Week 3

Question 1

Measuring assets

Answer 1

Upon initial recognition assets are recognised at the cost. EB include: realisable value, fair value, value in use (NPV)

Question 2

Cash and cash equivalents

Answer 2

Are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes. For an investment to qualify as a cash equivalent it must be readily convertible to a known amount of cash and be subject to an insignificant risk of changes in value

Question 3

Receivables

Answer 3

Are amounts owed to the entity. Trade receivables represent amounts owed by customers arising from the provision of goods or services on credit. Other receivables represent amounts owed by outside entities who are not customers such as employee loans on volume rebates

Question 4

Inventories

Answer 4

Assets held for sale in the ordinary course of business.

Assets in the process of production for sale (work-in-progress).

Materials or supplies to be consumed in the production process (raw materials) or in the rendering of services

Question 5

Determining inventory on hand

Answer 5

First stock take then valuation. Methods of valuation specific costs, FIFO or weighted average cost

Question 6

What could cause NRV to fall below cost?

Answer 6

What could cause NRV to fall below cost?

Obsolete or superseded (PS4 vs PS5)

Damaged or past best before/used by date (but still realisable)

Poor management

Question 7

Depreciation

Answer 7

The systematic allocation of the depreciable amounts of an asset over its useful life. Assets with finite useful lives must be depreciated i.e. partial derecognition. Methods include straight line, reducing balance or units of production

Question 8

Measurement of PPE after acquisition

Answer 8

Cost model or revaluation model (Carried at fair value).

Cost is a more faithful representation (i.e. objectively verifiable from transaction price) but less relevant (particularly for aged assets). Fair value is more relevant but less faithfully representative (estimates have inherent risk of subjectivity or error)

Question 9

Impairment

Answer 9

An asset is overstated if its CA reported in the SoFPos exceeds it RA. If CA > RA the asset is said to be impaired. Must be written down to its RA

Question 10

Lease assets

Answer 10

Excluded short term leases and leases of low value. Cost based on the NPV of all payments required under the lease (and directly attributable costs and estimate of any dismantling costs - same as PPE). Subject to depreciation consistent with class of PPE

Question 11

Intangible assets

Answer 11

Asset without physical substance. An intangible must be acquired - must be able to identify a cost. An intangible asset is amortised over its useful life. Can be carried at either cost or FV and can be impaired

Question 12

Goodwill

Answer 12

Arises from the acquisition of another business. Internally generated goodwill shall not be recognised