First question you may have is “Why would I do this?” Think about depreciation and if land is depreciated in the accounting framework used in your country. If yes, maybe it’s a relevant question. That is if the useful lives are also deemed to be the same as for buildings on top of the land in question. Continue reading
Category Archives: 1.05 Property, Plant and Equipment
Fixing an asset does not make the expense eligible for capitalizing
Every now and then your assets may need service, maintenance and even some fixing. While it makes sense for the service and maintenance to be part of your running expenses, for some reason accountants consider fixing to be part of capitalized cost of the asset. Why? Continue reading
Disposing assets with a revaluation surplus
You’re using valuation method to account for the cost of your fixed assets and every now and then you need to value your assets up leaving you with a revaluation surplus as a part of the equity.
What happens if you dispose of the asset however? What happens with the revaluation surplus? Regardless of how you’ve decided to treat the surplus while depreciating the asset over it’s use, if you decide to dispose the asset and it has a revaluation surplus remaining on the balance sheet, it needs to be accounted somehow. Continue reading
Depreciating assets with revaluation surplus
So what happens if you have revalued an asset and as a result you now have a revaluation surplus on your statements, namely in equity? What happens with the depreciation of the asset and with this surplus over the period the asset is in use? Continue reading
PPE components – what if something is consisting of components?
A property, plant and equipment (from hereon “PPE”) item, a tangible asset can consist of components rather than being one unit. Sometimes it can be apparent, however often enough it’s just forgotten.
When it comes to PPE items and their components – think useful lives and replacement. If something of something that’s exceeding the threshold for being recognized as an asset on its own will be replaced sooner than the something itself, than this something of something should be accounted as a component of this something. Continue reading
What is “fair value”?
Often times you can hear someone mention “fair value” of this and that. With this “this and that” being an asset of any kind that could be measured in fair value, we’ll focus on the term itself.
The term fair value is used for assets which are measured not at cost or at depreciated value, but precisely at fair value. Fair value by definition is an estimate, an unbiased and rational estimate of a potential market price for the said asset. It does take into consideration the characteristics of the asset in the sense that it’s the price willing parties would buy-sell the asset with. More so the sale should be a regular sale and not something done under abnormal circumstances, i.e. a liquidation sale. Continue reading
Is the investment really worth it?
Buying something is easy, but is it really worth the money spent? Is the investment really a good investment? You should never make an investment that’s really not doing anything useful for your business.
First thing first, think about the purpose of the investment. What do you really needed it for? Is it for improving something, developing something or just in “I think we may find it useful” category? Continue reading