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Acquisition of non current assets and entities

Franchise agreements; and Goodwill. All of these assets are regarded as identifiable intangible assets, except goodwill, which is regarded as an unidentifiable intangible asset.

Determining the Cost of Property, Plant and Equipment When a tangible non-current asset is acquired by the entity, paragraph 15 of AASB 116 requires that the asset initially be recorded at cost in the balance sheet. The cost of the asset includes: Its purchase price, including the cost of purchase, import duties, transport, freight, insurance, shipping and handling costs directly attributable to purchasing the asset.

Any trade discounts or rebates received must be deducted. Any incidental costs directly attributable to bringing the asset to its present location and condition necessary for it to be used in the manner intended by management, and The initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.

Examples of incidental costs directly attributable to the cost of the asset include: Incidental costs that should not be included in the cost of property, plant and equipment include: Costs of opening a new facility e. Subsequent Costs During the life of an asset, an entity may incur subsequent costs to maintain or improve the asset.

  • Subsequent Costs During the life of an asset, an entity may incur subsequent costs to maintain or improve the asset;
  • These costs range from routine repairs and maintenance to major capital improvements or overhauls to the asset;
  • Typically, this register is prepared in a spreadsheet and updated each time an asset is bought or sold;
  • Account for depreciation represents the process whereby the decline in future economic benefits of an asset through usage, wear and tear and obsolescence is progressively recognized over the life of the asset as an expense in the profit and loss statement;
  • Noncurrent assets are always classified on the balance sheet under one of the following headings:

These costs range from routine repairs and maintenance to major capital improvements or overhauls to the asset. From an accounting viewpoint, the question to be asked is whether subsequent costs should be treated as expenses and shown in the profit and loss statement or capitalised by being added to the cost of the asset in the balance sheet.

According to paragraphs 12 to 14 of AASB 116, subsequent costs incurred after the acquisition of an item of property, plant and equipment should only be capitalised if the costs: Extend the useful life of the asset Improve the quality of its output, or Reduce the operating costs associated with the use of the asset.

Hence, day-to-day repairs and maintenance to an item of property, plant and equipment would ordinarily be treated as expenses in the profit and loss statement. For example, costs incurred in the annual servicing of a motor vehicle or minor electrical repairs made to a machine used for business purposes would be regarded as repairs and maintenance. These costs do not extend the useful life of the asset, nor do they improve the quality of its output.

Noncurrent Assets

Therefore, these costs should be expensed. Fixed Asset Register Because of the importance of items of property, plant and equipment, many entities maintain a fixed asset register. Typically, this register is prepared in a spreadsheet and updated each time an asset is bought or sold. The fixed asset register usually contains the following information: The date the asset was acquired A description of the asset From whom the asset was purchased The cost of the asset The serial number of the asse The date the asset was sold The gross sale proceeds of the asset.

It is common practice for entities to attach a serial number to each asset for identification purposes.

  • Noncurrent assets are capitalized rather than expensed, meaning that the company allocates the cost of the asset over the number of years for which the asset will be in use instead of allocating the entire cost to the accounting year in which the asset was purchased;
  • Examples of incidental costs directly attributable to the cost of the asset include;
  • Fixed Asset Register Because of the importance of items of property, plant and equipment, many entities maintain a fixed asset register.

A photograph of each asset that appears in the fixed asset register should also be taken and maintained, primarily for insurance purposes. The total cost of assets in the fixed asset register should equal the amount of non-current assets in the balance sheet. All non-current assets with the exception of land are deemed to provide future economic benefits over a number of years.

  • Incidental costs that should not be included in the cost of property, plant and equipment include;
  • Hence an asset must be depreciated even if its value increases;
  • From an accounting viewpoint, the question to be asked is whether subsequent costs should be treated as expenses and shown in the profit and loss statement or capitalised by being added to the cost of the asset in the balance sheet.

For this reason, all items of property, plant and equipment, with the exception of land, are considered to have a limited useful life. All depreciable assets are subject to depreciation.

History of IFRS 5

Account for depreciation represents the process whereby the decline in future economic benefits of an asset through usage, wear and tear and obsolescence is progressively recognized over the life of the asset as an expense in the profit and loss statement. Depreciation is the systematic allocation of the cost of an asset over its estimated useful life.

Depreciation is not a process of valuation. Recording depreciation does not purport to produce an asset value equivalent to current market value.

Hence an asset must be depreciated even if its value increases. The Quinn Group provides related information in regard to legal, accounting and financial planning issues.