Ifrs Impairment of Assets

Intangibles and deterioration of Assets Learn Consult Research Intangibles Identifiable non-monetary plus without material substance IAS 38 prescribes special criteria for an asset to be recognized as nonphysical asset Tangible or intangible must light upon the criteria of asset to be recognized Controlled by entity as a result of chivalric event Probable future economic inflow (revenue or cost saving) Recognition Must meet the definition of asset Must meet criteria set by IAS 38 Cost of asset dependably deliberate Probable economic inflow Recognized at cost Recognition Internally generated The archetype states that expenditure on internally generated brands, mastheads, publishing titles, customer lists and items similar in substance are not recognized as intangible assets (beca usance they hobonot be distinguished from the cost of developing the business as a whole). Similarly, start-up, training, advertising, promotional, relocation and reorganisation costs ar e 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 goodwill 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 Development Research Initial investigation done to acquire new scientific noesis or understanding Development Application of research findings to design a new product or improve an existing system of product before production R&D treatment expense Research expenses Development expenses Capitalize if following conditions met Technical feasibility Intention and ability to make, use or betray Economic feasibility grocery for the product/usefulness Expenditures attributable to development reliably measuredInitial recognition Eg. development expenditure The PIRATE criteria Recognition Subsequent recognition Cost computer simulation or Revaluatio n model Revaluation Model If the revaluation model is followed, the revaluation must be fair value at date of revaluation by reference to an active mart. 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 impairment If useful emotional state is fixed amortize Straight line with zero residual value Start amortization one time asset is ready to use If useful life is not fixed, test for impairment Atleast annually (IAS 36) hurt of Assets The focus of IAS 36 Impairment occurs when the carrying value (NBV) exceeds the recoverable 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) Recoverabl e Amount The FV less cost to sell FV is determined by A binding agreement to sell Current market prices (if active market exists) Less any selling expenses tax in use Estimate the future cash flows (inflows and outflows) resulting from the use of the asset and ultimately its disposal Apply suitable push away 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 topic impairment otherwise leave it as it is Reporting an impairment Impairment losses must be recognized i. e. the asset written down to its recoverable amount Impairment losses are largely charged to I/S If asset has been revalued, charge to revaluation reserve until exhausted, than to I/S. scalawag 246 Page 246 Indicators of impairment External sources Significant decline in market value of the asset S ignificant changes with an unfortunate effect on the entity in the technological, market, economic or legal environment in which the entity ope place Increased market interest rates or other market rates of return 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 discontinue or restructure an operation to which the asset belongs Plans to dispose of it earlier than expected reassessing the useful life of an asset as finite rather than indefinite Internal evidence available that asset performance will be worsened than expected.