Download PSA 510: Initial Engagements * Opening Balances

◦(a) The prior period's closing balances
have been correctly brought forward
to the current period or, when
appropriate, have been restated;
and
◦ (b) Appropriate accounting policies are
consistently applied or changes in
accounting policies have been
properly accounted for and
adequately disclosed.
The prior year’s balances were audited by another
auditor who has issued (type of opinion) on (date of
report). The prior year’s balances are only presented for
comparative purposes but never part of the current
year’s balances.
… still unqualified opinion but modified to
recognize the division of responsibility
between the predecessor auditor and the
successor auditor (to be reported by the other
group)
An item of property, plant and equipment that
qualifies for recognition as an asset shall be
measured at its cost
PAS 16 contains the principles for initial recognition of
property, plant and equipment. Cost is determined by
reference to the cash paid, cash equivalent price in case
of deferred payment acquisition, or fair value of the
what is given up by the acquirer in case of exchange.
(Note 2: Summary of Significant Policies)
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Purchase price, including import duties and non-
refundable purchase taxes, after deducting trade
discounts and rebates;
Costs directly attributable to bringing the asset to the
location and condition for use intended by the
management;
Initial estimate of dismantling costs and removal and
restoring the site on which the asset is located.
PAS 16 specifies three components of costs, namely
(1) purchase price, (2) directly attributable costs, and
(3) initial estimate of dismantling and removing the
item or restoring the site on which it is located
(otherwise known as decommissioning costs).
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Employee benefits arising directly from the
construction or acquisition of the item of PPE
Site preparations
Initial delivery and handling costs
Installation and assembly costs
Costs
of
testing
whether
the
asset
is
functioning
properly
after
deducting
the
net
proceeds
from
selling
any
items
produced
while
bringing
the
asset
to
that location and condition
Professional fees
1. Administration and general overheads
2. Abnormal costs
3. Costs
incurred
after
the
asset
is physically ready for use
The costs of day to day servicing an item of
PPE are charged to profit or loss (Repairs
and Maintenance).
The costs of day-to-day servicing of the
item of PPE include the costs of labor,
consumables and cost of small parts. They
are charged to Repairs and Maintenance
Expense or a similar expense account.
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Regular major inspections costs for faults shall be
capitalized if the recognition criteria are met. Any
remaining carrying amount of the cost of the
previous inspection shall be derecognized.
Cost of parts that require replacement at regular
intervals are capitalized, provided the recognition
criteria are met. The carrying amount of the part
that is replaced is derecognized.
Cost model or
 Revaluation model,
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and shall apply said accounting policy to an
entire class of PPE
PPE is valued and presented at cost less
accumulated
depreciation
and
any
accumulated impairment loss
… in the accounting policy to be disclosed, net
book value has never been mentioned
An item of PPE, whose fair value can be
determined reliably, shall be carried at
revalued amount, being its fair value at the
date of revaluation less any subsequent
accumulated depreciation and subsequent
impairment losses.
The revalued amount is based on the
following:
a. Market-based evidence by appraisal
b. Depreciated replacement
cost
Cost
Replacement
Cost
AD
Historical
AD on HC
Replacement
AD on RC
BV
BV/CA
Sound Value
HC – Historical Cost
BV – Book Value
CA – Carrying Amount
AD – Accumulated Depreciation
RC – Replacement Cost
Difference
Appreciation
AD on Appr
Rev Surplus
Proportional restatement
 Elimination
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Under the proportional restatement, both the gross value of the
asset and accumulated depreciation are restated proportionately
to the revalued amount. After the revaluation entry, the excess of
the asset balance over the balance of the accumulated
depreciation is equal to the revalued amount.
Under the elimination method, the balance of the accumulated
depreciation before revaluation is closed to the asset account
(eliminating the accumulated depreciation) and then the
revaluation entry increases the asset account to its revalued
amount. Thus, after the revaluation, the asset account balance is
exactly equal to the revalued amount.
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Initial Revaluation - the increase shall
be credited directly to
equity,Revaluation
Surplus
Subsequent Revaluation - the increase
shall be recognized in profit or loss to
the extent that it reverses a revaluation
decrease of the same asset previously
recognized in profit or loss, Revaluation
Gain , (with a ceiling), then any excess
to Revaluation Surplus
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Initial Revaluation - the decrease shall
be recognized in profit or loss,
Revaluation Loss
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Subsequent Revaluation - the decrease
shall be debited directly to equity to the
extent of any credit balance existing in
the revaluation surplus in respect of
that asset, Revaluation Surplus (until
exhausted), then to Revaluation
Loss in the profit and loss statement
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Where
◦ The recoverable amount is less than the
asset’s CV, the asset is impaired.
◦ The carrying value shall be reduced to the
recoverable amount.
◦ This reduction is called impairment loss.
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External sources
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Decline in market value
Increase in market interest rate
Carrying value of the net assets > stock market value
Legal, technological changes
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Physical damage
Obsolescence
Decline in entity’s performance
Decline in cash flows generated by the asset.
Internal sources
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The asset’s recoverable amount is the higher
between
◦ The asset’s net selling price
◦ The asset’s value in use
The net selling price is the asset’s fair value less cost to
sell.
The value in use is the present value of the net cash flow
from the use and disposal of the asset.
The carrying amount of an item of PPE shall
be derecognized:
a. On disposal; or
b. When no future economic
benefits are expected
from its use or disposal
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Measurement bases
Depreciation methods
Useful lives or depreciation rates
Gross carrying amount and accumulated
depreciation at beginning and end of the
period
... explanatory information under the individual
(lapsing)) schedule
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Reconciliation of beginning and ending
carrying amount showing additions,
disposals, acquisitions, revaluations,
impairment losses and reversals of
impairment losses, depreciation and other
changes
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Restrictions on titles
Amount recognized in carrying amounts for
items in the course of construction
Amount of contractual commitments for
acquisition of PPE
Amount of compensation to third parties for
items of PPE that were impaired, lost or given
up that is included in P&L
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Effective date of revaluation
Whether an independent valuer was involved
Methods and assumptions applied in
estimating fair values
For each revalued class of PPE, the carrying
amount using the cost model
Revaluation surplus, indicating the change for
the period and any restrictions on the
distribution to shareholders.