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17.2.2.2 Replacement of a major components and periodic replacement
17.2.2.3 Separation of land and buildings
17.2.3 Measurement at initial recognition
17.2.3.1 Extract from FRS 102 – Section 17.9-17.13
17.2.3.3 Directly attributable costs
17.2.3.4 Not directly attributable costs
17.2.3.5 Decommissioning costs
17.2.3.6 Self-constructed assets
17.2.3.7 Cessation of capitalisation
17.2.3.9 Deferred payment terms – measurement of cost
17.2.4.1 Extract from FRS 102 – Section 17.14
17.2.5 Measurement after Initial Recognition
17.2.5.1 Extract from FRC – FRS 102 – Section 17.15-17.15F
17.2.5.2.2.1 Frequency of revaluations
17.2.5.2.2.2 Meaning of fair value
17.2.5.2.2.3 Accounting for revaluation surpluses/deficits
17.2.5.2.2.4 Treatment of depreciation on upward revaluations
17.2.6 Depreciation, residual value and useful lives
17.2.6.0 Extract from FRS 102 Sections 17.16 to 17.23
17.2.6.1.2 Depreciation and useful economic life
17.2.6.1.4 Change in residual value, depreciation rate or useful economic life – change in estimate
17.2.6.1.5 Non-depreciable assets
17.2.6.1.6 Commencement and cessation of depreciation
17.2.6.1.7 Depreciation methods
17.2.6.1.5.1: Straight line method
17.2.6.1.5.2: Diminishing balance method/sum of digits
17.2.6.1.5.3: Units of production method
17.2.7 Recognition and measurement of impairment.
17.2.7.1 Extract from FRS 102 Section 17.24-17.26
17.2.8.1 Extract from FRS 102 Section 17.27-17.30
17.2.9.0 Extract from FRS 102 – Section 17.31-17.32A
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The below extracts and guidance is applicable for periods beginning before 1 January 2019 and are based on the September 2015 version of FRS 102. For periods beginning on or after 1 January 2019, the March 2018 version of FRS 102 applies which incorporates the changes made by the Triennial review of FRS 102. Note the March 2018 version of FRS 102 can be voluntarily applies for periods beginning before 1 January 2019. For the extracts from the March 2018 version of FRS 102 and the related guidance please click on the following link. For details of a summary of the main changes as a result of the triennial review please see the following link.
17.2.9 Disclosures
Extract from FRS 102 – Section 17.31-17.32A
17.31 An entity shall disclose the following for each class of property, plant and equipment:
(a) the measurement bases used for determining the gross carrying amount;
(b) the depreciation methods used;
(c) the useful lives or the depreciation rates used;
(d) the gross carrying amount and the accumulated depreciation (aggregated with accumulated impairment losses) at the beginning and end of the reporting period;
(e) a reconciliation of the carrying amount at the beginning and end of the reporting period showing separately:
(i) additions;
(ii) disposals;
(iii) acquisitions through business combinations;
(iv) revaluations;
(v) transfers to or from investment property if a reliable measure of fair value becomes available or unavailable (see paragraph 16.8);
(vi) impairment losses recognised or reversed in profit or loss in accordance with Section 27 Impairment of Assets;
(vii) depreciation; and
(viii) other changes.
This reconciliation need not be presented for prior periods.
17.32 The entity shall also disclose the following:
(a) the existence and carrying amounts of property, plant and equipment to which the entity has restricted title or that is pledged as security for liabilities; and
(b) the amount of contractual commitments for the acquisition of property, plant and equipment.
17.32A If items of property, plant and equipment are stated at revalued amounts, the following shall be disclosed:
(a) the effective date of the revaluation;
(b) whether an independent valuer was involved;
(c) the methods and significant assumptions applied in estimating the items’ fair values; and
(d) for each revalued class of property, plant and equipment, the carrying amount that would have been recognised had the assets been carried under the cost model.
17.2.9.1 OmniPro comment
Detailed above are the disclosures required under Section 17. Note Section 17 does not require prior year comparatives. See below examples of disclosures required in the financial statements. It includes how a revaluation of CU375,000 is shown in the fixed asset note (i.e. the accumulated depreciation is reduced to decrease the accumulated depreciation on that asset to nil – CU125,000 in this example; and the fixed asset cost is increased – CU500,000 in this example):
Example 17: Extract of an accounting policy for an entity that adopts fair value/or previous revaluation at deemed cost and the cost model adopted:
Cost
Property, plant and equipment are recorded at historical cost or deemed cost (note include valuation here where appropriate), less accumulated depreciation and impairment losses. Cost includes prime cost, overheads and interest incurred in financing the construction of tangible fixed assets. Capitalisation of interest ceases when the asset is brought into use.
Freehold premises are stated at cost (or deemed cost for freehold premises held at valuation at the date of transition to FRS 102 where the optional transition exemption under S.35.10(a) of FRS 102 has been applied) less accumulated depreciation and accumulated impairment losses.
The company previously adopted a policy of revaluing freehold premises and they were stated at their revalued amount less any subsequent depreciation and accumulated impairment losses. The company has adopted the transition exemption under FRS 102 paragraph 35.10(d) and has elected to use the previous revaluation as deemed cost OR The company has adopted the transition exemption under FRS 102 paragraph 35.10(C) and has elected to use the fair value as deemed cost.
The difference between depreciation based on the deemed cost charged in the profit and loss account and the asset’s original cost is transferred from the non-distributable reserve to retained earnings through equity.
Equipment and fixtures and fittings are stated at cost less accumulated depreciation and accumulated impairment losses.
Where investment property can no longer be reliably measured without undue cost or effort these assets are reclassified to property, plant and equipment at the carrying amount prior to the transfer and depreciated over the useful economic lives.
Spare parts that are acquired as part of an equipment purchase which are only to be used in connection with these specific assets are initially capitalised and amortised as part of the equipment. Spare parts which are expected to be used during more than one period are capitalised as property, plant and equipment.
To the extent a legal or constructive obligation exists, the acquisition costs include the present value of estimated costs of dismantling and removing the asset and restoring the site. A change in estimated expenditures for dismantling, removal and restoration is added to/and or deducted from carrying value of the related asset. To the extent the change results in a negative carrying amount, the difference is recognised in the profit and loss. The change in depreciation is recognised prospectively.
NOTE: Policy to be included where a policy of revaluation has been chosen:
The company has adopted a policy of revaluing freehold premises. Freehold premises are included in the balance sheet at their fair value on the basis of a periodic professional valuation less accumulated depreciation. The difference between depreciation based on the revalued amount is charged in the profit and loss account and the asset’s original cost is transferred from revaluation reserve to retained earnings. Annually the carrying values are reviewed for appropriateness by the directors. Any changes in the value of freehold properties are reflected as a movement on the revaluation reserve except where the revaluation is below original cost in which case the balance is recognised in the profit and loss account.
Depreciation
Depreciation is provided on tangible fixed assets, on a straight-line basis, so as to write off their cost less residual amounts over their useful lives.
The estimated useful lives assigned to property, plant and equipment are as follows:
| Freehold Premises | 2% straight line on cost |
| Motor vehicles | 25% straight line on cost |
| Office equipment, fixtures & fittings | 12½% straight line on cost |
| Computer equipment | 25%/33⅓% straight line on cost |
| Service equipment and spare parts | 10% straight line on cost |
The company’s policy is to review the remaining useful lives and residual values of property, plant and equipment on an on-going basis and where indicators exist adjust the depreciation charge to reflect the remaining estimated life and residual value.
Fully depreciated property, plant & equipment are retained in the cost of property, plant & equipment and related accumulated depreciation until they are removed from service. In the case of disposals, assets and related depreciation are removed from the financial statements and the net amount, less proceeds from disposal, is charged or credited to the income statement.
Example 18: Extract from notes to the financial statements (assuming revaluation upwards)
- Tangible Fixed Assets
| Freehold Premises | Motor Vehicles | Plant and machinery | Computer Equipment | Total | |
| CU | CU | CU | CU | CU | |
| Costs | |||||
| At beginning of year | 207,473 | 150,038 | 488,979 | 144,523 | 891,013 |
| Additions in year | 1,295,000 | 165,000 | 91,733 | 34,704 | 1,586,437 |
| Revaluation | 500,000 | – | – | – | 500,000 |
| Transfer from investment property | 100,000 | – | – | – | 100,000 |
| Disposals in year | – | (93,359) | – | – | (93,359) |
| At end of year | 1,502,473 | 221,679 | 580,712 | 179,227 | 2,984,091 |
| Depreciation | |||||
| At beginning of year | 187,723 | 111,836 | 270,802 | 134,767 | 705,128 |
| Charge for Year | 37,543 | 26,799 | 29,015 | 56,642 | 149,999 |
| Revaluation | (125,000) | – | – | – | (125,000) |
| On disposals | – | (42,060) | – | – | (42,060) |
| Impairment | – | – | 100,000 | – | 100,000 |
| At end of year | 100,266 | 96,575 | 399,817 | 191,409 | 788,067 |
| Net book value | |||||
| At 31 December 2015 | 1,752,207 | 125,104 | 80,895 | (12,182) | 2,196,024 |
| At 31 December 2014 | 19,750 | 38,202 | 18,177 | 9,756 | 85,885 |
The following assets were held under finance lease:
| 2015 | 2014 | ||
| CU | CU | ||
| Net Book Value | 66,884 | 129,389 | |
| Depreciation Charge for the Year | 29,015 | 31,317 |
(i) The land and buildings which are used as part of the company’s core business were revalued by [state name], [state qualification] to an open market value basis reflecting existing use [or state alternate basis if appropriate if this Is higher] on [state date] 20XX. The valuation was carried out in accordance with the SCS Appraisal and Valuation Manual. {If the valuer is an officer or employee of the company or a group company this fact must be stated}.
These valuations have been incorporated into the financial statements and the resulting revaluation adjustments have been taken to the revaluation reserve. The revaluations during the year ended 30th June 2015 resulted in a revaluation surplus of CU375,000.
(ii) The historical cost, accumulated depreciation on the historical cost and net book value of the freehold premises had a revaluation policy not applied is as follows:
At 31 December 2015 CU20,020
| 2015 | 2014 | ||
| CU | CU | ||
| Original Cost | XXX | XXX | |
| Accumulated Depreciation | (XXX) | (XXX) | |
| Net book Value | XXX | XXX |
At 31 December 2014 CU24,165
(iii) As a result of falling profits and in accordance with Section 27 of FRS 102, the carrying values of the plant and machinery assets in the widget segment have been compared to their recoverable amounts. As a result of this exercise an impairment charge of CU100,000 was recognised in the financial statements. The value in use has been derived from the future cash flow projections using a pre-tax discount rate of X%. Cash flows have been projected over the next five years based on management’s business plan, and thereafter a steady growth rate of 1% has been applied which is consistent with the company’s growth rate over the past number of years.
(iv) The freehold property has been pledged as security on loans taken out by the company.
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Example 2: Replacement of a major component which was previously not separated
Example 3: Periodic replacement
Example 4: Separation of land and buildings
Example 5: Employee costs during construction
Example 6: purchasing on deferred credit terms
Example 7: Exchange of assets- assets that lack commercial substance
Example 8: Revaluation of assets of the same class
Example 9: Accounting for revaluations and subsequent movements – depreciable assets
Example 11: Transfer of depreciation on revalued amount from profit and loss reserves
Example 12: Revising a residual value of an asset
Example 13: Change in accounting policy disclosure
Example 14: Commencement of depreciation
Example 15: Depreciation on basis of units of production
Example 17: Extract from notes to the financial statements (assuming revaluation upwards)
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