FAR Recap Flashcards
Asset: definition
Resource controlled by the company as a result of past events which will result in future economic benefits, whose value can be measured reliably.
PPE: included in cost
Purchase price
+ construction/installation costs
+ interest costs
+ other costs directly attributable to bringing the asset into working condition
+ dismantling provisions
- proceeds from selling testing products
Which costs to capitalise and why?
Machine Delivery Install Training Interest General overheads Launch event Advertising Staff relocation Architect's fees Cost of testing equipment
Machine Delivery Install Interest IF relates to construction costs - net off against any interest earned, BUT amount deposited will reduce as they spend Architect's fees Cost of testing equipment
As others not directly attributable as not needed to obtain and get asset to working condition
Nb - can only capitalise interest during the period you incurred capital expenditure eg once building has commenced, may have to split interest between P/L and capitalised
Subsequent expenditure - what to capitalise/depreciate
Only capitalise expenditure which enhances the assets NOT repairs and maintenance as these will not produce future economic benefits
Depreciate new parts separately over their individual useful lives
Exam points: Capitalising costs
IFRS states that expenditure has to be capitalised if it results in an asset - define
All directly attributable costs incurred required to bring the asset to working condition should also be capitalised.
All other costs are expensed to the P/L
An asset is depr from the date it is ready for use.
Revaluation model - introduction
IAS 2 - Cost or revaluation model
Accounting POLICY choice
Depreciate as normal, until revaluation
Same class of assets must follow same model.
Impairment: principle
IAS 36 - Hold at lower of CA and RA
If carrying amount > recoverable amount, then FS misleading as they are overstating the asset’s true value.
Recoverable amount
Higher of:
FV - costs to sell
Value in use - must discount cash flows from the asset
Impairment indicators
Physical damage
Demand for goods and services produced by asset is reducing
Impairment reversal
Can only reinstate asset up to the lower of
Recoverable amount
CV had it not been impaired
CANNOT reverse goodwill impairments
Asset held for sale - criteria
Available for sale in present condition
Mgmt actively looking for a buyer and advertising at reasonable price, sale expected within 12 months, unlikely that plan to sell will change
Discontinued operations
Division or subsid which has already been disposed of or is held for sale
Separate geographical area of the business/separate market
Must be able to separate financial information from rest of business
Single ‘Profit/loss from discontinued ops’ line
Intangible assets: examples
Brands, patents, goodwill, software, licence
Research and development
Research - EXPENSE
Development - ASSET
EG Apple researches a new Super Nano Chip - EXPENSE
Once chip can be incorporated into a commercially viable product which
will be profitable
mgmt committed to complete the project
have resources to do it
technically feasible
eg iPhone Z, CAPITALISE expenditure from the point it started being incorporated into the product
Internally generated intangibles
Can’t recognise - can only recognise separately acquired intangibles or development costs
