Category Archives: 1.05 Property, Plant and Equipment

Whether to depreciate an asset into expenses over a shorter period or fully write it down or off from the balance sheet?

I can see where such a situation may arise from. There’s an asset you’re no longer using and you’re more than likely to either sell it to the scrap yard or if that’s not an option, just get rid of it. It’s no longer usable, requires enhancements, repairs or whatever for it to be usable and as such, it’s not generating any cash flows for your company.

The question is just in the sense that you need to do something with the asset and not bluntly continue depreciating it as you’ve been doing up to this point.  Continue reading →

What’s this “cash generating unit” I hear and read about?

The term “cash-generating unit” or “CGU” is something you come upon when talking about performing an impairment tests for asset or group of assets, that is when you’re assessing whether the assets recoverable amount is lower of its carrying value and whether it is highest of the two, fair value less cost to sell or its value in use.  Continue reading →

Difference between “value in use” and “fair value less cost to sell”

There are two types of values one can find for an asset when we talk about an assets recoverable amount as compared to its carrying value. When we compare the carrying value with the recoverable amount, the latter is considered to be highest of the two, either “value in use” or “fair value less cost to sell”.

By definition “value in use” means the present value of the future cash flows expected to be derived from an asset, where “fair value less cost to sell” is defined as the price that would be received from selling the asset less any costs required and needed to make the sale.  Continue reading →

Disposing assets in the annual report

Something I have come across too often now is the inability to show movements in property, plant and equipment (PPE) correctly.

Situation of what’s done in everyday accounting with PPE items is as follows:

  1. Assets are disposed in accounting on a regular basis in their cost and accumulated depreciation;
  2. The carrying value of disposed assets may or may not be zero, doesn’t matter;
  3. Assets are also acquired and existing assets are depreciated.  Continue reading →

Are you replacing an asset?

You bought an asset and capitalized it. Did you give the thought that you might have actually replaced something any consideration? Why is it even important?

Matter of fact is that if you buy a new asset, it could very well be that you actually replaced something and this “something” should be written off from the balance sheet, disposed if you will. It could be up for being sold, but there should be an action you take to get rid of the asset from your accounts.  Continue reading →

Monitor the period actually used against determined useful life

I know that you’ve probably heard a lot about it. The useful life of the asset is the period over which it’s depreciated into expenses and the period should always equal to the period the asset is actually going to be used. So in short the estimation should always equal to the actual usage.  Continue reading →