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SBR > Ch 5 NCA > Flashcards

Ch 5 NCA Flashcards

1
Q

PPE and when recognised

A

tangible items held for use in the production or supply of g or s, for rental , or for admin purposes
expected to be used during more than one period

It is probable that asset’s future economic benefits will flow to the entity

cost of the asset can be measured reliably

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2
Q

Recognition

A
  1. the purchase price
  2. costs to bring it to use - bringing it to the location and condition necessary to operate
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3
Q

costs that should never be capitalised

A
  1. adm and general OH
  2. repairs, wastage,idle time - abnormal costs
    3.costs incurred after the asset is physically ready to use (such as initial operating losses or any costs incurred before a machine is used at its full capacity)
  3. cost of opening new facility, introducing new product (incl adv and promotional costs) AND CONDUCTING BUSINESS in new location or with new class of customers
  4. cost of relocatition
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4
Q

product samples from recent PPE recognition

A

in PL as income

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5
Q

Cost or revaluation method

A

Conceptual Framework - prepares should aim to maximise RELEVANCE and qualitative char-s by considering
- charac-s of A or L
- the ways these A and L contribute to future CF

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6
Q

Reval model

A

FV- AD- Impairment losses
Reval must be
- done with sufficient regularity - ensure carrying amount is not suff-ly different from FV
- item and entire class of items it belongs too must also be revalued
- if reval increases the value of an asset, the increase is presented in OCI (disclose as item that will NOT be recycled to PL in subseq periods) and held in a ‘revaluation surplus’ within other components of equity
- If reval decreases value of item, the decrease should be recognised imm-ly in PL!, unless there is reval surplus already in existence on the SAMe asset

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7
Q

depr

A
  1. all with finite useful life (cost minus residual value)
  2. depr method based on revenue generated by an activity are not appropriate. This is bc revenue reflects many factors as inflation, sales prices and volumes, rather than eocnomic consumption of the asset
  3. depr method - residual value and the useful life of an asset should be reviewed annually and revised if necessary. Any adjustments accounted as change in accounting estimate
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8
Q

Replacement parts

A

replacement parts should be capitalised and carrying amount of old part (part being replaced) should be derecognised. if carrying amount is not known - price of the new part should be taken as original price of the part that is being replaced

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9
Q

costs of regular inspections

A

the costs can be capitalised. Any remaining carrying amount of previous inspection should be derecognised
deprec is separate for each significant part of PPE. Parts with similar useful life can be grouped together

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10
Q

derecognised

A

at disposal or no future economic benefits are expected
when revalued asset is disposed of any reval surplus maybe transferred directly to RE, or maybe left in the rev surplus within other components of equity

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11
Q

IAS 16 disc

A
  1. measurement bases used
  2. useful lives and depr
  3. a reconciliation of carrying amounts at B and End of period
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12
Q

Government grants - IAS 20 Accounting for Gov Grants and Disclosure of Gov Assistance

A

transfer of resources in return for past or future compliance with certain conditions. - EXCLUDE gov assistance that cannot be valued and normal trade with gov. Not recognised until compliance happened and there is reasonable assurance that gran twill be received - They must be matched in PL - subsidy with related costs; Income grants to help achieve non-fin goal (such as job creation) should be matched with costs incurred to meet that goal
Gov assistance - econ benefit to specific entity. Doesn’t include indirect help such as infras dev-t

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13
Q

presentation of grant income

A
  1. as credit in PL - more appropriate enables comparison w/o being affected by gran income; if expense is reduced by the gI may appear to have better cost control and oper efficiency - may not enable fair comparison
  2. deducted from related expense - app-te if expenses arose only as a result of the grant being made available
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14
Q

grants on assets

A

should be recognised over expected life of asset either 1. - from cost and depreciate net cost (the cap method) - lower level of non-current assets - entity may look more efficient at generating profit when compared to deferred income mehtod 2.treat the grant as deferred income and release to PL over the life of it - unifrom basis

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15
Q

payment of grant

A

grant that becomes repaybale is accounted for as revision of an accounting estimate

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16
Q

JE for repayment of grants

A
  1. income-based grants Dt deferred income liability
    Cr profit on excess repayment
    2.capital-based grants deducted from cost - increase the cost of asset with the repayment, which will increase amount of depr that should have been charged in the past. tis cum depre shoudl be charged anf recognised
  2. capital-based grantstreated as deferred income Dr repayment of liability Cr excess to re
    Gov assistance in not recognised in FS - advice, policies,
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17
Q

disclosure of grant

A
  1. the acc policy and presentation methods adopted
  2. the nature of gov grants recognised in FS
  3. unfulfilled conditions relating to government grants that have been recognised
18
Q

IAS 23 borrowing costs

A

interest and other costs that an entity incurrs in relation with borrowing of funds - capitalised if borrowing costs relate to the acquisition, construction, or production of qualifying asset (takes subst period of time to get ready for its intended use or sale)

19
Q

When commense the capitalisation of borrowing costs

A
  • expenditure for the asset is being incurred
  • borrowing costs are being incurred
    -activities that are necessary to get the asset ready for use are in progress
    -> capit should cease when substantially all of the activities that are necessary to get the asset ready for use are complete
    -> capit of borrowing costs should be suspended during extended periods in which active development is interrupted
20
Q

Specific or general

A
  1. specific: interest payable on that loan - income earned on the temp investment of the borrowing (if there was one)
  2. if general borrowing - apply WA general borrowings rate to expenditure incurred on the asset
    Disclosures required:
    - the value of borrowing costs capitalised
    - the capitalis rate
21
Q

IAS 40 - investment property

A

property (land or building) held (by the owner or by the lessee as a ROUA) to earn rentals or for capital appreciation or both
land held for cap apprec or undecided future use
building under operating lease
are not IAS 40
- held for production or supply of g or s or for adm purposes
- held for sale in ordinary course of business or in the course of construction of items for sale - IAS 2 - Inventory
- property being constructed on behalf of third parties (IFRS 15 Revenue from contracts with Customers)
- owner -occupied entity IAS 16
- property leased under finance lease

cost or FV model - chosen policy must be applied to all investment properties
if cost model - no reval is permitted
Under FV - revalued every year. No depr. all gains and losses on reval are reported in PL. If FV isn’t possible then cost
Cr to rev susrpilus i mEquity and OCI, if FV leads to decrease in FV then PL charge
property rented to employees = owner occupied, can’t be class-ed as Inv property
subs yer gain in 25K go to PL, initial reval to FV is to OCi and Equity. At FV IP is not depr-ed

22
Q

Disclosure of IP

A
  1. cost of FV model
  2. amounts recognised in PL during the period
    3.reconc
    FV of IP if entity uses cost - but say how FV was calc-d for ex that evaluation was not perf by indep surveyor
23
Q

IAS 38 - Intangible assets

A

an identifiable non-monetary asset without physical substance - goodwill, software, patern, mortgage servicing rights, licenses, import quotas, franchises, martketing rights

24
Q

when IA is recogni

A
  1. identifiable
  2. asset is controlled by entity
  3. the asset will generate future econ benefits
  4. the cost can be measured reliably
    It is identifiable if
    is separable (capable fo being separated and sold, transferred, licensed, rented or exchanged, either indiv-ly or as part of package) or
    arises form contr or legal rights, regardless of whether those rights are transferrable or separable from the entity or from other rights and obligations
    initial recogn is at cost. for goodwill IFSR 3 COmbinations, not IAS 38. Choose cost or reval mehtod. FV if only reliance on active market is possible - products are homogenous, willing buyers and sellers can be found at all times, prices available to public
25
Q

Amortisation of IA

A
  1. finite useful life - then syst, st line with 0 residual value
  2. indefinite useful life - no foreseeable limit for cash generation. Not amortised, but subject to annual impairment review
26
Q

R&D

A

original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding - research exp cannot be rec as intangle

27
Q

Development

A

Application of findings and knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems or services before the start of commercial production or use

28
Q

When develop-t is intanglible asset

A
  1. the dev-t is technically feasible
  2. the entity intends to complete the int-le asset then use or sell it
  3. the int asset will generate future Cash benefits
  4. it has adequate resources to complete the project
  5. it can reliably measure the exp-re of the project
29
Q

Disclosures

A
  1. the amount of RD expensed
  2. amortisation method
    3.reasons supporting those iwth indefinite life
  3. the date of any rev-s and methods and assumptions used
  4. reconciliation of carr amount at hte beg and end
30
Q

IAS 36 Impairment of Assets

A

reduction in recoverable amount of an asset or CGU below its Carrying amount

31
Q

when impairment review must be at least annually

A
  1. IA is not amortised bc it has indefinite useful life
  2. goodwill has arisen on business combo

Impairm review is required only when there is an indication that impairment may have occured

32
Q

Indication of impairment

A

External sources:
- unexpected decreases in an asset’s market value
- significant adverse changes are happening or about to happen in economic, technological, market or legal env-t
- increased interest rate decreased asset’s recoverable amount
- entity’s net assets are measured at more than its market cap-n (?)
Internal source of inf
- evidence of obsolescence or damage
- there is , or is about to be, a material reduction in usage of the asset
- evidence that economic performance of an asset has been or will be worse than expected

33
Q

impairment loss

A

carrying amount is more than recoverable amount (higher of FV-cost to sell and value in use)

34
Q

FV

A

price received when selling an asset in an orderly transaction b/n market participants at the meas date

35
Q

Value in use

A

estimating of future Cash inflow and outflow from the use of the asset and its ultimate disposal and applying suitable Discount rate to the CF
- cf exclu future costs to improve - current stat eonly
- mng shoudl assess accuracy of of their budgets by inv-g differences bn forecast and actual CF
D rate should reflect time vlau eof money and risks specific the asset for which to future CF estimates adjusted

36
Q

CGU

A

smallest group of assets that generates independent cash flow - production line made up of many independent machines. Value in use is calculated for group of assets.
Corporate assets and and GW should be allocated to CGU on a reasonable and consistent basis. CGU to which GW has been allocated must be tested for impairment annually

37
Q

Impairment loss in CGU

A

IAS requires that it is allocated among the assets 1. GW and 2. other assets in proportion to Carrying value
But carrying amount must be highest of FV-costs to sell; Value in use; nil
cannot be reduced below the highest of FV-cost to sell; value in use

38
Q

Impairment loss

A
  1. against goodwill
  2. can’t be against items NRV of which is higher than current carrying value. Impairment loss can’t be set against the net monetary assets (receivables, cash etc) bc assets will be realized in full. Allocation will then be proportional
39
Q

impairment if reasonable allocation is impossible

A

new total carrying value (1110)- recoverable amount (1070) = impairment loss of USD 30K

40
Q

Reversal of an impairment loss

A

if actual things ar ebetter recoverable amount is re-calculated and previous write-down is reversed
1. impaired assets should be reviewed each reporting date to see whether there are indicator of impairment has reversed
2. reversal is recongnnised in PL. If initial imp loss charged in reval surplus it is recognised in OCI and Cr to reval surplus
Imp loss recognised for goodwill cannot be reversed in subsequent periods

41
Q

disclosures on IAS 36-impairment of assets

A
  1. impairment losses recognized during the period
  2. impairment reversals recognised during the period
    for each material loss or reversal
    - the amount of loss or reversal and the events causing it
    - the recoverable amount of the asset (or CGU)
    - level of FV hierarchy used in determining FC-cost to sell
    - the discount rates used

SBR (13 decks)

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