IAS 16

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  • Initial measurement should be at cost
    • Subsequent expenditure should be capitalised if it improves the economic benefits
    • IAS 16 Property, Plant and Equipment
      • Depreciation should be allocated on a systematic basis
        • The depreciation method should depend on the time idle, expected wear and tear, legal limits on use and technological obsolescence
        • The life time of an asset is important and should be reviewed at the end of each period
        • After revaluation depreciation must continue as normal based upon the new valuation
      • IAS 16 allows businesses to revalue assets, in practice this is only buildings and land
        • After a single revaluation the assets must then have a valuation to keep their value up to date
        • All assets of the same class must be revalued
        • After revaluation depreciation must continue as normal based upon the new valuation
        • To account for revaluation the following should be adopted...
          • Restate the asset to the revalued amount, eliminate the accum depreciation and establish or update the revaluation reserve
            • The journal entry for a £50,000 increase on the original cost and £40,000 increase on the Net Book Value would be as follows DR Asset cost £50,000         DR Acc depn £10,000         CR Reval res  £60,000
            • The company can choose to transfer money from the revaluation reserve to retained earnings
              • DR Revalue reserve        CR Retained earnings
              • The amount they can transfer is for the excess deprecation
                • For example if the depreciation was £10,000 per financial period (straight line) and increased to £12,000 after revalue then the difference £2,000 could be transferred
      • The company can choose to transfer money from the revaluation reserve to retained earnings
        • DR Revalue reserve        CR Retained earnings
        • The amount they can transfer is for the excess deprecation
          • For example if the depreciation was £10,000 per financial period (straight line) and increased to £12,000 after revalue then the difference £2,000 could be transferred
      • Valuation gains are recorded in other income and held in the revaluation reserve in the equity section
      • Valuation losses are recognized in the statement of profit or loss unless there is a balance for that asset in the revaluation reserve
        • If there is a value for the asset in the revaluation reserve then the loss is deducted from here before any remaining loss is posted to the statement of profit or loss
          • Valuation gains are recorded in other income and held in the revaluation reserve in the equity section
      • Gains and losses on disposal are shown in the profit and loss as the difference between the proceeds and the netbook value
        • Any asset that has been revalued has any remaining balance on the revaluation reserve transferred to retained earnings when disposal occurs

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