ACCA FR CBE Final Mock Exam Marking
Scheme and Suggested solutions|2025
Update.
Recognition of Property, plant and equipment
An item of property, plant and equipment should be recognised as an asset
when:
'it is probable that future economic benefits associated with the asset will flow
to the entity; and
the cost of the asset can be measured reliably' (IAS 16, para 7).
Initial measurement of PPE
include all costs involved in bringing the asset into working condition
include in this initial cost capital costs such as the cost of site preparation,
delivery costs, installation costs, borrowing costs (in accordance with IAS 23 -
see later in this chapter).
revenue costs should be written off as incurred.
dismantling costs - the present value of these costs should be capitalised, with
an equivalent liability set up. The discount on this liability would then be
unwound over the period until the dismantling costs are paid. This means that
the liability increases by the interest rate each year, with the increase taken to
finance costs in the statement of profit or loss.
Depreciation
,'Depreciation is the systematic allocation of the depreciable amount of an
asset over its useful life' (IAS 16, para 6).
'Depreciable amount is the cost of an asset, or other amount substituted for
cost, less its residual value' (IAS 16, para 6)
IAS 16 allows a choice of accounting treatment for property, plant and
equipment
The cost model
Property, plant and equipment should be valued at cost less accumulated
depreciation.
The revaluation model
Property, plant and equipment may be carried at a revalued amount less any
subsequent accumulated depreciation. If the revaluation alternative is
adopted, two conditions must be complied with:
Revaluations must subsequently be made with sufficient regularity to ensure
that the carrying amount does not differ materially from the fair value at each
reporting date.
When an item of property, plant and equipment is revalued, the entire class
of assets to which the item belongs must be revalued.
(1) Restate asset's cost to the new valuation.
(2) Eliminate any existing accumulated depreciation for the asset.
(3) Show the total increase in Other Comprehensive Income, at the foot of the
statement of profit or loss. This would then be taken to the revaluation surplus
(much like the profit for the year gets taken to retained earnings).
Disposal of revalued non-current assets
, The profit or loss on disposal of a revalued non-current asset should be
calculated as the difference between the net sale proceeds and the carrying
amount.
IAS 20 follows two general principles when determining the treatment of
grants
Prudence: grants should not be recognised until the conditions for receipt have
been complied with and there is reasonable assurance the grant will be
received.
Accruals: grants should be matched with the expenditure towards which they
were intended to contribute
Capital grants IAS 20 permits two treatments:
Write off the grant against the cost of the non-current asset and depreciate
the reduced cost.
Treat the grant as a deferred credit and transfer a portion to revenue each
year, so offsetting the higher depreciation charge on the original cost.
Presentation of revenue grants
IAS 20 allows such grants to either be:
presented as a credit in the statement of profit or loss, or
deducted from the related expense.
IAS 23
Borrowing Costs regulates the extent to which entities are allowed to capitalise
borrowing costs incurred on money borrowed to finance the acquisition of
certain assets.
Borrowing costs must be capitalised as part of the cost of an asset if that asset
is a qualifying asset (one which 'necessarily takes a substantial period of time
to get ready for its intended use or sale'
IAS 23 states that capitalisation of borrowing costs should commence when all
of the following conditions are met:
Scheme and Suggested solutions|2025
Update.
Recognition of Property, plant and equipment
An item of property, plant and equipment should be recognised as an asset
when:
'it is probable that future economic benefits associated with the asset will flow
to the entity; and
the cost of the asset can be measured reliably' (IAS 16, para 7).
Initial measurement of PPE
include all costs involved in bringing the asset into working condition
include in this initial cost capital costs such as the cost of site preparation,
delivery costs, installation costs, borrowing costs (in accordance with IAS 23 -
see later in this chapter).
revenue costs should be written off as incurred.
dismantling costs - the present value of these costs should be capitalised, with
an equivalent liability set up. The discount on this liability would then be
unwound over the period until the dismantling costs are paid. This means that
the liability increases by the interest rate each year, with the increase taken to
finance costs in the statement of profit or loss.
Depreciation
,'Depreciation is the systematic allocation of the depreciable amount of an
asset over its useful life' (IAS 16, para 6).
'Depreciable amount is the cost of an asset, or other amount substituted for
cost, less its residual value' (IAS 16, para 6)
IAS 16 allows a choice of accounting treatment for property, plant and
equipment
The cost model
Property, plant and equipment should be valued at cost less accumulated
depreciation.
The revaluation model
Property, plant and equipment may be carried at a revalued amount less any
subsequent accumulated depreciation. If the revaluation alternative is
adopted, two conditions must be complied with:
Revaluations must subsequently be made with sufficient regularity to ensure
that the carrying amount does not differ materially from the fair value at each
reporting date.
When an item of property, plant and equipment is revalued, the entire class
of assets to which the item belongs must be revalued.
(1) Restate asset's cost to the new valuation.
(2) Eliminate any existing accumulated depreciation for the asset.
(3) Show the total increase in Other Comprehensive Income, at the foot of the
statement of profit or loss. This would then be taken to the revaluation surplus
(much like the profit for the year gets taken to retained earnings).
Disposal of revalued non-current assets
, The profit or loss on disposal of a revalued non-current asset should be
calculated as the difference between the net sale proceeds and the carrying
amount.
IAS 20 follows two general principles when determining the treatment of
grants
Prudence: grants should not be recognised until the conditions for receipt have
been complied with and there is reasonable assurance the grant will be
received.
Accruals: grants should be matched with the expenditure towards which they
were intended to contribute
Capital grants IAS 20 permits two treatments:
Write off the grant against the cost of the non-current asset and depreciate
the reduced cost.
Treat the grant as a deferred credit and transfer a portion to revenue each
year, so offsetting the higher depreciation charge on the original cost.
Presentation of revenue grants
IAS 20 allows such grants to either be:
presented as a credit in the statement of profit or loss, or
deducted from the related expense.
IAS 23
Borrowing Costs regulates the extent to which entities are allowed to capitalise
borrowing costs incurred on money borrowed to finance the acquisition of
certain assets.
Borrowing costs must be capitalised as part of the cost of an asset if that asset
is a qualifying asset (one which 'necessarily takes a substantial period of time
to get ready for its intended use or sale'
IAS 23 states that capitalisation of borrowing costs should commence when all
of the following conditions are met:
