Part 6 - Goodwill and intangible asset / Government grant and assistance / Impairment of assets / Income tax

Question 1

What are intangible asset?

Answer 1

An identifiable non-monetary asset without physical substance?

Question 2

What criteria to identify the asset as a intangible asset?

Answer 2

• identifiability
  - it is separable (capable of being sold, transferred)
  - it arises from contractual or other legal rights
• Control - it has the power to obtain the future economic benefits flowing from the underlying resources and restrict the asset of others to those benefits
• future benefits

Question 3

When to recognize a intangible asset?

Answer 3

• expected future benefit are probable

- cost can be measured reliably

Question 4

how to measure the initial measurement of the intangible asset?

Answer 4

Measure at the purchase price less directly attributable cost of preparing the asset for its intended use

Question 5

When exchanging for a non-monetary asset or a combination of monetary and non-monetary asset, how to account for the transaction?

Answer 5

measure cost at fair value = if both sides can reliably measure FV - use the FV of the asset given up.

If exchange lack commercial substance, cost of the asset acquired is measured at the carrying amount of the asset given up

Question 6

What is commercial substance?

Answer 6

• Configuration (risk, timing, amount) of Cf of asset received differs from asset transferred
• entity specific value of entity’s operations affected by the transaction changes as a result of the exchange
• Differences in either of the above factors is significant relative to the FV of asset exchanged

Question 7

What is the definition of research in internally generated intangible asset?

Answer 7

• original and planned investigation undertaken with the prospect of gaining new scientific or knowledge and understanding

Question 8

What are developments?

Answer 8

application of research finding/knowledge to a plan or design for the production of new or substantially improved materials etc before start of commercial production

Question 9

the 6 criteria to allow development cost to be capitalized

Answer 9

• technical feasibility
• intention to complete it
• ability to use or sell it
• probable future economic benefits will be generated (any existence of market)
• Availability of adequate technical, financial and other resource
• Ability to measure reliably the expenditures attributable to it

Question 10

How to measure an intangible asset after initial recognition?

Answer 10

Either cost or revaluation model

Cost model - carried at cost less accumulated amortization and any accumulated impairment

revaluation model - carry at FV at the date of revaluation less any subsequent accumulated amortization and accumulated impairment loss

Question 11

How should surplus or deficit arising on revaluation should be recognized as follow:

Answer 11

• surplus - credit to OCI - revaluation surplus unless the surplus reverses a previous deficit
• deficit - charge to profit/loss unless deficit reverses a previous surplus, a charge is made to revaluation surplus up to the amount of any previous surplus

Question 12

What is the process of amortizing intangiable assets?

Answer 12

amortize over useful life except for intangible assets with an indefinite life

Question 13

How to account for website cost

Answer 13

During operating stages - expenses use on purchasing hardware will be PPE

Expenses for website cost will be in accordance with intangible asset.

• must need to be able to demonstrate how website will generate probable future economic benefits
• website development stages can be recognized as an intangible asset when expense can be directly attributed to the preparing of the website for it to be capable of operating in the manner intended.

Question 14

When should government grants be recognized?

Answer 14

Shouldn’t be recognized until there is reasonable assurance that:

• entity will comply with the conditions attaching to them
• grants will be received

Question 15

How should government grants be recognized for capital assets?

Answer 15

• deduct from cost of capital assets or set up as deferred income
• amortize on same basis as depreciation

Question 16

When should recognize gain/loss for government grants becoming receivable as compensation for expenses already incurred

Answer 16

recognize in profit/loss in period in which it becomes receivable

Question 17

What are government assistance?

Answer 17

action by government designed to provide an economic benefit specific to an entity qualifying under certain criteria (not recognized in FS)

Question 18

Should government assistance aimed at encouragement or long-term support of business and no specific condition related to the operating activities of the entity be accounted for in FS?

Answer 18

According to IAS 20 - such grants will not be credited directly to shareholders’ equity

Question 19

How to account for investment tax credits?

Answer 19

using cost reduction approach - match with related expense when taken into income.

Question 20

When is an asset is impaired?

Answer 20

When the carrying amount exceeds its recoverable amount

Question 21

What is the recoverable amount?

Answer 21

higher of an asset’s fair value less cost to sell and its value in use

Question 22

what is FV less cost to sell?

Answer 22

Amount obtainable from the sale of an asset or cash generating unit in an arm’s length transaction less cost of disposal

Question 23

What is the value in use?

Answer 23

Discounted future cash flow derived from continuing use of the asset and from its ultimate disposal

Question 24

How to measure the recoverable amount of an intangible asset with an indefinite useful life

Answer 24

Use recoverable amount of preceding yr if all of criteria met:

• intangible asset is a part of cash generating unit and tested for impairment that the unit have not change significantly since most recent recoverable amount calculation
• most recent recoverable amount calculation exceeds asset’s carrying amount by substantial margin
• based on analysis of event, the likelihood of current recoverable amount would be less than the asset’s carrying amount is remote

Question 25

What’s the measurement of impairment loss

Answer 25

Asset’s carrying amount exceeds recoverable amount

Question 26

If recoverable amount substantially increase?

Answer 26

can reverse impairment loss to the extend of previously recorded except goodwill which cannot be reversed

Question 27

What is the recoverable is impossible to determine for an individual asset?

Answer 27

Determine the recoverable amount of the cash generating unit (CGU) to which the asset belong. It will be identified as a cash generating unit if there is an active market exists for the output produce by the group of asset

Question 28

What is a corporate asset?

Answer 28

Group or divisional asset such as headquarter building. that do not generate cash inflows independently of other assets and their carrying amount can’t be fully attributed to CGU under review

Question 29

How should corporate asset be allocated for impairment?

Answer 29

should be allocated to CGUs to which they related. For the purpose of impairment testing, allocate goodwill to the appropriate CGU

Question 30

What are the important differences between IFRS and ASPE for impairment assets?

Answer 30

• IAS 36 requires assess of indication of impairment at the end of reporting period but ASPE 3063 require assessment only when event indicate carrying amount may not be recoverable.
• ASPE 3063, need to determine if there are impairment loss by assessing whether carrying amount is not recoverable and exceeds its farir value - impairment loss determine between the carrying amount and fair value
• ASPE 3063 doesn’t permit reversal of an impairment loss

Question 31

How to get the taxable income to record for income tax on BS?

Answer 31

accounting income +/- permanent and temporary differences = taxable income

Question 32

What are permanent differences?

Answer 32

e.g. dividend received from taxable Cdn corporation equity in earnings of significantly influenced investment, non taxable portion of CG, non deductible portion of meals and entertainment, interest and penalties on taxes)

adjustments that will never be taxable or deductible for tax purpose

Question 33

What are temporary differences?

Answer 33

depreciation vs CCA, development cost amortization vs immediate write off for tax, warranty expense vs warranty paid, pension expense vs pension contribution.

Adjustments that will be taxable or deductible for tax purpose, but in a different period for tax purpose than for accounting

Question 34

What are deferred income tax asset/liabilities

Answer 34

sum of accumulated temporary differences x tax rate