ACCT90012 Chap.2 Property, Plant and Intangible Assets

Property, Plant and Intangible Assets

Construct the cost boundary

Recognise property, plant and equipment when future economic benefits are probable and cost can be measured reliably. Initial cost includes purchase price after discounts, directly attributable costs of placing the asset where and how it must operate necessary for operation, and an initial estimate of dismantling or restoration obligations.

General administration, abnormal waste and costs incurred after the asset is capable of operating are not added merely because they relate to the project. State why each amount changes readiness for intended use.

Treat components as separate depreciation problems

A significant part with a useful life or consumption pattern different from the remainder is depreciated separately.

This is not a disclosure convenience; it changes annual expense and makes later replacement accounting coherent. For a building with a short-lived roof and a longer-lived structure, allocate cost between those components at acquisition. Apply each useful life and residual value independently.

Review estimates at least at each year end and treat changes prospectively as changes in estimates rather than rewriting prior periods.

Derecognise the replaced part

When a significant component is replaced, remove the carrying amount of the old component even if the original invoice did not identify it separately.

Estimate that carrying amount using the replacement cost adjusted for age or another supportable method. Capitalise the new component only if recognition criteria are met. Do not leave both old and new roofs inside the asset balance.

The journal logic is a retirement followed by acquisition, then future depreciation based on the revised component carrying amounts and remaining lives.

Separate depreciation from valuation

Depreciation allocates depreciable amount over useful life; it does not attempt to track market value. Depreciable amount is cost or another substituted amount less residual value.

Begin when the asset is available for use, cease on derecognition or relevant classification, and select a method reflecting consumption of benefits. A rising market value does not by itself suspend depreciation.

Land and buildings are accounted for separately even when acquired together because land commonly has an indefinite life while a building's service potential is consumed.

Account for subsequent expenditure

Repairs and maintenance normally preserve existing service capacity and are expensed.

A replacement, major inspection or enhancement may qualify for capitalisation when it creates or preserves benefits that meet the recognition test. Labels on invoices do not control. Identify the unit of account, determine which prior component must be derecognised and exclude costs that only relocate inefficiency.

Borrowing, training, start-up and relocation amounts require their own standards and cannot be swept into asset cost without a direct recognition basis.

Apply identifiability to intangibles

An intangible asset is identifiable when separable or arising from contractual or other legal rights, and the entity must control the resource and expect future benefits.

A purchased patent, licence or customer contract may satisfy the definition because rights and transaction price provide evidence. Internally generated brands, mastheads, publishing titles, customer lists and goodwill are not recognised merely because management believes they are valuable.

Distinguish economic value from the narrower accounting recognition test.

Keep research and development apart

Expense research expenditure because the project has not yet demonstrated an identifiable resource capable of generating probable benefits.

Capitalise development expenditure only from the date all required criteria are demonstrated: technical feasibility, intention and ability to complete and use or sell, probable benefits, adequate resources and reliable measurement of attributable expenditure. Earlier expense is not reinstated after the threshold is crossed.

Document the threshold date and measurement system; optimism about a project is not evidence of recognition.

Audit estimates and entries

For every asset calculation, reconcile opening carrying amount, additions, disposals, depreciation, impairment and closing amount. Test component lives, residual values and availability-for-use dates against the facts.

For intangibles, separate definition, recognition and measurement into three questions. An asset can be valuable but fail recognition, recognised but have a finite life, or have an indefinite life requiring annual impairment testing rather than amortisation. The audit trail should show which judgement changes which journal entry.

What this chapter covers

• 01

  Construct initial cost

• 02

  Separate significant components

• 03

  Revise depreciation prospectively

• 04

  Derecognise replaced parts

• 05

  Apply intangible recognition criteria

Replace a separately depreciated component

Key terms

Component depreciation

Separate allocation of depreciable amounts for significant parts with different useful lives or consumption patterns.

Depreciable amount

Cost or substituted amount less residual value, allocated systematically over useful life.

Development phase

The stage at which recognition is possible only after every specified feasibility, intention, resource, benefit and measurement criterion is demonstrated.

Property, Plant and Intangible Assets FAQ

Exam move

Retrieve the five steps for Property, Plant and Intangible Assets, recompute the independent example, write the journal or presentation consequence, then change one controlling assumption and identify the first conclusion that changes.

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