Non-Current Assets (Part II) PDF

Non-Current Assets 1 (Part II) 1 2 Non - Current Assets Connolly Chapter 10 IAS 36 Impairment Connolly Chapter 20 IFRS 5 Non Current Assets held for Resale and discontinued operations 2 IAS 36 Impairment of assets(Excluding...

Non-Current Assets 1 (Part II) 1 2 Non - Current Assets Connolly Chapter 10 IAS 36 Impairment Connolly Chapter 20 IFRS 5 Non Current Assets held for Resale and discontinued operations 2 IAS 36 Impairment of assets(Excluding 3 CGUs) Connolly Chapter 10 3 1  IAS 36 Impairment of assets 4 P.286-287 Impairment is the sudden drop in the value of a non-current asset over and above normal wear & tear/depreciation. Impairment occurs because something happens to the asset or to the environment in which it operates 4 5 An asset is impaired when: Net book Is Recoverable value/CV greater amount than Higher of Value in Fair value less use costs to sell Present Market value of value/ future cash binding sale flows agreement 5 Identifying Impairments P.286 -287 6 If asset is impaired – recognise an impairment loss Ref ex 10.1, 10.2 Identifying impaired assets:  External sources of evidence Internal Sources of evidence 6 2  Recognition P.289-290 7 Recognition and measurement of impairment loss for an individual asset Loss => Statement of Comprehensive Income as part of profit/loss for year unless Previous revaluation surplus => Equity Revise depreciation based on new carrying amount & may need to revise remaining useful life of asset 7 8 Impairment examples Example 1 Asset bought 1/1/2016 for €130,000 Depreciated over 10 years on a straight line basis On 1/1/2019 assessed for impairment – Value in use was estimated at €45,000 and fair value less costs to sell at €52,000. Calculate the amounts that will be reflected in the statement of Comprehensive income and the Statement of financial position in 2019 in respect of this asset 8 9 Impairment examples Example 2 Asset bought 1/1/2016 for €230,000 Depreciated over 8 years on a straight line basis On 31/12/2019 assessed for impairment – Value in use was estimated based on expected cash flows of €30,000 for each of the next 3 years. The business uses an interest rate of 10% discount rates are as follows: 9 3  10 Example 2 cont’d Year 1.909 Year 2.826 Year3.751  Fair value less costs to sell was estimated at €60,000 at 31/12/2019  Calculate the amounts that will be reflected in the statement of Comprehensive income and the Statement of financial position in 2019and 2020 in respect of this asset 10 11 Reversal of impairment loss P.303  Reversal should not bring asset to higher value than what it would have been had no impairment occurred.  Show in SOCI as an increase in profit (unless initial impairment loss was included in OCI)  Adjust depreciation charge based on new CV 11 Connolly Chapter 20 IFRS 5 – Non-Current Assets Held for Sale and 12 Discontinued Operations 12 4  IFRS 5 – Main Issues 13 Non-Current Assets Held for Sale Presentation of ‘Discontinued Operations’ 13 IFRS 5: Assets held for sale 14  Must classify a non-current asset as ‘held for sale’ if its carrying amount will be recovered through a sale transaction rather than through continuing use.  Conditions :P.499 Available for immediate sale in present condition & location Must be expected to sell with 12 months Unlikely to be withdrawn/changed Sale highly probable Management committed & Active marketing 14 Assets held for sale P.500 15 Measurement At the lower of the carrying amount and fair value less costs to sell; Recognise an impairment loss (in SOCI) for any write down Do not depreciate or amortise while classified as held for sale. Classification/presentation on face of SOFP Include IN CURRENT ASSETS 15 5  IFRS 5: Measurement Example 16 Denise PLC bought a machine on 1 January 2018 for €40,000 with an expected useful life of 10 years and no residual value. On 31 December 2019, Denise PLC decides to dispose of the machine and initiates procedures to find a buyer. The company is confident that it can be sold quite quickly for €33,000 but it will cost €2,000 to disable the machine for disposal. What value should the machine be stated at in the Balance Sheet of Denise PLC at 31 December 2019? 16 IFRS 5 – Discontinued operations 17 P.508 Discontinued Operation A component of an entity that either has been disposed or is classified as “held for sale” and is: a separate major line of business or geographical area part of a single coordinated plan to dispose of major line of business… is a subsidiary acquired exclusively for resale. 17 IFRS 5: Presentation and Disclosure 18  Presentation in FS P.508  single amount on face of SOCI comprising  after tax profit/loss of discontinued operations; and  after tax gains/losses on disposal of discontinued operations / assets  Notes to the financial statements:  must analyse the post tax profit/loss of discontinued operations into:  revenue;  expenses;  pre-tax profit;  tax expense. 18 6