Hi Garvan, Thanks.

Hi Silvia, I repeat myself again: assessment and judgement is needed. So I have accounted for the first engine under repairs of maintenance because the engine is not to enhance the performance of the vehicle beyond its normal operating capability. This site uses cookies to provide you with a more responsive and personalised service. If we account a big amount of screwdrivers as a PPE item, so how to depreciate it? Hollo sylvia, good explanation. I want to discuss something here. You have categorized in two categories, critical & capital spare. Actually the cost of free spares is inbuilt in the cost of main machine. 2014-09 (Topic 606). So we need to consider it as PPE or inventories? Both methods allow inventories to be written down to market value. There are some problems with such items, however.. Editor’s note: This article was updated with new content on Jan. 21, 2020. [IAS 16.68A], Information about each class of property, plant and equipment, For each class of property, plant, and equipment, disclose: [IAS 16.73], The following disclosures are also required: [IAS 16.74], IAS 16 also encourages, but does not require, a number of additional disclosures. whether an independent valuer was involved, for each revalued class of property, the carrying amount that would have been recognised had the assets been carried under the cost model.

For more information, visit www.firmofthefuture.com. With reference to unit of account, I had a query. I would consider these spare parts as PPE, because they can be used only in connection with PPE (e.g. sure, I got your point.

This oil must stay there until the plant ceases operations. If they are inventories and we provided our worker with a screwdriver, in a year he/she could come and ask for another one (we do not have it in the records already!). I see there is no difference. To be completely correct, you need to derecognize (remove) the carrying amount of old item and recognize the carrying amount of the new item. Please check your inbox to confirm your subscription. Thank you and have a nice day! IFRS allows revaluation of the following assets to fair value if fair value can be measured reliably: inventories, property, plant & equipment, intangible assets, and investments in marketable securities. [IAS 16.23], If an asset is acquired in exchange for another asset (whether similar or dissimilar in nature), the cost will be measured at the fair value unless (a) the exchange transaction lacks commercial substance or (b) the fair value of neither the asset received nor the asset given up is reliably measurable. Do you think we should use this method also for spareparts? This hit the maintenance cost line on the P+L and obviously within EBITDA. Also, the useful lives are the same (or at least, they end at the same time). For all spare parts it’s good to remember that in most cases, they are inventories. Or, is it the set of 5 000 screwdrivers with the cost of USD 25 000 (5×5 000)? First of all, if you are using some parts of the damaged cars, then I would NOT write them off fully – just the part that you cannot use.

Dear Sara, Hi Oti As it is not consumed in a production process, but it is necessary for plant’s operation and it’s going to stay there until the plant closes (for more than 1 year), it’s PPE.

[IAS 16.43], IAS 16 recognises that parts of some items of property, plant, and equipment may require replacement at regular intervals. should the costs capitalized as asset or expensed as part of maintenance? An error has occurred, please try again later.

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Considering its capital spare part is connected to to a equipment ( not critical) . I have question & need your advice

Subsequently cost or FV model can be selected . However IFRS is stating that assuming a piece of Spare part meets the criteria it should move to PP&E and be depreciated.

NOTE : TRANSACTION IS NOT SALE OF GOODS. Each word should be on a separate line. Thank you for sharing your knowledge on it. I was a bit confused about the term “servicing” because the spare parts may have equally related to some equipment used for servicing. It depends on the nature of the spare part. If we register them all, how can we do a physical inventory in the future? Also, dear RMAU, please note that something like “matching principle” does not exist in IFRS. Or, should you depreciate spare parts once they are in the warehouse, regardless their actual usage? and hence they cannot be considered as free although they are described as such because individual cost of such free spares is not available. Sometimes we use car for more than 1 year and sometimes we sell it before.

Thanks for this useful sharing.. May i know what means by 1 period ? With regards to spare parts measurement and presentation in the financial statement, lets consider the aviation industry or better still aircraft industry where planes are used for charter per transportation and other logistics. The area of consigned as you mentioned above, is when you have 500 harmers and aggregate of it might be substantial but then currently using one are you going to depreciate the rest that are not currently in use? Under 16.16(b) costs associated with “bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management” are capitalized with the asset. Please turn off compatibility mode, upgrade your browser to at least Internet Explorer 9, or try using another browser such as Google Chrome or Mozilla Firefox. Also Such shoes has life more than a year than we should have to book as PPE. You are right about the depreciation methods – in most cases, they are the same as for the related asset. In this case, you should check whether you need to do the segment reporting under IFRS 8 Operating segments (IFRS 8 tells you when you need to apply it) and in this case, you would need to present these segments separately. May I know whether the similar issue is raised by others with the amendment to IFRS 116 & what is the solution to the above ? Sometimes the net realizable value changes and adjusts back up; for some reason, the inventory assets have appreciated in value. For the IFRS, net realizable value is the best approximation of how much “inventories are expected to realize.”, Both systems require that inventory be written down as soon as its cost is higher than its net realizable value. No separate record is maintained in r/o monitor, keyboard, mouse etc.

For more information about what is provided for free and why, visit our unaccompanied Standards FAQ page. Understanding these differences between IFRS and GAAP accounting is essential for business owners operating internationally.

Dear Waseem, please, for questions regarding the IFRS Kit, e-mail me Thank you, S. we are selling cars and also own some cars as replacement cars in the event that customers need replacement cars. if yes then how? (quoted from your lecture) Individually, the book’s cost is immaterial, but for library, all books are material in total. Thank you for nice article. Many thanks for pretty silvia and God bless you and guide you in jesus name amen. Your treatment is not correct, accounting for first engine under repair & maintenance. IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. In addition, refer to our U.S. GAAP vs. IFRS comparisons series for more comparisons How to Account for Government Grants (IAS 20). Accounting entries: Accounting entries are listed under the company document type. They put it as stock. drilling bits with drills etc.). We need to control and recognise the inventory as it in our possession but we did not pay anything for it so how to account for it? But, i want to ask, if the spare parts is obsolete and left untouched in the store room? )… 2014-09 (Topic 606) and the corresponding IFRS standard, IFRS 15, share a common principles-based approach. If you don’t fall within the scope of IFRS 8 (and thus you can ignore it), you can present inventories in 1 line, with giving sufficient disclosure (breakdown by subclassifications) in the notes to the financial statements. I think it would be right to treat them as inventories rather as PPE. Is it record as inventory or expense. In case I have laptops for sale and as well for demos. Below some of the areas where you can identify the IAS/IFRS settings required when processing accounting entries.

Hi Sylvia, I was wondering what happens when an item leaves the pool and is replaced by the repaired item. Regarding when to start depreciation of a spare part determined to be treated as PPE, would it not always be when the part is installed. Copyright © 2009-2020 Simlogic, s.r.o. Hi Silvia, IAS 17 Leases. In a sense, this means the inventory is “underwater.”. Financial statements are used by analysts, investors and bankers to learn more about the financial status of a company. When each major inspection is performed, its cost is recognised in the carrying amount of the item of property, plant, and equipment as a replacement if the recognition criteria are satisfied. In other words if we capitalise spare ( capital spare) at the time of aquisition, can we choose to depreciate when installed ? S. This para8 has been amended in 2012 and now they require meeting definition of PPE to capitalize any spare parts, see below: Para 8, IAS16 – Spare parts and servicing equipment are recognized in accordance with IFRS when they meet the definition of PPE. You can tunnel into the document types specified on the IAS/IFRS accounting entry type and notice that the IAS ledger must be authorized. Dear Amr, [IAS 16.65], An asset should be removed from the statement of financial position on disposal or when it is withdrawn from use and no future economic benefits are expected from its disposal. My query is related to transition from then until now. So yes, if you start treating spare parts as PPE rather than inventories, it will impact your EBITDA, because cost of inventories enters to EBITDA, while depreciation does not. IFRS includes the distinct category of investment property, which is defined as property held for rental income or capital appreciation. Am I correct in my understanding?