ACCG224 Lecture Notes - Lecture 4: Conceptual Framework, Book Value, Oil Platform

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scarletsquirrel639

19 Jun 2018

School

Macquarie University

Department

Accounting and Corporate Governance

Course

ACCG224

Professor

Thomas Kern

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1 1 1

ACCG224 – Session 1, 2014

Week 4

Accounting for Property, Plant and

Equipment (Acquisition, Depreciation

and Revaluation)

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Readings (BEFORE the lecture!)

ACCG224 textbook:

Leo (9e): Chpt. 7

Additional resources (available on iLearn):

AASB 116, AASB 123

Please note:

The lectures will not strictly follow these slides. It is expected and required

that you know the contents of the readings BEFORE the lecture. Consider

these slides as a summary and guideline for the lectures (and later for your

revision) where we will have more examples and discussions around the

topics.

Also, this week’s slides have blanks within certain examples. It is a good

exercise to try to fill the blanks BEFORE the lecture and compare your

attempts with the solutions discussed in the lecture.

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3 3 3

Learning objectives

1. Understand the nature of property, plant and equipment (PPE);

2. understand the criteria for initial recognition of PPE;

3. understand how to measure PPE on initial recognition;

4. explain the alternative ways, in which PPE can be measured

subsequent to initial recognition;

5. understand the nature and calculation of depreciation;

6. explain the cost model of measurement;

7. explain the revaluation model of measurement;

8. understand the factors to consider when choosing which

measurement model to apply;

9. account for derecognition;

10. implement the disclosure requirements of AASB 116.

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Document Summary

The lectures will not strictly follow these slides. It is expected and required that you know the contents of the readings before the lecture. Consider these slides as a summary and guideline for the lectures (and later for your revision) where we will have more examples and discussions around the topics. Also, this week"s slides have blanks within certain examples. It is a good exercise to try to fill the blanks before the lecture and compare your attempts with the solutions discussed in the lecture. Learning objectives: understand the nature of property, plant and equipment (ppe); 10. implement the disclosure requirements of aasb 116. Now we look at specific accounting standards in relation to a particular type of assets: Property, plant and equipment (ppe) (aasb 116). Allocating the depreciable amount of a non-current asset over the asset"s expected useful life; factors that must be considered in determining the useful life of a depreciable asset;

Related Questions

Garrett Corporation paid $200,000 to acquire land, buildings, and equipment. At the time of acquisition, Garrett paid $20,000 for an appraisal, which revealed the following values: land, $100,000; buildings, $125,000; and equipment, $25,000.

Required:

What cost should the company assign to the land, buildings, and equipment, respectively?

Assume that Garrett uses IFRS and chooses to use the revaluation model to value its property, plant, and equipment. At the end of the year, the book value of the land, buildings, and equipment are $88,000, $104,000, and $18,000, respectively. The company determines that the fair value of the land, buildings, and equipment at the end of year is $110,000, $106,000, and $15,000, respectively. Prepare the journal entries that Garrett should make to value its property, plant, and equipment.

orangelocust89

P3-34) Prepare, in good form a) a statement of comprehensiveincome that includes net income and comprehensive income in oneschedule, and b) a statement of changes in equity.

Accounts payable: $1,235,000
Accounts receivable:$2,860,000
Accumulated depreciation- equipment: $1,740,000
Accumulated depreciation- plant: $1,500,000
Cash: $1,009,800
Common shares: $15,000,000
Depreciation- equipment: $580,000
Depreciation- plant: $500,000
Equipment: $5,800,000
Income tax expense: $537,200
Income tax on income from discontinued operations: $200,000
Interest expense: $165,000
Inventories: $645,000
Land- cost: $5,000,000
Land- revaluation adjustment: $3,000,000
Long-term debt: $3,500,000
Loss from discontinued operations: $500,000
Other comprehensive income- gain on land revaluation:$3,000,000
Plant: $10,000
Raw materials used:$4,670,000
Retained earnings: $1,834,000
Salaries and wages: $7,210,000
Sales: $15,344,000
Utilities expense: $876,000

lavendersnake822

AFS 11-2

Challenger Limited ( Unconsolidated subsidiary of BroncoDrilling Company Inc.)

Statement of Comprehensive Income for the year ended 31December (Amounts in US dollars)

	2008	2007
(Loss)/Profit for the year	$6,922,645.00	$1,616,154.00
Other comprehensive income
Change in revaluation of rigs	$15,378,561.00	$-
Total comprehensiveincome	$22,301,206.00	$16,161,154.00

One of the major differences between IFRS and US GAAP is therevaluation of property , plant and equipment ( primarily itincludes the revaluation of rigs). Challenger revalued its assetsin 2008 but not in 2007. The gross income in fair value of the rigsin 2008 was an increase of $20,481,823.

Required

A. How often must a company revalue property, plant andequipment if it uses the revaluation model?

B. Explain the most likely reasons for the differences betweenthe $15,378561 change in the revaluation reserve and the$20,481,423 (gross income in rigs). Prepare the journal entry torecord the revaluation in 2008. Show where each account used in thejournal entry should be reported in the financial statements.

C. Which financial statements would be affected if, during 2009, the fair value of the PPE dropped by $25,000,000? Show the dollaramount and the direction of the change for each statement, assumingthe reappraised assets to be, on average , 30% depreciated at theend of 2009.

ochrerhinoceros647

ACCG224 Lecture Notes - Lecture 4: Conceptual Framework, Book Value, Oil Platform

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