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Learning objectives
Topic 2
After studying this topic, you should be able to:
• Identify the various costs included in the initial
PROPERTY, PLANT AND cost of PPEs.
• Understand the recognition and measurement of
EQUIPMENT (PPEs) PPEs
• Determine the carrying amount of PPES.
• Determine the depreciation and impairment
losses of PPEs
• Discuss the information of PPEs that is
presented and disclosed in financial statements.
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Contents Sources of IFRS

1. Scope & Definitions • IAS 16 - Property, Plant and Equipment
2. Recognition & Measurement • IAS 23 – Borrowing costs
• Initial measurement • IAS 37 – Provisions, contingent liabilities and
• Depreciation contingent assets
• Subsequent changes in fair value • IAS 36- Impairment
3. Derecognition • Amendment to IAS 16 and 38
4. Disclosures

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Scope Definition of Fixed assets

IAS 16 does not apply to: Long-lived, Revenue-producing Assets
(a) property, plant and equipment classified as held for sale in
accordance with IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations. Expected to Benefit Future Periods
(b) biological assets related to agricultural activity other than
bearer plants (see IAS 41 Agriculture). Tangible
Intangible
(c) the recognition and measurement of exploration and Property, Plant,
evaluation assets (see IFRS 6 Exploration for and Evaluation of Equipment & No Physical
Mineral Resources). Investment Property Substance
(d) mineral rights and mineral reserves such as oil, natural gas
and similar non-regenerative resources.
However, this Standard applies to property, plant and equipment
used to develop or maintain the assets described in (b)–(d).
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huhu

Examples of PPEs
Definition of PPEs Ex 1.1: An entity owns a factory building in
Property, plant and equipment (PPEs) are tangible items which it manufactures its products.
that: The building is classified as an item of property,
(a) are held for use in the production or supply of goods plant and equipment. It is a physical asset used
or services, in the production of goods that is expected to be
for rental to others, or for administrative purposes; and
used during more than one reporting period.
(b) are expected to be used during more than one period.
(IAS 16.6) Ex 1.2: An entity owns a building occupied by its
administrative staff.
The building is classified as an item of property,
plant and equipment. It is a physical asset used for
administrative purposes that is expected to be used
during more than one reporting period.
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Examples of PPEs
Ex 1.3 An entity (parent) holds a building to earn rentals under
an operating lease from its subsidiary. The subsidiary uses
the building as a retail outlet for its products.
In the parent’s consolidated financial statements, the building is
classified as an item of property, plant and equipment. The
consolidated financial statements present the parent and its
subsidiary as a single entity. The consolidated entity uses the
building for the supply of goods over more than one accounting
period. In the separate financial statements of the parent, the
building is classified as an investment property and accounted for in
accordance with Section 16 Investment Property. It is a property
held to earn rentals. However, if the fair value of the investment
property cannot be measured reliably without undue cost or effort
on an ongoing basis, the parent accounts for the property as
property, plant and equipment in accordance with the requirements
of Section 17 (see paragraph 17.1).
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Examples of PPEs
Ex 1.6 An entity purchases, for one combined payment,
an existing building and the remaining 80-year
interest in a 100-year right to use the land on which
the building sits (freehold ownership of land is not
possible in that jurisdiction). The building is
occupied by the entity’s administrative staff.
The purchase price is split between the land use right and
the building on the basis of the relative fair values of the
two assets. The land use right is accounted for as an
operating lease under Section 20 (see example 9) and the
building is accounted for as property, plant and equipment
under Section 17.
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Examples of PPEs
Ex 1.4. An entity owns a fleet of motor vehicles. The
vehicles are used by the sales staff in the
performance of their duties.
The motor vehicles are classified as items of property,
plant and equipment. They are physical assets used in
the supply of goods during more than one reporting
period.
Ex 1.5 An entity owns a motor vehicle for the exclusive
business and private use of its chief financial officer.
The motor vehicle is classified as an item of property,
plant and equipment. It is a physical asset used in the
administration of the entity during more than one reporting
period.
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Terms
Accumulated depreciation. The total of all prior year deductions for
depreciation taken to write off the value of a fixed asset over its estimated
useful life. The accumulated depreciation account is a contra asset account,
which reduces the value of property, plant and equipment in the statement of
financial position.
Asset held for sale. A non-current asset or a group of assets (disposal group)
to be disposed of in a single transaction, together with directly associated
liabilities. Assets classified as held-for-sale are not subject to depreciation and
are carried at the lower of carrying amount and fair value less costs to sell.
Separate classification of “assets and liabilities held for sale” in the statement of
financial position is required.
Bearer plant. This is a living plant which has all of the following characteristics;
it is used to supply or produce agricultural products, it will provide output for a
period greater than one year and for which the possibility of it being sold as
agricultural produce is remote.
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Terms Terms

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Recognition of PPEs
Terms An item of PPE should be recognized as an
asset only if two conditions are met:
(1) It is probable that future economic
benefits associated with this item will
flow to the entity,
(2) The cost of this item can be determined
reliably.
Note: Major spare parts & standby equipment are
recognized as:
- PPE (if they meet the definition of PPE)
- inventories (if they fail to meet the definition of PPE)
(The 2011 Improvements Project amended IAS 16)
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Measurement of PPEs Measurement of PPEs

Initial measurement Initial measurement
Decommissioning
Purchase Directly
Cost attributable
Cost
price =Estimated costs of Any proceeds from selling items produced while bringing PPE to
costs
dismantlement, the location and condition necessary for it to be capable of
removal & restoration operating in the manner intended by management is recognized
in profit or loss
('Property, Plant and Equipment — Proceeds before Intended
These costs bring an asset into working condition Use (Amendments to IAS 16)

These costs are capitalized in the period in which they are

incurred. They are recorded as ASSETs when they incur

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Measurement of PPEs Measurement of PPEs

Costs to be Capitalized
Equipment
• Net purchase price
• Taxes
• Transportation costs
• Installation costs
• Modification to building
necessary to install
equipment
• Testing and trial runs
Costs to be Capitalized
Land (not depreciable) Land Improvements Buildings
• Purchase price Separately identifiable costs of • Purchase price
• Real estate commissions • Driveways • Attorney’s fees
• Attorney’s fees • Parking lots • Commissions
• Title search • Fencing • Reconditioning
• Title transfer fees
• Landscaping
• Title insurance premiums • Private roads
• Removing old buildings

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Measurement of PPEs Measurement of PPEs

Decommissioning cost included in initial Example of Decommissioning cost
measurement Example 2.1—Leased premises.
The elements of cost to be incorporated in In accordance with the terms of a lease, the lessee is
the initial recognition of an asset are to obligated to remove its specialised machinery from the
include the estimated costs of its eventual leased premises prior to vacating those premises, or to
dismantlement (“decommissioning costs) compensate the lessor accordingly. The lease imposes a
contractual obligation on the lessee to remove the asset at
Recognize the restoration costs the end of the asset’s useful life or upon vacating the
as a liability and a corresponding premises, and therefore in this situation an asset (i.e.,
increase in the related asset. deferred cost) and liability should be recognised. If the
lease is a finance lease, it is added to the asset cost; if an
Record at fair value, usually the
operating lease (less likely), a deferred charge would be
present value of future cash reported.
outflows associated with the
reclamation or restoration.
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Measurement of PPEs Measurement of PPEs

Example of Decommissioning cost
Example 2.2—Owned premises.
The same machinery described in Example 2.1 is installed in a
factory that the entity owns. At the end of the useful life of the
machinery, the entity will either incur costs to dismantle and
remove the asset or will leave it idle in place. If the entity chooses
to do nothing (i.e., not remove the equipment), this would
adversely affect the fair value of the premises should the entity
choose to sell the premises on an “as is” basis. In this example
there is no legal obligation on the part of the owner of the
factory and equipment to retire the asset and, thus, a cost
would not be recognised at inception for this possible future
loss of value.
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Example of Decommissioning cost
Example 2.3—Promissory estoppel.
Assume the same facts as in Example 2. In this case, however,
the owner of the property sold to a third party an option to
purchase the factory, exercisable at the end of five years. In
offering the option to the third party, the owner verbally
represented that the factory would be completely vacant at the end
of the five-year option period and that all machinery, furniture and
fixtures would be removed from the premises. The property owner
would reasonably expect that the purchaser of the option relied to
the purchaser’s detriment (as evidenced by the financial sacrifice
of consideration made in exchange for the option) on the
representation that the factory would be vacant. While the legal
status of such a promise may vary depending on local custom and
law, in general this is a constructive obligation and should be
recognised as a decommissioning cost and related liability.
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Subsequent cost to purchase or self-construction Depreciation of PPEs

Type of The costs of PPE are allocated through depreciation to the periods
Definition Usual Accounting Treatment
Expenditure that will have benefited from the use of the asset.
Costs of day-to-day Expense in the period incurred
Repairs and
Maintenance
servicing to maintain a
given level of Benefits Depreciable Useful Systematic
Regular major
Expenditure required for Capitalize and amortize over the amount life basic
inspections
continuing operation of the period between major Inspections
Asset
The addition of a new major Capitalize and depreciate over
component to an existing the remaining useful life of the HOW MUCH HOW LONG HOW /IN WHAT MANNER
Additions
asset original asset or its own useful life,
whichever is shorter Depreciation method
Residual Periods Number
The replacement of Capitalize and depreciate over Cost
Improvements a major component the useful life of the improved value of units
asset
Expenditures to restructure If expenditures are material and
an asset without addition, clearly increase future benefits,
Rearrangements
replacement, or capitalize and depreciate over
improvement the future periods benefited
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Depreciation methods Depreciation methods

Time-based Methods
Depreciation method should reflect the ⚫Straight-line (SL)
pattern in which the asset’s future ⚫Accelerated Methods
economic benefits are expected to be  Sum-of-the-years’ digits (SYD)
consumed by the entity.
Diminishing balance
(Declining Balance (DB))

Depreciation method should be

reviewed at least annually. Depreciation method based on actual
physical use
Units-of-production method (UOP).

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Depreciation methods Depreciation of PPE

For composite asset
IAS 16 requires a component approach for depreciation,
where each significant component of a composite asset Residual value
with different useful lives or different patterns of Is subject to at least annual review.
depreciation is accounted for separately for the purpose of
depreciation and accounting for subsequent expenditure Useful lives
(including replacement and renewal).
When reviewing the depreciation method, that the
estimated life is greater or less than previously
Ex: believed, the change is treated as a change in
A building contains disparate components as a accounting estimate.
building shell, a heating plant, a roof and other → The change is accounted on a prospective basis.
discrete mechanical components.
→ Allocation of costs over useful lives is based on
separate estimated lives for each component.
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Subsequent Changes in Fair Value

Example of estimating the useful life
Subsequent Change in Fair Value
Ex 3: An asset with a cost of €100,000 was originally
estimated to have a productive life of 10 years.
The straight-line method is used, and there was no residual Revaluation
Cost Model
value anticipated. After 2 years, management revises its Model
estimate of useful life to a total of 6 years. Since the net
carrying amount of the asset is €80,000 after 2 years (=
€100,000 × 8/10), and the remaining expected life is 4
years (2 of the 6 revised total years having already Fair value – subsequent
Cost – accumulated accumulated depreciation
elapsed), depreciation in years 3 through 6 will be €20,000 depreciation – – subsequent
(= €80,000/4) each. accumulated impairment accumulated impairment
losses loss

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Cost Model Revaluation Model

Definition of Fair value:
• Ignore all subsequent changes in The price that would be received to sell an asset or paid to
Carry at cost fair value of the assets transfer a liability in an orderly transaction between market
participants at the measurement date.
(IFRS 13 – Fair value measurement)
Allocation • Depreciation recognized every
Required period
For property, plant and equipment’s fair value can be
determined with reference to an active market, or it can be
• required when the fair values of estimated using an income or a depreciated replacement cost
Disclosures its assets are materially different approach.
from the assets’ carrying amounts

• Assets are not exempted from

Impairment impairment analysis
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Revaluation Model Revaluation Model

All assets within a class of property, plant and equipment Initial revaluation:
must be revalued on a regular basis. Records the
difference between Credit to other
(1) the book value of a revalued asset and (2) its fair value Increase in an comprehensive income
at the end of each financial period asset’s carrying (gain on revaluation)
amount:
A revaluation surplus is
reported as other
Revaluation deficit is Decrease in an Charge to profit or loss
comprehensive income and
accumulated in a revaluation recognized as an expense in asset’s carrying
the income statement unless amount :
surplus account in equity
there is a balance in the
unless a revaluation deficit
revaluation surplus account
has been charged to the
income statement previously

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Revaluation Model
Revaluation Model
Subsequent revaluation:
Initial revaluation:
Previous Period Previous Net Revaluation Previous Net
Example 4.1: / Current Period Deficit Revaluation Surplus
Assume Henan Corporation (HC) acquired a plot of land with • Balance in the
a cost of €100,000. After one year the land is appraised as revaluation reserve is
having a current fair value of €110,000. The journal entry to Current eliminated before
• Loss is recognized as an
Revaluation charging the
increase the carrying amount of the land to its fair value is as Loss
expense
revaluation deficit as
follows: an expense to the
Land €10,000 income statement
Other comprehensive income—gain on revaluation €10,000 • Part of the current
revaluation gain is directly • revaluation surplus is
credited to the income reported as other
At the end of the fiscal period, the increase in the carrying Current
statement, up to the total comprehensive
Revaluation
amount of the land is accumulated in the “revaluation Gain
amount of revaluation deficit income and
previously recognized as an
surplus” in the shareholders’ equity section of the statement accumulated in a
expense. revaluation reserve
of financial position. • The rest is will be as per..
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Revaluation Model Revaluation Model

Subsequent revaluation: .

Example 4.2: Depreciation has to be recognized in the current financial

year before computing revaluation surplus or deficit

The accumulated depreciation can either be:

• Eliminated against the gross carrying amount of asset
before restating that net amount to the revalued amount -
“netting approach”
• Restated proportionally with the gross carrying amount of
the asset so that the difference between the restated
accumulated depreciation and the restated carrying
amount is equal to the revalued amount – “gross up
approach”
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Revaluation Model
Example 5 – Accumulated depreciation
Konin Corporation owns buildings with a cost of €200,000 and
estimated useful life of five years.
Accordingly, depreciation of €40,000 per year is anticipated. After two
years, Konin obtains market information suggesting that a current fair
value of the buildings is €300,000 and decides to write the buildings up
to a fair value of €300,000. There are two approaches to apply the
revaluation model in IAS 16: the asset and accumulated depreciation
can be “grossed up” to reflect the new fair value information, or the
asset can be restated on a “net” basis. These two approaches are
illustrated below.
For both illustrations, the net carrying amount (carrying amount or
depreciated cost) immediately prior to the revaluation is €120,000
[€200,000 – (2× €40,000)].The net upward revaluation is given by the
difference between fair value and net carrying amount, or €300,000 –
€120,000 = €180,000.
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Revaluation Model
Example 5 – Accumulated depreciation
Option 1(a). Applying the “gross up” approach;
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Revaluation Model
Example 5– Accumulated depreciation
Option 1(a). Applying the “gross up” approach; since the fair
value after two years of the five year useful life have already
elapsed is found to be €300,000, the gross fair value (gross
carrying amount) calculated proportionally is 5/3 × €300,000 =
€500,000. In order to have the net carrying amount equal to the
fair value after two years, the balance in accumulated
depreciation needs to be €200,000. Consequently, the buildings
and accumulated depreciation accounts need to be restated
upward as follows: buildings up €300,000 (€500,000 – €200,000)
and accumulated depreciation €120,000 (€200,000 – €80,000).
Alternatively, this revaluation could be accomplished by restating
the buildings account and the accumulated depreciation account
so that the ratio of net carrying amount to gross carrying amount
is 60% (€120,000/€200,000) and the net carrying amount is
$300,000. New gross carrying amount is calculated
€300,000/.60 = x; x = €500,000.
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Revaluation Model
Example 5– Accumulated depreciation
Option 1(b). Applying the “gross up” approach where the gross
fair value had separately been valued at €450,000 then both
the Buildings and Accumulated depreciation entry would be
reduced by €50,000 from the example above.
Buildings €250,000
Accumulated depreciation €70,000
Other comprehensive income—gain on revaluation €180,000
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Revaluation Model
Example 5 – Accumulated depreciation Derecognition
Option 2. Applying the “netting” approach, Konin would
• Asset’s carrying amount, accumulated depreciation or
eliminate accumulated depreciation of €80,000 and then amortization and accumulated impairment are written
increase the building account by €180,000 so the net off
carrying amount is €300,000 (= €200,000 – €80,000 + • Any gain or loss on disposal is recognized
€180,000):
Accumulated depreciation €80,000 Realizing revaluation surplus as the relating asset is
Buildings €80,000 being used
• The realized amount is the difference between (1) the depreciation
Buildings €180,000 or amortization based on the revalued amount and (2) the
Other comprehensive income—gain on revaluation €180,000 depreciation and amortization based on the asset’s original
historical cost
• The realized surplus is transferred directly from the assets
revaluation reserve account to the retained earnings
• It is not compulsory for companies to realized the revaluation
surplus as the relating asset is being used

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Derecognition of PPE
Impairment of Value
On disposal No future economic Accounting treatment differs.
benefits expected

Gain or loss Long-term assets

to be held and used IAS 36 –
Impairment
loss

Tangible and
Net disposal proceeds Carrying amount
intangible
with finite
useful lives
Gain or loss are included in P/L, but not as revenue
Test for impairment when events or changes in circumstances
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Dispositions Dispositions
 Update depreciation to date of sale.
 Update depreciation to date of disposal.
 Remove original cost of asset and accumulated June 30, 2013:
depreciation from the books. Depreciation expense ($15,000 ÷ 10 years) × ½) ....... 750
Accumulated depreciation ………………........ 750
 The difference between book value of the asset and the To update depreciation to date of sale.
amount received is recorded as a gain or loss.
 Remove original asset cost and accumulated depreciation.
On June 30, 2013, MeLo, Inc. sold equipment for $6,350  Record the gain or loss.
cash. The equipment was purchased on January 1, 2008 at
a cost of $15,000. The equipment was depreciated using the June 30, 2013:
Accumulated depreciation ............................................ 8,250
straight-line method over an estimated ten-year life with zero
Cash ………………………….……………...................... 6,350
salvage value. MeLo last recorded depreciation on the Loss on sale …………………………………………….… 400
equipment on December 31, 2012, its year-end. Equipment …………………………...............… 15,000
Prepare the journal entries necessary to To record sale of equipment.

record the disposition of this equipment. ($15,000 ÷ 10 years) × 5½) = $8,250

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Revaluation model-Example of Derecognition

Revaluation model-Example of Realizing revaluation
Example 6: 6.1 At the beginning of year X, purchase a building at cost 100 CU,
surplus
useful life: 10 years, straight-line depreciation, re-valuation model applied
Question : How to treat the OCI of the building? (referred to Example 6)
Purchase the building
DR Building:
CR Cash: • Option 1: transferred to retained earning while
6.2/At the end of year X, fair value of the building: 110 CU using the asset
2a/ Depreciation expense for the year X:
At the end of X+1
DR …
CR… Depreciation based on historical cost:
2b/ Revaluation of the building Depreciation based on revaluated amount:
DR …
=> Realizing revaluation surplus
CR ….
6.3/At the end of year X+2, sold the building for 150 CU cash DR OCI:…
3a/ Depreciation expense for the year X CR Retained earnings:…
DR …
At the end of X+2: when the asset are sold
CR…
3b/ Sold the building for cash DR OCI:…
DR Cash: 150 CR Retained earnings:…
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Revaluation model-Example of Realizing revaluation

surplus Non-Monetary (Exchange) Transactions
Question : How to treat the OCI of the building? (referred to Example 6) Non-monetary transactions where tangible
assets are exchanged for other assets,
• Option 2: transferred when asset are sold
without a cash transaction or with only a
At the end of X+1: do nothing small amount of cash “settle-up”.
At the end of X+2: when asset are sold:
DR OCI
A nonmonetary exchange is considered to have
CR Retained earnings:… commercial substance if the company:
 expects a change in future cash flows as a result of the
exchange, and
 that expected change is significant relative to the fair
value of the assets exchanged.
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Exchanges
Exchanges Example 7
Matrix, Inc. exchanged new equipment and $10,000 cash
General Valuation Principle (GVP): Cost of asset acquired is:
for equipment owned by Float, Inc.
• fair value of asset given up plus cash paid or minus cash
received or Below is information about the asset exchanged by Matrix.
• fair value of asset acquired, if it is more clearly evident Record the transaction assuming the exchange has
commercial substance.

In the exchange of assets fair value is used except in rare

situations in which the fair value cannot be determined or Accumulated Book Fair
the exchange lacks commercial substance. Cost Depreciation Value Value
Matrix's
Equipment $ 500,000 $ 300,000 $ 200,000 $ 205,000
When fair value cannot be determined or the exchange
lacks commercial substance, the asset(s) acquired are
valued at the net book value of the asset(s) given up, plus Gain = Fair Value – Book Value
(or minus) any cash exchanged. No gain is recognized. Gain = $205,000 – $200,000 = $5,000
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Example 7 Self-Constructed Assets

$205,000 fair value + $10,000 cash
When self-constructing an asset, two accounting issues must
Equipment ............................................... 215,000 be addressed:
Accumulated depreciation………............. 300,000
Equipment ……………………… 500,000
 overhead allocation to the self-constructed asset.
Cash ……………………………. 10,000 • incremental overhead only
Gain on exchange …………….. 5,000
To record the exchange of equipment.
• full-cost approach
 proper treatment of interest incurred during construction
Record the same transaction assuming the
exchange lacks commercial substance. Under certain conditions, borrowing costs
$200,000 book value + $10,000 cash
incurred on qualifying assets is capitalized.

Equipment ............................................... 210,000 Asset that necessarily Interest and other costs that are incurred
Accumulated depreciation………............. 300,000 takes a substantial period in connection with the borrowing of funds
Equipment ……………………… 500,000 that are directly attributable to the
of time to get ready for its
Cash …………………………….. 10,000
intended use. acquisition, construction or production of
To record the exchange of equipment.
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Borrowing Cost Capitalization Borrowing Cost Capitalization

IAS 23 –
Borrowing costs General borrowings
• Entity uses funds borrowed generally to fund the acquisition or
Capitalization begins when: production of the qualifying asset
• construction begins
• Borrowing cost is incurred, and Specific borrowings
• qualifying expenses are incurred.
• Entity uses funds borrowed specifically for the purpose of
Capitalization ends when: purchasing or producing the qualifying asset
• the asset is substantially complete and • Specific borrowing cost = actual borrowing costs incurred –
investment income (earned on temporary investment of
ready for its intended use, or surplus specific borrowings)
• when borrowing costs no longer are being
incurred.

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Interest Capitalization Interest Capitalization

Borrowing Cost is capitalized based on Welling, Inc. is constructing a building for its own use.
Average Accumulated Expenditures (AAE). Construction activities started on May 1 and have continued
through Dec. 31. Welling made the following qualifying
expenditures: May 1, $125,000; July 31, $160,000, Oct. 1,
Qualifying expenditures (construction labor, material, and $200,000; and Dec. 1, $300,000. Welling borrowed $1,000,000
overhead) weighted for the number of months outstanding on May 1, from Bub’s Bank for 10 years at 10 percent to
during the current accounting period. finance the construction. The loan is related to the construction
project and the company uses the specific interest method to
If the qualifying asset is compute the amount of interest to capitalize.
If there is no specific new
financed through a borrowing, and the Average Accumulated Expenditures
specific new borrowing company has other debt Fraction of
Construction
Date Expenditure Period AAE
5/1 $ 125,000 8/8 $ 125,000
. . . use the specific rate . . . use the weighted 7/31 160,000 5/8 100,000
of the new borrowing as average cost of other debt 10/1 200,000 3/8 75,000
12/1 300,000 1/8 37,500
the capitalization rate. as the capitalization rate. $ 785,000 $ 337,500
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Interest Capitalization Interest Capitalization

Since the $1,000,000 of specific borrowing is sufficient to
cover the $337,500 of average accumulated expenditures
for the year, use the specific borrowing rate of 10 percent to
determine the amount of interest to capitalize.
Interest = AAE × Specific Borrowing Rate × Time
Interest = $337,500 × 10% × 8/12 = $22,500
If Welling had not borrowed specifically for this construction
project, it would have used the weighted-average interest
method. The weighted average interest rate on other debt
would have been used to compute the amount of interest to
capitalize. For example, if the weighted-average interest
rate on other debt is 12 percent, the amount of interest
capitalized would be:

Interest = AAE × Weighted-average Rate × Time

The loan, initiated on May 1, is Interest = $337,500 × 12% × 8/12 = $27,000
outstanding for 8 months of the year.

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Interest Capitalization Disclosures

For each class of tangible asset, disclosure is required of:
1. The measurement basis used (cost or revaluation
If specific new borrowing had been insufficient to approaches).
cover the average accumulated expenditures . . . 2. The depreciation method(s) used.
3. Useful lives or depreciation rates used.
4. The gross carrying amounts and accumulated depreciation
. . . Capitalize this at the beginning and at the end of the period.
portion using the 12 Other
debt 5. A reconciliation of the carrying amount from the beginning to
percent weighted- the end of the period, showing additions, disposals and/or
average cost of debt. assets included in disposal groups or classified as held-for-
. . . Capitalize this sale, acquisitions by means of business combinations,
AAE Specific
portion using the 10 increases or decreases resulting from revaluations,
new
reductions to recognised impairments, depreciation, the net
percent specific borrowing
effect of translation of foreign entities’ financial statements
borrowing rate. and any other material items.
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Disclosures Disclosures
In addition, the financial statements should also disclose
the following facts:
1. Any restrictions on titles and any assets pledged as security
for debt.
2. The accounting policy regarding restoration costs for items of
property, plant and equipment.
3. The expenditures made for property, plant and equipment,
including any construction in progress.
4. The amount of outstanding commitments for property, plant
and equipment acquisitions.
5. The amount received from any third parties as compensation
for any impaired, lost or given-up asset. This is only
applicable if the amount received was not separately
disclosed in the statement of comprehensive income.

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Example 8 : Cost model Example 8 : cost model

Year’s Carrying P/L €
1) 1/1/20X1- purchase of an asset: end amount
Purchase price €20.000
1.1.20X1 20.000 depreciation 4.000
useful life 5 years
Depreciation: 5 years 1.1.20X2 16.000 Depreciation 4.000
Residual Value at 20x5 = €0
2) At 1/1/20x3 value resulting from 1.1.20X3 12.000 Loss (12.000 – 6.300) (5.700)
impairment test: € 6.300
Depreciation (6.300/3) 2.100
Depreciations Schedule and effect of impairment 1.1.20X4 4.200 Depreciation 2.100
test according to cost model
1.1.20X5 2.100 Depreciation 2.100

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Example 9: Revaluation model Example 9: Revaluation model

Year X1
Year X1 Purchase price € 100.000 Depreciation
Useful life: 5 years (Dr) Depreciation 20.000
Residual value after 5 years: €0 (Cr )Accumulated depreciation 20.000

Year’s end Fair value Revaluation (95.000 – 80.000)

X1 95.000 (Dr) Asset 15.000
(Cr )Revaluation Reserve (Equity) 15.000
X2 75.000
X3 40.000 Year X2
Depreciation (95.000/4)
X4 12.000 (Dr) Depreciation 23.750
X5 0 (Cr )Accumulated depreciation 23.750

Revaluation (75.000 – 71.250)

(Dr) Asset 3.750
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School of Accounting - UEH (Cr )Revaluation Reserve (Equity) 3.750
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Example 9: Revaluation model Example 9 : Revaluation model

Year X3 Year X4
Depreciation (40.000/2)
(Dr) Depreciation 20.000
Depreciation (75.000/3)
(Cr )Accumulated depreciation 20.000
(Dr) Depreciation 25.000
(Cr )Accumulated depreciation 25.000 Revaluation (20.000-12.000)
(Dr) Revaluation Reserve (Equity) 8.000
Revaluation (50.000 – 40.000) (Cr ) Asset 8.000
(Dr) Revaluation Reserve (Equity) 10.000
(Cr ) Asset 10.000 Year X5
Depreciation
(Dr) Depreciation 12.000
(Cr )Accumulated depreciation 12.000

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Example 9: Revaluation model

Year Asset Depreciation Net Fair Equity

Book value
Value End of Topic 2
X1 100.000 20.000 80.000 95.000 15.000
X2 95.000 23.750 71.250 75.000 3.750
X3 75.000 25.000 50.000 40.000 (10.000)
X4 40.000 20.000 20.000 12.000 (8.000)
X5 12.000 12.000 0 0 0
750

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