Professional Documents
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CABEZO
SELF REFLECTION
Property plant and equipment is a tangible asset and long term in nature and it used in the normal
operation of business when we say property the example asset that included is the land. Plant included
building and last the equipment is all about the different equipment used in the operation of business
like office equipment, machineries and etc.
2. What are the major characteristics in defining property, plant and equipment?
There are three major characteristics in defining the property plant equipment
They are acquired for use in operation they have a Long term in nature and subject for depreciation and
last is they have a physical substance
Property plant and equipment will be recognize as an asset if It is probable that future economic
benefits associated with the item will flow to the entity means if the item of PPE has a long term in
nature that increase the future economic benefit of a business and also it will recognize if The cost of
the item can be measured reliably at the time they are incurred.
According to Salmond, there are four modes of acquisition of property those are possession,
prescription, agreement and inheritance.
Possession is the object realization of ownership and possession means the physical control of over one
object or the thing
Prescription defined as an effect of lapse of time in creating and destroying rights and there is two kinds
of perception the positive and negative prescription
Agreement this is the legal relation between two person .and the property may be acquired this mode
which is enforceable by the law
Inheritance is important mode in acquiring a property because when the owner dies it should have a
heirs and successor so that the business is continue to run or survive
5. Define depreciation
Depreciation s the systematic allocation of the depreciable amount of asset over its estimated useful
life .and the depreciation of asset is begin when the asset is available for use. Because depreciation
result in the reduction of asset
6. What are the three factors of depreciation?
Used in normal operation- PPE is used in the production or supply of goods and services for rental or
administrative purposes of the business
Long term in nature- the used of PPE are expected to used more than one a year if the item of PPE is not
used in more than a year that is not considered as an item of PPE
The depreciable amount is the cost of an asset, or other amount substituted for cost, less its residual
value.
Residual value are the estimated amount that an entity would currently obtain from disposal of the
asset, after deducting the estimated cost of its disposal.
The useful life in asset is refers to how long is the asset will be beneficial to an entity to increase the
future economic performance of the business
10. What are the common methods of depreciation? Explain each methods.
Straight Line Method – is common method of depreciation where in the value of fixed asset is reduced
gradually over its useful life and this method is created to reflect the consumption pattern of underlying
asset.
Diminishing Balance Method- diminishing means reduction therefore this common method of
depreciation is charged at the fixed percentage on the book value of the asset
Units of Production Method- in this method it calculates the depreciation on the basis of unexpected
output or usage. And this method is appropriate when there is a high correlation between activities of
asset its physical wear and tear.
11. Explain the cost model of measuring property, plant and equipment.
Cost model – recognize in accumulated depreciation and accumulated impairment loses. After the
recognition an item of PPE is measured at it cost and it used in accounting policy to report the carrying
amount of PPE
12. Explain the revaluation model of measuring property, plant and equipment.
If revaluation model used in measuring an item of PPE We will always get the fair value of an asset
Fair value refers to the actual value of an asset that is agreed to be paid by the buyer and seller. And the
both parties are benefit to that sales of asset because fair value is applicable to a product that is sold or
trade in the market.
Revaluation surplus is an equity account in which is stored in the value of capital asset and if the
revalued asset is subsequently dispositional out of a business the remaing revaluation surplus is
credited to the retained earnings account of one entity, and it result when the revaluation treatment is
increase.
If the revaluation result in a decrease in the carrying amount of a fixed asset it recognize the decrease
In profit and loss and when the revaluation increase in the carrying amount of a fixed asset it will be
recognize in other comprehensive income and accumulated it in equity account entitled revaluation
surplus
ACTIVITY CONCEPT MAPPING: PAS 16
Property plant
and equipment
CHARACTERISTICS DEPRECIATION
Method of depreciation
MEASUREMENT Diminishing balance
•TANGIABLE ASSET
•USED IN NORMAL Unit of production
OPERATION COST
•LONGTERM IN
Straight line method
NATURE
TYPES OF COST
The measurement •PURCHASE PRICE
•COST DIRECTLY ATTRIBUTES Depreciation is
cost of an item of
•PRESENT VALUE OF recognized evenly over
PPE is the cash
DEMIMISIONING AND the life of the asset
price equivalent at
the recognition RESTORATION COSTS
date
Changes in depreciation
THE COST OF AN ITEM OF PPE SHALL method, useful life, and
RECOGNITION REGOGNIZED AS AN ASSET ONLY IF residual value is a change
• PROBABLE IN FUTURE ECONOMIC in accounting estimate
BENEFIT accounted prospectively
•MESURED RELIABLY
After
recognition
Item of PPE is measured at its
cost less any accumulated
Cost model depreciation and any
accumulated impairment losses