IAS 16 and componentisation

What is the rationale behind componentisation of property,plant and equipment?

Components of PPE do not have the same useful lives

PPE may have a high risk of impairment or obsolescence

PPE may wear out or depreciate at different rates throughout their life

All of the above reasons

What factors determine the identification of the component parts of PPE?

Pattern of expenditure by the entity

Risk of obsolescence and impairment

Usefulness to the entity

Significance, similar useful lives and patterns of consumption

What is the minimum requirement for the number of parts of an asset that should be identified?

The number of parts may vary depending on the nature and the complexity of the asset

Land and buildings will be split into two parts

The number of parts will be based on the age and usage of the PPE

Plant has a maximum of three components

Why did the IASB modified IAS 16 to require the allocation of components to PPE?

To eliminate the practice of accruing the costs of major future overhauls or inspections before they had been incurred

To prevent the allocation of the cost of an asset into its components for the purposes of depreciation

To ensure that an obligation for the expenditure exists as at the date of accrual, and the resulting debit is created representing an existing asset

To prevent entities reflecting the effect of a pending overhaul

Which accounting principle is used primarily for determining the component parts of PPE?

Reliability

Substance over form

Materiality

Relevance

What is the meaning of ‘significant component’ in the context of PPE?

All of the above

A significant value compared to the asset as a whole

A significantly shorter useful life

Will require replacement on at least one occasion during the life of the asset

When a component is replaced, what are the accounting entries in the financial records?

The written down value of the component is charged to the reserves and the cost of the new component recognised in the statement of financial position

The written down value of the component is charged to the income statement and the cost of the new component recognised in the statement of financial position

The written down value of the component is charged to the income statement and the cost of the new component recognised as a separate component in current assets

The written down value of the component is charged to other comprehensive income and the cost of the new component recognised in the statement of financial position

The general rule is that there should be retrospective application of IAS 16 and componentisation. Is it possible to apply componentisation prospectively at the date of transition to IFRS?

Componentisation must be applied retrospectively

Only if local legislation allows it

The component approach may be applied prospectively from the date of transition by applying the ‘fair value as deemed cost’ exemption

Land and buildings only may be split prospectively

Is component accounting relevant to Investment Property as there is no requirement to depreciate Investment Property?

Component accounting is not relevant

Component accounting will apply in respect of the recognition and de-recognition of components when enhancement expenditure is incurred

Component accounting is only relevant if the property is fair valued

Component accounting is only relevant on transition to IFRS

Which of the following assets should also use componentisation where applicable?

Service Concession Arrangements under IFRIC 12 and Leases under IAS 17

Derivative financial assets under IAS 39

Long term contract assets

Financial assets under IFRS 9

IAS 16 and componentisation

What is the rationale behind componentisation of property,plant and equipment?

What factors determine the identification of the component parts of PPE?

What is the minimum requirement for the number of parts of an asset that should be identified?

Why did the IASB modified IAS 16 to require the allocation of components to PPE?

Which accounting principle is used primarily for determining the component parts of PPE?

What is the meaning of ‘significant component’ in the context of PPE?

When a component is replaced, what are the accounting entries in the financial records?

The general rule is that there should be retrospective application of IAS 16 and componentisation. Is it possible to apply componentisation prospectively at the date of transition to IFRS?

Is component accounting relevant to Investment Property as there is no requirement to depreciate Investment Property?

Which of the following assets should also use componentisation where applicable?

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