BSB110 Lecture Notes - Lecture 10: Financial Statement, Book Value, Ip Australia
Week 10 Accounting Lecture Notes
Non-Current Assets
Property, Plant and Equipment
• Property, plant and equipment (PPE) are physical assets used in the business to
provide future economic benefits for a number of years.
• According to AASB 116/IAS 16, economic benefits derived from the use of an asset
must be reogised o a ssteati asis over the asset’s useful life.
• This decline is recognised as depreciation expense in the Statement of Profit or
Loss.
• Two classes of PPE assets:
1. Property:
o includes land and buildings.
2. Plant and Equipment:
o includes computers, office furniture, cash registers, factory machinery, motor
vehicles.
Determining the Cost of PPE
• PPE assets are initially recorded at cost in accordance with AASB 116, para 6 as:
o The amount of cash or cash equivalents paid or the fair value of the other
consideration given to acquire the asset.
• Fair value is the amount for which an asset could be exchanged between
knowledgeable willing parties i a ars-length transaction.
• The cost of an asset:
• Consists of the fair value of all expenditure necessary to acquire the asset and
make it ready for use:
o e.g. purchase price, freight costs paid, installation costs (capital expenses).
• Excludes non-capital expenditures which are expensed immediately.
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Determining the Cost of PPE- Property
• Cost of land includes:
o purchase price
o settleet osts e.g. soliitors fees
o stamp duty
o accrued property taxes assumed by purchaser.
Determining the Cost of PPE- Plant and Equipment
• Cost of plant and equipment includes:
o purchase price
o freight charges
o insurance during transit
o installation costs.
Journalising the Acquisition of PPE
• In purchasing the Delivery Truck the business also incurred costs for registration and
insurance on the truck for the year.
• How are these costs treated?
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Depreciation
• AASB 116/IAS 16 outlines four factors that contribute to the decline in value of a
depreciable asset:
1. Usage of the asset.
2. Wear and tear through physical use of the asset.
3. Technical and commercial obsolescence.
4. Legal life.
Factors in Calculation Depreciation
• Cost: all expenditures necessary to acquire the asset and make it ready for intended
use.
• Useful life: estimate of the expected life based on intended use, need for repair,
vulnerability to obsolescence and legal life.
• Residual value: estiate of the assets value at the ed of its useful life.
• Date of Purchase: if the asset is purchased during a financial year, depreciation is
pro-rated (based on the number of days from the date the asset was acquired to the
end of the financial year). For BSB110, a calculation with the number of months
divided by 12 will suffice.*
o *For example, the purchase of equipment on 1 November 2017 with a
financial year end of 31 December 2017 would result in 2/12 x the annual
depreciation because there is 2 months of depreciation for the months of
November and December to consider.
Depreciation
• Depreciation is the process of allocating to expense the cost of a PPE asset over its
useful (service) life in a rational and systematic manner.
• Carrying amount equals cost less accumulated depreciation.
• Carrying amount can also be called the written down value or book value.
Depreciation Methods
1. Straight Line – spreads cost of asset evenly over life.
2. Diminishing Balance – an accelerated depreciation method where more
depreiatio is alloated to earlier years of assets life ad less to later years of
assets life.
3. Units of Production – applies cost to how much asset is used each year (where
possible to track this data).
Example:
• Delivery truk purhased y Bills Pizzas.
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Document Summary
Loss: two classes of ppe assets, property: includes land and buildings, plant and equipment: includes computers, office furniture, cash registers, factory machinery, motor vehicles. Determining the cost of ppe- property: cost of land includes, purchase price, settle(cid:373)e(cid:374)t (cid:272)osts (cid:894)e. g. soli(cid:272)itor(cid:859)s fees(cid:895, stamp duty, accrued property taxes assumed by purchaser. Determining the cost of ppe- plant and equipment: cost of plant and equipment includes, purchase price freight charges insurance during transit installation costs. Depreciation: aasb 116/ias 16 outlines four factors that contribute to the decline in value of a depreciable asset, usage of the asset, wear and tear through physical use of the asset, technical and commercial obsolescence, legal life. Example: delivery tru(cid:272)k pur(cid:272)hased (cid:271)y bill(cid:859)s pizzas. Depreciation methods- straight line: depreciation expense same each year as benefits are consumed at same rate each year, calculation for annual charge: = cost of asset residual value (depreciable amount) useful life of the asset: or.
