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CONTENTS:

INTANGIBLE ASSETS: IAS38 & SIC 32 ...................................................................................................................... 3 INCLUSIONS & EXCLUSIONS ....................................................................................................................................... 3 EXCLUSIONS ........................................................................................................................................................... 3 INCLUSIONS: .......................................................................................................................................................... 3 DEFINITION OF INTANGIBLE ASSET: ........................................................................................................................... 3 RECOGNITION ............................................................................................................................................................ 4 MEASUREMENT ......................................................................................................................................................... 5 INITIAL MEASSUREMENT ....................................................................................................................................... 5 SUBSEQUENT MEASUREMENT: ................................................................................................................................. 8 INDEFINITE USEFUL LIFE............................................................................................................................................. 8 FINITE USEFUL LIFE .................................................................................................................................................... 9 USEFUL LIFE ........................................................................................................................................................... 9 RESIDUAL VALUE: .................................................................................................................................................. 9 AMORTISATION METHODS .................................................................................................................................... 9 IMPAIRMENTS ........................................................................................................................................................... 9 RETIREMENTS AND DISPOSALS .................................................................................................................................. 9 If separate COMPONENTS ARE REPLACED / ETC. .................................................................................................. 9 TAXATION .................................................................................................................................................................. 9 FINANCIAL STATEMENT PRESENTATION:................................................................................................................... 9 GOVERNMENT GRANTS IAS 20 , SIC10 ................................................................................................................. 12 Special Notes : ..................................................................................................................................................... 12 SCOPE: ..................................................................................................................................................................... 12 DEFINTIONS : ............................................................................................................................................................... 12 RECOGNITION: ......................................................................................................................................................... 12 GENERAL ACC. ASPECTS ........................................................................................................................................... 12 GRANTS RELATED TO ASSETS: .................................................................................................................................. 12 GRANTS RELATED TO INCOME : ............................................................................................................................... 14 REPAYMENTS OF GRANTS: MUST SEE EXAMPLES IN GAAP BOOK ..................................................................................... 14 SPECIFIC FORMS OF GOVERNMENT GRANTS: .......................................................................................................... 15 TAX SPECIAL IMPLICATIONS ..................................................................................................................................... 16 DISCLOSURE ............................................................................................................................................................. 16 IAS 36 IMPAIRMENT ............................................................................................................................................ 19 SCOPE ...................................................................................................................................................................... 19 WHEN TO TEST FOR IMPAIRMENT: .......................................................................................................................... 20 RECOGNITION AND MEASUREMENT ....................................................................................................................... 20 MEASUREMENT: ...................................................................................................................................................... 20 measuring value of INTANGIBLE asset with indefinite useful life. ...................................................................... 20 FAIR VALUE LESS COSTS TO SELL: ........................................................................................................................ 20 VALUE IN USE:...................................................................................................................................................... 20 INDIVIDUAL ASSET : RECOGNITION AND MEASUREMENT OF AN IMPAIRMENT LOSS ........................................ 21 REVERSAL OF AN IMPAIRMENT LOSS FOR AN INDIVIDUAL ASSET: ..................................................................... 22 CGU: CASH GENERATING UNITS .......................................................................................................................... 22

CORPORATE ASSETS : ........................................................................................................................................... 23 TAXATION ............................................................................................................................................................ 24 DISCLOSURE: Impairments .................................................................................................................................. 24 INVESTMENT PROPERTY ...................................................................................................................................... 28 DEFINITIONS: ........................................................................................................................................................... 28 SCOPE: ..................................................................................................................................................................... 28 DISTINGUISH BETWEEN INVESTMENT & OWNER OCCUPIED PROPERTY. ................................................................................... 28 RECOGNITION & MEASUREMENT: ........................................................................................................................... 28 RECOGNITION : ........................................................................................................................................................ 29 MEASUREMENT: ...................................................................................................................................................... 29 TRANSFERS: ............................................................................................................................................................. 30 TRANSFERS TO INVENTORIES .............................................................................................................................. 30 Transfers from inventoties ................................................................................................................................... 30 TRANSFERS TO PPE .............................................................................................................................................. 30 TRANSFER FROM PPE .......................................................................................................................................... 30 DISPOSALS ............................................................................................................................................................... 30 INTRAGROUP INVESTMENT PROPERTY ................................................................................................................... 30 DISCLOSURES ........................................................................................................................................................... 30 DEFERRED TAX ......................................................................................................................................................... 30

INTANGIBLE ASSETS: IAS38 & SIC 32


Special Notes :
a) In order to be classified as an intangible asset, an item must be identifiable, , controlled by the entity and UUexpected to render economic benefits before it can be recognised as an asset.. b) Any depreciation on machines used to do research or development all gets deducted from DEPRECITAION that goes to the P&L or to Profit before tax Note . i) If any research / R&D costs were EXPENSED, all depreciation like mentioned above that was part of must go into this Research Costs Expensed total in the Profit before tax Note. This depreciation also does not go into depreciation in P&L statement , but to reseach costs expensed ii) Any Depreciation as above on Development cpsts that get CAPITALISED also get treated in same way- ie deducted from depreciation and moved to capitalised Intangible Asssets c) If the Remaining useful life changes allways remember to add all years used already to whats left to get the TOTAL useful life that goes in the Accounting Policy Notes.

INCLUSIONS & EXCLUSIONS


EXCLUSIONS
1) Intangible Assets that are covered by another GAAP statement: a) Inventory : (cannot find this in IAS36 , but comes from textbook- they sayit falls under held for sale type assets and falls under IAS inventory.) i) Intangible assets held as stock to sell , as inventory , in ordinary course of business covered by IAS2 inventory ( not capital) ii) Construction work : research development costs on behalf of others ARE an intangible asset, but since it is inventory, (sa le to others) it is covered by IAS2 inventory. b) Deferred tax assets : by IAS 12 c) Leases : by leases IAS (I think if you leased something to someone else / or an operating lease, not sure) BUT IF AN INTANGIBNLE ASSET IS LEASED after initial recognition it is still covered by this IAS 36 d) Insurers costs : deferred acquisition costs and intangible assets arising from insurers contractual rights under insurance contracts within the scope of covered by IFRS 4 Insurance Contracts. e) Held for sale : Non current intangible assets classified as held for sale f) Goodwill : arising on a business combination (covered by another ias) g) Employee benefits : assets arising from this. Covered by another IAS. h)

INCLUSIONS:
1) 2) 3) 4) 5) 6) 7) 8) 9) 10) 11) 12) Customer lists (not normally but under special circumstances) Import quotas Franchises Marketing rights Intangible asset held under a finance lease: not the lease but the intang. asset held under it Rights in Terms of a Licencing Agreement ; that relate to films, play, manuscripts , patents & copyrights. a) (note : licencing agreement meets definition f a lease, but they are specifically excluded from leases IAS and included in this IAS38. Patents Copyrights Fishing licences Software: is an intangible asset, even though it may be stored on a disk Windows operating system is intangible asset (software) should form part of the computer hardware because they cannot operate separately, but should be depreciated as a separate component because it has a different useful life to computer.

DEFINITION OF INTANGIBLE ASSET:


1) DEFINITION : An Intangible asset is an Identifiable, Non-Monetary Asset without physical presence. a) IDENTIFIABLE: i) In order for an intangible asset to fall under IAS38 , it must be EITHER or BOTH of (1) Separable : from the entity (can be sold, licenced, exchanged etc) (inseparable means it cannot be sold without selling the entity with it) (2) OR Arises from Contractual or Legal rights (matters not whether they can be separated from entity or other legal rights or

not) ii) Goodwill is not classified as a intangible asset because it is NOT separable from the entity and does not arise from contractual or other legal rights Goodwill is covered by IAS Business Combinations and is treated similar to an Intangible asset so it is in effect recognised . (so what is goodwill then , and under what ias does it fall for a non-business combination. .AND could it maybe be an intangibe asset if some kind of goodwill could be sold separately,or if it comes from a legal right somehow?-or NOT?) b) NON-MONETARY: not trade debtors , not current account etc. c) ASSET: must meet definition of an asset : [resource,control, future economic benefits,result past events. ] i) CONTROL: BUT note CONTROL part is hard to see for intangible assets : (1) Ability to obtain future economic benefits from it (2) Ability to restrict access to it by others (a) Restrict access part normally comes from legal right : eg legal duty employees maintain confidentiality, restraint of trade contract, copyrights. (b) right of a right is not a necessary condition for control (3) Eg customers is not , unless 1-they are contractually bound + 2-it can be sold where similar business practice exchange agreements can show this to be possible., ii) FUTURE ECONOMIC BENEFITS: (1) Probability assessed by REASONABLE +SUPPORATBLE assumptions by mngmnt based on best estimate of economic conditions to exist over useful lifetime of asset, based on evidence at initial recognition, giving greater weight to external evidence. (2) Reduction in costs or inflow of money etc. iii) Plus add this one from Recognition Criteria to include everything : (b) the cost of the asset can be measured reliably.

RECOGNITION
1. RECOGNITION: IAS38. 18 The recognition of an item as an intangible asset requires an entity to demonstrate that the item meets: a. (a) the DEFINITION of an intangible asset i. Definition : An Intangible asset is an Identifiable, Non-Monetary Asset without physical presence. b. (b) the STANDARD RECOGNITION criteria for everything.(which are as follows:) i. An intangible asset shall be recognised hif, and only if: 1. (a) it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity; and 2. (b) the cost of the asset can be measured reliably. : Main Extra One ii. 22 An entity shall assess the probability of expected future economic benefits using reasonable and supportable assumptions that represent managements best estimate of the set of economic conditions that will exist over the useful life of the asset. iii. 23 An entity uses judgement to assess the degree of certainty attached to the flow of future economic benefits that are attributable to the use of the asset on the basis of the evidence available at the time of initial recognition, giving greater weight to external evidence.. Useful Lives : If a number of intangible assets make up a brand, then they may be recognized as a single asset only if their useful lives are similar. Together with another asset :If an intangible asset is only SEPARABLE if it goes together with some other asset, contract or liability , it only gets recognized together with that item as 1 item.(components of 1 asset) SUBSEQUENT EXPENDITURE on intangible assets can be capitalized but a. 1st :Only rarely will subsequent expendure on asset meet this requirement above b. 2nd: it is often difficult to separate subsequent expnses from the business as a whole, c. It must meet same criteria as above. d. Examples which CAN (these are very few): ? (maybe if you made it bigger eg : small software now grows to be big expensive software maybe ?) e. Examples which CANNOT: eg: monthly licence fees after an asset is being used already are NOT capitalised f. After an Intangible Asset is in a condition to be able to be used :as management internded, additional costs are NOT capitalised any more except in special circumstances- same as other assets. So eg: monthly licence fees after an asset is being used already are NOT capitalised . Future capitalisation of subsequent costs is Unlikely but possible since it is often difficult to separate it from normal operating costs of the company ALLOWED: a. Allowed examples of funny intangible assets on acquisition OF A BUSINESS COMBINATION: (not sure about these double check) 1. Customer or order backlog 2. Existing contracts with customers 3. Construction permits 4. Unpatented technology 5. Trade secrets

2. 3. 4.

5.

6. Copyright protected or NOT databases. 7. Franchise agreements 8. Audiovisual material 9. Pictures/photos 10. Customer contracts or relationships 11. Internet domain names b. PREPAYMENTS OF SOME TYPES ARE ALLOWED?( HOW/WHICH?) c. Customer lists (not normally but under special circumstances EG IF LEGAL RIGHT like contractually bound + if similar transactions of these being sold lately as eveidence + active market) d. Import quotas e. Franchises f. Marketing rights g. Intangible asset held under a finance lease: not the lease but the intang. asset held under it h. Rights in Terms of a Licencing Agreement ; that relate to films, play, manuscripts , patents & copyrights. i. (note : licencing agreement meets definition f a lease, but they are specifically excluded from leases IAS and included in this IAS38. i. Patents j. Copyrights k. Fishing licences l. Software: is an intangible asset, even though it may be stored on a disk m. .

6.

NOT ALLOWED: a. Windows operating system is intangible asset (software) should form part of the computer hardware because they cannot operate separately, but should be depreciated as a separate component because it has a different useful life to computer

MEASUREMENT
1) MEASUREMENT: An intangible asset shall be measured initially at cost.

INITIAL MEASSUREMENT
1) MEASUREMENT: An intangible asset shall be measured initially at cost. (at fair value- if no costs exist somehow) (1) After an Intangible Asset is in a condition to be able to be used :as management internded, additional costs are NOT capitalised any more except for special circumstances - same as other assets. So eg: monthly licence fees after an asset is being used already are NOT capitalised . Future capitalisation of subsequent costs is Unlikely but possible since it is often difficult to separate it from normal operating costs of the company . 2) THE CRITERIA OF IAS 38 FOR THE MAIN WAYS AN INTANGIBLE ASSET CAN BE INITIALLY MEASURED ARE: a) COSTS THAT MUST ALLWAYS BE EXPENSED : (1) Expenses on start up of a business eg legal & secrestarial. , or to open a new facility, or launch new products or services. (2) Training (3) Advertising / promotional (4) Relocating / reorganizing b) PREPAYMENTS : they are an asset until you obtain the right to access the related goods or receive the service.( are they Intangibke assets per definition? Do tyhey fall undere ias38 and in intangibele items line item in the SFP? Why do they have this here??? c) SEPARATE ACQUISITION METHOD : i) Capitalisation ceases when goods are in a condition necessary to operate as mngmnt intended. ii) If credit is granted : interest portion (deemed) of price should be discounted and charged as separate finance interest over the period, it can only be Measurement if it meets the requirements of IAS borrowing costs. iii) Costs that can be Recognised : (1) Normal same as for PPE eg: (a) Price AFTER trade rebates (b) Import duties + non-refundable import taxes taxes, (c) Employee benefits (certain one s same as PPE ones) (d) Professional fees (e) Testing(same as PPE) iv) Costs that cannot be 5easurement: eg: (1) Costs of introducing a new service or product (2) Admin & general overhead costs (3) Costs from time after If operating as mngmnt intended, but before actually brought into use. (4) Initial operating losses

j d) AS PART OF A BUSINESS COMBINATION i) If it does not have a value already , then Measurement is at FAIR VALUE . ii) Both the Probability & reliable measurement requirements are always considered to be satidsfied for intangible assets acquired like this(you do not have to go check again) iii) Goodwill :Anything that is NOT identifiable as an intangible asset must be seen as Goodwill on acquisition. iv) RESEARCH COSTS: they are usually expensed and not capitalized with other development costs, but when acquired with a business combination, they may be capitalised as long as they meet the definition of an asset and are separatley identifiable.(IAS38 say Research & Develop. Cost- so not sure if they must go together or can research costs be separate to be recognised ?) (their old research costs) . BUT after acquisition any new research costs must again be expensed from then on.(so allowed just once at acquisition, for some weird reason!) v) Useful Lives : If a number of intangible assets make up a brand, then they may be recognized as a single asset only if their useful lives are similar. vi) Together with another asset :If an intangible assest is only SEPARABLE if it goes together with some other asset, contract or liability , it only gets recognized together with that item as 1 item.(components of 1 asset) vii) Allowed examples of funny intangible assets on acquisition: (not sure about these double check) (1) Customer or order backlog (2) Existing contracts with customers (3) Construction permits (4) Unpatented technology (5) Trade secrets (6) Copyright protected or NOT databases. (7) Franchise agreements (8) Audiovisual material (9) Pictures/photos (10) Customer contracts or relationships (11) Internet domain names e) PRE- PAYMENTS i) Prepayments must be recognised as an asset,but say you order catalogues- on the date they are ready to be collected you must expense the pre-payment not after, since they are available / delivered on that day. (Not sure if they must go in the table of intangible assets or not?) BY WAY OF GOVERNMENT GRANT (1) If given , or very cheap ,(eg airport landing rights) then you can choose to recognize it at : EITHER (a) Fair value ( (b) OR Nominal amount as per IAS Gov Grants. + any capitalisable expenses (c) TxBk says if at fair val- then no capitalized expenses allowed then, so its not overvalued- BUT if at a Nominal eg R1-0 then all expenses that may be capitalized must be capitalized to the asset) (d) NOT cost they call it fair value in the book!

f)

g) EXCHANGE / BARTER i) Same rules as for PPE : (1) It seems from the discussion, that the FAIR VALUE (not carrying amount)OF ASSET GIVEN UP IS USED to measure what you paid in monetary terms for the asset received. But if fair value is not known or if the fair value of the asset received is more evident , then use that value instead. If either 1) no fair values are known,- or 2) if the transaction lacks commercial substance - then use carrying amount of asset given up. If you have a problem with this because you say you made more of a profit/loss here than what comes out from this process, then you can have the new asset revalued in your books, AFTER you have booked it /initial recognition in the manner prescribed . h) INTERNALLY GENERATING THE ASSET i) GOODWILL (1) Internally generated goodwill is NOT , it is not 1-separable 2 legal rights .Goodwill that is aquired in a Business Combination does not fall under IAS38 , it falls under IAS Business Combinations, - so it is recognised as an asset, but under a completely different set of rules. ii) INTERNALLY GENERATED NEWSPAPER MASTHEADS, BRANDS, PUBLISHING TITLES, CUSTOMER LISTS, SIMILAR ITEMS ( in additional docs book C to IFRS book) (1) These may NOT EVER , as their costs cannot be distinguished from entity development as a whole , it is not SEPARABLE, nor LEGAL RIGHT. : Irrespective of whether they were internally generated or externally acquired. Nor may subsequent expenditure be capitalized . iii) OTHER INTERNALLY GENERATED INTANGIBLE ASSETS: (1) After an Intangible Asset is in a condition to be able to be used :as management intended, additional costs are NOT capitalised any more- same as other assets where only in special circumstances it is capitaised. So eg: monthly licence fees after an asset is being used already are NOT capitalised . Future capuitalisatiopn of subsequent costs is Unlikely but pos sible since it is often difficult to separate it from normal operating costs of the company .

(2) In order to asses if interbally generated may be recognized, and at what cost, one must separate them into 2 sections : a research phase and a development phase. If it cannot be separated it must be deemed to be a research phase only which means it gets written off. (3) RESEARCH PHASE :EXPENSE :see definition :basicly original & planned investigation for new knowledge/understanding always done as an EXPENSE only ever. (4) DEVELOPMENT STAGE (a) See Definition ; basicly application of research to a plan for production prior to start of commercial production : (b) Note : it ends up only the further development & testing of a FINAL alternative is allowed, if you are still looking for alternatives it is not allowed. (c) Eg : construction of pilot plant , or Design & testing of a chosen alternative etc. (d) Depreciation on Machines MUST be capitalized.. (i) Depreciation: 1. CAPITALISATION : depreciation on machines used to do , allocated to CAPITALISATION of development costs, must be deducted from depreciation, and in profit before tax note under the deprec. line item, in separate line , Blocked Off : say less 1200 allocated to capitalization of development costs. dont forget ,and this goes into capitalized development costs. So Depr. is shown in Profit before Tax , and the total is net of these costs , but blocked underneath it shows them clearly what was neted out of the depreciation. Note: in PPE table this amount is NOT deducted, it is ignored- since that just shows what the machine is worth. If capitalized to the Intangible asset it IS shown in the Intangible Assets PPE table as capitalized . Does not show in SCI in depreciation line either taken out. I THINK you take it out of depreciation in the SCi -fin stats same as cost of sales depreciation on machines etc. (e) Entity must demonstrate ALL of the following before it can be recognized :. IAS 38.57 : (i) the technical feasibility of completing the intangible asset so that it will be available for use or sale. (ii) its intention to complete the intangible asset and use or sell it. (iii) its ability to use or sell the intangible asset. (iv) how the intangible asset will generate probable future economic benefits. (v) Among other things, the entity can demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset. (vi) the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset. (vii) its ability to measure reliably the expenditure attributable to the intangible asset during its development. (f) EXPENSES initially taken to SCI may not be capitaised later. ALSO , if these were exposed in the INTERIM STATEMENTS, they may NOT be capitalized either. (g) You may not include : training staff to operate, inefficiencies in the process (wastage etc). (h) You may include : admin overheads etc if directly related to project. (Selling expenses if done to get it ready for use eg marketing expenses to demonstrate existence of a market.: not sure about this one) (5) WEB SITE COSTS : SIC32: (a) If any ISP hosts the website, all expenses from this are regarded as an EXPENSE only. (b) Websites for : storing customer details(internal use) or selling of products(external) can qualify. But if primarily for advertisng & promoting your goods, then it is not allowed for some reason- being cannot prove future economic benefits flowing from it. (c) The process must be divided into the research or development stage to see what part is capitaisable. SEE SIC32 appendix

SUBSEQUENT MEASUREMENT:
1) COST MODEL: a) AFTER initial recognition, it is carried at costs less amortization or impairment losses. 2) REVALUATION MODEL: a) after initial recognition it may be carried at a new revalued cost less amortization or impairment losses. b) Revaluations MUST be done in an ACTIVE MARKET : (see definition in IAS38) there are not very many of these around (these assets are 1-not very homogenous nor 2-publicly available common prices , except maybe fishing licences ,+ manufacturing quotas. c) Revaluations must be done frequently (to maintain fair value , eg yearly) d) All assets in same class must also be revalued simultaneously, if one of them does not have active market , it may be that one alone at cost . e) Other Com inc. + Revaluation Surplus : thses assets get treated exactly the same as PPE rules , incl. net & gross method etc. , and transferring Reval .Revseve to retined earnings etc. f) Note : (not sure how this works : is it true?not sure yet! Surely it must be transferred somewhere) the Reval. Reserve does not need to be transferred on sale NOR for depreciation, it can be kept as is as a Capital replace ment reseve ,or even transferred to another reserve as asset replacement reserve when sold /depreciated etc.

INDEFINITE USEFUL LIFE


1) 2) 3) 4) Eg patent that can be renewed every 20yrs , at little cost. Indefinite means can end but not in foreseeable future. , that is different to infinite. If you must update eg a list of customer names every year it is NOT indefinite . They MUST NOT be amortised only Impairment testing should be done yearly. ,REVIEWED ANNUALY: this must be reviewed annually, and if not indefinite anymore it must be changed by Change in accounting

estimate procedure.

FINITE USEFUL LIFE


1) Amortisation is charged to inventory if the asset is used to produce inventory, otherwise it is charged to expense in P&L as amortization expense. 2) It is done the same as depreciation, no different.

USEFUL LIFE
1) Either period deemed available for use, or no. of production units . 2) If legal right s may be renewed, it is only part of useful life if 1-costs insignificant to renew , 2-evidence it should happen see IAS for details. 3) Useful life reviewed yearly , any change is a Change in accounting estimate.

RESIDUAL VALUE:
1) (see definition) is the estimated amount entity would CURRENTLY obtain from disppsal after deducting disposal costs, if asset were already at the age and condition expected at end of useful life. 2) jIT IS ASSUMED TO BE zero for intangible sssets, UNLESS exceptionally : a) Commitment by 3rd party to purchase it exists b) Actve Market . 3) Reviewed yearly change is a Change in Accounting estimate. 4) If increases to above carrying amount, amortization ceases until it drops below.

AMORTISATION METHODS
1) Use straight line if cannot choose , or else reducing balance , unit of prodution etc. 2) Begins when asset is AVAILABLE FOR USE , Ends when classified as held for sale , or derecognosed.

IMPAIRMENTS
1) IAS 36 impairment is used to do this. 2) Following is important: a) Indefinite useful life : tested annually for impairment, and whenever there is an indication of impairment as well b) Not yet available for use : annually c) All other : only needs to be assessed at reporting date to see if there is any INDICATION of impairment else never impairment tested..

RETIREMENTS AND DISPOSALS


1) To be derecognized IMMEDIATELY WHEN a) on disposal b) OR the date when no future economic benefits are expected from its use or scrap value.(rule in IAS38) 2) Proceeds are a GAIN (CGT) . recognized at cash value of payment , and if credit was granted it must be taken out and treated as a finance cost.

IF SEPARATE COMPONENTS ARE REPLACED / ETC.


1) If item has components , same as a helicopter engine + body is separate , and these get replaced, it works exactly the same as with PPE .

TAXATION
1) Income tax act : 11B = research & develop. 11g(C) trade marks, copyrights etc. 2) Deferred tax temporary difference etc work exactly the same as for PPE.

FINANCIAL STATEMENT PRESENTATION:


2) ACCOUNTING POLICY : a) Put every policy under a small subheading eg : RESEARCH COSTS, DEVELOPMENT COSTS for internally generated intang.assets , Property,Plant & Equip , Amortisation ,Impairment. b) If Useful lives are definite or indefinite. For each class of asssets c) Amortisation method used

d) , Any other policy eg Cost /Revaluation methods, Net /Gross methods / whether Reval.Surplus. goes to Ret.Earn at sale or depreciation if That research costs are expensed when incurred. That development costs are capitalized if all recognition requirenets are met(per example in textbook not in IAS) .etc.etc etc. any you can think of .(does this also have to be there, like for PPE,???) 3) PROFIT BEFORE TAX Note to Fin Stats. (used by many IASs) (note: STUDY THIS : IAS does not tell you WHERE to put this) a) Amortisation expense for the year : if this is GIVEN IN QUESTION AS part of any INTERNALLY GENERATED Intang..Assets,then that part of it gets shown under and added to DEVELOPMENT COSTS, since it is blocked off underneath under the DEVELOPMENT line item, in separate line , Blocked Off : say less (1200) from development costs. + REM for a block, all the amounts making it up must be in the block, so any plus and any minus making up the total must go in block, then these other under in brackets to show they were deducted. If there is no part of amortization that is left after this, then no separate heading for amortistion is needed, the one in the block is enough. But if some part of amortization is still left, that was not part of CAPITALISED Dev. Costs, then Amortisation costs must get a separate heading , and be done same as depreciation explained below (see below how that is done) b) Amortisation : if any part of it goes is apportioned to other line items, it must be done same as depreciation is explained below.(blocked) c) All research costs expensed for the year separate , incl blocked below any depreciation impairment,amortisation that is incl. in it. d) All development costs expensed for the year. , incl blocked below any depreciation, impairment,amortisation that is incl. in it. e) Impairment loss : do this exactly the same as for depreciation& amortization, when part if it goes to other line items, (see above) f) Depreciation: i) on machines etc, , that was allocated to research&development costs as an EXPENSE , must be taken out of depreciation, and put into research costs or dev.costs , and in profit before tax note under the deprec. line item, in separate line , Blocked Off : say less 1200 allocated to research costs. dont forget ,and this goes into research costs then .+ REM for a block, all the amount js making it Hup must be in the block, so original total depreciation must be first line of block, then these other under in brackets to show they were deducted. ii) on machines, allocated to CAPITALISATION of research costs, must be deducted from depreciation, and in profit before tax note under the deprec. line item, in separate line , Blocked Off : say less 1200 allocated to capitalization of development costs. dont forget ,and this goes into PPE capitalize development costs . 4) SCI : a) (A)The line item in which amortization is included. b) (B)The amortization charged in arriving at amortization for the period( these 2 (A) +(B) seem to relate to SCI line item and PPE table line for amortization or to Profit before tax note for the year) 5) PPE TABLE : do a separate one for Intangible Assets (for current & comparative period , on top of each other or next to each other) a) A separate table, same as for PPE ,must be made. The different classes should be distinguished by i) Type of asset class+ ii) Internally or Externally generated. ( same class can have 1 heading for each of these) b) Line item must be there , in middle of table , for (similar to PPE table) : (reconciliation of carrying amount at begin & end Yr. is what IAS calls it) i) Amortisation ii) Capitalized Development Costs iii) Reva;uations Incr. or Decr. + Impairment losses from Other Comprehensive income iv) Impairment losses from Profit & Loss v) Impairment losses REVERSED in P&L vi) Disposals vii) Additions : showing separately 1- Internally Generated 2- From Business Combinations 3- Acquired Separately . viii) Other changes in carrying amount during the period (any and all must show somewhere in Fin Stats. c) A reconciliation of carrying amount at begin & end Yr. of Exchange difference from translating FinStats AND of foreign operations into the presentation currency d) UNDER PPE TABLE :in words : i) INDEFINITE useful life: assets In a separate line item , or under PPE table : if any INDEFINITE useful life assets : carrying amount + reason supporting , incl. factors that caused it to have a indefinite life. ii) Material ones only (very): to entity specific ones : a line with carrying amount, remaining amortization period. iii) Government grant if you got them from this : details (see IAS 38) iv) Any Pledged as security details (see IAS 38) v) Contractual commitments for acquisition of any new ones: (see IAS 38) 6) REVALUATED ASSETS : a whole table with various things must be shown if there are any of these (see IAS 38) 7) SOME OTHER NON-COMPULSORY things see (see IAS 38)

INTANGIBLE ASSETS : Internally generated Not Internally Generated

Class 1: Patents: jAt Cost Gross Carrying Amount begin year: Accumulated Amortisation & Impairment begin Year: Additions : Internal Development Additions: Aquired Separately Additions: Business Combinations Impairment : Losses in OCI Impairment :Reversed in OCI Impairment : Losses in P&L Impairment :Reversed in P&L Net Total Revaluations for the year Amortisation for the year: Transferred to Held for Sale Transferred to Held for Sale Disposal Groups: Net Foreign Exchange differences Any Other Changes Gross Carrying Amount end year: Accumulated Amortisation & Impairment end Year: xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx 10000 200

Class 2: Brands: Revalued xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx

Class 3: software Revalued Xxx Xxx Xxx Xxx Xxx Xxx Xxx Xxx Xxx Xxx Xxx Xxx Xxx Xxx Xxx Xxx Xxx

Class 4 : Under Develoment :Revalued xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx

REVALUATION OF INTANGIBLE ASSETS : Class 4 : Under Develoment :Revalued

class
Date of Revaluation Carrying Amount Revaluation What Carrying Would Have Been at cost

Class 1: Patents: At Cost

Class 2: Brands: Revalued

Class 3: software Revalued

REVALUATION SURPLUS (INTANGIBLE ASSETS) INTANGIBLE ASSETS Begin of Period Revaluations Patents Revaluations Software End of Period xxxx xxx xxx xxxx

Restrictions on the distribution of the balance of Revaluation Surplus of Intangible assets to sharholders - it may / ( may not) be distributed to sharholders.

GOVERNMENT GRANTS IAS 20 , SIC10


SPECIAL NOTES :
1. If a GovGrant relates to compensating for losses already incurred, or to giver immediate financial support to the entity : it is NOT deferred NOR deducted from the Carrying amount of asset. It is recognised IMMEDIATELY AS INCOME FOR THE COMPANY. This is because the logic behind deferred income account, or deducting from carrying amnt of asset (here they say that you save the decreased deprecitaion charge each year that is your deferred income ) is that you are earning the grant each year the deferred account reverses by doing something -there is NEVER no reason for a government granting a grant- you will allways be earning it over a period or paying it back by doing what the government wants you to do eg create jobs, or similar reason so if there is NO reason, then it must be recognised immediately per textbook.

SCOPE:
1. EXCLUSIONS: a. Gov grants involving benefits in determining taxable profit or tax loss eg: i. Tax benefits (tax holiday, investment tax credits , accelerated deprec. allowanceetc) ii. Gov. participation in ownership of entity iii. If covered by IAS agriculture eg grants related to biological assets. iv. Special problems of gov.grants to do with changing prices , etc. v. Grants which cannot reasonably have a value placed on them or those which cannot be distinguished from normal trading transactions of entity

Defintions :
2. 3. 4. See IAS 20 , on difference between eg gov. assistance and gov . grant , or asset related or income related Note : any grant which is NOT asset related, is then seen as INCOME related.

RECOGNITION:
1. RECOGNITION : a. ONLY WHEN THERE IS REASONABLE ASSUREANCE THAT: i. Entity will comply with the conditions of the grant ii. The grant will be received. (grant should be accounted for as a liability if there is uncertainty as to whether conditions will be complied with by the entity) MEASUREMENT:

2. 3.

GENERAL ACC. ASPECTS


1. 2. LIABILITY :Grant should be accounted for as a liability if there is uncertainty as to whether conditions will be complied with by the entity- see recognition rule. GOVERNMENT CONDITIONS OF GRANT : because grants are seldom without a condition that the entity must comply with (like work in a specific area), ALL grants, no matter if with conditions or not, are to be seen as : ( because you earned it by complying) a. Seen as income , on asystematic & rational basis, over the periods necessary to match the grants with related expenses which they are intended to compensate. ( matching principle must be applied to theis) b. Should NOT be credited directly to shareholders interests. RECOGNITION IF ALL COSTS ARE ALREADY INCURRED : Thus , due to the abpove, i. if all the costs / losses have already been incurred that the grant is meant to compensate for , ii. OR if it is financial assistance with no future conditions to comply with (so not related expenses will ever occour in return for the help/to comply with a condition) b. then the income must be recognized immediately, and no part of it deferred to be recognosed in any future period ( matching principle)

3.

GRANTS RELATED TO ASSETS:


1. Note: A grant that is accounted for by deducting from asset PPE account HAS A ZERO INCOME THAT YEAR : so it does not even

appear as one cent of income in OTHER INCOME. Only the future less depreciation is where it creeps in BUT NEVER in its life as incomein P&L at all even once. A deferred income accounted grant only gets the transfer from Def Inc.Acc to Gov Grant income as the yrs income not the whole grant! 2. ARE :grants whose primary condition is a entity should purchase ,construct or other wise aquire long term assets. 3. REDUCTION OF LIABILITY : grants are accounted for in the same way, whether granted as a reduction in liability you owe gov. or as money given to you. 4. Aid Packages :For certain aid packages , each part of package may be treated differenty using different methods. 5. MONEY GRANTED TO BUY ASSET : accounted for by: a. Normally has conditions attached which must be complied with b. If LAND is the asset aquired, since it is NON_DEPRECIABLE, therefore one may not recognise it using the deduct from carrying amount method, you have to use the DEFERRED ICOME method, cause there is no depreciation to act as the deferred income generator . (see heading above) c. ACCOUNTED FOR BY: either i. SUBTRACT GRANT DIRECTLY FROM THE COST of the asset in your books: , 1. this reduces the carying amount , and reduces depreciation as well .It will create a more of deferred tax asset than before (if possible with SARS for that asset class of course) ( but per textbook, keep grant in a deferred income account until the day the asset is bought) 2. Journals : a. PPE & Depreciation :: It reduces cost price of asset in books, ALSO in PPE table-BUT IN FIRST YEAR first : put original PPE price AS ADDITIONS , then after that deduct Gov Grant in same way you would deduct deprec. or similar - see example below asset starts at 150 000) , : and therefore each year depreciation is a bit less of course than otherwise would be AND THIS DEPR DIFFERENCE IS WHERE THE EARNINGS FOR YOUR WORK COMES IN EACH YEAR . So Dr Bank Cr Deferred Income account to store it in till you go buy the asset you got the grant for, then when YOU go buy asset , account for it at its cost price , but then transfer from Deferred Income to asset account, to lower its price/asset value. b. It never goes to any income account like grant received at all , because this is a CAPITAL method only. PPE TABLE : IF GRANT IS DEDUCTED FROM ASSET

ii. 1. 2. 3.

DEFERRED INCOME ACCOUNT set up a deferred income account , and recognize eiethr; Depreciable Assets :recognize grant as INCOME over USEFUL LIFE of of asset Non-Depreciable Assets : identify the periods over which the entity will be burdened with the conditions of the Go.Grant. then divide up and recognize the grant AS INCOME over these periods . Journals : a. Grant Received Income acc: : this is a income account in the SCI , and every year a portion is transferred to here , to show as profits for the year, thats it. (on original recipt of grant it goes to deferred income , not to this one at all b. Deferred income Acc: this is a Liability Cr account , opposite to a bank account side (Dr bank Cr Deferred income ) . It shows in the SFP and every year a portion is transferred to grant Received income account in the SCI . thats it . c. PPE & : Deprecdiation :this grant does not affect depreciation in any way. The asset stays at it original price paid for it, and acc. depr. and depr. carry on as per 100% usual .

6.

4. ASSET GIVEN TO YOU: eg landing rights or broadcasting licence a. accounted for by: either i. asses its FAIR VALUE then account for asset AND grant at this value ( both get same accounting treatment below) ii. OR record asset and grant both at a nominal value. This is say at a nominal value of R10 , and thats it. Book says no further accounting entries will be neccessary . ( Question: not sure if it must also get a deferred income account of same nominal value to be written to government grant received account each year? ) .

7.

Journals : a. Grant Received : this is a income account in the SCI , and every year a portion is tyransferred to here , to show as profits for the year, thats it. (on original recipt of grant it goes to deferred income , not to this one at all b. Deferred income : this is a Liability Cr account , opposite to a bank account side (Dr bank Cr Deferred income ) . It shows in the SFP and every year a portion is transferred to grant Received income account in the SCI . thats it . c. PPE & : Deprecdiation :this grant does not affect depreciation in any way. The asset stays at it original price paid for it, and acc. depr. and depr. OR amortization carry on as per 100% usual . (a licence would get amortised .) PPE TABLE : IF GRANT IS DEDUCTED FROM ASSET

1.

GRANTS RELATED TO INCOME :


1. These grants may be either : a. DEDUCT DIRECT FROM EXPENSES which they are meant to help with . OR b. RECOGNISE AS A INCOME in form of grant received income in SCI. JOURNALS : a. DEDUCT FROM EXPENSES METHOD : i. First Dr BANK CONTRA Cr Deferred Income Account ii. Each period you transfer the portion for that period from DEFERRED INCOME account to the expense a ccount to which it must help. This REDUCES that expense for the year Eg wages was 300 , now it is 100 from a 200 grant. The journal shows : DR Deferred income CR Expense Account . Finished and klaar. b. RECOGNISE AN INCOME METHOD i. First Dr BANK CONTRA Cr Deferred Expenses Account ii. Each period you transfer the portion for that period from DEFERRED INCOME account TO grant Received income in SCI : Other Income . Finish and klaar. NOTE : the grant must be apportioned to costs equally per year. So if you only get 100 , a. year 1 costs = 200 b. year 2 costs = 500 c. year 3 costs = 400 d. then it is 100 / (200+500+400) X 200 for year 1 , and X 500 for year 2 and X 400 for year 3.etc etc EG SALARIES you know will increase by 5% each year etc.. see example of complex salaries on page 328 gaap text. SCAN it in !

2.

3.

4.

REPAYMENTS OF GRANTS: MUST see examples in gaap book


1. 2. 3. POSSIBLE REPAYMENT: If it is unsure wheter a grant must be repayed or not , it must be trted as a liability , UNTIL you are sure it needs not get paid back. WAS GRANT THEN LATER BECAME REPAYABLE : grant that was a grant, but then later becomes repayable, should be trated as a Change in accounting estimate per IAS 8. For each type of grant there is a different repayment method: a. REPAYMENT OF INCOME GRANT: tricky : see pg 324 GAAP for examples. i. Change in Accounting Estimate : This whole thing is to be treated as a change in accounting estimate ONLY So you : Current Yrs Change: will include ALL previous yrs entreis that had to be reversed / were used as an income last yrs all gets charged as an expense to P&L this year PLUS any reduction in what would have been recognized as grant income in current year (say only part was to be refunded): The Furtur Effect is the difference in next years old-

new amount to be recognized. ii. JOURNALS :If any part was used in prior years , and if all or only part must be repaida. IF only a potion must be paid back : FIRST work out by: divideng TOTAL grant ACTUALLY received by TOTAL Yrs it ever has or /will apply to to get a new yearly Grant Recived figure that should have been used all the years to now and still into the future. b. Now you make a journal this year as an expense to charge last yrs wrong usage to this yrs P&L : Grant Repayable Expense CONTRA Deferred Income Acc. Then Deferred Income Acc CONTRA Gov Repayment Liability for what must be repaid (all or part or whatever) Then if there is anything left it gets apportioned to future yrs using calc done at beginning. iii. JOURNALs: 1. No 1: Repayable Grant expense(used up reversed) CONTRA Dr deferred income account 2. Then no 2 : Dr deferred income account CONTRA> CR Grant Repayable to Government Liability Acc as a creditor. REPAYMENT OF ASSET GRANT IF ASSET REDUCTION METHOD WAS USED: See gaap book example for tricky parts. i. Just: 1. first INCREASE asset to original cost GRV CONTRA Gov Grant Repayable expense AccP&L 2. 2nd work out all depreciation up to date of becoming liable for the refund and charge to Gov Grant Repayable expense AccP&L CONTRA Acc depr Then carry on with depreciation as normal from then on. ii. : Change in Accounting Estimate : This whole thing is to be treated as a change in accounting estimate ONLY The current years change will be all prior yrs deprec. and future change will be future yrs depreciation . . i. Same as above- just use asset account ii. Deferred IncomeAccount method ; if this method was used , 1. : a. This is the only really funny one out of all 4 types : you calc. what your original periodic allotyment from deferred income account would have been , then anything EXTRA allotted to former years gets charged to P&L immediately as an reversal of former grant income) :DR Repayment of Grant Income CR Bank AND : DR Reversal of EXTRA Grant Income Recognised in former yrs CR Deferred Income Account. b. New allotment per year : now start allotting only this new figure to grant income each year. c. Dr bank Cr Deferred income with penalty , and any excess goes to P&L as an expense , unless ,same as the first expense above(they could even be done in the same one shot amount together. d. All change in estimates stuff must be done now too , whatever they are. iii. Reduce Asset Carrying amount method : 1. PPE account : increase the asset cost price by this amount , CONTRA expense repay gov. grant expense acc. 2. Depreciation ; you must immediately work out what the deprecition on the asset would have been if the grant was not ever given , and charge that to depreciation (and Acc .depr. of course) immediately. IAS 8: CHANGE IN ACCOUNTING ESTIMATE : i. eg: the change in estimate to be disclosed is 150 000, which is the difference between the expense recognised of 97541 ( repayment of gov grant in P&L , other part of deferrd income account used up) and the income of 52549 that would have been recognised if the grant had not been cancelled. ii. Eg: the chamge in estimate amoutns to 15 000 being the 10000 to P&L as an expense in respect of previos years incorrect entry, and 5000 less in respect of current year and Future effect is 5000 in respect of the following future year. iii. Eg The change in estimate consists of 20000 which is the increse in depr. in current year from 42500 to 47500, and 10000 in respect of past years 1 and 2, as well as 5000 increase in future year 4.

b.

4.

b.

SPECIFIC FORMS OF GOVERNMENT GRANTS:


1. LOW INTEREST RATE LOANS: a. The grant portion is recognized over the PERIOD OF BENEFITS or PERIOD OF FULFILLING CONDITIONS OF GRANT that the grant provides. So if for a factory building in rural area- then the period of this is the useful life of buildingeg 40 yrs etc. NOT for the duration eg 5 yrs of the interest free loan that was the government grant. So you write in the Defrred Grant Income acc over 40 yrs, to Grant Income Acc. (you do not reduce the loan expense over the period of the loan as seems logicalit seems unless there is a direct condition in gov grant that says grant was for interest expense) b. Any benefit received from a loan is calc. at fair value and regarded as a Grant. It is then treated as explained below. c. If it is a loan for an asset, it can be treated using the reduce asset balance method. d. NOTE IN GAAP BOOK TRICKY WAY OF DOING CALCULATOR TO GET DIFFERNCE BETWEEN FAIR VALUES OF LOAN AT DIFFERENT RATES: i. PMT what you pay FV repayment at end i/y interst rate of other loan where pmt is the interest on this loan PV = what the PMTs and FV is worth at other rate today so minus this from what you got ie the loan .

e. f.

SEE COMLEX JOURNALS & yrly AMOUNT IN gaap BOOK. DEFERRED INCOME BASIS : i. Journals : 1. First : calc. the loan at its PV fair value : ie as if there were no grant at all. This will be the PV of all interest and all the principle repayments . This goes to Long term loan account 2. Second : calculate the government grant portion of this loan : ie loan in cash given to you, minus the PV portion you just calculated. That is the Grant portion . Dr Bank (what you got in cash) Cr Long Term loan Acc. CrDeferred income account Grant portion goes to Then follows a very complex order of journal entries till , of finance costs each year , etc see txt book. NOTE : the deferred income transfer to grant income account SCI P&L each year is not over the loan period, but over the useful life of the asset. Eg building useful life = 20 yrs etc. NOT loan repayment period. 5. See example pg 330gaap book :Scan it in CAPITAL METHOD LOANS: 1. First : calc. the loan at its PV fair value : ie as if there were no grant at all. This will be the PV of all interest and all the principle repayments . This goes to Long term loan account 2. Second : calculate the government grant portion of this loan : ie loan in cash given to you, minus the PV portion you just calculated. That is the Grant portion . Dr Bank (what you got in cash) Cr Long Term loan Acc. Cr PPE (Grant portion goes to REDUCE asset cost in books) 3. 4. 3. 4. 5. Then follows a very complex order of journal entries till , of finance costs each year , etc see txt book. See example pg 330gaap book :Scan it in

g.

2. 3.

FORGIVABLE LOANS : treated If there is reasonable assurance that the terms of the loan will be met by both parties, it is treated same as above. OTHER FORMS OF GOV.ASSISTENCE: a. Eg : gov. procurement contract , free technical assistance , guarantee of loans, price preference on Gov tenders of say 10%, b. No value should be attempted to be placed on these other forms of assistance, just the details must be disclosed in the not es: ie 1-nature + 2-extent + 3-duration. In government assistance notes , under its own sub heading in that note : called Other Forms Of Gov Assistence.

TAX SPECIAL IMPLICATIONS


1. ALL GOVERNMENT GRANTS , : pay tax 100% immediately unless stated otherwise, whether accounted for on the CAPITAL or INCOME basis (less from asset cost OR deferred income account ) MUST be taken 100% in consideration for TAX in the period they are received or become receivable(if you can raise Gov.as a creditor ). So , even though income might be only recognosed over a period of 10 years etc, you must actually pay SARS tax on the whole amount immediately when you get it, no matter which method you use. Deferred Tax : if Tax is paid on the Whole amount of grant to SARS immediately , the following deferred tax implications arise: a. INCOME METHOD : The Deferred income Account is deemded to be Revenue Received in Advance for deferred tax base calc. So if there is any money left in the deferred tax account, it will have a tax base of ZERO (you already pay tax on the full amount in same period you get the grant-and tax exempt grants will also be zero-see definition of tax base of income received in advance) , and it will thus create a tax asset .(negative temp. difference is a asset!) b. ASSET METHOD : the only deferred tax implication will be a different depreciation rate between you and sars. That is all no deferred income or anything else at all finished and klaar.

2.

DISCLOSURE
1. In SCI a. , if recognised as income over 20 years , it should be separate from depreciation .,under its own name , and not set off : . b. Under Other Income , as Gov Grant Income and Account. STATEMENT OF CASH FLOWS : deals with gross amounts so , it does not matter if the grant is deducted from cost of assets, or recogniosed over 50 years , that year you get it goes in as under : INVESTING ACTICITIES FULL PRICE PAID FOR ASSET and Financing Activities : FULL AMOUNT OF GRANT SFP : a. N-C liabilities : Name : Deferred Income : : n-c portion of only in here ( over 12 mnths) b. C-Liabilities : : Deferred Income : : current portion only must be taken out and put in here ie: next yrs transfer! ( Under 12 mnths) ACCOUNTING POLICY:

2.

3.

4.

5.

6.

7.

In its own sub-heading : GOVERNMENT GRANTS Policy for deferred income VS set off AND CAPITAL vs INCOME metods etc, for each separate class of Gov.Grant Separately. Also give the rates used for deferred income method for each class , when you transfer to grant income sci ie over 5 yrs, 10000 per yr etc. c. GET THEM FROM GAAP BOOK PPE TABLE a. As Usual b. REM : Assets recived as a grant get their own item Line in Middle by additions, depreciation etc, called : Government Grant GOVERNMENT ASSISTENCE NOTE: ( number next to deferred income item in SFP, or in SCI if Grant Income is shown. Or PPE if aaset reduction method is used) a. Unfulfilled conditions left over to do BY YOU for every gov. grant /assistance recived.. b. All grants under : 1-ASSETS , 2- INCOME , 3-OTHER GOV.ASSISTENCE must be in separate sub-headings. c. For every Gov.Grant recived, the 1-amount received this year 2-next years portion<12mnths 3- N-C portion (over 12 mnths) i. This can also be done like in GAAP book by: Making a Sub- Note called Defered Income as part of this note reference direct to Deferrd Income item in SFP and Start with deferred Income Account balances per item , then work down to next years deduction then down to N_C portion left over. AND the current years amounts do not show here since they show in Profit before tax note below. ii. One merely states the FULL amount that was received in year it was received for Current Years Receipts for asset based grant where the amount was deducted from cost of asset. d. All Other Government Assistence That Is Not A Proper Gov Grant : must get a sentence or a table mentioning each- thats all. PROFIT BEFORE TAX : a. For Every Grant Income recognised in the year ie transferred from Deferred Income to Income , BUT only if TRANSFERRED TO SCI from DEFERRED INCOME ACCOUNT. If it was an asset based grant that was recogniosed using the CAPITAL method (ie deduct it from the cost of asset bought) then it does NOT get put in this note it is a capital based thing!!!One merely states the FULL amount that was recived in year received in Gov Assistence note above for Current Years Receipts for asset based grants. (One could perhaps block off the depreciation amount difference relating to asset based grants under depreciation in Profit before Tax note.) a. b. DEFERRED TAX : a. NOTE : If asked to do deferred tax, you must do the asset and the deferred income balance- everything b. NOTE: If they give you profit before the gov grant transaction occoured -you need to add ONLY the portion of grant you actually recognizedin your accounts to profit- the temp diff balances out the rest as it usually would- so dont add the full Gov grant just the part of gov grant that you did recognize in P&L that yr ie 10% of it or whatever
c. Just This below:

8.

EIVED IN ADVANCE TAX BASES : GOVERNMENT GRANTS. TAXABLE GOVERNMENT GRANT : Income Grant : Deferred tax is NOT exempt NOTE : This is a

EIVED IN ADVANCE per textbook . NOTE: A GOV GRANT CAN BE AN Income Received In Advance , OR AN ASSET, 1) FOR Deferred Income Account Method :

U ARE ONLY EVER TALKING ABOUT THE DEFERRED PART OF IT Which Is Technically A Income Received In Advance, ANY PART ALREADY RECOGNISED IS ASSET TYPE OF COURSE. Only taxable grants do get deferred tax. Non-taxable grants are allways exempt.

NE CANNOT GET ANY Deductuions From A GOV GRANT ITS IS MOS AN INCOME AND IF Deduct From Asset Carrying Amount METHOD IS USED, THEN IT

..GOVERNMENT GRANT ::ABC gets a TAXABLE government grant of 40,000 , to subsidise salaries over 4 years . Only 10 000 is ed in P&L in Yr 1 (either as deduction from expense or as an income same for both below NOT fall under IAS12.15/24 exemption becasue it is taxable , so it affects taxable profit on initial recognition. 30 000 (40 000 10 000 recognised this year ) 0 (carrying amount lesS AMOUNT NOT taxable in future of 30000 since all was already taxed in year of receipt from Governmenet by SARS.) 30 000 9000 @ 30% Tax Liability

RYING AMOUNT X BASE

mp.Diff FERRED TAX

EIVED IN ADVANCE TAX BASES : GOVERNMENT GRANTS. NON_TAXABLE GOVERNMENT GRANT : Income Grant : Deferred tax is exempt NOTE :

OME RECEIVED IN ADVANCE per textbook FALLS UNDER EXEMPTION IAS12.15/24 because it does not affect taxable or acc. profit.on initial

ALL NON TAXABLE GRANTS FALL UNDER RULE IAS 12.15/24 AND ARE THUS EXEMPT ALLWAYS EVER AT ALL. (if they are recognised immediately

ey cause no special temp. diff at all) Only taxable grants do get deferred tax.. 1.1.

.........GOVERNMENT GRANT ::ABC gets a TAXABLE government grant of 40,000 , to subsidise salaries over 4 years . Only 10 000 is recognised in P&L in Yr 1 (either as deduction from expense or as an income same for both below 1.2. Does fall under IAS12.15/24 exemption because it is non- taxable , so does not affect taxable profit on initial recognition. 1.3. If it is recognised as DEFERRED INCOME below it gives rise to the exemption , but if it is recognised as full amount as income immediately on receipt it is non-taxable so gives rise to no further defrred tax balances to make temporary differences out of. RYING AMOUNT 30 000 (40 000 10 000 recognised this year ) BASE 0 (carrying amount lesS AMOUNT NOT taxable in future of 30000 since all was already taxed in year of receipt from Governmenet by SARS.) mp.Diff Exaempt per IAS12.15/24 ERRED TAX Exaempt per IAS12.15/24

EIVED IN ADVANCE TAX BASES : GOVERNMENT GRANTS. TAXABLE GOVERNMENT GRANT : ASSET GRANT ACCOUNTED AS DEFERRED INCOME : Deferred

mpt NOTE Only taxable grants do get deferred tax. Non-taxable grants of all types are allways exempt. 1.4.

.........GOVERNMENT GRANT ::ABC gets a TAXABLE government grant of 40,000 , to subsidise buying an asset.The asset has a useful life of 10yrs. 4000 is thus recognised each year as income , transferred from deferred income. 1.5. Becasue it is taxable- the full grant received is taxed by SARS in year of recipt, so it does affect taxable profit, thus does NOT fall under rule IAS12.15/24. 1.6. The plant that is bought gets a normal temp. diff. calculation done as well, separate from this one. RYING AMOUNT 36000 (40 000 4000 recognised this year ) X BASE 0 (carrying amount less AMOUNT NOT taxable in future of 36000 since all was already taxed in year of receipt from Governmenet by SARS.) mp.Diff 36 000 FERRED TAX 10800 - not exempt. Tax Laibility

ASES : GOVERNMENT GRANTS. TAXABLE GOVERNMENT GRANT : ASSET GRANT ACCOUNTED AS DEDUCTED FROM ASSET : This type will not have

ov Grant Component like the other types it is just a simple normal PPE Deferred Tax Asset Calaculation- just the carrying amounts of asset is a

t merely creates a larger temp. diff finish and klaar.. 1.1. 1.2. .........GOVERNMENT GRANT ::ABC gets a TAXABLE government grant of 40,000 , to subsidise buying an asset.The asset has a useful life of 10yrs. This full ampount ios accounted for by deducting it from the asset carrying amount. Becasue it is taxable- the full grant received is taxed by SARS in year of recipt, so it does affect taxable profit, thus does NOT fall under rule IAS12.15/24. Done as normal PPE in the assets account, not as a Income Rec in Advance.

RYING AMOUNT X BASE mp.Diff FERRED TAX

ERNMENT GRANTS. NON- TAXABLE GOVERNMENT GRANT : ASSET GRANT ACCOUNTED AS deducted from asset: Deferred tax IS exempt: THIS ONE

P: : ASK LECTURER Only taxable grants do get deferred tax. Non-taxable grants of all types are allways exempt. Therefore Temp Diff of Part

m asset must be deducted from final temp diff becuase it is an exempt part of it.VERY TRICKY. (and every yr this deduction gets less as it is

so depreciate this part separately as well 1.1. .........GOVERNMENT GRANT ::ABC gets a NON- TAXABLE government grant of 140,000 , to subsidise buying an asset.The asset has a useful life of 10yrs.so depreciation is 14000, but 40 000 gov grant is deducted from asset so asset = 100 000 and deprecitaion is 10 000 . Full amount is deducted from value of asset carrying amount. It is non-taxable- so the full grant received does not affect taxable profit, thus it does fall under rule IAS12.15/24. So after temp diff is calculated, the part that got subtracted gov grant- from asset must first get depreciation deducted from it, then it must be deducted from temp diff to get the true temp diff. pg 333 textbook. 90 000 (140 000-40 000 gov grant =100,000 10000 depreciation recognised this yr ) ADD BACK [Gov Grant less Depreciation]= 36000 : 40000 exempt gov. grant less 4000 depreciation this yr =126000 84000 (per SARS) (carrying amount less 40% deducted this yr already not deductable in future) 42000 the book deducts the gov grant temp diff here after working it out using income rec. in advance method - but dont do it that way, use your way using carrying amount. Their way is complex and riddled with inconsistencies. 12600 - not exempt. Tax Laibility

1.2.

RYING AMOUNT

X BASE mp.Diff

FERRED TAX

EIVED IN ADVANCE TAX BASES : GOVERNMENT GRANTS. NON- TAXABLE GOVERNMENT GRANT : ASSET GRANT ACCOUNTED AS DEFERRED INCOME:. This

the rule IAs12.15/24 - since it does not affect Taxable Profit at initial recognition, 1.3.

.........GOVERNMENT GRANT ::ABC gets a NON-TAXABLE government grant of 40000 to buy PPE with a life of 10 yrs. Which is accounted for AS A DEFERRED INCOME WHICH WOULD BE A INCOME RECEIVED IN ADVANCE. Since it is non taxable it does not affect taxable profit on recognition so it EXEMPT under IAS12.15/24 RYING AMOUNT 36 000 ( 40000 4000 recogniosed this year in P&L as gov grant income) BASE 0 (36000 less amount not taxable in future of 36 000= 0 ) mp.Diff Exempt per rule IAS 12.15/24 ERRED TAX Exempt per rule IAS 12.15/24

IAS 36 IMPAIRMENT
Dear Student Yes, goodwill account will become less due to the impairment.
Dear Lecturer 1(a) if goodwill is allocated to CGUs or to assets for the purposes of impairment testing : does one actually move this good will to those assets as a component of those assets or is it simply a completely separate calculation that never actually gets journalised but is done on a separate excell sheet? 1(b) What would be the journal entry for the initial allocation of goodwill to a CGU or Asset.? We do not disclose CGU separately in our financial statements. They are identified for impairment testing. You will thus have a separate sheet/documentation to indicate the CGUs. No goodwill will be journalled. 2(a)When the asset to which goodwill has been allocated gets sold, the goodwill must be included in the calculation of profit /loss. Does one therefore reduce the Goodwill Account balance by the portion of goodwill that has been sold with the Asset /CGU it was allocated to? Yes 2(b)What would be the ALL the Journal entries when an asset is sold to which goodwill was allocated? DR/CR Profit on sale of CGU DR Bank Cr All assets involved in CGU (including goodwill) . 3) if a question states that 4 of the 5 assets in a CGU which also includeds goodwill ,are KNOWN to not be impaired ie: their fair value is known to be above carrying amount, but they are not sure about asset number 5 ---- And then the CGU is tested for impairment and found to be impaired do you ONLY write off the impairment on asset number 5 and leave the others at their old level? You will firstly allocate the impairment to goodwill, then you will allocate the impairment only to asset no 5, limited to its recoverable amount. This question does not have goodwill, but they did the same with the allocation of the impairment. (read the last line in example 21.30 pg 611 GAAP handbook 2011 version they do something similar to a corporate asset they state that the assets mentioned could be ABOVE their fair value why do they do this?) (P.S. I know one may not allocate any portion to an asset that might reduce it below its Recoverable Amount / Fair Value but if carrying amount is above this amount surely one can ?) In this question the recoverable amount is higher than the carrying amount, thus no impairment can be allocated to these assets. Since they are already carried at below their recoverable amount, the impairment cant be allocated to them.

SCOPE
1. Specifically Excluded: a. Inventories b. Construction contract assets c. Deferred tax assets d. Employee benefit assets e. Financial assets in scope of ias 39 f. Investment properties at fair value g. Biological assets h. N-C assets classified as held for sale per IFRS 5 i. Intangible assets in scope of IFRS 4 Specifically included: a. Investment in Associates, subsidiaries ,joint venture b. goodwill c. PPE ,goodwill , intangible assets However , if any asset has been revalued, this IAS36 statement DOES apply from then on .(only for some or all of the above, and when does it cease to apply again?)

2.

3.

WHEN TO TEST FOR IMPAIRMENT:


1. ANNUALLY (MUST BE TESTED ) : a. INTANGIBLE asset indefinite life .(this one must also be tested whenever there is an indication) b. Goodwill acquired in business combination ( this one must also be tested whenever there is an indication) c. Intangible asset not yet available for use (this one not tested whenever indication only yrly) ONLY ASSESS IF AN INDICATION DONT ACTUALLY TEST LIKE ABOVE 3 : at reporting date to assess IF there is an indication that there might be impairment. If no indication , dont test for nothing. a. All other assets ASSESING : WHAT TO CONSIDER , AT A MINIMUM , WHEN ASSESING IF IT SHOWS SIGNS: External sources of information a. technological, market, economic or legal environment in which the entity operates or in the market to which an asset is dedicated. b. (c) market interest rates or other market rates of return on investments have increased during the period, and those increases are likely to affect the discount rate used in calculating an assets value in use and decrease the assets recoverable amount ma terially. c. (d) the carrying amount of the net assets of the entity is more than its market capitalisation. Internal sources of info :\ (e) evidence is available of obsolescence or physical damage of an asset. (f) significant changes with an adverse effect on the entity have taken place during the period, or are expected to take place in the near future, in the extent to which, or manner in which, an asset is used or is expected to be used. These changes include the asset becoming idle, plans to discontinue or restructure the operation to which an asset belongs, plans to dispose of an asset before the previously expected date, and reassessing the useful life of an asset as finite rather than indefinite.* (g) evidence is available from internal reporting that indicates that the economic performance of an asset is, or will be, worse than expected. For an investment in a subsidiary, jointly controlled entity or associate, The investor recognises a dividend from the investment and evidence is available that: a. (i) the carrying amount of the investment in the separate financial statements exceeds the carrying amounts in the consolidated financial statements of the investees net assets, including associated goodwill; or b. (ii) the dividend exceeds the total comprehensive income of the subsidiary, jointly controlled entity or associate in the period the dividend is declared.

2.

3.

a. b.

c.

a.

RECOGNITION AND MEASUREMENT


1. RECOGNITION: a. If, and only if, the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset shall be reduced to its recoverable amount. That reduction is an impairment loss. MEASUREMENT: a. At higher of fair value less costs to sell or PV of future cashflows.

2.

MEASUREMENT:
1) 2) 3) 4) An asset is impaired if If, and only if, the recoverable amount of an asset is less than its carrying amount. The recoverable amount is defined as :the higher of assets value in use or fair value;l less costs to sell. So you do not have to test for impairment if ANY ONE of the 2 above values are above carrying amount value. If it is NOT possible to determine value in Use then value in use of the assets cash generating unit must be measured ..s ee below.

MEASURING VALUE OF INTANGIBLE ASSET WITH INDEFINITE USEFUL LIFE.


1) LAST YEARS value calc. may be used again , if : a) If part of cash gen. unit assets&liabilites of it have not changed much b) It exceeds carrying amount by far margin c) Events/ economic conditions do not indicate a problem.

FAIR VALUE LESS COSTS TO SELL:


1) Fair value less costs to sell : is the amount obtainable from the sale of an asset or cash-generating unit or to transfer a liability in an orderly transaction between market participants at the measurement date, less the costs of disposal. (disposal specifically excl. finance costs that you charge-& tax & employee wages/termination benefits) [Either a 1- binding sale agreement , 2-active market price , or 3- between willing , knowledgeable.)]

VALUE IN USE:
1) VALUE IN USE IS : PV of all future cash INFLOWS + OUTFLOWS.

FUTURE CASH FLOWS


1) Cash flow projections should be based on REASONABLE and SUPPORTABLE assumptions , of managements best estimate of future economic conditions .. 2) Greater weight to external evidence. 3) Should be based on budgets/forecasts of no longer than 5 yrs. After 5 yrs extrapolation is done by using a GROWTH RATE of : 1steady or 2-declining or 3-increasing growth rate if it can be justified) or 4-zero 4) Current condition : ONLY to be calc. on asset as it is in current condition , any cash outflows that will enhance its performance should be ignored, and any future inflows from better performance due to this must also be ignored. UNLESS it is not yet available for use, then this rulke does not apply yet. 5) Future restructuring : any differences (cheaper staff costs due to restructuring firm) may only be incl. if entity is commited , not just if it is planned. Also any eg transport costs or termination costs of employees , must be expensed to the restructuring and not to the outflows here.(it must be a factory wide restructuring, not just this asset) 6) Tax in/out flows & financing costs : do not include these. 7) Any replacement of separately depreciated components , is considerd as daily servicing in this calc. ALSO in a cash-gen-unit, any replacement of an asset with a shorter life is also considered as daily servicing in this calc. 8) Exchange rates ; overseas stuff- first do all calc. & discounting in their currency, then translate all at to days spot price. 9) INFLOWS : incl. disposal costs . 10) OUTFLOWS : necessarily incurred , to generate outflows , from continuing use of the asset , incl. to prepare it for use and disposal costs. 11) Not Yet ready for Use: You must include cash outflows to get it ready for use.

DISCOUNT RATE
1) Must be Pre-tax rate that reflects current fin market rates AND takes into account asset risks that were not considered when calc. the outflows/inflows. 2) Cash flows & discount rates should reflect consistent assumptions , so if inflation is incl. in cashflows, it must also be considered in discount rate, and visa versa. ( specific price incr. MAY be used in cashflows without considering discount rate)

INDIVIDUAL ASSET : RECOGNITION AND MEASUREMENT OF AN IMPAIRMENT LOSS


1) To SCI / RevalSurpl.: Any impairment is written off to SCI i mmediately , unless the asset was revalued previously , then any reval.surplus left must first be used up, before the rest , whats left , goes to SCI .(same as PPE devaluations).So anything of that assets in the Reval.Surpl. account, gets written out of Revaluation Surplus account first.

2) TO REVALUATION RESERVE : Journal Entry :

Dr Revaluation Reserve Accout (OCI) (after net- of deferred tax since the whole Reval Acc is already net) Cr Accumulated Depreciation & Impairment Account . SFP
3) 4) TO P&L :Journal Entry :

Dr Impairment Loss Account (SCI) Cr Accumulated Depreciation & Impairment Account . SFP 5) Depreciation is adjusted accordingly , same as for a revaluation or depreciation, on the assets new value from then on.
DEFERRED TAX :
1)

Note ; A POST TAX REVALUATION SURPLUS , with deferred tax at R10 of the reval. of R50 means a true revaluation surplus of R60 a) Deferred tax must always be removed before entering an impairment or reverse into the revaluation Acc after net- of deferred tax since the whole Reval Acc is already net, .So in a question , rem that when you do a Deferred Tax entry for the reduction in deferred tax (an -increase in tax asset or a decrease in tax liability of course- for a devalued asset due to an impairment etc) it will have to be a DR (asset is worth less now so you pay less tax now than before). b) Journal Entry : i) Dr Deferred Tax (SFP) (1) Cr Revaluation Surplus (OCI) ii) OR iii) Dr Deferred Tax (SFP)

Dr Revaluation Surplus (OCI Cr Accumulated Depreciation & Impairment Account .

REVERSAL OF AN IMPAIRMENT LOSS FOR AN INDIVIDUAL ASSET:


1) One should check for if a reversal of previous impairments is possible annually. (times are given in IAS 36 eg at end yr for some, some in middle depends) 2) SEE IAS 36 FOR at a minimum what should be considered when you re-asses at reporting date if any previously impaired assets may be reversed. 3) It may not be reversed just because thePV of future cash flows increases over time as future cash flows draw nearer. ( the closer they get, the larger the PV , due to discounting) No, either of the reasons in IAS 36 must exist : eg 1- discount rate changes or 2-better economic conditions or 3-market value of asset increased a lot . 4) An impairment may not be reversed if the carrying amount , net of depreciation and amortistation , will be higher than what it was if an impairment had not been done years ago. Any increase above this amount is seen as a revaluation , and may only be done by the revaluation model not under this IAS .. This means , if you had carried on depreciating the asset at the old depr.Rate , before it was impaired , up to today ,the carrying amount less Acc.Depr. you would have left TODAY, may not be less than the reversed total carrying amount , cause that means it WENT UP , and that is a revaluation! , not a reversal . 5) SCI / OCI : The reversal must be recognized in P&L , since impairment was done in P&L. BUT if asset is carried at a revalued amount, first reverse any previous P&L decrease/charge/expense from the last impairment , then the rest MUST go to Revaluation Surplus.(it may only reverse a former P&L expense , if there is none it ONLY goes to OCI Reval. Surpl. Acc.

6) Depreciation is adjusted accordingly , same as for a revaluation or depreciation, on the assets new value from then on. 7) Journal Entry : Dr Accumulated depreciation & Impairment Losses. (SFP) R100000 CR DEFERRED TAX (only for reval acc part NOT p&l part) CR REVALUATION SURPLUS (OCI) R30000 (less deferred tx to dfrrd tx) CR Impairment Loss Reversal(SCI) R70000
CGU: CASH GENERATING UNITS
1. 2. CGU is the smallest set of assets that generate cash inflows from continuing use that are largely independant of cash inflows from other assets or CGUs Impairment : a. ALLOCATION: IMPAIRMENT LOSS must be allocated in the following way to a CGU: i. FIRST TO GOODWILL ALLOCATED TO THAT CGU/ASSET ii. THEN TO THE OTHER ASSETS, on a pro-rata basis based on the carrying amount of those assets VS the group carrying amount. These asset impairments should be recognised individually for each asset as Accumulated Impairment & Depreciation CONTRA :split between P&L and Revaluations Surplus . b. Individual Assets in a CGU by the pro-rata allotment may not be reduced below the following, then the extra amount that was supposed to be allocated to that asset must be allocated to the other assets.: i. Their Fair value less costs of disposal ii. Their Value in use iii. Zero. c. REVERSAL OF IMPAIRMENT LOSS : a reversal must be allocated to the assets in a unit EXCLUDING GOODWILL. So goodwill is not increased again. i. In allocating the impairment reversal, the individual assets may not be increased to above the following:- and any excess must be allocated to other assets in the group.- If it cannot be allocated to other assets because they are all at their limit , then that part may NOT be recognised as a reversal it is just left out. 1. Depreciated Original Cost : what their ORIGINAL COST depreciated to TODAY , would have been. 2. Recoverable amount of the individual asset.

d.

IF you are testing the impairment of a CGU and at the same time there is an indication of impairment of a single asset in that CGU : then you have to FIRST TEST THAT ASSET FOR IMPAIRMENT AND ACTUALLY IMPAIR IT before you do the CGU , then afterwards carry on with the CGU as a whole.

3.

VALUE IN USE:j a. IF output is used internally , do not use internal transfer pricing, but use market value if it were to be sold to measure value in use. (fair value) b. If Input costs are from internal production: transferred at internal transfer pricing : you must NOT use the cost from internal transfer pricing, BUT the cost of what it would cost on the open market fair value- when valuing the input costs to calculate the value in use of a CGU. FAIR VALUE LESS COSTS TO SELL : a. Liabilities: if there is a liability attached to the CGU, one may only include it if it is not posssible to exclude it from the calculation stuff like if you sell an asset then you have to take over a liability or something but not loans to buy a machine it useems..

4.

Fair value less costs to sell : If a Liability is included in the Fair value less costs to sell then it MUST ALSO be included in the carrying amount when comparing carrying to fair value , AND it must also get included in the Value In Use calculation ALL 3 per textbook in order to get a meaningful comparison. (else you might compare a lowered carrying to a higher Value in Use etc. ) c. An installment sale liability does qualify and MUST get included if the buyer must take over the installment and thus decrease value of sale per example in book. d. If eg entity must assume a liability only if the asset were sold this also gets included in all 3 . 5. GOODWILL: a. Goodwill from aquiring another entity should be allocated between the assets or CGUs that ARE GOING TO BENEFIT FROM THE SYNERGIES OF THE BUSINESS COMBINATION. Even if these CGU or asset is NOT part of subsidiary but only part of Parent it must still be allocated if synergies are expected. HOWEVER each CGU should not be larger than an Operarting Segment as defined in IFRS 3. b. If a CGU is sold : that has goodwill attached to it , then the portion of goodwill attached to that CGU should be included when the gain/loss on sale is calculated, and(??should the total goodwill account should be decreased by the amount of goodwill that was sold with the asset.?? ) c. If a CGU is Derecognised : you do not reduce goodwill by the pro- rata share of the asset in the CGU. You simply let the goodwill apply to the other assets in the CGU instead. d. Asset in CGU impaired separately : If goodwill is allocated to a CGU, and and at the yrly impairment testing of the CGU (due to the goodwill attached = yrly) there is an indication that a single asset in the CGU is impaired you first do the impairment of that asset, then after that you do the impairment of the CGU- BUT when you do the asset individually you do not allocate any goodwil to it , or impair goodwill at all that only gets done when the CGU it was allocated to is done separately then goodwill gets done with it. e. JOURNALS : impairment of a CGU with goodwill i. Impairment Loss 1. Accumulated depreciation & impairment of ASSET 2. Accumulated Impairment losses on GOODWILL. 6. 1(a) if goodwill is allocated to CGUs or to assets for the purposes of impairment testing : does one actually move this goodwill to those assets as a component of those assets or is it simply a completely separate calculation that never actually gets journalised but is done on a separate excell sheet? 7. 1(b) What would be the journal entry for the initial allocation of goodwill to a CGU or Asset.? 8. We do not disclose CGU separately in our financial statements. They are identified for impairment testing. You will thus have a separate sheet/documentation to indicate the CGUs. No goodwill will be journalled. 9. 2(a)When the asset to which goodwill has been allocated gets sold, the goodwill must be included in the calculation of profit /loss. Does one therefore reduce the Goodwill Account balance by the portion of goodwill that has been sold with the Asset /CGU it was allocated to? Yes 10. 2(b)What would be the ALL the Journal entries when an asset is sold to which goodwill was allocated? 11. 12. DR/CR Profit on sale of CGU 13. DR Bank 14. Cr All assets involved in CGU (including goodwill) 15. 16. . 17. 18. 3) if a question states that 4 of the 5 assets in a CGU which also includeds goodwill ,are KNOWN to not be impaired ie: their fair value is known to be above carrying amount, but they are not sure about asset number 5 ---- And then the CGU is tested for impairment and found to be impaired do you ONLY write off the impairment on asset number 5 and leave the others at their old level? 19. You will firstly allocate the impairment to goodwill, then you will allocate the impairment only to asset no 5, limited to its recoverable amount. This question does not have goodwill, but they did 20. the same with the allocation of the impairment. 21. (read the last line in example 21.30 pg 611 GAAP handbook 2011 version they do something similar to a corporate asset they state that the assets mentioned could be ABOVE their fair value why do they do this?) (P.S. I know one may not allocate any portion to an asset that might reduce it below its Recoverable Amount / Fair Value but if carrying amount is above this amount surely one can ?) 22. In this question the recoverable amount is higher than the carrying amount, thus no impairment can be allocated to these assets. Since they are already carried at below their recoverable amount, 23. the impairment cant be allocated to them. a.

b.

CORPORATE ASSETS :
1. 2. 3. A corporate asset is an asset which is apportioned between many different CGUs like computer department or headquarters building. When Impairment testing is done on a CGU, any portion of impairment must be allocated to the portion(%) Rand Value of the corporate asset that was allocated to it. If a corporate asset could not be apportioned on a consistent and reasonable basis to the CGU , then after a CGU is impaired, ONE MUST IDENTIFY THE NEXT HIGHEST GROUP OF ASSSETS OR CGU that the impaired CGU is part of, to which a part of the

corporate asset COULD be apportioned , and test that larger CGU for impairment.( this is if the corporate asset DOES relate to ( should have been apportioned to) the smaller CGU but could not be basically)

TAXATION
1) Works same as any depreciation , including the OCI: a) Revaluation Surplus/OCI : if any impairment reduces this OCI, it must be balanced by a deferred tax journal entry to OCI as well basicly first deduct tax from the transfer to OCI whether it is a Impairment or a Reversal. : So you cannot just deduct it first you must make a corrsponding deferred tax entry to deduct it. REM: the deferred tax entry is ALLWAYS THE OPPOSITE to the IMPAIRMENT ENTRY, because it musty reduce that entry. 2) Impairments are not recognized for tax purposes so they do not affect the tax base ever. BUT they do affect the carrying amount so it will always have positive tax consequences that must be shown in deferred tax . REM anything that happens in the OCI (other com Inc.) ie Revaluations surpluss account , has its own tax shown there separately , always. So amount that goes in or out there has its deferred tax shown in the OCI only!

DISCLOSURE: IMPAIRMENTS
1) NOT DONE PROPERLY REDO AN EXAMPLE FULL. : YOUR FULL EXAMPLE WAS ERASED BY ACCIDENT . 2) ACCOUNTING POLICIES: a) Under own separate sub-heading called Impairments : i) 3) PROFIT BEFORE TAX a) Impairment losses :expensed to P&L (excl that that went to OthCompInc) b) Reversals of impirment losses : written back to P&L 4) OCI : OTHER COMPREHENSIVE INCOME NOTE a) Impairment losses :that went to OthCompInc b) Reversals of impirment losses : written back from OCI 5) 6) PPE TABLE : a) Accumulated depreciation AND Impairment line goes instead of just Acc.Depr. , in Begin, and End of table BUT in middle there depreciation & impairment have completely separate lines definitely.i. b) Note : No impairments go in Revaluations Line c) Impairment to P&L d) Reversals of Impairments to OCI e) Impairment to P&Lu f) Reversals of Impairments to OCI g) h) UNDER PPE TABLE IN WRITING : for each asset impaired or reversed (or class? ) i) Assets(or class?) that were impaired , ii) Reason why it was impaired iii) Valuation method employed to get Recoverable Amount : either 1-fair value less costs to sell OR 2 -PV of future Cash Flows. iv) Carrying amount of asset

126 An entity shall disclose the following for each class of assets: (a) the amount of impairment losses recognised in profit or loss during the period and the line item(s) of the statement of comprehensive income in which those impairment losses are included. (b) the amount of reversals of impairment losses recognised in profit or loss during the period and the line item(s) of the statement of comprehensive income in which those impairment losses are reversed. (c) the amount of impairment losses on revalued assets recognised in other comprehensive income during the period. (d) the amount of reversals of impairment losses on revalued assets recognized in other comprehensive income during the period. 127 A class of assets is a grouping of assets of similar nature and use in an entitys operations. 128 The information required in paragraph 126 may be presented with other information disclosed for the class of assets. For example, this information may be included in a reconciliation of the carrying amount of property, plant and equipment, at the beginning and end of the period, as required by IAS 16. 129 An entity that reports segment information in accordance with IFRS 8 shall disclose the following for each reportable segment: (a) the amount of impairment losses recognised in profit or loss and in other comprehensive income during the period. (b) the amount of reversals of impairment losses recognised in profit or loss and in other comprehensive income during the period. 130 An entity shall disclose the following for each material impairment loss recognised or reversed during the period for an individual asset, including goodwill, or a cash-generating unit: (a) the events and circumstances that led to the recognition or reversal of the impairment loss.

(b) the amount of the impairment loss recognised or reversed. (c) for an individual asset: (i) the nature of the asset; and (ii) if the entity reports segment information in accordance with IFRS 8, the reportable segment to which the asset belongs. (d) for a cash-generating unit: (i) a description of the cash-generating unit (such as whether it is a product line, a plant, a business operation, a geographical area, or a reportable segment as defined in IFRS 8); (ii) the amount of the impairment loss recognised or reversed by class of assets and, if the entity reports segment information in accordance with IFRS 8, by reportable segment; and (iii) if the aggregation of assets for identifying the cash-generating unit has changed since the previous estimate of the cash-generating units recoverable amount (if any), a description of the current and former way of aggregating assets and the reasons for changing the way the cash-generating unit is identified. (e) whether the recoverable amount of the asset (cash-generating unit) is its fair value less costs to sell or its value in use. (f) if recoverable amount is fair value less costs to sell, the basis used to determine fair value less costs to sell (such as whether fair value was determined by reference to an active market). (g) if recoverable amount is value in use, the discount rate(s) used in the current estimate and previous estimate (if any) of value in use. IAS 36 1760 IASCF 131 An entity shall disclose the following information for the aggregate impairment losses and the aggregate reversals of impairment losses recognised during the period for which no information is disclosed in accordance with paragraph 130: (a) the main classes of assets affected by impairment losses and the main classes of assets affected by reversals of impairment losses. (b) the main events and circumstances that led to the recognition of these impairment losses and reversals of impairment losses. 132 An entity is encouraged to disclose assumptions used to determine the recoverable amount of assets (cash-generating units) during the period. However, paragraph 134 requires an entity to disclose information about the estimates used to measure the recoverable amount of a cash-generating unit when goodwill or an intangible asset with an indefinite useful life is included in the carrying amount of that unit. 133 If, in accordance with paragraph 84, any portion of the goodwill acquired in a business combination during the period has not been allocated to a cash-generating unit (group of units) at the end of the reporting period, the amount of the unallocated goodwill shall be disclosed together with the reasons why that amount remains unallocated. Estimates used to measure recoverable amounts of cash-generating units containing goodwill or intangible assets with indefinite useful lives 134 An entity shall disclose the information required by (a) (f) for each cash-generating unit (group of units) for which the carrying amount of goodwill or intangible assets with indefinite useful lives allocated to that unit (group of units) is significant in comparison with the entitys total carrying amount of goodwill or intangible assets with indefinite useful lives: (a) the carrying amount of goodwill allocated to the unit (group of units). (b) the carrying amount of intangible assets with indefinite useful lives allocated to the unit (group of units). (c) the basis on which the units (group of units) recoverable amount has been determined (ie value in use or fair value less costs to sell). (d) if the units (group of units) recoverable amount is ba sed on value in use: (i) a description of each key assumption on which management has based its cash flow projections for the period covered by the most recent budgets/forecasts. Key assumptions are those to which the units (group of units) recoverable amount is most sensitive. (ii) a description of managements approach to determining the value(s) assigned to each key assumption, whether those value(s) reflect past experience or, if appropriate, are consistent with external sources of

information, and, if not, how and why they differ from past experience or external sources of information. IAS 36 IASCF 1761 (iii) the period over which management has projected cash flows based on financial budgets/forecasts approved by management and, when a period greater than five years is used for a cash-generating unit (group of units), an explanation of why that longer period is justified. (iv) the growth rate used to extrapolate cash flow projections beyond the period covered by the most recent budgets/forecasts, and the justification for using any growth rate that exceeds the long-term average growth rate for the products, industries, or country or countries in which the entity operates, or for the market to which the unit (group of units) is dedicated. (v) the discount rate(s) applied to the cash flow projections. (e) if the units (group of units) recoverable amount is based on fair value less costs to sell, the methodology used to determine fair value less costs to sell. If fair value less costs to sell is not determined using an observable market price for the unit (group of units), the following information shall also be disclosed: (i) a description of each key assumption on which management has based its determination of fair value less costs to sell. Key assumptions are those to which the units (group of units) recoverable amount is most sensitive. (ii) a description of managements approach to determining the value (or values) assigned to each key assumption, whether those values reflect past experience or, if appropriate, are consistent with external sources of information, and, if not, how and why they differ from past experience or external sources of information. If fair value less costs to sell is determined using discounted cash flow projections, the following information shall also be disclosed: (iii) the period over which management has projected cash flows. (iv) the growth rate used to extrapolate cash flow projections. (v) the discount rate(s) applied to the cash flow projections. (f) if a reasonably possible change in a key assumption on which management has based its determination of the units (group of units) recoverable amount would cause the units (group of units) carrying amount to exceed its recoverable amount: (i) the amount by which the units (group of units) recoverable amount exceeds its carrying amount. (ii) the value assigned to the key assumption. (iii) the amount by which the value assigned to the key assumption must change, after incorporating any consequential effects of that change on the other variables used to measure recoverable amount, in order for the units (group of units) recoverable amount to be equal to its carrying amount. IAS 36 1762 IASCF 135 If some or all of the carrying amount of goodwill or intangible assets with indefinite useful lives is allocated across multiple cash-generating units (groups of units), and the amount so allocated to each unit (group of units) is not significant in comparison with the entitys total carrying amount of goodwill or intangible assets with indefinite useful lives, that fact shall be disclosed, together with the aggregate carrying amount of goodwill or intangible assets with indefinite useful lives allocated to those units (groups of units). In addition, if the recoverable amounts of any of those units (groups of units) are based on the same key assumption(s) and the aggregate carrying amount of goodwill or intangible assets with indefinite useful lives allocated to them is significant in comparison with the entitys total carrying amount of goodwill or intangible assets with indefinite useful lives, an entity shall disclose that fact, together with: (a) the aggregate carrying amount of goodwill allocated to those units (groups of units). (b) the aggregate carrying amount of intangible assets with indefinite useful lives allocated to those units (groups of units). (c) a description of the key assumption(s). (d) a description of managements approach to determining the value(s)

assigned to the key assumption(s), whether those value(s) reflect past experience or, if appropriate, are consistent with external sources of information, and, if not, how and why they differ from past experience or external sources of information. (e) if a reasonably possible change in the key assumption(s) would cause the aggregate of the units (groups of units) carrying amounts to exceed the aggregate of their recoverable amounts: (i) the amount by which the aggregate of the units (groups of units) recoverable amounts exceeds the aggregate of their carrying amounts. (ii) the value(s) assigned to the key assumption(s). (iii) the amount by which the value(s) assigned to the key assumption(s) must change, after incorporating any consequential effects of the change on the other variables used to measure recoverable amount, in order for the aggregate of the units (groups of units) recoverable amounts to be equal to the aggregate of their carrying amounts. 136 The most recent detailed calculation made in a preceding period of the recoverable amount of a cash-generating unit (group of units) may, in accordance with paragraph 24 or 99, be carried forward and used in the impairment test for that unit (group of units) in the current period provided specified criteria are met. When this is the case, the information for that unit (group of units) that is incorporated into the disclosures required by paragraphs 134 and 135 relate to the carried forward calculation of recoverable amount. 137 Illustrative Example 9 illustrates the disclosures required by paragraphs 134 and 135.

INVESTMENT PROPERTY
DEFINITIONS:
1. DEFINITION: Investment property is property (land or a buildingor part of a buildingor both) held (by the owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or both, rather than for: a. use in the production or supply of goods or services or for administrative purposes; or b. sale in the ordinary course of business. DEFINITION: owner-occupied property is property held (by the owner or by the lessee under a finance lease) for use in the production or supply
of goods or services or for administrative purposes DEFINITION : Cost is the amount of cash or cash equivalents paid or the fair value of other consideration given to acquire an asset at the time of its acquisition or construction or, where applicable, the amount attributed to that asset when initially recognised in accordance with the specific requirements of other IFRSs, eg IFRS 2 Share-based Payment.

1. 1.

SCOPE:
1. 2. Does Apply to measure Finance Lease Investment property, but most of the rules are in IAS leases as to measurement . DOES NOT APPLY TO: a. BIOLOGICAL ASSETS related to agricultural activity. b. MINERAL RIGHTS and mineral reserves .

Distinguish between Investment & Owner occupied Property.


1. DEFINITION: Investment property is property (land or a buildingor part of a buildingor both) held (by the owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or both, rather than for: a. use in the production or supply of goods or services or for administrative purposes; or b. sale in the ordinary course of business. DEFINITION: owner-occupied property is property held (by the owner or by the lessee under a finance lease) for use in the production or supply
of goods or services or for administrative purposes

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INVESTMENT PROPERTY INCLUDES : a. Land held for long term appreciation , NOT for short term sale b. If future use has not yet been determined, it MUST be INVESTMENT PROPERTY c. Vacant , but held to be rented out. d. Under contruction , to be rented out. e. If a portion is held for owner occupation, and the rest is rented out : ONLY if the separate portions are able to be SOLD or LEASED OUT separately , then each part may be treated differently by this IAS. If entity rents out to its parent or another subsidiary , it can be treated as Investmenmt property in his books, but not in the Cons. Fin. Stats there it may not be treated as invest,ent property.. g. If an insignificant part of property is owner occupied , it may be recognized.(5% may be , not sure yet about more) h. Provide ancilliary services to occupants of rented out property Eg security : may be investment property, as long as it is insignificant ( not a hotel!) IS NOT / DOES NOT INCLUDE : a. Being Constructed In Behalf Of 3rd Parties. b. Owner-occupied, awaiting disposal. c. Under construction /or held for owner occupation d. OCCCUPIED BY EMPLOYEES, EVEN IF THEY PAY A MARKET RELATED RENTAL. e. If leased out to others under a finance lease. f.

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RECOGNITION & MEASUREMENT:


1. RECOGNITION: a. Investment property shall be recognised as an asset when, and only when: i. it is probable that the future economic benefits that are associated with the investment property will flow to the entity; and ii. the cost of the investment property can be measured reliably. MEASUREMENT:

2.

RECOGNITION :
1. Applies to costs initially and costs incurred later on. a. Maintenance, Service & repairs : end up this DOES not comply, expensed, b. Rebuid as wall : can be recognised, but then old wall must be derecognized. c. (same principles as for PPE chapter apply eg add on , or replace parts etc.)

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MEASUREMENT:
1-INITIAL MEASURMENT :
1. 2. Same as for PPE. INCLUDES specifically here : a. Transaction costs for legal fees , (must be directly attributable to asset) b. Property transfer taxes, ( must be directly attributable to asset) EXCLUDES : a. Same as for PPE ; but take note of following: b. Abnormal wastage of labour, materials , etc, c. Oper4ating losses d. Start up costs , unless used to bring asset to condition to be capable of operating as intended. e. Finance costs expense! CREDIT GRANTED / DEFERRED PAYMENT : must be treated in same way as PPE. Take out interest portion, and assign it to a deferred finance costs account , then transfer a portion every year / month to finance costs expense account . a. Use : take the price you paid as FV, PV of this price at the discount rate given is EXCHANGE TRANSACTIONS : same as for barter transactions.

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2-SUBSEQUENT MEASUREMENT.
1. You must choose whether to hold items using the COST model or the REVALUATION model .it all works exactly same as PPE.EXCEPT for revaluations NEVER goes to the OtherComprehensive Income with this .(it is doubtful whether the change from cost model to reval. Model can be performed, as it is not evr likely to result in more relevant & reliable reporting. per book) if it is too expensive every year for firm to revalue all its asssets in class- is it more relvant to change to cost from reval. , due to firm cannot afford proper reval. , and thus values are not shown at a relevant & reliable rate, so the costs model is better?) REVAL. MODEL : a. Entity may perform valuations itself, it is only encouraged that an independent qualified valuer do it (rem it mu st be disclosed in fin stats whether it was done by a independent qualified valuer or not. b. (OCI)OTHERCOMPREHENSIVE INCOME : The difference to PPE methods for this , is that nothing ever goes to the (OCI)OtherComprehensive Income with this. Any revaluation goes directly to P&L SCI . ,and any devaluation as well. SAME MODEL FOR ALL INVESTMENT PROPERTIES :If you choose one model it MUST APPLY to ALL investment properties. not just per class. EXCEPT a. Investment property serving as a backing for liabiliitiesthat pay a return linked directlty to the fair value of (or returns from) specified assets , including that investment property. : then it may do that single asset at the other models method of valuation. b. INABILITY TO MEASURE FAIR VALUE : 1. If it is impossible to measure fair value FROM AT ACQUISITION DATE, then an entity may measure it at cost, while at the same time measuring all other Inv. Properties at Reval. Value. Even if it is due to a change in use that the property becomes an investment property if from ACQUISITION (buying it) till then they could not measure fair value, then this can be done a. Residual value MUST be made zero 2. During construction ; if during construction , inability , then may be at cost, till earlier of 1-finish construction or 2-know fair value CHANGE OVER :You may only change from the fair value to the cost model if it results in more relevant & reliable reporting ( use IAS change in accounting policy) . FAIR VALUE : a. Should not be affected by future capital expenditure that will enghance it, it must ONLY reflect its CURRENT condition , nor reflect the related benefits. b. Willing buyer is motivated , but not compelled, willing seller is neither over-eager nor forced to cell. c. Be careful of double counting when valuing assets:eg : i. Furnished offices rented out are usually valued at PV of future rentals , which incl. furniture of course, so furniture can not be recognised separately as well. ii. Lifts & aircon is usually seen as integral , so the building was already valued with it in. no need to account for it separately. iii. Fair value of buildings excludes prepaid or future operating lease income. 1. Note : if a building etc was valued using PV of future cash flows, then you must fund out which future cash flows were included in this. If you have raised any of this future rent income in the books as a liability

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already, for some reason or other, then it must be deducted from any upward revaluation you happen to be doing at that moment because the valuer forgot to ask if any of that FV money has already been recognized. iv. INABILITY TO MEASURE FAIR VALUE : 1. If it is impossible to measure fair value FROM AT ACQUISITION DATE, then an entity may measure it at cost, while at the same time measuring all other Inv. Properties at Reval. Value. Even if it is due to a change in use that the property becomes an investment property if from ACQUISITION (buying it) till then they could not measure fair value, then this can be done a. Residual value MUST be made zero 2. During construction ; if during construction , inability , then may be at cost, till earlier of 1-finish construction or 2-know fair value. If fair value can never be determined, after 1+2 , anyway, then may do at cost. 3. SALE in ordinary course of business : when the entity begins to develop the propry for sale in the oprdinary course of business, it may once again be placed at cost , never you mine what type the others are are . 4.

TRANSFERS:
The only transfer where any revaluation to fair value goes to OCI , is for PPE to Invetsment property transfer. ( and it may never be transferredto ret. Earn. (and used ? for capitalization issue?)

TRANSFERS TO INVENTORIES
Look in book 3 pgs pg 639.

TRANSFERS FROM INVENTOTIES TRANSFERS TO PPE TRANSFER FROM PPE

DISPOSALS INTRAGROUP INVESTMENT PROPERTY DISCLOSURES


Look in book : Note : 1. All expenses in profit before tax note , must be divided in 2 line items that 1-genereate rent 2- that do not generate rental a. Any fair value changes for all assets in pool b. All rental income c. Depreciation. 2. PPE table for revaluations : a. this is a small table, no o/b or acc. depr. rem in yhis table needs line item for all ; b. additions from capiatalisation of subsequent expenditure , 3. additions from buying 4. additions from bus. Combinations. 5. Disposals 6. Classified as held for sale transfers 7. Gains /loss from fair value adjustnents.

DEFERRED TAX