Professional Documents
Culture Documents
Topic 2.3
Section 13 Inventories
Section 16 Investment Property
Sec 17 Property, Plant & Equipment
Section 18 Intangible Assets
Section 27 Impairment of Assets
Scope of
Sections 13 and 1618
Section 13 scope
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Section 17 definition of PP&E
Property, plant and equipment (PP&E) are
tangible assets:
held for
use in the production or supply of goods
or services,
for rental to others, or
for administrative purposes;
& are expected to be used in +1 period.
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Section 17 scope
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Section 16 scope
Investment property is land or a building
(or part of a building, or both) held by the
owner or by the lessee under a finance
lease to earn rentals or for capital
appreciation or both.
Section 16 specifies accounting &
reporting for:
investment property whose fair value can
be determined reliably without undue cost
or effort on an ongoing basis
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Section 18 scope
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13
15
16
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Section 13 Inventories
and
Paragraphs 27.227.4 (impairment of
inventories)
Section 13 measurement
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Section 13 cost
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Ex 13 continued:
A measures the cost of the inventories in 20X1 at
CU350,000 [ie 1,000 units (CU500 list price less
30%(CU500) volume discount)], because all units
purchased in the year get the full 30% discount.
A recognises:
expense (cost of sales) of CU297,500 [ie 850
units sold (CU500 list price less 30%(CU500)
volume discount)] in profit or loss in 20X1
asset (inventories) of CU52,500 [ie 150 units
unsold (CU500 less 30%(CU500) discount)] at
31/12/20X1.
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Section 13 example FP overheads
Ex 20*: Fixed production (FP) overheads
= CU900,000. 200,000 units produced.
Normal capacity = 250,000 units.
Allocation rate: CU900,000 250,000 units
normal capacity = CU3.6 per unit produced.
Allocate to inventories: CU3.6 200,000
units = CU720,000.
Unallocated overheads of CU180,000 are
expense (ie CU900,000 less CU720,000 in
inventory).
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Section 13 example wastage
Ex 27*: Total costs of a production run =
CU100,000 (including a cost of normal
wastage of CU2,000). The weakening of
operating controls while the ownermanager was in hospital caused the
wastage of raw materials to increased to
CU7,000 per production run.
The abnormal wastage cost of CU5,000
(CU7,000 CU2,000) is not included in the
cost of inventory but recognised as an
expense.
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continued36
Ex 23 continued:
Cost per litre of A = CU23.08 & B = CU46.15.
Calculation A: CU250,000 SP of A CU650,000
combined SP of A & B CU300,000 costs =
CU115,385 cost of 5,000 litres of A. CU115,385
5,000 litres = CU23.08.
Calculation B: CU400,000 SP of B CU650,000
combined SP of A & B CU300,000 costs =
CU184,615 cost of 4,000 litres of B. CU184,615
4,000 litres = CU46.15.
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Section 27 examples impairment
Ex 1: At reporting date
CA (cost) of raw materials = 100
replacement cost = 80
est. selling price of finished good = 200
est. costs to convert the raw material into
finished good = 60
est. costs to sell the finished good = 30
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Ex 4: Same as Ex 3 except
items do not qualify for impairment testing
as a group; and
est. SP-CTC&S = 110 each.
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SP-CTC&S = 70)
At 31/12/20X2
because of an improvement in economic
circumstance the SP-CTC&S of that item is
120
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Section 13 derecognition
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Section 13 disclosure
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Disclose
accounting policies for measuring
inventories
carrying amount of inventories analysed by
class
amount expensed in the period
impairment losses recognised or reversed
amount pledged as security for liabilities
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Section 17
Property, Plant and Equipment
(including investment property whose fair
value cannot be measured reliably on an
ongoing basis)
Section 17 recognition
Recognise the cost of an item of PP&E
as an asset if:
probable future benefits inflows; and
cost can be measured reliably.
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Section 17 measurement
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Section 17 cost
Cost of PP&E comprises:
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Section 17 example cost
Ex 15*: Costs before ready for use as
intended:
purchase price = 600 (incl 50 refundable
purch tax)
costs 120 to get equip to site and to install
in 10 yrs must restore land (PV to restore =
100)
costs 135 to modify equip to operate as
intended
costs 10 to train staff to operate equip.
costs 37 for testing and final modifications
23 = operating loss after ready for use.
Section 17 depreciation
To allocate depreciable amount over
items useful life use judgement to
estimate
useful life
residual value
depreciation method (eg straight-line,
diminishing balance, units of production)
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Section 17 depreciation
continued
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Section 17 derecognition
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Section 17 disclosures
Disclose for each class of PP&E
measurement bases
depreciation methods
useful lives or depreciation rates
gross carrying amount & accumulated
depreciation (incl. impairment losses) at
beginning & end of period
reconciliation of carrying amount at
beginning & end of the reporting period
showing specified items (comparatives
not required)
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Also disclose
existence and carrying amounts of PP&E
when entity has restricted title or PP&E is
pledged as security for liabilities
amount of contractual commitments for
the acquisition of PP&E
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Section 18
Intangible Assets other than Goodwill
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Section 18 recognition
Recognise the cost of intangible as asset if:
probable future benefits inflows, and
cost can be measured reliably
the asset does not result from
expenditure incurred internally on an
intangible item
cannot recognise R&D costs; internally
generated brands, logos, publishing
titles, customer lists; expenditure to
open new facilities or launch new
products; training activities; advertising;
relocating or reorganising costs.
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FV
Customer list
50
80
100
150
300
Licence to operate
Brand (trademark & brand name)
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Section 18 derecognition
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Section 18 disclosures
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Section 27
Impairment of Assets
Section 27 scope
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Section 27 impairment testing level
Impairment test at level of
individual asset (if possible)
otherwise cash-generating unit (CGU)
eg when need to calculate value in use
and the individual assets do not
generate cash flows by themselves
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Consider, as a minimum:
External sources of information in a period
assets market value declined significantly
> expected
significant changes in the technological,
market, economic or legal environment
market rates increased (eg effect on
discount rate)
CA of the net assets > estimated fair
value of the entity
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continued
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Section 27 estimating VIU
Reflect in calculation of VIU:
est. future cash flows (FCFs) entity
expects
expectations about possible variations in
the amount or timing of those FCFs
time value of money (current market riskfree rate of interest)
price for uncertainty inherent in the asset
other factors (eg illiquidity) that market
participants would adjust for
Avoid double-counting in FCFs & discount
rate
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continued
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Section 27 goodwill
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General principles:
at reporting date assess whether there is
any indication that impairment has
reversed
if any such indication exists, estimate RA
reverse impairment in profit or loss if CA <
RA, but
reversal cannot increase the CA above
the CA that would have been
determined (net of amortisation or
depreciation) had no impairment loss
been recognised in prior years.
goodwill impairment cannot be reversed
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Section 27 impairment disclosures
Disclose separately for each of(a)
inventories; (b) PP&E; (c) goodwill; (d)
intangibles other than goodwill; (e)
investments in associates; (f) investments in
joint ventures:
amount of impairment losses recognised
in profit or loss & line item(s) in the
income statement (or SOCI or SOI&RE)
in which included.
same for reversals of impairment losses
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