Can the amount of the outflow be reasonably estimated?
Total Marks 4
Starting Date Wednesday, June 03, 2020
Closing Date Tuesday, June 09, 2020
Question Title Property, Plant and Equipment
Matter of discussion
Under current situation of COVID19, it is expected that changes in the accounting standards will be required now to account for the effects of this pandemic. Considering the current situation, you are required to discuss how this pandemic will affect the disclosure of property, plant and equipment in financial statements of business entities and will it affect the treatment of borrowing cost utilized for development of property, plant and equipment.
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· Your discussion must be based on logical facts.
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MGT401 GDB Solution:
Even if the entity does not see a direct impact of the outbreak, there will be an indirect impact for practically all entities. So, pandemic will affect the disclosure of property, plant and equipment in financial statements of business entities as given below:
• There may be significant changes in the extent or manner in which the asset is used or is expected to be used. For example, machine becomes idle such that its future productive capacity may be affected, machine being used in a manner different from its intended purpose as to produce items to support the battle against COVID-19 which may reduce its future productive capacity.
An entity may incur borrowing costs during an extended period in which it suspends the activities necessary to prepare an asset for its intended use or sale. Financial services have been affected with the inability of borrowers to keep up with repayment schedules.