Whilst we have discussed the term ‘residual value’, we haven’t really approached the matter of this being changed.
An asset’s residual value is an estimate the management makes using it’s best knowledge of the asset, it’s condition, it’s possible market at the end of it’s useful life, how extensively it will be used and so on. It’s not just the value the management believes they can get for the asset, but the conditions and inputs for determining the price. Continue reading
The item within your property, plant and equipment where you’d use borrowing is something you’re building over time. When you buy an asset which costs a lot, you use a finance lease, however what if you’re building something an asset which evidently is also costly (hence it also takes a longer period) and you’ve actually taken a loan from the bank to finance the building?
Acquiring property, plant and equipment items means that you have pay up a considerable amount sometimes not for the asset itself but for say import duties. That’s an expense you incurred to acquire the asset, to be able to start using it (otherwise they’d held it at the customs).
Acquisition cost of a PPE item is important. It’s a value an asset is initially recognized on the face of a balance sheet and furthermore is depreciated into expenses over a period of time. As it impacts both the amount you carry within your company’s assets and your expenses over a period of time, it’s important to understand and agree on what exactly is included within the cost of the item and what not. Continue reading
An asset is written down in value if and only if the recoverable amount identified is lower of the assets carrying value recognized within the books. On the basis of the test for an impairment you’ve identified the assets recoverable amount (as mentioned earlier it’s highest of either the ‘value in use’ or ‘fair value less costs to sell’) and now you compare it against the assets carrying amount. Provided the latter is the lower amount, you recognize an impairment charge in the amount that’s the difference between recoverable amount and the carrying value. Continue reading
So when is an asset, an item of property, plant and equipment impaired? When should you start questioning an assets carrying value being recoverable? Continue reading
Property, plant and equipment are a group of assets your company holds that are initially recognized on your balance sheet. Initially they’re measured at cost which we have defined before and that’s that. Or so you might think. Continue reading