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Conclusion:
The motor vehicles to be sold are not items of PPE. The vehicles are
the company’s inventory.
Q1: are the motor vehicles used by the salesmen an asset?
The motor vehicles held for use by the salesmen are assets – physical
resources purchased (past event) to be used at the company’s
discretion (control) to assist in the business, which will result in the flow
of cash (future economic benefit) from the sales made.
Q2: Are the motor vehicles used by the company’s salesmen items of
PPE?
The motor vehicles held for use by the entity’s salesmen clearly satisfy
the definition of PPE – tangible items, used by entity’s salesmen to
source potential customers (held for use in the supply of goods) and
they are expected to be used for a period of 5 years (in more than
one period).
Conclusion:
The motor vehicles used by the salesmen are the company’s PPE.
Carrying amount ‘is the amount at which an asset is
recognised after deducting any accumulated depreciation
and accumulated impairment losses’.
Fair value ‘is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participation at the measurement
date’.
An impairment loss ‘is the amount by which the carrying amount of an asset exceeds its
recoverable amount’.
Recoverable amount ‘is the higher of an asset’s fair value less costs to sell and its value
in use’.
Residual value ‘of an asset is the estimated amount that an entity would currently
obtain from disposal of the asset, after deducting the estimated costs of disposal, if the
asset were already of the age and in the condition expected at the end of its useful
life’.
Required:
Determine the initial costs of the machine that can be capitalised.
Solution 1
Required:
Determine the cost of the plant that can be capitalised.
Solution 2
Required:
At what value should the asset received be recorded?
Solution 3:
The new car should be recorded at RM85,000 which is the
fair value of the new car. (the fair value of the new car is
evident).
On disposal of the old car, a gain of RM5,000 will be
recognised, being the difference between RM85,000 and
sum of RM45,000 and RM35,000. the fair value of the old car
is not relevant
Fair value 85,000
Carrying amount old car 35,000
Cash received 45,000
Carrying amount 80,000
Gain 5,000
Example 4: assets exchange
Required:
At what value should the asset received be recorded?
Solution 4:
The fair value of the plant can be determined but it is not an
open market value. On the other hand, the land’s fair value is
clearly more evident and so the plant should be recognised at
RM1.25 mil being the fair value of the asset given up
Subsequent Costs
Replacement of part/component
Replacement costs can be added to the carrying
amount of PPE if they meet the recognition criteria
The carrying value of the part replaced should be
derecognised.
Inspection – regular/major
Replacement – major component
Increase useful life
Increase quality/performance of asset
PART 2: Measurement after recognition
Asset costing RM10 million was bought on 1.1.x4 and the useful life was
determined to be 10 years. On 31.12.x5 the fair value was RM12 million.
On 31.12.x5 :
Fair value RM12
(-)Carrying amount (RM10m – Depr RM10m x 2 years) = RM 8 mil
10 years RM4mil surplus
Solution 6:
Depreciation for x2- x5 = RM85,000 – RM5,000 = RM8,000 per year x 4
years
10 years
= RM32,000
Carrying amount at 1.1.x6 = RM85,000 – 32,000 = RM53,000