notes i Statements W3 SoFPos Assets Flashcards
Current vs Non current
Expects to realise/ intends to sell (convert to cash)/ consumer in its normal operating cycle
12 months after reporting period
primarily for trade purposes
Classes
Group similar nature & use Concise information facilitates QC of understandability Notes Detail Subclasses
Cash and cash equivalents Receivables (trade and others) Inventories Accrued revenue Prepaid expenses Assets held for sale PPE Intangible assets Other financial assets (investments and other complex financial instruments)
Units
Realisable value
Fair value
Value in use
Recoverable amount
Units
By value
Potential to produce FEB
Realisable value
Expected cash inflow from sell or use
Fair value
Price received if sold
Market price
Value in use
NPV of all future net CF over useful life
Both inflow and outflow
Recoverable amount
RA = realizable value
Or RA higher of what entity received from selling (fair value – cost) and value from use over useful life (value in use)
Measurement Risks
Overstate
Impairment
Accounting estimation
Measurement Risks
Overstating carrying amount
Not faithful representation
Impairment-
Assets CA must not exceed RA
If so = impaired
= written down to its RA
compare the asset’s carrying amount with its recoverable amount.
Recoverable amount is determined as the higher of the asset’s fair value less costs to sell and its value in use
recoverable amount requires estimations, particularly in determining the fair value of the asset when there is no active market for the asset & estimations of certain factors are also required in determining the asset’s value in use, such as an estimate of the future cash flows the entity expects to derive from the asset.
accounting estimation
Not accounting policy choice
Cash and cash equivalents-
Liquidity
3 levels
Cash and cash equivalents-
Liquidity
- Cash
Cash on hand
Demand deposits
Easy withdrawal
Unproductive asset
Excess could be invested in revenue generating assets, service interest bearing debt or return to shareholders
- Cash equivalent
Available to meet cash commitments
Short term
Highly liquid
Readily convertible to known amount of cash w/o incurring penalties
Subject to insignificant risk of changes in value
Minimal decline in market value if converted
Common: 3-6 months
e. g. deposits at call, tradeable short-term bond, short term cash deposits
3. Investments
Long term
Less liquid
Not readily converted to cash
Risk of changes in value
e.g. long term bonds, shares, term deposits with penalty for early withdrawal, fixed term deposits, long term accounts
Trade and other receivables
Trade Def
Other receivables Def
Trade and other receivables
Trade
Owed by customers from provision of G&S on credit
Other receivables
Amounts owed by outside entities, who aren’t customers
e.g. Volume rebates received from suppliers (JB: samsung supplier refunds purchase cost to JB if JB’s samsung sales exceeds xyz, incentive to sell more, both win), loans provided to executives or employees
Trade and other receivables
Recognition
PCP EU MU
P Cash inflow, amount owed C Legal claim Direct benefit P Sales through credit
EU
Low, expected pay
MU
Low, transaction/ agreed price
Trade and other receivables
Doubtful debt
Trade and other receivables
Doubtful debt
CA > RA
Unfaithful representation
Risk gross amount of receivables overstates amount actually collectable
IFRS: Prepare GPFR qualitatively assess likelihood receivables will be collected
Allowance for doubtful debt
Any amount assessed as doubtful gives rise to contra asset offset against the gross receivables
Bad debt
Uncollectable debt
derecognized, written off
Trade and other receivables
Disclosure
Trade and other receivables
Disclosure
Prescribed line item in SoFPos Trade and other receivables Notes Gross and impaired amounts disaggregated Policy for determining impairment e.g. ageing analysis Credit terms
Inventory
Def
Inventory-
Def
Sold or consumed
Assets for sale in ordinary course of business
Assets in the process of production for sale (work in process)
Materials or supplies to be consumed in production process (raw) or in rending of services
Inventory
Recognition
Inventory
Recognition
PCP EU MU
P Sold or consume generates revenue C Direct towards rev generating activities P Purchased or manufactured EU Low Expected to be consumed/ sold MU Low Cost at acquisition/ production
Inventory
Process
Process
Step 1 Physical count Stock take Quantity Qualitative observation Determine merchable quality
Step 2
Valuation
Unit costs vary during period
Specific costs
keep track of all purchase price or
weighted average or
LIFO (this method is currently prohibited in Australia) or
FIFO-
First in first out most recent purchase price (last unit on hand came from most recent delivery)
accounting policy choice.
cost of inventory is determined based on cost of goods purchased later in the period
Inventory
Units
Inventory
Units
Purchase price
from supplier, including non-refundable tax (excludes GST)
GST example, W3
Conversion costs
e.g. manufacturing, production
When bring inventory to present location & condition (prior to sale, labeling, branding)
Transport (to store, warehouse), modification and enhancements to get inventory ready for sale
Excludes storage, delivery to customer, advertisements (expense)
Inventory
Risk
Inventory
Risk
Cost > NRV
IFRS: inventory measured at the lower of cost or NRV
Use when NRV is lower than cost
SP/RV must be > CP
Causes Obsolete, superseded New technology Newer version or model Last season
Damaged or past expiry
best-before/ use-by date, perishable
Poor management Overstock Unanticipated drop in demand Economic decline Not wants for luxury items
Net realizable value
Proceeds of sale less all further marketing, selling and distribution costs
Selling price – Cost to sell
Selling cost – realizable cost
Inventory
Disclosure
Inventory
Disclosure
Prescribed line item in SoFPos
Inventories
Notes
Dissagreation between classes of inventories
e.g. raw, work in progress, finished goods, inventory at cost, inventory at net realizable value
Extent written down to NRV
Policy, determine impairment
Useful: judge managemen’s inventory control procedures, whether likely RA exceeds CA
Assets held for sale
Def
Assets held for sale
Def
Sells of part of operation
At reporting date, has assets expected to be sold = identifies as disposal group
Assets held for sale
Measurement
Assets held for sale
Measurement
Lower of aggregated CA of all assets or NRV of disposal group
CA recovered through sales
Assets held for sale
Disclosure
Assets held for sale
Disclosure
Mandatory line disclosure
Classified as a single current asset (even if include PPE)
PPE-
Def
PPE-
Def
Tangible, physical
Held for use in production or supply of G&S, for rental or administrative purposes
PPE-
Classes
PPE-
Tangible, physical
Held for use in production or supply of G&S, for rental or administrative purposes
Classes Land Land and building Machinery Ships Aircrafts Motor vehicles Furniture and fixtures Office equipment Bearer plants (fruit trees)
PPE-
Cost
PPE-
Cost
Cash/ equivalents or fair value of any other consideration given to acquire or construct asset
Purchase price including non-refundable tax (stamp, import duty)
Other costs directly attributed when brining to location & condition necessary to operate in manner intended by management
Professional fees, delivery handling, site preparation, installation & assembly costs
Note 1: cost included in cost of asset = capitalized, not capitalized = written off as expense
Notes 2: subsequent costs that improve performance = capitalized (not capitalized = cleaning & repair)
Initial estimates for dismantling & removing asset at end useful life
Management can choose between 2 models to carry items within classes of PPE
Choice applied consistently to all assets in same class (no need class-to-class)
Cost model
Revaluation model
2 models
2 models
Cost Model-
Cost price-
Paid
Cost less any accumulated depreciation
More common
e.g. Woolworths’s land, retail, warehouse
Fair value would no provide info relevant to measuring performance of core business
Increase value of building doesn’t impact sales
Impacts on future depreciation charges -> future profits
Impact on profitability measures
Or
Revaluation model-
Fair value- Revalued periodically (every 3-5 years) & carried at its fair value less accumulated depreciation
Fair value
Market/ exit price if sell in active liquid market, market evaluation of asset
Obtained independently or by internal appraisal
Estimated using current replacement cost or PV of future cash flows
Not reasonable to use then use cost model e.g. no active market
For PPE used over a long period of time
e.g. Stockland
Investment property held for rental income/ capital appreciation
Fair value more relevant to measure realizable value through generating future returns or realizations
Changes in fair value is relevant to measuring performance of core business
e.g. Land & buildings, Works of art & collections
Indefinite life
cost is not relevant here since land was purchased long time ago
PPE-
Compare Models
PPE-
Compare Models
Trade off
Revaluation model
More relevant
Less faithful
Estimations have inherent risk of subjectivity or error
Cost model more faithful
Objectively verifiable receipts/ invoices
Less relevant (aged goods)
PPE-
Measure– Risks
PPE-
Measure– Risks
Impairment
Avoid overstating assets
If CA > RA
SoFPos
Asset written down to RA, expected recover from use or sale
Ensure depreciation is not being underprovided
Identity non-depreciable assets as being impaired e.g. land
PPE
Disclosure
PPE
Disclosure
Prescribed line item in SoFPos
Separate: investment property
Notes for each class of PPE
Gross amount, accumulated depreciation, impairment loss, carrying amount
Movements in CA from start period to end
Additions, disposals, depreciation, impairment charges
Details how fair value and recoverable determined
Accounting policies to measuring
PPE
Depreciation
PPE
Depreciation 🥑
Systematic allocation of depreciable amount over useful life
Over life, depreciation calculated and offset against gross amount
Depreciable assets carried at gross amounts – accumulated depreciation
If finite life
PEB, foreseeable future
1/ useful life * 100
Buildings e.g. 40 years Motor vehicles e.g. 8 years Furniture e.g. 8 years Computing equipment e.g. 4 years Works of art e.g. indefinite Land e.g. indefinite, not subject to depreciation
Leased assets
Acc Standards Change
Leased assets
Acc Standards Change
Change to GPFR under IFRS/ AASB in FY20
Mandatory to report leased assets in SoFPos
Previously, lease assets e.g. retail stores = expenses
Exception:
Short term leases
leases of low values assets
Still expense
Leased assets
Measure
Leased assets
Measure
NPV of all payments under lease & directly attributable costs and estimate of any dismantling costs
Same as PPE
Depreciates (may)
Revaluation or Cost model
Leased assets
Disclosure
Leased assets
Disclosure
Line item
Right-of-use assets
Notes
Lease agreement
Intangible assets
Def
Intangible assets
Assets without physical substance Computer software, patents, copyrights, customer lists, fishing licences Must be acquired Able to identify cost Measurement certainly
X Internally generated intangibles not recognized
Except: development phase of R&D
Intangible assets
Measurement
Intangible assets
Measurement
Amortized over useful life Cost allocated over useful life gradually writing off the initial cost of an asset Same as PPE & Leased Assets Revaluation (not common) or Cost model Can be impaired Same as PPE
Intangible assets
Disclosure
Intangible assets
Disclosure
Prescribed line time
Notes for each class
Gross amount, accumulated amortisation, carrying amount
Amortisation method & estimations applied
Valuation method applied and detailed of any FV obtained
Details impairments
Details of movement rom start to end period
Goodwill
Def
Goodwill
Def
Intangible Unique Special case Reputation Customer base, relationship with employees and suppliers From acquisition of another business
Goodwill
Measure
Goodwill
Measure
Measured by difference b/w consideration (i.e. purchase price) and fair value of identifiable net assets
Future benefit expected from synergy between assets of acquired business
Good will figure: Amount paid less fair value of assets
X recognized internally generated
Revaluation or cost model
X amortisation under AABs
Subject to impairment
Other financial assets
Def
Other financial assets
Value derived from a contractual claim
Investments
Share in other companies, bonds, debentures, derivatives, hedges, options, swaps, long term deposit
Classified by nature & management’s intentions
e.g. available for sale, held for trading, held to maturity
Influences how measured e.g. revaluation or cost, equity method
Other financial assets
Disclosure
Other financial assets
Disclosure
Prescribed line time
Notes for each class
Gross amount, accumulated amortisation, carrying amount
Amortisation method & estimations applied
Valuation method applied and detailed of any FV obtained
Details impairments
Details of movement rom start to end period
Total assets
Total assets
Dollar value of future EB embodied in all assets
Current minimum FEB estimated by management, considering estimations of net market value (both today and in the future), future CF, asset usage nad stock flows that can be measured reliably
Estimation, choices, judgment
Estimation, choices, judgment
How measured?
Measurement consistent?
Extend choices, judgement, estimates & forecast influence measurement?
Cash
Few
Receivables
Estimation of doubtful debts
Inventories
Estimation of NRV, choose FIFO or WAVE (Weighted average)
Which costs appropriate to defer to closing inventory
Non-current assets
Judgment as to which costs to assign to PPE at acquisition, estimation of useful lives and residual values, choices between cost or revaluation FV method, estimation/ judgment of market value or recoverable amount
