Mfrs 116 require one recognition principles original

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MFRS 116: require “One Recognition Principles”: Original Std prescribed two recognition principles: Initial recognition Subsequent recognition: enhance the performances of existing PPE Interpretation problems Enhancement or mere replacements Current std requires the total expenditure of significant item of PPE shall be allocated to its components parts and accounted separately. Eg. For a component of aircraft the total expenditure must separate between the engine, interior seats and airframes
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Presentation by Classes Each item of PPE shall be recorded separately For presentation in financial statements, they are aggregated and presented by classes Grouping base on similar nature or use Separate classes: Land Land and Building’ Machinery Motor vehicles Furniture and Fittings
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INITIAL MEASUREMENT OF PPE: The PPE shall be measured at its costs (MFRS 116.5) and cost comprise of: Purchase price including import duties and tax after deducting trade discounts Any cost directly attributable to bring the asset to the locations. Costs of dismantling and removing the item and restoring the site on which it is located. (See illustrations 1)
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Illustrations 1: On 1 January 20x6, ABC Bhd places an order for a machine from a company in Japan. The machinery is delivered on 31 January 20x6 and the invoice price is RM300,000 with a cash discount of 1% if paid within 30 days. Import duties and taxes amount to RM15,000. The following costs are also incurred: Delivery and transport costs RM 2,500 Installation and commissioning 11,500 Administrative costs for inspection 5,000 Start up and pre-production costs 10,000
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MEASUREMENT SUBSEQUENT COSTS TO THE PPE Expenditure incurred on PPE over its useful life to maintain or repair the assets or to upgrade the assets or to improve their performance: Treated as capital in nature (capital expenditure) Treated as expense (revenue expenditure) If it is repair and maintenance – clearly expense If it is replacements and improvements – dividing line between capital and revenue expenditure.
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