12:PPE

• Asset definition


  A resource that is controlled by the entity as a result of events in the past and from which economic benefits will flow to the entity
• Property,plant and equipment are tangible items that:

  -held for use in the production or supply of goods or services,for rental to others,or for administrative purposes; and are expected to be used during more than one period
• Property,plant and equipment = non-current assets
• Cost price= cost price of asset and any direct costs incurred to bring the asset in working condition for its intended use (all costs needed to get asset ready for us)
• Residual value= amount expected at the sale/trade-in of the asset at the end of its useful life, after deduction of estimated sale and trade-in costs (used in calculation)
• Any costs incurred until the date the asset is ready for is, is included in the cost price of that asset
• repairs to assets will not form part of the cost price, but will be recognised as an expense as it will only repair the asset's ability to its original performance
• carrying amount= cost price- accumulated depreciation
• accumulated depreciation


  as asset is used, the asset loses a portion of its ability to generate income

  depreciation=expense
• Depreciable amount = cost price -residual value
• depreciation is written off from the date the asset is ready for use and not from the date of the first usage.
• Straight line-method


  (CP-RV) x % x x/12
• Diminishing balance method


  (CP- Accumulated dep) x % x x/12

  
  

  Residual value NOT taken into account
• Production unit method


  Dep= (actual units used/budgeted units) x depreciable amount

  not used=no depreciated
• Recognition of depreciation(expense)


  Dr depreciation

  Cr accumulated depreciation
• Accumulated depreciation account= convenience account

  "opposite asset" opposite signs
• Compensation received from insurer

  *do not record in realisation account*

  recognise from insurer:

  DR debtor

  CR compensation from the insurer(Income)

  on day cash received:

  DR bank

  CR debtor
• De-recognition process :Sell/trade in PPE

  1. write off depreciation up to date of disposal on asset
  2. transfer CP of asset to realisation ledger account
  3. transfer accumulated depreciation of asset to realisation account
  4. record proceeds of the disposal in the realisation account
  5. close realisation account off to P/L with disposal of asset account
  6. remove details from fixed asset register
• 1)write off depreciation up to date of disposal on asset


  DR depreciation

  CR accumulated depreciation
• 2)Transfer CP of asset to realisation ledger account


  Dr realisation account

  Cr asset @CP
• 3)Transfer accumulated depreciation of asset to realisation account


  Dr accumulated depreciation

  Cr realisation account
• 4)record proceeds of the disposal in the realisation account


  Dr bank/debtors

  Cr realisation account
• Fixed asset register: summary of all assets owned


  Includes:

  • description
  • date purchased
  • CP
  • RV
  • Depreciation method
  • depreciable amount
  • Dep Year 1
  • Dep year 2 etc
• Comp from insurer

  The carrying amount(cp-acc dep) of the asset is written off, in full, as a loss in the realisation account