Revaluation of Assets Flashcards
Look at Lecture 7 for examples
How is PPE Measured After Initial Recognition?
Net Book Value = Cost – Accumulated Depreciation – Impairment Losses
What is Impairment of PPE?
When asset value significantly drops due to unexpected events.
What is the Revaluation Model for PPE?
Regularly re-measure asset to its fair value.
What are the Advantages and Disadvantages of Revaluing PPE?
Advantages:
* Typically increases value of assets in SoFP
Disadvantages:
* Costly expert valuation needed for entire portfolio, and regular updates
* Gains cannot be paid as dividends (unrealised)
What is the Fair Value of PPE?
Price received to sell asset or paid to transfer liability at measurement date.
Use market-base value where possible.
What are Revaluation Gains of PPE?
Recognised in “other comprehensive income”. Cr revaluation reserve (OCI) & Dr PPE, or Dr revaluation expense (P&L) & Cr PPE.
Do this unless reverses a previous loss (recognise in P/L). Increase in retained earnings.
What are Revaluation Losses of PPE?
Recognised as an expense in P/L, results decrease in retained earnings.
How are Disposals of Revalued items of PPE Presented?
Revaluation gains:
* Revaluation reserve transferred to retained earnings and recorded in statement of changes in equity (SoCE). Gain is excluded from profits.
How is Depreciation of Revalued Assets Presented?
- Eliminate accumulated depreciation, restate cost at revaluation amount
- Use valuation as cost and remaining useful life to recalculate depreciation.
- Option to transfer “extra” depreciation from revaluation reserve to retained earnings as a reserves transfer.
Excess Depreciation = Depreciation Based on Valuation – Depreciation Based on Original Cost
Dr revaluation reserve & Cr retained earnings.
No impact on SoPL or OCI.
What are Identifiable Intangible Assets?
An asset without physical substance but can be controlled by entity to have future economic benefit that can be separately recognised, measured, and accounted for in financial statements.
Disc/legal docs, trademarks, patents.
What Does Identifiability of Intangible Assets Allow Businesses to do?
Distinguish these intangible assets from goodwill.
Facilitate accurate valuations (fair value).
Ensure compliance with accounting standards (IAS 38).
Support investment & legal protection.
What are Separable Intangible Assets?
- Assets capable of being sold (licensed or rented), separately from entity.
- Software, intellectual property, trademark.
What are some Examples of Non-Monetary, Intangible Assets?
- Patents
- Trademarks
- Copyrights
- Franchises
- Goodwill
- Licenses and Permits
- Customer Lists
What is the Recognition Criteria of Intangible Assets?
- Meet definition of an intangible asset
- Must be probable that economic benefit will flow to entity
- Cost can be measured reliably
What are the Different Types of Intangibles?
Purchased intangibles
Internally generated intangibles
Intangibles with indefinite useful lives
What is Goodwill?
Arises from factors such as an entity’s good reputation, and strong customer relationships.
IAS 38 forbids internally generated goodwill from being recognised as assets.
What are Examples of Internally Generated intangibles?
- Patent
- Software
- Brand
- Website
- Customer database
- goodwill
What are the Different Costs of R&D?
Research Phase:
* Original investigation to fain new knowledge/understanding.
* All expenditure written off as expense
Development phases:
* Application of research phase to plan production of new/improved products
* Ensure criteria is satisfied
What is the Criteria for the Development Phase?
- Technical feasibility of completion
- Availability of resources to complete
- Intention to complete and ability to use/sell the asset
- Probability of future economic benefits
- Ability to measure expenditure reliably
What is the Criteria for the Cost of Internally generated Intangible Assets?
- Technical feasibility of completion
- Availability of resources to complete
- Intention to complete and ability to use/sell the asset
- Probability of future economic benefits
- Ability to measure expenditure reliably
Any costs incurred before these criteria are met must be expensed.
How to Calculate Cost of Internally Generated Intangibles, and Separately Acquired intangible Assets?
1) Direct material cost + direct labour cost + any directly attributed costs
2) Purchase price + any directly attributed costs of preparing the asset for its intended use
What is Amortisation? What are its Different Methods?
Depreciable amount of an intangible asset with a finite useful life should be amortised over that useful life.
* Straight-line
* Reducing balance
When are Intangible Assets Exempt from Amortisation?
- 3rd party is committed to buy the asset at the end of its useful life
- Theres an active market for the asset and its residual value to be determined by reference to that market.
How are Disposals (Derecognition) of Intangibles Presented?
Derecognise from SoFP when intangible asset is disposed of or when no further economic benefit can be expected.
