IAS 16 plant, property and Equipment

 

IAS 16: PLANT, Property and Equipment

IAS 16 is standard to presecribe the accounting treatment for property, plant and equipment hence users of the financial statements can use information about an entity's investment in its property, plant and equipment and the changes in such investment.

The principle issues in accounting for property, plant and equipment are the recognition of the assets, the determination of their carrying amounts and the depreciation chargres are to be recognized.

1. Property, plant and equipment are tangible
2. Cost of an item of property, plant and equipment shall be recognized as an asset
3. Cost of property, plant and equipment includes:

• Purchase price
• Import duties
• Non-refunable purchases taxes, after deducting trade Discounts and rebates.
• Cost incurred to bring it to the point of allocation

Measurement after recognition:

Plant , property and equipment can be measured from any one of the following models

1. Cost Model
2. Revaluation Model

Cost Model

Cost model is that plant, property and equipment shall be carried at its cost less accomulated depreciation and any accumulated impairment losses

Revaluation Model

Under the revaluation model, revaluations should be carried out regulary, so that the carrying amount of an asset does not differ materially from its fair value at the balance sheet date [IAS16.31]

If an item is revalued, the entire class of assets to which that asset belongs should be revalued [IAS16.36]

Depreciation

It is systematic allocation of the depreciable amount of an asset over its useful life.

1. The depreciation charge for each period shall be recognized in profit or loss unless it is included in the carriying amount of another asset. The depreeiation method used shall reflect that pattern in which the asset's future economic benefits are expected to be consumed by the entity.
2. The resdual value of an asset is the estimated amount that an entity would currently oabtain from disposal of the asset, after deducting the esimated costs of disposal, if the asset were already of the age and in the condition expected at  the end of its useful life

Disclosure

For each class of property, plant and equipment disclose [IAS 16.73]

Basis for measuring carring amount 

Depreciation methods used useful lives or depreciation rates gross carrying amount and accumulated depreciation and impairment losses 

Cash flow satement

                                                     STATEMENT OF CASH FLOWS


INTRODUCTION:\


        Cash flow is an important consideration for all companies, but particularly for a giant company like Kraft Foods Insurance as it continuously expands its global reach Kraft Foods Insurance 2007 annual report includes its statement of cash flows . The statement is one of the major financial statements required for companies to provide information to investors, creditors, and other that is in compliance with generally accepted accounting principles 


PURPOSE OF THE STATEMENT:


         The objective of a statement of cash flows is to provide information about the cash receipts and cash payments of a business entity during the accounting period. The term cash flow includes both cash receipts and payments. In a statement of cash flows, information about cash receipts and cash payments is classified in terms of the company's operating activities , investing activities , and financing activities . The statement of cash flows assists investors, creditors, and others in assessing such factors as:

• The company's ability to generate positive cash flows in future periods.
• The company's ability to meet its obligations and to pay dividends.
• The company's need for external financing.
• Reasons for differences between the amount of net income and the related net cash flow from operating activities.
• Both the cash and non cash aspects of the company's investment and financing transaction for the period.
• Causes of the change in the amount of cash and cash equivalents between the beginning and the end of the accounting period.

         For this reason, the statement of cash flows is useful to virtually everyone interested in the company's financial health, short and long term creditors, investors, management and both current and prospective competitors.
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CLASSIFICATION OF CASH FLOWS


       This cash flows shown in the statement are presented in three major categories 

• Operating activities
• Investing activities 
• financing activities

OPERATING ACTIVITIES:


       The operating activities section shows the cash effects of revenue and expense transactions.
Stated another way, the operating activities section of the statement of cash flows includes the cash effects of those transactions reported in the continuing operations section of the income statement.


Cash flows from operating activities include.


CASH RECEIPTS

• Collections from customers for sales of goods and services 
• Interest and dividends receives
• Receipts from operations

CASH PAYMENTS

• Payment to suppliers of merchandise and services, Including payments to employees
• Payment of interest
• Payments of income taxes
• expenditures relating to operations

INVESTING ACTIVITIES


            Cash flows relating to investing activities present the cash effects of transactions involving plant assets, intangible assets, and investments . They include


CASH RECEIPTS

• Cash proceeds form selling investment and plant and intangible assets
• Cash proceeds from collecting principal amounts on loans 

CASH PAYMENTS

•  Payments to acquire investments and plant and intangible assets
• Amounts advanced to borrowers

FINANCING ACTIVITIES

Cash flows classified as financing activities include the following items that result from debt and equity financing transactions.

CASH RECEIPTS

• Proceeds from both short term and long term borrowing 
• cash received from owners 

CASH PAYMENTS

• Repayment of amounts borrowed 
• Payments to owners such as cash dividends

Methods of cash flow statement

• Direct Method
• Indirect Method 

Specimen of Cash Flow Statement

Indirect Method