IAS 36 How Impairment test

IAS 36 How Impairment test is all about this – When looking at the step-by-step IAS 36 impairment approach it comes down to the following broadly organised steps: IAS 36 How Impairment test

  • What?? – Determining the scope and structure of the impairment review, explained here,
  • If and when? – Determining if and when a quantitative impairment test is necessary, explained here,
  • IAS 36 How Impairment test or understanding the mechanics of the impairment test and how to recognise or reverse any impairment loss, if necessary. Which is explained in this section…

The objective of IAS 36 Impairment of assets is to outline the procedures that an entity applies to ensure that its assets’ carrying values are not … Read more

Change in accounting estimate

Change in accounting estimate – An adjustment of the carrying amount of an asset or a liability, or the amount of the periodic consumption of an asset, that results from the assessment of the present status of, and expected future benefits and obligations associated with, assets and liabilities. Changes in accounting estimates result from new information or new developments and, accordingly, are not correction of errors.

Therefore no retrospective restatement of financial statements is needed. The adjustment is recorded in profit or loss in the period it was re-estimated/re-calculated/re-validated.

Changes in accounting policies | Correction of errors Changes in estimates

Estimation involves judgements based on the latest available, reliable information. For example, estimates may be required in calculating (and thus … Read more

Change in accounting policy?

Change in accounting policy Change in accounting policy – Oil and natural gas properties, including related pipelines, are depreciated using a unit-of-production method. The cost of producing wells is amortized over proved developed reserves. License acquisition, common facilities and future decommissioning costs are amortized over total proved reserves. The unit-of-production rate for the depreciation of common facilities takes into account expenditures incurred to date, together with estimated future capital expenditure expected to be incurred relating to as yet undeveloped reserves expected to be processed through these common facilities.

This clearly shows all the estimates involved in setting up a depreciation policy. Not only in a complex environment as the oil and gas industry but also in a manufacturing business consisting of a complex logistical … Read more

Property plant and equipment

Property plant and equipment are tangible items that are held for use in many different ways and are expected to be used during more than one period.

IAS 41 Agricultural activity

IAS 41 Definition of agricultural activity -  The management by an entity of the biological transformation and harvest of biological assets

What is the component approach?

What is the component approach What is the component approach – Property, plant and equipment (PPE) is often composed of various parts with varying useful lives or consumption patterns. These parts are (individually) replaced during the useful life of an asset.

Therefore: What is the ‘component approach’?

  • Each part of an item of PPE with a cost that is significant in relation to the total cost of the item is depreciated separately (except where one significant part has a useful life and a depreciation method that is the same as those of another part of that same item of PPE; in which case, the two parts may be grouped together for depreciation purposes [IAS 16.45]; and
  • The cost of a replacement of a
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Example impairment and revaluation of a building

Example impairment and revaluation of a building – On January 1, 2005 OwnPlus Inc. purchased a building for €2 million. Its estimated useful life at that date was 20 years and the company uses the straight-line depreciation method.

On December 31, 2009 the government embarked on a plan to construct a fly-over adjacent to the building and the related installation reduced the access to the building thereby decreasing the value of the building. The Example impairment and revaluation of a building company estimated that it can sell the company for €1 million but it has to incur costs of €50,000. Alternatively, it if continues to use it the present value of the net cash flows the building will help in generating is €1.2 million.

The basic rule … Read more

Change in accounting principles

Change in accounting principles – There is an underlying presumption that an accounting principle, once adopted, should not be changed for similar events and transactions. A change in principle may be Change in accounting principles caused by new events, changing conditions, or additional information or experience.

There are two circumstances when a company is required to change an accounting policy. These are:

  • If the change is required by a Standard or an Interpretation; or Change in accounting principles
  • If the change results in the financial statements providing more reliable and relevant information about the effects of transactions (or other events).

IAS 8 19 (b) requires retrospective application (i.e., the application of a different accounting method to previous years as if that new method had Read more