NCA STANDARDS Flashcards
(6 cards)
IAS 16 PPE - Definition, Revaluation, Depreciation, Disposal
This relates to tangible assets held for use in the business.
expectation is asset will have more than 1 year of useful life
recognised initially at cost including installation an dismantling cost
Improvement costs are capitalised
Revaluation
Asset can be carried at cost less depreciation however revaluation is allowed
- All assets in asset class must be revalued
- must be done regularly
- Revaluation gain go to equity unless reversing a loss (OCE)
- Revaluation losses go to equity until the reserve is exhausted
Depreciation
- Cost less residual value should be allocated systematically over
assets useful life
Disposal
- Recycling is not allowed on disposal
- Revaluation balance is moved to retained earnings
IAS 23 Borrowing costs -
Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset form part of the cost of the asset. Qualifying asset is one that takes a long time to get ready for use i.e. longer than one year.
Normally borrowing cost are expensed in P&L, unless it was borrowed to construct a qualifying asset.
Borrowing costs are only capitalised during period of construction
IAS 40 Investment property - Definition, measurement, services, Reclassification
Investment property includes land/building held by owner or lessees as a ROU asset
Either to earn Rentals or capital appreciation or both
they cannot be owner occupied or used to carry out a business
examples includes vacant or occupied building to be leased out under an operating lease
land held for capital appreciation, property being constructed or developed for future use as investment property
Measurement
1. at fair value - changes in value goes to P&L, depreciation is not
allowed OR
2. Cost model with depreciation
3. All investment properties follow the same policy
4. Gains and losses go through P&L
F.V is beneficial if maximising profits is the goal but this may be unethical
Services
The more service provided, the more judgement needs to applied to confirm if property is actually PPE
Reclassification
Investment property can be reclassified if there is a change in use, Transfers to or from investment property can only be made if there is a change of use
Account for any change in value before the transfer as gains are treated differently PPE -Equity, Investment property - P&L
IAS 20 - Govt Grants - Revenue grants, capital grants, capital gift, soft loans
Revenue grants
This grant is recognised in P&L,CR PL DR cash.
posted as other income or deducted from the expense it was subsidising
Capital grants
This can be presented in two ways
1. Grant is deducted from carrying amount of asset and net cost is
depreciated
2. Gross cost is depreciated and grant is carried as deferred income
and released to P&L at the same pace as depreciation
Govt grant is recognised only when there is reasonable assurance that entity will
1. comply with any conditions attached to the grant
2. grant will be received
If grant is a land building,
The receipt of the asset must be recorded at fair value
Soft loans - Interest free loans from the government, This is treated as a government grant
Cash is received but the measurement of liability will be less as it will be discounted.
The difference between cash received and liability, the balance will be in the P&L as the loan is beneficial. The balance is treated as a government grant
IAS 38 Intangible Assets- Definition, Recognition, Acquisition, internally generated assets, classification, measurement, subsequent expenditure
Intangible assets include licenses, computer software, customer lists, landing rights.
It does not cover goodwill, financial assets, deferred tax assets, lease assets
Intangible asset is an IDENTIFIBALE non monetary asset without physical substance. It needs to be separable
Recognition
There needs to be probability of future economic benefit flowing to the asset and the cost can be reliably measured.
Acquisition
1. By separate purchase
2. Part of a business combination
3. Self - Created
Internally generated assets - R&D
Research is an original and planned investigation undertaken with the prospect of gaining new information, there is no connection with research and gaining new revenue as such research costs are EXPENSED
Development of application of research findings or other knowledge for new product creation e.g. testing costs
There is an extra recognition criteria for development - PIRATE
1. project is technically and commercially sensible
P- Probable future benefit
I - Intention to complete
R - Resources to complete
A - Ability to complete
T - Technical feasibility
E - Estimate of costs is reliable
classification - Finite life or infinite life
If asset has infinite life - Annual impairment review and check if asset still has infinite life.
Finite life - Amortised on a systematic basis
Measurement
1. default is at cost less amortisation
2. Fair value if active market exists - revaluation surplus is treated
similar to IAS 16
Subsequent expenditure on brands, customer lists, mastheads and similar items are always recognised in P&L
Issues with recognising and measuring intangible assets
1. intangible assets are often standalone assets without an active
market so fair value is difficult to ascertain
2. Many intangible assets are unique so it difficult for valuation purposes
3. valuation methods are complex and subjective, this is more the case when the assets are not based legally enforceable rights
4. In some cases the acquirer does not intend the assets which makes it more difficult to value the assets.
IFRS 5 - Assets held for sale and discontinued operations
Assets held for sale
1. conditions - CAAASS
2. Measurement
3. Depreciation
Discontinued Operation
Conditions
Subsidiary held for disposal
IFRS 5 changes the presentation of a NCA held for sale to a current asset as it wont be there in subsequent years.
This means assets will be recovered through sale rather than continued use
Conditions for Assets held for sale
1. committed and active plan
2. Active programme to locate buyer is initiated.
3. available for immediate sale in current condition
4. available for reasonable price
5. sale is highly probable within 12 months of classification as held for sale
6. Seller does not change decision to sell
Measurement
NCA classified as held for sale is measured at lower of carrying amount and fair value less costs to sell
No depreciation is charged
If NCA is a disposal group, same principles apply
carried as current asset in B/S and as a single line in P&L
Discontinued operations are presented as a single line, results are stripped out line by line and presented as a net single figure
Discontinued Operation - P&L
This is a component of an entity that has either been disposed of or classified as held for sale and
1. Represents either a separate major line of business or a
geographical area of operations
2. is part of a single co-ordinated plan to dispose of a separate major
line of business or geographical area of business
3. is a subsidiary acquired exclusively with a view o resale and
disposal involves loss of control
Subsidiaries held for disposal
This applies to an investment in a subsidiary for which control is intended to be temporary because it was acquired with a view to its subsequent disposal in the near future. This should be accounted for under IFRS 5 rather than consolidate it. However if previously consolidated but now looking to dispose, we must continue to consolidate until actually disposed.
Presentation
Post tax profit or loss is presented in a single line in SOCI and post tax gain or loss on measurement to fair value less costs to sell is presented as a single amount
Disclosure
Detailed disclosure of revenue, expenses, pre tax profit or loss ad related income taxed is required in either in notes or SOCI in a section on discontinuing operations.
To be classified as held for sale means the assets need to be disposed through a sale, operations that are expected to be wound down or abandoned would not meet definition
