◦ (a) The prior period's closing balances have been correctly brought forward to the current period or, when appropriate, have been restated; and ◦ (b)

◦(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.

PSA 510: Initial Engagements – Opening Balances of PPE

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)

therefore… opening paragraph of the audit report be modified:

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.

Acquisition: Measurement (Initial Recognition)

(Note 2: Summary of Significant Policies)

• 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.

Acquisition: Elements of Cost

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).

Acquisition: Elements of Cost

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

Examples of Directly Attributable Costs:

1. Administration and general overheads2. Abnormal costs3. Costs incurred after the asset

is physically ready for use

Excluded from Cost

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.

Subsequent Costs

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.

Subsequent Costs

Cost model or Revaluation model, and shall apply said accounting policy to an entire class of PPE

MEASUREMENT AFTER RECOGNITION (BS date)

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

Cost Model

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.

Revaluation Model

The revalued amount is based on the following:

a. Market-based evidence by appraisal b. Depreciated replacement cost

Basis of Revaluation

REVALUATION MODEL

Cost Replacement Difference

Cost Historical Replacement AppreciationAD AD on HC AD on RC AD on Appr

BV BV/CA Sound Value Rev Surplus

HC – Historical CostBV – Book ValueCA – Carrying AmountAD – Accumulated DepreciationRC – Replacement Cost

Accounting for Accumulated Depreciation at Date of Revaluation

Proportional restatementElimination

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.

ACCOUNTING FOR REVALUATION-

Increase in Carrying Amount 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

ACCOUNTING FOR REVALUATION-

Decrease in Carrying Amount Initial Revaluation - the decrease shall be recognized in profit or loss, Revaluation Loss

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

Impairment of PPE

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.

Indications of Impairment

External sources◦ Decline in market value◦ Increase in market interest rate◦ Carrying value of the net assets > stock market

value◦ Legal, technological changes

Internal sources◦ Physical damage◦ Obsolescence◦ Decline in entity’s performance ◦ Decline in cash flows generated by the asset.

RECOVERABLE AMOUNT

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.

DERECOGNITION

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

DISCLOSURE REQUIREMENTS

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

DISCLOSURE REQUIREMENTS

Reconciliation of beginning and ending carrying amount showing additions, disposals, acquisitions, revaluations, impairment losses and reversals of impairment losses, depreciation and other changes

DISCLOSURE REQUIREMENTS

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

DISCLOSURES - REVALUATION MODEL

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.