ray changed 3 depres from austin date sl ie aN ent and te esd ae F200.) yp ¥Cayng amount 2 ate beg. ofthe pri of Seeing emt ono 1,2 aN-s).7000"2M change 00000 2s apply the changes (ie, useful if residual value) SE ofthe period of change crys 14600000 nto, 20 sda wae 2200.00) Depeitie amount 12,000000 Diet: Revd eainingwsfl Me 3). -29) 2 Red nal dpreiation tring in 204 0000 Jus ne TEI | Depedatin expense Tm ase] pcumulated depreciation 1000000 ie, enor tte ot fuse, ane abandoned properties ‘ass tai, emporrly ake outa se, feted rom ‘ive or sandr re conte to Be epee wl the lof wel fe. PRS 5 defines abandoned ste 38) 1} Thesis dae a © Tee fly depreciated forsale" under PRS ‘tht ae tobe usd to the end of thei economic ie or (0) ‘el eto beloved rather than old, saw ™ sig msn whe depen ay ‘Thess disposed of through slo permanent 77 (le ws 41 The ase nat used in production durin re capable of operating in the Aeprecatin meth weds selon actu us ale an item capable of Pea usage SERIE cons inal et hase 1b Bh? Ful epee atts = seta oS rss assets considered fully depreciated when its tit operating ses cor all of the entity’s ‘ster alti residual val, SAyingamg lS Cas fling o worgaizing Pat decrease in the residual value of a fully a pets PAS) een sada depen expen, ne espn era when teri PAS 16 the note disclosure A a ‘senest expend se tant dition FP and Near eco eis wil BW 1 he We a eat canbe mes ry eta al ata expen Te ct at does nok ually under the opis opel ey. Tis cost cls purpose retin Eee i 3 (a) an extension inthe The of (rather than the account Future benefits may ben the form ofa) ane Tinietancatecat ioe he eect cam ger hm ee coe Tn conjunction wih ae coun. tsk ria or ici ‘procedure called ‘set isting, an internal contd ‘Gt came to matin orto ring back an ast to ts relly is recognized as expense i lesan at aby t facto intend Uiinagenes capacity of a building to provide adequate ‘pectpoapanisand capac of factory equipment to prodce a ‘getty of tpl witina cea nerame fier tothe ably of «PPE to produce economic ‘eit teat cot and east ime, eg, gas consumption of a cei ono mieage 74S I ends to dstvor the capitalization of subsequent ‘pests FAS I6peciicaly addresses ony the capitalization ‘a sabequent expenditures that relate to replacement costs and ‘eas of mar inspectims. Accordingly, other types of subsequent eee, oe only if management can clearly that the sq litures under the —. ibsequent expenditures qualify under th Costs subsequent to intiat Capitalization of costs ceases vine go condition necessary fort tobe page NE the eatin a intended by management The ys PR inthe a ‘on PPE are recognized as expenscy "Qi expenditute 2 Costs of day-to-day servicing ay maintenance expense). Se, repairs a > NeeRigi oe "Major types of subsequent expenditures, ons ‘ins ew mai to an ase that ing Bl acy ction, wh eats oul ‘enue anew ass mtd eg, the a the adiion of » we re pen ht ares in his aa isthe ac ‘See Rist obe cg secure a «see cot lwn an eld wall to mat tbe adtion or an expense Seat saate ‘=siy hod not anticipated the ‘concrete for fort ose ft le ‘te ia Ayo the Se wooden fa) eet wooden floor fort Improvements Example ‘Arent incur 10000 impor, com Case 1 The improvement ext PY EP costar aptalizd a foley gg, TRE a > lopoven et te opments paves gical reducd te ep ee ‘such that the equipment is Baa my on a say PS isfllows aa] ary eine 10.00, sh re tmaorpars 7 re ert ed 0 bela The es Seen lo PE apa he respon gi he epic pr (pa cad Sarge st ors fetes at ld ‘Shen rn prt or eee ep pr camot be determin the ete pment uo par) used sa dono metered uso te ie es ued onan aro: (nf 2, an ety aquired an aireraft fr 6,000.00, The sic ws depreciated over a useful life of 10 years using the Sta ie math. On Jan. 1, 25, a major pat of the airrat sl feral cost of PS, 000. (et Tecate ol parts 500,00, ‘Teper seconded flows: [53 Acute depesation gaa swioy | 200000 saxo lominseplaeent es saan | Deer equipment - aircraft pt)Dale appear ew as | ca Case2 The cst ofthe ld part isnot determinable. ‘The rplcement recorded a follows: Tat Acai depeation X40) | 320,000 25 | Lew oeplaenet ogee 480,000 Deine equipment arr pat) ‘sp Fe) Daves equrment- rsa) | 800000 1s | Ca rege eer pcre oe 7 Fhe all pr cane be cermin te cosa the ew at sinduitectearl ad pr hr pr nas dpe Separtely oF nok ie a amount charged as loss = 7 Major inspections Rearrangement and reinstallation earangement refers to rearranging the lyoat of machinery i Sey amine tn fay opt an pro and reinstallation costs are normally” Rearingeent ape genes becane te apts oc ete onet SSePPE is apable of operating in the mann ogalty tendo! by management. Rearrangement 2nd ‘eingallation costs I “ ~ ua ye ti te es) sn me th se — . pain maenance costs inured’ to Keep assets in the joao sol ation are expensed. “These are usually presented in Sr Spin man a ‘uamples include costs of regular replacement of me siete pepo spi wa it determining, apenas car ee mae ne aoe or ecapitalize. = we ct ame mnt mu Se a Se casa z > Faris “te price that would be received to sell an asset trp ttranter ibility in an orderly transaction between et prints atthe measurement dae" (PRS 13.AppE. A) fasisoreauation 4 ety apples PFRS"13) Fur Value” Mensurement_ when ‘enn te fr value ofan asst that is being revalied. PERS. ‘isan nt: cide the nonfinancal asses highest and est se, een from the perspective of market participants: sete fair alu hierarchy; a sesnappoprite valuation technique. Natest nd best use Pole bat isthe US of a nani asset by market sofas ht would maximize the value of the asset or theFS rap ol sets and niles (eg busi pon caaaaad leg. business) within whe, ‘The highest and best use of a non-financial asset 7 scout he lloig, ‘ake 1 Phyl dnc ofthe no fnaclal as (or sie of the property); oot (Ola 0. lap matic on the we of the none-financtal ‘toning regulations applicable to the proper ahaa Fran asbty "wher thee OF he asset gen adequate income or cash flow's. mee set eg fo ceelemcy i oak gi ee eee and comparability in fair vake vale hierarchy that cea, EEESST® coat approaches he amount hat is carey need! CS the service capacity of an asset (ie corer replacement cost) 4. Income approach - converts future amounts (cash OWS single current (discounted) amount, income an expenses) 199 Teneting curent market expectations about those future amounts. In some cass, a single valuation technique would suffice wheres in thers, multiple valuation techniques would be more appropriate. ‘Accounting for revaluations of PPE ‘a inaease or decrease inthe carrying amount ofa PPE. cesulting ‘fom revaluation i recognized in other income and ‘ccumlated in eguity under the “ “surplus” account, cet forthe folowing: 2 An ome tat represents a reversal ofa previous impairment Isis ognized in profit ls as ipairment ain 1 Aderesein excess ofthe credit balance in the “Revaluation in prot rls a impure153 12 es 2 es ee co tere) cannot be expected to possess the same lee of ‘The revaluation increase or decrease is com rant = : “eho of @ profess kare en el niyo provide the = = fs et eaten The ent valuation. The highly techie “spent approach Te tt nc ar vale measurement i based on he ee are ey a, at sis sir opr Tears cone ne sete a timed Re FIOWNE rene deer te Tcaton of he propetty being + te ation othe propery hat was ee se aly tat the recent sale price elects the ttn propery eng revaud , | ETD matin = eg accssbilty, panoramic views Fae and oie, and proximity 10 business Sto ie schools malls and he ike may alee the ‘Sra ofthe propery. Sayre. tot aes and or area Fst ties = eg. desig, con hinge nde ie PUted uy “The trae deerme yep tan eo SNPS Sear Manes a iustraton: ‘On December 31, 20, an nyu with ahistorical. with ahistorical cost 720000000 and cumulated deprecation of P5,000,000 Seem 1 hea a of POND Te og ‘remaining useful life is 20 years wie | Requrements: 8. Compute fr the revautn: . Compute forthe anal ome, Assume straight ie after the revaluation of the property, Solutions: «lr on the property ~ eg, deed restritons and Requirement (a: coca Fair value soma f Beste ess: Carrying amount cam, 00 Uh eat ph fi vale measurement is based on the ‘evaluations an 15,000.00 J ear caren needed to replace the asset current replacement ‘The fsicpremise under this approach is that “an informed ‘oye wil nt pay more than the cost of constructing an equal, ‘hte propery minus the deprediation and assuming, 10 "sary ren The eat approach is most applicable when there is ‘tice dation tecent market transactions for similar assets, Fair value - 121/91 east beng revaled is relatively new or of special use, and Divide by: Remaining use li Annual depreciation afte N ss 25,0000 Ll: . 155. ppg tet) $$ there is adequate pricing information to value th enn srt le the ceive age is 30 years components. Property ut agi 40 years ae eects 2° i ee tN estimates can ‘The cost approach involves the oe ‘market and applied with steps: So cn te : Tees ope cd apa 2 Estimate the deprecation taking into account the physical deterioration, functional obsolescence and i ee 3. The ference between Ian (2) the ft: value. 4 Faire ess caring mats the revaluation supa, llusation Cost Approach December 3,2) nents tulding with ahistorical ca 000,000 and accumulated depreciation of | P5,000010 "ind physical characteristics of the anorg athe the outside the cope ofthis book) pein vaed Ts ou ota econo ife= Eee fe + Rernning comme (03-40 > Reming ofthe dat ofthe revaluation. emo fe tne remaiing life of the Building 2s reagent AC 5 yeare fir ie Fo ; se or 1) ~ the number of i“ _ eres > i ped ine censtcian of the BAIN was eionet: Copter be relaton surplus Sotuton “The fair valu is measured Replacement cost lis: {Depreciation 05M x 06am Fair value ‘Notice ht the ata if is gard inthe computation’ of the derciten above. "The actual age 1s never used in the ‘gee mcd of estimating depreciation” 0a Soa. St See, peor a Replacement cost (current cost) is the amount of cash that ould hae tobe paid ifthe same’or an equivalent asset was tgquired currently. Replacement cost cannot be used as basis for ‘he ealuton ofan asset that is already partially depreciated. Therefor, the replacement costs adjusted forthe depreciation to came up ith alle the deprecated replacement meth ef ae local he era pi “is approach to fair value measurement is based on the on of sun lu, Sou wae isthe equivalent of the cost of ‘pceentof the service potential ofthe asset, adjusted to rele. excorasan ag i oe) ~ ix t88 on the oboe stiective ile may be ile og yea has sustained: ™ The estimation o he gen a it For example, “You are singe and are subject know your date is $0 year notice that your date aks gaat “Pou finally meet‘he relative fos in is wiity due faction 10 the passage o a pede pty hat halen te = penises GRUNER uae assume that the propery beng Daler Les: Carey ing amount aosman-. Revaluation surplus aon Alternative solution: tution: Using percentage depreciation Replacment cot oxo 1 Depecon ha) a ar oalae re 1s: Camying amount 26,2500 Revaluation supa ee 11,250.00 ‘Pome prin ie Me Twa Mesto 40-25% pcr tt ss omni ont semen Yo inp deans np ee five itd al carat n E eg nce eg rt wton ne ued sgn ht cost. We A ‘Traditional GAAP ‘method Under traditional accounting. the effective life is used when determining ath. tathersthan the cat appro Te san es lac 2 sopiiaon: an should ot be construed propery valuations POE he rnp of at! (Ea i (nea as a useful life of 20 years oper cost 137 punt Een a2 GAAP method ip cguied a building for #2000000 and a residual value of sy ae, the bing is sessed 1 * wand a residual value of F800,000. sitcoms ve evaluation sD si otc 22,000.00 amr deprecation 2M 008) 720 300.00) fare 16,700000 ping anon [GON 50K) 5720) 45,125,000) Aton sat 1575000 P~ Percentage of depreciation astaton 2 Traditional GAA mation follows ney realoed its building. Relevant infor Replacement cost Historical Cost Baking 12,000,000 15,000,000 Auman deprecation $0,000 Aepenn Compute forthe revaluation surplus. Sse hanes 15,000,000, eee peo 000.000) 1000.00 eying amount (248) 9.00. tinue 000,000Thelncome approach Under tis approach, the Valuation’ is based-on th, ‘neha the prety ca ea, ED: Th eee Seong pees cape » pent dunt at ‘eal othe anount determined in a) abore emt RG Din ne epi ‘Methods of recordir era ene lad ‘teed ama following Pept ae th te Grea SMB amount and the accumu (esstin oe pevalued asset are increased either by: Tren MPlcement ost and the red . Popa ads Tet Sites based on the change in te ‘ ‘The silat ane Paton is eiminatd against the gm of the asset, Bsn. Dec. 3 an, to hae y leprecation of 10,000,000 ¥ ‘toms ng "ATO POIANA Ute le 2 re years Income weet myer sox ee A Which real i crying amount is ads 159 i rovide he entry 10 record the revaluation sop areal he following methods: A roportional method 4 Bimination method ace «200200 en 2609) 1400000 pe cs "28,000,000 en (10,000,000) ean 2180 orang f 730000 (eee (89 60000 npn fa 70000 ocean rtm elie ie Renaiing cnc Aeprenent a): Proportional method yunts are determined as follows: Tepbcoent oot Ie Historical Cost 720,0,000 zoo 22000000, Aas dest (10 qgonoony 00,000, caypecrise _—_ saamn.000 ‘00000 180,000 [Bling neat ‘Accumulated depreciation ta) evalatonsrpls Daler iby © "AST rus then fered tity a0 ep ‘Gan aig tuto, cong er cme aes ise te gerade Ang Pa 2 The biingseamyingramourt after posting the entry ‘Sovels anayzed a follows: gaat iy so) «000.000 ulated depreciation (10M + 4M) (14,000,000) _ out fer evaluation plane) 2,000,000 palwo 161 tid Requirement (b}: Elimination method pie i Propet the revaluation is recorded: BY Te Piunicteamutmhlatn foe neg nto ele Oy, | Accumulated deprecitonwimbation 10,000,005 ‘Bullington ae 8,000,000 Sn roto L_|_eteredtartsbiiy | b Z determined as follows: 7 Sawil Cou ——Firvalue ch ® buildings carrying amount ‘er Posting the amy 7 shove is analyzed a folows a a“ Accumulated deprecation ga) ms Camying amount fer rraation ae irae ely based on the change inthe camry KE ) |e 25000 Fs 2s flows ree w Toa ange Reval maa ‘nin mi, tn evaluation samp : th mite ete tay ae med a, aoe, balance ofthe accumulated dere Besson (sna) _ter_aeese) — recorded tothe asset scant The balancing figures Geegeae some ‘Mlustration 2: Market appro [alg 2) jco0.000 On Oe ny anit i etm ation 80 cord Pano and aces Mg with historical costo f|™| arse aay an Sar Me a no Ltt = Ae ination method Requirement: Provide the ety to wed deprecation imag | 500000 under each tealowing mange nt eatin spl Win scare somoa Proportional method Deere ta ail a7 ‘b. Elimination method 7" | Solutions ‘etiingsanying mount fer he revaluation is analyzed Pair value Stee ; na tes Caring amount ag 2400000 I $$ —airaton— cert tk OMS) qsam0 | Eaiiarancay sanyo — 2400000 Revaluation surplus net of a, mn, |e SS Oa Ses _ £20ont re aoa doesnot cfr mater ofits is 30% pn ce xa pple 1 Prot ST soon core hk : jane profs made on hese of POPE 5% aed eo chameetenes cae ae, ee omen, tan cane al Revaluation lied to all assets in a class Revaatiese appt an entire class of ety ras ene of its bul ted as Follows spe vation surpass computed iene Cyingsonnt a nation srl Before PPE. For exam, 7 stat ne ne — ‘amount, which is most likely through sale semtrctg ae st es dapat and er mate tt cs don foregoing, te appropri tx rate thas one zing for eauation surplus %, 1 eda ‘accounted for as follows: ar a 7 pie ‘transferr 66, land, thea i ‘Deferred tax liability (15M x 6%) 900,000, Pa a yo oa Revaluation surplus (15M x 94%) 100,000 6 oe rvct eesti deecognized, + a arg tl Parton of the revalti Fh aatin psi presented in he 2 1 Sant of prt or sted oter comprehensive ico — as Cain on propery recauation,” a component of ther comprehensive income; and 1. Stdonn of aca pation — as part of “Other component of guy.” The related defered tax liability is presented Jn scumenthabiiies toe tered each year sequal 1% Geri moun lepreciation based on the revalue! concatenate ‘Subsequently, the revaluation surplus and deferred tax Leann su sd pone aby, weet I i {eg sold or disposed of ee + cea e. atin of 3 Dat ateeprecable asst oF F200 hae pee’ AM ABC Co. witha historical cit red to have a fir value ~ee tax lability evaluation sucplUS {0 both the revaluation surplus and the related defer liability > On January 1, 2033, the land was sold for 30,000,000, iodically transferred The entries are a follows: = oun of revaluation surplus tat is pet Ten] Cash, 30,000,000 Te amos ings computed 23 i 7 | Loss on sale 5,000,000 _ ti reed aialue (eed Land Tepes sed on stoic ost mee Dagon bse loli) ten © Revaluation surplus 14,100,000 reece gross oft 1,050,000. *9 | Deferred tax ibility 900,000 er jus - net of tax (1500000%70%) 1,050,000 Retained earnings ae 450,000 Income tax payable ity 1.500,000%30%) "mond erro oan sehen aden tee flows stented an 500 : 3500,000 Ilustration 2: Revaluation of depreciable asset 4 On December 31, 201, the building of ABC Co, with a carrying 1,050,000 amount of ?20,000, Useful life of 10 years wis "450,000 determined to hav 735,000,000. Income tax rate 1,050.00) ildings using the straight-lit The revaluation su Fair value "plus is computed as follows; ico — dom = of transfer and reversal may also be sation 7 i am Les: Defered tax laity (184x304) 4,500,000. Spud foo Revaluation surplus Deferred Revaluation surplus after tax "70,500,00, ~ met of ta liability December 31,201 seettows: 1 gins a 10 The entry on 20a 83s foows: — a a : : . ‘al tneeseal —_ts0000 450,000 = ©