ACCA 2 Dipac GovGrants_Investment Property_Impairment_Intangible Assets.docx

7/30/2019 ACCA 2 Dipac GovGrants_Investment Property_Impairment_Intangible Assets.docx

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CONTENTS:

TANGIBLE ASSETS: IAS38 & SIC 32 ...................................................................................................................... 3

INCLUSIONS&EXCLUSIONS ....................................................................................................................................... 3

EXCLUSIONS ........................................................................................................................................................... 3

INCLUSIONS: .......................................................................................................................................................... 3

DEFINITIONOFINTANGIBLEASSET: ........................................................................................................................... 3RECOGNITION ............................................................................................................................................................ 4

MEASUREMENT ......................................................................................................................................................... 5

INITIAL MEASSUREMENT ....................................................................................................................................... 5

SUBSEQUENTMEASUREMENT: ................................................................................................................................. 8

INDEFINITEUSEFULLIFE............................................................................................................................................. 8

FINITEUSEFULLIFE .................................................................................................................................................... 9

USEFUL LIFE ........................................................................................................................................................... 9

RESIDUAL VALUE: .................................................................................................................................................. 9

AMORTISATION METHODS .................................................................................................................................... 9

IMPAIRMENTS ........................................................................................................................................................... 9

RETIREMENTSANDDISPOSALS .................................................................................................................................. 9

If separate COMPONENTS ARE REPLACED / ETC. .................................................................................................. 9

TAXATION .................................................................................................................................................................. 9

FINANCIALSTATEMENTPRESENTATION:................................................................................................................... 9

OVERNMENT GRANTS IAS 20 , SIC10 ................................................................................................................. 12

Special Notes : ..................................................................................................................................................... 12

SCOPE: ..................................................................................................................................................................... 12

DEFINTIONS : ............................................................................................................................................................... 12

RECOGNITION: ......................................................................................................................................................... 12

GENERALACC.ASPECTS ........................................................................................................................................... 12

GRANTSRELATEDTOASSETS: .................................................................................................................................. 12

GRANTSRELATEDTOINCOME: ............................................................................................................................... 14

REPAYMENTSOFGRANTS:MUST SEE EXAMPLES IN GAAP BOOK..................................................................................... 14

SPECIFICFORMSOFGOVERNMENTGRANTS: .......................................................................................................... 15

TAXSPECIALIMPLICATIONS ..................................................................................................................................... 16

DISCLOSURE ............................................................................................................................................................. 16

S 36 IMPAIRMENT ............................................................................................................................................ 19

SCOPE ...................................................................................................................................................................... 19

WHENTOTESTFORIMPAIRMENT: .......................................................................................................................... 20

RECOGNITIONANDMEASUREMENT ....................................................................................................................... 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


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CORPORATE ASSETS : ........................................................................................................................................... 23

TAXATION ............................................................................................................................................................ 24

DISCLOSURE: Impairments .................................................................................................................................. 24

VESTMENT 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

INTRAGROUPINVESTMENTPROPERTY ................................................................................................................... 30

DISCLOSURES ........................................................................................................................................................... 30

DEFERREDTAX ......................................................................................................................................................... 30


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NTANGIBLE ASSETS: IAS38 & SIC 32

pecial Notes :

a) In order to be classified as an intangible asset, an item must be identifiable, , controlled by the entity and UUexpected to rendereconomic 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&LProfit before tax Note .

i) If any research / R&D costs were EXPENSED, all depreciation like mentioned above that was part of must go into thisResearch 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 fromdepreciation and moved to capitalised Intangible Asssets

c) If the Remaining useful life changesallways remember to add all years used already to whats left to get the TOTAL useful life thgoes in the Accounting Policy Notes.

NCLUSIONS & EXCLUSIONS

EXCLUSIONS

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 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, (sale

others) it is covered by IAS2 inventory.

b) Deferred tax assets :by IAS 12c) Leases : by leases IAS (I think if you leased something to someone else / or an operating lease, not sure) BUT IF AN INTANGIBN

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 contractswithin the scope of covered by IFRS 4 Insurance Contracts.

e) Held for sale : Noncurrent intangible assets classified as held for salef) Goodwill : arising on a business combination (covered by another ias)g) Employee benefits : assets arising from this. Covered by another IAS.

h)

INCLUSIONS:

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

0) 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.

2)

DEFINITION OF INTANGIBLE ASSET:

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 thentity with it)

(2) OR Arises from Contractual or Legal rights (matters not whether they can be separated from entity or other legal rights


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not)

ii) Goodwill is not classified as a intangible asset because it is NOT separable from the entity and does not arise from contractual other legal rights Goodwill is covered by IAS Business Combinations and is treated similar to an Intangible asset so it is in e

recognised . (so what is goodwill then , and under what ias does it fall for a non-business combination. .AND could it maybe b

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 tracontract, 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 exchang

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 itemmeets:

a. (a) the DEFINITION of an intangible asseti. 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 w

flow to the entity; and

2. (b) the cost of the asset can be measured reliably. : Main Extra Oneii. 22 An entity shall assess the probability of expected future economic benefits using reasonable and supporta

assumptions that represent managements best estimate of the set of economic conditions that will exist over

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

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..

2. Useful Lives : If a number of intangible assets make up a brand, then they may be recognized as a single asset only if theiruselives are similar.

3. Together with another asset :Ifan intangible asset is only SEPARABLE if it goes together with some other asset, contract orliability , it only gets recognized together with that item as 1 item.(components of 1 asset)

4. SUBSEQUENT EXPENDITURE on intangible assets can be capitalized buta. 1st :Only rarely will subsequent expendure on asset meet this requirement aboveb. 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 capitalisedf. After an Intangible Asset is in a condition to be able to be used :as management internded, additional costs are NO

capitalised any more except in special circumstances- same as other assets. So eg: monthly licence fees after an asset

being used already are NOT capitalised . Future capitalisation of subsequent costs is Unlikely but possible since

often difficult to separate it from normal operating costs of the company

5. ALLOWED:a. Allowed examples of funny intangible assets on acquisition OF A BUSINESS COMBINATION: (not sure about

double check)

1. Customer or order backlog2. Existing contracts with customers3. Construction permits4. Unpatented technology5. Trade secrets


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6. Copyright protected or NOT databases.7. Franchise agreements8. Audiovisual material9. Pictures/photos10. Customer contracts or relationships11. Internet domain names

b. PREPAYMENTS OF SOME TYPES ARE ALLOWED?( HOW/WHICH?)c. Customer lists (not normally but under special circumstancesEG IF LEGAL RIGHT like contractually bound + i

similar transactions of these being sold lately as eveidence + active market)

d. Import quotase. Franchisesf. Marketing rightsg. Intangible asset held under a finance lease: not the lease but the intang. asset held under ith. 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 andincluded in this IAS38.

i. Patentsj. Copyrightsk. Fishing licencesl. Software: is an intangible asset, even though it may be stored on a diskm. .

6. NOT ALLOWED:a. Windows operating system is intangible asset (software) should form part of the computer hardware because they c

operate separately, but should be depreciated as a separate component because it has a different useful life to compute

MEASUREMENT

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

INITIAL MEASSUREMENT

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 NOTcapitalised any more except for special circumstances - same as other assets. So eg: monthly licence fees after an asset is b

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 .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 Intangibassets per definition? Do tyhey fall undere ias38and 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 th

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


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j

d) AS PART OF A BUSINESS COMBINATIONi) 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 acqu

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.(IA

say Research & Develop. Cost- so not sure if they must go together or can research costs be separate to be recognised ?) (their

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 theiruselives are similar.

vi) Together with another asset :Ifan intangible assest is only SEPARABLE if it goes together with some other asset, contract oliability , 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 thesedouble 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- PAYMENTSi) 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?)

f) 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-

then all expenses that may be capitalized must be capitalized to the asset)(d) NOT costthey call it fair value in the book!

g) EXCHANGE / BARTERi) 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 measurewhat 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 y

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 ASSETi) GOODWILL

(1) Internally generated goodwill is NOT , it is not 1-separable 2 legal rights .Goodwill that is aquired in a Business Combinadoes not fall under IAS38 , it falls under IAS Business Combinations, - so it is recognised as an asset, but under a complet

different set of rules.

ii) INTERNALLY GENERATED NEWSPAPER MASTHEADS, BRANDS, PUBLISHING TITLES, CUSTOMER LISTSSIMILAR 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 SEPARABnor 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 po

since it is often difficult to separate it from normal operating costs of the company .


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(2) In order to asses if interbally generated may be recognized, and at what cost, one must separate them into 2 sections : aresearch phase and a development phase. If it cannot be separated it must be deemed to be a research phase onlywhich m

it gets written off.

(3) RESEARCH PHASE :EXPENSE :see definition :basicly original & planned investigation for newknowledge/understandingalways 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 developm

costs, must be deducted from depreciation, and in profit before tax note under the deprec. line item, in sep

line , Blocked Off : say less 1200 allocated to capitalization of development costs. dont forget ,and this go

into capitalized development costs. So Depr. is shown in Profit before Tax , and the total is net of these cost

but blocked underneath it shows them clearly what was neted out of the depreciation. Note: in PPE table thi

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 eithertaken out. I THINK you take it out of depreciation in the SCi -fin stats same as co

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

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 seintangible 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

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 bene

flowing from it.

(c) The process must be divided into the research or development stage to see what part is capitaisable. SEE SIC32 appen


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SUBSEQUENT MEASUREMENT:

COST MODEL:a) AFTER initial recognition, it is carried at costs less amortization or impairment losses.

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 alonecost .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 needbe transferred on sale NOR for depreciation, it can be kept as is as a Capital replace ment reseve ,or even transferred to another res

as asset replacement reserve when sold /depreciated etc.

NDEFINITE USEFUL LIFE

Eg patent that can be renewed every 20yrs , at little cost. Indefinite means can end but not in foreseeable future. , that is different to infin

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


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estimate procedure.

FINITE USEFUL LIFE

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.

It is done the same as depreciation, no different.

USEFUL LIFE

Either period deemed available for use, or no. of production units .

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 fordetails.

Useful life reviewed yearly , any change is a Change in accounting estimate.

RESIDUAL VALUE:

(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.

jIT IS ASSUMED TO BE zero for intangible sssets, UNLESS exceptionally :

a) Commitment by 3rd party to purchase it existsb) Actve Market .Reviewed yearly change is a Change in Accounting estimate.

If increases to above carrying amount, amortization ceases until it drops below.

AMORTISATION METHODS

Use straight line if cannot choose , or else reducing balance , unit of prodution etc.

Begins when asset is AVAILABLE FOR USE , Ends when classified as held for sale , or derecognosed.

MPAIRMENTS

IAS 36 impairment is used to do this.

Following is important:

a) Indefinite useful life : tested annually for impairment, and whenever there is an indication of impairment as wellb) Not yet available for use : annuallyc) All other : only needs to be assessed at reporting date to see if there is any INDICATION of impairment else never impairment te

RETIREMENTS AND DISPOSALS

To be derecognized IMMEDIATELY WHEN

a) on disposalb) OR the date when no future economic benefits are expected from its use or scrap value.(rule in IAS38)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 finan

cost.

IF SEPARATE COMPONENTS ARE REPLACED / ETC.

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

Income tax act : 11B = research & develop. 11g(C) trade marks, copyrights etc.

Deferred tax temporary difference etc work exactly the same as for PPE.

FINANCIAL STATEMENT PRESENTATION:

ACCOUNTING POLICY :

a) Put every policy under a small subheading eg : RESEARCH COSTS, DEVELOPMENT COSTS for internally generated intang., Property,Plant & Equip , Amortisation ,Impairment.

b) If Useful lives are definite or indefinite. For each class of asssets

c) Amortisation method used


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d) , Any other policy eg Cost /Revaluation methods, Net /Gross methods / whether Reval.Surplus. goes to Ret.Earn at sale or depreciif That research costs are expensed when incurred. That development costs are capitalized if all recognition requirenets are met(per

example in textbooknot in IAS) .etc.etc etc. any you can think of .(does this also have to be there, like for PPE,???)

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..Assetsthat part of it gets shown under and added to DEVELOPMENT COSTS, since it is blocked off underneath under the DEVELOPM

line item, in separate line , Blocked Off : say less (1200) from development costs. + REM for a block, all the amounts making it u

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 th

were deducted. If there is no part of amortization that is left after this, then no separate heading for amortistion is needed, the one

block is enough. But if some part of amortization is still left, that was not part of CAPITALISED Dev. Costs, then Amortisation co

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.(blocc) All researchcosts 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 af) Depreciation:

i) on machines etc, , that was allocated to research&development costs as an EXPENSE , must be taken out of depreciation, andinto research costs or dev.costs , and in profit before tax note under the deprec. line item, in separate line , Blocked Off : sa

1200 allocated to research costs. dont forget ,and this goes into research costs then .+ REM for a block, all the amountjs maki

Hup must be in the block, so original total depreciation must be first line of block, then these other under in brackets to show th

were deducted.

ii) on machines, allocated to CAPITALISATION of research costs, must be deducted from depreciation, and in profit before tax under the deprec. line item, in separate line , Blocked Off : say less 1200 allocated to capitalization of development costs. do

forget ,and this goes into PPE capitalize development costs .

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 tab

line for amortization or to Profit before tax note for the year)

PPE TABLE : do a separate one for Intangible Assets (for current & comparative period , on top of each other or next to each o

a) A separate table, same as for PPE ,must be made. The different classes should be distinguished byi) 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 whIAS calls it)

i) Amortisation

ii) Capitalized Development Costsiii) Reva;uations Incr. or Decr. + Impairment losses from Other Comprehensive incomeiv) Impairment losses from Profit & Lossv) Impairment losses REVERSED in P&Lvi) Disposalsvii)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 operationthe 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 grantif you got them from this : details (see IAS 38)iv) Any Pledged as securitydetails (see IAS 38)v) Contractual commitments for acquisition of any new ones: (see IAS 38)

REVALUATED ASSETS: a whole table with various things must be shown if there are any of these (see IAS 38)

SOME OTHER NON-COMPULSORYthings see (see IAS 38)


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REVALUATION OF INTANGIBLE ASSETS :

class Class 1: Patents:At Cost

Class 2: Brands:

Revalued

Class 3:

software

Revalued

Class 4 :

Under

Develoment

:Revalued

Date of Revaluation

Carrying Amount Revaluation

What Carrying Would Have Been at cost

REVALUATION SURPLUS (INTANGIBLE ASSETS)INTANGIBLE ASSETS

Begin of Period xxxx

Revaluations Patents xxx

Revaluations Software xxx

End of Period xxxx

Restrictions on the distribution of the balance of Revaluation Surplus of Intangible assets to sharholders - it may

/ ( may not) be distributed to sharholders.

INTANGIBLE ASSETS :

Internally generated Not Internally Generated

Class 1:

Patents:

jAt Cost

Class 2:

Brands:

Revalued

Class 3:

software

Revalued

Class 4 :

Under

Develoment

:Revalued

Gross Carrying Amount begin year: 10000 xxx Xxx xxx

Accumulated Amortisation & Impairment beginYear: 200 xxx Xxx xxx

Additions : Internal Development xxx xxx Xxx xxx

Additions: Aquired Separately xxx xxx Xxx xxx

Additions: Business Combinations xxx xxx Xxx xxx

mpairment : Losses in OCI xxx xxx Xxx xxx

mpairment :Reversed in OCI xxx xxx Xxx xxx

mpairment : Losses in P&L xxx xxx Xxx xxx

mpairment :Reversed in P&L xxx xxx Xxx xxx

Net Total Revaluations for the yearxxx xxx Xxx xxx

Amortisation for the year: xxx xxx Xxx xxx

ransferred to Held for Sale xxx xxx Xxx xxx

ransferred to Held for Sale Disposal Groups: xxx xxx Xxx xxx

Net Foreign Exchange differences xxx xxx Xxx xxx

Any Other Changes xxx xxx Xxx xxx

Gross Carrying Amount end year: xxx xxx Xxx xxx

Accumulated Amortisation & Impairment end

Year: xxx xxx Xxx xxx


12/30

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 NOTdeferred 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 yearthat 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

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 reasthen 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 fromnormal trading transactions of entity

Defintions :

2. See IAS 20 , on difference between eg gov. assistance and gov . grant , or asset related or income related3. Note : any grant which is NOT asset related, is then seen as INCOME related.4.

RECOGNITION:

1. RECOGNITION :a. ONLY WHEN THERE IS REASONABLE ASSUREANCE THAT:

i. Entity will comply with the conditions of the grantii. 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

the entity)

2. MEASUREMENT:3.

GENERAL ACC. ASPECTS

1. LIABILITY :Grant should be accounted for as a liability if there is uncertainty as to whether conditions will be complied with by tentity- see recognition rule.

2. GOVERNMENT CONDITIONS OF GRANT : because grants are seldom without a condition that the entity must comply with 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 whthey are intended to compensate. ( matching principle must be applied to theis)

b. Should NOT be credited directly to shareholders interests.3. 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

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 ( matchiprinciple)

GRANTS RELATED TO ASSETS:

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


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appear as one cent of income in OTHER INCOME. Only the future less depreciation is where it creeps in BUT NEVER in its life

incomein P&L at all even once. A deferred income accounted grant only gets the transfer from Def Inc.Acc to Gov Grant income a

yrs incomenot 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 go

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 withb. 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: eitheri. 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 taasset than before (if possible with SARS for that asset class of course) ( but per textbook, keep grant in

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 FIR

YEAR first : put original PPE price AS ADDITIONS , then after that deduct Gov Grant in sam

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 DE

DIFFERENCE IS WHERE THE EARNINGS FOR YOUR WORK COMES IN EACH YEA

Dr Bank Cr Deferred Income account to store it in till you go buy the asset you got the grant fo

then when YOU go buy asset , account for it at its cost price , but then transfer from Deferre

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 me

only.

PPE TABLE : IF GRANT IS DEDUCTED FROM ASSET

ii. DEFERRED INCOME ACCOUNT set up a deferred income account , and recognize eiethr;1. Depreciable Assets :recognize grant as INCOME over USEFUL LIFE of of asset 2. Non-Depreciable Assets : identify the periods over which the entity will be burdened with the condition

the Go.Grant. then divide up and recognize the grant AS INCOME over these periods .

3. Journals :

a. Grant Received Income acc: : this is a income account in the SCI , and every year a portiotransferred to here , to show as profits for the year, thats it. (on original recipt of grant it goes tdeferred income , not to this one at all

b. Deferred income Acc: this is a Liability Cr account , opposite to a bank account side (Dr bCr 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 original price paid for it, and acc. depr. and depr. carry on as per 100% usual .

4.6. ASSET GIVEN TO YOU: eg landing rights or broadcasting licence

a. accounted for by: eitheri. 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 say

further accounting entries will be neccessary . ( Question: not sure if it must also get a deferred income account osame nominal value to be written to government grant received account each year? ) .


14/30

1. Journals :a. Grant Received : this is a income account in the SCI , and every year a portion is tyransferr

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 bankDeferred income ) . It shows in the SFP and every year a portion is transferred to grant Receiv

income account in the SCI . thats it .

c. PPE & : Deprecdiation :this grant does not affect depreciation in any way. The asset stays at original price paid for it, and acc. depr. and depr. OR amortization carry on as per 100% usual

licence would get amortised .)

7. PPE TABLE : IF GRANT IS DEDUCTED FROM ASSET

GRANTS RELATED TO INCOME :

1. These grants may be either :a. DEDUCT DIRECT FROM EXPENSES which they are meant to help with . ORb. RECOGNISE AS A INCOME in form of grant received income in SCI.

2. 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 ccounwhich it must help. This REDUCES that expense for the year Eg wages was 300 , now it is 100 from a 200 grant

journal shows : DR Deferred income CR Expense Account . Finished and klaar.

b. RECOGNISE AN INCOME METHODi. First Dr BANK CONTRA Cr Deferred Expenses Account

ii. Each period you transfer the portion for that period from DEFERRED INCOME account TO grant Receivedincome in SCI : Other Income . Finish and klaar.

3. NOTE : the grant must be apportioned to costs equally per year. So if you only get 100 ,a. year 1 costs = 200b. year 2 costs = 500c. year 3 costs = 400d. 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 yo

know will increase by 5% each year etc..

4. see example of complex salaries on page 328 gaap text. SCAN it in !

REPAYMENTS OF GRANTS: MUST see examples in gaap book

1. POSSIBLE REPAYMENT: If it is unsure wheter a grant must be repayed or not , it must be trted as a liability , UNTIL you are suneeds not get paid back.

2. WAS GRANT THEN LATER BECAME REPAYABLE : grant that was a grant, but then later becomes repayable, should be traas a Change in accounting estimate per IAS 8.

3. 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 Syou : Current Yrs Change: will include ALL previous yrs entreis that had to be reversed / were used as an incom

yrs all gets charged as an expense to P&L this year PLUS any reduction in what would have been recognized asgrant income in current year (say only part was to be refunded): The Furtur Effect is the difference in next years


15/30

new amount to be recognized.

ii. JOURNALS :If any part was used in prior years , and if all or only part must be repaid-a. 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

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&LGrant Repayable Expense CONTRA Deferred Income Acc. Then Deferred Income Acc CONT

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 account2. Then no 2 : Dr deferred income account CONTRA> CRGrant Repayable to Government Liability Ac

a creditor.

b. REPAYMENT OF ASSET GRANT IF ASSET REDUCTION METHOD WAS USED: See gaap book example fortricky parts.

i. Just:1. first INCREASE asset to original cost GRV CONTRA Gov Grant Repayable expense AccP&L2. 2ndwork out all depreciation up to date of becoming liable for the refund and charge to Gov Grant Repayabl

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 current years change will be all prior yrs deprec. and future change will be future yrs depreciation . .

4.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 periodicallotyment from deferred income account would have been , then anything EXTRA allotted t

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 Inc

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 togethe

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 a2. Depreciation ; you must immediately work out what the deprecition on the asset would have been if the grawas not ever given , and charge that to depreciation (and Acc .depr. of course) immediately.

b. 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

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 yearsincorrect entry, and 5000 less in respect of current year and Future effect is 5000 in respect of the following futu

year.

iii. Eg The change in estimate consists of 20000 which is the increse in depr. in current year from 42500 to 47500, an10000 in respect of past years 1 and 2, as well as 5000 increase in future year 4.

PECIFIC 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 GRAthat the grant provides. So if for a factory building in rural area- then the period of this is the useful life of buildingeg 40

etc. NOT for the duration eg 5 yrs of the interest free loan that was the government grant. So you write in the Defrred Gran

Income acc over 40 yrs, to Grant Income Acc. (you do not reduce the loan expense over the period of the loan as seems lo

it 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 CALCULATORTO 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 .


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e. SEE COMLEX JOURNALS & yrly AMOUNT IN gaap BOOK.f. 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 in

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 PVportion 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

3. Then follows a very complex order of journal entries till , of finance costs each year , etc see txt book.4. NOTE : the deferred income transfer to grant income account SCI P&L each year is not over the lo

period, but over the useful life of the asset. Eg building useful life = 20 yrs etc. NOT loan repayment p

5. See example pg 330gaap book :Scan it ing. 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 inand 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 PVportion 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. Then follows a very complex order of journal entries till , of finance costs each year , etc see txt book.

4. See example pg 330gaap book :Scan it in5.

2. FORGIVABLE LOANS : treated If there is reasonable assurance that the terms of the loan will be met by both parties, it is treasame as above.

3. 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 no

ie 1-nature + 2-extent + 3-duration. In government assistance notes , under its own sub heading in that note : cal

Other Forms Of Gov Assistence.

TAX SPECIAL IMPLICATIONS

1. ALL GOVERNMENTGRANTS , : pay tax 100% immediately unless stated otherwise, whether accounted for on the CAPITAL INCOME basis (less from asset cost OR deferred income account ) MUST be taken 100% in consideration for TAX in the period

are received or become receivable(if you can raise Gov.as a creditor ). So , even though income might be only recognosed over a p

of 10 years etc, you must actually pay SARS tax on the whole amount immediately when you get it, no matter which method you

2. 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 tobe Revenue Received in Advance for deferred tax

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

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 ano deferred income or anything else at allfinished and klaar.

DISCLOSURE

1. In SCIa. , 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.

2. STATEMENT OF CASH FLOWS :deals with gross amounts so , it does not matter if the grant is deducted from cost of assetrecogniosed over 50 years , that year you get it goes in as under : INVESTING ACTICITIES FULL PRICE PAID FOR ASSET

Financing Activities : FULL AMOUNT OF GRANT

3. 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 hereie: next yrs transfer! ( Un

12 mnths)

4. ACCOUNTING POLICY:


17/30

a. In its own sub-heading :GOVERNMENT GRANTSb. 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 i

over 5 yrs, 10000 per yr etc.

c. GET THEM FROM GAAP BOOK5. PPE TABLE

a. As Usualb. REM : Assets recived as a grant get their own item Line in Middle by additions, depreciation etc, called : Government G

6. GOVERNMENT ASSISTENCE NOTE: ( number next to deferred income item in SFP, or in SCI if Grant Income is shown.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


18/30

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

OTE 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.

AMOUNT 36000 (40 000 4000 recognised this year )

0 (carrying amount less AMOUNT NOT taxable in future of 36000 since all was already taxed in year of receipt from

Governmenet by SARS.)

ff 36 000D TAX 10800 - not exempt. Tax Laibility

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

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

ely creates a larger temp. diff finish and klaar..

1.1. .........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.1.2. 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.

AMOUNT Done as normal PPE in the assets account, not as a Income Rec in Advance.

ff

D TAX

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

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

t 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

reciate 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.1.2. 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.

AMOUNT 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)

ff 42000 the book deducts the gov grant temp diff here after working it out using income rec. in advance method - butdont do it that way, use your way using carrying amount. Their way is complex and riddled with inconsistencies.

D TAX 12600 - not exempt. Tax Laibility

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

e 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 isnon taxable it does not affect taxable profit on recognition so it EXEMPT under IAS12.15/24

AMOUNT 36 000 ( 40000 4000 recogniosed this year in P&L as gov grant income)

0 (36000 less amount not taxable in future of 36 000= 0 )

f Exempt per rule IAS 12.15/24

TAX Exempt per rule IAS 12.15/24


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AS 36 IMPAIRMENT

ear Student

es, goodwill account will become less due to the impairment.

ear Lecturer

1(a) if goodwill is allocated to CGUs or to assets for the purposes of impairment testing : does one actually move this goodwill those assets as a component of those assets or is it simply a completely separate calculation that never actually gets journali

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 separa

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 /lo

Does one therefore reduce the Goodwill Account balance by the portion of goodwill that has been sold with the Asset /CGU it w

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 fa

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 impaireddo you ONLY write off the impairment on asset number 5 and leave the others at their

level?

You will firstly allocate the impairment to goodwill, then you will allocate the impairment only to asset no 5, limited to its

coverable 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 versionthey do something similar to a corporate assetthey

state that the assets mentioned could be ABOVE their fair valuewhy 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 amo

surely one can ?)

In this question the recoverable amount is higher than the carrying amount, thus no impairment can be allocated to these assets.

nce they are already carried at below their recoverable amount,

the impairment cant be allocated to them.

COPE

1. Specifically Excluded:a. Inventoriesb. Construction contract assets

c. Deferred tax assetsd. Employee benefit assetse. Financial assets in scope of ias 39f. Investment properties at fair valueg. Biological assetsh. N-C assets classified as held for sale per IFRS 5i. Intangible assets in scope of IFRS 4

2. Specifically included:a. Investment in Associates, subsidiaries ,joint ventureb. goodwillc. PPE ,goodwill , intangible assets

3. However , if any asset has been revalued, this IAS36 statement DOES apply from then on .(only for some or all of the above, and does it cease to apply again?)


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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 indicationonly yrly)

2. ONLY ASSESS IF AN INDICATIONDONT ACTUALLY TEST LIKE ABOVE 3 :at reporting date to assess IF there indication that there might be impairment. If no indication , dont test for nothing.

a. All other assets

3. 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 dedicatb. (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 teria

c. (d) the carrying amount of the net assets of the entity is more than its market capitalisation.

Internal sources of info :\a. (e) evidence is available of obsolescence or physical damage of an asset.b. (f) significant changes with an adverse effect on the entity have taken place during the period, or are expected to take plac

the near future, in the extent to which, or manner in which, an asset is used or is expected to be used. These changes includ

asset becoming idle, plans to discontinue or restructure the operation to which an asset belongs, plans to dispose of an asse

before the previously expected date, and reassessing the useful life of an asset as finite rather than indefinite.*

c. (g) evidence is available from internal reporting that indicates that the economic performance of an asset is, or will be, worthan expected.

For an investment in a subsidiary, jointly controlled entity or associate,a. 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 theconsolidated 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 inperiod the dividend is declared.

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 b

reduced to its recoverable amount. That reduction is an impairment loss.

2. MEASUREMENT:a. At higher of fair value less costs to sell orPV of future cashflows.

MEASUREMENT:

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 orfair value;l less costs to sell.

So you do not have to test for impairment ifANY 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.

LAST YEARS value calc. may be used again , if :a) If part of cashgen. unit assets&liabilites of it have not changed muchb) It exceeds carrying amount by far marginc) Events/ economic conditions do not indicate a problem.

FAIR VALUE LESS COSTS TO SELL:

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

orderly transaction between market participants at the measurement date, less the costs of disposal. (disposal specifically exc

finance coststhat you charge-& tax & employee wages/termination benefits) [Either a 1- binding sale agreement , 2-active ma

price , or 3- between willing , knowledgeable.)]

VALUE IN USE:

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


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FUTURE CASH FLOWS

1) Cash flow projections should be based on REASONABLE and SUPPORTABLE assumptions , of managements best estimate of 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

steady 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 performanceshould be ignored, and any future inflows from better performance due to this must also be ignored. UNLESS it is not yet availab

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 , noif it is planned. Also any eg transport costs or termination costs of employees , must be expensed to the restructuring and not to t

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 dispo

costs.

11) Not Yet ready for Use: You must include cash outflows to get it ready for use.

DISCOUNT RATE

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.

Cash flows & discount rates should reflect consistent assumptions , so if inflation is incl. in cashflows, it must also be considered in discrate, and visa versa. ( specific price incr. MAY be used in cashflows without considering discount rate)

INDIVIDUAL ASSET : RECOGNITION AND MEASUREMENT OF AN IMPAIRMENT LOSS

To SCI / RevalSurpl.: Any impairment is written off to SCI immediately , 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 i

Reval.Surpl. account, gets written out of Revaluation Surplus account first.

TO REVALUATION RESERVE : Journal Entry :

Dr Revaluation Reserve Accout (OCI) (afternet- of deferred tax since the whole Reval Acc is already net

Cr Accumulated Depreciation & Impairment Account . SFP

TO P&L :Journal Entry :

Dr Impairment Loss Account (SCI)

Cr Accumulated Depreciation & Impairment Account . SFP) Depreciation is adjusted accordingly , same as for a revaluation or depreciation, on the assets new value from the

on.

DEFERRED TAX :

Note ; A POST TAX REVALUATION SURPLUS , with deferred tax at R10 of the reval. of R50 means a true revaluation surpluR60

a) Deferred tax must always be removed before entering an impairment or reverse into the revaluation Acc afternet- of

deferred tax since the whole Reval Acc is already net, .So in a question , rem that when you do a Deferred Tax entry fthe reduction in deferred tax (an -increase in tax asset or a decrease in tax liability of course- for a devalued asset due to

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) ORiii) Dr Deferred Tax (SFP)

Dr Revaluation Surplus (OCI

Cr Accumulated Depreciation & Impairment Account .


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REVERSAL OF AN IMPAIRMENT LOSS FOR AN INDIVIDUAL ASSET:

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, som

middle depends)

SEE IAS 36 FOR at a minimum what should be considered when you re-asses at reporting date if any previously impaired assets m

reversed.

It may not be reversed just because thePV of future cash flows increases over time as future cash flows draw nearer. ( the closer they

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 .

An impairment may not be reversed ifthe carrying amount , net of depreciation and amortistation , will be higher than what it was if

impairment had not been done years ago. Any increase above this amount is seen as a revaluation , and may only be done by the revalua

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 , cathat means it WENT UP , and that is a revaluation! , not a reversal .

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 amoun

first reverse any previous P&L decrease/charge/expense from the last impairment , then the rest MUST go to Revaluation Surplus.(it ma

only reverse a former P&L expense , if there is none it ONLY goes to OCI Reval. Surpl. Acc.

) Depreciation is adjusted accordingly , same as for a revaluation or depreciation, on the assets new value from thon.

) Journal Entry :Dr Accumulated depreciation & Impairment Losses. (SFP) R100000

CR DEFERRED TAX (only for reval acc partNOT p&l part)

CRREVALUATION SURPLUS (OCI) R30000 (less deferred tx to dfrrd

CR Impairment Loss Reversal(SCI) R70000

CGU: CASH GENERATING UNITS

1. CGU is the smallest set of assets that generate cash inflows from continuing use that are largely independant of cash inflows from oassets or CGUs

2. Impairment :a. ALLOCATION: IMPAIRMENT LOSS must be allocated in the following way to a CGU:

i. FIRST TO GOODWILL ALLOCATED TO THAT CGU/ASSETii. 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 thatsupposed to be allocated to that asset must be allocated to the other assets.:

i. Their Fair value less costs of disposalii. Their Value in useiii. Zero.

c. REVERSAL OF IMPAIRMENT LOSS : a reversal must be allocated to the assets in a unit EXCLUDING GOODWILgoodwill is not increased again.

i. In allocating the impairment reversal, the individual assets may not be increased to above the following:- and anexcess must be allocated to other assets in the group.- If it cannot be allocated to other assets because they are all

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 thCGU : then you have to FIRST TEST THAT ASSET FOR IMPAIRMENT AND ACTUALLY IMPAIR ITbefore yo

the CGU , then afterwards carry on with the CGU as a whole.

3. VALUE IN USE:ja. IF output is used internally, do not use internal transfer pricing, but use market value if it were to be sold to measure v

in use. (fair value)

b. If Input costs are from internal production: transferred at internal transfer pricing : you must NOT use the cost frominternal transfer pricing, BUT the cost of what it would cost on the open marketfair value- when valuing the input co

to calculate the value in use of a CGU.

4. 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

calculationstuff like if you sell an asset then you have to take over a liability or something but not loans to buy a mach

useems..


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b. Fair value less costs to sell : If a Liability is included in the Fair value less costs to sell then it MUST ALSO be includedthe carrying amount when comparing carrying to fair value , AND it must also get included in the Value In Use calculati

ALL 3per textbookin order to get a meaningful comparison. (else you might compare a lowered carrying to a highe

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 decrvalue 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 BENEFITFROM THE SYNERGIES OF THE BUSINESS COMBINATION. Even if these CGU or asset is NOT part of subsidiary

only part of Parentit must still be allocated if synergies are expected. HOWEVER each CGU should not be larger than

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 includedwhen 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 thegoodwill 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 CG(due to the goodwill attached = yrly) there is an indication that a single asset in the CGU is impairedyou 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 d

not allocate any goodwil to it , or impair goodwill at all that only gets done when the CGU it was allocated to is done

separatelythen goodwill gets done with it.

e. JOURNALS : impairment of a CGU with goodwilli. Impairment Loss

1. Accumulated depreciation & impairment of ASSET2. 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 goodwthose 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 sep

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 profi/loss. Does one therefore reduce the Goodwill Account balance by the portion of goodwill that has been sold with the Asset

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 Bank14. 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: thei

value is known to be above carrying amount, but they are not sure about asset number 5 ---- And then the CGU is tested fo

impairment and found to be impaireddo you ONLY write off the impairment on asset number 5 and leave the others at t

old level?

19. You will firstly allocate the impairment to goodwill, then you will allocate the impairment only to asset no 5, limited trecoverable amount. T

Documents

ACCA 2 Dipac GovGrants_Investment Property_Impairment_Intangible Assets.docx