Life of an asset/liability and measurement

Question 1

What is an asset/liability first recognised under an “initial recognition” and thus included on the SOFP? (2)

Answer 1

1. When the item meets the definition and 2. satisfies the recognition criteria

Question 2

When is the subsequent recognition of an asset/liability? (2)

Answer 2

1. When the item is included in later SOFPs

2. As long as the asset still meets the definition and satisfies the recognition criteria

Question 3

When is the asset/liability de-recognised? (2)

Answer 3

1. When the item is removed from the SOFP

2. As soon as the asset no longer meets the definition and/ or satisfies the recognition criteria

Question 4

What do the definitions tell us?

Answer 4

Whether an asset/liability exists

Question 5

What does the recognition criteria tell us?

Answer 5

Whether to include the item on the SOFP

Question 6

What does measurement tell us?

Answer 6

The monetary amount to use when reporting on the SOFP

Question 7

What is the historical cost?

Answer 7

Measurement is based on the cost

Question 8

What is the current value?

Answer 8

Measurement that is updated for current conditions

Question 9

What does the current value include? (3)

Answer 9

1. Fair value: i.e Market value
2. Value in use: based on expected EB’s (PV of cashflows)
3. Current cost: based on the cost of equivalent item (=same condition + age)

Question 10

What is the meaning of fair value?

Answer 10

Fair value=market value
The price that would be received to sell an asset in an orderly transaction between market participations at the measurement date

Question 11

What are two aspects of the conceptual framework inherent to the definition? (2)

Answer 11

1. The going concern assumption

2. Neutrality

Question 12

Where an active market exists, the FV is the ______ ____

Answer 12

Market price

Question 13

Where no active market exists, what can be used to determine the future value?

Answer 13

an independent expert

Question 14

What is the carrying amount of an item?

Answer 14

The amount at which it is reported in the SOFP

Question 15

What is PPE (property, plant and equipment) used for? (3)

Answer 15

1. Production of goods e.g factory, machinery, tools
2. Delivery of services e.g vehicle, equipment
3. For administrative purposes e.g office building, computers

Question 16

What is PPE?

Answer 16

An asset held for longer than 12 months

Question 17

What is the accounting standard on PPE?

Answer 17

“IAS16: Property, plant and equipment”

Question 18

How does IAS16 require PPE to be measured? (2)

Answer 18

1. Initial recognition

2. Subsequent recognition

Question 19

What is initial recognition?

Answer 19

the amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire the asset

Question 20

What is subsequent recognition?

Answer 20

businesses have a choice between the cost model and the revaluation model

Question 21

State the measurements for the following scenarios:

1. Cash paid on date of purchase
2. Cash paid within normal credit terms
3. Cash beyond normal credit terms
4. A non-cash asset is exchanged for the PPE

Answer 21

Measurements:

1. Amount of cash paid
2. Amount of cash paid
3. Present value of cash paid
4. Fair value of asset exchanged

Question 22

What is the time value of money?

Answer 22

the value of money in the future is equal to a lower amount of money in the present.

Question 23

What is compensation?

Answer 23

Compensation = risk + interest income lost

Question 24

For payments beyond normal credit terms, what is the extra cost payment called?

Answer 24

Financing