Under what conditions are internal intangible assets capitalised?
P - probable future benefit
I - intention to complete the project
R - resources available to complete
A - ability to use or sell the asset
T - technical feasibility of completing the asset
E - expenditure in creation is measurable
When are provisions recognised
When an obligation has arisen from a past action and this can be measured reliably and it is probable that a payment will be made
What defines an intangible asset
Generate future economic benefit
Separable from the entity
The entity has control over its use
Fair value + revaluation (gain/loss)
Fair value is the current market value
Revaluation = Fair value - current NBV
Prudence
Caution in the exercise of judgement in making estimates that require uncertainty
Overhead costs
Production costs not directly attributable to a single product
Relevant cost
Future cost occurring due to a current decision and it must vary with the decision i.e. opportunity cost
Marginal cost
It is just the contribution cost i.e. for an extra unit how much does it cost to make it
Relevant costs with multiple alternative choices
The highest value cost is the one used
Criticisms of traditional budgeting
Short term
Time consuming and costly
Roles of budgeting
Planning annual operations
Communicating plans
Evaluating performance
Budgetary slack
This is where managers create cushion in the budget so sales target set lower than it should be so the firms seems to outperforming when it is actually just up to par
Alternatives to budgeting
Rolling budgets
Participative budgets
Zero-based budgeting
Beyond budgeting
Rolling budgets
Short periods
End date is rolling so it is constantly updated i.e. with a 2 year budget, as soon as that second year is hit it restarts from that month
Zero based
The past not taken into account
Beyond
No fixed targets rather industry benchmarks, no annual budgets but instead based on demand and no top down structure
Material price variance
(AP - SP) x AQ
Material usage variance
(AQ - SQ) x SP
Labour rate variance
(AR - SR) x AH
Labour efficiency rate
(AH - SH) x SR
Sales margin volume variance
(ASV - SSV) x SCM, SCM is the standard contribution per unit
Sales price variance
(ASP - SSP) x ASV
Operating cycle and what does it represent
Inventory days + Trade receivable days - Trade payable days
The operating cycle measures the
time period between paying
suppliers for the production of
goods/services and the collection
of cash from the customer. A lower one is better
Inventory days
[(opening + closing inventory)*365/2]/Cost of sale
