Week 1 PPE.pptx - PROPERTY PLANT AND EQUIPMENT MFRS116...

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PROPERTY, PLANT AND EQUIPMENT MFRS116
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Definition of an asset Conceptual Framework – a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity. i) Resources controlled means risk and reward incidental to ownership i.e. like you own the resource (asset) because you had acquired it in the past. ii) Result of past events mean that cost and transaction to acquired controlled had occurred in the past i.e. you had already completed necessary transaction to obtain ownership over the asset either legally or substantially (economic substance). iii) Future economic benefits mean the entity that possessed the resource will able to enjoy potential profits or gain obtained from utilizing the resource i.e. revenue generated from production of goods or services using the resource you owned.
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Definition MFRS116 16 - Property, plant and equipment (PPE) are tangible (have physical existence) items that: a) are held for use in the production or supply of goods or services , for rental to others , or for administrative purposes ; and b) are expected to be used during more than one period .
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Definition i) Tangible means the PPE must have physical existence e.g. machines, buildings and motor vehicles. ii) The entity must utilizes the assets for revenue generating purposes through production of goods or services, or through renting it out to someone else, or to support the business operation by using it as an offices or as research and development centre. iii) More than 1 period means that the entity has an intention to use the asset for > than 1 accounting period i.e. usually 1 year.
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Recognition Criteria – Initial Cost An entity can only account or recognize i.e. on SOFP when it met these 2 criteria: a) it is probable that the future economic benefits associated with the asset will flow to the entity, and b) the cost of the asset can be measured reliably .
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Recognition criteria – subsequent costs Capital expenditure – capitalized Revenue expenditure – expensed off to income statement
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Initial Measurement IFRS 13 – Fair Value (FV) is the price that would be received when selling an asset or paid when transferring a liability in an orderly transaction between market participants at the measurement date.
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Initial measurement All property, plant and equipment should initially (for the first time) be recorded at cost.
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