Lecture 4 - Investment Property & Intangible Assets Flashcards
which IAS does investment property apply to?
IAS40
which IAS does intangible assets apply to?
IAS38
IAS38?
IAS40?
IAS38 = intangible assets
IAS40 = investment property
objective and scope of IAS40?
IAS40 is applied to the recognition, measurement and disclosure of investment properties
two types of property?
owner occupied (IAS16)
investment property (IAS40)
investment property?
- e.g., land & buildings
- held to earn (e.g., rentals, capital appreciation or both)
- not for use in production of supply of goods nor admin nor sale in ordinary course of business
owner occupied property?
- land & buildings
- held for use in the production/supply of goods/services or admin
- not for sale (capital appreciation / rental)
which IAS standard applies to owner-occupied property?
IAS16
IAS16?
prescribes accounting treatment to property, plant & equipment
when is investment property recognised as an asset?
- cost can be measured reliably
- future economic benefits are expected
how are day-to-day servicing costs of investment property treated?
recognised as expenses in P&L
examples of properties classed as IP?
- property held for long term capital appreciation
- land whose use is undecided
- property held for rental
examples of property NOT classed as IP?
- property occupied by the owner
- property sold in the normal course of business
property sold in the normal course of business applies to which IAS?
IAS2
relates to accounting treatment for inventory
intention of IP?
earn rentals or capital appreciation
measurement at recognition for IP?
measured at cost
subsequent measurement for IP after recognition?
- cost model
- fair value model
must a model be applied across all IPs?
yes
when can a company change their accounting policy (regarding cost/FV model)?
- if it results in more reliable/relevant info
- IAS40 states the fair value model provides the most relevant information
cost model?
cost includes purchase price & directly attributable expenses
costs exclude startup costs
fair value model?
if FV model is chosen for a property, all IPs must be measured using FV model
requires IP to be initially measured at cost
re-measure the IP to FV at the end of the reporting period
how are gains/losses resulting from a change in FV of an IP treated?
recognised in the P&L
importance of intangible assets?
investments in non-physical/intangible items have spurred growth for companies in recent times
e.g., intellectual capital, reputation
difference between market cap and book value of a company on the SOFP?
market cap = quantity of shares x market price
value of equity on SOFP = owners equity (assets - liability) / net assets
why is seeing the SOFP as a measure of a company’s valuation problematic?
a significant amount of value isn’t reflected on the SOFP
e.g., reputation, expertise etc
objective & scope of IAS38?
- recognition of intangible assets, their carrying amount and disclosures
- scope includes intangible assets, financial assets and mineral rights
intangible asset?
an identifiable non-monetary asset without physical substance
an asset is…
a resource owned/controlled by an entity as a result of past events
expected to derive future economic benefits
three critical attributes of an intangible asset?
identifiability
control
future economic benefits
examples of intangible assets?
- patented technology
- trademarks
- licensing
- customer lists
- marketing rights
- franchise agreements
how are intangible assets initially and subsequently recognised?
initially measured at cost
subsequent recognition criteria depends on whether it was acquired through business combination or acquired separately
business combination?
occurs when one entity acquires the assets & liabilities of another entity with the acquired business continuing (merger)
the cost of each intangible asset acquired in a business combo is at fair value
what determines fair value of IA after business combo?
FV reflects market participants’ expectations about the profitability of future economic benefits
what constitutes sufficient info to reliably measure the FV of an IA?
- separable
- arises from contractual/other legal rights
separate acquisition of IA?
recognised when probable future economic benefits will flow to the entity & cost can be measured reliably
measurement of IA when separately acquired?
cost comprises of purchase price and directly attributable costs
recognition of cost ceases when operation in intended manner is no longer feasible
can IA be created internally?
yes
e.g., expenditure on brands, trademarks, customer loyalty programmes etc
some of these items don’t meet the criteria for IA and are classed as internally generated goodwill
some items are classed as internally generated intangible assets other than goodwill
are expenditures on customer loyalty expensed or capitalised?
expensed as there’s no legal rights to protect the relationship, customers may leave & entity has no control over future economic benefits
research phase?
development phase?
research = original, planned investigation undertaken with prospect of gaining knowledge
development = application of research findings to design new products
are research/development capitalised or expensed?
research is expensed as it’s harder to gauge the future benefits reliably
development is capitalised as it’s easier to gauge the future benefits (as long as 6 criteria are met)
6 criteria for development phase to be capitalised?
PIRATE
- P robable future economic benefit
- I ntention to complete/sell it
- R esources adequate to sell/use it
- A bility to use/sell it
- T echnical feasibility
- E xpenditures reliably measurable
measure of intangible assets?
initially = cost
subsequently = cost/revaluation model
cost model = cost - accum. amortisation - accum. impairment loss
revaluation model = FV - accum. amortisation. - accum. impairment loss
how are revaluation gains/losses treated?
gains = credit revaluation reserve & recognised as OCI
losses = recognised as an expense in P&L
two types of useful life?
finite & indefinite
finite = amortised over time, w/ residual amount of 0
indefinite = shall not be amortised, test for impairment annually
are internally generated brands, newpaper mastheads, publishing titles and customer lists expensed or capitalised?
expensed
not recognised as intangible assets
IAS38 disclosure requirements?
IAS38 refers to intangible assets
- whether the useful lives are indefinite or finite
- the amortisation method used
- gross carrying amount & accum. amortisation at the end beggining/end of each
