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    Assignment One Fa 2

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    zedingel

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    Assignment One Fa 2

    Uploaded by

    zedingel
    5 views2 pages

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    © © All Rights Reserved

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    5 views2 pages

    Assignment One Fa 2

    Uploaded by

    zedingel

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    © All Rights Reserved
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    ADDIS ABABA UNIVERSITY

    DEPARTMENT OF ACCOUNTING
    COURSE TITLE :- FINANCIAL ACCOUNTING 2

    Name :- Selam Asrat


    SECTION :- 4
    ID NUMBER :- BEE/4890/11

    SUBMITTED TO :- DEREJE .T
    DATE 26/03/2020
    Property, plant and equipment /PPE/
     PPE are assets of durable nature. They are used in operations, they are long-term/long lived and
    they possess physical substance. They are measured based to their costs; initial measurement and
    subsequent measurement, which has both cost method and fair value method.

    Cost components /subjected to mode of acquisition/ are; cost of land, cost of building, cost of equipment,
    cost of acquiring fixed assets. Self-constructed assets are assets constructed by the business for use in
    operations.

     IFRS requires capitalizing actual interest /with modification /

    Capitalization considers three items which are qualifying assets, capitalization period and amount to
    capitalize. Capitalization period begins when expenditure for the assets and interest costs are being
    incurred, activities for readying the asset for use or sale are in progress. And it ends when the asset is
    substantially complete and ready for use. And also it interrupted when brief and inherent in normal
    construction work and intentional delays.

     Steps of valuation of PPE interest capitalization


     Determine which assets qualify capitalization of interest
     Determine the capitalization period
     Compute weighted average accumulated expenditures
     Compute the actual avoidable interest
     Capitalize the lesser of avoidable interest or actual interest

     Cash Discount

    Whether taken or not generally considered a reduction in the cost of the asset. The net of discount method
    is the preferred method.

     Lump Sum Purchases


    Allocate the total cost among the various assets on the basis of their relative fair market values.

     Issuance of shares
    The market price of the shares issued is a fair indication of the cost of the property acquired.

     Deferred payment constructs


    Assets purchased on long term credit contracts are valued at the present value of the consideration
    exchanged.

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