Auditing Problems
Applied Auditing
Audit of Plant, Property and Equipment – Lecture
Definition
Property, plant and equipment are tangible items that: a) are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and b) are expected to be used during more than one period.
Recognition
An item of PP&E should be recognised only if its cost can be measured reliably and it is probable that future economic benefits associated with the item will flow to the entity.
The cost of an item of property, plant and equipment comprises: a) its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates. b) any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. c) the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, the obligation for which an entity incurs either when the item is acquired or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that period.
Exchanges of assets
PAS 16 requires all acquisitions of PP&E in exchange for non-monetary assets, or a combination of monetary and non-monetary assets, to be measured at fair value, subject to the following conditions: 1. 'The cost of such an item of property, plant and equipment is measured at fair value unless a) the exchange transaction lacks commercial substance or b) the fair value of neither the asset received nor the asset given up is reliably measurable.
2. If the fair value of neither the asset given up nor the asset received can be measured reliably, the cost of the asset is measured at the carrying amount of the asset given up and there is no gain on the transaction.
Costs Incurred After Acquisition
Capitalize if:
Audit of Plant, Property and Equipment – Lecture
Definition
Property, plant and equipment are tangible items that: a) are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and b) are expected to be used during more than one period.
Recognition
An item of PP&E should be recognised only if its cost can be measured reliably and it is probable that future economic benefits associated with the item will flow to the entity.
The cost of an item of property, plant and equipment comprises: a) its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates. b) any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. c) the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, the obligation for which an entity incurs either when the item is acquired or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that period.
Exchanges of assets
PAS 16 requires all acquisitions of PP&E in exchange for non-monetary assets, or a combination of monetary and non-monetary assets, to be measured at fair value, subject to the following conditions: 1. 'The cost of such an item of property, plant and equipment is measured at fair value unless a) the exchange transaction lacks commercial substance or b) the fair value of neither the asset received nor the asset given up is reliably measurable.
2. If the fair value of neither the asset given up nor the asset received can be measured reliably, the cost of the asset is measured at the carrying amount of the asset given up and there is no gain on the transaction.
Costs Incurred After Acquisition
Capitalize if: