Chapter 10 Flashcards
How do you account for biological assets under IFRS? ASPE?
IFRS: measure at fair value less costs to sell with changes in value going through income
*if no FV measure at cost less accumulated depreciation and impairment
ASPE: treat them as PPE
What is the recognition criteria for capitalization?
-Probable future economic benefits from asset
*assets that don’t do this but are needed to get benefits can be capitalized
-Costs can be measured
What is componentization?
-Component of single asset recognized separately (if they make up big portion of total cost)
-Consider useful life
What costs are capitalized under PPE?
-Cost of acquisition (purchase price minus discounts and non-refundable taxes)
-Bring to its location (delivery, site prep, installation, assembly, professional fees)
-Discharge obligations for disposal (site restoration)
-Borrowing costs (under ASPE choice of expensing)
-Asset retirement cost (with a credit to asset retirement/restoration liability)
What costs are not capitalized?
-Initial operating losses
-Training employees
-Reorganizing operations
-Admin and overhead costs
-Opening new facility
-Introducing new product
-Operate in its new location
-Repeated costs that are maintained
Should revenue earned while waiting for construction to be completed be capitalized?
IFRS: Yes, subtract it from building cost
ASPE: No
What costs should be capitalized for self-constructed assets?
-Direct materials
-Direct labour
-Directly attributable overhead
*overhead is power, heat, light, insurance, property tax, depreciation, supplies
How do you account for deferred payment terms?
Record the non-interest bearing note at the present value (FV), the difference between cash paid and FV is interest
How do you account for lump sum purchases?
The lump sum price is allocated to assets based on their relative fair market values
How do you account for assets traded for shares under IFRS? ASPE?
IFRS: The fair value of the assets received or of the shares used
*if the FV of asset cannot be determined use the market value of publicly traded shares
ASPE: more reliable of the FV of goods or shares given up
How do you record the exchange of assets if it has commercial substance?
-Apply the fair value standard
-Fair value of asset given up or asset received if more reliable
-Difference between carrying amount and FV of asset given up is income gain/loss
How do you record the exchange of assets if it has no commercial substance?
-Cost of assets received = carrying amount of asset given up
-No gain recognized
-Loss recognized if FV of asset received is less than carrying amt of given
How do you account for contributed assets?
-Credit Contributed Surplus - Donated Capital ONLY if donation is from owner
-Credit net income if not from an owner
How do you account for government grants?
Recognized in income through cost reduction method or deferral method
Cost Reduction:
-Asset carried at cost less govt assistance
Deferral Method:
-Record as deferred credit and amortize over life of asset
What costs are included in land?
-Purchase price
-Closing costs like legal/recording fees and title search
-Costs of getting land ready (including removing the old building)
-Taxes in arrears
-Additional improvements with an indefinite life
-Remove sale of salvaged materials
-Assessment for permanent improvements
What is the land improvement account?
Improvements to land with limited lives like driveways, walkways and fences recorded here
*depreciated over their useful lives
What do you do with the cost for removing a building you previously owned from land?
-Expensed as disposal cost of the old building
ASPE: carrying amount of building torn down can be capitalized as redeveloped property
What is included in cost of equipment?
-Purchase price
-Freight and handling charges
-Insurance while in transit
-Cost of special foundation
-Net cost of trial run
-Cost of adjustments made to make it operate
*exclude recoverable task
What costs should be included in natural resources?
-Acquisition of properties
-Exploration for and evaluation of reserves
-Development
-Decommissioning and site restoration
What is the cost model of measurement?
Measure PPE assets after acquisition at cost less accumulated depreciation and impairment losses
*ONLY model that ASPE uses
What is the revaluation model of measurement?
PPE measured at fair value at the date of revaluation less subsequent depreciation and impairment loss
*Depreciation taken on revalued amount
*change in carrying amount recorded in Revaluation Surplus OCI
What are the two methods of disposing of the Revaluation Surplus account?
- Transfer to retained earnings (difference between depreciation expense based on revaluation and expense based on original cost)
- Remains in the account until asset is retired then transferred to retained earnings
What is the fair value model of measurement?
Under IFRS ONLY
-Investment property measured at FV after acquisition
-No depreciation over asset’s life
How do you account for additions?
-Capitalized
-If change is made to existing asset to acquire new one it should be disposal cost of existing asset
-If change is minor you can include cost of change in cost of new asset
Revaluation Model:
-cost of new asset added to carrying amt
-gain/loss recognized on disposal of replaced asset
Fair Value Model:
-Add cost of replacement to asset
-Reassess and adjust asset to fair value
