Introduction and the Framework


When disposed of, or when no future economic benefits to be received from use or disposal



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When disposed of, or when no future economic benefits to be received from use or disposal

  • IAS 16 - Derecognition
  • When disposed of, or when no future economic benefits to be received from use or disposal
  • Remove carrying amount from statement of financial position
  • Gain or loss = difference between carrying amount of asset (or part of asset if a replacement) and net proceeds on disposal

Whether CM or RM :

  • IAS 16 - Disclosure
  • Whether CM or RM :
  • Depreciation methods used
  • Depreciation rate or useful lives
  • Beginning and ending balances and reconciliation of the two for gross amount and total of accumulated depreciation and impairment losses

If RM used:

  • IAS 16 - Disclosure
  • If RM used:
  • Date of revaluation
  • Independent valuation?
  • Methods, techniques used
  • Assumptions made in determining FV
  • Amounts if CM had been used
  • Details of changes in Revaluation Surplus
  • Current GAAP Comparisons
  • Pages 43-45/144
  • of
  • http://www.kpmg.co.uk/pubs/2007%20IFRS%20compared%20to%20US%20GAAP%20-%20An%20overview.pdf

BHP Billiton Ltd.

  • IFRS Financial Statement Disclosures - CM
  • BHP Billiton Ltd.
  • http://www.bhpbilliton.com/bbContentRepository/bhpbfinstatements07.pdf
  • Business and geographic segments: page 16 of 108
  • Consolidated balance sheet: page 5 of 108
  • Basis of measurement: page 8 of 108
  • Accounting policies for PP&E: page 10 of 108
  • Property, plant and equipment Note 16: page 35 of 108
  • Looking Ahead
  • No significant changes are expected to IAS 16 in the foreseeable future

10-1 The following assets have been recognized as items of property, plant, and equipment.

  • 10-1 The following assets have been recognized as items of property, plant, and equipment.
  • Headquarter office boardroom table and executive chairs
  • A landfill site
  • Wooden pallets in a warehouse
  • Forklift vehicles in a manufacturing plant
  • Stand-alone training facility for pilot training, including a flight simulator, classrooms equipped with desks, whiteboards and electronic instructional aids
  • Instructions
  • For each of the items listed:
  • Identify what specific costs are likely to be included in acquisition cost.
  • Explain whether any components of this asset should be given separate recognition, and why.
  • Suggest what should be taken into consideration in determining each component’s depreciable amount and depreciation period.
  • Suggest and explain what depreciation method might be most appropriate for each component separately identified.
  • Identify whether the periodic depreciation is recognized as an expense on the income statement, or whether another accounting treatment is more appropriate. Explain.

10-2 Vedat Corporation acquires new equipment with a list price of $100 to expand its product line, paying $50 on delivery and agreeing to pay $25 in one year’s time and the remaining $25 in two years’ time. The company extends a portion of its factory wall in order to fit the new machine in place and then rearranges existing equipment into a more efficient layout. The new equipment is dropped on installation requiring repairs prior to use. At the end of the equipment’s useful life, Vedat Corporation is required to dismantle and dispose of it, paying a special environmental tax due to hazardous materials in its construction. Vedat is licensed to manufacture products with this equipment, and is required to pay a royalty for each unit produced.

  • End-of-Chapter Practice
    • 10-2 Vedat Corporation acquires new equipment with a list price of $100 to expand its product line, paying $50 on delivery and agreeing to pay $25 in one year’s time and the remaining $25 in two years’ time. The company extends a portion of its factory wall in order to fit the new machine in place and then rearranges existing equipment into a more efficient layout. The new equipment is dropped on installation requiring repairs prior to use. At the end of the equipment’s useful life, Vedat Corporation is required to dismantle and dispose of it, paying a special environmental tax due to hazardous materials in its construction. Vedat is licensed to manufacture products with this equipment, and is required to pay a royalty for each unit produced.
  • Instructions
  • Discuss how the cost of the new equipment should be
  • determined.

  • End-of-Chapter Practice
    • 10-3 Teyal Limited has just finished the construction of its new office building. About the same time, one of Teyal’s major suppliers, Layet Corporation, also moved into its new office building. Layet Corporation did not construct its own building, but contracted it out in a fixed price total contract. The total expenditures were approximately the same for both buildings.
  • Instructions
  • a) Assume you are a co-op student in the accounting department of Teyal Limited. You are asked to write a short report on what the chief accountant needs to consider in accounting for the cost of the new building and its subsequent depreciation policy. Write the report.
  • b) Assume you are a co-op student in the accounting department of Layet Corporation. If you were asked to write a report similar to the one required in part (a) above, identify in what respect it might differ, and why.


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