Initial Cost:
PPE
Land
Intangible Assets
Subsequent valuation:
PPE
Land
Intangible Assets
Depreciation:
PPE
Land
Intangible Assets
Impairment:
PPE
Land
Intangible assets
Land
Intangible Assets
Other disposals:
PPE
Land
Intangibles
company owns since it is the only thing that cannot be valued. Fair value
is a suitable measure for any other intangibles acquired in a business
combination since that is the value it could be sold for, the figure in the
SOFP is what the previous owners paid for it less amortisation, not what
its new owners have acquired that specific asset for.
Historical cost and revaluation are both suitable methods for subsequent
valuation of an asset. Historical cost less depreciation is particularly
suitable for an asset that is unlikely to be sold since it looks at how much
the asset is worth to the business compared to when it was bought.
Revaluation is suitable since it takes into account the market value of an
asset. This is especially suitable for assets that have the potential to be
sold and have frequent fluctuations in market value such as property.
Revaluation must be used for intangible assets with an indefinite useful
life since they cannot be amortised. Both methods take into account any
residual value of the asset and the useful life.
Depreciation and amortisation can be calculated on a reducing balance
or straight-line basis. Reducing balance takes a larger amount of
depreciation in the early years and then a smaller charge in the final years
since it is calculated as a percentage of the carrying value. This is
particularly appropriate for assets that are more useful to the company in
their early years. Straight-line depreciation spreads the cost of the asset
out evenly over the whole useful life of the asset. This is more appropriate
for assets that are expected to have a consistent output over their
expected useful life. Land is not depreciated since it is said to have an
indefinite useful life.
Impairment and an increase in revaluation are both dealt with suitably.
An increase in property value is a form of income and so recognised in the
statement of comprehensive income (SOCI). An impairment, rather than
all be taken as an expense can be taken out of the revaluation surplus
first, recognising that a large decrease in value can just be down to the
market movements and not an actual large impairment of the asset itself,
meaning only the loss on the previous carrying value is recognised.
When held for sale, an asset is held in the accounts as a current asset
(since it is expected to be sold within a year) at its net realisable value,
the expected amount from the sale. The criteria for held for sale assets
are suitable since if it doesnt meet the criteria, it is likely to be too small
to be material and not worth separating out of the accounts. For smaller
non-current asset, it is better to just recognise their sale upon its
completion.
Bibliography
ICAEW.(2013). Financial Accounting Study Manual. Exeter. Polestar
Wheatons
IFRS Foundation. IAS 16 Property Plant and Equipment
IFRS Foundation. IAS 38 Intangible Assets
IFRS Foundation. IAS 36 Impairment of Assets
IFRS Foundation. IFRS 5 Assets Held for Sale