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PROPERTY, PLANT AND EQUIPMENT (PPE)
STRUCTURE Recognition of an asset Changes Classification of property, plant and equipment Depreciation
RECOGNITION AS AN ASSET • It is probable that the future economic benefits or service potential associated with the item will flow to the entity • Cost or Fair Value of the items can be measured reliably
CHANGES SOME PRINCIPAL DIFFERENCES BETWEEN UNSAS AND IPSAS United Nations System Accounting Standards (UNSAS) • • • PPE is not capitalized and not subject to depreciation (PPE expensed when purchase order “PO” is issued); Entities disclose the total value of PPE at original acquisition cost in the Notes; Most “self constructed assets” are not tracked; Major overhauls (substantial improvements) to assets are expensed as incurred; Impairment losses are not recognised when they occur (since PPE items are expensed on purchase) IPSAS • • PPE is capitalized and depreciated over useful live (commitments for acquisition of PPE (POs) disclosed in the Notes); Costs related to “Self constructed assets” should be tracked and capitalized if asset recognition criteria is met; Major overhauls (substantial improvements) to assets are capitalized; Impairment losses are recognised in the period they occur;
CLASSES OF UN PROPERTY, PLANT AND EQUIPMENT A Class of property, plant and equipment is a grouping of assets of a similar nature or function in an entity’s operations that is shown as a single item for the purpose of disclosure in the Notes to the financial statements. Property, Plant and Equipment Vehicles Communication and IT Equipment Furniture & Fixtures Surveillance/Control Equipment Asset 1 Asset 2 Asset 3 … Asset n Leasehold Improvements Telecommunication Equipment Buildings … Land Category n
INTANGIBLE ASSETS Two main characteristics Lack physical existence Ø Are not financial instruments Ø Some Examples Ø Ø Ø Patents Software Copyright Franchises/licenses Trademarks Intangible asset: ”an identifiable non-monetary asset without physical substance” Conditions: • Must be identifiable • Will provide future economic benefits • Benefits are controlled
CHANGES IN ACCOUNTING AND REPORTING POLICIES INITIAL ADOPTION Decisions on accounting and reporting policies v Determining capitalisation threshold and policies on asset groupings v Setting policies on expensing or capitalising subsequent expenditure v Developing impairment policies v Identifying useful lives within approved ranges for all types of PPE v Deciding useful lives of asset components (e. g. plumbing and heating system of a building) v Identifying situations of control over shared assets v Determining if further classes are needed for disclosure and respective lives v Deciding how to measure beginning balances (cost or fair value) An entity that adopts accrual accounting for the first time in accordance with IPSAS shall initially recognise PPE at: Cost …or… Fair value
DEPRECIATION Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life. All Items of PPE, except land, have limited useful lives. Because of this limited useful life, the costs of these assets must be distributed as expenses over the years they benefit. Value Initial Cost Depreciation Decline in service potential UN System wide Recommended Accounting Practice is to use years as the measurement parameter for depreciation. Time Acquisition Initial cost Useful life Disposal Residual value Depreciation is the result of an allocation, not a valuation process. The term is used to describe the gradual conversion of the costs of the asset into an expense.
PPE & INTANGIBLE ASSETS Comments or Questions?