Distinctive FAC3702
Financial Reporting
•Period asset is expected to be available for by entity, or •# production/similar units expected to be obtained from asset •Impairment loss •Carrying amount > recoverable amount •Recoverable amount •Higher of: •Asset’s net selling price (Fair value – costs to or •Value in use •Entity-specific value •Present value of cash flows •Entity expects to arise from •Continuing use of asset and •Disposal @ end of asset’s useful life •Entity expects to incur •When settling liability
Study unit 1 Overview •Objective •Scope •Definitions •Recognition •Measurement •Derecognition •Revaluation •Disclosure •Tax
Objective •Recognition as assets •Depreciation •Impairment •Determining carrying amount
use
sell),
Recognition - asset •Probable •Future •economic benefits associated with item •Will flow to entity
Property, plant & equipment Definition •Tangible assets •Held for •Use in production or supply of goods/services, •Rental to others •Administrative purposes •Expected to be used > 1 period. (Tangible structure to generate income)
•Cost can be measured reliably •Initial cost •Subsequent costs •Servicing cost Repairs & maintenance (P&L) •Replacement @ regular intervals •Regular major inspections
Definitions •Cost •Amount of cash or cash equivalents paid, and •Fair value of other consideration given •To acquire asset •At time of acquisition or construction. •Depreciable amount •Cost (or other substituted amount) •Less: residual value •Depreciation •Systematic allocation •Of the depreciable amount of an asset •Over the asset’s useful life •Carrying amount •Amount at which asset •Recognised in statement of financial position •After deducting •accumulated depreciation & •accumulated impairment losses. •Fair value •Amount for which asset could be exchanged between •Knowledgeable, willing parties •In arm’s length transaction •Residual value •Estimated amount •Entity currently obtain from disposal of asset •After deducting estimated cost of disposal •If assets already of age & condition - end useful life. •Useful life
Aggregate individually insignificant items BUT account for significant components separately
Example •Skyfall Ltd bought a machine on 1 January 2012 for R 1.6 m •The machine needs to be inspected every 6 000 hours, i.e. it will have to undergo a major service every 2 years. •The estimated cost of a major service is R 150 000. •The helicopter has an estimated useful life of 8 years. Required 1.Calculate the depreciation & carrying amount for 2012 & 2013. 2.How would these amounts differ if: •Inspection needs to be done after 20 months instead of planned 2 yrs, AND •Actual cost of first inspection was R 200 000
Measurement @ recognition
of
•PPE that qualifies for recognition as asset cost •Cost components •Purchase price •Incl. import duties & non-refundable tax •After deducting discounts & rebates •Costs directly attributable location & condition necessary to operate •Initial delivery & handling costs
Distinctive FAC3702
Financial Reporting
•Installation & assembly cost •Testing •Professional fees •Estimate of dismantling, removal and restoration cost •NOT •Cost of opening new facility, introduction of new product, overheads •Stops •Asset is in location & condition necessary to be capable of operating
Measurement of cost •Abnormal credit terms •Cost = cash equivalent @recognition date •Total payments – cash equivalent = interest •Recognise over period of credit •Except if capitalised (FAC3703) •Exchange of PPE items •Cost of acquired asset = fair value of asset given up •Fair value of asset given up not reliably measured •Fair value of asset acquired. •Fair value of neither acquired/disposed asset reliably measured •Carrying value of asset given up •Exchange transaction lacks commercial substance •Carrying value of asset given up •“Commercial substance” •Consider extent future cash flows expected to change as result of transaction
•Asset classified as ‘held for sale’ •Asset derecognised •Useful life – Factors to consider •Expected usage of asset •Capacity/physical output •Expected physical wear & tear •Number of shifts and repairs & maintenance program •Technical/commercial obsolescence •Changes/improvement in production •Changes in market demand •Legal or similar limits on use of asset •Expiry dates of related leases •Land & buildings account separately •Land generally unlimited useful life
•Depreciation methods •Straight-line •Diminishing balance •Units of production Choose method which reflects expected pattern of consumption best. Class example: Cost of equipment Residual value Useful life (yrs)
Impairment Subsequent measurement •Cost or Revaluation model •Apply policy to entire class of PPE •Cost •Cost – accumulated depreciation – accumulated impairment losses. •Revalue assets •Only if: Fair value can be measured reliably •Generally market-based evidence •Carry asset at revalued amount less subsequent accumulated depreciation & impairment losses. •Revaluation effectively replace carrying amount of asset @ revaluation date.
Depreciation •Each significant PPE item depreciated separately •May be grouped •Recognise in profit/loss •Unless included in carrying amount of another asset •Depreciate even if fair value > carrying amount •Provided carrying value > residual value. •Commence depreciation •Asset available for use •In location and condition necessary to be capable of operating in manner intended by management. •Actual use not required. •Cease depreciation •Earlier of:
•Carrying amount > recoverable amount •Compensation from 3rd parties •Include in profit/loss when receivable •Can include: •Indemnity payments from insurers •Government payments, e.g. expropriation •Physical replacement of impaired/lost asset •Account separately •Impairment/loss of PPE item •Related compensation from 3rd party •Subsequent purchase/construction of assets
Revaluation •First revaluation change in accounting policy (IAS8) •Review residual values & estimated useful life every year •Replacement value (RV) •Gross replacement cost (market value) of similar asset •Net fair market value of similar asset of same age/condition •Treatment of accumulated depreciation •Gross replacement value basis •Restate proportionally with changes in gross RV •‘New’ carrying amount = revalued amount •General use: Revalue using an index •Net replacement value basis
R 500 000 R 20 000 4
Distinctive FAC3702
Financial Reporting
•Eliminate against gross carrying amount •Net amount = revalued amount •General use: Buildings •Surplus: Carrying amount ↑ •Other comprehensive income, equity •‘Revaluation surplus’ •Non-distributable reserve •Only used for subsequent write-downs or a capitalisation share issue •Can transfer directly to retained earnings if asset is derecognised •Carrying amount ↓ •Profit/loss •Other comprehensive income to extent of any credit balance in revaluation surplus of that asset
•Non-depreciable assets •No decision to sell asset •Tax rate (28%) x total revaluation surplus •Decision to sell asset •Revaluation surplus up to original cost x 28%, and •Revaluation surplus excess above base cost at 18.6% (28% x 66.6%) [Example 14 & 15]
Disclosure: STUDY Page 36 & 37 of Study Guide
Derecognition •When?
Study unit 2 -
•Disposal •No future economic benefits expected to arise from use/disposal •Gain/loss on derecognition •Profit/loss •Net disposal proceeds less carrying amount •Date – when ALL of the following satisfied: •Significant risks & rewards of ownership transferred to buyer •Not continuous managerial involvement nor effective control over goods sold •Amount can be measured reliably •Probable economic benefits will flow to enterprise •Costs incurred iro transaction can be measured reliably [IAS18]
Overview
CGT •Capital gain/loss •Disposal of asset •Sale, donation, loss or destruction •Proceeds less base cost •Base cost •Incl: acquisition cost, improvements & costs incurred directly in the acquisition, creation or disposal of the asset •Excl: holding costs (interest, repairs & maintenance), recoverable expenses (deductible for income tax) adjustments for inflation. •Framework – page 38 of Study Guide •Inclusion rate for companies – 66%
•Recognition •Measurement •@ Recognition •Subsequently •Cost model •Fair value model •Transfers •Derecognition •Disclosure •Tax
Definitions •Carrying amount •Amount at which asset is recognised in SFP •Property •Land and/or building or part thereof •Investment property •Property held by owner (or lessee under finance lease) •To earn rentals and/or capital appreciation •OTHER than •Use in production/supply of goods/services •Use for administrative purposes •Sale in the ordinary course of business •Owner-occupied property •Property held by owner (or lessee under finance lease) •For use in production/supply of goods/services or admin purposes •Other – same definition as PPE •‘Cost’ and ‘Fair value
Investment v owner-occupied property Deferred tax [FAC3701] •Revaluation Temporary difference Deferred tax •Carrying value (accounting) and Tax base differs •Depreciable assets
•Investment property •Rentals & capital appreciation •Cash flows largely independent from other assets held by entity. •Insignificant ancillary services •IAS 40
Distinctive FAC3702
Financial Reporting
•Owner-occupied property •Integrated part of entity’s business •IAS 16 – PPE •Partly investment & partly owner-occupied •Can units be sold separately? •Yes – account for portions separately •No – Is insignificant portion used for production/admin? •Yes → Recognise as investment property •Group – property leased to parent or subsidiary company: •Individual company → investment property •Consolidation → owner-occupied property
Recognition •Probable •Future economic benefits associated with item will flow to entity •Cost can be measured reliably •Initial cost to acquire investment property •Subsequent costs to add to, replace or service property •NOT day to day servicing of property (e.g. repairs) Apply criteria at time cost is incurred
Measurement @ recognition •Cost – acquired property •Purchase price •Directly attributable expenditure, incl. transaction costs •NB: VAT/Transfer duty if not recoverable •Cost – self-constructed investment property •Cost @ date construction/development completed •Do not include: •Start-up cost (unless necessary to bring property in operation) •Operating losses before planned level of occupancy is achieved •Abnormal amounts of wasted material, labour & other resources in constructing/developing the property •Abnormal credit terms •Asset: Recognise cash value (Present value of selling price) •Excess = interest (Selling price – Cash value) •Exchanging/swapping investment properties •Cost: fair value of asset given up unless: •Fair value of neither acquired/disposed asset reliably measured •Carrying value of asset given up •Exchange transaction lacks commercial substance •Carrying value of asset given up •“Commercial substance” •Consider extent future cash flows expected to change as result of transaction.
•Cash flows differ from previous cash flows of asset given up; or •Entity-specific portion of operation affected by transaction changes; AND •Difference is significant relative to fair value of exchanged assets.
Subsequent recognition •Entity may choose: •Fair value model •Cost model Apply to ALL investment properties •Determine fair value, irrespective of which model used. •Measurement if fair value model is used, or •Disclosure if cost model is used
Fair Value Model •Fair value •Price at which property could be exchanged •Between knowledgeable, willing partners •In arm’s length transaction. •Ignore: transaction costs •Reflect market conditions at end of reporting period •Current prices for similar property in same location & condition •Prices for different properties – adjust •Discounted cash flow projections •Exclude separately recognised assets/liabilities •E.g. lifts, air conditioners, prepaid rental income etc. •Fair value measurement through profit/loss •No depreciation
Cost model •Fair value not reliably determinable •Property under construction •If compelled to use cost model for this reason, may use fair value model for other investment properties •Depreciation •Over useful life of investment property
Transfers – Change in use •When? •Commencement of owner-occupation •Investment property →owner-occupied property •End of owner-occupation •Owner-occupied property→ investment property •Commencement of development with view to sell •Investment property → inventory •Commencement of operating lease to another person •Inventory → investment property
Distinctive FAC3702
Financial Reporting
•Cost model: no change to carrying amount or cost of transferred property
•Base cost •Incl: acquisition cost, improvements & costs incurred directly in the acquisition, creation or disposal of the asset
•Fair value model • Investment property →owner-occupied property/inventory •Fair value @ date of transfer •Owner-occupied property→ investment property •Carrying amount @ transfer date
•Excl: holding costs (interest, repairs & maintenance), recoverable expenses (deductible for income tax) adjustments for inflation. •Framework – page 38 of Study Guide •Inclusion rate for companies – 66%
Transfers - Value
•Calculate depreciation/impairments until date of transfer
•Difference between fair value & carrying amount → revaluaVon [IAS16] •Inventory → investment property •Fair value – carrying amount = profit/loss •Investment property → inventory •Completes development •Fair value – carrying amount = profit/loss (NOT as revaluation)
Derecognition •When? •Disposal •Sale or finance lease •Permanently withdrawn from use & no future economic benefits expected from disposal •‘Replaced’ parts of investment properties •Cost model •Carrying value of replaced part or •Cost of replacement
Deferred tax [FAC3701] •Cost model → same as PPE •Fair value •Assume carrying value recovered through sale •No depreciation •Capital allowance •SARS does not distinguish between investment & owner-occupied property. Tax treatment depends on use •Capital allowances •Manufacturing buildings •Hotels, commercial buildings, buildings let to employees •None on land and general residential buildings •Deferred tax on fair value adjustments •Fair value adjustment x CGT inclusion rate (66.6%) x tax rate (28%) •Presumption rebutted → depreciate property •Deferred tax = Fair value adjustment x tax rate (28%)
•Fair value model •Fair value may have already been adjusted for replaced part •Include cost of replacement in carrying value & reassess fair value
Gains or losses on disposal •Calculation •Net disposal proceeds •Adjust for deferred payment terms – cash equivalent & interest •Less: Asset’s carrying amount •Recognise as profit/loss
3rd Party compensation •Compensation from 3rd parties •E.g. insurance indemnity payments •Investment property impaired, lost or given up •Recognise as profit/loss •Separately account for: •Impairment of investment property [IAS 36 & SU 3] •Retirement/disposal of investment property •Compensation received from 3rd party •Cost to restore, construct or purchase assets
CGT •Capital gain/loss •Disposal of asset •Sale, donation, loss or destruction •Proceeds less base cost
Disclosure: STUDY Page 81 - 83 of Study Guide
Study unit 3 Impairment of assets Overview •What is impairment? •When? •Calculation •Reversal •Goodwill •Tax •Disclosure
Definition •Impairment loss arises when: •Carrying amount of asset/cash generating unit EXCEEDS •Recoverable amount •Higher of: •Asset/cash generating unit’s fair value less cost of disposal, or •Value in use
Distinctive FAC3702
Financial Reporting
Fair value less disposal cost •Fair value •IFRS 13 •Binding sale agreement •Value in active market •Best available information •Cost of disposal •Includes •Legal costs •Costs of removing asset •Excludes •Amounts recognised as liabilities •Termination benefits •Reorganisation costs
Value in use •Cash flows from use disposal •Net (Attributed inflow less outflow) •Base on: •Budgets covering 5 yrs max, extrapolate thereafter •Include •Day-to-day servicing •Overheads directly attributable or reasonably allocated
•Exclude •Future improvements or restructuring not yet committed •Financing activities •Income Tax
•At appropriate discount rate •Pre-tax rate •Same rate as cash flows – nominal or real •Reflect risks specific to asset for which cash flows were not adjusted
Recognise immediately in P/L: Dr Impairment loss (P/L) Cr Accumulated impairment loss (SFP) Use ‘new’ carrying amount for basis of depreciation calculation. Revaluation model • Treat as reduction of asset’s revaluation surplus. Excess – recognise immediately in P/L • Dr Revaluation Surplus (OCI) • Dr Impairment loss (P/L) • Cr Accumulated impairment loss (SFP) • Use ‘new’ carrying amount for basis of depreciation calculation. • • • •
Reversal of impairment loss •Asset impaired in previous period now worth much more •CHANGE IN ESTIMATE •Calculation of recoverable amount •Change in calculation basis – fair value or value in use •Estimated timing of cash flows •Discount rate •Estimate of components of fair value •Reversal limited to amount impaired in prior periods •‘New’ carrying amount may not exceed original’ carrying amount •UNLESS policy to revaluate •Excess – revaluation surplus
Accounting for reversal of impairment loss •
When? •Assess at end of each reporting period •Intangible assets •Indefinite useful life •Not yet available for use •Goodwill •Consider: •External sources of information •Internal sources of information •Evidence from internal reporting
Calculation 1.Calculate asset’s carrying amount •Cost/revalued amount •Less accumulated depreciation/amortisation
•
Cost model o Recognise immediately in P/L: o Dr Accumulated impairment loss (SFP) o Cr Reversal of impairment loss (P/L) o Use ‘new’ carrying amount for basis of depreciation calculation. Revaluation model o Recognise in other comprehensive income to extent of asset’s previous impairment. o Excess – recognise immediately in P/L o Dr Accumulated impairment loss (SFP) o CR Revaluation Surplus (OCI) o Cr Reversal of impairment loss (P/L) o Use ‘new’ carrying amount for basis of depreciation calculation.
Goodwill 2.Calculate asset’s recoverable amount •Higher of •Face value less cost to sell •Value in use •Apply appropriate discount rate
•Represent anticipated future economic benefits from assets •Not capable – individually identified or separately recognised •Acquired in business combination •Allocate to each cash-generating unit/group •Test impairment annually
3.Recognise impairment if (1) > (2)
•Impairment loss iro goodwill may NOT be reversed in subsequent periods
Accounting for impairment loss Cost model
Distinctive FAC3702
Financial Reporting
Tax
Recognition & Initial measurement
•Only deduct costs actually incurred in year of assessment •Impairment ≠ actually incurred •Temporary difference Deferred tax •Impairment losses •Reversal of impairment losses •Depreciation/amortisation •Tax allowance
•Recognition •Meet definition of ‘intangible asset’
Disclosure
•Probable – expected future economic benefits attributable to asset will flow to entity •Cost of asset can be measured reliably. •Measurement •Initially @ cost
STUDY Page 114 - 117 of Study Guide
Cost
Study unit 4 Intangible assets Overview •Terminology •Recognition & initial measurement of intangible assets •Cost of internally generated intangible asset •Recognition of an expense •Measurement after recognition •Useful life •Recoverability of the carrying amount •Retirements and disposals •Disclosure •Tax
Definitions •Intangible asset •Identifiable non-monetary asset •Without physical substance •Research •Original & planned investigation •Prospect to gain new scientific /technical knowledge and understanding •Development •Application of research findings or other knowledge •To plan/design new/substantially improved materials, devices, products, processes, systems or services •Prior to commencement of commercial production/use. •Amortisation •Systematic allocation of depreciable amount of an intangible asset over its estimated useful life. (Similar to depreciation – refer to SU1)
•Separate acquisition •Purchase price (incl. import duties, nonrefundable taxes, discounts and trade rebates) •Directly attributable costs of preparing asset intended use •E.g. cost of employee benefits, professional
•Intangible •Identifiable •Non-monetary asset •Without physical substance •Asset •Controlled as result of past event expected inflow of future economic benefits Definition not met → expense
fees,
testing •NOT general overheads, extended credit cash value)
terms
(use
•Part of business combination •Fair value at date of acquisition (IFRS3) •Distinguish from goodwill •In-process research & development •Government grants •Exchange of assets
Example 1 •Company acquires the right to a certain patent and incur various costs. Purchase price will be settled in shares. Need to calculate cost. 1.Calculate the fair value of shares in the settlement date – trading price x # shares. 2.Add the VAT exclusive amounts of directly attributed expenses. (Assuming the company is registered for VAT and entitled to input tax deductions)
Internally generated goodwill •Not recognised as asset •Not identifiable resource
Intangible asset
for
Distinctive FAC3702
Financial Reporting
Internally generated intangible assets •Research •Not recognised as asset – expense costs •Economic benefits not yet probable •Development - Need to demonstrate ALL of the following •Technical feasibility - completion •Intention to complete – use/dispose •Ability to use or sell •Generation of probable future economic benefits. •Existence of a market , or •if it is to be used internally, the usefulness of the intangible asset. •Adequate technical, financial and other resources to complete the development, and to use or sell the intangible asset. •Ability to measure the expenditure attributable to the intangible asset during its development reliably.
Internally generated intangible assets 1) 2) 3) 4)
Research Development Initial recognition Subsequent measurement
•Relocation & re-organisation costs •Expenses item CANNOT form part of intangible asset cost at later date
Measurement AFTER recognition •Cost •Cost less accumulated amortisation •Revaluation •Fair value less subsequent accumulated amortisation •Fair value – active market •Not allow •Revalue intangible assets not previously recognised as assets •Initial recognition @ value other than cost
•Accumulated amortisation @ date of revaluation •Restate proportionately with change in gross carrying amount •Carrying amount of asset = revalued amount OR •Eliminated against gross carrying amount of asset •Net amount restates to revalued amount of asset
[Example 4]
Internally generated intangible assets Cost •All directly attributable costs •NECESSARY to create, produce & prepare asset •To be capable of operating •Manner intended by management •Examples •Material & services used in generating asset •Employee benefits (salaries etc) •Fees to register legal right •Amortisation of patents/licences used to generate asset •NOT •General overheads •Training expenses •Clearly identifies inefficiencies • Initial operating losses before asset achieves planned performance Example 3
Useful life •Contractual or other legal right •Limited to period of right •Renewable •Include renewal periods only if renewal without significant cost
Finite useful life •Allocate depreciable amount over this period •From date available for use •Cease •Classified as ‘held for sale’ •Asset derecognised •Amortisation per period •Pattern of economic benefits or straight line •Recognise in profit/loss
Residual value Recognition as expense •Expense costs when incurred, UNLESS •Forms part of intangible asset’s cost •Business acquisition –goodwill •Examples •Research costs •Start up activities •Training •Advertising & promotions
•Assumed to be NIL, unless •Commitment by 3rd party to purchase @ end life •Active market for asset •Residual value determinable •Probable that market will exist at end of useful life •Residual value > carrying amount •Amortisation = nil
of
Distinctive FAC3702
Financial Reporting
Indefinite useful life •Test for impairment •Annually •Whenever indication of possible impairment •Review useful life each period •Indefinite →definite : indicaVon of possible impairment
Retirement and disposals •Derecognise •Disposal •No future economic benefits expected from disposal or use of asset
Disclosure REVALUATION •Revaluation •Effective date of revaluation •Carrying amount of revalued intangible assets •Carrying amount if asset was not revalued •Revaluation surplus •Begin, end, movement & restrictions •Method & significant assumptions
RESEARCH & DEVELOPMENT EXPENDITURE •Total R&D expense recognised during period
[Example 6]
TAX Tax calculation Disclosure - General •Study guide p 151 – 153 NB!!!! •General •Useful life indefinite or definite (useful life & amortisation rate) •Finite – amortisation method •Gross carrying amount & accumulated amortisation (Beg & End) •P/L – amortisation •Reconciliation carrying amount begin & end •Additions •Held for sale •Increases/decreases – revaluation and impairments •Impairment losses – P/L •Impairment reversals – P/L •Amortisation recognised in period •Net exchange differences •Other changes in carrying amount •Information re impaired intangible assets •Nature & amount of change in accounting estimate •Assessment of useful life •Amortisation limit •Residual values •Indefinite useful life •Carrying amount •Reasons why useful life is regarded as indefinite •Material intangible assets •Description, carrying amount & remaining amortisation period •Restricted intangible assets •Grants •Contractual commitments – acquisition of intangible asset
•Profit before tax •Exempt differences •Temporary differences •Amortisation •Impairment loss •Tax allowance on intangible asset •Taxable income •Tax (TI x tax rate)
Patents, designs, copyrights, knowledge S11(gC) •Deduct expenditure actually incurred to acquire •Invention/patent •Design •Copyrights •Other property of similar nature (other than trade marks) •Knowledge re above •Deduction •< R 5 000 deduct immediately •> R 5 000 •5% pa •10% pa •Not proportioned for part of year •Acquired from connected person •Deduction based on lesser of cost for CP or market value
Distinctive FAC3702
Financial Reporting
Research & development S11B •R&D conducted in RSA •Result/potentially result identifiable intangible asset •Exclude
Comprehensive example p149
Approaching the question 1)READ REQUIRED
•Social sciences, arts, humanities or management •Market research, sales or marketing promotion •Deduction •Expenditure actually incurred in year of assessment •Iro R&D undertaken directly by taxpayer, or •Payment to other person for R&D obo taxpayer •Registration of invention etc •Obtaining extension of period of legal protection/registration period etc. •Allowance •Building/machinery/plant/implement/utensil/ other capital used for purposes of R&D •40% of cost of that asset in year brought into use •20% in subsequent years
Scientific/technological R&D S11D •150% expenditure actually incurred •Activities in SA •Discovery – novel/practical & non-obvious information
2)Time line 1/1/05 – 28/2/05 (Research motor engine electronic component) 1/3/05 – 30/8/05 (Develop MEEC) 1/6/05 – 31/12/05 (Research swimming pool component) 3)Identify costs to be allocated 3)Laboratory maintenance 4)Water, electricity and service 4)Calculate costs to R@D Engineers : #, time spent (p149) Laboratory technicians (p150) Consumables – based on number of months Costs identified in (3) Depreciation on R&D equipment used
5)Amortisation of development cost Development cost/expected # unit sales x period 6)Employee benefit cost Total employee benefit cost (salaries) Less: allocated to research cost Less: allocated to development cost 7)Depreciation of R&D Equipment Total provision (Cost x ratio)
•Scientific/technological nature
Less: Allocated amount (calc 4) 8)Depreciation – plant & machinery [(Cost – residual value)/useful life] x period used 9)Allocation of depreciation Provided for the year (Calc 7+8)
•Intended to be used in production of income
Less: allocated to research costs (calc 4)
•Devising/developing/creation of any invention (patent), design, computer program or knowledge essential to the use thereof
•Assets
Less: Capitalises as development cost (calc 4) •50/30/20 of cost from year brought into use •Owned by taxpayer •Brought into use solely for purpose above •Not previously used by anyone else
•Intended to be used in production of income •Exclusions – listed p 148
10)Impairment loss Recoverable amount – value in use (given) Carrying amount on 31/12/05 •Development cost (calc 4) – amortisation (calc 5)
DISCLOSURE Registration of intellectual property S11(gB) •Obtaining, restoration, extension, registration or renewal •Deductible •Expense in year actually incurred •If in production of income •Also exp incurred under similar laws in other country •Deduction iro registration/renewal of trademark •NOT acquisition thereof
11)Notes – accounting policy 11)Internal generated intangible assets – development costs 12)Research costs 13)PPE 14)Impairment of non-financial assets 12)Profit before tax (know format) 13)PPE 14)Internal generated intangible asset
Distinctive FAC3702
Financial Reporting
Study unit 5 Assets held for sale & discontinued operations
Overview •Scope •Classification •Criteria •Measurement •Recognition of impairments & reversals •Non-current assets to be abandoned •Changes in plan of sale •Tax •Presentation
Overview •General definitions •Non-current assets held for sale •Discontinued operations
GENERAL DEFINITIONS •Component of an entity •Operations & cash flows •Clearly distinguished •Operations •Financial reporting •Cost to sell •Incremental costs directly attributed to dispose of asset or disposal group •EXCLUDING •Finance cost •Income tax expense •Discontinued operations •Component disposed of ‘held for sale’ •Separate major line of business/geographical area of business •Expected to be realised within 12 months after y/e, or •Subsidiary acquired exclusively to resell •Disposal group (DG) •Group of assets to be disposed •In single transaction, AND •Liabilities directly associated with those assets •Will be transferred in transaction •Includes: •Goodwill acquired in business combination if cash-generating unit •Firm purchase commitment •Agreement with unrelated party – binding on •Usually legally enforceable •Specifies all significant terns incl. price and timing •Disincentive for non-performance, make performance highly probable •Recoverable amount •Higher of •Value in use, or •Fair value less cost to sell
ASSETS HELD FOR SALE
Scope – IFRS 5 •ALL recognised non-current assets and DG’s of entity •DG as a whole •Exclude from measuring assets already carried @ fair value •Financial assets •Investment property •Agricultural non-current assets •Also excludes •Current assets (e.g. inventory)
Classification •Classify as ‘non-current asset held for sale’ if •Carrying amount will be recovered •Through sale transaction •RATHER than through continuing use •Distinguish from Abandonment •End of useful life or decide to close down rather than sell •NOT classified as ‘non-current asset held for
sale’
•NOT include asset temporarily taken out of
use
Criteria ALL •Asset/disposal group available for immediate sale •In present condition •May be subject to usual & customary sales terms both
•Sale must be highly probable •Highly probable •Appropriate level of management committed plan to sell asset/DG •Active plan to find buyer & complete plan to •Asset actively market at reasonable price •Expect sale to be completed within 1 year from y/e (*) •Actions required to complete plan indicate unlikely •Significant changes to plan •Withdrawal
to sell
Distinctive FAC3702
Financial Reporting
Extension of sale period (*)
Measurement
•Delay caused - Circumstances beyond entity’s control
•Immediately before reclassification •Carrying value ito other IFRS •Cost or revaluation model •Depreciation & amortisation •Determine carrying value immediately before reclassification •On date of reclassification •Only IFRS5 assets restated •Lower of: •Carrying value before reclassification •Fair value less cost to sell •Examples 4 & 5 •Impairment •Dispose IFRS5 and non-IFRS5 items •Can form part of 1 disposal group •Example 3
•Significant evidence – remains committed to sell •Examples •Other parties impose conditions on transfer asset •Selling entity cannot respond until purchaser commitment obtained
of
•Firm purchase commitment highly probable within 1 yr •Obtains firm purchase commitment •Buyer unexpectedly impose conditions on transfer •Favourable solution expected •Circumstances arise that were previously regarded as unlikely •Tried to respond to changes •Non-current assets actively marketed @ reasonable price
DG – Initial classification HfS Acquired to resell •Acquire non-current asset EXCLUSIVELY to resell
disposal
•New asset acquired to resell •Lower of carrying amount as if not HfS OR Fair value less cost to sell (Example 8) •If acquired as business combination – fair value less cost to sell •Other: Method 1.Calculate carrying value of individual assets on reclassification date 2.Determine fair value less cost to sell of DG on reclassification date 3.Determine lower of (1) and (2) 4.If (1)>(2), recognise impairment loss on reclassification date •Allocate impairment loss to: •Goodwill (if any), then •IFRS5 assets in proportion to carrying amounts. •Example 6
•Segment
Subsequent remeasurement
•Classify as ‘non-current asset held for sale’ ONLY if: •1 year (or permitted extended period) is met, and •Highly probable that other criteria not met will be met within short period •Usually within 3 months
Criteria met AFTER reporting date •Do NOT classify as ‘non-current asset held for sale’ •Criteria met BEFORE authorisation of AFS •Disclose in Notes: •Description of •Non-current asset/DG •Facts & circumstances of sale or leading to expected sale •Expected manner and timing of
Time line Acquire non-current assets & use in business Classify as ‘non-current asset held for sale’ End of financial period Sell asset held for sale
•If y/e between date of initial classification & date of disposal •Non IFRS5 assets •Remeasure carrying value before applying ‘new’ fair value less cost to sell •IFRS5 assets •Fair value less cost to sell •Less impairment loss determined at initial classification as HfS •If Fair value less cost to sell change •Determine whether additional impairment or reversal thereof
loss
Distinctive FAC3702
Financial Reporting
Recognition – Impairment loss
2.Calculate adjustment. (Fair value less cost to sell) – (1)
•Individual non-current asset •Cr Carrying amount of asset •Dr Impairment loss (P/L) •Disposal group •Allocate impairment to •Goodwill, then •IFRS5 assets in proportion to their carrying amounts •Example 9
3.Depending on model (cost/revaluation) disclose as other income or revaluation in/decrease •Individual item – part of disposal group
Reversal of impairment loss/gain
Tax
•Remeasurement of individual asset
•Individual asset (cost model) HfS •Carrying amount>tax base Deferred tax liability
•Split group – assets meeting HfS criteria and others •Reclassify assets no longer HfS – refer to previous slide •Example 12
•Increase in fair value less cost to sell •Recognise gain
•Carrying amount
