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CMA Part 1
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1. External financial reporting decisions
2. Planning, budgeting, and forecasting
3. Performance management
4. Cost management
5. Internal control
6. Technology and analytics
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1.2.4.1 Learning outcomes
Achievable CMA Part 1
1. External financial reporting decisions
1.2. Financial transactions
1.2.4. Property, plant, and equipment
Our CMA Part 1 course is currently in development and is a work-in-progress.

Learning outcomes

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The learning outcome statements related to property, plant and equipment are as follows:

  1. Determine the effect on the financial statements of using different depreciation methods
  2. Recommend a depreciation method for a given set of data
  3. Demonstrate an understanding of the accounting for impairment of long-term assets.

Although the learning outcome statements only refer to the depreciation methods, it is best to explain the context of property, plant equipment from initial recognition to the subsequent depreciation and impairment procedures. Initial recognition sets the carrying amount, depreciation allocates cost over its life, and impairment writes it down when unrecoverable - each is covered later in this course.

Initial recognition of property, plant, and equipment (PPE)

  • Recorded at cost at acquisition
  • Cost includes purchase price, directly attributable costs, and initial estimates of dismantling/removal
  • Excludes costs for opening new facilities, advertising, or administration

Depreciation methods

  • Allocates depreciable amount over asset’s useful life
  • Common methods:
    • Straight-line: equal expense each period
    • Declining balance: higher expense in early years
    • Units of production: based on usage or output
  • Choice affects reported profit, asset values, and ratios

Effect of depreciation methods on financial statements

  • Straight-line: smoother expense, higher net income early
  • Declining balance: lower early net income, higher accumulated depreciation
  • Units of production: matches expense to asset use

Recommending a depreciation method

  • Match method to asset usage pattern
  • Consider industry practices, asset type, and management intent

Impairment of long-term assets

  • Occurs when carrying amount exceeds recoverable amount
  • Recoverable amount: higher of fair value less costs to sell or value in use
  • Impairment loss recognized in profit or loss, asset written down to recoverable amount
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Next  | 1.2.4.2 Initial recognition of PPE
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Learning outcomes

The learning outcome statements related to property, plant and equipment are as follows:

  1. Determine the effect on the financial statements of using different depreciation methods
  2. Recommend a depreciation method for a given set of data
  3. Demonstrate an understanding of the accounting for impairment of long-term assets.

Although the learning outcome statements only refer to the depreciation methods, it is best to explain the context of property, plant equipment from initial recognition to the subsequent depreciation and impairment procedures. Initial recognition sets the carrying amount, depreciation allocates cost over its life, and impairment writes it down when unrecoverable - each is covered later in this course.

Key points

Initial recognition of property, plant, and equipment (PPE)

  • Recorded at cost at acquisition
  • Cost includes purchase price, directly attributable costs, and initial estimates of dismantling/removal
  • Excludes costs for opening new facilities, advertising, or administration

Depreciation methods

  • Allocates depreciable amount over asset’s useful life
  • Common methods:
    • Straight-line: equal expense each period
    • Declining balance: higher expense in early years
    • Units of production: based on usage or output
  • Choice affects reported profit, asset values, and ratios

Effect of depreciation methods on financial statements

  • Straight-line: smoother expense, higher net income early
  • Declining balance: lower early net income, higher accumulated depreciation
  • Units of production: matches expense to asset use

Recommending a depreciation method

  • Match method to asset usage pattern
  • Consider industry practices, asset type, and management intent

Impairment of long-term assets

  • Occurs when carrying amount exceeds recoverable amount
  • Recoverable amount: higher of fair value less costs to sell or value in use
  • Impairment loss recognized in profit or loss, asset written down to recoverable amount

More from Property, plant, and equipment

  • Initial recognition of PPE