2 models for revaluation of investment property
- Cost model - no revaluation permitted (Cannot use cost model revalue then use FV model revalue again like PPE)
- Fair value model - no depreciation charge, revalue at FV every year, gain / loss on revaluation record in SOPL
3 ways to do accounting treatment when transfer
- complete previous accounting treatment
- revalue to fair value, then transfer
- continue with new accounting treatment
What is NCA held for sale
Carrying amount is recovered primarily through sales, rather than continuing use
What is disposal group held for sale
A group of asset / liability intend to sell in a single transaction, i.e, sell subsidiary
Criteria for NCA held for sell
- M: management is committed to sell
- A: available for immediate sale in its current conditions, subject to conditions that are usual & customary (NCA not used now)
- A: actively marketed at a price reasonable to the FV
- S: sales are highly probable, within 1 year from the date of classification as held for sales
- S: significant change to the plan is unlikely
3 steps of accounting treatment if NCA meet the criterias of held for sale
- Complete the a/c treatment based on the relevant a/c standard, i.e PPE (cost / revaluation model) or impairment…
- Classify as held for sale, use CA (NRV) compare with FVLCTS, which ever is lower, i.e, CA < FV = CA ; CA > FV = FV (got impairment loss in SOPL)
- After classify as held for sale: no depreciation anymore (coz NCA to Current asset) and as at Y/E measure FVLCTS. If FVLCTS drop in future then recognise impairment ; If FVLCTS increase in future then recognise reversal of impairment (only restricted to the impairment loss that has been made, exp, imp loss is $45m, then reversal only can $45m, no matter the FVLCTS increase more than $45m i.e., $60m)
Before classified as held for sale, impairment is measured based on the principle in the relevant standard (IAS 36). This means that impairment loss should be charged to profit or loss (based on indicator of imparment)
However, if impairment is applied to revalued asset, the impairment loss would be charged to other comprehensive income (OCI) and revaluation surplus until revaluation surplus becomes zero. Any excess impairment is charged to profit or loss.
After classified as held for sale, needs to be measured at lower of CA and fair value less costs to sell (FVLCTS). The difference between CA (revaluation amount) and FVLCTS is charged to profit or loss, even though the asset is a revalued asset previously.
What is discontinued operation
- Is a separate major line of operation or separate geographical area of operation sold / held for sale;
- a single coordinated plan to dispose of a separate major line of operations; OR
- subsidiary acquired with the exclusive view of resale (我現在買subsi but not interfere much coz will resell in the future)
Recognition capitalised criteria of intangible assets
- identifiable: separable (可以賣給人) & arises from contractual rights
- controlled
- probable generate future economic benefit
- cost can be reliably measured
If criteria not met, then cannot capitalised, charge to P/L
Goodwill only can be recognised when business combination (consol)
What’s the item that cannot be capitslised as intangible assets
- advertisement
- training
- internally generated brand name / goodwill (coz costs are uncertainty in measurement)
- research
- customer database that cannot sell
2 models for revaluation intangible assets
- cost model
- revaluation model: only active market then only can use this model
Armotisation of intangible assets
- Finite useful life
* got armotisation and impairment
* use straight line method (if the pattern cannot be determined reliably)
* zero residual value (coz it does not have any physical form) - Indefinite useful life
* no foreseeable limit
* no armotisation
* got imparment annualy
Any changes are accounted as change in accounting estimates
- Amortisation based on revenue generated is inappropriate as revenue can be affected by other factors apart from the intangible asset.
- However, this method may be appropriate if the revenue and consumption of economic benefits of ITA are highly correlated (means consumption closely related to revenue)
Criteria recognition of development expenditure can be capitalised
- P: probable future economic benefit
- I: intention to complete and use / sell
- R: resources adequate (i.e, has enough money) + available to complete and use / sell
- A: ability to use / sell asset
- T: technical feasibility of completing asset for use / sell (such as PHD expertise employees)
- E: expenditure can be measured reliably, i.e, raw materials, equipments… to develop a product
got armotisation
Impairment of asset
Impairment is applicable for: PPE, intangible assts, investment property using cost model, investment in associate/joint venture (equity method accounting)
Impairment is not applicable for: inventories, financial asset (coz got expected credit loss), deferred tax asset, investment property using FV model, biological asset (FVLCTS), employee benefit PA (coz got asset ceiling adjustment)
Impairment of asset occur when CA > Recoverable amount which is use VIU compare to FVLC of disposal, which ever is higher. i.e, VIU 80, FVLCOD 70, then RA is 80
VIU (PV) = sum of (value of cash inflow / (1+r) ^ t)
If interest rate goes up, VIU goes down
Indicator of impairment: net book value > market capitalisation
Discount rate use in calculation of VIU must be:
- Rate that represents the current market assessment of the time value of money and risk specific to the assets
- Pre-tax rate
Cannot use WACC rate coz WACC is based on existing interest rate (may not be current rate)
what is CGU
CGU (cash generating unit) is the smallest group of assets that generated independent cash flows
Goodwill in business com (consol) add into the CGU to do test of impairment together coz goodwill cannot generate independent cash flows, goodwill also no reversal of impairment
How to allocate the impairment of CGU
- specifically impaired assets
- goodwill
- prorata to other assets (remaining impairment after goodwill*other impaired assets/ total impaired assets)
what items should perform imparment annually regardless indicator of impairment
- Goodwill
- Indefinite useful life of intangible assets
- Intangible asset not ready for use such as development-in-progress
These items no armotisation so should do impairment
