Assets

Question 1

Impairment

Answer 1

IAS 36 states an asset is impaired if its recoverable amount is less than its carrying amount.

The recoverable amount is highr of FV minus costs to sell or vale in use (PV of future cash flows)

Question 2

Impairment of an asset that has previously been revalued to FV

Answer 2

Revaluation goes through OCI (the revaluation revserve)

An asset previously revalued up, the impairment is firstly charge to the OCI up to amount of previouse revaluation/ amount in RR

The remaining amount is charged to P&L

CR PPE 800
DR OCI 700
DR P&L 100

Question 3

Investment property vs PPE -

Answer 3

IP : assets held to earn rental income/ capital appreciation (passive income)

PPE: assets used by company to produce goods/ services run the business

IP: If owner occupation is insignificant

PPE: if significant services supplied (eg. cleaning/ maintenance)

Question 4

Asset Initial recognition

Answer 4

Under IAS 16 an asset that is controlled by the company, as a result of a past event that will bring about future economic benefits should be capitalised as long as the cost. fair value or present value can be measured reliably

Question 5

Asset subsequent measurement

Answer 5

Cost model - asset deprectiated over UEL when it is ready for use.

Revaluation model - Asset is depreciated over UEL when it is ready for use. Asset is then revalued to fair value

Uplifts are CR to revalutation reserve through the OCI

Depreciation will be higher following a revaluation due to a higher CA. Therefore can choose to charge addtional Dep’r through the RR

Asset must be revalued frequently enough to ensure the FV does not materially differ from CA