Chapter 9 - Non current assets, IAS 16 PPE and IAS 36 Impairment of assets

Question 1

In accordance with IAS 16 when should an asset be recognised?

Answer 1

It is probable that future economic benefit will flow to the entity
The cost of the asset can be measure reliably

Question 2

In accordance with IAS 16 what should the asset initially be measured at?

Answer 2

Its cost which include:

Purchase price
Directly attributable costs to bring the asset to its present location and condition
Initial estimate of the cost of dismantling and removing the item and restoring the site, where there is an obligation to incur such costs

Question 3

In IAS 16 when should subsequent expenditure be capitalised?

Answer 3

Expenditure improves the future economic benefit that the asset will generate
Replaces a component of an asset and the carrying amount of the component replaces is derecognised
It is the cost of a major inspection for faults and the carrying amount of the previous inspection is derecognised

Question 4

What is fair value defined as?

Answer 4

Price that would be receive to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date

Question 5

If an entity chooses to revalue what must it do?

Answer 5

Revalue all assets in the same class
Revalue regularly

Question 6

If an asset is revalued what must we do to the accumulated depreciation?

Answer 6

Write it off to the revaluation surplus

Question 7

What are the steps to a revaluation?

Answer 7

1. Restate asset cost to the revalued amount
2. Remove any existing accumulated depreciation
3. Transfer the increase in the cost account and the existing accumulated depreciation to the revaluation surplus
4. Recalculate current year’s depreciation on the revalued amount if applicable

Question 8

When disposing an asset and the asset has been revalued in the past what must we do?

Answer 8

Dr Revaluation surplus
Cr Retained earnings

Question 9

In IAS 16 what are the disclosure requirements?

Answer 9

Measurement basis e.g. cost or valuation
Depreciation methods with useful life or depreciation rate
Gross carrying amount and accumulated depreciation at the beginning and end of period
Reconciliation of additions, disposals, revaluations, impairments and depreciation

Question 10

What is IAS 36?

Answer 10

Impairment of assets

Question 11

What are some situations when an impairment can occur?

Answer 11

Decline in market value
Technological, legal or economic changes
Physical damage
Plans to dispose of asset

Question 12

What is the definition of an impairment loss?

Answer 12

Amount by which the carrying amount of an asset exceeds its recoverable amount

Question 13

What is the recoverable amount valued at?

Answer 13

The higher of:
fair value - cost to sell
Value in use - Present value of estimated future cash flows

Question 14

When the recoverable amount of an asset is below the carrying amount what is the difference?

Answer 14

Impairment loss

Question 15

What should the impairment loss be recorded as?

Answer 15

An expense in the SPL, unless asset has been previously revalued, in which case the impairment can be offset against the revaluation surplis

Question 16

What disclosure requirements does IAS 36 require?

Answer 16

Amount of impairment losses recognised in SPL during the period and where it has been included
Amount of reversal for impairment losses recognised in the SPL during the period and when it has been included
Amount of impairment losses recognised directly in equity during the period
Amount of reversals of impairment losses recognised directly in equity during the period