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IFRS valuation for PP&E and intangible assets

Cost or revaluation model
No further rule of when to revalue


Financial assets

Valuation through profit or loss


Donated Fixed Asset recording?

FA. xx
Other income xx

Income is eared as a result of donation


Legal fees and patent license fees for successfully defending the patent both developed internally and purchase treatment

All capitalized, as long as show ownership or right of usage


AD is debited for the original cost-CV of assets under what methods?

Composite depreciation and group depreciation


When impairment should be recognized for long lived assets?

1. When CV > FV, indicating fair value is less compare with what have been recorded. (FV is determined by if the asset is used in its highest and best use).

2. The CV amount of long lived asset is not recoverable. ( depend by the UNdiscounted future cash low, if CV > UNdiscounted CF)


Goodwill should be tested and impaired at what level?

Each reporting unit level


How is no monetary exchange works, gains and losses treatment for tax purpose?

Qualified for FV treatment: use FV to measure exchange, recognize G/L on exchange the asset (FV-BV=G/L), record asset at FV

If FV can't be determined, recognize G/L:
1. FV not determined: no G/L, record asset at BV

Transaction lacks commercial substance, or to facilitate customer sales:
2. No boot: no G, record asset at BV
3. Boot given: no gain, recognize asset at BV+boot given
4. Boot received: portion gain recognized, record asset at BV- boot received + gain recognized.


Under IFRS, what is investment property?

Asset held for lease under operating lease ( to earn rent), to earn capital appreciation or both.

Land and building under a financing lease, land for long term appreciation, or undertrained future use.

Can use FV model or cost model: FV record at FV, no depreciation; cost model record at cost - AD. For GAAP, if select cost model, FV still need to be disclosed in note.

For IFRS, once FV model is selected for leased property, other investment property have to use the same method as well.

Investment property does not include property used in business, under construction, or held for sale.


Capitalization interest rate when this no specific borrowing for constructions the fixes asset?

Use weighted average rate from the borrowing du rings the year.


R&D definition, and cost treatment

Research: planned search or critical investigation aimed to discovery of new knowledge

Development: translation of research findings or other knowledge into a plan or design a new product or process.

R&D cost incurred internally expensed as incurred, unless intangible or FA purchased for alternative future use (amortized)

R&D cost under contract should be matched with revenue received, under the two classic methods.


IFRS for intangible assets under revaluation method

Only there is a active market for the asset.


A development stage enterprise financial statement rule?

Issue all financial stmt as an established enterprise flowing GAAP, also include additional info about eh cumulative amount of I/S and SCF from the inception of the business.


A development stage enterprise cumulative deficit treatment:

Report as part of the SE (topic 915)


IFRS valuation for land

Cost or FV model


No monetary asset exchange between two parties, accounting treatment:

Record amount of asset relinquished (NEVER asset RECEIVED, receiving could involve boot)


Remove the building from the land after purchased for building a plant, cost of removal?

Add to the land to get it ready for intended use.


With arms length transaction,no boot involved, have commercial substance, fair value of the nonmonetary assets were BOTH clearly evident, accounting record for the exchange?

If both clearly evident, record as the fair value of the asset surrendered.

Record FV of asset received only if FV of asset received is more clearly than FV of asset surrendered.


Start up cost of an organizations treatment?

Expense as incurred ( such as attorneys fees, meetings with organizations)

Office improvement is not included.


When to capitalize development cost under IFRS?

1. Tech. Feasible of completing the asset for use or sale has been achieved.
2. The entire is INTENT and ABILITY to complete or sell of asset.
4. The entire understand how the asset will generate future economic benefit
5. Technical, financial and other resources to complete development of the asset
6. Expenditure can be reliably estimated.


Under IFRS revaluation model, appreciated asset gain treatment

Rooney in revaluation surplus account in OCI


Capital vs. revenue expenditures

Capital expenditures: benefit operation for more than one period, capitalized, and report expenditure through depreciation

Revenue expenditure: normal and recurring, expensed as incurred.


Gain or loss record for nonmonetary exchange

FV of asset given - BV of asset given = G/L
The asset received is generally record at FV of asset surrendered (received if more clearly evident).


Private company goodwill impairment

Use hypothetical application of the acquisition method if private guidance is adopted; or it may use the two step approach if no guidance.

Amortization not to exceed 10 years.


Insurance proceeds resulted gain loss from damage of assets

Use insurance proceeds - BV = gain or loss


Cost allocation for a purchase of bundle machines with FV higher than the purchase cost.

FV of the weight average of each machine to the purchase price and installing price, and then allocate based on that.


One time activities startup business expense reporting

Include Expense relate to opening a new facility, introducing a new product/ service, conducting business in a new territory.
Exclude: long lived asset addition, internal use computer software system development cost.


An asset is being constructed for an enterprises own use which was financed from borrowing, interest incurred should be expense for the asset is:

A part of the historical costs of acquiring the asset to be written off over the estimates useful life of the asset.


Capitalization R&D examples

(Testing in search for or evaluation of production or process of alternative is EXPENSED)

Adaption of existing capacity to a particular requirement of customer needs as a part of continuing commercials activities.

Legal work for patent application and litigation, and the sale or licensing of parent

Engineering follow through in an early stage of commercial productions


No commercial substance transaction loss?

Loss should be recognized if CV given up is greater than FV of the asset received.

If it is a gain, then don't recognize anything, but record the new asset at FV received.


Formula for DDB for 4 yrs useful life, 15% SV in yr 1, AD for year two?

200% / 4 yrs = 50%

Original cost x 50% x 50%


Be carful on the tricky questions like give a bunch of number related to intangible asset, and then asking the amortization expense.

Check if the asset is finite (amortized) or indefinite (reviewed for impairment - the word, infinity means forever) first. Don't jump in do the calculation right away.

Definite life intangible: copy right...

Indefinite intangibles: trademark, goodwill.


Purchase of land with building on it to be moved for construction
Which costs are included in Land?
1. County assessment for sewer line
2. Titled search transfer.
3. Cash paid for land with the building to be removed
4. Excavation of construction of basement, no, relate to construct. Of building
5. Removal of old building on the land

1. Yes, 2. Yes, 3. Yes, 4. No, 5. Yes


Calculate composite (组合)life of assets using SL

Calculate each depreciation expense to find the total of the composite depreciation for one year, use the total asset less SV and divide the total deprecation expense for one year


1. Impairment loss reversal for goodwill under GAAP AND IFRS?

2. Indefinitely lived intangible asset and long-lived physical asset?

1. Prohibited.

2. GAAP: prohibited, IFRS: can be reversed to the new recoverable amount

Unrealized Gain or loss record in valuation account in OCI for the period


Allocating land and building cost when purchase price is less than FV

No matter purchase price is stock or cash, the allocation is the FV of asset (land and building together) received ratio * price paid to reallocate the cost.


Under IFRS, if using revaluation model. One asset is revalued, what about the other assets in the same category?

Also need must be revalued if they are in the same class.


Equipment drum will be replaced every 5 year, and inspection fee every 4 years, need to be depreciated?

Yes, and check if those costs are part of the equipment cost.


Under IFRS, how to record asset depreciations and appreciation using revaluation method?

Appreciation above its original cost are recorded at valuation surplus account n OCI,and decrease amount record in loss in income statement.


When calculating depreciation for new purchased asset, if purchase price including interest, such as down payment and monthly payment, total price from that, or cash equivalent price, which one to use as the depreciation base?

Cash equivalent. Because the monthly payment to acquire the asset has interest in it.


Invested and investor differences?

Investee issues equity or debt
Investor purchase equity or debt


Capitalized for constructed building limitation?

Construction capitalization is limited to the fair value revaluation amount.


If using stock exchange for equipment, since stock price changes, how to record the equipment value on book?

If issuing note to exchange the land for a periodic payment of three years and additional initiate cash amount, how to record the land value?

Equipment fair value or stock value, whichever is more determinable.

Cash paid + PVA for land payment.


Capitalization interest for construction asset, how to calculate expenses happens in different period of the year by obtaining loan?

The capitalization of interest can use weighted average:
Ex. Loan for 300K at 10%
1/1/1. Buy land cost 120K
9/1/1. Pay contractor for 150k

What is the capitalized interest?
( 120x 12/12 + 150 x 4/12) x 0.1


Machinery constructed for use and for sale by obtain a loan, what portion of interests capitalized?

For use: interest incurred during construction. So expense the portion after the machine is completed.
For sale: all expensed


If given multiple project payments throughout the year, and give in multiple loans and rates, and asking to calculate the weighted average capitalized interest cost. What the calculations would be using weighted average?

If use specific method, how to calculate the capitalized interest?

Step 1: find the weighted average total payments
Step 2: find weighted average interest rate ( add all interest amount on each loan / total loan amount)
Step 3: 1 x 2 = capitalized interest.

Step 1 is the same.
Step 2: capitalized the whole amount that is illegible for construction, and then use the total amount from step 1 minus the capitalized amount, the rest times the weighted average rate for the rest of the loan ( total interest amount/ total loan amount)


For Problems that has qualified loan for interest capitalization, and one is not qualified with different rate. How to calculate the capitalized interest?

Step 1: Find total weighted average spending throughout the year.

Step 2: use up the qualified capitalization loan interest
The rest of 1 using the unqualified loan interest rate to calculate the amount.


Purchase land for construction of a warehouse, can interest be capitalized on both warehouse and land?

Only on warehouse, because land is not part of the construction, but land expenditure is part the accumulated expenditure for the building.


Carrying value of Sum of digit year calculation, with salvage value

Step 1: Number of years/ sum of years = rate, varies

Step 2: Net asset x each of the years rate for each for the years ( consider salvage value)

Step 3: CV of asset before salvage value - each of the years' dep exp = net CV ( because considered before, so ignore it here)


DDB dep exp calculation

SL method rate x 2 x original carrying value of asset, each year amount is reduced by the previous dep exp amount

When calculating the depreciation rate, already considered the salvage value,so the when calculate the dep exp ignore salvage value