Please need advise IAS 16 paragraph 37 vs 7 and 9

ibin · 01-11-2010, 08:12 PM

Please assist me on this accounting problem in relation to IAS 16.
We have received a query from our Auditors that we expense some of the assets, which we term them as âminor assetsâ, we do have a policy of expensing some minor assets the policy says âExpenditures on furniture, office equipment, workshop tools and other minor assets are written off during the year of acquisition. However, they are recorded in memoranda registers.

Auditorâs observation
The company has been expensing major classes of Property Plant and Equipment such as Furniture and fixtures, computers, printers, etc contrary to the requirement of paragraph 37 of IAS 16.

Our views
We believe that we still in compliance with IAS 16 as the standard gives room for such a policy through paragraph 7 and 9

ADDITIONAL INFORMATION TO MEMBERS OF THE FORUM

Assets of furniture, office equipment, workshop tools and other minor assets are termed as minor when its individual item cost is less or equal to USD 10,000.

During the year under review 2008/2009 the Company incurred USD 817,957 to procure minor assets and the cost has been expensedâ.

Net Carrying Amount (Net Book Value)as at 30 june 2009 of our Property Plant and Equipment is USD 225,903,294.

Total assets USD 326,774,051

Total income USD 153,893,637
Total expenditure USD 108,970,398
Pre Tax Profit USD 44,923,239

Abdul Majid · 01-27-2010, 04:45 AM

Dear

In the paragph 7 of IAS 16 the standard describe the assets which qalify as a Propety,Plant and Equipment.

As per my perception auditor are right IAS 16 provide exepmption only to insignificant and service able spare parts and equipment,means consumable items.

Please discuss further if not agree.

Majid

Star · 01-27-2010, 02:18 PM

I think your auditors are on right side. Capitalization policy of your company defeat the requirements of IAS-16 because items of PPE mentioned by you are used in more than one accounting period and carry material value in the balance sheet. As per industry practice in Pakistan, almost all the companies are capitalizing these items.

Please follow the link it is relevant to your problem.

http//www.accountancy.com.pk/forum/topic.asp?TOPIC_ID=5388

Regards,

*

wsafca · 01-28-2010, 04:42 PM

<blockquote id="quote">quote<hr height="1" noshade id="quote">Originally posted by ibin
 
Please assist me on this accounting problem in relation to IAS 16.
We have received a query from our Auditors that we expense some of the assets, which we term them as âminor assetsâ, we do have a policy of expensing some minor assets the policy says âExpenditures on furniture, office equipment, workshop tools and other minor assets are written off during the year of acquisition. However, they are recorded in memoranda registers.

Auditorâs observation
The company has been expensing major classes of Property Plant and Equipment such as Furniture and fixtures, computers, printers, etc contrary to the requirement of paragraph 37 of IAS 16.

Our views
We believe that we still in compliance with IAS 16 as the standard gives room for such a policy through paragraph 7 and 9

ADDITIONAL INFORMATION TO MEMBERS OF THE FORUM

Assets of furniture, office equipment, workshop tools and other minor assets are termed as minor when its individual item cost is less or equal to USD 10,000.

During the year under review 2008/2009 the Company incurred USD 817,957 to procure minor assets and the cost has been expensedâ.

Net Carrying Amount (Net Book Value)as at 30 june 2009 of our Property Plant and Equipment is USD 225,903,294.

Total assets USD 326,774,051

Total income USD 153,893,637
Total expenditure USD 108,970,398
Pre Tax Profit USD 44,923,239

<hr height="1" noshade id="quote"></blockquote id="quote">

Dear

Standard does not prescribe the unit of measure for recognition.

There is always a provision to designates some assets as minor assets.

If you purchase a calculator it is not mandatory to capitalize although it is used for more than one year.

All companies establishes a threshhold amount for the capitalization of assets.

Only material capital expenditures needs to be capitalized.

If the threshold as determined by the company is not above the materiality level, it is ok

Your policy is not in contradiction with IAS 16. Thats what I believe. Also read para 9

Regards

Ahmed

Schuaeb · 01-29-2010, 07:07 AM

Dear all,

I agree with the point made by wsafca a company can expense expenditure made on immaterial items (that otherwise meet the criteria for capitalization). Materiality is defined by the company keeping in view its definition (information that my affect the decision making of the users) and not by the auditors.

<blockquote id="quote">quote<hr height="1" noshade id="quote">Originally posted by ibin
 
we do have a policy of expensing some minor assets the policy says âExpenditures on furniture, office equipment, workshop tools and other minor assets are written off during the year of acquisition. However, they are recorded in memoranda registers.
<hr height="1" noshade id="quote"></blockquote id="quote">

In my personal opinion the stated policy may not be in exact conformity by the provisions of relevant standard. It could be said that"expenses that otherwise meet the capitalization criteria below a particular threshold are written-off during the year of purchase" instead of stating to expense a whole class of assets like furniture and office equipment. Again I say I even do not find this change very much necessary however leaves lesser ground for the auditors to disagree.

The opinion is based on what I learnt as an accountancy student and through the practical exposure I had and may be incorrect.

Regards
Shoaib

ibin · 02-11-2010, 01:37 PM

I thank you all for your useful contributions, we have also wrote to our local accountants association and upon receiving their professional opinion we shall work on our policy. However, what i have received in this forum I think we will have to review the policy.

Thank you