- This topic has 16 replies, 4 voices, and was last updated 10 years ago by
.
- Posts
II)Why do you have to capitalised the cost to convert the building into office space if its an Operating Lease.
Also is the 2m like the present value for converting the buliding back? is this apart of IAS 17 or IAS 16?iv) What standard is this dealt with in?
The cost of improving operating leased premises is capitalised because the benefit of those improvements will be enjoyed throughout the period of the lease. In real life, they’re often called “Tenant’s improvements”
From memory, isn’t the $2m the present value of the projected cost of restoration.
It’s IAS 16
It’s not the lease that is capitalized – its the tenants improvements. The construction of internal walls, the replacement of windows, the construction of a load bearing floor and a mezzanine floor
All these are at the expense of the tenant but the tenant will benefit from this capital outlay over a period of years. Therefore capitalise and depreciate
Ok?
About the plant purchased at 1/9/20X7, the 2nd installment will be made in 11/12/20X7 when it is delivered and installed, I.e the next year of the reporting year. So I think in this reporting year ended 30/11/20X7, the asset is not commenced and should not record as ppe hence no depreciation, and I do these adjustments in ppe line on sofp.
If the asset is recorded as ppe in year ended 30/11/20X7, why the payable amount is not recorded and retranslated at year end?
Pls help me clarify….thank you so much.
I would agree, the asset should not be depreciated if it’s not yet in use – to depreciate would be to ignore the matching concept
Why would you record a payable if the money has been paid? If you’re talking about the remainder of the purchase price, does the question indicate that the second installment is due only on completion of installation?
In which case, it’s not a payable as at the year end
Ok?
Because the question stated that 2nd installment (delivery and install) in 11/12/x7, so I think it has not been delivered yet.
And because the plant was recorded and depreciated so the obligation to pay the second installment is a must. so my concern is why we don’t record payable (for 2nd installment) while we have own the asset.
Give me the ACCA exam reference for the Beth Group, please – I don’t have access to the BPP material
You never said that the first payment was refundable. Until delivery (and it has not yet been delivered!) the money paid is refundable and, in that respect, it’s simply money held on our behalf by the plant supplier and, that being so, it’s a monetary amount and should be retranslated
The plant has not yet been delivered, has not yet been recorded, and has not yet been depreciated. Your suggestion of the existence of an obligation is therefore incorrect
And if the supplier fails to deliver and the first installment is refunded, then that obligation to pay the second installment may never crystallise
Ok?
I agree that the 1st payment is refundable so I recorded as receivable and retranslate at year end. But my concerns are:
1. The question states that “A full year’s charge for depreciation of property, plant and equipment is made in the year of acquisition using the straight line method over six years.” so if we treat as the plant has not been delivered, recorded and depreciated, so we have to adjust the depreciation booked as the question says but the answer doesn’t.
2. If the asset was recorded and depreciated, again my question is why we did not record the payable for 2nd payment?
The depreciation has NOT been booked – no depreciation has been charged on this plant so no reversal is appropriate
The plant itself also has not been recorded as a TNCA – it’s recorded only as a receivable so far
And because of the fact that it hasn’t been recorded as TNCA (but only as a receivable), no depreciation is chargeable and, equally, no provision / obligation is recorded in respect of the second installment
Ok?
Thank you Mike for your patient 🙂
I understand the treatment but the question said it was made full year depreciation that why I confuse.
I will ignore it, and hope that I will not appear again :p
- You must be logged in to reply to this topic.