IAS – 36 (Impairment):

 

        

Objective: It ensures that an asset is carried at no more than its recoverable amount. Definition: Sudden fall in value of asset. It occurs if   Net Book value(NBV)˂Recoverable amount Recoverable Amount = Higher of- Fair value less cost to sell (i.e. current market price if an active market exists) Value in use (I.e. Present value of future cash flows using the asset. Indicators Impairment:   External Sources- Market value has declined Changes in technological or economical environment having an adverse effect     Internal Sources- Evidence of obsolescence or damage to the asset   Internal assessment indicates that performance of the asset has become worse   IAS – 36 requires an entity to conduct annual impairment reviews Recognition: For assets carried at historical cost-charged as an expense in SOPL (i.e./S) For valued assets   If Impairment˂ previous revaluation:   Revaluation Reserve (OCI)      DR   Non-Current Assets (SOPF)                 CR     If Impairment˂ previous revaluation:   Revaluation Reserve (OCI)      DR   Impairment Expenses (SOPL)  DR   Non-Current Assets (SOPF)                 CR Impairment start of the year: Calculate depreciation for the year on new value (after deduction impairment) Impairment end of the year: Depreciation for the year is based on the NBV before impairment value. Revaluation gain after impairment: Non-current assets                                                   DR Reversal of impairment (SOPL)                               CR Revaluation reserve (if revaluations gain ˂ previous impairment)CR   Cash generating Unit (CGU):   It is the smallest identifiable group of assets which generates cash flows independently -When assessing the impairment of assets it will not always be possible to base the impairment review on individual assets. Impairment loss is allocated among the CGU as follows –   - Any other asset which is obviously impaired --  Purchased Goodwill relating to CGU     Other assets in CGU on a pro-rata based on carrying amount of assets.

IAS – 40 (Investment property):

 

·         Definition: Land or building owned by an entity that is held to earn rentals or for capital appreciation rather than business use or owner occupied.

·         Recognition:

-  Probable future economic benefits will flow to the entity

-  Cost of the investment property can be measured reliably

·         Measurement:
1. Cost model: Cost – Accumulated depreciation
2. Fair value model: At year-end –
-  If increase in fair value: Investment property Gain in fair value (SOPL)	DR	CR
- If decrease in fair value:   Loss on fair value (SOPL)   Investment property	DR	CR

  If index factor given: Fair value = Existing value X New factor

Existing factor

Transfers: If change in use takes place (i.e. transfer to or from investment property)

   -  If owner occupied property turns into investment property - the property would be  revalued up to             date of change in use to transfer it at fair value under IAS-40.

    - If investment property turns into owner occupied property - the property’s cost for subsequent             accounting would be the fair value at the date of change in use

IAS – 23 (Borrowing costs):

·         Objective: It deals with treatment of loan interest if loan has been particularly taken to construct/ purchase an asset that takes time to get ready for use.

        

           ·         Treatment:

Capitalized Amount = (Interest cost – Investment income on temporary investment)

  NCA                                                                                        DR

Cash/Bank/ Loan interest payable                                                        CR

* Start capitalization from the time activities of constructing the asset commences

*  Cease capitalization either due to completion of activities of constructing or due to suspension of construction for disputes

IAS – 16 (Property, plant & equipment):

Definition: Tangible assets held for more than 12 months for use in a business ·         Recognition: *   Probable future economic benefits will flow to the entity *  Cost of the asset can be measured reliably ·         Initial recognition: at cost, which includes – *  All capital costs involved to bring the asset in working conditions *  E.g. site preparation cost, installation & delivery cost, borrowing cost, dismantling cost       Subsequent expenditure: *  Can only be capitalized if total economic benefits increase above those expected on original recognition *  Otherwise, it should be recognized in SOPL (i.e. I/S) as it only maintains the economic benefit originally expected Depreciation: *  Systematic allocation of an asset’s cost over its useful life *  It should be charged from the date the asset is available for use *  Straight line method = (Cost – residual value)/ useful life *  Reducing balance method = (Net book value X certain %) Measurement: *  Cost Model = (Cost – Accumulated Depreciation) – Impairment loss *  Revaluation model: *  Revaluation at start of year: *  NBV at year end = (Revalued amount – Depreciation based on revalued amount over its remaining life) *  Revaluation increase/decrease = Revalued amount – Opening NBV *  Revaluation at end of year: *  NBV at year end = Revalued amount *  Revaluation increase/decrease = Revalued amount – Closing NBV  Journal of revaluation:   Non-current Asset (New value – Cost)                        DR    Accumulated Depreciation (up to date)                       DR   Revaluation reserve (OCI)                                                CR                                                        *  Excess depreciation on revaluation gain transferred to R/E:   Revaluation reserve                                                     DR   Retained earnings                                                             CR                                            *  Revision of useful lives:   Depreciation = NBV at date of change/ Revised life *  Addition of NCA during the year:   Depreciation = (NBV + Addition)/ Remaining life *  Revision of residual value: *  Depreciation =(NBV up to revision - New residual value)/ Remaining life   *  Journal of disposal:       Cash/ bank (sales proceeds) DR   Accumulated Depreciation (up to date) DR   * Loss on disposal (B)   NCA (at cost) DR   CR   * Gain on disposal (B)   CR