Accounting for other Assets

Question 1

When can an intangible asset be recognised?

Answer 1

1. When it meets the definition, and
2. Probable to expect future economic benefits, and
3. Cost can be measured reliably.

Question 2

What is the initial measurement of intangibles?

Answer 2

Initial Measurement = Cost + directly attributable costs

• If a company purchases a trademark from another entity, the initial measurement is cost of trademark + legal fees or other directly attributable costs.
• If a company internally develops a patent, the initial measurement is costs incurred during development directly attributable to creating the patent like research and development expenses.

Question 3

When can goodwill be recognised in the SFP?

Answer 3

1. When an entity acquires another company and,
2. The purchase price paid exceeds the fair value of the identifiable net assets acquired.

Internally generated goodwill cannot be recognised and is specifically prohibited by IAS38.

Question 4

What is research?

Answer 4

The original investigation undertaken to gain knowledge.

It cannot be capitalised and must be expensed as it is not certain future economic benefits will be generated.

Question 5

What is development?

Answer 5

The application of initial research.

It can be capitalised if certain criteria are met.

Question 6

What criteria needs to be met for the development of an asset to be capitalised?

PIRATE

Answer 6

• Probable future economic benefits will be generated
• Intention to complete and use / sell the asset
• Resources adequate and available to complete
• Ability to use / sell the asset
• Technical feasibility of completing the asset
• Expenditure can be measured reliably

Question 7

Name 5 costs that can’t be capitalised with the intangible?

Answer 7

1. Selling
2. Admin
3. Other general overheads
4. Staff training
5. Operating losses

Question 8

What are the subsequent measurements after initial recognition?

Answer 8

Cost = cost - accumulated amortisation
Revaluation = fair value - accumulated amortisation

Question 9

How often must impairment reviews be carried out?

Answer 9

Annually

Question 10

What does IAS36 state in relation to Impairment?

Answer 10

An entity should annually look for indicators of impairment of assets and if it finds any indicators then an impairment test should be carried out.

Question 11

When does impairment occur?

Answer 11

When the carrying value of an asset is higher than its recoverable amount

Question 12

What are the external indicators or impairment?

Answer 12

• significant fall in the market value
• adverse effect on the business
• increases market interest rates

Question 13

What are the internal indicators of impairment?

Answer 13

• evidence of obsolescence or physical damage
• asset is not used as much as before
• assets performance will be worse than expected

Question 14

How do you do an impairment review?

Answer 14

1. Calculate the Recoverbale Amount and compare it to the Carrying Value (NBV)
2. Recoverable Amount: The higher of an asset’s fair value less costs to sell (FVLCS) and its value in use (VIU).
3. If recoverable amount is lower than the carrying value, then the asset should be reduced in value - impaired

Question 15

When is an impairment loss disclosed?

Answer 15

In the year it is recognised, it must be disclosed in the notes.

Question 16

How do you value inventory?

Answer 16

The lower of the cost and the net realisable value (selling price - cost of completion - selling costs)

Question 17

Why might inventory be sold for less than they cost?

Answer 17

• Increase in cost or a fall in selling price
• Inventories have deteriorated or become obsolete
• Part of the company’s marketing strategy
• Errors in production or purchasing