Week 2 Lecture Notes

Week 2 Lecture Notes - ACCT1002 Week 2 lecture notes i ts...

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r its useful (service) life in a rational and systematic manner. It is the cost allocation not evaluation. necessary used ue epair, vulnerability to obsolescence and legal life also known as salvage value or trade-in value ble) is equal to the asset’s carrying amount on the date of scrapping ACCT1002 Week 2 lecture notes CHAPTER 8: REPORTING AND ANALYSING NON-CURRENT ASSETS Property, Plant and Equipment (PPE) Assets are resources controlled by the entity as a result of past events, from which economic benefits are expected. PPE: used in operations of an entity for more than one period not intended for sale to customers provided future economic benefits for a number of years PPE subdivided into two classes: o property: inc. Land and buildings o plant and equipment: inc. Cash registers, computers, office furniture, factory machinery, motor vehicles. Determining the cost of PPE PPE assets initially recorded at historical cost i.e. cost principle according to the AASB 116, para 6: “Cost is the amount of cash or cash equivalents or the fair value of the other consideration given to acquire an asset” fair value: amount for which an asset could be exchanged between knowledgeable willing parties in an arm’s-length transaction costs consist of all expenditures to acquire the asset and make it ready for its intended use e.g. purchase price, freight costs paid by the purchaser and installation costs are all considered part of the cost of factory machinery. NON-CAPITAL EXPENDITURE ARE EXPENSED IMMEDIATELY (as it doesn’t add value to the asset). Property Costs included: cash purchase price + stamp duty settlement costs such as solicitor’s fees real estate agent’s commission accrued property taxes assumed by the purchaser All costs incurred in making land ready for its intended use are recorded as a debit in the Land account. 1
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ACCT1002 Week 2 lecture notes Example: Ashfield Ltd acquires real estate at a cash cost of $200 000 (inc. stamp duty) on 15 January 2009. The property contains an old warehouse that is demolished at a net cost of $10 500. Additional expenditure includes the lawyer’s fee ($2500) and the real estate agent’s commission of $8000. What is the cost of the land purchased?
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Week 2 Lecture Notes - ACCT1002 Week 2 lecture notes i ts...

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