ACCT90004 Chap.6 PPE, Depreciation and Revaluation
PPE, Depreciation and Revaluation
Property, plant and equipment problems distinguish acquisition cost from later expenditure, then allocate depreciable amount across useful life. This chapter compares straight-line and usage-based depreciation, tracks accumulated depreciation and carrying amount, and examines impairment or revaluation evidence. The important habit is a roll-forward from opening carrying amount to closing carrying amount.
Every number must connect to cost, residual value, useful life, usage or a supported valuation rather than an unexplained percentage.
What this chapter covers
- 01
Initial asset cost
- 02
Capital and revenue expenditure
- 03
Depreciable amount
- 04
Straight-line depreciation
- 05
Usage-based depreciation
- 06
Carrying amount and valuation evidence
Worked example · free
Revise depreciation prospectively
- 1Original annual depreciation is ($54,000 minus $6,000) divided by 6, which equals $8,000.
- 1Carrying amount after two years is $54,000 minus $16,000, which equals $38,000.
- 1Revised depreciable amount is $38,000 minus $3,000, which equals $35,000.
- 1Year-three depreciation is $35,000 divided by 3, which equals $11,666.67.
Key terms
- Depreciable amount
- Asset cost or substituted amount less residual value.
- Carrying amount
- The recognised asset amount after accumulated depreciation and other adjustments.
- Residual value
- The estimated amount recoverable at the end of useful life after disposal costs.
- Useful life
- The period or output units over which an asset is expected to be available for use.
PPE, Depreciation and Revaluation FAQ
Is depreciation intended to value an asset?
Depreciation systematically allocates depreciable amount over expected use. It is not a direct attempt to reproduce market value. Carrying amount can therefore differ from selling price even when the depreciation calculation follows the selected method.
When should expenditure be capitalised?
Analyse whether the spending obtains or improves a resource with future economic benefits and whether its cost can be measured. Routine repair that maintains current condition is different from spending that creates an additional controlled benefit.
What should support a revaluation conclusion?
A conclusion needs reliable valuation evidence appropriate to the asset and reporting date. A general belief that prices increased is not enough. The accounting effects must also be traced through carrying amount and the relevant equity or expense treatment.
What changes when useful life or residual value is revised?
Use the carrying amount at the revision date, subtract the revised residual value and allocate the remainder over the revised remaining life. The new estimate changes future depreciation under the supplied facts; it does not automatically rewrite depreciation recorded using earlier information.
Exam move
Build every non-current asset answer around a carrying-amount roll-forward. Start with opening cost and accumulated depreciation, add capitalised expenditure, remove disposals, record depreciation and then process any supported valuation adjustment. For straight-line questions, show cost, residual value and useful life explicitly. For usage methods, show the per-unit rate before multiplying actual output.
Mix cases involving mid-period acquisition, revised estimates and repairs so you learn which amount belongs in the asset and which belongs in expense. Draw a timeline when an estimate changes and use current carrying amount for the prospective calculation. After the arithmetic, explain what evidence supports useful life, residual value or valuation, and distinguish an estimate from a known fact.
Topic 6 materials explicitly state that no solutions are provided, so do not infer a course marking scheme. Instead, use independent checks: accumulated depreciation cannot exceed depreciable amount under ordinary facts, and closing carrying amount must reconcile to the roll-forward. Rework errors by identifying whether they concern cost, timing, method, estimate or journal direction. Create a two-part PPE register.
The cost section records opening cost, qualifying additions, disposals and any measurement change. The accumulated-depreciation section records opening balance, current charge, removal on disposal and closing balance. Their difference is the carrying amount control. Use the register to solve straight-line and usage-based cases, then test a mid-period purchase and a revised estimate.
For every expenditure item, write why it prepares or improves the controlled resource, or why it merely maintains current operations. Do not classify from the invoice description alone. When impairment indicators or valuation information appears, separate evidence that triggers review from the measured adjustment itself.
State the reporting consequence only to the extent supported by the supplied amount and accounting treatment. Build a sensitivity table showing how useful life and residual value affect annual depreciation, but retain the scenario's chosen estimates in the journal. Topic 6 provides no textual solutions, so judge your work through independent reconciliations rather than an invented marking pattern.
On the last practice day, solve one complete asset life cycle from acquisition to disposal. Verify acquisition cost, accumulated depreciation, carrying amount removed, cash proceeds and resulting gain or loss as a connected sequence. When checking disposal work, verify that the removed accumulated depreciation relates to the same asset and date as the cost removed.
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