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Tangible and Intangible
AssetsKami l le BarrogaCzar ina Cabatay
Dani lo GalangMadonna Ni lo
Carmel Nucum
Investments in land, buildings (or part of a building), and some property interests of a lessee in finance leases held to earn rentals or for capital appreciation or both
The property’s FV can be measured reliably without undue cost or effort on an ongoing basis.
Sec 16: Investment Property
at cost if deferred payments, cost
is the PV of future payments
if held under lease, lower of PV of minimum lease payments and FV of PPE
In case of mixed use, property, PPE and investment property must be separated. If FV of investment property portion can’t be determined, recognize whole as PPE
SMEsInitial
RecognitionFull IFRS SAME
Separation depends on the ability of the portions to be sold/leased out separately
If portions can’t be sold separately, the property is investment property if only an insignificant portion is held for use in the production/ supply/ administrative
Use the Fair Value model
Gains and Losses arising from changes in FV, recognized in Profit &Loss
Property interest held under operating lease, is the item measured at FV (not the underlying property)
SMEs Full IFRS May choose either Fair
Value or Cost model, but only one must apply to all investment properties
SAME (for FV model)
SAME. Add’l: Property interest under operating lease but considered Investment Property triggers FV model policy for all investment property
Subsequent Measurement
NOT COVERED
SMEs Full IFRSDerecognize when the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposal
Disposal
If FV is no longer available without undue cost or effort, account for item as PPE
If no longer meets Investment Property criteria, transfer to PPE
SMEs Full IFRSTransfer only when there is change in use(doesn’t matter if FV is not measured without undue cost or effort)
SAME
More guidance on transfer between categories
Transfers
Mixed use property SME: based on ability of entity to determine FV of Inv.
Prop FULL: based on ability of entity to sell both parts
separatelySubsequent Measurement
SME: Fair Value Model only FULL: Fair Value Model or Cost Model
Transfers SME: based on availability of FV FULL: based on change in use
Disposal SME: not covered FULL: when withdrawn from use, no future economic
benefit
Key Differences
Tangible assets that are:• Held for use in the production or supply of
goods and services, for rental to others or for administrative purposes.
• Expected to be used during more than one period
Sec 17: Property, Plant and Equipment
Recognize PPE if and only if:
It is probable that future economic benefits associated w/ the item will flow to the entity
The cost can be measured reliably
Spare parts are PPE if they will be used from more than one period, or can only be used with another PPE
Lands and building are separate items
SMEs Full IFRSSAME
SAME
SAME
Initial Recognition
at cost, including costs to get the property ready for its intended use
Elements of cost: its purchase price any costs directly
attributable to bringing the asset its necessary condition
the initial estimate of the costs of dismantling the item
If deferred, PV of payments
SMEs Full IFRSSAME
Initial Recognition
Historical cost less
depreciation less impairment model only The carrying amount,
less estimated residual value, is depreciated over the asset's anticipated useful life.
SMEs Full IFRSBoth Cost and
Revaluation models are allowed
Subsequent Measurement
This applies to Exchanges of Assets
if transaction has commercial substance, at FV
If it has no commercial substance and FV can’t be measured reliably, at carrying value of asset given up
SMEs Full IFRSSAME
SAME
Initial Recognition
Depreciation method shall be the best that reflects the consumption of the asset's benefits over its useful life
Useful life is determined by factors such as expected usage, wear & tear, obsolescence, legal limits
Depreciation expense is recognized in P&L (unless it’s part of another asset)
Review of residual value, useful life, depreciation method if indicators of changes in such exist
SMEs Full IFRSSAME
SAME
SAME
Review is done annually
Depreciation
Major parts of an item of PPE have significantly different patterns of consumption of economic benefits must be depreciated separately
SMEs Full IFRSEach part of a PPE with a cost that is significant in relation to the total cost of the item shall be depreciated separately.
Components
PPE is tested for impairment when there is an indication that the asset may be impaired.
Existence of impairment indicators is assessed at each reporting date.
Compensation for impairment from third parties is included in P&L when compensation becomes receivable
SMEs Full IFRSSAME
SAME
SAME
Impairment
Plan to dispose of an asset is an indicator of impairment that triggers the calculation of the asset’s recoverable amount for the purpose of determining whether the asset is impaired.
No classification for Non Curren Held For Sale
SMEs Full IFRSEssentialy the same, but there’s an explicit classification of assets held for sale (IFRS 5: Non Current Assets Held for Sale and Discontinued Operations)
Impairment
Carrying amount of PPE shall be derecognised: on disposal; or when no future economic
benefits are expected from its use or disposal.
Gain or loss is recognized in profit and loss Gain or loss is the difference
between the net disposal proceeds and the carrying amount of the item
SMEs Full IFRSSAME
Derecognition
Subsequent measurementSME: Cost ModelFULL: Cost Model and Revaluation
Model Review of depreciation estimates
SME: when indicators of change existFULL: annually
Components approachSME: differences in patterns of
consumptionFULL: significant cost of component
relative to total cost
Key Differences
an identifiable non-monetary asset without physical substance. Such an asset is identifiable when:
(a) it is separable, i.e. capable of being separated or divided from the entity and sold, transferred, licensed, rented or exchanged, either individually or together with a related contract, asset or liability, or
(b) it arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations.
Sec 18: Intangible Assets Other than Goodwill
Intangible asset shall be recognized if, and only if: it is probable that the
expected future economic benefits that are attributable to the asset will flow to the entity;
the cost or value of the asset can be measured reliably; and
the asset does not result from expenditure incurred internally on an intangible item.
SMEs Full IFRSSAME except (c)
General Principle for Recognition
Initially at costIf separately acquired
its purchase price; and any directly
attributable cost of preparing the asset for its intended use.
As part of business combination the cost is its FV at the
acquisition date
SMEs Full IFRSSAMESAME
SAME
Initial Measurement
Exchange of AssetsAt FV unless
the exchange transaction lacks commercial substance or
the FV of neither the asset received nor the asset given up is reliably measurable. In that case, the asset’s cost is measured at the carrying amount of the asset given up.
SMEs Full IFRSSAME
Initial Measurement
Internally generated intangible assets All research and
development costs are recognized as an expense
SMEs Full IFRSResearch costs are
expensed as incurred. Development costs are capitalized when specific criteria are met.
Initial Measurement
At cost less any accumulated amortization and any accumulated impairment losses.
SMEs Full IFRSEither the Cost model
or the Revaluation model
Revaluation Model: FV at revaluation date less any accumulated amortization and subsequent accumulated losses
Subsequent Measurement
All intangible assets have finite life
For intangible that arises from contractual/other legal rights Useful life shall not
exceed the period of the contractual or other legal rights, but may be shorter depending on the period over which the entity expects to use the asset.
SMEs Full IFRSCan be either finite
or infiniteSAME
Useful Life
With finite useful life Amortized on the
systematic basis of useful life
If useful life can’t be reliably estimated the life shall be presumed to be ten years.
With infinite useful life Not applicable. All
intangible assets are considered to have finite lives.
SMEs Full IFRS Intangible assets with
finite useful life are amortized. Amortization is carried out on a systematic basis over the useful lives of the intangibles.
With infinite useful life Assets are not
amortized
Useful Life
Allocate the depreciable amount of an intangible asset on a systematic basis over its useful life.
Amortization charge for each period shall be recognized as an expense.
Amortization begins when the intangible asset is available for use
SMEs Full IFRSSAME
SAME
SAME
Amortization Method and Period
Amortization ceases when the asset is derecognized.
The entity shall choose an amortization method that reflects the pattern in which it expects to consume the asset’s future economic benefits.
If the entity cannot determine that pattern reliably, it shall use the straight-line method.
SMEs Full IFRSAt the earlier of the
date that the asset is classified as held for sale and the date that the asset is derecognized.
SAME
SAME
Amortization Method and Period
Assume that the residual value is zero unless:
there is a commitment by a 3rd party to purchase the asset at the end of its useful life, or
there is an active market for the asset and:
RV can be determined by reference to that market, and
it is probable that such a market will exist at the end of the asset’s useful life.
SMEs Full IFRSSAME
Residual Value
Review if there are indicators of change in the values of residual and amortization method
SMEs Full IFRS Review each period
Residual Value
An intangible asset shall be derecognized:
on disposal; or when no future
economic benefits are expected from its use or disposal
SMEs Full IFRS SAME
Retirement and Disposal
RecognitionSME: the asset does not result from
expenditure incurred internally on an intangible item
FULL: development costs may be capitalized
Initial measurement (by way of government grant)SME: FV at the date the grant is received
or receivableFULL: FV or nominal amount plus any
expenditure that is directly attributable to preparing the asset for its intended use.
Key Differences
Initial measurement (internally generated)SME: expensedFULL: development costs are
capitalized when specific criteria are met.
Subsequent measurementSME: At cost less any accumulated
amortization and any accumulated impairment losses.
FULL: Either the Cost model or the Revaluation model
Key Differences
Useful lifeSME: finite lifeFULL: can be either finite or infinite
Amortization periodSME: Amortization ceases when the
asset is derecognized.FULL: At the earlier of the date that the
asset is classified as held for sale and the date that the asset is derecognized.
Key Differences
Residual valueSME: Review if there are indicators of
change in the values of residual and amortization method
FULL: Review each period
Key Differences
Borrowing costs are interest and other costs arising on an entity's financial liabilities and finance lease obligations
Also includes exchange differences arising from foreign currency borrowings to the extent that they are regarded as adjustment to interest cost
Sec 25: Borrowing Costs
All are expensedSMEs Full IFRS
may be capitalized if certain conditions are met (if directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset are capitalised)
Recognition
RecognitionSME: all are expensedFULL: may be capitalized if certain
conditions are met
Key Differences