Asset Recognition and Revenue Revaluation

Question 1

Recognition criteria for Assets in B.S
4 Points (IAS 38), Define Assets

IAS 38

Answer 1

• LEGAL Position
• ECONOMIC Substance
• MEASUREBILITY
• MEASUREMENT UNCERTAINTY
  PRESENT Economic Resource –> Controlled by an Enterprise –> as a result of PAST Events –> that has the potential to Produce FUTURE Economic BENEFITS.

Question 2

VALUATION of NON-CA (Tangible)
- IAS16 = Choose

• IASB = F.V
• IAS36 & 38 = Specify a particular method
• IFRS13 = Value in Use & CURRENT Cost = FAIR Value ( Variation = deal with the variation Uncertainty)

Answer 2

Tangible = DEPRECIATION
Intangible = AMORTIZATION = (Can ONLY be REVALUED if there is an ACTIVE Market)
BOTH must Recognise Impairment
Any Reversal IMPAIRMENT: T= Recognized, IN = Recognized except Goodwill

Question 3

VALUATION of GOODWILL: NON-CA (INTangible)
IAS 36: IM, IAS 38: IN, IFRS 3: Buis.Com (scope for Variation)
- Define it

Answer 3

IAS 36: State them as IMPAIRMENT of Assets

IAS 38: as INTANGIBLE Assets
+YES AMORTISATION (Deemed to have LIMITED Useful life =>annual charge to I.S) /apart from GW
-unless the value is UNCERTAIN = AMORTISATION must be ADDED back into O.P & INT.NON-CA

IFRS 3: as Business Combinations
+GW should be CAPITALISED + ANNUALLY Reviewed for IMPAIRMENT (=RECOGNISED and Rcognised in R.E + O.P too) <– REDUCED -> EPS Reduction= IMP Loss / Number of Shares
+NO AMORTISATION for any INT.Assets

• Held on an ONGOING Basis
• Lack Physical SUBSTANCE
• Representing the VALUE of the BUSINESS as a whole
• also DIFFERENT to other INT. –> CANNOT be Sold WITHOUT Disposing of the WHOLE Business / Business Segment
  (Purchase Goodwill / Homegrown Goodwill)
  INT. that are INCAPABLE of Separate Valuation at the AQU.Day = form PART of the Goodwill
  + Goodwill= COST - P% *(S’s F.Valued Net Assets on AQU.Day)
  + IF Intangibles could NOT be Reliably Determined = must EXCLUDE it from N.A

Question 4

IAS 38 on R&D Recognition

Answer 4

ALL R = EXPENSE in I.S
- SAME for D unless:
- Technical + Comercial Viability of the PROJECT CAN be Demonstrated & a Clear Line can be DRAWN between the R & D PHASES
= CAPITALISED + AMORTISATION will Commence (product goes into PRODUCTION)

Question 5

Subjectivity of Annual IMP. of GW
B.V of CGU > 2 Benchmarks

Scope for the 2 Benchmarks also

Answer 5

As the B.V of the CGU (Cash Generating Unit) GW belong to –> is Compared to 2 BENCHMARKS:
- Fair Value LESS Costs to sell the CGU
- Value in Use

IF B.V > BENCHMARKS = IMP = Deemed to have OCCURRED.
-USE the HIGHER Benchmark to Deduct from the B.V

• Difficult to say <- in the ABSENCE of an ACTIVE Market + ROUGH&READY PROXY
• PV of the CGU’s Future C.F -> UNRELIABLE Estimate & depends on Assessment of RISK (Discount.r)

Question 6

Purchased vs Home Grown Goodwill

Answer 6

Purchased:
- Goodwill on AQu. = RECOGNISED in C-B.S
- A Transaction exists to measure it againse = PAST EVENT
For the PURCHASER: Goodwill will be RECOGNISED as an Addition to C.E (as ^ASSETS –>for ROCE)
Home-grown:
- Goodwill developed INTERNALLY = NOT Recognised in B.S
- CANNOT be measured Reliably