Ch 5 NCA

Question 1

PPE and when recognised

Answer 1

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

Question 2

Recognition

Answer 2

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

Question 3

costs that should never be capitalised

Answer 3

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

Question 4

product samples from recent PPE recognition

Answer 4

in PL as income

Question 5

Cost or revaluation method

Answer 5

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

Question 6

Reval model

Answer 6

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

Question 7

depr

Answer 7

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

Question 8

Replacement parts

Answer 8

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

Question 9

costs of regular inspections

Answer 9

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

Question 10

derecognised

Answer 10

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

Question 11

IAS 16 disc

Answer 11

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

Question 12

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

Answer 12

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

Question 13

presentation of grant income

Answer 13

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

Question 14

grants on assets

Answer 14

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

Question 15

payment of grant

Answer 15

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

Question 16

JE for repayment of grants

Answer 16

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,

Question 17

disclosure of grant

Answer 17

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

Question 18

IAS 23 borrowing costs

Answer 18

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)

Question 19

When commense the capitalisation of borrowing costs

Answer 19

• 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

Question 20

Specific or general

Answer 20

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

Question 21

IAS 40 - investment property

Answer 21

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

Question 22

Disclosure of IP

Answer 22

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

Question 23

IAS 38 - Intangible assets

Answer 23

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

Question 24

when IA is recogni

Answer 24

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

Question 25

Amortisation of IA

Answer 25

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

Question 26

R&D

Answer 26

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

Question 27

Development

Answer 27

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

Question 28

When develop-t is intanglible asset

Answer 28

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

Question 29

Disclosures

Answer 29

1. the amount of RD expensed 2. amortisation method 3.reasons supporting those iwth indefinite life 4. the date of any rev-s and methods and assumptions used 5. reconciliation of carr amount at hte beg and end

Question 30

IAS 36 Impairment of Assets

Answer 30

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

Question 31

when impairment review must be at least annually

Answer 31

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

Question 32

Indication of impairment

Answer 32

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

Question 33

impairment loss

Answer 33

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

Question 34

FV

Answer 34

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

Question 35

Value in use

Answer 35

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

Question 36

CGU

Answer 36

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

Question 37

Impairment loss in CGU

Answer 37

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

Question 38

Impairment loss

Answer 38

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

Question 39

impairment if reasonable allocation is impossible

Answer 39

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

Question 40

Reversal of an impairment loss

Answer 40

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

Question 41

disclosures on IAS 36-impairment of assets

Answer 41

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