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ARA > notes i Statements W3 SoFPos Assets > Flashcards

notes i Statements W3 SoFPos Assets Flashcards

1
Q

Current vs Non current

A

Expects to realise/ intends to sell (convert to cash)/ consumer in its normal operating cycle
12 months after reporting period
primarily for trade purposes

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2
Q

Classes

A 
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)
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3
Q

Units

Realisable value

Fair value

Value in use

Recoverable amount

A

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)

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4
Q

Measurement Risks

Overstate

Impairment

Accounting estimation

A

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

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5
Q

Cash and cash equivalents-

Liquidity

3 levels

A

Cash and cash equivalents-

Liquidity

  1. 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

  1. 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

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6
Q

Trade and other receivables

Trade Def

Other receivables Def

A

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

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7
Q

Trade and other receivables

Recognition

A

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

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8
Q

Trade and other receivables

Doubtful debt

A

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

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9
Q

Trade and other receivables

Disclosure

A

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
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10
Q

Inventory

Def

A

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

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11
Q

Inventory

Recognition

A

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
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12
Q

Inventory

Process

A

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

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13
Q

Inventory

Units

A

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)

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14
Q

Inventory

Risk

A

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

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15
Q

Inventory

Disclosure

A

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

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16
Q

Assets held for sale

Def

A

Assets held for sale

Def
Sells of part of operation
At reporting date, has assets expected to be sold = identifies as disposal group

17
Q

Assets held for sale

Measurement

A

Assets held for sale

Measurement
Lower of aggregated CA of all assets or NRV of disposal group
CA recovered through sales

18
Q

Assets held for sale

Disclosure

A

Assets held for sale

Disclosure
Mandatory line disclosure
Classified as a single current asset (even if include PPE)

19
Q

PPE-

Def

A

PPE-

Def
Tangible, physical
Held for use in production or supply of G&S, for rental or administrative purposes

20
Q

PPE-

Classes

A

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)
21
Q

PPE-

Cost

A

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

22
Q

2 models

A

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


23
Q

PPE-

Compare Models

A

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)

24
Q

PPE-

Measure– Risks

A

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

25
Q

PPE

Disclosure

A

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

26
Q

PPE

Depreciation

A

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
27
Q

Leased assets

Acc Standards Change

A

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

28
Q

Leased assets

Measure

A

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

29
Q

Leased assets

Disclosure

A

Leased assets

Disclosure

Line item
Right-of-use assets
Notes
Lease agreement

30
Q

Intangible assets

Def

A

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

31
Q

Intangible assets

Measurement

A

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
32
Q

Intangible assets

Disclosure

A

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

33
Q

Goodwill

Def

A

Goodwill

Def

Intangible
Unique
Special case
Reputation
Customer base, relationship with employees and suppliers
From acquisition of another business
34
Q

Goodwill

Measure

A

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

35
Q

Other financial assets

Def

A

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

36
Q

Other financial assets

Disclosure

A

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

37
Q

Total assets

A

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

38
Q

Estimation, choices, judgment

A

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

ARA (7 decks)

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