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BUS275 - Financial Reporting for Business > Lecture 4 - Investment Property & Intangible Assets > Flashcards

Lecture 4 - Investment Property & Intangible Assets Flashcards

1
Q

which IAS does investment property apply to?

A

IAS40

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2
Q

which IAS does intangible assets apply to?

A

IAS38

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3
Q

IAS38?
IAS40?

A

IAS38 = intangible assets
IAS40 = investment property

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4
Q

objective and scope of IAS40?

A

IAS40 is applied to the recognition, measurement and disclosure of investment properties

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5
Q

two types of property?

A

owner occupied (IAS16)

investment property (IAS40)

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6
Q

investment property?

A
  • 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
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7
Q

owner occupied property?

A
  • land & buildings
  • held for use in the production/supply of goods/services or admin
  • not for sale (capital appreciation / rental)
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8
Q

which IAS standard applies to owner-occupied property?

A

IAS16

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9
Q

IAS16?

A

prescribes accounting treatment to property, plant & equipment

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10
Q

when is investment property recognised as an asset?

A
  • cost can be measured reliably
  • future economic benefits are expected
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11
Q

how are day-to-day servicing costs of investment property treated?

A

recognised as expenses in P&L

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12
Q

examples of properties classed as IP?

A
  • property held for long term capital appreciation
  • land whose use is undecided
  • property held for rental
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13
Q

examples of property NOT classed as IP?

A
  • property occupied by the owner
  • property sold in the normal course of business
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14
Q

property sold in the normal course of business applies to which IAS?

A

IAS2

relates to accounting treatment for inventory

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15
Q

intention of IP?

A

earn rentals or capital appreciation

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16
Q

measurement at recognition for IP?

A

measured at cost

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17
Q

subsequent measurement for IP after recognition?

A
  • cost model
  • fair value model
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18
Q

must a model be applied across all IPs?

A

yes

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19
Q

when can a company change their accounting policy (regarding cost/FV model)?

A
  • if it results in more reliable/relevant info
  • IAS40 states the fair value model provides the most relevant information
20
Q

cost model?

A

cost includes purchase price & directly attributable expenses

costs exclude startup costs

21
Q

fair value model?

A

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

22
Q

how are gains/losses resulting from a change in FV of an IP treated?

A

recognised in the P&L

23
Q

importance of intangible assets?

A

investments in non-physical/intangible items have spurred growth for companies in recent times

e.g., intellectual capital, reputation

24
Q

difference between market cap and book value of a company on the SOFP?

A

market cap = quantity of shares x market price

value of equity on SOFP = owners equity (assets - liability) / net assets

25
Q

why is seeing the SOFP as a measure of a company’s valuation problematic?

A

a significant amount of value isn’t reflected on the SOFP

e.g., reputation, expertise etc

26
Q

objective & scope of IAS38?

A
  • recognition of intangible assets, their carrying amount and disclosures
  • scope includes intangible assets, financial assets and mineral rights
27
Q

intangible asset?

A

an identifiable non-monetary asset without physical substance

28
Q

an asset is…

A

a resource owned/controlled by an entity as a result of past events

expected to derive future economic benefits

29
Q

three critical attributes of an intangible asset?

A

identifiability

control

future economic benefits

30
Q

examples of intangible assets?

A
  • patented technology
  • trademarks
  • licensing
  • customer lists
  • marketing rights
  • franchise agreements
31
Q

how are intangible assets initially and subsequently recognised?

A

initially measured at cost

subsequent recognition criteria depends on whether it was acquired through business combination or acquired separately

32
Q

business combination?

A

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

33
Q

what determines fair value of IA after business combo?

A

FV reflects market participants’ expectations about the profitability of future economic benefits

34
Q

what constitutes sufficient info to reliably measure the FV of an IA?

A
  • separable
  • arises from contractual/other legal rights
35
Q

separate acquisition of IA?

A

recognised when probable future economic benefits will flow to the entity & cost can be measured reliably

36
Q

measurement of IA when separately acquired?

A

cost comprises of purchase price and directly attributable costs

recognition of cost ceases when operation in intended manner is no longer feasible

37
Q

can IA be created internally?

A

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

38
Q

are expenditures on customer loyalty expensed or capitalised?

A

expensed as there’s no legal rights to protect the relationship, customers may leave & entity has no control over future economic benefits

39
Q

research phase?
development phase?

A

research = original, planned investigation undertaken with prospect of gaining knowledge

development = application of research findings to design new products

40
Q

are research/development capitalised or expensed?

A

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)

41
Q

6 criteria for development phase to be capitalised?

A

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
42
Q

measure of intangible assets?

A

initially = cost

subsequently = cost/revaluation model

cost model = cost - accum. amortisation - accum. impairment loss

revaluation model = FV - accum. amortisation. - accum. impairment loss

43
Q

how are revaluation gains/losses treated?

A

gains = credit revaluation reserve & recognised as OCI

losses = recognised as an expense in P&L

44
Q

two types of useful life?

A

finite & indefinite

finite = amortised over time, w/ residual amount of 0

indefinite = shall not be amortised, test for impairment annually

45
Q

are internally generated brands, newpaper mastheads, publishing titles and customer lists expensed or capitalised?

A

expensed

not recognised as intangible assets

46
Q

IAS38 disclosure requirements?

A

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

BUS275 - Financial Reporting for Business (16 decks)

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