Week 2 Everything Flashcards

1
Q

Asset

A

A resource controlled by the entity as a result of
past events and from which economic benefits
are expected to flow to the entity

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2
Q

3 essential characteristics of assets

A
  1. Expected to provide future economic benefits
  2. Must be controlled by the entity
  3. Transaction or event giving rise to the control
    must have occurred
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3
Q

Future economic benefits

A

The capacity of the assets to provide benefits (cash-flows) to the entities that use them. This character is common to all assets irrespective of their
physical or other form.

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4
Q
  1. Must be controlled by the entity
A

Control over the assets upon past event/transaction. It’s the capacity of the entity to benefit from the asset and to deny or regulate access of others to those benefits. It’s not restricted only to legal ownership. Includes other forms of control such as lease agreements

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5
Q

An asset is to be recognised in the statement of financial

position (balance sheet) only when:

A

It is probable that future economic benefits embodied in the asset will occur and the asset possesses a cost or other value that can be measured reliably.

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6
Q

IMPAIRMENT LOSS

A

If, at a given time, the asset is not able to generate any future economic benefits then the asset should be expensed. Expense will be called impairment loss.

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7
Q

IMPAIRMENT LOSS example

A

Sun Ltd has purchased UV equipment for ultraviolet tanning for $1,000 in 2015. In the same year, the Australian government has banned the practice of ultraviolet tanning. As a consequence, the equipment is not going to generate any future economic benefit and it is written off from Sun’s Statement of Financial position.

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8
Q

Two basic approaches of asset classification

A
  1. Current/non-current presentation
  2. Liquidity presentation

The choice falls into the presentation that provides more reliable and relevant information (i.e. specific industries)

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9
Q

AASB101 identify only 4 characteristics of current

asset:

A

(a) it is expected to be realised in, or intended for sale or consumption in, the entity’s normal operating cycle
(b) it is held primarily for the purpose of being traded
(c) it is expected to be realised within 12months after the reporting date or
(d) it is cash or a cash equivalent

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10
Q

Two different moments of measurement of property, plant and equipment

A

Initial measurement: At cost (acquisition or construction)

Subsequent measurement (the carrying value of the asset): two alternatives, at cost or at fair value

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11
Q

Initial measurement at cost:

Which costs are to be considered if the asset is
acquired?

A

purchase price +
directly attributable costs* +
costs of dismantling and removing =
Cost of acquisition

*Examples: costs for installation, assembly, delivery and handling,
testing, professional fees etc…

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12
Q

Cost model (at cost)

A

After the initial measurement of PPE at cost, if COST MODEL is chosen for that category of assets. The asset is carried at its cost less any accumulated depreciation and any accumulated impairment loss.

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13
Q

Why is an asset depreciated?

A

If an asset is held for a number of periods, the future economic benefits of the asset are expected to decline over time. It is recognised as an expense. The asset is depreciated over its useful life.

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14
Q

When and How is an asset impaired?

A

When the recoverable amount (remaining future economic benefits) are less than the carrying amount (cost - accumulated depreciation).

How?:
Carrying amount is reduced up to recoverable amount.

A loss (impairment loss) is recorded in income statement

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15
Q

Calculation of carrying amount

A

cost of asset
– accumulated depreciation
– accumulated impairment losses (if impaired before)

= CARRYING AMOUNT
(net value of asset)

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16
Q

Calculation of recoverable amount

A

Select the higher between:

Fair value, less costs of disposal (or net selling price)

Value in use

17
Q

Fair value, less costs of disposal (or net selling price)

A

amount obtained from the sale of an asset less any selling expense

18
Q

Value in use

A

present value of the future cash flows generated by an asset