There’s an asset on your balance sheet you’re not using and you plan to sell. Say it’s carrying value is 7,500 and what you aim to get for it is close to it’s carrying value. However, as it turns out, you get serious offers for the asset for 5,000. No doubt you can see that your asset is valued higher you’re likely to get for it once you sell it. Continue reading
Category Archives: 1.05 Property, Plant and Equipment
Credit invoices and reliable measurement of cost
I can see where the question arises from. You know you’ll be issued a credit invoice (or you’re fairly certain it will happen) and you question whether you should recognize the asset. Remember here that the conditions for recognizing an asset (as also referenced in IAS 16) are as follows: (1) it is probable that future economic benefits associated with the item will flow to the entity and (2) the cost of the item can be measured reliably. Continue reading
Treating supplier credits for acquired assets
Sometimes it is so that you buy an asset, you start a dispute over the price, but since you really need the asset and you want to use it right away, you start using and accounting for it in your books regardless of the ongoing disputes of the price. What you do, is debit the assets and credit the payables. Continue reading
My property, plant and equipment list – by invoices or by assets
I could ask if you’re using assets or invoices. If the invoices are for unique assets on their own and not one single asset consists of two or more invoices, then sure, let it be. However, there are pitfalls if the latter is not so and some assets comprise of various invoices.
I understand why such a situation would arise – lack of system support, i.e. you keep your list in Excel, lack of time to compile actual assets from all the invoices you’ve capitalized etc. Matter of fact is however that it’s not a preferred way to treat your PPE assets even if it seems perfectly okay for you. Continue reading
One way to change the useful lives of assets
As you know, useful life on an asset is an estimate (unless you made a mistake saying that for an example a computer should be used say for 25 years, which obviously cannot be true). So it’s an estimate based on the information available at the time you are making it.
Subject to changing condition, changing business and changing technology and innovation, some assets tend to either be in use for a shorter or for a longer period than initially determined. As you no doubt can guess, in such a situation, the useful life, the period you show in your accounting you are going to be using the asset and spread the expenses over, should reflect the actual usage. That is the useful life should respectively either be short or longer than you’ve got it right now. Continue reading
Treatment of property, plant and equipment that’s acquired with foreign currency
Property, plant and equipment (PPE) is considered as a non-monetary asset on your balance sheet. In case you acquired it with foreign currency, it’s treated as any other non-monetary asset intially accounted in foreign currency at the balance sheet date. Continue reading
An asset with a very specific use for type of service or production
Let’s first define this “specific use”. Specific use is determined so that once this client relationship ends, you’re no longer producing a type of good etc., this asset is no longer being used and it cannot be used without significant alterations for another type of service or production process. An asset in this case be both physical and non-physical, i.e. a software solution.
Such an asset that’s taken away from active usage and cannot be used for anything else without modifications should not be carried on the balance sheet. At least not with a carrying value above zero. It has no value for the company as it is and as such, it shouldn’t be carried as an asset with value. Continue reading