Accounting For Asset

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FAIR VALUE -

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Is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm's length transaction.

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CARRING AMOUNT -

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Is the amount at which an asset is recognised on the statement of financial position, after deducting any accumulated depreciation or impairment losses.

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An item of PPE is to be recognised as an asset when :

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- It is possible that future economic benefits will flow to the entity; and
- The cost of the asset can be measured reliably.

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Cost is the purchase price, including any import duties and other taxes, plus any costs directly attributable to bring the asset to the location and condition for its intended use, plus the estimated costs of dismantling and removing the asset at the end of its useful like.

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Attributable costs which can be included:
- Costs of sit preparation
- Initial delivery and handling costs
- Installation and assembly costs
- Costs of testing the asset
- Professional fees, eg engineers, architects

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IAS 16 - Property, Plant And Equipment.

Non-current tangible assets such as land and buildings, machinery, office equipment, shop fittings and vehicles.

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- Recognition of the assets
- The determination of their carrying amounts
- The depreciation charges and impairment losses to be recognised in relation to them.

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Cost Model

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The asset is carried at cost - accumulated depreciation and impairment losses

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Revaluation Model

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The asset is carried on the Statement of Financial Position at a revalued amount, being its fair value - any accumulated depreciation and impairment losses; revaluations are to be made regularly to ensure that the carrying amount des not differ materially from its fair value at the ate of the SFP

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When an item of PPE is revalued, the entire class of assets to which it belongs to must be revalued.

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- Any increase in value is credited directly within equity to the revaluation surplus
- Any reduction in value is recognised as an expense in the statement of comprehensive income.

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Depreciation

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The depreciation amount (cost - residual value) of an asset is to be allocated on a systematic basis over its useful life.

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De-recognition

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De-recognition occurs when an item of PPE is disposed of, or when no future economic benefits are expected from its use or disposal. Any gain or loss can disposal (the difference between the net disposal proceeds and the carrying amount) is recognised as income or expense in the statement of comprehensive income.

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IAS 38 - Intangible Assets
The treatment of expenditure on acquiring, developing, maintaining or enhancing intangible assets.

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An intangible asset - as identifiable non-monetary asset without physical substance.

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Identifiability

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The asset is either separable from the entity and is capable of being sold or transferred, or its arises from contractual or other legal rights.

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Control

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The entity has the power to obtain future economic benefits from the asset.

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Future economic benefits

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Include revenue from the sale of products or services, cost savings, or other benefits.

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Intangible assets come about from 2 main sources:
- They are purchased
- They are internally generated

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They are recognised initial in the financial statements at cost price when:
- It is probable that the expected future economic benefits that are attributable to the asset will flow to the entity.
- The cost of the asset can be measured reliably.

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Research

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Is original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding

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Development

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Is the application of research findings or other knowledge to a plan or design for the production of new substantially improved materials, devices, products, processes. systems or services before the start of commercial production or use

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Revenue expenditure on research is to be recognised as an expense in the statement of comprehensive income of the year in which it is incurred.

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However capital expenditure on non-current assets - such as new research laboratory - is to be recorded as non-current assets and depreciated over the useful live of the assets

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Development costs are either recognised as an expense in the statement of comprehensive income when they are incurred or they are to be as an intangible asset if the entity can demonstrate all of the following:

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- The technical feasibility of completing the intangible asset so that it will be available for use or sale
- Its intention to complete the intangible asset and to use or sell it
- Its ability to use or sell the intangible asset
- The way in which the intangible asset will generate probable future economic benefits
- The availability of resources to complete the development and to use or sell the intangible asset
- its ability to measure the development expenditure reliably.

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IAS 36 - Impairment of Assets
Ensures that assets are carried on the statement of financial position at no more than their value or recoverable amount. If the recoverable amount is less then its carrying amount, then the carrying value is to be reduced. This is an impairment loss, which is recognised as an expense in the SCI

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IAS 38 applies to most non-current assets, DOES NOT apply to:
- Inventories
- Assets held for sale
- Investment property carried at fair value
- Deferred tax assets

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External indicators of Impairment

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- A significant fall in the assets market value
- Adverse effects on the entity caused by technology, markets, the economy laws
- Increase in interest rates
- The stock market value of the entity is less then the carrying amount of net assets

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Internal indicators of Impairment

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- obsolescence or physical damage to the asset
- Adverse effect on the asset of a significant reorganisation within the entity
- The economic performance of the asset is worse then expected.

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Other indicators - evidence from internal financial statements can indicate that an asset may be impaired:

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- A fall in profit (or an increase in the loss) from operations
- A fall in cash flows from operations or a negative cash flow
- Fall in budgeted cash flows, or budgeted profit from operations.

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Impairment Review Step 1

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What is the assets carrying amount (Net book value, ie cost/revaluation - depreciation / amortisation to date)?

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Impairment Review Step 2

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What is the assets recoverable amount?
The higher of:
- Fair Value - Cost to sell
- Value in use

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Impairment Review Step 3

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If carrying amount is greater then recoverable amount, then the asset is impaired and should be written down to its recoverable amount on the SFP. The amount of the impairment loss is recognised as an expense in the SCI unless it related to a previously revalued assets, when it is debited to the revaluation surplus within equity.

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Recognition of Impairment Losses

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A impairment loss is to the recognised when the recoverable amount is less the carrying amount. The asset is reduced to its recoverable amount and the impairment loss is recognised immediately as an expense in the SCI