ACCOUNTING FOR ASSETS AND LIABILITIES
PROPERTY, PLANT AND EQUIPMENT (PPE) IAS 1 6
- IAS 1 6 PPE outlines the accounting treatment of most types of PPE items. It further stipulated the principles for recognizing property, plant and equipment as assets, measuring their carrying amount and the depreciation and impairment losses to be recognized in relation to them.
- PPE are initially measured at its cost, subsequently measured either at cost or revaluation model.
Disclosure requirements for PPE
The following information should be presented in respect of item of PPE:
- Basis of measuring carrying amount.
- Depreciation method used and its rates.
- Useful life of the asset.
- The gross carrying amount, accumulated depreciation and impairment losses at the beginning and end of period.
- A reconciliation of the carrying amount at the beginning and end of the period showing:
- Asset classified as held for sale.
- Impairment losses and reserves of impairment.
NB: De- recognition of an item of PPE is done on disposal or when no further benefits are expected from the use or disposal.
Disclosure requirement for PPE stated at revalued amount.
- The carrying amount of the PPE.
- Changes in revaluation surplus/ loss for PPE recognizes under other comprehensive income.
- Disclosure of specific accounting policies and effective date of revaluation and whether an independent valuer was involved.
- A reconciliation between the carrying amount of revaluation surplus at the beginning and at the end of the period i.e. indicating the movement balances.
INVENTORIES [IAS 2]
Inventories are assets held for sale in the normal course of the business. They include raw materials, work in progress or finished good.
The objective of IAS 2 is to prescribe the accounting treatment for inventories ie the amount of cost to be recognized as an asset and carried forward unit the related revenues are recognized.
MEASUREMENT OF INVENTORIES
Inventory should be valued at the lower of cost and net realizable value. The cost shall comprise:
- Cost of purchase – this comprises purchase price, import duties and others non- refundable taxes, transport and handling and other costs.
- Cost of conversion – this comprises the direct labour cost, variable production overheads and fixed production overhead.
- Administrative cost, selling cost, abnormal loses and shortage cost unless they relate to the goods in production process.
NET REALIZABLE VALUE – is the estimated selling price less estimated cost to sell.