FAC1502 Property, Plant and Equipment Notes

8/16/2019 FAC1502 Property, Plant and Equipment Notes

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GROUP 3E

FAC1502-SEMESTER 1-2016

UNISA

PROPERTY PLANT & EQUIPMENT

[PPE]Prepared by E-TUTOR: RAMASHAU ALUWANI

UNISA E-TUTOR: A. RAMASHAU FAC1502-S1-16-GROUP 3E 12016-04-28


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STARTING LINE-UP

• Introduction

• PPE and Cost Price

• Depreciation

• Examples• Tips on PPE

• Must Do Exercises

•

Self Assessment• Weekly Activity

• Inspiration quotes



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INTRODUCTIONDear Honourable Members

Judging by the previous examination papers this is one of the topic that YOU

MUST KNOW. Every semester the examiner used different strategy to test

your knowledge refer to selected Previous question papers on slide 13 for

more information.

There is no need to memorize but to understand the golden rules around PPE.

Eric Buttterworth once said “Behind every brilliant performance

there were countless hours of practice and preparation”

Kind regards

Mr. Ramashau Aluwani

UNISA E-Tutor: FAC 1502 (Group 3E)

I find that the harder I work, the more luck I seem tohave. Thomas Jefferson



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PROPERTY PLANT & EQUIPMENT-PPE• Non-current assets are acquired with the intention of carrying out,

supporting of facilitating operations.• Non current assets have an operating lifespan of more than one year and

can be used over and over again.

• They are used but not consumed and not used up in the short term

• Non current assets may be tangible, intangible or financial assets

• Tangible non current assets are assets that you can see and touch such asbuildings, machinery, vehicles and furniture. They are shown in the

Statement of Financial Position under Property, Plant & Equipment

• PPE becomes obsolete after severally years and must be written off

(depreciate) over their expected economic life.

• When an asset can no longer operate economically, it is replaced.

• The proceeds on the sale of an asset are normally used to partly finance

the new asset.



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COST PRICE OF PPE

The cost price of PPE consists of: Purchase price, including all expenses incurred in

getting the asset to the premises

All the installation costs including, for example, the

wages of the business's own technical personnel any other expenses incurred in getting the asset

operational

Cost price (historical cost price) - remain constantthroughout the life of the asset.

Financing costs on loans raised to acquire theasset are not included in the cost price of theasset.



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DEPRECIATION

• Non-current assets are acquired with the purpose of generatingincome

• Depreciation is the systematic allocation of the depreciable amountof an asset over its useful life.

• Once the depreciable amount has been established the method of

allocating the depreciable amount must be decided on.• Depreciation is an expense which allows for the matching of the

original cost of non-current asset against income generated by theasset.

• If the asset was used for only a part of the accounting period, the

depreciation is calculated on the number of months for which theasset was used.

• The annual amount written off (Depreciation) is treated as anexpense in the profit and loss account



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METHODS OF CALCULATING

DEPRECIATIONThere are various methods of determining the amount of annual depreciation to bewritten off.

Straight-line (fixed Instalment) method Cost price is written of over the expected useful life (in years) of the asset.

If the asset is expected to have some value after its economic life, this value is known asresidual value. To calculate the depreciation, the Residual value must first be deducted fromthe cost of the asset before the depreciation rate is applied.

Diminishing balance (Reducing-balance) method The annual depreciation is calculated on the carrying amount of asset

The carrying amount is obtained by deducting the accumulated depreciation on the asset fromthe original cost of the asset

The depreciation rate is then applied to the carrying amount to calculate the depreciation.

Production unit method In this case the units produced by the machine are written off annually as a percentage of the

units the machine is expected to produce over its total life span.

Formula for calculating depreciation=Units produced during the year divide by Expectednumber of units to be produced over lifespan x Cost Price



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EXAMPLE/FORMAT OF NOTE TO PPE

UNISA E-TUTOR: A. RAMASHAU FAC1502-S1-16-GROUP 3E 8

Land &

Buildings

Vehicle Machinery Furniture Total

Carrying amount: Beginning of

year

150 000 29 000 23 000 14 000 216 000

Cost 150 000 60 000 33 000 22 000 265 000

Accumulated depreciation - (31 000) (10 000) (8 000) (49 000)

Additions (Purchases) 30 000 30 000

Disposals (Sold) (5 200) (5 200)

Depreciation - (10 200) (7 100) (2 200) (19 500)

Carrying amount: End of year 150 000 13 600 45 900 11 800 221 300

Cost 150 000 42 000 63 000 22 000 277 000

Accumulated Depreciation - (28 400) (17 100) (10 200) (55 700)

2016-04-28


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STATEMENT OF FINANCIAL POSITION

(ONLY PPE)


20.5 20.4

Assets Notes R R

Non-Current Assets

Property, Plant & Equipment 3 221 300 216 000

Other Financial assets xxxxxx xxxxxxx

2016-04-28


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EXERCISE 11.1 – STUDY GUIDE (PAGE 231)

•

Suppose Bilgredon bought a machine on 1 June 20.0for R500 00 with a discount of R60 00, Transport costsof R15 000 and Installation costs of R 5 000. Thedepreciable cost price of the machine is R (500 000 -60 000 + 15 000 + 5 000) = R 460 000. The estimated

lifespan is 5years. (Bilgredon’s Financial year ends on31 May.)

Required

•

Journal entries• Statement of Financial Position

• Note to PPE



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DISPOSAL OF PPE

Exercise 11.3 : Study Guide (Page 243)

Scrapping an asset (at the end of the financial year) whichhas not been written off (depreciated) entirely.

•

Suppose that Bilgredon bought a machine costingR460 000 on 30 November 20.0. They decided to scrapthe machine at the year ended 31 May 20.5 when theaccumulated depreciation amounted to R402 500.

Required:

(a) Journal entries and Ledger accounts

(b) Note to PPE



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TIPS ON PPE

• Profits or losses on disposal of assets must be disclosed

separately in the Statement of Comprehensive Income.

• You may be required to prepare the following General

Ledger Accounts such as: Equipment, Vehicle, Accumulated

Depreciation, Depreciation and Assets Realisation Account.

Refer to Question 1 of Tutorial letter 102• Sometimes you may be given ledger accounts prepared and

required to prepare the Property Plant & Equipment Note to

the Financial Statement.

•Always read the question and apply the correct methodwhen calculating depreciation.

• Previous Exam Question papers are very important

• Note to PPE, Easy marks!!!



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REVISION EXERCISES Previous Question Papers (Available under Official Study Material Link)

Question 4 (May-June 2013) Question 3 (Oct-Nov 2013)

Question 3 (May-June 2014)

Question 4 (Oct-Nov 2014)

Question 2 (May-June 2015)

Question 3 (Oct-Nov 2015) Tutorial Letters

Tutorial Letter 102 (Question 1)

Study Guide

Revision Exercise 1 (Page 248) Revision Exercise 2 (Page 250-251)

Revision Exercise 3 (Page 252-253)

Revision Exercise 4 (Page 255)



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GROUP 3-ACTIVITY OF THE WEEK

• You are required to attempt Question 3 -November 2015 Exam Paper

• You must submit on/before 02-MAY 2016

• Remember, I also don’t have solution to previous question papers, therefore lets all

contribute and assist each other to get

possible solution to this question.• Make sure you read the required first and

apply principles thereof-PPE –Study Unit 11

2016-04-28 UNISA E-TUTOR: A. RAMASHAU FAC1502-S1-16-GROUP 3E

14


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REFERENCES

Please note for more information refer to the

following study materials:

Tutorial letters

Study Guide -Study Unit 11 (PPE) from page 228

Previous Exam Papers

Prescribed Textbook



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TICKBOX/SELF ASSESSMENT

STOP, ITS ASSESSMENT TIME!


NO. TOPIC STATUS

1. STUDY UNIT 1 -5 Done

2. STUDY UNIT 6 Done






8. STUDY UNIT 15 NOT DONE X

9. STUDY UNIT 16 & 17 Done

10. ASSIGNMENT NO.1 Done

11. ASSIGNMENT NO.2 Done

2016-04-28


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INSPIRATIONAL QUOTES

“If you talk to a man in a language he understands, that goes tohis head. If you talk to him in his language, that goes to hisheart.” Nelson Mandela

Great dancers are not great because of their technique, theyare great because of their passion. Martha Graham

You can never quit. Winners never quit, and quitters never win.Ted Turner

It does not matter how you start the race “Comrade marathon” what matters is how you finish the race. Unknown

Do something wonderful, people may imitate it. AlbertSchweitzer

2016-04-28 UNISA E-TUTOR: A. RAMASHAU FAC1502-S1-16-GROUP 3E 17


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COUNTDOWN TO RIO EXAMS !!!

“PRACTICE MAKES IT PERMAMENT”!

THANK YOU


FAC1502 Property, Plant and Equipment Notes

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