Assets*

Question 1

Define an asset (1)

Answer 1

A present economic resource controlled by the entity as a result of past events

Question 2

what are the asset factors? (3, 2, 2)

Answer 2

• a present economic resource (ER)
  – representing a right (ERright) such as intellectual property, receiving cash, goods, or services
  – has potential to produce economic benefits (EReb) that egenrate cash, other resources, or reduce expenses even if the benefits are uncertain
• Controlled by an entity (ctrl)
  – the entity has the power to use the resource and gain benefits
• result of past events (PE)
  – control arose a past transaction or event

Question 3

what are the criteria of an asset to be included in the SOFP?

Answer 3

• meets asset definition
• recognises criteria
  – even if meets asset, but fails RC thus not included in SOFP
  –

Question 4

recognition criteria

Answer 4

• provides relevant information
  – no existance uncertainty
  – probability of economic benefits is not low
• faithful representation
  – complete, neutral, free from error
  – level of measurment uncertainty is not high

Question 5

what is subsequent measurement? (2)

Answer 5

• after a company acquires and records asset, it must update its value in financial records over time
• happens at the end of each reporting period

Question 6

wha are the different rules of different assets? (3)

Answer 6

• some assets keep their original cost, but may be adjusted (depreciation)
• other assets (investements) are updated to reflect their current market value (fair value)
• value of an asset at each reporting date is known as the carrying amount

Question 7

what is the important of different rules for different assets? (2)

Answer 7

• ensures financial statements show an accurate picture of a company’s value
• helps investors and decision-makers understand a company’s real financial positon

Question 8

define fair value (2)

Answer 8

• the price that would be received to sell an asset
• in an orderly transaction between market participants at the measurement date

Question 9

define subsequent costs (3)

Answer 9

• if at any point after acquisition, the business spends more on an asset
• in some cases it is added to the carrying value of the asset
• other cases it is expensed based on familiar principles

Question 10

what is the method to determine whether an asset is expensed or not? (3)

Answer 10

• are the subsequent costs day-to-day servicing costs?
  – yes = expense
• will they probably give rise to additional economic benefits?
  – no = subsequent costs
  – yes = capitilise the subsequent costs

Question 11

what usually happens with expensing assets? (1, 4*0.5)

Answer 11

• expenditure initially recognised as an asset on SOFP
• eventually end up expensed in SOCI usually as
  – cost of sales
  – depreciation
  – amortization
  – impairment

Question 12

what is impairment? (1)

Answer 12

• arises when an asset loses more value that what was expected from normal use

Question 13

what is the accounting principle related to expensing assets? (1)

Answer 13

• no asset may be measured at an amount greater than its acutal value to the business

Question 14

how do you identify and calculate inpairment? (3)

Answer 14

• review assers for signs of impairment
• if there are signs
  – calculate recoverable amount (higher of its value in use and its fair value less costs to sell)
• if recoverable amount is below the current carrying amount, impair the asset down to the recoverable amount

Question 15

what happens when are assres disposed? (2)

Answer 15

• assets sold or scrapped
• removed from business accounting records
  – derecognition

Question 16

what can be defined as PPE? (3, 1)

Answer 16

• tangibale items that are
  – held for use in production or spply of goods and services
  – for rental to others
  – for administrative purposes
• are expected to be used for more than one period

Question 17

what happens with respect to the subsequent measurement for PPE? (1, 3)

Answer 17

• initial measurement principles apply
• choice between 2 subsequent measurement models
  – cost model
  – revaluation model

Question 18

what is the revaluation model? (1)

Answer 18

• restating the value of the PPE to its fair value (market value) at each reporting date

Question 19

what happens with respect to gains and losses from revaluation? (1)

Answer 19

• resultant gains and losses measured on revaluation model
• reported in OCI

Question 20

give a comparison between the cost and revaluation models (2, 2)

Answer 20

• cost model
  – depreciated over the useful life time of the asset
  – depreciatio and impairment expense in P/L
• revaluation model
  – fair value of the asset determined after every year or at fixed periods and gets depreciated
  – gain and losses reported in OCI
  – depreciation expense in P/L

Question 21

describe the cost model for PPE (1)

Answer 21

• items with limited useful life are depreciated

Question 22

what does depreciation reflect? (2)

Answer 22

• consumption of economic benefits impicit in the asset
  – cost of using the asset

Question 23

how is depreciation calculated? (1)

Answer 23

• straight line depreciattion in which the annual charge is consistent
  – dep = (cost-residual) / lifespan

Question 24

what is the general and technical definitions of residual value? (2, 3)

Answer 24

• amount a company expects to get in today’s terms if it sells an asset at the end of its life
  – after subtracting any costs to sell
• estimated amount that ab entity would currently obtain from disposal of the asset
  – after deducting the estimated costs of disposal
  – if the asset were already of the age and in the condition expected at the end of its useful life

Question 25

what are the assets considered inventories and what does the category include? (3, 4)

Answer 25

- held for sale in the ordinary course of business - in the process of produce for sale - in the form of materials, supplies to be consumed in the production process -- or in the rendering services - includes -- raw materials -- work-in-progress -- finished goods -- consumable stores

Question 26

what happens with respect to measuring inventories? (3)

Answer 26

- initially measured at cost -- cost comprises all the costs of getting the inventory to its present location and condition for sale - inventory costs include all costs that are directly attributable to their acquisition or manufacture

Question 27

what happens when the cost of a business's products cannot be individually defined? give examples (1, 2)

Answer 27

- use a cost formula permitted by the IFRS to approx. cost of inventory -- FIFO (first in, first out) -- weighted average

Question 28

what happens when inventories are sold, and what is this referred as? (1, 2)

Answer 28

- recognised as expense -- cost of sales -- cost of inventories expensed

Question 29

what happens at the end of the reporting period for inventories? (1, 2, 2)

Answer 29

- carrying value (balance c/d) measured at the lower value of: - cost -- all costs getting inventory to its present location and condition for sale - net realisable value -- estimated selling price of the inventory less the estimated costs to sell

Question 30

give factors to compare PPE to inventory and their influences (2, 2, 3, 3, 3+2, 3)

Answer 30

- asset definition -- a present economic resource controlled by the entity as a result of past events - recognition criteria -- recognition provides relevant informatio and faithful representation of the item - classification (intention) -- held for use -- held for sale - initial measurement -- all costs incurred to get an asset to the point at which is can begin to generate revenue -- cost comprises all the costs of getting the inventory to its present location and condition for sale - subsequent measurement -- cost model / revaluation model; depreciation / impairment expense; gains / losses recognised in OCI -- purchaces / cost of sales expense (P/L); lower of: cost or net realisable value - disposal -- profit or loss on sale (P/L) -- cost of sales expense (P/L)

Question 31

summary*

Answer 31

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