Chapitre 8 Flashcards
What is long-lived assets
Assets that are expected to provide economic benefits over a future period of time, typically greater than one year.
What is Capitalized at purchase
purchase price and
expenditures necessary to prepare asset for intended use. (freight, special installation , testing, etc)
what is capitalized after?
capitalized if expected to provide benefits beyond one year (extend life or capacity).
How do you treat intangible assets purchased in situations other than business combinations.
Recorded at fair value, which is assumed to be equivalent to the purchase price (same as long-lived tangible assets).
How do you treat intangible assets developed internally.
Generally expensed when incurred, although capitalized in some situations.
How do you treat intangible assets acquired in a business combination.
Identifiable assets are recorded at fair value.
If acquisition price exceeds the sum of amounts allocable to individual identifiable assets and liabilities, the excess is recorded as goodwill.
Intangible Assets Developed Internally IFRS VS GAAP
IFRS:
Expenditures on research are expensed.
Expenditures on development are capitalized.
U.S. GAAP:
Generally, both research and development costs are expensed.
For costs related to software development (Basically IFRS):
Products for sale: Both research and development expenditures are expensed until technology feasibility is established; they are subsequently capitalized.
Software for internal use: Both research and development expenditures are expensed until probable completion is demonstrated; they are subsequently capitalized.
3 depreciation methods
Straight-line method: When the cost of the asset is allocated to expense evenly over its useful life.
Accelerated method: When the allocation of cost is greater in earlier years. Depreciation expense = Beginning net book value × depreciation rate (until the time period in which calculated depreciation expense would reduce book value below the residual value).Note that under this method, the depreciation rate of 50% is applied to the carrying amount (net book value) of the asset, without adjustment for expected residual value. (dont factor residual value only at the end period)
Units-of-production method: When the allocation of cost corresponds to the actual use of an asset in a particular period
The accelerated method, compared with the straight-line method, will result in:
Higher depreciation expense in earlier periods, so lower operating profit margin and operating return on assets (ROA) in the early periods and higher operating profit margin and operating ROA in the later periods.
Lower average total assets in earlier periods and thus higher asset turnover ratio.
what is amortization and what is amortized (easy one)
An intangible asset with an indefinite useful life is not amortized.
An intangible asset with a finite useful life is amortized using the same methods as depreciation. Calculating amortization requires
What is Revaluation Model
alternative to the historical cost model for the periodic valuation and reporting of long-lived assets.
IFRS permit the use of either the revaluation model or the cost model
carrying amounts are the fair values at the date of revaluation less any subsequent accumulated depreciation or amortization
SE (other comprehensive income increases). P&L only after other comprehensive income is empty (Thomas to explain if you want)
Impairment reversal IFRS VS GAAP
Impairment reversals for identifiable, long-lived assets are permitted under IFRS but not under U.S. GAAP.
Impairement under IFRS
excess of carrying amount of the asset over its recoverable amount.
Recoverable amount: “The higher of its fair value less costs to sell and its value in use.”
Value in use: Based on the present values of expected future cash flows.
Impairement under GAAP
Assess recoverability: If not recoverable (carrying amount exceeds undiscounted expected future cash flows), then measure impairment loss.
Impairment loss is measured as the excess of the carrying amount of the asset over its fair value.
Derecongnition
when the asset is disposed of or is expected to provide no future benefits from either use or disposal.
company may dispose of a long-lived operating asset by selling it, exchanging it, or abandoning it.
