Lkas 16 property, plant & equipment

LKAS – 16 PROPERTY, PLANT, AND EQUIPMENT

Prepared By K.M.T.Nishshanka Muhandiram 2

WHAT IS PPE ?• PPE are tangible assets

• Are held for use in the production,

supply of goods or services,rental to others, oradministrative purpose

and

• To be used more than one year


COST OF PPE

• Purchase cost• Deduct any trade discounts and rebates• Other direct cost• Cost of dismantling and removing the item and

restoring the site on which it is located.


AUDIT PROCEDURES OVER PPE

• Check and document internal controls over PPE

• Decide the materiality level .• Select an appropriate sample and document

the sample size.• Go through the accuracy and the completeness

of fixed assets register.


AUDIT PROCEDURES OVER LAND

• Inspect the board resolutions• Peruse the land deeds and attach copies in the file.• If the deeds are not available make notes.• Carefully check the value as per land deed together with stamp

duties with ledger.• If different properly, note down the both values in the workings.• If the land is on lease term obtain lease agreements• peruse the lease payments with bank statements.


AUDIT PROCEDURES OVER LAND

• Frequently asked question on F/H land acquisition.

Is the deed refer to property accurately? Is the deeds are under clients name? Is the seal of land registry is affixed to the deed?If the title passes through a series of deeds, is the sequence complete?


AUDIT PROCEDURES OVER BUILDING

• Purchased Building

Check and document the purchase value of the building with suppliers invoices and bank statements.


AUDIT PROCEDURES OVER BUILDING

Continued…………..

• Constructed Building Coming under CWIP


AUDIT PROCEDURES OVER MOTOR VEHICLES

• IF the bulk of vehicles have been purchased need to have a proper breakup with

values.Peruse motor vehicles registration books(check the engine number, registration

number, chassis number).If locally purchased check the value with supplier’s invoice.


AUDIT PROCEDURES OVER MOTOR VEHICLES

• Continued…………• If imported vehicles

separately identify the purchase price , Cusdecs values conversion rates, capitalization of other costs.

• Document the purpose of purchasing the vehicles .

• Identify the leased vehicles separately and show separately in your workings


AUDIT PROCEDURES OVER IMPORTED PLANT AND MACHIERIES AND OTHER

EQUIPMENTS

Inspect the following for the selected sample and document it.

• Purchase cost with commercial invoice and CUSDECs values.• Check the capitalization of non refundable taxes.• Check other directly attributable costs e.g Installation

charges, handling charges, transportation, direct labour if any etc.


AUDIT PROCEDURES OVER LOCALLY PURCHASED PLANT AND MACHIERIES

AND OTHER EQUIPMENTS

• Inspect the followings and document

Obtain the tax invoices. If VAT which can be claimed have

been capitalized, remove passing journal entries.


CAPITAL WORK IN PROGRESS

• Building construction

Note down the location ,nature of construction and date of commencement

If contracted out

Peruse the constructions agreement



Continued…………….

Check the values taken into the account is on appropriate basis i.e. percentage of completion.

peruse the certificates of value of work done.

Advances paid and retention money held.



Continued……….

If the premises are partly being occupied while the construction of the other part is going on

cost of that part should be estimated and transfer to PPE.

If fully completed obtain the certificate of conformity from the contractors.



Continued ……………Power Plant Includes • Civil works –construction

• Installation of electrical and mechanical equipment and commissioning.



Continued…Tools and Equipment–Internally manufacturing

Direct Labor Direct Materials

Absorption of fixed overheads –absorption ratio.Ensure that general admin costs are not included.


INVESTMENT PROPERTIES

• Properties held for

»Earning rentals»Capital appreciation


INVESTMENT PROPERTIES• Can be Building or Land

If the building is under construction show it as CWIP• Under LKAS 40

initially recognize as costAfter the initial recognition - cost or fair value model.

Under Section 16 of SMEs standardFV, If FV cannot be ascertained treat it as PPE.

Should be disclosed the rentals earned from IP


IMPAIRMENT• IF the assets’ carrying value exceeds its

recoverable value Impairment

• Under SLFRs need to annually do the impairment testing.

• Under SMES need to review if an only indicators are there.


REVALUATION

• Check whether there is a need for revaluation.• Revaluation should be done by qualified personnel • Obtain the revaluation report.• If revalue entire class of assets should be revalued.• Document in the workings the name and

qualifications of the valuer.• Show the Net increase in the Assets Account and

the revaluation reserve.


REVALUATION

• REVALUATION IS ALLOWED UDER SMEsExample ABC LTD purchased a building on 01/01/2013

at Rs 20,000,000 .Estimated useful life time of the building is 20 yrs. On 01/01/2016 revalued the building Rs 22,000,000 Calculate the Revaluation reserve and the depreciation as at 31.12.2016..


DEPRECIATION

• Go through the depreciation policy and ensure that company has calculated the depreciation according to their policy.

• Start from the date of use to date of disposal


COMPONENT ACCOUNTING

• Component depreciation only if major parts of an item of PP&E

– have “significantly different patterns of consumption of economic benefits”


DISPOSALS OF ASSETS All disposals should be identified and the

disposal profit or loss should be separately calculated.

Peruse Board Resolutions. Inspect the sales invoices and bank

statements for sales receipts.


DISPOSALS OF ASSETS

Continued……………..Document the details

• Year of purchase• Cost of the assets• Sales proceeds• Accumulated depreciation• Profit or loss on disposals


INTANGIBLE ASSETS

• Is identifiable non monetary assets without physical substance.

Computer softwareBrand names

–Additions to I /A should be vouched.–Should be amortized over the useful life

of the intangible assets.


ASSSETS HELD FOR SALES

• Should identify whether there are any assets to be sold.

• If SLFRs follow , identify the recognition criteria as per the standard.

• If so, separately show the assets


GENERAL PROCEDURES

• Checked the maintenance of F/A register.• Ensure all the additions have been properly

recorded. (Board Minutes, payment vouchers)• Ensure cost have been correctly recorded.• Tax which can be recovered have been eliminated.• Ensure that F/H assets are shown separately from

L/A.• Obtain confirmation if a physical existence of a

material assets is doubtful.


THANK YOU

Education

Lkas 16 property, plant & equipment