PPE and Cash Flow Statements

                                                                Property, Plant and Equipment

The objective of this Standard is to prescribe the accounting treatment for property, plant and equipment so

that users of the financial statements can discern information about an entity’s investment in its property, plant

and equipment and the changes in such investment. The principal issues in accounting for property, plant and

equipment are the recognition of the assets, the determination of their carrying amounts and the depreciation

charges and impairment losses to be recognised in relation to them.

Property, plant and equipment are tangible items that:

(a) are held for use in the production or supply of goods or services, for rental to others, or for administrative

purposes; and

(b) are expected to be used during more than one period.

The cost of an item of property, plant and equipment shall be recognised as an asset if, and only if:

(a) it is probable that future economic benefits associated with the item will flow to the entity; and

(b) the cost of the item can be measured reliably.

Measurement at recognition: An item of property, plant and equipment that qualifies for recognition as an asset

shall be measured at its cost. The cost of an item of property, plant and equipment is the cash price equivalent

at the recognition date. If payment is deferred beyond normal credit terms, the difference between the cash

price equivalent and the total payment is recognised as interest over the period of credit unless such interest is

capitalised in accordance with IAS 23.

The cost of an item of property, plant and equipment comprises:

(a) its purchase price, including import duties and non-refundable purchase taxes, after deducting trade

discounts and rebates.

(b) any costs directly attributable to bringing the asset to the location and condition necessary for it to be

capable of operating in the manner intended by management.

(c) the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is

located, the obligation for which an entity incurs either when the item is acquired or as a consequence of

having used the item during a particular period for purposes other than to produce inventories during that

period.

Measurement after recognition: An entity shall choose either the cost model or the revaluation model as its

accounting policy and shall apply that policy to an entire class of property, plant and equipment.

Cost model: After recognition as an asset, an item of property, plant and equipment shall be carried at its cost

less any accumulated depreciation and any accumulated impairment losses.

Revaluation model: After recognition as an asset, an item of property, plant and equipment whose fair value

can be measured reliably shall be carried at a revalued amount, being its fair value at the date of the revaluation

less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Revaluations

shall be made with sufficient regularity to ensure that the carrying amount does not differ materially from that

which would be determined using fair value at the end of the reporting period.

If an asset’s carrying amount is increased as a result of a revaluation, the increase shall be recognised in other

comprehensive income and accumulated in equity under the heading of revaluation surplus. However, the

increase shall be recognised in profit or loss to the extent that it reverses a revaluation decrease of the same

asset previously recognised in profit or loss. If an asset’s carrying amount is decreased as a result of a

revaluation, the decrease shall be recognised in profit or loss. However, the decrease shall be recognised in

other comprehensive income to the extent of any credit balance existing in the revaluation surplus in respect of

that asset.

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

amount is the cost of an asset, or other amount substituted for cost, less its residual value. Each part of an item

of property, plant and equipment with a cost that is significant in relation to the total cost of the item shall be

depreciated separately. The depreciation charge for each period shall be recognised in profit or loss unless it is

included in the carrying amount of another asset. The depreciation method used shall reflect the pattern in

which the asset’s future economic benefits are expected to be consumed by the entity.

The residual value of an asset is the estimated amount that an entity would currently obtain from disposal of

the asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the

condition expected at the end of its useful life.

To determine whether an item of property, plant and equipment is impaired, an entity applies IAS 36

Impairment of Assets.

The carrying amount of an item of property, plant and equipment shall be derecognised:

(a) on disposal; or

(b) when no future economic benefits are expected from its use or disposal

                                                Cash Flow Statements

The cash flow statement (or statement of cash flows) is one of the main financial statements. The cash flow statement explains how a company's cash and cash equivalents have changed during a specified period of time.

The cash flow statement is organized into three sections:
      1. Cash provided and used in operating activities,
      2. Cash provided and used in investing activities,
      3. Cash provided and used in financing activities.

Under the indirect method of preparing and presenting the cash flow statement, the operating activities section begins with the net income during the period of the statement. Since the company's net income was calculated and reported under the accrual basis of accounting, the amount of net income needs to be adjusted to a cash amount. The first adjustment is to add back the amount of depreciation, depletion, and amortization expenses, since these expenses had reduced net income but did not reduce the company's cash. Next, any gains or losses on the sale of long-term assets used in the business are listed, since the entire amount received from the sale is reported as investing activities. Lastly, the changes in the current assets (other than cash) and the changes in current liabilities are listed. For example, if inventory has increased, the amount of the increase in inventory is subtracted because additional cash would have been used to increase the amount of inventory. The amount by which a current liability decreased is also subtracted, since it is assumed that cash was used to decrease the current liability. All of the items reported in the operating activities section are combined into a final number: the net amount of cash provided by operating activities.

The second section of the cash flow statement reports the investing activities. The changes in the long-term asset account balances are reported in this section. For example, if a company's long-term investment in another company has increased during the period, the amount of the increase is reported as a negative amount in the investing activities section—an indication that cash was used. The same is true for the purchase of property, plant and equipment for use in the business—an increase in the equipment account indicates that cash was used to purchase equipment. If a long-term investment or plant asset is sold, the entire proceeds from the sale are reported as a positive amount in the investing activities section. This indicates that cash was provided or increased from the sale. (Any gain or loss on the sale is an adjustment to the net income reported in the operating activities section of the statement.)

The third section of the cash flow statement contains the company's financing activities. This section lists the changes in long-term liabilities and stockholders' equity. For example, if Bonds Payable has increased by $1,000,000, it is assumed that cash of $1,000,000 was provided. The $1,000,000 will appear as a positive amount in the financing activities section of the statement. If Bonds Payable decreased, then the amount of the decrease will be reported as a negative amount—indicating that cash was used to retire the bonds. The amount of dividends declared and paid will also appear as a negative amount, since cash was used. If the company sells some of its shares of stock, the amount received will be reported as a positive amount since it provided cash. If the company purchases some of its shares of stock, the amount will appear as a negative amount in the financing activities section because cash was used.

In addition to the three main sections of the cash flow statement, it is also necessary to disclose significant noncash transactions (e.g. exchanging stock for land) and other items required by generally accepted accounting principles.

Bank Reconciliation Statement

Definition of 'Bank Reconciliation Statement'

A form that allows individuals to compare their personal bank account records to the bank's records of the individual's account balance in order to uncover any possible discrepancies.

CLOSING ENTRIES

To update the balance in the owner's capital account, accountants close revenue, expense, and drawing accounts at the end of each fiscal year or, occasionally, at the end of each accounting period. For this reason, these types of accounts are called temporary or nominal accounts. Assets, liabilities, and the owner's capital account, in contrast, are called permanent or real accounts because their ending balance in one accounting period is always the starting balance in the subsequent accounting period. When an accountant closes an account, the account balance returns to zero. Starting with zero balances in the temporary accounts each year makes it easier to track revenues, expenses, and withdrawals and to compare them from one year to the next. There are four closing entries, which transfer all temporary account balances to the owner's capital account.

1. Close the income statement accounts with credit balances (normally revenue accounts) to a special temporary account named income summary.
2. Close the income statement accounts with debit balances (normally expense accounts) to the income summary account. After all revenue and expense accounts are closed, the income summary account's balance equals the company's net income or loss for the period.
3. Close income summary to the owner's capital account or, in corporations, to the retained earnings account. The purpose of the income summary account is simply to keep the permanent owner's capital or retained earnings account uncluttered.
4. Close the owner's drawing account to the owner's capital account. In corporations, this entry closes any dividend accounts to the retained earnings account. For purposes of illustration, closing entries for the Greener Landscape Group follow.