Ifrs Impairment of Assets

Intangibles and injustice of Assets Learn Consult look into Intangibles Identifiable non-monetary plus without physical sum total IAS 38 prescribes special criteria for an summation to be recognized as intangible asset asset Tangible or intangible must seemly the criteria of asset to be recognized Controlled by entity as a result of past event Probable early economic influx (revenue or cost saving) Recognition Must meet the definition of asset Must meet criteria set by IAS 38 Cost of asset reliably measured Probable economic inflow Recognized at cost Recognition Internally generated The standard states that utilise of goods and services on internally generated brands, mastheads, publishing titles, customer lists and items similar in substance argon non recognized as intangible assets (because they squirtnot be tell from the cost of developing the business as a whole). Similarly, start-up, training, advertising, promotional, relocation and reorganisation co sts are all recognised as expenses. Purchased Intangibles If value of an intangible can not be valued reliably, while purchasing a company, include the value as a part of blessing A special note on goodwill Inherent goodwill Vs Purchased goodwill How is it different? Balancing figure Cant be sold as a separate asset Research and phylogeny Research sign investigation done to acquire in the altogether scientific knowledge or understanding Development Application of research findings to design a new product or improve an existing system of product onwards production R&D treatment Write-off Research expenses Development expenses Capitalize if following conditions met Technical feasibility Intention and ability to make, use or sell Economic feasibility securities industry for the product/ utility program Expenditures attributable to knowledge reliably measuredInitial recognition Eg. development expenditure The PIRATE criteria Recognition Subsequent recognition Co st forge or Revaluation feign Revaluation Model If the revaluation model is followed, the revaluation must be fair value at season of revaluation by reference to an active commercializeplace. An active market is a market where all of the following conditions exist The items traded are homogenous, Willing buyers and sellers can normally be found at any time Prices are available to the public. Amortization and prejudice If useful life is fixed amortize Straight line with zero residual value Start amortization once asset is ready to use If useful life is not fixed, test for impairment Atleast annually (IAS 36) hindrance of Assets The focus of IAS 36 Impairment occurs when the carrying value (NBV) exceeds the retrievable amount The Recoverable Amount The cost or spending on an asset can be recovered in two ways 1. By selling it 2. By using it So the recoverable amount is either the value we get from selling an asset (the fair value) or the value we get by using the asset (value in use) Recoverable Amount The FV less cost to sell FV is placed by A binding agreement to sell Current market prices (if active market exists) Less any selling expenses assess in use Estimate the future cash flows (inflows and outflows) resulting from the use of the asset and in the long run its disposal Apply suitable discount rate to come with a PV of future cash flows. Financing cost and taxes not included Impairment Review Calculate the carrying value Calculate the recoverable amount as higher of Fair Value less cost to sell Value in use (PV of future cash flows) If CVRV, then report impairment otherwise leave it as it is Reporting an impairment Impairment losings must be recognized i. e. the asset written down to its recoverable amount Impairment losses are generally charged to I/S If asset has been revalued, charge to revaluation reserve until exhausted, than to I/S. foliate 246 Page 246 Indicators of impairment External sources meaning(a) de cline in market value of the asset Significant changes with an adverse effect on the entity in the technological, market, economic or legal environment in which the entity operates Increased market interest rates or other market rates of give birth affecting discount rates and thus reducing value in useIndicators of impairment Internal sources Evidence of obsolescence or physical damage. Significant changes with an adverse effect on the entity including the asset becoming idle plans to breach or restructure an operation to which the asset belongs Plans to dispose of it earlier than evaluate reassessing the useful life of an asset as finite rather than vague Internal evidence available that asset performance will be worse than expected.