This project is funded by EU

NoIAS 16 34 Interim Financial

ReportingProperty, Plant and Equipment
Interim Financial ReportingProperty, Plant and Equipment

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 Interim Financial ReportingProperty, Plant and Equipment

Moscow, Russia, October June 20032004

PREFACE
CONTENTS
This series of workbooks has been written by the project team of the European
Union project Accounting Reform II in the Russian Federation.
INTRODUCTION 3
The workbooks cover the concepts of International Financial Reporting
Standards (‘IFRS’). They are intended to be practical self-instruction aids that
DEFINITIONS 4
practicing accountants can use to upgrade their knowledge, understanding
and skills.
CONTENT OF AN INTERIM FINANCIAL REPORT 4
Each workbook is designed for a maximum of three hours of study.

Each workbook is a combination of: DISCLOSURE OF COMPLIANCE WITH IAS 6

 Information with examples
 Self Test Questions – Multiple choice and Exercises DISCLOSURE IN ANNUAL FINANCIAL STATEMENTS 8
 Answers to Self Test Questions

The members of the project team were contributed by RECOGNITION AND MEASUREMENT 8
PricewaterhouseCoopers and Rosexpertiza, Moscow.
RESTATEMENT OF PREVIOUSLY REPORTED INTERIM PERIODS 10
The Workbook Series consists of a range of titles listed on our website.

The copyright of the material contained in each workbook belongs to the MULTIPLE CHOICE QUESTIONS 11
European Union and, according to its policy, may be used free of charge for
any non-commercial purpose.
ANSWERS TO MULTIPLE CHOICE QUESTIONS 14
1. PROPERTY, PLANT AND EQUIPMENT - INTRODUCTION 343
The project team would like to express thanks to those who have contributed
2. DEFINITIONS 15153
their time and thoughts to the content of the workbooks.
3. DEPRECIATION 1515118
4. IMPAIRMENT 15151512
5. DISCLOSURE 15151713
6. MULTIPLE CHOICE QUESTIONS 15151814
7. Answers to multiple choice questionsError! Bookmark not
defined.Ошибка! Закладка не определена.2318
Contact

e-mail Web
maria.ermoshkinanatalia.lelyavi www.accountingreform.ru
[email protected]
Tel. Fax.
+ 7 095- 967-60476046 + 7 095- 967-6001

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 Interim Financial ReportingProperty, Plant and Equipment

Virtually none of the notes to the annual financial statements are repeated, or
Property, Plant and Equipment - updated in the interim report.
Introductionn
The difference between capital expenditure (including Property, Plant and An undertaking should apply the same accounting policies in its interim
Equipment) and revenue expenditure is an important distinction in accounting. financial report as are applied in its annual financial statements, except for
Generally revenue expenditure is accounted for in the current period policy changes made after the most recent annual statements, that are to be
(excepting deferred expenditure) and capital expenditure is spread over a reflected in the next annual statements.
number of accounting periods that benefit from the capital expenditure. One
view of Depreciation is that it represents this spreading of capital expenditure
costs.

AIM
The aim of this workbook is to assist the individual in understanding Interim
Financial Reporting Property, Plant and Equipment according to IFRSIAS 34.
EXAMPLE-change of accounting policy during the year
OBJECTIVE In your financial statements in 2XX6, you accounted for property, using the
Property, Plant and Equipment are the subject of IAS 16. cost method. You decide that for 2XX7, you will revalue your property. This
change of policy should be reflected in your interim reports for 2XX7
Introduction Measurements for interim reporting purposes are made on a year-to-date
basis.
An interim financial report is a financial report that contains either a complete,
or condensed, set of financial statements, for a period shorter than a full EXAMPLE-year-to-date basis
financial year. You produce quarterly interim reports. In your second and third reports, you
report cumulative (year-to-date) results, and provide notes on these figures,
IAS 34 does not mandate which undertakings should publish interim financial rather than just the results for that quarter.
reports, how frequently, or how soon after the end of an interim period. Those
matters should be decided by national governments, securities regulators, Income tax expense for an interim period is based on an estimated average
stock exchanges, and accountancy bodies. annual effective income tax rate, consistent with the annual assessment of
taxes.
IAS 34 applies if a company publishes an interim financial report in
accordance with IFRS. EXAMPLE-income tax rates
You have 2 income tax rates. For the first $250.000, the rate is 20%. Above
IAS 34: that it is 40% for all profits, including the first $250.000.
(i) defines the minimum content of an interim financial report; and Your profit for the interim period is $200.000. You will make $1m profit in the
(ii) identifies the recognition and measurement principles that should be whole year. In your interim report , you use 40% as your tax rate.
applied in an interim financial report.
Materiality should be considered on a year-to-date basis, not just the interim
The interim notes include primarily an explanation of the events, and changes, period. It should not be based on forecasted annual data.
that are significant to an understanding of the changes in financial position,
and performance, since the last annual reporting date.
EXAMPLE-materiality based on interim results
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 Interim Financial ReportingProperty, Plant and Equipment

The bankruptcy of a key client has reduced your interim profit by 30%. The
impact on the whole year will be minimal, as this interim period has little Interim financial report means a financial report containing either a complete
influence on the year as a whole. (This is due to your business being set of financial statements, or a set of condensed financial statements, for an
seasonal.) The bankruptcy is material in relation to the interim result , and interim period.
should be fully disclosed in the interim report.
Content of an Interim Financial Report
IAS 1 defines a complete set of financial statements as including the following
components:
(i) balance sheet;
(ii) income statement;
(iii) statement showing either (1) all changes in equity or (2) changes in
equity, other than those arising from capital transactions with owners,
and distributions to owners;
Objective (iv) cash flow statement; and
(v) accounting policies and explanatory notes.
The objective of IAS 34 is to prescribe the minimum content of an interim
financial report, and to prescribe the principles for recognition, and An undertaking may provide less information at interim dates as compared
measurement, in complete (or condensed) financial statements for an interim with its annual statements.
period.
An undertaking may publish a complete set of financial statements in its
Timely and reliable interim financial reporting improves the ability of investors, interim financial report, rather than condensed statements and selected
creditors, and others to understand an undertaking’s capacity to generate explanatory notes. It may publish more than the minimum line items, or
earnings, and cash flows, and its financial condition and liquidity. selected explanatory notes, as set out in IAS 34.

Minimum Components of an Interim Financial Report

Scope
Minimum content of an interim financial report is a:
Publicly-traded undertakings should provide interim financial reports that
- condensed balance sheet,
conform to IAS 34. Specifically, they are encouraged:
- condensed income statement,
(i) to provide interim financial reports at least as of the end of the first half
- condensed cash flow statement,
of their financial year; and
- condensed statement showing changes in equity, and
(ii) to make their interim financial reports available not later than 60 days
- selected explanatory notes.
after the end of the interim period.

If an undertaking’s interim financial report is described as complying with Form and Content of Interim Financial Statements
IFRS, it must comply with all of the requirements of IAS 34.
A complete set of financial statements in an interim financial report, should
conform to the requirements of IAS 1 for a complete set of financial
Definitions statements.
Interim period is a financial reporting period shorter than a full financial year.
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 Interim Financial ReportingProperty, Plant and Equipment

Condensed statements should include, at a minimum, each of the headings Your annual statements provided a full description of your pension plan.
and subtotals that were included in its most recent annual statements, and the Labour turnover has been higher than planned since then, but your advisers
selected explanatory notes as required by IAS 34. have said that there is no need to reconsider contribution levels until later. This
information should not be included in the interim report, unless pensions
Additional line items, or notes, should be included if their omission would make generally, or your plan specifically, are of current concern to the users.
the condensed interim statements misleading.
At an interim date, an explanation of events and transactions which are
Basic, and diluted, earnings per share should be presented on the face of an significant to the changes in financial position, and performance, since the last
income statement, complete or condensed, for an interim period. annual report is more useful.

IAS 1 provides guidance on the structure of financial statements and includes An undertaking should include the following information, as a minimum, in the
an appendix, "Illustrative Financial Statement Structure", that provides further notes to its interim financial statements, if material and if not disclosed
guidance on major headings and subtotals. elsewhere in the interim financial report:
(i) (i) a statement that the same accounting policies and methods of
Changes in equity arising from capital transactions with owners, and computation are followed in the interim statements as compared
distributions to owners, may be shown either on the face of the statement of with the most recent annual financial statements or, if those
changes in equity, or in the notes. policies or methods have been changed, a description of the
nature and effect of the change;
An undertaking follows the same format in its interim statement showing
changes in equity as it did in its most recent annual statement.

EXAMPLE-transactions with owners

In your annual statement, you used the notes to detail dividends and new
share issues, rather than the changes in equity statement. You will use the EXAMPLE-change of policy
same format for the interim reports. You have changed your inventory policy from FIFO to weighted-average cost,
at the start of the year. This needs to be disclosed, with the reasons and the
An interim report is prepared on a consolidated basis, if the undertaking’s most impact on results.
recent annual statements were consolidated statements.
(ii) (ii) explanatory comments about the seasonality, or cyclicality, of
If an annual report included the parent’s separate statements in addition to interim operations;
consolidated financial statements, IAS 34 neither requires, nor prohibits, Tthe
inclusion of the parent’s separate statements in the interim report is optional. EXAMPLE-seasonality
You run a travel business. You make profits in summer, from the holiday trade,
Selected Explanatory Notes and make losses during the rest of the year. This needs to be fully explained in
the interim reports.
A user of an interim financial report will also have access to the most recent
annual report. It is unnecessary, to provide relatively- insignificant updates to (iii) (iii) the nature and amount of items affecting assets, liabilities,
the information that was reported in the most recent annual report. equity, net income, or cash flows that are unusual due to their
nature, size, or incidence;
EXAMPLE- relatively-insignificant updates
EXAMPLE-unusual cash flows
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 Interim Financial ReportingProperty, Plant and Equipment

You have received a large advance payment for a contract that enables you to Your interim report is to June 30 th. On July 5th, you agree to purchase a
repay many loans, at least temporarily. The details need to be disclosed. competitor, which will add 50% to your business. This is vital information to
users, and should be fully disclosed in the interim report.
(iv) (iv) the nature and amount of changes in estimates reported in
prior interim periods of the current financial year, or changes in (ix) (ix) the effect of changes in the composition of the undertaking
estimates of amounts reported in prior financial years, if those during the interim period, including business combinations,
changes have a material effect in the current interim period; acquisition or disposal of subsidiaries and long-term investments,
restructurings, and discontinuing operations; and
EXAMPLE-changes in estimates
In a prior year, you made a provision of $5m to settle a lawsuit. This year, you EXAMPLE-disposal of subsidiaries
make the settlement, an it costs you only $3m. The $2m gain needs to be During the reporting period, you sold a subsidiary that represented 25% of
identified, and explained. your sales and 20% of your profit. This needs to be disclosed.

(v) issuances, repurchases, and repayments of debt and equity (x) changes in contingent liabilities, or contingent assets, since the
securities; last annual balance sheet date.

EXAMPLE-repayments of debt
You have exchanged $30m of your bonds for $24m of shares. This needs to
be disclosed. EXAMPLE-changes in contingent liabilities
You are being sued for environmental damage. You have previously recorded
(v) (vi) dividends paid (aggregate, or per share) separately for a contingent liability for $25m, but the government is now suing you for $100m.
ordinary shares and other shares; You take professional advice, and if necessary, change the contingent liability,
and disclose the details.
EXAMPLE-dividends paid
You have paid $0,50 dividend per share on your ordinary shares, and $0,24 Individual IFRS provide guidance regarding disclosures for many of these
dividend per share on your preferred shares. $0,12c of the preferred share items:
dividend was in arrears, due in the last year, but not paid. All of this (i) the write-down of inventories to net realisable value, and the reversal
information needs to be disclosed. of such a write-down (IAS 2);
(ii) recognition of a loss from the impairment of property, plant, and
(vii) (vii) segment revenue and segment result for business segments equipment, intangible assets, or other assets, and the reversal of such
or geographical segments, whichever is the undertaking’s primary an impairment loss (IAS 36);
basis of segment reporting (see IAS 14 workbook); (iii) the reversal of any provisions for the costs of restructuring (IAS 37);
(iv) acquisitions and disposals of items of property, plant, and equipment
(viii) (viii) material events, subsequent to the end of the interim (IAS 16);
period, that have not been reflected in the financial statements for (v) commitments for the purchase of property, plant, and equipment (IAS
the interim period; 16);
(vi) litigation settlements (IAS 37);
EXAMPLE- material events, subsequent to the end of the interim period (vii) corrections of errors in previously-reported financial data (IAS 8);

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 Interim Financial ReportingProperty, Plant and Equipment

(viii) any debt default, or any breach of a debt covenant, that has not been
corrected subsequently (IAS 1); and (iii) (iii) statement showing changes in equity cumulatively for the
(ix) related party transactions (IAS 24). current financial year to date, with a comparative statement for the
comparable year-to-date period of the immediately-preceding
The disclosures required by other IFRS are not required if an undertaking’s financial year; and
interim financial report includes only condensed financial statements, and
notes. EXAMPLE-changes in equity
Cumulative January to September 2XX5, comparative January to September
Disclosure of Compliance with IAS 2XX4.

(iv) (iv) cash flow statement cumulatively for the current financial year
If an undertaking’s interim financial report is in compliance with IAS 34, that
to date, with a comparative statement for the comparable year-to-
fact should be disclosed. An interim financial report should not be described
date period of the immediately-preceding financial year.
as complying with IFRS, unless it complies with all of the requirements of each
applicable Standard, and each applicable Interpretation..

Periods for which Interim Financial Statements are Required EXAMPLE-cash flow statement
to be Presented Cumulative January to September 2XX5, comparative January to September
2XX4.
Interim reports should include interim statements (condensed, or complete) for
periods as follows: (assuming December year-end) In addition, for a business that is highly seasonal, financial information for the
(i) (i) balance sheet as of the end of the current interim period, and twelve months ending on the interim reporting date, and comparative
a comparative balance sheet, as of the end of the immediately- information for the prior twelve-month period may be useful.
preceding financial year;
EXAMPLE-seasonal reporting
EXAMPLE-balance sheets Cumulative October 2XX4 to September 2XX5, comparative October 2XX3 to
Current period September 2XX5, comparative December 2XX4. September 2XX4.

(ii) (ii) income statements for the current interim period, and Undertaking Publishes Interim Financial Reports Half-Yearly
cumulatively for the current financial year to date, with
comparative income statements for the comparable interim The undertaking’s financial year ends 31 December (calendar year). The
periods (current and year-to-date) of the immediately-preceding undertaking will present the following financial statements (condensed or
financial year; complete) in its half-yearly interim financial report as of 30 June 2XX1:

EXAMPLE-income statements
Current period July-September 2XX5, cumulative January to September 2XX5,
comparative July- September 2XX4, cumulative January to September 2XX4.

Note: There is a mismatch between the dates of the balance sheets and the
income statements presented according to IAS 14. Additional information can
be presented to overcome this.
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 Interim Financial ReportingProperty, Plant and Equipment

Balance Sheet: EXAMPLE-errors

At 30 June 2XX1 31 December 2XX0 An interim audit discovers that sales have been materially overstated in the
Income Statement: previous year. This will be disclosed, and accounted for under IAS 8.
6 months ending 30 June 2XX1 30 June 2XX0
Cash Flow Statement: hHat an interim financial report includes all information, that is relevant to
6 months ending 30 June 2XX1 30 June 2XX0 understanding the financial position, and performance during the interim
Statement of Changes in Equity: period.
6 months ending 30 June 2XX1 30 June 2XX0

Disclosure in Annual Financial Statements

Undertaking Publishes Interim Financial Reports Quarterly
If an estimate of an amount reported in an interim period is changed
The undertaking’s financial year ends 31 December (calendar year). The significantly during the final interim period of the year, but a separate financial
undertaking will present the following financial statements (condensed or report is not published for that period, the nature and amount of that change in
complete) in its quarterly interim financial report as of 30 June 2XX1: estimate should be disclosed in the annual statements for that financial year.

Balance Sheet: EXAMPLE-estimates changed in the last part of the year

At 30 June 2XX1 31 December 2XX0 You settle a lawsuit in December, just prior to your year-end. This costs you
Income Statement: $5m more than your provision, which you showed in your interim report. This
6 months ending 30 June 2XX1 30 June 2XX0 update will be reported in your year-end accounts.
3 months ending 30 June 2XX1 30 June 2XX0
Cash Flow Statement: IAS 8 requires disclosure of the nature and (if practicable) the amount of a
6 months ending 30 June 2XX1 30 June 2XX0 change in estimate, that either has a material impact in the current period, or is
Statement of Changes in Equity: expected to have a material effect in subsequent periods.
6 months ending 30 June 2XX1 30 June 2XX0
EXAMPLE-material impact in subsequent periods
Materiality You decide to accelerate the depreciation on your properties. As these
comprise your largest asset group, there will be a material impact on future
Materiality should be assessed in relation to the interim period financial data. periods. Details will be disclosed in your interim report.
Interim measurements may rely on estimates to a greater extent than
measurements of annual financial data. IAS 34 requires similar disclosure in an interim financial report. Examples
include changes in estimate in the final interim period relating to:
Information is material if its omission, or misstatement, could influence the - inventory
decisions of users. - write-downs,
- restructurings, or
IAS 8 Net Profit for the Period requires separate disclosure of unusual items, - impairment losses
discontinued operations, changes in accounting estimates, errors, and
changes in accounting policies. IAS 8 does not contain quantified guidance as that were reported in an earlier interim period of the financial year.
to materiality.
The disclosure intended to be narrow in scope - relating only to the change in
estimate. An undertaking is not required to include additional interim period
financial information in its annual statements.
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 Interim Financial ReportingProperty, Plant and Equipment

(ii) (iii) income tax expense is recognised in each interim period

based on the best estimate of the weighted-average annual
income tax rate expected for the full financial year.
Recognition and Measurement
Amounts accrued for income tax expense in one interim period, may have to
Same Accounting Policies as Annual be adjusted in a subsequent interim period, if the estimate of the annual
income tax rate changes.
The principles for recognising assets, liabilities, income, and expenses for
interim periods are the same as in annual financial statements. EXAMPLE- income tax rate changes
You make $10m profit in the first quarter. The annual tax rate is 20%, so you
To illustrate: provide for $2m income tax. In the next quarter, the national tax rate is lifted to
(i) (i) the principles for recognising and measuring losses from 30%. You make $20m profit. You provide for $6m income tax for that quarter,
inventory write-downs, restructurings, or impairments in an interim plus $1m to adjust for the new rate being applied to first quarter profit.
period are the same as those that an undertaking would follow if it
prepared only annual statements. would not qualify at interim dates eitherare treated as a cost
A liability at an interim reporting date must represent an existing obligation at
However, if such items are recognised and measured in one interim period that date, just as it must at an annual reporting date.
and the estimate changes in a subsequent period of that financial year, the
original estimate is changed in the subsequent period either by accrual of an EXAMPLE-Provisions
additional amount of loss, or by reversal of the previously recognised amount; IAS 37 prescribes the limits of when provisions can be made (and when they
cannot). IAS 37 applies equally to interim reports. Restructuring provisions for
EXAMPLE-extra inventory write-downs reorganisations later in the year must meet the criteria at the balance sheet
In your first interim report, you disclose a provision against obsolete inventory date of the interim report to be included. It is not enough that those criteria will
of $10m. You believe that you will be able to sell 33% of the obsolete inventory be met before year-end.
abroad, so the provision represents only 65% of the inventory. In the next
period, you are unable to sell the inventory abroad, and know that it will have Income and expenses reported in the current interim period will reflect any
to be scrapped. You increase the provision to $15m to reflect this. changes in estimates reported in prior-interim periods of the financial year.
The amounts reported in an interim financial report are not retrospectively
(ii) a cost that does not meet the definition of an asset, at the end of adjusted. However, the nature and amount of any significant changes in
an interim period, is not deferred on the balance sheet, either to estimates be disclosed.
await future information as to whether it has met the definition of
an asset, or to smooth earnings over interim periods within a EXAMPLE-interims not retrospectively adjusted
financial yearbut treated as a cost; and After you interim report is published, a key client goes into liquidation. Your
doubtful debt provision proves to be inadequate, and you have a significant
EXAMPLE- cost that does not meet the definition of an asset write-off in the next period. The interim report is not restated, but the next
You have been incurring research costs. You anticipate that the project will report will detail the impact of this liquidation.
soon qualify for the development stage (IAS 38). These research costs should
be recognised as expense, not deferred on the balance sheet. An undertaking that reports more frequently than half-yearly measures income
and expenses on a year-to-date basis for each interim period.

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 Interim Financial ReportingProperty, Plant and Equipment

To match contract revenue, certain costs can be transferred to work in

EXAMPLE-materiality is based on cumulative figures progress, rather than immediately expensed. Other costs must be expensed
In the third quarter, you have an inventory write-down. In deciding whether it is when incurred, regardless of the recognition of revenue. These rules apply
material, and whether it should be reported, the cumulative figures (rather than equally to interim reports.
those for the quarter) provide the basis for judgement.

of amounts - - That the nature and amount of any significant changes in

estimates be disclosed. Revenues Received Seasonally,
Cyclically, or Occasionally
Use of Estimates
Revenues that are received seasonally, cyclically, or occasionally within a
financial year should not be anticipated (or deferred) as of an interim date, if While measurements in both annual and interim financial reports are often
anticipation (or deferral) would not be appropriate at the end of the based on reasonable estimates, the preparation of iInterim financial reports
undertaking’s financial year. generally will require a greater use of estimation methods than annual financial
reports.

EXAMPLES- revenues received seasonally, cyclically, or occasionally

Dividend revenue, royalties, and government grants. If these revenues have EXAMPLE-estimates at the interim
not been recognised (see IAS 18) at the interim date, they should not be Inventories may not be counted at the interim, and accounting figures may be
recorded in anticipation of year-end, or because they are being received later relied upon. This gives more reliance to estimates than counting the inventory.
in the year than last year.

Additionally, some undertakings consistently earn more revenues in certain Restatement of Previously Reported Interim
interim periods of a financial year than in other interim periods, for example, Periods
seasonal revenues of retailers. Such revenues are recognised when they
occur. A change in accounting policy, other than one for which the transition is
specified by a new Standard, should be reflected by restating the financial
EXAMPLE-seasonal revenue of retailers statements of prior- interim periods of the current financial year, and the
You are a retailer that makes losses in the first quarter, compensated by comparable interim periods of prior financial years.
profits in the second, third and fourth quarters. You show the each quarter’s
results as they are, without transferring revenues from one quarter to another. One objective of the preceding principle is to ensure that aA single accounting
policy is applied to a particular class of transactions throughout an entire
Costs Incurred Unevenly During the Financial Year financial year.

Costs that are incurred unevenly during the financial year should be Any change in accounting policy is to be applied retrospectively to the
anticipated (or deferred) for interim reporting purposes, only if it is also beginning of the financial year.
appropriate to anticipate (or defer) that type of cost at the end of the financial
year. EXAMPLE-restatement of prior years-inventory valuation

EXAMPLE-construction contracts (IAS 11)

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 Interim Financial ReportingProperty, Plant and Equipment

In June, you decide to change your inventory measurement form weighted- definition and recognition criteria for an intangible asset in the same way in an
average method to FIFO. You will have to apply this change with effect from interim period as in an annual period. ,the specific point in time at which ,
the beginning of the financial year. You will also have to restate the first - since that time
quarter interim results, and any comparative results (from prior years) that are and obligation for ,that has accumulated ,n
presented. Appendix A There is no Rrsingtion of generally is not consistent with the definition of a
liability
This Appendix, which is illustrative and does not form part of the Standard,
provides examples to illustrate application of the principle in paragraph 20.
The purpose of the appendix is to illustrate the application of the Standard to ,This is consistent with the basic concept set out in paragraph 28 that the
assist in clarifying its meaning. same accounting recognition and measurement principles should be applied in
an interim financial report as are applied in annual financial statements.
1. Income taxes are assessed on an annual basis.
Interim period income tax expense is calculated by applying to an interim
00XX00XX00XX00XX00XX00XX00XX00XX00XX00XX00XX00XX00XX00XX0 period’s pre-tax income the tax rate that would be applicable to expected total
0XX00XX00XX00XX00XX00XX annual earnings, that is, the estimated average annual effective income tax
Appendix B rate.
That estimated average annual rate would reflect a blend of the progressive
This Appendix, which is illustrative and does not form part of the Standard, tax rate structure expected to be applicable to the full year’s earnings including
provides examples of applying the general recognition and measurement enacted or substantively enacted changes in the income tax rates scheduled
principles set out in paragraphs 28-39 of IAS 34. The purpose of the appendix to take effect later in the financial year.
is to illustrate the application of the Standard to assist in clarifying its meaning.
, consistent with paragraph 28 of IAS 34. Paragraph 16(iv) requires disclosure
,,, of a significant change in estimateTo the extent practicable, aA,period

n common ,,,or overhaul ,,, to the extent practicable

,,economic ,

()undertaking’s best of the obligation While that degree of precision is desirable, it may not be achievable in all
cases, and aA ,across ,, of the effect of using more specific rates.. To
illustrate the application of the foregoing principle, aA.,.,.,.,.,,..,As another
The existence or non-existence of an obligation to transfer benefits is not a illustration, aA
function of the length of the reporting period. It is a question of fact. The
nature of year-end bBiesy if, and reporting estimated effective tax of this type generally annual effective and
calculated , and regulationseffective annual , ,,,,yunused tax losses and
(i) (i) ,the undertaking has no realistic alternative but to make the will unused tax credits ,,
be made
(ii) ,
,
for which payments will be madethe undertaking, therefore, has no realistic Thus, cC,. because the resulting asset or liability would not satisfy the
alternative but to make the future lease paymentAn undertaking will apply the conditions in the Framework that an asset must be a resource controlled by
the undertaking as a result of a past event and that a liability must be a
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 Interim Financial ReportingProperty, Plant and Equipment

present obligation whose settlement is expected to result in an outflow of and often costly and time-consuming Undertakings sometimes engage
resources. outside experts to assist in the annual calculations. similar ,,,the engaging of
(itionsals)financial outside experts to do IAS 19 Employee Benefits requires that an undertaking
determine the present value of defined benefit obligations and the market
Inventories are measured for interim financial reporting by the same principles value of plan assets at each balance sheet date and encourages an
as at financial year end. . Inventories pose particular problems at any undertaking to involve a professionally qualified actuary in measurement of the
financial reporting date because of the need to determine inventory quantities, obligations.
costs, and net realisable values. Paragraph 14 of Appendix B acknowledges that while that degree of precision
Nonetheless, the same measurement principles are applied for interim is desirable at interim reporting dates as well, it may not be achievable in all
inventories. .To save cost and time, uU cases, and a weighted-average of rates across jurisdictions or across
26. ,, categories of income is used if it is a reasonable approximation of the effect of
using more specific rates.
,
The measurement of contingencies may involve the opinions of legal experts
Price, efficiency, spending, and volume vVto the same extent that those or other advisers. from independent experts are sometimes obtained with
variancesas they ,,appropriate because it could result in reporting inventory respect to contingencies. Such opinions ,, also
at the interim date at more or less than its portion of the actual cost of IAS 16 Property, Plant and Equipment allows as an alternative treatment the
manufactureallowed revaluation of property, plant, and equipment to fair value. Similarly, IAS 40
Investment Property requires an undertaking to determine the fair value of
,,IAS 21 Foreign Exchange specifies how to translate the financial statements investment property. those measurementsproperty revaluations-,
for foreign operations into the reporting currency, including guidelines for using in preparing consolidated financial statements Because of complexity,
historical, average, or closing foreign exchange rates and guidelines for costliness, and time, iIThe objective of this Standard is to:
including the resulting adjustments in income or in equity. prescribe the accounting treatment for property, plant and equipment (PPE)
. inform users of financial statements on the investment in PPE and any
movements in this over the period
in the remainder of the current financial year in translating foreign operations
at an interim date. The main issues in accounting for property, plant and equipment are:
(), the recognition of the assets;
the determination of their carrying amounts;
the depreciation charges; and
impairment losses to be recognised in relation to them.
Financial Reporting in Hyperinflationary Economies financial of an undertaking
that reports () Scope
., thereby presenting all interim data in the measuring unit as of the end of the This Standard shallwill be applied in accounting for property, plant and
interim period, with the resulting gain or loss on the net monetary position equipment, except when another Standard requires, or permits, a different
included in the interim period’s net income. () accounting treatment.

That does not mean, however, that an undertaking must necessarily make a This Standard does not apply to:
detailed impairment calculation at the end of each interim period. Rather,
aAAppendix C (1) biological assets related to agricultural activity
(see IAS 41 Agriculture); nor to
,,,
13
 Interim Financial ReportingProperty, Plant and Equipment

(2) mineral rights and mineral reserves such as oil, natural gas and similar Depreciation is the spreading of the depreciable amount of an asset over its
non-regenerative resources. useful life.
However, this Standard applies to property, plant and equipment used to
develop, or maintain, the assets described in (1) and (2). Equity

Equity – Revaluation reserve

Fair value is the amount for which an asset could be exchanged between
knowledgeable, independent parties.

Leases IAn impairment loss is the amount by which the carrying amount of an asset
Other Standards may require recognition of an item based on a different exceeds its recoverable amount.
approach from that in this Standard. For example, IAS 17 Leases requires you
to evaluate recognition of a leased item on the basis of the transfer of risks Property, plant and equipment (PPE) are tangible items that:
and rewards. Other aspects of the accounting treatment for these assets, (1) are held for use in the production, or supply, of goods or services, for rental
including depreciation, are prescribed by this Standard. to others, or for administrative purposes; and
(2) are expected to be used during more than one reporting period.
Investment property
Recoverable amount is the higher of an asset’s net selling price, and its value
An undertaking shallwill apply this Standard to property that is being in use.
constructed, or developed, for future use as investment property.
The Rresidual value of an asset is the estimated amount that you would
Once the construction or development is complete, the property becomes currently obtain from disposal of the asset, after deducting the estimated costs
investment property, and you are required to apply IAS 40. of disposal, if the asset were already of the age, and in the condition expected
at the end of its useful life.
IAS 40 also applies to property that is being redeveloped for continued future
use as investment property. An undertaking, using the cost model for Revaluation Reserve
investment property under IAS 40, shallwill use the cost model in this
Standard. Net selling price

Definitions Value in use

Carrying amount is the amount at which an asset is recognised in the Useful life
balance sheet, after deducting any accumulated depreciation and accumulated (1) the period over which an asset is expected to be available for use by an
impairment losses. undertaking; or
(2) the number of production, or similar, units expected to be obtained from the
Cost is the amount of cash (or cash equivalents) paid and the fair value of any asset by an undertaking.
other consideration, given to acquire an asset at the time of its acquisition, or
construction. Residual value

Depreciable amount is the cost of an asset, or valuation, less its residual In the following examples, I/B refers to Income Statement and Balance Sheet.
value.

14
 Interim Financial ReportingProperty, Plant and Equipment

EXAMPLES
EXAMPLE You buy an air-conditioning machine for your factory for
Your policy is to keep company vehicles for 4 years. You have just purchased
a new vehicle for $20.000. Today’s market price, less selling costs, of a similar
$200.000. It is estimated to have a life of 5 years, with no residual
vehicle that is 4 years old is $6.000. This can be the residual value of the new value.
vehicle. You depreciate it at the rate of $40.000 per year.
The depreciation amount will be $20.000-$6.000= $14.000, and the annual
depreciation charge will be $14.000 / 4 years = $3.500. EXAMPLE residual value 2
At the end of the 4 years, you will sell the vehicle.
You buy an air-conditioning machine for your factory for
EXAMPLE residual value 1
$200.000. It is estimated to have a life of 5 years, with no residual
Your policy is to keep company vehicles for 4 years. You have
value.
just bought a new vehicle for $20.000. Today’s market price, less
You depreciate it at the rate of $40.000 per year.
selling costs, of a similar vehicle that is 4 years old is $6.000
I/B DR CR
which is a reasonable estimate of the residual value of the new
vehicle. Depreciation I 40.000
The depreciable amount will be $20.000-$6.000= $14.000, and Accumulated depreciation B 40.000
the annual depreciation charge will be $14.000 / 4 years = Annual depreciation
$3.500.
At the end of the 4 years, you will sell the vehicle. You buy a product-testing machine for $100.000 for a seasonal
I/B DR CR product. You estimate that it will be able to test 20.000 units over
Depreciation I 3.500 its life. No residual value is anticipated.
Accumulated depreciation B 3.500 Every time a unit is tested, depreciate the machine by $5.
Annual depreciation
Property, plant & equipment B 20.000
Accumulated depreciation B 14.000
Cash B 6.000
Sale of vehicle,
assuming the cash received =
residual value

Useful life is:

(1) the period over which an asset is expected to be available for
use by an undertaking; or
(2) the number of production, or similar, units expected to be
obtained from the asset by an undertaking.

15
 Interim Financial ReportingProperty, Plant and Equipment

It may be appropriate to aggregate individually-insignificant items,

EXAMPLE depreciation per unit such as moulds, tools and dies as one asset.
You buy a product-testing machine for $100.000 for a seasonal
product. You estimate that it will be able to test 20.000 units over Safety and environmental costs
its life. No residual value is anticipated. Items may be acquired for safety, or environmental reasons. The
Every time a unit is tested, depreciate the machine by $5. benefit is the ability of the undertaking to continuancee in
I/B DR CR business, as a result of their use.
Depreciation I 5
Accumulated depreciation B 5 Repairs and maintenance costs
Unit depreciation The costs of the day-to-day servicing (‘repairs and maintenance’)
are recognised in the income statement as incurred.

Recognition Parts of some items may require replacement at regular intervals.

For example, a furnace may require relining after a specified
The cost of an item of property, plant and equipment shallwill be number of hours of use, or aircraft interiors such as seats and
recognised as an asset if:, and only if: galleys, may require replacement several times during the life of
(1) it is probable that future benefits associated with the item the airframe.
will be generated flow to the undertaking; and
(2) the cost of the item can be measured reliably. Items may also be acquired to make a less-frequently recurring
replacement, such as replacing the interior walls of a building, or
Spare parts and servicing equipment to make a non-recurring replacement.
These are usually carried as inventory, and recognised in the
income statement as consumed. An undertaking recognises in tThe carrying amount of an item of
property, plant and equipment the cost of replacing part of such
However, major spare parts and stand-by equipment qualify as an item is recognised when that cost is incurred.
property, plant and equipment, when an undertaking expects to New carrying cost = old carrying cost + new part cost - old part
use themthey will be used during more than one period. cost
The cost of the new part is added to the cost of the item, but the
Also, if the parts and servicing equipment can be used only in cost of the part that has been replaced is excluded from the
connection with an item of property, plant and equipment, they carrying amount.
are accounted for as property, plant and equipment.

IAS 16 does not specify what constitutes an item of property,

plant and equipment.

16
 Interim Financial ReportingProperty, Plant and Equipment

EXAMPLE
Your building has a carrying amount of $1 million.
New interior walls cost $0,2 million.
The original walls have a carrying amount of $0,1 million. Add
the cost of the new walls, and remove the carrying amount of the
old walls:
$1 million + $0,2 million -$0,1 million = $1,1 million.

EXAMPLE replacing parts

Your building has a carrying amount of $1m. New interior walls
cost $0,2 .
The original walls have a carrying amount of $0,1.
Add the cost of the new walls, and remove the carrying amount of
the old walls:
$1 + $0,2 -$0,1 = $1,1 is the new carrying amount.
I/B DR CR EXAMPLE
Depreciation I $0,1 Your aircraft has a carrying amount of $10 million.
million The latest inspection cost $0,2 million.
Property, plant & equipment B $0,1 The original inspection has a carrying amount of $0,1 million. Add
million the cost of the new inspection, and remove the carrying amount
This records the disposal of the old of the old inspection:
walls $10 million + $0,2 million -$0,1 million = $10,1 million.

Some equipment To operate an item (for example, an aircraft) EXAMPLE regular inspections
may need regular major inspections for faults, regardless of Your aircraft has a carrying amount of $10m. The latest inspection
whether parts of the item are replaced. E.g. aircraft, bridges, cost $0,2.
dams The original inspection has a carrying amount of $0,1 . Add the
cost of the new inspection, and remove the carrying amount of the
When each major inspection is performed, its cost is recognised old inspection:
in the carrying amountt of the item as a replacement., if the $10 + $0,2 - $0,1 = $10,1 .
recognition criteria are satisfied. I/B DR CR
Property, plant & equipment B $0.20
Any remaining carrying amount of the cost of the previous Cash B $0.20
inspection (as distinct from physical parts) is written off. This records the cost of the new
inspection
17
 Interim Financial ReportingProperty, Plant and Equipment

Depreciation I $0,10 (5) costs of testing whether the asset is functioning properly,
million after deducting the net proceeds from any samples, or sundry
Property, plant & equipment B $0,10 income; and
million (6) professional fees.
This records the removaldisposal of
the old inspection cost, now w/o as Expensed Costs
depreciation CExamples of costs that should be expensed in the income
statement , (and not capitalised), includeare:
If there was no cost, within the total asset cost, attributableed to (1) costs of opening a new facility;
the initial major inspection, an estimate should be used. (2) costs of introducing a new product, or service (including
costs of advertising and promotional activities);
Measurement at Recognition (3) costs of running a business in a new location, or with a new
class of customer (including costs of staff training); and
PAn item of property, plant and equipment shallwill be measured (4) administration and other general overhead costs.
att its cost.
Stopping cost recognition
Elements of cost Recognition of costs ceases when the item is in the location, and
The cost of an item comprises: capable of operating in the manner intended by management.
its purchasebuying price, including import duties and non-
refundable purchase taxes, after deducting trade discounts and Therefore, costs incurred in using, relocating, or redeploying , an
rebates; item are not included in the carrying amount of theat item.
any costs directly attributable to bringing the asset to the
location, and condition, necessary for it to be capable of For example, the following costs are not included in the carrying
operating in the manner intended by management. amount of an item:
the initial estimate of the costs of dismantling, and removing (1) costs incurred while an item, capable of operating in the
the item, and restoring the site on which it is located. manner intended by management, has yet to be brought into use,
or is operated at less than full capacity;
Examples of directly attributable costs are: (2) initial operating losses, such as those incurred while
(1) staff costs of arising directly from the construction, or demand for the item’s output builds up; and
acquisition, of the item of property, plant and equipment; (3) costs of relocating, or reorganising part, or all, of an
(2) site preparation costs; undertaking’s operations.
(3) initial delivery and handling costs;
(4) installation and assembly costs; and Incidental costs / income
Some incidental operations may occur before, or during, the
construction, or development activities.
18
 Interim Financial ReportingProperty, Plant and Equipment

For example, income may be generated by using a building site EXAMPLE

as a car park, until construction starts. You can pay $1 million cash for a building, or pay for it over 3
years for a total cost of $1,3 million. Using either payment
method, the cost will be $1 million. If the second payment option
The income and related expenses of incidental operations are is used, the $0,3 million will be treated as interest.
recognised in the income statement, and included in their
respective classifications of income and expense. EXAMPLE cost measurement
You can pay $1m cash for a building, or pay for it over 3 years for
Self Constructed Assets a total cost of $1,3 . Using either payment method, the cost will be
The cost of a self-constructed asset is determined using the $1m . If the second payment option is used, the $0,3 will be
same principles as for an acquired asset. treated as interest
If an undertaking makes similar assets for sale in the normal I/B DR CR
course of business, the cost of the asset is usually the same as Property, plant & equipment B $1 million
the cost of constructing an asset for sale. Accounts payable B $1 million
Being the purchasebuying of the
Any internal profits are eliminated from such costs. building
Interest expense I $0,1
Similarly, the cost of abnormal amounts of wasted material, million
labour, or other resources incurred in self-constructing an asset, Interest payable B $0,1
is not included in the cost of the asset. million
Annual interest charge
IAS 23 Borrowing Costs details the criteria for the recognition of
interest as a component of the carrying amount of a self- One, or more, items may be acquired in exchange for a non-
constructed item of property, plant and equipment.asset. monetary asset or assets, or a combination of monetary and non-
monetary assets.
Measurement of cost The cost of such an item is measured at fair value. If the acquired
item is not measured at fair value, its cost is measured at the
The cost of an item is the cash price equivalent at the recognition carrying amount of the asset given up.
date. If payment is deferred beyond normal credit terms, the
difference between the cash price equivalent and the total
payment is recognised as interest over the period of credit,
unless such interest is recognised as a borrowing cost in the
carrying amount of the item, in accordance with IAS 23. EXAMPLE
19
 Interim Financial ReportingProperty, Plant and Equipment

You can pay $1 million cash and give up an aircraft worth $4 Revaluation model
million for a building. The $4 million is the carrying value of the
aircraft. If the building cannot be measured at fair value, its cost An item whose fair value can be measured reliably, may be
should be taken to be $5 million. carried at:
a revaluated amount (, being its fair value) at the date of the
EXAMPLE asset exchange revaluation,
You exchange $1m cash and an aircraft worth $4m for a building less
with a carrying value $4m. If the building cannot be measured at any subsequent accumulated depreciation, and subsequent
fair value, its cost should be taken to be $5m . accumulated impairment losses.
I/B DR CR
Property, plant & equipment B $5 million Revaluations shallwill be made with sufficient frequency to
(building) ensure that the carrying amount does not differ materially from
Cash B $1 million that which would be determined, using fair value at the balance
Property, plant & equipment B $4 million sheet date.
(aircraft)
This records the exchanger of The fair value of land and buildings is usually determined by
aircraft and cash for the building. professionally-qualified valuer’s, from market-based evidence.,
by professionally-qualified valuers.
The cost of an item held by a lessee under a finance lease is
determined under IAS 17 Leases. The fair value of items of plant and equipment is usually their
market value, determined by appraisal.
The carrying amount of an item may be reduced by government
grants, in accordance with IAS 20 Government Grants. If there is no market-based evidence of fair value, estimate the
fair value.
Measurement after Recognition For example:
present value of future income
An undertaking shallwill choose either the cost model, or the or
revaluation model, as its accounting policy, and shallwill apply replacement cost less depreciation.due to the specialised nature
that policy to an entire class of property, plant and equipment. of the item and the item is rarely sold, an undertaking may need
to estimate fair value, using an income or a depreciated
Cost model replacement cost approach.

An item shallwill be carried at its cost, less any accumulated The higher the market volatility, the greater the frequency of
depreciation, and any accumulated impairment losses. revaluations. depends upon the changes in fair values of the
items being revalued. When the fair value of a revalued asset
20
 Interim Financial ReportingProperty, Plant and Equipment

differs materially from its carrying amount, a further revaluation is

required.

If there is a big difference between the carrying amount and fair

value then a revaluation should be made.

Some items experience significant and volatile changes in fair

value, thus necessitateing annual revaluation.

FSuch frequent revaluations are usually are unnecessary for

items of property, plant and equipment. with only insignificant
changes in fair value. Instead, it may be necessary to They are
usually revaluerevalued every 3-5 years.
the item only every three, or five years. EXAMPLES
Depreciation
When an item is revalued, any accumulated depreciation at the 1. A machine cost $6.000 and has been depreciated by $1.000,
date of the revaluation is treated in one of the following ways both leaving a net book value of $5.000. It has been revalued using a
of which result in the net carrying amount being equal to the general price index. The index has risen by 25% since the
revaluation figure: machine was purchased.
Both cost and depreciation will be increased by 25%, to $7.500
(1) restated proportionately, with the change in the gross and $1.250 respectively. Net book value rises to $6.250.
carrying amount of the asset.
EXAMPLES restated proportionately
, Tso that the carrying amount of the asset after revaluation
equals its revalued amount. A machine cost $6.000 and has been depreciated by $1.000,
leaving a net book value of $5.000.
This method is often used when an asset is revalued by means of It has been revalued using a general price index. The index has
applying an index to its depreciated replacement cost. risen by 25% since the machine was bought.
. The new cost is therefore $7.500 (6000x125%), depreciation
eliminated against the gross carrying amount of the asset. $1.250 (100x125%) and the carrying amount based on this $6.250
T .
he net amount is restated to the revalued amount of the asset. I/B DR CR
Property, plant & equipment B 1.500
This method is often used for buildings. Accumulated depreciation B 250
21
 Interim Financial ReportingProperty, Plant and Equipment

Revaluation reserveEquity - b 1.250 Valuation $6 million

Revaluation Reserve
This records the revaluation of the
machine.

EXAMPLE eliminated
2. A building cost $5m million and has been depreciated by $2m
million, leaving a net book value of $3m million. It is revalued to
$6 million.

This can be shown either as one of two alternatives:

One Two
Valuation $10 $6
Depreciation $4 $0
Net book value $6 $6

OneValuation $10 million

Depreciation $4 million
Net book value $6 million

I/B DR CR
Property, plant & equipment B $5
millio
n
Accumulated depreciation B $2
millio
n
Revaluation reserveEquity - Revaluation B $3
Reserve millio
n
This records the revaluation of the
building under alternative One
or it may be shown as:

22
 Interim Financial ReportingProperty, Plant and Equipment

TwoDepreciation nil The items within a class are revalued simultaneously to avoid
Net book value $6 million selective revaluation of assets, and the reporting of amounts that
are a mixture of costs and values as at different dates.
I/B DR CR
Property, plant & equipment B $1
millio A class of assets may be revalued on a rolling basis, provided
n revaluation of the class of assets is completed within a short
Accumulated depreciation B $2 period, and provided the revaluations are kept up to date.
millio
n EXAMPLE rolling valuation
Revaluation reserveEquity - Revaluation B $3 You own various offices. You decide to revalue them every 3
Reserve millio years.
n The revaluations may be done at the same time, or one third of
This records the revaluation of the the properties may be revalued each year.
building,
cancelling the accumulated depreciation Carrying Amount Increase
under alternative Two. If an asset’s carrying amount is increased as a result of a
revaluation, the increase shallwill be credited directly to equity
Revaluation in classes under the heading of revaluation Equity - Revaluation
If an item is revalued, the entire class to which that asset belongs Reservesurplus.
shallwill also be revalued.
EXAMPLE
A class is a grouping of assets of a similar nature, and use., in an Your factory had a carrying value of $15 million. It has been
undertaking’s operations. revalued at $17 million. The $2 million surplus will be credited
The following are examples of common separate classes: to the revaluation surplus reserve within equity.
(1) land; EXAMPLE carrying amount increase
(2) land and buildings; Your factory, carrying value of $15m has been revalued at $17m.
(3) machinery; The $2m surplus will be credited to the revaluation surplus
(4) ships; reserve within equity.
(5) aircraft; I/B DR CR
(6) motor vehicles; Property, plant & equipment B $2
(7) furniture and fixtures; and milli
(8) office equipment. on

23
 Interim Financial ReportingProperty, Plant and Equipment

Equity - Revaluation reserveEquity - B $2 EXAMPLE prior revaluation decrease

Revaluation Reserve milli Your factory had a carrying value of $20m. It has been revalued at
on $19m. The $1m shortfall is expensed to the income statement.
This records the revaluation of the factory I/B DR CR
Accumulated depreciation B $1
However, the increase shallwill be recognised in the income millio
statement to the extent that it reverses a revaluation decrease of n
the same asset previously recognised in the income statement. Depreciation I $1
millio
n
This records the revaluation of the factory in
the first year

At the next valuation, it is revalued at $23 million. $1 million of

the surplus will be credited to the income statement. The
remaining $3 million surplus will be credited directly to the
revaluation surplus reserve within equity, without appearing on
the income statement.
At the next valuation, it is revalued at $23 . $1 of the surplus will
be credited to the income statement. The remaining $3 surplus
will be credited directly to the revaluation surplus reserve within
equity, without appearing on the income statement
I/B DR CR
Property, plant & equipment B $3
millio
n
Accumulated depreciation B $1
millio
n
Depreciation I $11
milli
EXAMPLE on
Your factory had a carrying value of $20 million. It has been
revalued at $19 million. The $1 million shortfall is expensed to the
income statement.
24
 Interim Financial ReportingProperty, Plant and Equipment

Equity - Revaluation reserveEquity - B $3 EXAMPLE carrying amount increase following decrease

Revaluation Reserve milli Your factory had a carrying value of $10m . It has been revalued
on at $12m . The $2 surplus is credited to the revaluation surplus
This records the revaluation of the factory in reserve within equity
the second year I/B DR CR
Property, plant & equipment B $2
Carrying Amount DecreaseI millio
If an asset’s carrying amount is decreased as a result of a n
revaluation, the decrease shallwill be recognised in income Equity - Revaluation reserveEquity - B $2
statement. Revaluation Reserve millio
n
This records the revaluation of the factory
in the first year

At the next valuation, it is revalued at $7 million. $2 million of the

shortfall will be charged to the revaluation surplus reserve. The
remaining $3 million shortfall will be charged to the income
statement.
At the next valuation, it is revalued at $7m. $2m of the shortfall
will be charged to the revaluation surplus reserve. The remaining
$3m shortfall will be charged to the income statement.
EXAMPLE I/B DR CR
Your factory had a carrying value of $20 million. It has been Revaluation reserveEquity - Revaluation B $2
revalued at $19 million. The $1 million shortfall is expensed to the Reserve millio
income statement. n
Depreciation I $3
However, the decrease shall be debited directly to equity under millio
the heading of revaluation surplus, to the extent of any credit n
balance existing in the revaluation surplus, in respect of that Property, plant & equipment B $5
specific asset. This records the revaluation of the factory
in the at the next valuation in the second
EXAMPLE year
Your factory had a carrying value of $10 million. It has been
revalued at $12 million. The $2 million surplus is credited to the Asset write off
revaluation surplus reserve within equity.
25
 Interim Financial ReportingProperty, Plant and Equipment

When the asset is written out of the balance sheet, tThe It is

revaluation surplus included in equity, in respect of an item, may sold
be transferred directly to retained earnings, when the asset is for
written out of the balance sheet. This may involve transferring the $30m.
whole of the surplus, when the asset is retired or sold. $2m is
shown
EXAMPLE as a
Your factory had a cost of $22 million. It has been revalued at gain in
$28 million. The $6 million surplus has been credited to the the
revaluation surplus reserve within equity. incom
EXAMPLE asset write off e
Your factory had a cost of $22m . It has been statem
revalued at $28m. The $6m surplus has ent.
been credited to the revaluation surplus The
reserve within equity $6 is
I/B DR CR transfe
Property, plant & equipment B $6 rred
milli directl
on y from
Equity - Revaluation reserveEquity - B $6 the
Revaluation Reserve milli revalu
on ation
This records the revaluation of the factory surplu
s to
It is sold for $30 million. $2 million is shown as a gain in the retaine
income statement. The $6 million is transferred directly from the d
revaluation surplus to retained earnings, with no impact on the earnin
income statement. gs,
with
no
impact
on the
incom
e
statem
ent. 26
 Interim Financial ReportingProperty, Plant and Equipment

I DC PB $
/ RR r 2
B o 8
CB$ p
a 3 e m
s 0 r i
h t l
m y l
i , i
l o
l p n
i l
o a
n n
t

&

e
q
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i
p
m
e
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t

27
 Interim Financial ReportingProperty, Plant and Equipment

PB $ T
r I 2 h
o i
f m s
i i
t l r
l e
s i c
a o o
l n r
e d
s
o
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f

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f
a
c
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o
r
y 28
 Interim Financial ReportingProperty, Plant and Equipment

EB$ -
q 6
u R
i m e
t i v
y l a
l l
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R n t
e i
v o
a n
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E
q
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i
t
y

29
 Interim Financial ReportingProperty, Plant and Equipment

EB $ r
q 6 d
u s
i m
t i t
y l h
l e
- i
o t
R n r
e a
t n
a s
i f
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r o
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c
o r
30
 Interim Financial ReportingProperty, Plant and Equipment

e t
s o
e
r r
v e
e t
E a
q i
u n
i e
t d
y
e
- a
r
R n
e i
v n
a g
l s
u
a
t Asset used – transfer part to retained earnings
i As the asset is used However, some of the Equity - Revaluation
o Reservesurplus may be transferred as the asset is usedto
n retained earnings.
by an undertaking. In such a case, tThe amount tof the surplus
R transferred would beis the difference between the difference
e between depreciation based on the on revalued carrying amount
s and depreciation on of the asset and depreciation based on the
e asset’s original cost.
r
v Transfers from revaluation Equity - Revaluation Reservesurplus
e to retained earnings are not made through income statement.

31
 Interim Financial ReportingProperty, Plant and Equipment

$20
surplu
s has
EXAMPLE been
Your factory had a cost of $60 million. It is being depreciated credite
over 20 years. It has been revalued at $80 million. The $20 d to
million surplus has been credited to the revaluation surplus the
reserve within equity. Equity
EXAM -
PLE Reval
transfe uation
r part Reser
to ve
retaine within
d equity.
earnin I DC
gs / RR
Your B
factory
had a
cost of
$60m.
It is
being
deprec
iated
over
20
years.
It has
been
revalu
ed at
$80.
The
32
 Interim Financial ReportingProperty, Plant and Equipment

PB$ v i
r 2 a o
o 0 l n
p u
e m a
r i t
t l i
y l o
, i n
o
p n r
l e
a s
n e
t r
v
& e

e -
q
u R
i e
p v
m a
e l
n u
t a
EB $ t
q 2 i
u 0 o
i n
t m
y i R
R l e
e l s
33
 Interim Financial ReportingProperty, Plant and Equipment

e
r t
v h
e e
T
h f
i a
s c
t
r o
e r
c y
o
r
d Depreciation = 5%, and is now increased to $4 million per year.
s This is charged to the income statement each year.

t I/B DR CR
h Accumulated depreciation B $4
e millio
n
r Depreciation I $4
e millio
v n
a Annual depreciation charge
l
u Each year, $1m million of the revaluation surplus (5%) can be
a transferred from the revaluation Equity - Revaluation
t Reservesurplus directly to retained earnings, with no impact on
i the income statement. (Depreciation on revalued amount $4m –
o depreciation on original valuation $3m) This transfers $1m million
n of non-distributable reserves to distributable reserves.

o I/B DR CR
f
34
 Interim Financial ReportingProperty, Plant and Equipment

Revaluation reserveEquity - Revaluation B $1 If the airframe and engines of an aircraft have the same useful
Reserve millio life, it may be appropriate to depreciate them grouped as one
n asset. This can happen towards the end of the life of the
Retained earnings B $1 airframe.
million
This records the annual transfer from If an undertaking If a part is depreciateds separately then the
revaluation reserveEquity - Revaluation remaining some parts of an item, it must also be depreciated
Reserve to retained earnings separately the remainder of the item.
The remainder consists of the pParts, of the item that are
Depreciation individually not significant may be aggregated before being
depreciated.
Assets in Parts
. If an undertaking has varying useful life expectations for these
An asset may be recognised in parts each of which is
parts, estimation techniques may be necessary to depreciate the
depreciated separately.
remainder to represent the consumption pattern and/or useful life
Each part of an item with a cost, that is significant in relation to
of its parts.
the total cost of the item, shall be depreciated separately.
EXAMPLE
An undertaking allocates the amount initially recognised in
Your airline accounts for the airframe, engines, mechanics and
respect of an item to its significant parts, and depreciates
seating as separate items. Other items are considered as the
separately each such part.
‘remainder’ of the aircraft and are aggregated and . These are
depreciated over their useful lives.
EXAMPLE
Aircraft :
The depreciation charge for a period is usually recognised in the
It may be appropriate to depreciate separately the aAirframe and
income statement.
engines of an aircraft are depreciated separately.(whether
owned, or subject to a finance lease).
Assets producing other assets
SHowever, sometimes, the future benefits embodied in an asset
For depreciation, parts with the same life may be grouped.A
are absorbed in used to producieng other assets.
significant part of an item may have the same useful life, as
In this case, the depreciation charge constitutes part of the cost
another significant part of that same item. If the depreciation
of the other asset, and is included in its carrying amount.
method is the same, such parts may grouped in determining the
depreciation charge.
For example, the depreciation of manufacturing plant and
equipment is included in the costs of conversion of inventories
EXAMPLE
(see IAS 2).

35
 Interim Financial ReportingProperty, Plant and Equipment

20.000
units
over
its life.
No
residu
al
value
is
anticip
EXAMPLE ated.
You buy a product-testing machine for $100.000 for a seasonal Every
product. You estimate that it will be able to test 20.000 units over time a
its life. No residual value is anticipated. unit is
Every time a unit is tested, depreciate the machine by $5. This tested,
depreciation is debited to inventories. It is then transferred to cost deprec
of sales when the goods are sold. iate
EXAM the
PLE machi
You ne by
buy a $5.
produc This
t- deprec
testing iation
machi is
ne for debite
$100.0 d to
00. invent
You ories.
estima It is
te that then
it will transfe
be rred to
able to cost of
test sales
36
 Interim Financial ReportingProperty, Plant and Equipment

when I B5
the n I
goods v
are e
sold. n
I DC t
/ RR o
B r
y

T
e
s
t
i
n
g

(
D
e
p
r
e
c
i
a
t
i
o
n
)

37
 Interim Financial ReportingProperty, Plant and Equipment

AB 5 i
c a
c t
u i
m o
u n
l
a o
t n
e
d p
r
d o
e d
p u
r c
e t
c i
i o
a n
t
i t
o e
n s
U t
n i
i n
t g

d
e
p
r
e
c
38
 Interim Financial ReportingProperty, Plant and Equipment

CI 2
o 5 o
s 0 f
t 0
5
o 0
f 0

S u
a n
l i
e t
s s
I 2
n 5 s
v 0 o
e 0 l
n d
t .
o
r T
y r
T a
e n
s s
t f
i e
n r
g r
e
c d
o
s t
t o
s
39
 Interim Financial ReportingProperty, Plant and Equipment

c Your management takes expert advice, and agrees to follow

o industry practice with regard to both the depreciation period, and
s the residual value.
t
These changes should be accounted for under IAS 8. (see
o workbook on IAS 8)
f
Depreciation is recognised, even if the fair value of the asset
s exceeds its carrying amount, as long as the asset’s residual
a value does not exceed its carrying amount.
l
e EXAMPLE fair value > carrying amount
s The carrying amount of your asset is $4 million.
The fair value is $5 million. The asset will continue to be
Similarly, depreciation of items used for development activities depreciated.
may be included in the cost of an intangible asset, recognised (It may be revalued to fair value, if all assets in its class are
under revalued.)
IAS 38 Intangible Assets.
EXAMPLE fair value < carrying amount
Depreciable amount and depreciation period The carrying amount of your asset is $3 million.
The residual value is also $3 million. No further depreciation will
The depreciable amount of an asset shallwill be allocated on a be charged.
systematic basis over its useful life.
Repair and maintenance of an asset do not negate the need to
The residual value, and the useful life, of an asset shallwill be depreciate it.
reviewed at least at each financial year-end and, any changes
shallwill be accounted for as a change in an accounting estimate EXAMPLE maintenance
in accordance with IAS 8 Accounting Policies, Changes in Your hotel has a programme of upgrading and maintenance to
Accounting Estimates and Errors. sustain its value. Nevertheless, it must be depreciated.
(It may be revalued to take account of value of the improvements,
EXAMPLE review of assets if they cause an increase in the fair value of the hotel.)
Your aircraft are being depreciated over 10 years. Each has a
residual value of $2 million. Residual value
Industry practice recommends 12 years of useful life, but reduces
residual value to $0,8 million.
40
 Interim Financial ReportingProperty, Plant and Equipment

The residual value is the net value of the asset at the end of its Your vehicle costs $20.000. You will sell it in 4 years time. The
useful life. The initial residual value is determined at the start of original residual value was $8.000.
the asset’s life usung judgement. The depreciation charge is $3.000 per year.
The depreciable amount of an asset is determined after At the end of year 3, the net book value (carrying value) is
deducting its residual value. $11.000. The residual value has increased to $9.000, due to
increases in the prices of secondhand vehicles.
EXAMPLE The depreciation charge for year 4 is reduced from $3.000 to
Your vehicle costs $20.000. You will sell it in 4 years time. The $2.000, so the carrying value is no lower than the residual value
residual value is $8.000. of $9.000.
The depreciable amount is $12.000 ($20.000-$8.000). EXAMPLE increase in residual value
The depreciation charge is $3.000 per year. Your vehicle costs $20.000. You will sell it in 4 years time. The
EXAMPLE residual value estimated residual value is $8.000. The depreciation charge is
Your vehicle costs $20.000. You will sell it in 4 years time. The $3.000 per year.
residual value is $8.000.
The depreciable amount is $12.000 ($20.000-$8.000). At the end of year 3, the carrying amount is $11.000. The
The depreciation charge is $3.000 ($12.000/4) per year residual value has increased to $9.000, due to increases in the
I/B DR CR prices of secondhand vehicles.
Property, plant & equipment B 20.000
Cash B 20.000 The depreciation charge for year 4 is reduced from $3.000 to
This records the purchasebuy of the $2.000, so the carrying value is the same as the residual value
vehicle of $9.000.
Depreciation I 3.000 I/B DR CR
Accumulated depreciation B 3.000 Depreciation I 2.000
Annual depreciation Accumulated depreciation B 2.00
0
The residual value of an asset is often insignificant, and therefore Depreciation for year 4
immaterial in the calculation of the depreciable amount.
Depreciation - start and end
The residual value of an asset may increase to an amount equal Depreciation of an asset begins when it is available for use.
to, or greater than, the asset’s carrying amount.
If it does, the asset’s depreciation charge is zero unless, and Depreciation of an asset ceases when the asset is written out of
until, its residual value subsequently decreases to an amount the balance sheet or fully depreciated.
below the asset’s carrying amount.

EXAMPLE
41
 Interim Financial ReportingProperty, Plant and Equipment

DTherefore, depreciation does not cease when the asset You buy a product-testing machine for $100.000 for a seasonal
becomes idle, or is retired from active use, and held for disposal, product. You estimate that it will be able to test 20.000 units over
unless the asset is fully-depreciated. its life. No residual value is anticipated.
Every time a unit is tested, depreciate the machine by $5.
EXAMPLE usage method
EXAMPLE You buy a product-testing machine for $100.000 for a seasonal
You buy an air-conditioning machine for your factory for product. You estimate that it will be able to test 20.000 units
$200.000. It is estimated to have a life of 5 years, with no over its life. No residual value is anticipated.
residual value. Every time a unit is tested, depreciate the machine by $5. In
You depreciate it at the rate of $40.000 per year. the reporting period 3200 units are tested,
The factory is closed for 4 months for the installation of new I/B DR CR
machines. Depreciation of the air-conditioning machines Property, plant & equipment B 100.000
continues through this period.Time method Cash B 100.000
EXAMPLE time method This records the purchasebuy of
An air-conditioning machine costs $200.000. It is estimated to the machine
have a life of 5 years, with no residual value. Depreciation I 16.0005
You depreciate it at the rate of $40.000 per year. Accumulated depreciation B 516.000
The factory is closed for 4 months for the installation of new DUnit depreciation on 3200 units
machines. Depreciation of the air-conditioning machines
continues through this period The factory is closed for 4 months for the installation of a new
I/B DR CR production line. No depreciation is charged relating to this
Property, plant & equipment B 200.000 machine, as no production takes place during these 4 months.
Cash B 200.000 EXAMPLE usage method
This records the purchasebuy of the For safety reasons the factory had a 4 month shutdown. No
machine production took place so no depreciation is charged.
Depreciation I 40.000
Accumulated depreciation B 40.000 Asset Useful life
Annual depreciation irrespective of Factors, such as technical, or commercial obsolescence, and
use. wear and tear, (even while anwhen the asset remains is idle),
often reduce life.result in the diminution of the benefits that may
Usage method be obtained from the asset.
However, under usage methods of depreciation the depreciation Consequently, all of the following are considered in determining
charge can be zero, when there is no production. the useful life of an asset:
. (1) expected usage of the asset. (Usage = output) is assessed
EXAMPLE by reference to the asset’s expected capacity, or physical output.
42
 Interim Financial ReportingProperty, Plant and Equipment

(2) expected physical wear and tear, which depends on the vehicle will have an economic life longer than its useful life to
operational factors, such as the number of hours for which the the firm.
asset is to be used; the repair and maintenance programme, and
the care and maintenance of the asset, while idle. Land and buildings are separable assets, and are accounted for
(3) technical, or commercial obsolescence, arising from separately, even when they are acquired together.
changes or improvements in production, or from a change in the With some exceptions, such as quarries and sites used for
market demand for the product, or service output, of the asset. landfill, land has an unlimited useful life and therefore is not
l(4) legal, or similar, limits on the use of the asset, such as depreciated.
safety limitations or the expiry dates of asset leases.
the asset management policy may involve the disposal of assets Buildings have a limited useful life, and therefore are depreciable
after a specified time assets. An increase in the value of the land on which a building
stands does not affect the determination of the depreciable
The useful life of an asset is defined in terms of the asset’s amount of the building.
expected use by the undertaking. The asset management policy
of the undertaking may involve the disposal of assets after a EXAMPLE
specified time, or after consumption of a specified proportion of You buy a building on a piece of land. Your purchase price is split
the future benefits embodied in the asset. Therefore, the useful between the land $1 million and the building $0,2 million. You
life of an asset may be shorter than its economic life. depreciate the building over 20 years, at $10.000 per year. The
The estimation of the useful life of the asset is a matter of land is not depreciated.
judgement, based on the experience of the undertaking with 4 years later, the land is revalued at $1.4 million. The building
similar assets. continues to be depreciated, despite the land’s revaluation
surplus.
EXAMPLE useful life EXAMPLE land and building
Your vehicle costs $20.000. You will sell it in 4 years time, or You buy a building including the land. The price is split between
after 150.000 km., whichever is sooner. The residual value is the land $1m and the building $0,2m You depreciate the building
estimated at $8.000. The vehicle will have an economic life over 20 years, at $10.000 per year. The land is not depreciated.
longer than its useful life to the firm. This is reflected in the 4 years later, the land is revalued at $1.4 . The building continues
residual value. to be depreciated, despite the land’s revaluation surplus
I/B DR CR
Land and buildings Property, plant & equipment (land) B $1m
EXAMPLE million
Your vehicle costs $20.000. You will sell it in 4 years time, or Property, plant & equipment B $0,2m
after 150.000 kms, whichever is sooner. The residual value is (building) million
$8.000, so Cash B $1,2m
million
43
 Interim Financial ReportingProperty, Plant and Equipment

This records the purchasebuy of the Land cost

property If the cost of land includes the costs of site dismantlement,
Depreciation I 10.000 removal and restoration, the restoration cost portion of the land
Accumulated depreciation B 10.000 asset is depreciated over the period of benefits obtained by
Annual depreciation of the building incurring those costs.

EXAMPLE
You buy a piece of land for mining. Your purchase price is $1
million.
EXAMPLE non depreciation of land
You buy a piece of land for mining. The price is $1m .
I/B DR CR
Property, plant & equipment (land) B $1
milli
on
Cash B $1
milli
on
This records the purchasebuying of the
property

The preparation for the mine costs $0.1 $0,1 million, and the
restoration that will be needed at the end of the project will cost
$0.3 $0,3 million
.
I DC
/ RR
B

44
 Interim Financial ReportingProperty, Plant and Equipment

PB$ CB $
r 0 a 0
o , s ,
p 4 h 1
e
r m m
t i i
y l l
, l l
i i
p o o
l n n
a
n
t

&

e
q
u
i
p
m
e
n
t

(
l
a
n
d
)

45
 Interim Financial ReportingProperty, Plant and Equipment

PB $ d
r 0 s
o ,
v 3 t
i h
s m e
i i
o l p
n l r
i e
f o p
o n a
r r
a
r t
e i
s o
t n
o
r a
a n
t d
i
o p
n r
T o
h v
i i
s s
i
r o
e n
c
o f
r o
46
 Interim Financial ReportingProperty, Plant and Equipment

r Depreciation I 520.000
Provision for restoration B 15.000 20.000
r Accumulated depreciation
e Accumulated depreciation B 20.000
s Annual depreciation of the
t preparation and provision for
o restoration of the property
r
a The $1m million cost of the mine should not be depreciated, if its
t value is sustained over that period, and it will be worth $11 million
i at the end of the period, after restoration.
o
n In some cases, the land itself may have a limited useful life, in
which case it is depreciated in a manner that reflects the benefits
o to be derived from it.
f If the land is leased, under a finance lease, its useful life is limited
to that of the lease.
t
h
e

p
r
o EXAMPLES
p You buy a piece of land for mining. Your purchase price is $1
e million.
r The mine will have an economic life of 20 years, after which the
t land will be reduced in value to $0,1 million. The $0,9 million
y depreciable amount of the land should be written off over the 20
life of the mine.
The mine will have an economic life of 20 years, after which the
land will be redeveloped for other purposes. The preparation and
restoration costs totaling $0,4 million should be depreciated over the
20 year life of the mine.
I/B DR CR
47
 Interim Financial ReportingProperty, Plant and Equipment

EXAMPLES depreciation of land This records the lease of the

You buy a piece of land for mining. The cost price is $1m . property
The mine will have an economic life of 10 years, after which the Depreciation I 30.000
land will be reduced in value to $0,0 as the restoration costs Accumulated depreciation B 30.000
will be equal to the value of the land. Annual depreciation (450.000/15)
The $1m depreciable amount of the land should be written off
over the 10 life of the mine. Depreciation methods
I/B DR CR
Property, plant & equipment (land) B $1m The depreciation method used shallwill reflect the pattern in
million which the asset’s future benefits are likely to be consumed. by
Cash B $1m the undertaking.
million
This records the purchasebuy of the The depreciation method applied to an asset shallwill be
property reviewed at least at each financial year-end and, any significant
Depreciation I 45.000 change in the expected pattern of its future benefits, will cause
$0.1 the method to be changed to reflect this.
Accumulated depreciation B 45.000 This willwould be accounted for as a change in an accounting
$0.1 estimate, in accordance with IAS 8.
Annual depreciation on $1m
You lease some land for mining for a period of 15 years, with no
option to purchase it. The value of the lease is $450,000. The first Changes in asset life are common, as these are estimated in
year’s capital repayment is $10.000. The land will need to be advance of asset usage. Changes in depreciation methods are
depreciated over the 15-year period. rare.
EXAMPLES depreciation of leased land , unless a firm has used a method dictated by tax authorities,
You lease some land for mining for a period of 15 years, with no prior to introducing IFRS, and believes better method should be
option to buy it. The value of the lease is $450,000. The first used for IFRS.
year’s capital repayment is $10.000. The land will need to be
depreciated over the 15-year period. A variety of depreciation methods can be used. These methods,
I/B DR CR includinge the straight-line method, the diminishing balance
Property, plant & equipment (land) B 450,000 method and the units of production method.
Finance lease creditor - current B 10.000 10.000
Finance lease creditor – non- B 440,000 Straight line method
current Straight-line depreciation results in a constant charge over the
useful life., if the asset’s residual value does not change.

48
 Interim Financial ReportingProperty, Plant and Equipment

EXAMPLE You buy a machine for $10.000. It has high risk of technical
Your vehicle costs $20.000. You will sell it in 4 years time. The obsolescence. You depreciate it at 50% as follows:
original residual value was $8.000. Year 1 $5.000 (50% of 10.000)
The depreciation charge is $3.000 per year, or $250 per month. Year 2 $2.500 (50% of 5.000)
EXAMPLE straight line depreciation Year 3 $1.250 (50% of 2.500)
Your vehicle costs $40.000. You will sell it in 4 years time. The Year 4 $ 625(50% of 1.250)
estimated residual value is $16.000. This is an example of the diminishing balance method.
The depreciation charge is $6.000 per year, or $500 per month.
I/B DR CR Units of production method
Property, plant & equipment B 420.00 The units of production method results in a charge based on the
0 expected use, or output.
Cash B 420.00
0
This records the purchasebuy of the
vehicle EXAMPLE
Depreciation I 36.000 You buy a product-testing machine for $100.000 for a seasonal
Accumulated depreciation B 36.000 product. You estimate that it will be able to test 20.000 units over
Annual depreciation straight line on its life. No residual value is anticipated.
(40.000-16.000) = 24.000/4=6.000 Every time a unit is tested, depreciate the machine by $5.
This is an example of the units of production depreciation
Diminishing balance method method.
The diminishing balance method results in a decreasing charge EXAMPLE units of production method
over the useful life and loads the early years with a much higher You buy a product-testing machine for $100.000 for a seasonal
charge.. product. You estimate that it will be able to test 20.000 units over
its life. No residual value is anticipated.
EXAMPLE Every time a unit is tested, depreciate the machine by $5. So in a
You buy a machine for $10.000. It has high risk of technical period where output is 1000 units, depreciation is $5.000.
obsolescence. You depreciate it as follows: This is an example of the units of production method
Year 1 $4.000 I/B DR CR
Year 2 $3.000 Property, plant & equipment B 100.000
Year 3 $2.000 Cash B 100.000
Year 4 $1.000 This records the purchasebuy of the
This is an example of a diminishing balance method of machine
accounting. Depreciation I 5.000
EXAMPLE Accumulated depreciation B 5.000
49
 Interim Financial ReportingProperty, Plant and Equipment

Depreciation on 1000 Uunits example). It may be due to new, cheaper technology having
depreciation eroded the fair value of the firm’s current equipment.
(2) derecognition of items of property, plant and equipment
The undertaking selecteds the method that mostwill closely retired, or disposed of, is determined under this Standard; This
reflects the expected pattern of consumption of the of future is the action of writing an asset out of the books, to reflect that it
benefits flowembodied in the asset. Theat method is then applied is no longer in use by the undertaking. Any gain, or loss, on
consistently, unless there is a change in the expected benefit disposal will be recognised at this time.
pattern of consumption of those future benefits. compensation from third parties for assets that were impaired,
Impairment lost, or given up, is included in determining the income statement
when it becomes receivable; Compensation may become
To determine whether an itemasset is impaired, an undertaking payable if the state nationalises assets, either wholly or partly in
apply ies order to build a new road over the land on which the building
IAS 36 Impairment of Assets which. IAS 36 explains how an stands
undertakingto review,s the carrying amount of its assets, how it the cost of items of property, plant and equipment restored,
determines the recoverable amount of an asset, and when toit bought, or constructed as replacements is determined under this
recognises, or reverses the recognition of, an impairment loss. Standard.
replacements should be treated as new assets. The old asset is
IAS 22 Business Combinations explains how to account for an eliminated from the books, and the new asset introduced as an
impairment loss recognised before the end ofin the first annual addition.
accounting period, beginning after an acquisition. (3) compensation from third parties for items that were
impaired, lost, or given up, is included in determining the income
statement when it becomes receivable; Compensation may
Compensation for impairment become payable if the state nationalises assets, either an entire
undertaking, or just a building in order to build a new road over
Compensation from third parties for itemassets that were the land on which the building stands.
impaired, lost, or given up, shallwill be included in the income (4) the cost of items of property, plant and equipment restored,
statement, when the compensation becomes receivable. purchased, or constructed as replacements is determined under
Separate Economic Events this Standard. Replacements should
The following se are separate economic events, and are be treated as new assets. The old asset is eliminated from the
accounted for separately as follows: books, and the new asset introduced as an addition.
(1) impairments of items of property, plant and equipment are
recognised under IAS 36; Derecognition (Written out of the balance sheet)
An impairment is a reduction in value of an asset that is still
in use. The reduction may be caused by damage (to a car, for The carrying amount of an itemasset shallwill be derecognised:
(1) on disposal; or
50
 Interim Financial ReportingProperty, Plant and Equipment

(2) when no future benefits are expected from its use, or EXAMPLE sale at a profit
disposal. Your policy is to keep company vehicles for 4 years. You have
bought a new vehicle for $30.000. $16.000 is the estimated
The gain, or loss, arising from the derecognition of an itemasset residual value of the vehicle.
shallwill be included in the income statement when the itemasset The depreciation amount was $30.000-$16.000= $14.000, and
is derecognised (unless IAS 17 requires otherwise e.g. on a sale the annual depreciation charge is $14.000 / 4 years = $3.500.
and leaseback). At the end of the 4 years, you sell the vehicle for $18.000.
You record a gain of $2.000 ($18.000-$16.000) in the income
Gains shallwill not be classified as revenue. statement
I/B DR CR
Cash B 18.000
Property, plant & equipment B 320.000
Accumulated depreciation B 14.000
Gain on disposal of vehicle I 2.000
Sale of vehicle for cash at a profit
of 2.000

The disposal of an item may occur in a variety of ways (ege.g. by

EXAMPLE sale, by entering into a finance lease, or by donation). In
Your policy is to keep company vehicles for 4 years. You have determining the date of disposal of an item, an undertaking
purchased a new vehicle for $20.000. $6.000 is the residual applies the criteria in IAS 18 Revenue for recording revenue from
value of the vehicle. the sale of goods. IAS 17 Leasing applies to disposal by a sale
The depreciation amount was $20.000-$6.000= $14.000, and the and leaseback.
annual depreciation charge was $14.000 / 4 years = $3.500.
At the end of the 4 years, you sell the vehicle for $8.000. The gain, or loss, arising from the derecognition of an item shallis
You record a gain of $2.000 ($8.000-$6.000) in the income be determined as the difference between the net disposal
statement. proceeds, if any, and the carrying amount of the item.

The consideration receivable on disposal of an item is recorded

initially at its fair value.
If payment for the item is deferred, the consideration received is
recorded initially at the cash price equivalent.

51
 Interim Financial ReportingProperty, Plant and Equipment

The difference between the nominal amount of the consideration Accumulated depreciation B 14.000
and the cash price equivalent is recorded as interest revenue Interest receivable B 1.000
under IAS 18, reflecting the effective yield on the receivable. Property, plant & equipment B 320.000
Gain on disposal of vehicle I 2.000
Deferred interest income B 1.000
Sale of vehicle
Cash B 19.000
Accounts receivable B 18.000
Interest receivable BI 1.000
EXAMPLE Deferred interest income B 1.000
You are going to sell a vehicle that is fully depreciated to its Interest income I 1.000
residual value of $6.000. Cash receipt and recognition of
You offer to sell it for $8.000 cash, or for $9.000 payable in 1 interest
year’s time.
You record a gain of $2.000 ($8.000-$6.000) in the income
Disclosure
statement for either payment method.
General
EXAMPLE fair value of disposal The financial statements shallwill disclose, for each class of
A vehicle that cost $30.000 is fully depreciated to its residual property, plant and equipment:
value of $16.000. You offer to sell it for $18.000 cash, or for (1) the measurement bases used for determining the gross
$19.000 payable in 1 year’s time. You record a gain of $2.000 carrying amount;
($18.000-$16.000) in the income statement for either payment (2) the depreciation methods used;
method. (3) the useful lives, or the depreciation rates used;
I/B DR CR (4) the gross carrying amount and the accumulated
Cash B 18.000 depreciation (aggregated with accumulated impairment losses) at
Property, plant & equipment B 320.000 the beginning, and end, of the period; and
Accumulated depreciation B 14.000 (5) a reconciliation of the carrying amount at the beginning and
Gain on disposal of vehicle I 2.000 end of the period showing:
Sale of vehicle for cash (i) additions;
(ii) disposals;
(iii) acquisitions through business combinations;
If theyour buyer pays $19.000 in 1 year’s time, the extra $1.000 (iv) increases, or decreases, resulting from revaluations and
will be treated as interest receivable. from impairment losses recognized, or reversed, directly in equity
under IAS 36;
I/B DR CR
Accounts receivable B 198.000
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 Interim Financial ReportingProperty, Plant and Equipment

(v) impairment losses recognised in the income statement

under IAS 36; Accounting estimates
(vi) impairment losses reversed in the income statement under Under IAS 8, an undertaking discloses the nature and effect of a
IAS 36; change in an accounting estimate that has an effect in the current
(vii) depreciation; period, or will have an effect in subsequent periods. For property,
(viii) the net exchange differences arising on the translation of plant and equipment, such disclosure may arise from changes in
the financial statements from the functional currency into a estimates with respect to:
different presentation currency, including the translation of a (1) residual values;
foreign operation into the presentation currency of the reporting (2) the estimated costs of dismantling, removing, or restoring
undertaking; and items;
(ix) other changes. (3) useful lives; and
(4) depreciation methods.
The financial statements shallwill also disclose:
(1) the existence and amounts of restrictions on title, and Revaluation
property, plant and equipment pledged as security for liabilities; If items are stated at revalued amounts, the following shallwill be
(2) the amount of expenditures recognised in the carrying disclosed:
amount of an item in the course of its construction; (1) the effective date of the revaluation;
(3) the amount of contractual commitments for the acquisition (2) whether an independent valuer was involved;
of property, plant and equipment; and (3) the methods, and significant assumptions, applied in
(4) if it is not disclosed separately on the face of the income estimating the items’ fair values;
statement, the amount of compensation from third parties for (4) the extent to which the items’ fair values were determined
items that were impaired, lost or given up that is included in the directly by reference to observable prices in an active market, or
income statement. recent market transactions on arm’s length terms, or were
estimated using other valuation techniques;
Depreciation (5) for each revalued class of property, plant and equipment,
the carrying amount that would have been recognised had the
assets been carried under the cost model; and
Selection of the depreciation method and estimation of the useful (6) the revaluation surplus, indicating the change for the
life of assets are matters of judgement. Therefore, disclosure of period, and any restrictions on the distribution of the balance to
the methods adopted, and the estimated useful lives, or shareholders.
depreciation rates, should be disclosed. Also, it is necessary to
disclose: Under IAS 36, an undertaking discloses further information on
(1) depreciation, whether recognised in the income statement impaired property, plant and equipment.
or as a part of the cost of other assets, during a period; and Undertakings are encouraged to disclose the following
(2) accumulated depreciation at the end of the period. information:
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 Interim Financial ReportingProperty, Plant and Equipment

(1) the carrying amount of temporarily idle property, plant and

equipment; Each year the difference between depreciation based
(2) the gross carrying amount of any fully depreciated items still on the revalued carrying amount of the asset (the depreciation
in use; charged to the income
(3) the carrying amount of items retired from active use and statement) and depreciation based on the asset’s original cost is
held for disposal; and transferred from fair
when the cost model is used, the fair value of property, plant and value and other reserves to retained earnings.
equipment, when this is materially different from the carrying
amount. Depreciation is calculated on the straight-line method to write off
the cost or revalued
Sample Accounting Policy amount of each asset to their residual values over their estimated
(taken from Illustrative Corporate Financial Statements 2002, useful lives as follows:
PWC) Buildings 25–40 years
Plant and machinery 10–15 years
Property, plant and equipment Equipment and motor vehicles 3–8 years
Land and buildings (except for investment property) comprise Land is not depreciated
mainly
factories and offices and are shown at fair value, based on Where the carrying amount of an asset is greater than its
triennial valuations by external estimated recoverable amount,
independent valuersvaluer’s, less subsequent depreciation for it is written down immediately to its recoverable amount.
buildings.

All other property, plant Gains and losses on disposals are determined by comparing
and equipment is stated at historical cost less depreciation. proceeds with carrying
amount and are included in operating profit. When revalued
Cost includes transfers from equity of any gains / losses on assets are sold, the
qualifying cash flow hedges of currency purchasebuy costs. amounts included in fair value and other reserves are transferred
Increases in the carrying amount arising on revaluation of to retained earnings.
buildings are credited to fair Interest costs on borrowings to finance the construction of
value and other reserves in shareholders’ equity. property, plant and
equipment are capitalised, during the period of time that is
Decreases that offset previous increases required to complete and
of the same asset are charged against fair value and other prepare the asset for its intended use.
reserves; all other decreases are
charged to the income statement. Other borrowing costs are expensed.
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 Interim Financial ReportingProperty, Plant and Equipment

Repairs and maintenance are charged to the income statement

during the financial period
in which they are incurred.

The cost of major renovations is included in the carrying

amount of the asset when it is probable that future economic
benefits in excess of the
originally assessed standard of performance of the existing asset
will flow to the Group.

Major renovations are depreciated over the remaining useful life

of the related asset.

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 Interim Financial ReportingProperty, Plant and Equipment

Multiple choice questions 3.Aggregated as one asset.

1. Residual value is specifically: 6. Repairs and maintenance costs are normally:

Scrap value. 1.Capitalised.
The net cash amount that you will receive from the ultimate sale 2.Expensed in the income statement as incurred.
of the asset, at the end of its lifeThe estimated amount that you 3.Recorded as deferred expenses.
would currently obtain from disposal of the asset, after deducting
the estimated costs of disposal, if the asset were already of the 7. If the costs of a major inspection (for example, aircraft) are
age, and in the condition expected at the end of its useful life. capitalised:
The gross cash amount that you will receive from the ultimate They must be shown as a separate asset.
sale of the asset, at the end of its life. Any remaining costs of a previous inspection must be written off.
The board of directors must be notified immediately.
2. Useful life of an asset refers to the life:
1.Of the asset throughout its life, in the hands of any 8. If the costs of a major inspection (for example, aircraft) are
number of owners. capitalised, and there was no cost for the initial major
2. Of the asset whilst it is available for use in the firm. inspection in the asset cost:
3. The average of 1 & 2. No cost should be deducted from the asset.
An estimate of the initial inspection cost should be made.
3. Spare parts and servicing equipment are usually The cost of the new inspection must be expensed.
accounted for as:
Expenses written off to the income statement on purchasebuy. 9. Elements of cost are:
Inventory.
A separate class of fixed assets.
TheIts purchasepurchase price
4. Major spare parts and stand-by equipment qualify as Any costs directly attributable to bringing the asset to the
property, plant and equipment when: location.
They are expected to be used during more than one period. The initial estimate of the costs of dismantling, and removing the
The firm is in the oil industry. item.
The parts cost more than 20% of the equipment they are Overheads of the purchasing department relating to the
supporting. purchasebuy of the asset.
i-iv
5. Individually-insignificant items, such as moulds, tools and i-iii
dies may be: i-ii
1.Ignored. I
2.Expensed on purchasebuy.
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 Interim Financial ReportingProperty, Plant and Equipment

10. Directly attributable costs include: (ii) initial operating losses, such as those incurred while
(i)staff costs of arising directly from the construction, or demand for the item’s output builds up; and
acquisition, of the item of property, plant and equipment; (iii) costs of relocating, or reorganising part, or all, of an
(ii) site preparation costs; undertaking’s operations.
i(iii) initial delivery and handling costs;
(iv) installation and assembly costs; and should be accounted for as:
(v) costs of testing whether the asset is functioning properly,
after deducting the net proceeds from any samples, or sundry Extraordinary items.
income; and (Capitalised as) fixed assets.
(vi) professional fees. Expenses.
(vii) costs of opening a new facility;
costs of introducing a new product, or service (including costs of 13. Incidental income and expenses (such as using a site as
advertising and promotional activities); a temporary car park) should be:
1.Capitalised into the asset.
(viii) costs of introducing a new product, or service (including 2.Taken to the income statement.
costs of advertising and promotional activities); 3.Ignored.
(ix) costs of running a business in a new location, or with a new
class of customer (including costs of staff training); and 14. Internal profits generated, when creating a self-
(x) administration and other general overhead costs. constructed asset, should be:
Eliminated from the asset cost.
i-x Depreciated over the life of the asset.
i-vii Included from the asset costShown as an extraordinary item.
v-x
i-vi 15. The cost of abnormal amounts of wasted material,
labour, or other resources incurred in self-constructing an
11. Recognition of costs (to be capitalised) ceases when: asset should be:
1.The accounting period ends. 1.Capitalised.
2.The item is in the location and capable of operating. 2.Expensed.
3. Full production capacity has been reached. 3.Deferred.

12. The following costs 16. If payment for a fixed asset is deferred beyond normal
(i) costs incurred while an item, capable of operating in the credit terms, any additional payment above the cash cost of
manner intended by management, has yet to be brought into use, the asset will be accounted for as:
or is operated at less than full capacity; Cost of fixed asset.
Borrowing cost.
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 Interim Financial ReportingProperty, Plant and Equipment

Repairs and maintenance. 22. Revaluations are required:

Annually.
17. If one or more assets are exchanged for a new asset, the Every 3-5 years.
new asset is valued at: When fair values change, or are expected to change.
1.Replacement cost.
2.Fair value. 23. When an item is revalued, any accumulated depreciation
3.Residual value. at the date of the revaluation is treated in which of the
following ways:
18. In the case of an exchange of assets, if the acquired Restated proportionately, with the change in the gross carrying
asset cannot be valued: amount of the asset, so that the carrying amount of the asset
1.The cost of the asset given up is used. after revaluation equals its revalued amount.
2. The residual value is used. Eliminated against the gross carrying amount of the asset and
3. The asset cannot be capitalised. the net amount restated to the revalued amount of the asset.
Either (1) or (2).
19. An undertaking can choose either the cost model or the
revaluation model, as its accounting policy. It must apply the 24. Examples of separate classes of fixed assets are:
chosen model to: (i) land.
1. All fixed assets. (ii) land and buildings.
2. An entire class of fixed assets. (iii) machinery.
3. Major assets. (iv) ships.
(v) aircraft.
20. Using the cost model, the asset in accounted for at: (vi) motor vehicles.
1.Cost. (vii) furniture and fixtures.
2.Cost less accumulated depreciation. (viii) office equipment.
3. Cost less accumulated depreciation and any impairment (ix) canteen equipment.
losses.
1. i-v
21. Using the revaluation model, can fair values be 2. vi-ix
estimated, if there is no market-based evidence? 3. i-viii
No. 4. i-ix
Yes, if the asset is specialized, and rarely sold, by using an
income, or a depreciated replacement cost approach. 25. A class of assets may be revalued on a rolling basis,
Yes, if the asset is specialized, and rarely sold, by using provided:
indexation. 1.The revaluation is completed in a short period, and the
revaluations are kept up to date.
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 Interim Financial ReportingProperty, Plant and Equipment

2. Only one class of assets is involved.

3. It is noted on the face of the balance sheet. 31. The carrying value of your asset is $10 million. Its fair
value is $12 million.
26. If an asset’s carrying amount is increased by revaluation, Do you continue depreciation?
the increase is; 1. No.
2. Yes, until the end of its useful life.
1. Shown as a gain in the income statement. 3. Yes, but at half the previous rate.
2. Taken to revaluation surplus, via the income statement.
3. Taken to revaluation surplus, directly, without being 32. The carrying value of your asset equals the residual
recorded in the income statement. value.
Do you continue to depreciate it?
27. If an asset’s carrying amount is decreased by 1. No.
revaluation, the decrease should be: 2. Yes, until the end of its useful life.
Capitalised. 3. Yes, but at half the previous rate.
Expensed.
An extraordinary item. 33. Regular repair and maintenance preserves the value of
your hotel.
28. Transfers of amounts between revaluation reserveEquity Do you continue to depreciate it?
- Revaluation Reserve and retained earnings are allowed: 1. No.
Only on asset disposal. 2. Yes, until the end of its useful life.
On asset disposal, and in each period, being the difference 3. Yes, but at half the previous rate.
between the depreciation charged on a revalued amount and the
depreciation of the cost amount. 34. Your asset has a residual value.
When retained earnings are negative. Do you continue to depreciate it?
1. No.
29. Depreciation charges for a period are recorded: 2. Yes, until the end of its useful life, but deduct the amount
Only in the income statement. of the residual value from the amount to be depreciated.
As an exceptional item. 3. Yes, but at half the previous rate.
In the income statement, or as part of the cost another asset
(such as inventories). 35. Depreciation can cease when an asset is idle.
1.False.
30. Changes in the estimated useful life should: 2.Only due to factory closure.
Be accounted for under IAS 8. 3. Only under a usage method of depreciation.
Be expensed immediately.
Be noted on the face of the balance sheet. 36. In determining the useful life of an asset, consider:
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 Interim Financial ReportingProperty, Plant and Equipment

Expected usage of the asset. The expected pattern of consumption of the asset.
Expected physical wear and tear.
(iii) Technical, or commercial obsolescence. 41. Compensation from third parties for items impaired, lost
(iv) Legal, or similar, limits on the use of the asset. or sequestrated should be recorded as income:
(v) The level of knowledge of operators of the asset. When the item is lost.
When the compensation is receivable.
i-ii When the cash is received.
i-iii
i-iv 42. The carrying amount of an item shallwill be derecognised
i-v (written out of the balance sheet):
(1) On disposal.
37. Land and buildings are separate assets, as: (2) When no future benefits are expected from its use.
1.They can always be sold separately. (3) Either.
2.Land usually has an unlimited life, but buildings do not.
3.Buildings can be revalued, but land cannot. 43. A gain on the sale of an asset should be recorded as:
A capital gain in equity.
38. You buy land and building. The land is revalued at A gain in the income statement.
double its cost. Revenue.
Do you continue to depreciate the building?
1. No. 44. The gain, or loss, arising on the sale of an asset is:
2. Yes, until the end of its useful life. 1.The cash proceeds.
3. Yes, but at half the previous rate. 2. The net proceeds minus the carrying value of the asset.
3. The net proceeds minus the residual value of the asset.
39. If your land is leased under a finance lease, do you
depreciate it? Question Answer
1. No. 1.2 2
2. Yes, until the end of the lease. 2.2 2
3. Only if it has a building on it. 3.2 2
4.1 1
40. A variety of depreciation methods can be used. These 5.3 3
methods include the straight-line method, the diminishing 6.2 2
balance method and the units of production method. 7.2 2
The choice of depreciation method is governed by: 8.2 2
Tax laws. 9.2 2
The lowest cost option.
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 Interim Financial ReportingProperty, Plant and Equipment

10.4 4 44.2 2
11.2 2
12.3 3
13.2 2
14.1 1
15.2 2
16.2 2
17.1 1
18.1 1
19.2 2
20.3 3
21.2 2
22.3 3
23.3 3
24.3 3
25.1 1
26.3 3
27.2 2
28.2 2
29.3 3
30.1 1
31.2 2
32.1 1
33.2 2
34.2 2
35.3 3
36.3
37.2 2
38.2 2
39.2 2
40.3 3
41.2 2
42.3 3
43.2 2
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 Interim Financial ReportingProperty, Plant and Equipment

2. (i)-(ii)
Multiple choice questions 3. (i)- (iii)
4. (i)-(iv)
1. IAS 34 mandates interim financial reports for: 5. (i)-(v)
1. Listed companies. 6. (i)-(vi)
2. All companies. 7. (i)-(vii)
3. No-one 8. 8. (i)-(viii)

2.The accounting policies to be used are: 7. Minimum content of an interim financial report is a:
1. The same as in the last annual statements. (i) Condensed balance sheet.
2. The same as in the last annual statements. except for new policies (ii) Condensed income statement.
to be used in the next annual statements. (iii) Condensed cash flow statement.
3. Unique to interim statements. (iv) Condensed statement showing changes in equity.
(v) Selected explanatory notes.
3. Measurements for interim accounts should: (vi) Audit report.
1. Be annualised. (vii) Management review.
2. Be made solely on the figures of the interim period.
3. Be made on a year-to-date basis. 1. (i)
2. (i)-(ii)
4. Income tax expense should use: 3. (i)- (iii)
1. Estimated effective annual rate. 4. (i)-(iv)
2. Last year’s effective rate. 5. (i)-(v)
3. The rate relating to the interim period. 6. (i)-(vi)
7. (i)-(vii)
5. Listed companies should provide interim reports not later than:
1. 30 days after the period end. 8. The income statement should show:
2. 60 days after the period end. 1. Basic earnings per share for the interim period.
3. 90 days after the period end. 2. Diluted earnings per share for the interim period.
4. 120 days after the period end. 3. Both.

6. IAS 1 defines a complete set of financial statements as including the 9. An interim report is prepared on a consolidated basis. The inclusion of
following components: the parent’s separate statements in the interim report is:
(i) Balance sheet. 1. Optional.
(ii) Income statement. 2. Compulsory.
(iii) Statement showing changes in equity. 3. Forbidden.
(iv) Cash flow statement.
(v) Accounting policies.
(vi) Explanatory notes.
(vii) Audit report.
(viii) Management review.

1. (i)
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 Interim Financial ReportingProperty, Plant and Equipment

10. An undertaking should include the following information, as a 10. (i)-(x)

minimum, in the notes to its interim statements, if material and if not
disclosed elsewhere: Undertaking Publishes Interim Financial Reports Half-Yearly

(i) A statement that the same policies and methods of computation are The undertaking’s financial year ends 31 December (calendar year). The
followed in the interim statements as compared with the most recent undertaking will present the following financial statements (condensed or
annual financial statements or, if those policies or methods have been complete) in its half-yearly interim financial report as of 30 June 2XX5:
changed, a description of the nature and effect of the change.
(ii) Explanatory comments about the seasonality, or cyclicality, of interim Balance Sheet: Fill in the blanks:
operations. At 30 June 2XX5 Question 11
(iii) The nature and amount of items affecting assets, liabilities, equity, net Income Statement:
income, or cash flows that are unusual due to their nature, size, or 6 months ending 30 June 2XX5 Question 12
incidence. Cash Flow Statement:
(iv) The nature and amount of changes in estimates reported in prior 6 months ending 30 June 2XX5 Question 13
interim periods of the current financial year, or changes in estimates of Statement of Changes in Equity:
amounts reported in prior financial years, if those changes have a 6 months ending 30 June 2XX5 Question 14
material effect in the current interim period.
(v) Issuances, repurchases, and repayments of debt and equity
securities. 11. See table above.
(vi) Dividends paid (aggregate, or per share) separately for ordinary 1. 31 December 2XX5.
shares and other shares. 2. 31 December 2XX4.
(vii) Segment revenue and segment result for business segments or 3. 30 June 2XX4
geographical segments, whichever is the undertaking’s primary basis
of segment reporting.
(viii) Material events, subsequent to the end of the interim period, that have 12 See table above.
not been reflected in the financial statements for the interim period. 1. 31 December 2XX5.
(ix) The effect of changes in the composition of the undertaking during the 2. 31 December 2XX4.
interim period, including business combinations, acquisition or 3. 30 June 2XX4
disposal of subsidiaries and long-term investments, restructurings, and
discontinuing operations. and 13. See table above.
(x) Changes in contingent liabilities, or contingent assets, since the last 1. 31 December 2XX5.
annual balance sheet date. 2. 31 December 2XX4.
3. 30 June 2XX4
1. (i)
2. (i)-(ii) 14. See table above.
3. (i)- (iii) 1. 31 December 2XX5.
4. (i)-(iv) 2. 31 December 2XX4.
5. (i)-(v) 3. 30 June 2XX4
6. (i)-(vi)
7. (i)-(vii)
8. (i)-(viii)
9. (i)-(ix)
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 Interim Financial ReportingProperty, Plant and Equipment

2. 31 December 2XX7.
Undertaking Publishes Interim Financial Reports Quarterly 3. 30 June 2XX7
The undertaking’s financial year ends 31 December (calendar year). The
undertaking will present the following financial statements (condensed or
complete) in its quarterly interim financial report as of 30 June 2XX8: 20. After you interim report is published, a key client goes into
liquidation. Your doubtful debt provision proves to be inadequate, and
Balance Sheet: Fill in the blanks: you have a significant write-off in the next period.
At 30 June 2XX8 Question 15 1. The interim report is restated.
Income Statement: 2. The interim report is not restated, but the next report will detail the
6 months ending 30 June 2XX8 Question 16 impact of this liquidation.
3 months ending 30 June 2XX8 Question 17 3. No disclosure is necessary.
Cash Flow Statement:
6 months ending 30 June 2XX8 Question 18 21. Normally, the cost of a planned major periodic maintenance, or other
Statement of Changes in Equity: seasonal expenditure that is expected to occur late in the year:
6 months ending 30 June 2XX8 Question 19 1. Is not anticipated for interim reporting purposes.
2. Is anticipated for interim reporting purposes.
3. Is charged pro-rata in the interim report.
15. See table above.
1. 31 December 2XX8. 22. Normally, discretionary bonuses:
2. 31 December 2XX7. 1. Are not anticipated for interim reporting purposes.
3. 30 June 2XX7 2. Are anticipated for interim reporting purposes.
3. Are charged pro-rata in the interim report.
16. See table above.
1. 31 December 2XX8. 23. Accumulating compensated absences:
2. 31 December 2XX7. 1. Are not anticipated for interim reporting purposes.
3. 30 June 2XX7 2. Are anticipated for interim reporting purposes.
3. Are charged pro-rata in the interim report.

17. See table above. 24. Depreciation on assets that have been paid for, but are not yet
1. 31 December 2XX8. owned:
2. 31 December 2XX7. 1. Is not anticipated for interim reporting purposes.
2. Is anticipated for interim reporting purposes.
3. 30 June 2XX7 3. Is charged pro-rata in the interim report.
18. See table above.
1. 31 December 2XX8.
2. 31 December 2XX7.
3. 30 June 2XX7

19. See table above.

1. 31 December 2XX8.

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 Interim Financial ReportingProperty, Plant and Equipment

Answers to multiple choice questions

Question Answer
1. 3
2. 2
3. 3
4. 1
5. 2
6. 6
7. 5
8. 3
9. 1
10. 10
11. 2
12. 3
13. 3
14. 3
15. 2
16. 3
17. 3
18. 3
19. 3
20. 2
21. 1
22. 1
23. 2
24. 1

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 Interim Financial ReportingProperty, Plant and Equipment

This publication has been produced with the assistance of the European Union. The contents of this publication are the sole responsibility of ZAO
“PricewaterhouseCoopers” and OOO “Rosexpertiza” and can in no way be taken to reflect the views of the European Union.

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