Ceasing recognition of costs

Chapter 7 – Property, Plant and Equipment Page 96 Year 3 – CU4,694 - CU4,000 = CU694. Year 4 – CU5,532 - CU4,000 = CU1,532. Year 5 – CU5,532 - CU4,000 = CU1,532. Year 6 – CU6,667 - CU4,000 = CU2,667. 8 Impairment of PPE IAS 36 Impairment of assets requires that an item of PPE is reviewed to ensure that there has not been an impairment of the asset. Impairment arises when the carrying amount of the asset is higher than its recoverable amount. For example, a car has a carrying amount of say CU10,000, but due to a new model being released by the manufacturer, the amount that could be recovered through, say, the sale of the car is only CU7,000. IAS 36 sets out when an entity should review items of PPE for impairment, how impairments are calculated and the accounting treatment required for them. Compensation may be received from a third party for an item of PPE when it is impaired, lost, or given up, for example an insurance payment where an asset has been damaged by fire. IAS 16 states that the impairment or loss of an asset, any compensation received in relation to the asset and any subsequent purchase to replace the asset are all separate events and hence should be accounted for individually. Any compensation received for an impaired, or lost, asset should therefore be recognised in profit or loss when the amount becomes receivable. [IAS 16.65] 9 Derecognition of an Item of PPE An item of PPE should be removed from the statement of financial position i.e. derecognised when it is disposed of or when no future economic benefits are expected from its use. On removal from the statement of financial position, a gain or loss should be recognised in profit or loss. The gain or loss is calculated by comparing the carrying amount of the asset with the net disposal proceeds received after deducting selling costs. The gain or loss is calculated in the same way, regardless of whether the asset is revalued or not. Any gain should not be classified as part of the entity’s revenue. [IAS 16.67, 16.68, 16.71] The date of disposal and presentation of an asset held for resale should be determined by considering the criteria set out in IAS 18 Revenue and IFRS 5 Non-current assets held for sale and discontinued operations. If on disposal of a revalued asset there remains a balance on the revaluation surplus relating to the asset, this balance should be transferred to retained earnings. This transfer is shown as a movement between reserves and does not form part of any profit or loss on disposal of the item.