Accounting for assets Flashcards
(36 cards)
What is the definition of an asset according to the conceptual framework?
A present economic resource controlled by the entity as a result of past events, where an economic resource is a right that has the potential to produce economic benefits.
Whats the difference between the definition of an asset between the concenptual framework and IAS 16?
IAs 16 says future economic benefits are expected to flow from the asset whereas the conceptual framework says the economic resource has the potnetial to follow.
Before any asset is included on the financial statements, what criteria does it need to meet?
The value/cost must be measured reliably
Future economic benefits will flow to the entity
Which is the stronger test for economic benefits, IAS 16 or Conceptual framework?
IAS 16
What costs can be attributed in the cost of the asset?
Cost of site prep
Initial delivery and handling costs
Installation
Cost of testing
Professional fees
What is the cost model and revaluation model?
Cost model - Where the asset is carried at cost less accumulated depreciation and impairment losses
Revaluation Model - Fair value - subsequent depreciation and impairment losses.
What is fair value?
The amount an asset could be exchanged between parties in an arms lengths transaction.
Why does the entire class of assets have to be revalued if only one item needs revaluing?
You can’t select some properties which have increased in value whilst others which have fallen in value are not adjusted.
Double entry for an increase in asset value as a result of a revalutation?
PPE £100
Revalued at £150
Dr PPE - £50
Cr Revaluation surplus - £50
Double entry for an increase in asset value as a result of a revalutation where there has been a previous decrease?
PPE - £100
Previous Decrease - £80
Revalued - £150
Dr PPE - £70 (150-80)
Cr Income - extent of the previous decrease - £20 (100-80)
Cr Revaluation Surplus - £50
Double entry for an decrease in asset value as a result of a revalutation?
PPE - £100
Revalued at £80
Dr Expenses - £20
Cr PPE - £20
Double entry for an decrease in asset value as a result of a revalutation where there has been a previous increase?
PPE - 100
Previous increase - £150
Revalued - £80
Dr Revaluation Surplus - £50
Dr Expenses - £20
Cr PPE - £70
When does derecognition occur?
When an item of PPE is disposed of, or when no future economic benefits are epxected from its use. Any proceeds is recognised as income, any losses are recognised as expenses.
What is IAS 38?
The accounting treatment of expenditure on acquiring, developing, maintaining or enhancing intangible assets.
What is the definition of an intangible asset?
An identifyiable non-monetary asset without physical substance
What are three key elements of an intangible asset?
Identifiability - the asset is either separable from the entity and is capable of being sold, or it arises from contractual or other legal rights
Control - Entity has the power to obtain future economic benefits
Future economic benefits - incldues revenue from sale of products, cost savings etc.
What are the rules around recognition of intangible assets?
Neither interally generated goodwill or brands can be recognised as assets, as the asset cannot be reliably measured.
How are research costs recognised under IAS 38?
Research is to be recognised as an expense in the SPL and other comprehensive income.
How are development costs recognised under IAS 38?
Recognised as an expense or can be capatalised as an intangible assets if they meet a certain criteria.
What is the criteria for development costs to be recognised as an intangible asset?
Technical feasibility of completeing the intangible asset so that it can be used or sold
Inention to complete the intangible asset and to use or sell it
Intangible asset will generate future economic benefits
They have available resources to complete the development
Ability to measure the expenditure reliabily
What is the rule under IAS 38 about amortisation & impairment of intangible assets?
Intangible assets should be amortised over their expected useful lives unless their life is expected to be indefinite, in which case they should be reviewed for impairment annually.
What is IAS 36?
A standard sets out the accoutning procedures to ensure that assets are carried on the SFP at no more than their fair value or recoverable amount.
Fair Value - the amount which would be recieved to sell an asset or paid to transfer a liability in an orderly transaction.
Name some external and Internal indications of an impairment review?
External:
Significant fall in the assets value
Adverse effects caused by technology, economy etc.
Interest rates
Internal:
Obsolescence or physical damage to the asset
The economic performance is worse than expected
How is the recoverable amount calculated and recorded in the statements?
The higher of fair value - costs of disposal and value in use
If the carrying amount of the asset is greater than the recoverable amount than the asset is impaired. The imapirment loss will be written down as an expense and credited to the NCA.
If it has been revalued (increased) previously the double entry is
Dr Revaluation surplus
Cr NCA
