Lecture 10 - PPE Ammorization, Impairment And Disposition Flashcards
Depreciable amount =
Cost - estimated residual value
Salvage value
Asset’s estimated NRV at end of life
3 depreciation methods
Straight line
Diminishing balance method
Activity method
Straight line method
Simple, for constant usage, distorts rate of return
Diminishing balance method
More depreciation in early years when asset has greatest benefit
Activity method
Use when usage isn’t a function of time
Difficult to estimate total # units in life
Double diminishing equation
(1/useful life) x 2
Activity method rate equation
Depreciable amount / activity
Depletion rate for natural resources
Depletion rate = (total cost - residual value) / total estimated units
Revision of depreciation estimates
Prospective approach, change in future and current periods, don’t change past periods
Impairment is when
Carrying amount > future economic benefit
With IFRS must check for impairment at end of every period
2 approaches for impairment
Cost recovery impairment model
Rational entity impairment model
Cost recovery impairment model
ASPE
1. The recoverability test: carrying amount < undiscounted future net cash flows = no impairment
2. Recognize impairment: impairment loss = carrying amount - FV
Impairment loss can’t be reversed
Rational entity impairment model
IFRS test annually
Record asset at lower of carrying amount and recoverable amount
Losses may be reversed
Recoverable amount
Higher of fair value - cost to sell and present value of discounted future net cash flows
