PPE and intangibles ch 5

Question 1

Definition of PPE:

Answer 1

Tangible items helf for use in: production or rental to oters or admin purposes and that is helf for more than 1 accounting period.

Question 2

Carrying amount=?

Answer 2

recognised amount after accumulated depreciation and impairment losses

Question 3

What is the criteria for recognising an asset?

Answer 3

Future economic benefits are probable and costs can be reliably measured

Question 4

When is an asset derecognised?

Answer 4

When no further future economic benefits exist or when it is disposed of.

Question 5

What does the new standard for Borrowing costs require that the predecessor gave a choice to do?

Answer 5

The new standard requires borrowing costs of qualifying assets to be capitalized.

Question 6

WHat is a qualifying assets?

Answer 6

An asset that takes a substantial period of time to get ready for its intended use.

Question 7

When does the capitalisation of borrowing costs need to cease?

Answer 7

When substantially all of the activities needed to prepare the asset for its intended use are complete.

Question 8

What two borrowing costs are to be capitalised to the costs of the asset under development?

Answer 8

Specific borrowing costs that were borrowed to finance the developments. And the funds used out of general borrowing to finance the costs of development. When funds are drawn from general borrowing a weighted average cost of borrowing should be used to capitalize the correct amount.

Question 9

How should government grants be recognised and when?

Answer 9

1. When there is reasonable assurance that the firm will live up to set requirements to be granted the grant.
2. On a systematic basis (Same as depreciation with the MATCHING principle.)

Question 10

There is two options available on how to account for governmetn grants. Which two?

Answer 10

1. Treat grant as deferred income
2. Treat grant by reducing the cost of the asset at acquisition. (Won’t be tested on the exam numerically)

Question 11

Investment property is either held for the purpose of ……… or ………

Answer 11

Rental or capital appreciation

Question 12

Certain property plant and equipment is not held for use and so is not consumed by the business. Therefore it is not …..?

Answer 12

DEPRECIATED. IT IS INVESTMENT PROPERTY

Question 13

Investment property is initially recognised at …… and then in subsequent periods measured by either by the ……….model or ………. model.

Answer 13

Cost. Cost model or fair value model

Question 14

Is the revaluation model used for PPE the same as the Fair value model used for investment property?

Answer 14

NO! Revaluation goes to OCI (If movements are above the “cost line”) and changes in valuation in the fair value model go to the income statement.

Question 15

What’s the definition of an intangible asset?

Answer 15

It is an identifiable, non-monetary asset without physical substance

Question 16

What does an asset need to be by the entity for it to be recognized?

Answer 16

It needs to be under control of he entity.

Question 17

In what two phases does the IAS38 divide research and development into?

Answer 17

Into a research phase and a development phase. Costs incurred during the research phase should be expensed and costs incurred during the development phase should be capitalized.

Question 18

Why are not costs incurred during the research phase capitalized?

Answer 18

Because you cannot argue that there is a PROBABLE future economic benefit from it.

Question 19

What conditions apply for a an entity to be allowed to capitalize development costs for an intangible asset?

Answer 19

1. Technicla feasability
2. INtent and ability to complete the asset
3. Ability to use or sell the asset
4. Future economic benefits will flow
5. adequate resources enable to complete the asset
6. Expenditure can be measured.

Question 20

What costs are specifically excluded from development costs?

Answer 20

1. General overhead costs.
2. Admin expenses
3. Staff training costs

Question 21

Is internally generated G/W and internally generated brands capitalised?

Answer 21

NEVER

Question 22

What types of intangible assets are never amortised?

Answer 22

1.Intangibles with INDEFINITE LIFES
2. GOODWILL (tested for impairment annually instead)

Question 23

What is GOODWILL?

Answer 23

It is the VALUE of the reputation/loyalty that will yield expected future economic benefits.