How do we Account for it?

Question 1

NCA Held for Sale

Answer 1

• Meet three criteria:
  Sale highly probable
  Ready for sale in present condition
  Must be genuinely sold
• Measure it at the lower cost of CA and FV - Costs to sell
• Perform an impairment test and if the (FV - Costs) < CA then the impairment is immediately recognised in the P&L a/c
• Asset’s depreciation stops once classified as NCA held for sale
• Depending on question could then be classisifed as a discontinued operation

Question 2

Inventory

Answer 2

• Measure at the lower of cost and NRV
• NRV = Sale Price - Cost

Question 3

Investment Property

Answer 3

• Property held to earn rentals e.g building leased out to third parties
• Only insignificant ancillary services e.g maintenance, security
• CA = FV
• Using FV model there’s no depreciation or impairment loss because the the asset is revalued each year to to FV
• FV Gain on investment recognised in the P&L a/c
• Using Cost model you continue to depreciate it over remaining UEL

Question 4

Owner-Occupied Property

Answer 4

• Treated as PPE
• Generate CFs as part of overall business
• Provide significant services e.g office building used by staff
• FV Gain recognised in equity and disclosed as OCI (i.e revaluation gain)

Question 5

Materiality

Answer 5

• Shown as a separate line on P&L as an exceptional item
• Aids users as they can ‘exclude’ from the profit to get a more relevant understanding of the statements

Question 6

Leases

Answer 6

• Criteria:
  Control
  Identified asset
• Accounted by recognising ROU asset and lease liability when lease starts
• Depreciated at the shorter of the UEL and lease term
• If there is an exemption: short-term lease or low-value:
  Payment allocated straight line over lease term to P&L
  Dr Exp in P&L
  Cr Current Liability Accrual

Question 7

Discontinued Operation

Answer 7

• Single separate line item in the SoCI called profit/loss from discontinued operations includes:
  Post-tax profit or loss of division +
  Post-tax profit or loss from sale of NA
• Framework says info needs to be confirmatory and predictive (discontinued operation no longer predictive) => all info is relevant
• Ensures directors don’t manipulate accounts