IAS 16
- Created by: Louise1996
- Created on: 20-05-17 10:33
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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
- Restate the asset to the revalued amount, eliminate the accum depreciation and establish or update the revaluation reserve
- 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
- 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
- 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
- Depreciation should be allocated on a systematic basis
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