Capitalisation of expenditure – 1 Complete answer

15/09/2021 by 75385885

Capitalisation of expenditure

Capitalisation of expenditure is only possible when one of the following situations occur:

Capital expenditure (including equipment repairs and maintenance)
Recording lease contracts – Right-of-Use Assets
Capitalisation of borrowing costs
Capitalisation of cloud computing costs
Capitalisation of intangible assets
Capitalisation of internally capitalized intangible assets
Research & development costs
Prepaid expenses

Capital expenditure (including equipment repairs and maintenance)

The cost of an item of property, plant and equipment under IAS 16 Property, plant and equipment shall be recognised as an asset if, and only if:

it is probable that future economic benefits associated with the item will flow to the entity; and
the cost of the item can be measured reliably. (IAS 16.7)

Investment property

Certain properties which are used on rental are classified as an investment property in which case IAS 40 Investment property will apply. Only tangible items which have a useful life of more than one period are classified as property, plant and equipment as per IAS 16. But refer to the words “more than one period” as more than one accounting period of 12 months.

Also, an entity shall determine a threshold limit commensurate to its size for recognizing a tangible item as property, plant and equipment. For example, a tangible item of insignificant amount although satisfying the definition of property, plant and equipment may be expensed.

Initial recognition of indirect costs

Items of property, plant and equipment may be acquired for safety or environmental reasons. The acquisition of such property plant and equipment, although not directly increasing the future economic benefits of any particular existing item of property, plant and equipment, may be necessary for an entity to obtain the future economic benefits from its other assets.

Such items of property plant and equipment qualify for recognition as assets because they enable an entity to derive future economic benefits from related assets in excess of what could be derived had those items not been acquired.

Subsequent recognition of indirect costs

Initial measurement financial instruments

10/09/2021 by 75385885

Initial measurement Financial instruments

IFRS 9 requires an entity to recognise a financial asset or liability on its balance sheet only when it becomes a party to the contractual provisions of the instrument.

Under IFRS 9 the requirements, on initial recognition, are that financial assets and financial liabilities are measured at (IFRS 9.5.1.1):

IFRS 9 classes	Fair value	Fair value plus eligible transaction costs
*Amortised cost*		√
*Fair value through other comprehensive income*		√
*Fair value though profit or loss*	√

IFRS 9 retained the guidance from IAS 39 that – the best evidence of fair value at initial recognition is normally the transaction price – i.e. the fair value of the consideration given or received for the financial instrument. (IFRS 9.5.1.1A, IFRS 9.B5.1.2A)

However, if this is not the case, any difference is accounted for in accordance with the substance of the transaction. If there is a difference between the entity’s estimate of fair value at initial recognition and the transaction price, then:

if the estimate of fair value uses only data from observable markets, then the difference is recognised in profit or loss; or
in all other cases, the difference is deferred as an adjustment to the carrying amount of the financial instrument.

The ‘which’ and ‘how’ of fair value measurement

Onerous

29/06/2021 by 75385885

This is an overview of the use of onerous in the IFRS Standards, the major Standard being IAS 37 (see below).

IAS 37: ‘Onerous Contracts – Cost of Fulfilling a Contract’

IAS 37 defines an onerous contract as one in which the unavoidable costs of meeting the entity’s obligations exceed the economic benefits to be received under that contract. If an entity has a contract that is onerous the present obligation under the contract should be recognized and measured as a provision. An onerous contract is one in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it.

The amendment to IAS 37, that will become effective 1 January 2022, clarifies the meaning of ‘costs to fulfil a contract’. Contract costs Contract costs The amendment was part of some narrow-scope amendments issued by IASB in May 2020.

The amendment explains that the direct cost of fulfilling a contract comprises:

the incremental costs of fulfilling that contract (for example, direct labour and materials); and
an allocation of other costs that relate directly to fulfilling contracts (for example, an allocation of the depreciation charge for an item of PP&E used to fulfil the contract). (IAS 37.68A)

The amendment also clarifies that, before a separate provision for an onerous contract is established, an entity recognises any impairment loss that has occurred on assets used in fulfilling the contract, rather than on assets dedicated to that contract.

The amendment could result in the recognition of more onerous contract provisions, because previously some entities only included incremental costs in the costs to fulfil a contract.

IFRS 5 Non-current assets Held for Sale and Discontinued Operations

01/02/202131/01/2021 by 75385885

IFRS 5 Non-current assets Held for Sale and Discontinued Operations

at a glance – here it is the ultimate summary:

IFRS 5

Source: https://www.bdo.global/en-gb/services/audit-assurance/ifrs/ifrs-at-a-glance

Definitions
Cash-generating unit – The smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.	Discontinued operation – A component of an entity that either has been disposed of or is classified as held for sale and either: Represents a separate major line of business or geographical area Is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations Is a subsidiary acquired exclusively with a view to resale.
SCOPE Applies to all

IAS 36 Best brilliant impairment of telecom assets

05/12/202018/03/2020 by 75385885

IAS 36 Best brilliant impairment of telecom assets sets out the procedures that an entity should follow to ensure that it carries its assets at no more than their recoverable amount. Recoverable amount is the higher of the amount to be realised through using or selling the asset.

Where the carrying amount exceeds the recoverable amount, the asset is impaired and an impairment loss must be recognised.

The standard details the circumstances when an impairment loss should be reversed, and also sets out required disclosures for impaired assets, impairment losses, reversals of impairment losses as well as key estimates and assumptions used in measuring the recoverable amounts of cash-generating units (CGUs) that contain goodwill or intangible assets with indefinite … Read more

Revenue not from a contract with a customer

24/02/202002/03/2019 by 75385885

Revenue not from a contract with a customer – Revenue from transactions or events that does not arise from a contract with a customer is not in the scope of IFRS 15 and should continue to be recognized in accordance with other standards. Such transactions or events include but are not limited to: Revenue not from a contract with a customer

Dividends, Revenue has to be recognized when the owner’s right to receive payment is established. It is only certain when the company declare the dividends on the shares and the directors actually decide to pay the dividends to their shareholders,
Non-exchange transactions, such as donations or contributions. For example, contributions received by a not-for-profit entity are not

Capitalisation of expenditure – 1 Complete answer

Capitalisation of expenditure

Capital expenditure (including equipment repairs and maintenance)

Initial recognition of indirect costs

Subsequent recognition of indirect costs

Initial measurement financial instruments

Initial measurement Financial instruments

The ‘which’ and ‘how’ of fair value measurement

Onerous

IAS 37: ‘Onerous Contracts – Cost of Fulfilling a Contract’

IFRS 5 Non-current assets Held for Sale and Discontinued Operations

IFRS 5 Non-current assets Held for Sale and Discontinued Operations

at a glance – here it is the ultimate summary:

IAS 36 Best brilliant impairment of telecom assets

Revenue not from a contract with a customer

Financial asset

IAS 41 Agricultural activity

Monetary items