Chapter 1 Non-Current Assets

LEARNING OBJECTIVES
1. Apply and discuss the timing of the recognition of non-current assets and the
determination of their carrying amounts including impairments and revaluations.
2. Apply and discuss the accounting treatment of investment properties including
classification, recognition and measurement issues.
3. Apply and discuss the accounting treatment of intangible assets including the criteria
for recognition and measurement subsequent to acquisition and classification.
4. Apply and discuss the treatment of non-current assets held for sale.
P r o p e r t y , P l a n t
a n d q u i p m e n t
! " A # 1 $ %
" n v e s t m e n t
P r o p e r t i e s
! " A # 4 & %
" n t a n g i b l e
A s s e t s
! " A # 3 ' %
( o v e r n m e n t
( r a n t s
! " A # 2 & %
) o r r o * i n g
+ o s t s
! " A # 2 3 %
" m p a i r m e n t
o f A s s e t s
! " A # 3 $ %
, o n - c u r r e n t
A s s e t s - e l d
f o r # a l e
! " . / # 0 %
, o n - + u r r e n t
A s s e t s
1
1. Property, Pant an! E"u#p$ent %IAS 1&'
1 e f i n i t i o n
2 + r i t e r i a
/ e c o g n i t i o n
" n i t i a l
2 e a s u r e m e n t
# u b s e q u e n t
+ o s t s
+ o s t
2 o d e l
/ e v a l u a t i o n
2 o d e l
# u b s e q u e n t
2 e a s u r e m e n t
1 i s p o s a l
2 e a s u r e m e n t
3 y p e t i t l e h e r e
1 e p r e c i a t i o n
P r o p e r t y , P l a n t
a n d q u i p m e n t
1.1 (e)#n#t#on
1.1.1 PP are tangible assets *ith the follo*ing properties.
!a% are held by an entity for use in the production or supply of goods or services,
for rental to others, or for administrative purposes4 and
!b% are e5pected to be used during more than one period.
1.* Re+o,n#t#on
1.2.1 /ecognition depends on t*o criteria6
!a% it is pro-a-e that )uture e+ono$#+ -ene)#ts associated *ith the asset *ill
)o. to the ent#ty4 and
!b% the +ost of the asset can be $easure! re#a-y.
1./ 0easure$ent
(a) Initial measurement
1.3.1 7nce recogni8ed as an asset, items should be $easure! at +ost.
1.3.2 +omponent of costs6
!a% its pur+hase pr#+e, including import duties and non-refundable purchase ta5es,
after deducting trade discounts and rebates4
!b% any +osts !#re+ty attr#-uta-e to -r#n,#n, the asset to the o+at#on an!
2
+on!#t#on necessary for it to be capable of operating in the manner intended by
management4 and
!c% the #n#t#a est#$ate! o) the +osts o) !#s$ant#n, an! re$o1#n, the #te$ an!
restor#n, the s#te on .h#+h #t #s o+ate!, the obligation for *hich an entity
incurs either *hen the item is acquired or as a consequence of having used the
item during a particular period for purposes other than to produce inventories
during that period.
(b) Subsequent costs
1.3.3 +osts of !ay-to-!ay ser1#+#n, of PP, primarily the costs of labour, consumables and
small parts, have to be re+o,n#2e! #n #n+o$e state$ent as incurred.
1.3.4 9hen that servicing is part of a $a3or o1erhau or inspection !regardless of *hether
parts of the item are replaced% should be treate! as a +o$ponent o) the +ost of an
asset and depreciated over the period until the ne5t servicing.
1.3.0 "n accordance *ith "A# 1$, circumstances in *hich su-se"uent e4pen!#ture on those
assets being +ap#ta#2e! should depend on *hether the e5penditure incurred *ill result
in a pro-a-e )uture e+ono$#+ -ene)#t #n e4+ess o) the a$ount or#,#nay assesse!
for the asset. All other subsequent e5penditure should be recogni8ed in the income
statement as it is incurred.
(c) Subsequent measurement
1.3.$ Cost $o!e : is that PP should be carried at +ost ess a++u$uate! !epre+#at#on
an! any a++u$uate! #$pa#r$ent osses.
1.3.; Re1auat#on $o!e : is that PP should be +arr#e! at a re1aue! a$ount being its
fair value at the date of revaluation less any subsequent accumulated depreciation and
subsequent accumulated impairment losses.
1.3.' )asis and frequency of revaluation6
!a% Re1auat#ons shou! -e $a!e re,uary so that the carrying value does not
!#))er $ater#ay )ro$ #ts )a#r 1aue at the reporting date.
!b% 3he frequency of revaluation therefore depends on the volatility of the fair
value.
!c% 9hen an item of PP is revalued, the ent#re +ass o) PPE shou! -e re1aue!.
!d% In+rease #n re1auat#on is re+o,n#2e! #n other +o$prehens#1e #n+o$e and
accumulated in equity under the heading of revaluation surplus.
!e% (e+rease #n re1auat#on is re+o,n#2e! #n other +o$prehens#1e #n+o$e to the
e5tent of any credit balance e5isting in the revaluation surplus in respect of that
3
asset.
!f% .ollo*ing revaluation, the !epre+#at#on +har,e shou! -e -ase! on the
re1aue! a$ount.
(d) On disposal
1.3.< 9hen a re1aue! #s !#spose! of, any re1auat#on surpus may be trans)erre!
!#re+ty to reta#ne! earn#n,s.
1.5 (epre+#at#on
1.4.1 An entity is required to begin !epre+#at#n, an #te$ o) PPE .hen #t #s a1a#a-e )or
us and to continue depreciating it until it is derecogni8ed, e1en if during that period
the item is idle.
1.4.2 9hy depreciated=
!a% depreciation is defined as simply a process of ao+at#n, the !epre+#a-e
a$ount of the asset to the 1ar#ous a++ount#n, per#o!s !ur#n, *hich the
asset is used to earn re1enue !$at+h#n, pr#n+#pe%. "t is not a process of
accounting for the +han,e #n the 1aue of assets.
!b% to re)e+t the phys#+a .ear an! tear, technological obsolescence, etc.
4
*. In1est$ent Propert#es %IAS 56'
1 e f i n i t i o n
a n d
5 a m p l e s
1 u a l > s e
P r o p e r t y
2 + r i t e r i a
/ e c o g n i t i o n
" n i t i a l
2 e a s u r e m e n t
+ o s t
2 o d e l
. a i r ? a l u e
2 o d e l
# u b s e q u e n t
2 e a s u r e m e n t
2 e a s u r e m e n t
4 # i t u a t i o n s
3 r a n s f e r
" n v e s t m e n t
P r o p e r t i e s
*.1 (e)#n#t#on
2.1.1 "nvestment property !"P% is property !land and@or building% held !by the o*ner or by
the lessee under a finance lease% to earn rentas or )or +ap#ta appre+#at#on or -oth.
2.1.2 5amples of "P6
!a% land held for long-term capital appreciation
!b% land held for undecided future use
!c% building leased out under an operating lease
2.1.3 5ception of "P6
!a% 7*ner occupied property : the property is being held for use !as a factory or
office% and not for its investment potential. "t should be accounted for under
"A# 1$.
!b% Property held for sale in the normal course of business !e.g. a house builder% is
inventories accounted for under "A# 2.
!c% Property being constructed for third parties is accounted for as a construction
contract under "A# 11.
!d% Property being constructed or developed for future use as investment property.
3his *ill be accounted for as capital *orA in progress under "A# 1$ until the
asset is finished and transferred to investment properties.
5
*.* (ua use property
2.2.1 #ome properties may have a dual use, i.e. part of the property is used as investment
property and part of the property is held for o*n use.
2.2.2 "A# 4& sets out the requirements in respect of *hether any part of a dual use property
can be regarded as investment property, if any one of the follo*ing conditions is met6
!a% the portion could be so! separatey !or leased out separately under a finance
lease%4 or
!b% the portion he! )or o.n use is an #ns#,n#)#+ant part o) the property as a
*hole !in *hich case the *hole property is classified as investment property%.
*./ Re+o,n#t#on
2.3.1 /ecognition depends on t*o criteria6
!a% it is pro-a-e that )uture e+ono$#+ -ene)#ts associated *ith the asset *ill
)o. to the ent#ty4 and
!b% the +ost of the "P can be $easure! re#a-y.
*.5 0easure$ent
(a) Initial measurement
2.4.1 7n recognition, investment property shall be re+o,n#2e! at +ost, measured along the
lines of the principles in "A# 1$.
(b) Subsequent measurement
2.4.2 Cost $o!e : carried at cost less accumulated depreciation and any accumulated
impairment losses.
2.4.3 7a#r 1aue $o!e :
!a% $easures at )a#r 1aue ea+h year.
!b% no !epre+#at#on +har,e.
!c% a ,a#ns an! osses on revaluation are reporte! #n the #n+o$e state$ent as
part of the profit or loss for the period..
2.4.4 .air value is normally the a+t#1e $ar8et pr#+e. 3here should be no !e!u+t#on )or
transa+t#on +osts.
2.4.0 9here there is no marAet for similar properties, the follo*ing values may be
considered6
6
!a% current prices in an active marAet for properties of a different nature, condition
or location, adBusted to reflect those difference4
!b% recent prices in less active marAets4 or
!c% discounted cash flo* proBections based on reliable estimates of future cash
flo*s.
2.4.$ "f in e5ceptional circumstances, it is #$poss#-e to $easure the )a#r 1aue of an
individual investment property reliably, then the +ost $o!e shou! -e a!opte!.
2.4.; +hange from one model to the other is permitted only if this results in a more
appropriate presentation. "A# 4& notes that this is h#,hy un#8ey )or a +han,e )ro$
the )a#r 1aue $o!e to the +ost $o!e.
*.9 Trans)er
2.0.1 3ransfers to or from investment property can only be made if there is a change of use.
3here are several possible situations6
!a% 3ransfer from #n1est$ent property to o.ner-o++up#e! property.
>se the fair value at the date of the change for subsequent accounting under
"A# 1$.
!b% 3ransfer from #n1est$ent property to #n1entory.
>se the fair value at the date of the change for subsequent accounting under
"A# 2 C"nventoriesD.
!c% 3ransfer from o.ner-o++up#e! property to #n1est$ent property to be
carried at fair value.
"A# 1$ !cost less depreciation% *ill have been applied up to the date of the
change. 7n a!opt#n, )a#r 1aue there *ill nor$ay -e an #n+rease #n 1aue.
3his *ill be ta8en to the re1auat#on reser1e in accordance *ith "A# 1$. "f
the fair value valuation +auses a !e+rease #n 1aue, then it should be +har,e!
to the #n+o$e state$ent.
3he only e5ceptions to these treatments *ill arise if the property has
previously been revalued up*ards, *hen a decrease may be against the
resultant revaluation surplus, or *hen an impairment loss has previously been
recogni8ed, *hen an increase may be recogni8ed in the statement of
comprehensive income.
!d% 3ransfer from #n1entor#es to #n1est$ent property to be carried at fair value.
Any differences in the carrying amount *ill be re+o,n#se! #n the #n+o$e
state$ent.
7
/. Intan,#-e Assets %IAS /:'
1 e f i n i t i o n
4 + r i t e r i a " n t e r n a l l y
( e n e r a t e d
" A
/ e c o g n i t i o n
" n i t i a l
2 e a s u r e m e n t
+ o s t
2 o d e l
/ e v a l u a t i o n
2 o d e l
# u b s e q u e n t
2 e a s u r e m e n t
2 e a s u r e m e n t A m o r t i s a t i o n
$ + r i t e r i a
f o r
+ a p i t a l i s a t i o n
/ e s e a r c h
a n d
1 e v e l o p m e n t
+ o m p u t e r
" n t a n g i b l e s
P o s i t i v e
( o o d * i l l
, e g a t i v e
( o o d * i l l
( o o d * i l l
" n t a n g i b l e
A s s e t s
/.1 (e)#n#t#on
3.1.1 An intangible asset is an #!ent#)#a-e non-$onetary asset *ithout physical substance.
/.* Re+o,n#t#on
3.2.1 An intangible asset should be recogni8ed if all the follo*ing criteria are met.
!a% "t is #!ent#)#a-e.
!b% "t is +ontroe! by the entity, i.e. the entity has the po*er to obtain economic
benefits from it.
!c% "t is e5pected to ,enerate )uture e+ono$#+ -ene)#ts for the entity.
!d% "t has a +ost that can be $easure! re#a-y.
(a) Identifiable
3.2.2 3o be recognised the enterprise must be a-e to !#spose %or trans)er, #+ense, rent or
e4+han,e, e#ther #n!#1#!uay or as part o) a pa+8a,e' o) the #ntan,#-e asset
.#thout !#spos#n, o) any other assets at the sa$e t#$e.
3.2.3 "ntangible assets such as customer relationships cannot be separated from good*ill. "n
a business combination such assets *ould become part of good*ill, but they cannot be
recognised by themselves.
8
(b) Control
3.2.4 Patents, copyrights and restraint-of-trade agreements *ill ,#1e the enterpr#se e,a
r#,hts to the )uture e+ono$#+ -ene)#ts and prevent other people from obtaining them.
3herefore copyrights and patents can be capitali8ed.
3.2.0 7ne of the most valuable intangible assets is a trained and motivated *orA force.
-o*ever, the enterprise cannot prevent its staff from leaving, and so the enterprise
cannot control the future economic benefits e5pected to flo* from its staff. 3herefore,
trained staff cannot be recognised as an intangible asset.
(c) Probable future economic benefits
3.2.$ 3his can happen in t*o *ays. 7*ning a brand name can boost revenues, *hile o*ning
the patent for a production process may help to reduce production costs. ither *ay,
the enterpriseEs profits *ill be increased.
(d) Reliable measurement
3.2.; "f the asset is acquired separately then this is straightfor*ard. .or e5ample, the
purchase price of a franchise should be capitali8ed, along *ith all the related legal and
professional costs.
3.2.' "f the asset is acquired as part of a business combination, then its cost *ill equal its fair
value at the date of acquisition. 3he best measure of fair value is the quoted price of
similar assets on an active marAet.
(e) Internal generated intangible assets
3.2.< "A# 3' includes additional recognition criteria for internally generated intangible
assets. "t specifically provides that internally generated good*ill, brands, mastheads,
publishing titles, customer lists and items similar in substance should not be
re+o,n#2e! as intangible assets.
3.2.1& 5penditure on internally generated brands, mastheads ! %, publishing titles,
customer lists and items similar in substance +annot -e !#st#n,u#she! )ro$ the +ost
o) !e1eop#n, the -us#ness as a .hoe. 3herefore, such items are not re+o,n#se! as
#ntan,#-e assets. .urthermore, all e5penditure on research or during the research
phase of an internal proBect is to be *ritten off as an e5pense *hen it is incurred.
3.2.11 5amples of other e5penditure that *ill not give rise to an intangible asset that can be
recogni8ed in the financial statements include the follo*ing6
9
!i% e5penditure on starting up an operation or a business !start-up costs%4
!ii% e5penditure on training4
!iii% e5penditure on advertising and@or promotion4 and
!iv% e5penditure on relocating or re-organising part or all of an enterprise.
3.2.12 "f an intangible item does not meet both the definition and the recognition criteria of
an intangible asset, the e5penditure on this item should be recogni8ed as an e5pense
*hen it is incurred.
/./ 0easure$ent
(a) Initial measurement
3.3.1 9hen an intangible asset is initially recogni8ed, it is measured at cost.
(b) Subsequent measurement
3.3.2 +ost model : measures the asset at cost less accumulated amorti8ation and
impairment.
3.3.3 /evaluation model : measures the asset at fair value less accumulated amorti8ation
and impairment.
3.3.4 3he re1auat#on $o!e is ony per$#ss#-e if a number of conditions are met6
!a% the )a#r 1aue must be capable of being $easure! re#a-y by re)eren+e to an
a+t#1e $ar8et.
!b% a #ntan,#-es o) the sa$e +ass $ust -e re1aue!.
!c% re1auat#ons must be $a!e su))#+#enty )re"uent to ensure that the +arry#n,
1aue at ea+h -aan+e sheet !ate !oes not !#))er $ater#ay )ro$ the )a#r
1aue.
3.3.0 An a+t#1e $ar8et is a marAet *here all the follo*ing conditions e5ist6
!a% the items traded *ithin the marAet are ho$o,eneous4
!b% .##n, -uyers an! seers can normally be )oun! at any t#$e4 and
!c% pr#+es are a1a#a-e to the pu-#+.
10
/.5 A$ort#sat#on
3.4.1 An asset *ith a )#n#te use)u #)e must be a$ort#se! on a syste$at#+ -as#s o1er that
#)e. 3he amortisation method used should reflect the pattern in *hich the assetEs
economic benefits are consumed. "f that pattern cannot be determined reliably, the
straight-line method should be adopted. 3he amortisation charge should be recogni8ed
as an e5pense unless another "A# or requires it to be included in the carrying amount
of another asset. Nor$ay the stra#,ht-#ne $etho! .#th a 2ero res#!ua value
should be use!.
3.4.2 An asset *ith an #n!e)#n#te use)u #)e #s not a$ort#se!. "nstead an annua
#$pa#r$ent re1#e. $ust -e +arr#e! out to compare the carrying amount *ith the
recoverable amount.
3.4.3 "A# 3' further specifies that the res#!ua 1aue of an intangible asset is assumed to be
2ero uness6
!a% there is a +o$$#t$ent -y a th#r! party to pur+hase the asset at the end of its
useful life4 or
!b% there is an a+t#1e $ar8et for that type of asset, and res#!ua 1aue +an -e
!eter$#ne! -y re)eren+e to that $ar8et and it is probable that such a
$ar8et *ill e4#st at the en! o) the asset;s use)u #)e.
3.4.4 "A# 3' requires the amortisation period and the amortisation method to be revie*ed
annually. Any change to the amortisation period and amortisation method should be
accounted for as a +han,e #n an a++ount#n, est#$ate in accordance *ith "A# '.
/.9 Resear+h an! !e1eop$ent
3.0.1 Resear+h is or#,#na an! panne! #n1est#,at#on undertaAen *ith the prospect of
,a#n#n, ne. s+#ent#)#+ or te+hn#+a 8no.e!,e and understanding.
3.0.2 (e1eop$ent is the app#+at#on o) resear+h )#n!#n,s or other Ano*ledge to a plan or
design for the production of ne* or substantially improved materials, devices,
products, processes, systems or services before the start of commercial production or
use.
3.0.3 Resear+h e4pen!#ture +annot -e re+o,n#2e! as an intangible asset. "t should be
.r#tten o)) #n the year o) e4pen!#ture through the income statement.
3.0.4 (e1eop$ent e4pen!#ture should be re+o,n#2e! as an intangible asset if an entity
can demonstrate that the follo*ing criteria can be met.
!a% the te+hn#+a )eas#-##ty of completing the intangible asset
!b% its #ntent#on to +o$pete the intangible asset and use or sell it
!c% its a-##ty to use or se the intangible asset
11
!d% ho* the intangible asset *ill ,enerate pro-a-e )uture e+ono$#+ -ene)#ts
!e% the availability of a!e"uate resour+es to +o$pete the development and to
use or sell the intangible asset, and
!f% its a-##ty to $easure the e4pen!#ture attributable to the intangible asset
during its development reliably.
/.& Co$puter #ntan,#-es
3.$.1 #ome computer soft*are is an integral part of the related hard*are, for e5ample the
computer program in a production-line robot or the operating system on a P+. 3he
hard*are *ill not .or8 .#thout the so)t.are, and so the so)t.are #s +ap#ta#2e! as
part o) the har!.are. 3his type of soft*are is a tangible non-current asset subBect to
"A# 1$.
3.$.2 Stan!-aone computer soft*are !for e5ample an accounts pacAage% is an #ntan,#-e
asset subBect to "A# 3'.
/.< IAS-INT = /*> ?e-s#te +osts
3.;.1 3he cost of developing a corporate *ebsite may be capitali8ed if it meets the
requirements of "A# 3' for internally generated assets. "n particular the .e-s#te $ust
,enerate pro-a-e e+ono$#+ -ene)#ts. .ollo*ing on from this, the costs of
developing a *ebsite that is $erey part of the companyEs ,enera a!1ert#s#n, an!
$ar8et#n, strate,y +annot -e +ap#ta#2e!. -o*ever, a .e-s#te that .# ta8e
+usto$er or!ers .# ,enerate )uture re1enues an! +an -e +ap#ta#2e!.
/.: Goo!.#
3.'.1 (e)#n#t#ons>
!a% Goo!.# is the difference the value of a business as a *hole and the aggregate
of the fair value of its separable net assets.
!b% Separa-e net assets are those assets !and liabilities% *hich can be identified
and sold off separately *ith necessarily disposing of the business as a *hole.
3hey include identifiable intangibles such as patents, licences and trademarAs.
3.'.2 Goo!.# arising on a+"u#s#t#on6
!a% (ood*ill arising on acquisition !or good*ill% is the e5cess of the cost of the
acquisition over the acquirerEs interest in the fair values of the identifiable
assets and liabilities acquired at the date of acquisition.
!b% (ood*ill should be recogni8ed as an asset and carried at cost less any
12
accumulated amortisation and accumulated impairment losses.
3.'.3 Accounting treatment : pos#t#1e ,oo!.#
!a% "nitial recognition : positive good*ill *ill be re+o,n#se! as a non-+urrent
asset at +ost.
!b% #ubsequent measurement : good*ill is carried at +ost ess a++u$uate!
#$pa#r$ent osses.
!c% "./# 3 C)usiness +ombinationsD requires that positive purchased good*ill
must be tested annually impairment, and *ritten do*n as necessary in
accordance *ith "A# 3$ C"mpairment of AssetsD. No a$ort#2at#on should be
charged.
3.'.4 Accounting treatment : ne,at#1e ,oo!.#
!a% )efore negative good*ill is recognised, the fair value of the net assets acquired
should be revie*ed to ensure that they have not been overstated.
!b% 7nce this checA has been carried out, any remaining negative good*ill should
be re+o,n#se! #$$e!#atey #n the #n+o$e state$ent.
@uest#on 1
Fohan, a public limited company, operates in the telecommunications industry. 3he industry
is capital intensive *ith heavy investment in licences and net*orA infrastructure.
+ompetition in the sector is O)#er+e an! te+hnoo,#+a a!1an+es are a characteristic of the
industry. Fohan has responded to these factors by o))er#n, #n+ent#1es to +usto$ers and, in
an attempt to acquire and reta#n the$, Fohan purchased a telecom licence on 1 1ecember
2&&$ for G12& million. 3he O#+en+e has a ter$ o) s#4 years and +annot -e use! unt# the
net.or8 assets and infrastructure are rea!y )or use. 3he related net*orA assets and
infrastructure became rea!y )or use on 1 (e+e$-er *66<. Fohan could not operate in the
country *ithout the licence and is not permitted to sell the licence. Fohan e5pects its
subscriber base to gro* over the period of the licence but is disappointed *ith its marAet
share for the year to 3& ,ovember 2&&'. 3he licence agreement does not deal *ith the
rene*al of the licence but there is an Oe4pe+tat#on that the re,uator *ill ,rant a s#n,e
rene.a )or the sa$e per#o! of time as long as certain criteria regarding net*orA build
quality and service quality are met. OJohan has no e4per#en+e o) the +har,e that *ill be
made by the regulator for the rene*al but other licences have been rene*ed at a nominal
cost. 3he licence is currently stated at its original cost of G12& million in the statement of
financial position under non-current assets.
Fohan is considering e5tending its net*orA and has +arr#e! out a )eas#-##ty stu!y during
the year to 3& ,ovember 2&&'. 3he design and planning department of Fohan identified five
13
possible geographical areas for the e5tension of its net*orA. 3he O#nterna +osts o) th#s
stu!y .ere A196,666 an! the e4terna +osts .ere A166,666 during the year to 3&
,ovember 2&&'. .ollo*ing the feasibility study, Fohan chose a geographical area *here it
*as going to install a base station for the telephone net*orA. 3he location of the base station
*as dependent upon getting planning permission. A further independent study has been
carried out by third party consultants in an attempt to provide a preferred location in the area,
as there is a need for the optimal operation of the net*orA in terms of signal quality and
coverage. Fohan proposes to build a base station on the recommended site on *hich planning
permission has been obtained. 3he Oth#r! party +onsutants ha1e +har,e! A96,666 for the
study. Additionally Fohan has Opa#! A/66,666 as a s#n,e pay$ent to,ether .#th A&6,666
a $onth to the ,o1ern$ent o) the re,#on )or a++ess to the an! upon *hich the base
station *ill be situated. 3he contract *ith the government is for a period of 12 years and
commenced on 1 ,ovember 2&&'. 3here is no right of rene*al of the contract and legal title
to the land remains *ith the government.
Fohan Opur+hases teephone han!sets from a manufacturer )or A*66 ea+h, and ses the
han!sets direct to +usto$ers )or A196 if they purchase call credit !call card% in advance on
*hat is called a prepaid phone. 3he +osts o) se#n, the han!set are est#$ate! at A1 per set.
3he O+usto$ers us#n, a prepa#! phone pay A*1 )or ea+h +a +ar! at the purchase date.
Ca +ar!s e4p#re s#4 $onths from the date of first sale. 3here is an a1era,e unuse! +a
+re!#t o) A/ per +ar! a)ter s#4 $onths and the card is activated *hen sold.
Fohan also Gses han!sets to !eaers for G10& an! #n1o#+es the !eaers for those handsets.
3he !eaer +an return the han!set up to a ser1#+e +ontra+t -e#n, s#,ne! -y a +usto$er.
9hen the customer signs a service contract, the +usto$er re+e#1es the han!set )ree o)
+har,e. Fohan ao.s the !eaer a +o$$#ss#on o) A*:6 on the connection of a customer and
the transaction *ith the dealer is sette! net -y a pay$ent o) A1/6 -y Johan to the !eaer
being the cost of the handset to the dealer !G10&% deducted from the commission !G2'&%. 3he
han!set +annot -e so! separatey by the dealer and the service contract lasts for a 12
month period. 1ealers do not sell prepaid phones, and Fohan receives monthly revenue from
the service contract.
3he chief operating officer, a non-accountant, has asAed for an e5planation of the accounting
principles and practices *hich should be used to account for the above events.
Re"u#re!>
14
1iscuss the principles and practices *hich should be used in the financial year to 3&
,ovember 2&&' to account for6
!a% the licences4 !' marAs%
!b% the costs incurred in e5tending the net*orA4 !; marAs%
!c% the purchase of handsets and the recognition of revenue from customers and dealers.
!' marAs%
Appropriateness and quality of discussion. !2 marAs%
!20 marAs%
!A++A P2 +orporate /eporting 1ecember 2&&' H3%
15
5. Go1ern$ent Grants an! (#s+osure o) Go1ern$ent Ass#stan+e %IAS
*6'
D e f i n i t i o n
2 P r i n c i p l e s
R e c o g n i t i o n
2 M e t h o d s
r a n t R e l a t e d
t o ! s s e t s
2 M e t h o d s
r a n t R e l a t e d
t o I n c o m e
R e l a t e d t o
! s s e t s
R e l a t e d t o
I n c o m e
R e p a " m e n t o f
o # e r n m e n t
r a n t s
$ o t
R e c o g n i s e
o # e r n m e n t
! s s i s t a n c e
o # e r n m e n t
r a n t s
5.1 (e)#n#t#ons
4.1.1 Go1ern$ent ,rants ( ) are assistance by government #n the )or$ o)
trans)ers o) resour+es to an enterprise #n return )or past or )uture +o$p#an+e .#th
+erta#n +on!#t#ons relating to the operating activities of the enterprise. 3hey e4+u!e
ass#stan+e that +annot -e 1aue! and normal trade *ith governments.
4.1.2 Go1ern$ent ass#stan+e ( ) is government action designed to provide an
economic benefit to a specific entity. "t does not include indirect help such as
infrastructure development.
5.* Re+o,n#t#on
4.2.1 Genera pr#n+#pes : An entity should not recogni8e government grants !including
non-monetary grants at fair value% until it has reasona-e assuran+e that
!a% 3he entity *ill comply *ith any +on!#t#ons attached to the grant4 and
!b% 3he entity *ill a+tuay re+e#1e the grant.
5./ Grants reate! to assets
4.3.1 (rant for purchases of non-current assets should be recogni8ed over the e5pected
useful lives of the related assets.
4.3.2 3here are t*o acceptable accounting policies for this6
!a% !e!u+t the ,rant )ro$ the +ost of the asset and depreciable the net cost.
!b% treat the ,rant as !e)erre! #n+o$e. /elease the grant to profit or loss over the
life of the asset. 3his is the method most commonly used.
16
4.3.3 E4a$pe 1
An enterprise opens a ne* factory and receives a government grant of G10,&&& in
respect of capital equipment costing G1&&,&&&. "t depreciates all plant and machinery
at 2&I pa straight-line.
#ho* the balance sheet e5tracts to record the grant in the first year under methods !a%
and !b% above.
Sout#on>
!a% ?r#te o)) a,a#nst asset
State$ent o) )#nan+#a pos#t#on %e4tra+t'
Non-+urrent assets> G
Plant and machinery at cost !1&& : 10% '0,&&&
Jess6 1epreciation !2&I 5 '0% !1;,&&&%
$',&&&
!b% (e)erre! #n+o$e
(overnment grant deferred income account
G G
"ncome statement transfer for
year6 2&I 5 G10,&&&
3,&&&
+ash grant 10,&&&
)alance c@d 12,&&&
10,&&& 10,&&&
)alance b@d 12,&&&
State$ent o) )#nan+#a pos#t#on %e4tra+t'
Non-+urrent assets> G
Plant and machinery at cost 1&&,&&&
Jess6 1epreciation 2&,&&&
'&,&&&
(e)erre! #n+o$e>
(overnment grant 12,&&&
17
5.5 Grants reate! to #n+o$e
4.4.1 3hese grants are a credit in the income statement, but there is a choice in the method
of disclosure.
!a% Present as a separate +re!#t or under a general heading, e.g. Kother incomeE.
!b% (e!u+t )ro$ the reate! e4pense.
4.4.2 -o*ever, if the grant is paid on a different basis, for e5ample achievement of a non-
financial obBective, such as the creation of a specified number of ne* Bobs, the grant
should be matched *ith the identifiable costs of achieving that obBective.
5.9 Repay$ent o) ,o1ern$ent ,rants
4.0.1 A government grant that becomes repayable should be accounted for as a revision to
an accounting estimate !"A# '%.
4.0.2 Repay$ent o) a ,rant reate! to #n+o$e should be applied first against any
unamorti8ed deferred credit set up in respect of the grant4 any e5cess should be
recogni8ed immediately as an e5pense.
4.0.3 Repay$ent o) a ,rant reate! to an asset should be recorded by #n+reas#n, the
+arry#n, a$ount o) the asset or re!u+#n, the !e)erre! #n+o$e -aan+e by the
amount repayable. 3he cumulative additional depreciation that *ould have been
recogni8ed to date as an e5pense in the absence of the grant should be recogni8ed
immediately as an e5pense.
5.& Go1ern$ent ass#stan+e
4.$.1 (overnment assistance helps businesses through loan guarantees, loans at a lo* rate of
interest, advice, procurement policies and similar methods. "t is not poss#-e to pa+e
re#a-e 1aues on these forms of assistance, so they are not re+o,n#2e!.
18
9. Borro.#n, +osts %IAS */'
1 e f i n i t i o n
# p e c i f i c ( e n e r a l
+ a p i t a l i s a t i o n + o m m e n c e m e n t
# u s p e n s i o n
+ e s s a t i o n
) o r r o * i n g
+ o s t s
9.1 (e)#n#t#ons
0.1.1 "A# 23 defines -orro.#n, +osts as C#nterest an! other +osts #n+urre! -y an
enterpr#se #n +onne+t#on .#th the -orro.#n, o) )un!D. 3hese may include6
!a% interest on banA overdrafts and short-term and long-term borro*ings4
!b% amortisation of discounts or premiums relating to borro*ings4
!c% amortisation of ancillary costs incurred in connection *ith the arrangement of
borro*ings4
!d% finance charges in respect of finance leases4
!e% e5change difference arising from foreign currency borro*ings to the e5tent
that they are regarded as an adBustment to interest costs.
0.1.2 @ua#)y#n, assets ! % are defined as assets that ne+essar#y ta8e a
su-stant#a per#o! o) t#$e to ,et rea!y )or #ts #nten!e! use or sae. 5amples
include6
!i% inventories that require a substantial period of time to bring them to a saleable
condition4
!ii% manufacturing plant, po*er generation facilities4 and
!iii% investment properties.
19
9.* Cap#ta#sat#on o) -orro.#n, +osts
0.2.1 )orro*ing costs that are directly attributable to the acquisition, construction or
production of a qualifying asset form part of that asset. #uch borro*ing costs are
+ap#ta#2e! as part o) the +ost o) the asset *hen it is probable that they *ill result in
future economic benefits to the entity and the costs can be measured reliably.
0.2.2 "f the borro*ings are spe+#)#+ to a qualifying asset, the a$ount o) -orro.#n, +osts
eligible for +ap#ta#2at#on #s the a+tua -orro.#n, +osts #n+urre! ess #n+o$e on the
te$porary #n1est$ent o) those -orro.#n,s.
0.2.3 "n the case of funds that are borro*ing ,eneray, the amount of borro*ing costs to be
capitali8ed should be determined by applying a capitali8ation rate to the e5penditure
on the qualifying asset !reduced by any progress payment received%. 3he
+ap#ta#2at#on rate should be the .e#,hte! a1era,e rate o) ,enera -orro.#n,s,
e5cluding specific borro*ings. 3he amount of borro*ing costs capitali8ed during a
period should not e5ceed the amount of borro*ing costs incurred during that period.
9./ Co$$en+e$ent, suspens#on an! +essat#on o) +ap#ta#2at#on
0.3.1 +apitalisation of borro*ing costs should +o$$en+e *hen6
!a% e5penditure for the asset is being incurred4 and
!ii% borro*ing costs are being incurred4 and
!iii% activities that are necessary to prepare the asset for its intended use or sale in
progress.
0.3.2 +apitalisation of borro*ing costs should be suspen!e! during e5tended periods in
*hich active development is interrupted.
0.3.3 +apitalisation of borro*ing costs should +ease *hen substantially all the activities
necessary to prepare the qualifying asset for its intended use or sale are complete.
20
&. I$pa#r$ent o) Assets %IAS /&'
1 e f i n i t i o n
3 y p e t i t l e h e r e
5 t e r n a l
" n f o r m a t i o n
" n t e r n a l
" n f o r m a t i o n
" n d i c a t i o n s o f
" m p a i r m e n t
+ a l c u l a t i o n o f
" m p a i r m e n t
/ e c o g n i s i n g
" m p a i r m e n t
A l l o c a t i n g
A s s e t s
A l l o c a t i n g
" m p a i r m e n t
+ a s h - ( e n e r a t i n g
> n i t s
" m p a i r m e n t o f
( o o d * i l l
* i t h , + "
/ e v e r s a l o f
" m p a i r m e n t
" m p a i r m e n t
o f A s s e t s
&.1 (e)#n#t#on
$.1.1 I$pa#r$ent is a reduction in the recoverable amount of an asset, good*ill or cash
generating unit belo* its carrying amount.
$.1.2 Carry#n, a$ount is defined in "A# 3$ as the amount at *hich an asset is recogni8ed
in the balance sheet after deducting any accumulated depreciation and accumulated
impairment losses thereon.
$.1.3 Re+o1era-e a$ount is the higher of fair value less costs to sell !or net selling price
or net reali8able value% and its value in use.
$.1.4 ,et reali8able value or )a#r 1aue ess +osts to se is the amount at *hich an asset
could be disposed of, less any direct selling costs.
$.1.0 Vaue #n use is the present value of the future cash flo*s obtainable as a result of an
assetEs continued use, including those resulting from its ultimate disposal.
&.* In!#+at#ons o) #$pa#r$ent
$.2.1 An entity should carry out a re1#e. o) #ts assets at ea+h -aan+e sheet !ate, to assess
*hether there are any indications of impairment to any assets. 3he concept of
$ater#a#ty applies, and only material impairment needs to be identified.
$.2.2 "f there are indications of possible impairment, the entity is required to maAe a formal
estimate of the re+o1era-e a$ount of the assets concerned.
$.2.3 E4terna sources of information6
!a% #ignificant decline in the assetEs marAet value more than *ould be e5pected as
a result of the passage of time or normal use4
!b% #ignificant changes in the technological, marAet, economic or legal
environments4
!c% "ncreases in the marAet interest rate or other marAet rate of return on
investments, and those increases that are liAely to affect the discount rate used
21
in calculating the assetEs value4
!d% 1ecline in the enterpriseEs marAet capitali8ation.
$.2.4 Interna sources of information6
!a% #pecific evidence of obsolescence or of physical damage to an asset4
!b% #ignificant internal changes to the organi8ation or its operations so that the
e5pected useful life or utility of the asset has seemingly been reduced4 and
!c% vidence from internal reporting indicating that economic performance of the
asset is, or *ill be, *orse than e5pected.
&./ Ca+uat#n, an #$pa#r$ent oss
$.3.1 An #$pa#r$ent o++urs if the +arry#n, a$ount of an asset is ,reater than #ts
re+o1era-e a$ount.
$.3.2 3he recoverable amount is the higher of fair value less costs to sell and value in use.
P r e v i o u s c a r r y i n g a m o u n t
! s a y ' & %
. a i r v a l u e l e s s
c o s t t o s e l l
! s a y 4 0 %
? a l u e i n u s e
! s a y $ & %
h i g h e r o f
/ e c o v e r a b l e a m o u n t
J o * e r o f
+ a r r y i n g a m o u n t
&.5 Re+o,n#s#n, #$pa#r$ent osses #n the )#nan+#a state$ents
$.4.1 An impairment loss is normally +har,e! #$$e!#atey in the statement of
comprehensive income to the same heading as the related depreciation !e.g. cost of
sales or administration%.
$.4.2 3he re+o1era-e %#$pa#re!' a$ount is then !epre+#ate! o1er #ts re$a#n#n, use)u
#)e.
22
$.4.3 E4a$pe *
At 1 Fanuary 2&12 a non-current asset had a carrying amount of G2&,&&&, based on its
revalued amount, and a depreciated historical cost of G1&,&&&. An impairment loss of
G12,&&& arose in the year ended 31 1ecember 2&12.
-o* should this loss be reported in the financial statements for the year ended 31
1ecember 2&12=
Sout#on>
A loss of G1&,&&& !G2&,&&& : G1&,&&&% is recogni8ed as other comprehensive income
and debited to the revaluation surplus *ithin other components of equity. 3he
remaining loss of G2,&&& is recognised as an e5pense in the period.
1r. !G% +r. !G%
/evaluation surplus 1&,&&&
,on-current asset 1&,&&&
"ncome statement : impairment loss 2,&&&
,on-current asset 2,&&&
&.9 Cash-,enerat#n, un#ts %CGBs'
$.0.1 "t is not usuay poss#-e to #!ent#)y +ash )o.s reat#n, to part#+uar assets. .or
e5ample, a factory production line is made up of many individual machines, but the
revenues are earned by the production line as a *hole. 3his means that 1aue #n use
$ust -e +a+uate! an! the #$pa#r$ent re1#e. per)or$e! )or ,roups o) assets,
rather than individual assets.
$.0.2 E4a$pe /
A bus company has an arrangement *ith a to*nEs authorities to run a bus service on
four routes in the to*n. #eparately identifiable assets are allocated to each of the bus
routes, and cash inflo*s and outflo*s can be attributed to each individual route.
3hree routes are running at a profit and one is running at a loss. 3he bus company
suspects that there is an impairment of assets on the loss-maAing route. -o*ever, the
company *ill be unable to close the loss-maAing route, because it is under an
obligation to operate all four routes, as part of its contract *ith the local authority.
23
+onsequently, the company should treat all four routes together as a cash generating
unit, and calculate the recoverable amount for the unit as a *hole.
(a) !llocating assets to C%s
$.0.3 3he net assets of the business !including capitali8ed good*ill, but e5cluding ta5
balances and interest-bearing debt% are allocated to +(>s. 3here are t*o particular
problem areas.
!a% Corporate assets : assets that are use! -y se1era CGBs !e.g. a head office
building or a research centre%. 3hey do not ,enerate the#r o.n +ash #n)o.s,
so do not themselves qualify as +(>s.
!b% Goo!.# : it does not ,enerate +ash )o.s #n!epen!enty of other assets and
often relates to a *hole business.
$.0.4 "f no reasona-e ao+at#on o) +orporate assets or ,oo!.# is possible, then a group
of +(>s must be teste! )or #$pa#r$ent to,ether #n a t.o-sta,e pro+ess.
$.0.0 E4a$pe 5
An entity acquires a business comprising three +(>s, 1, and ., but there is no
reasonable *ay of allocating good*ill to them. After three years, the carrying amount
and the recoverable amount of the net assets in the cash generating units and the
purchased good*ill are as follo*s6
1 . (ood*ill 3otal
G&&& G&&& G&&& G&&& G&&&
+arrying amount 24& 3$& 42& 10& 1,1;&
/ecoverable amount 3&& 42& 3$& 1,&'&
Step 1> Re1#e. the #n!#1#!ua un#ts )or #$pa#r$ent
. is impaired. A loss of G$&,&&& is recogni8ed and its carrying amount is reduced to
G3$&,&&&.
Step *> Co$pare the +arry#n, a$ount o) the -us#ness as a .hoe, #n+u!#n,
,oo!.#, .#th #ts re+o1era-e
3he total carrying amount of the business is no* G1,11&,&&& !G1,1;&,&&& : G$&,&&&%.
A further impairment loss of G3&,&&& must then be recogni8ed in respect of the
good*ill !G1,11&,&&& : G1,&'&,&&&%.
24
(b) !llocation of an impairment to the unit&s assets
$.0.$ "f an impairment loss arises in respect of a +(>, it is allocated among the assets in the
unit in the )oo.#n, or!er6
!a% any individual assets that are obviously impaired,
!b% good*ill,
!c% other assets on a pro rata basis based on the carrying amount of each asset in
the unit.
$.0.; -o*ever, the carrying amount of an asset +annot -e re!u+e! -eo. the h#,hest o)6
!a% fair value less costs to sell !if determinable%,
!b% its value in use !if determinable%,
!c% 8ero.
$.0.' E4a$pe 9
A)+ has identified an impairment loss of G41m for one of its +(>s. 3he carrying
amount of the unitEs net assets *as G10&m, *hereas the unitEs recoverable amount
*as only G1&<m.
3he draft values of the net assets of the unit are as follo*s6
Gm
(ood*ill 13
Property 2&
2achinery 4<
?ehicles 30
Patents 14
,et monetary assets 1<
10&
3he net selling price of the unitEs assets *ere insignificant e5cept for the property,
*hich had a marAet value of G30m. 3he net monetary assets *ill be reali8ed in full.
-o* is the impairment loss allocated to the assets=
Sout#on>
25
.irstly, the good*ill is reduced to 8ero.
,o impairment loss can be set against the property because its net selling price is
greater than its carrying amount.
JiAe*ise, no impairment loss can be set against the net monetary assets !receivables,
cash, etc.% because they *ill be reali8ed in full.
3he balance of G2'm !G41m : G13m% is apportioned bet*een the remaining assets on
a pro rata basis Lso 2'
14 30 4<
4<

+ +
to machinery, and so onM.
3he table belo* sho*s ho* the impairment *ill be allocated.
(ra)t
1aues
I$pa#r$en
t oss
I$pa#re!
1aue
A$ A$ A$
(ood*ill 13 !13% -
Property 2& - 2&
2achinery 4< !14% 30
?ehicles 30 !1&% 20
Patents 14 !4% 1&
,et monetary assets 1< - 1<
10& !41% 1&<
&.& I$pa#r$ent o) ,oo!.# .#th NCI
$.$.1 3he revision of "./# 3 allo*s t*o methods of initially valuing the non-controlling
interest !,+"% in an entity.
$.$.2 >nder )u $etho! !or fair value method% of valuing ,+"6
!a% (ood*ill sho*n in the group statement of financial position represents full
good*ill, and so together *ith the rest of the +(> it can be compared to
recoverable amount of the +(> on a liAe *ith liAe basis.
!b% Any impairment of good*ill is therefore allocated bet*een the group and the
,+" based upon their respective shareholdings.
26
$.$.3 E4a$pe & = I$pa#r$ent o) )u 1aue ,oo!.#
A)+ o*ns '&I of ))+. At 31 1ecember 2&11 the carrying amount of ))+Es net
assets is G$& million, e5cluding good*ill of G' million that arose on the original
acquisition. 3he ,+" is valued using the fair value method.
+alculate the impairment loss if the recoverable amount of ))+ is6
!a% G$4 million
!b% G0& million
Sout#on>
%a'
Goo!.# Net assets Tota
A$ A$ A$
+arrying amount ' $& $'
/ecoverable amount $4
"mpairment !4% 4
3he #$pa#r$ent oss reates ony to ,oo!.#. 3his *ill be charged to income, *ith
the effect that it *ill be -orne -y the ,roup an! the NCI based upon their
respective shareholdings.
%-'
Goo!.# Net assets Tota
A$ A$ A$
+arrying amount ' $& $'
/ecoverable amount 0&
"mpairment !'% !1&% 1'
3he impairment loss reates )#rst to ,oo!.#, *ith the re$a#n!er set a,a#nst other
27
assets on a pro-rata -as#s, unless there is further information available regarding the
recoverable amount of other individual assets. 3he impairment of G1'm is charged to
income statement, *ith the effect that it *ill be borne by the group and ,+" based
upon their respective shareholdings.
$.$.4 >nder proportion of net assets method of valuing ,+"
!a% 9here this method is adopted, the NCI share o) ,oo!.# #s not re)e+te! in
the group accounts.
!b% 3herefore any comparison bet*een the carrying value of a +(> !including
good*ill% and its recoverable amount *ill not -e on a #8e )or #8e -as#s.
!c% "n order to address this problem, ,oo!.# $ust -e ,rosse! up to #n+u!e
,oo!.# attr#-uta-e to the NCI prior to conducting the impairment revie*.
!d% 3his grossed up good*ill is Ano*n as Ctota not#ona ,oo!.#D.
!e% 7nce any impairment loss is determined, it should be ao+ate! )#rsty to the
tota not#ona ,oo!.# and then to the CGB;s assets on a pro rata -as#s.
!f% As only the parentEs share of the good*ill is recogni8ed in the group accounts,
ony the parent;s share o) the #$pa#r$ent oss shou! -e re+o,n#2e!.
$.$.0 E4a$pe < = NCI on proport#onate -as#s
A)+ o*ns '&I of ))+. At 31 1ecember 2&11 the carrying amount of ))+Es net
assets is G$& million, e5cluding good*ill of G' million that arose on the original
acquisition. 3he ,+" is valued using the proportion of net assets method.
+alculate the impairment loss if the recoverable amount of ))+ is6
!a% G$4 million
!b% G0& million
Sout#on>
%a'
Goo!.# Net assets Tota
A$ A$ A$
+arrying amount ' $& $'
/ecoverable amount !2&@'& N G'm% 2 2
28
,otional adBusted carrying amount 1& $& ;&
/ecoverable amount $4
"mpairment loss $
3he #$pa#r$ent oss reates ony to ,oo!.#. 7nly the proportion relating to the
recogni8ed good*ill is recogni8ed in the financial statements, so '&I of G$m, i.e.
G4.'m.
%-'
Goo!.# Net assets Tota
A$ A$ A$
+arrying amount ' $& $'
/ecoverable amount !2&@'& N G'm% 2 2
,otional adBusted carrying amount 1& $& ;&
/ecoverable amount 0&
"mpairment loss 2&
3he impairment loss #s ao+ate! as )oo.s> A:$ to re+o,n#2e! ,oo!.# %as
-e)ore' an! the re$a#n#n, A16$ %*6 = 16' to other net assets.
&.< Re1ersa o) an #$pa#r$ent oss
$.;.1 3he calculation of impairment losses is based on predictions of *hat may happen in
the future. #ometimes, actual events turn out to be better than predicted. "f this
happens, the recoverable amount is re-calculated and the previous *rite-do*n is
reversed.
!a% 3he reversal of the impairment loss should be re+o,n#2e! #$$e!#atey as
#n+o$e #n pro)#t or oss for the year.
!b% "f the or#,#na #$pa#r$ent *as +har,e! a,a#nst the re1auat#on surpus, it
is recogni8ed as other comprehensive income and +re!#te! to the re1auat#on
surpus.
!c% 3he carrying amount of the asset should be increased to its ne. re+o1era-e
a$ount.
!d% 3he re1ersa $ust not taAe the value of the asset a-o1e the a$ount it *ould
have been #) the or#,#na #$pa#r$ent ha! ne1er -een re+or!e!.
29
$.;.2 E4a$pe :
+ost of machinery purchased at 1.1.2&&' G1,&&&,&&&
1epreciation method #traight line over 2& years
.air value at 31.12.2&&' G1,2&&,&&&
/ecoverable amount at 31.12.2&&< G'&&,&&&
/ecoverable amount at 31.12.2&11 G1,10&,&&&
Re"u#re!>
+alculate the amount of reversal of impairment loss in 2&11.
Sout#on>
)efore maAing any adBustment for the reversal, the carrying amount of the machinery
at 31 1ecember 2&11 that, had no impairment loss been recogni8ed for the asset in
prior years, must firstly be computed.
No #$pa#r$ent ?#th #$pa#r$ent
A A
+ost at 1.1.2&&' 1,&&&,&&& 1,&&&,&&&
1epreciation for 2&&' !0&,&&&% !0&,&&&%
+arrying amount at 31.12.&' <0&,&&& <0&,&&&
/evaluation surplus 20&,&&& 20&,&&&
+arrying amount at 31.12.2&&' 1,2&&,&&& 1,2&&,&&&
1epreciation for 2&&< !$3,10'% !$3,10'%
+arrying amount at 31.12.2&&< 1,13$,'42 1,13$,'42
"mpairment !G4&&,&&& : G$3,10'% !33$,'42%
+arrying amount '&&,&&&
1epreciation for 2&1& and 2&11 !12$,31$% !'','''%
+arrying amount at 31.12.2&11 1,&1&,02$ ;11,112
"n this case, the ma5imum amount for the reversal that can be reflected in the
financial statements for 2&11 *ould be limited to G1,&1&,02$, as it is lo*er that the
assetEs recoverable amount of G1,10&,&&&. 3herefore, the reversal of impairment loss
for G2<<,414 !G1,&1&,02$ : G;11,112% can be accounted for.
3he Bournal entries to record the reversal of impairment loss *ould be6
30
31.12.2&11 1r. !G% +r. !G%
2achinery 2<<,414
P@J : reversal of impairment loss '$,'42
/evaluation surplus !G2<<,414 : G'$,'42% 212,0;2
!)eing reversal of impairment loss on the asset recogni8ed.%
31
<. Non-+urrent Assets Ce! )or Sae %I7RS 9'
- e l d f o r # a l e
1 i s p o s a l
( r o u p
1 i s c o n t i n u e d
7 p e r a t i o n
1 e f i n i t i o n
; + o n d i t i o n s
+ l a s s i f i c a t i o n a s
- e l d f o r # a l e
+ o r r e l a t i o n * i t h
- O A # 3 ;
+ o r r e l a t i o n * i t h
- O A # 3 $
. a i l t o + o m p l e t e
# a l e * i t h i n
7 n e P e a r
2 e a s u r e m e n t o f
A s s e t s a n d
1 i s p o s a l ( r o u p s
P r e s e n t i n g
1 i s c o n t i n u e d
7 p e r a t i o n s
P r e s e n t i n g
, o n - + u r r e n t
A s s e t s - e l d f o r
# a l e
, o n - + u r r e n t
A s s e t s - e l d
f o r # a l e
<.1 (e)#n#t#ons
;.1.1 Ce! )or sae is defined in "./# 0 and only app#e! ony to non-+urrent assets or
!#sposa ,roups. 3he broad principle is that a non-current asset, or disposal group, is
held for sale if the carrying amount of the asset or disposal group *ill be recovered
pr#n+#pay throu,h sae rather than through continuing use.
;.1.2 (#sposa ,roup is a group of assets to be disposed of, by sale or other*ise, together as
a group in a single transaction, and liabilities directly associated *ith those assets that
*ill be transferred in the transaction.
!a% "./# 0 applies to disposal groups as *ell as individual non-current assets that
are held for sale.
!b% A disposal group may include good*ill acquired in a business.
!c% #ubsidiaries acquired e5clusively *ith a vie* to resale are classified as
disposal groups held for sale if they meet the conditions belo*.
;.1.3 A !#s+ont#nue! operat#on is a component of an entity that either has been disposed
of, or is classified as held for sale.
<.* Cass#)#+at#on as he! )or sae
;.2.1 "./# 0 requires the follo*ing conditions to be met before an asset or disposal group
can be classified as held for sale.
!a% 3he item is a1a#a-e )or #$$e!#ate sae in its present condition.
!b% 3he sale is h#,hy pro-a-e.
;.2.2 .or the sale to be h#,hy pro-a-e, the follo*ing must apply.
!c% 2anagement is +o$$#tte! to a pan to sell the item.
32
!d% An active programme to o+ate a -uyer has -een #n#t#ate!.
!e% 3he item is being a+t#1ey $ar8ete! at a reasona-e pr#+e in relation to its
current fair value.
!f% 3he sale is e4pe+te! to -e +o$pete! .#th#n one year from the date of
classification.
!g% "t is un#8ey that the plan *ill +han,e s#,n#)#+anty or -e .#th!ra.n.
;.2.3 ,on-current assets held for sale shou! not -e !epre+#ate!, even if they are still being
used by the entity.
;.2.4 ,ote that assets must be disposed by a sae if they are to be classified as held for sale.
Assets that are to be a-an!one! or .oun! !o.n ,ra!uay +annot -e +ass#)#e! as
he! )or sae, although they $ay "ua#)y as !#s+ont#nue! once they have been
abandoned.
<./ Correat#on .#th IAS /<;s t#$#n, )or restru+tur#n, pro1#s#ons
;.3.1 A discontinued operation can be an operation that has been abandoned, has been
disposed of, or is held for sale. "f the operation to be discontinued does not yet meet
the definition of Cheld for saleD then it *ill be disclosed as a continuing operation and
not as a Cdiscontinued operationD in the primary statements.
;.3.2 E4a$pe D
3he management of entity A has announced a plan to close do*n a business segment,
but has not yet ta8en steps to #$pe$ent the pan. )y announ+#n, the pan they
have created a 1a#! e4pe+tat#on #n others that the pan .# -e #$pe$ente!, and
should therefore maAe provisions under "A# 3; for direct e5penditures necessarily
entailed by the restructuring, and for employee termination benefits under "A# 1<
Cmployee )enefitsD. Co.e1er, they *ould not re+ass#)y any non-+urrent assets
as Ehe! )or saeE as they have not yet ta8en steps to a+t#1ey $ar8et the assets to
be disposed of, nor *ould they +ass#)y the -us#ness se,$ent as !#s+ont#nue!.
;.3.3 "f the +r#ter#a )or he! )or sae are $et a)ter the -aan+e sheet !ate, -ut -e)ore the
!ate o) appro1a o) the )#nan+#a state$ents, then disclosure *ill be required. 3his
*ould be on the basis that this is a non-a!3ust#n,, -ut !#s+osea-e, e1ent a)ter
report#n, per#o!.
33
<.5 Correat#on .#th IAS /&;s t#$#n, )or re+o,n#2#n, #$pa#r$ent osses
;.4.1 "A# 3$ C"mpairment of AssetsD measures recoverable amounts at the higher of !i% the
present value of managementEs forecast of future cash flo*s and !ii% current fair value
less costs to sell !or net selling price%, irrespective of *hether management intends to
sell the asset !or cash-generating unit%.
;.4.2 3herefore, as *ith restructuring provisions, the timing of recogni8ing an impairment
loss may, or may not, coincide *ith meeting the strict conditions in "./# 0 for being
classified as held for sale. As a result, impairment losses may be recogni8ed earlier
than the held for sale criteria are met.
<.9 7a#ure to +o$pete the sae .#th#n one year
;.0.1 "f the period to complete the sale e5tends beyond one year, the assets may still be
classified as Cheld for saleD provided the delay is caused by events or circumstances
-eyon! the ent#ty;s +ontro and there is su))#+#ent e1#!en+e that the ent#ty re$a#ns
+o$$#tte! to #ts pan to sell the assets.
;.0.2 )roadly speaAing, the circumstances in *hich the period may be e5tended fall into
t*o categories6
!i% )#r$ pur+hase +o$$#t$ents from a buyer are e4pe+te! to -e, or ha1e -een,
o-ta#ne! during the period, -ut there #s so$e !eay in completing the sale4 or
!ii% there is an une4pe+te! +han,e #n +#r+u$stan+es during the 12 month period,
and as a result the asset #s not so! .#th#n that per#o! !but +ont#nues to -e
$ar8ete! at a reasona-e pr#+e%.
;.0.3 According to the definition of Cfirm purchase commitmentD in "./# 4, only
a,ree$ents .#th unreate! part#es may be regarded as Cfirm purchase
commitmentsD for the purpose of these concessions.
;.0.4 3his is presumably *ith the intention of prohibiting recognition of assets as Cheld for
saleD *hen the reate! party reat#onsh#p may have contributed to meeting the
requirements more in form than in substance. 5tra care therefore needs to be taAen to
ensure the rules are met if at the balance sheet date there are transactions *ith related
parties pending completion.
;.0.0 "f the +r#ter#a )or he! )or sae are no on,er $et, then the entity $ust +ease to
+ass#)y the assets or disposal group as he! )or sae. 3he assets or disposal group
must be $easure! at the o.er o)6
!a% its +arry#n, a$ount therefore it *as classified as held for sale adBusted for any
depreciation, amorti8ation or revaluations that *ould have been recogni8ed had
34
it not been classified as held for sale.
!b% its re+o1era-e a$ount at the date of the subsequent decision not to sell.
;.0.$ Any adBustment required is recogni8ed in profit or loss as a gain or loss from
continuing operations.
<.& 0easure$ent o) assets an! !#sposa ,roups he! )or sae
;.$.1 "tems classified as held for sale should be $easure! at the o.er o) the#r +arry#n,
a$ount an! )a#r 1aue ess +ost to se.
;.$.2 9here )a#r 1aue ess +ost to se #s o.er than +arry#n, a$ount, the items is *ritten
do*n and the *rite do*n is treated as an #$pa#r$ent oss.
;.$.3 9here a non-current asset has been pre1#ousy re1aue! and is no* classified as
being held for sale, it should be re1aue! to )a#r 1aue #$$e!#atey -e)ore it is
classified as he! )or sae. "t is then re1aue! a,a#n at the o.er o) the +arry#n,
a$ount an! the )a#r 1aue ess +osts to se. 3he difference is the selling costs and
these should be charged against profits in the period.
;.$.4 9hen a !#sposa ,roup is being .r#tten !o.n to )a#r 1aue ess +osts to se, the
#$pa#r$ent oss re!u+es the +arry#n, a$ount of assets #n the or!er prescribed by
IAS /& : that is .r#te !o.n ,oo!.# )#rst, then ao+ate the remaining loss to the
assets pro rata based on their carrying amount.
;.$.0 A ,a#n can be re+o,n#2e! )or any su-se"uent #n+rease in fair value less costs to sell,
-ut not #n e4+ess o) the +u$uat#1e #$pa#r$ent oss that has area!y -een
re+o,n#2e!, either *hen the assets *ere *ritten do*n to fair value less costs to sell or
previously under "A# 3$.
;.$.$ E4a$pe 16
7n 1 Fanuary 2&&' A) acquires a building for G2&&,&&& *ith an e5pected life of 0&
years. 7n 31 1ecember 2&11 A) puts the building up for immediate sale. 7n that
date the building has a marAet value of G22&,&&& and e5penses of G1&,&&& and ta5 of
G0,&&& *ill be payable on the sale. 1escribe the accounting for this building.
Sout#on>
>ntil 31 1ecember 2&11, the building is a normal non-current asset governed by "A#
1$, being depreciated at G2&&,&&& Q 0& R G4,&&& pa. 3he carrying amount at 31
1ecember 2&11 is therefore G1'4,&&& !R G2&&,&&& : 4 N G4,&&&%.
35
7n 31 1ecember 2&11, the building is reclassified as a non-current asset held for
sale. "t is measured at the lo*er of carrying amount !G1'4,&&&% and fair value less
costs to sell !G22&,&&& : G1&,&&&% R G21&,&&&. ,ote that any applicable ta5 e5pense
is e5cluded from the determination of costs to sell.
3he building *ill therefore be measured at 31 1ecember 2&11 at G1'4,&&&.
<.< Present#n, !#s+ont#nue! operat#ons
;.;.1 An entity should present and disclose information that enables users of the financial
statements to evaluate the financial effects of discontinued operations and disposals of
non-current assets or disposal groups.
;.;.2 E4a$pe 11
3he follo*ing illustration is taAen from the implementation guidance to "./# 0.
Profit for the year from discontinued operations *ould be analysed in the notes.
FGH Group
In+o$e State$ent
7or the year en!e! /1 (e+e$-er *61*
*61* *611
Cont#nu#n, operat#ons A666 A666
/evenue S S
+ost of sales !S% !S%
(ross profit S S
7ther income S S
1istribution costs !S% !S%
Administrative e5penses !S% !S%
7ther e5penses !S% !S%
.inance costs !S% !S%
#hare of profit of associates S S
Profit before ta5 S S
"ncome ta5 e5pense !S% !S%
Profit for the year from continuing operations S S
(#s+ont#nue! operat#ons
Profit for the year from discontinued operations S S
36
Profit for the year S S
Profit attributable to6
7*ners of the parent S S
,on-controlling interest S S
S S
An alternative to this presentation *ould be to analyse the profit from discontinued
operations in a separate column in the statement of comprehensive income.
<.: Present#n, non-+urrent assets he! )or sae #n the state$ent o) )#nan+#a pos#t#on
;.'.1 "./# 0 states that assets classified as held for sale should be presente! separatey
from other assets in the statement of financial position. 3he liabilities of a disposal
groups classified as held for sale should be presented separately from other liabilities
in the statement of financial position.
!a% Assets and liabilities held for sale should not -e o))set and presented as a
single amount.
!b% 3he maBor classes of assets and liabilities classified as held for sale must be
separatey !#s+ose! either on the face of the statement of financial position or
in the notes.
!c% 9here an asset or disposal group is classified as held for sale a)ter the
report#n, !ate, -ut -e)ore the #ssue o) the )#nan+#a state$ents, details
should be disclosed in the notes !this is a non-a!3ust#n, e1ent after the
reporting date%.
;.'.2 E4a$pe 1*
State$ent o) )#nan+#a pos#t#on
*61* *611
Assets A666 A666
Non-+urrent assets
Property, plant and equipment S S
(ood*ill S S
.inancial assets S S
S S
Current assets
"nventories S S
37
3rade receivables S S
+ash and cash equivalents S S
Non-+urrent assets +ass#)#e! as he! )or sae S S
S S
Tota assets S S
@uest#on *
/ocAby, a public limited company, has committed itself before its year-en! o) /1 0ar+h
*665 to a pan o) a+t#on to se a su-s#!#ary, )ye. 3he sae #s e4pe+te! to -e +o$pete! on
1 Juy *665 and the financial statements of the group *ere signed on 10 2ay 2&&4. 3he
subsidiary, )ye, a public limited company, ha! net assets at the year en! o) A9 $##on and
the booA value of related good*ill is G1 million. )ye has made a loss of G0&&,&&& from 1
April 2&&4 to 10 2ay 2&&4 and is e5pected to maAe a further loss up to the date of sale of
G$&&,&&&. /ocAby *as at 10 2ay 2&&4 negotiating the consideration for the sale of )ye but
no contract has been signed or public announcement made as of that date.
/ocAby e4pe+te! to re+e#1e A5I9 $##on for the company after selling costs. 3he value-in-
use of )ye at 10 2ay 2&&4 *as estimated at G3T< million.
.urther the non-current assets of /ocAby include the follo*ing items of plant and head
office land and buildings6
!i% 3angible non-current assets held for use in operat#n, eases6 at 31 2arch 2&&4 the
company has at +arry#n, 1aue A16 $##on of plant *hich has recently been leased
out on operating leases. 3hese leases have no* e5pired. 3he company is un!e+#!e!
as to .hether to se the pant or ease #t to +usto$ers un!er )#nan+e eases. 3he
)a#r 1aue ess se#n, +osts o) the pant #s AD $##on and the 1aue-#n-use is
estimated at A1* $##on.
Pant *ith a carrying value of G0 million at 31 2arch 2&&4 has +ease! to -e use!
because of a do*nturn in the economy. 3he company had !e+#!e! at /1 0ar+h *665
to $a#nta#n the pant #n .or8a-e +on!#t#on in case of a change in economic
conditions. /ocAby su-se"uenty so! the pant by auction on 15 0ay *665 for G3
million net of costs.
!ii% 3he )oard of /ocAby approved the relocation of the head office site on 1 2arch 2&&3.
38
3he head office land and buildings *ere reno1ate! an! up,ra!e! #n the year to /1
0ar+h *66/ .#th a 1#e. to se#n, the s#te. 1uring the improvements, su-s#!en+e
.as )oun! in the foundations of the main building. 3he .or8 to +orre+t the
subsidence and the renovations *ere +o$pete! on 1 June *66/. As at 31 2arch
2&&3 the renovations had cost G2T3 million and the cost of correcting the subsidence
*as G1 million. 3he carrying value of the head office land and buildings *as G0
million at 31 2arch 2&&3 before accounting for the renovation. /ocAby moved its
head office to the ne* site in Fune 2&&3 and at the same time, the old head office
property *as offered for sale at a price of G1& million.
-o*ever, the $ar8et )or +o$$er+#a property ha! !eter#orate! s#,n#)#+anty and
as at 31 2arch 2&&4, a -uyer for the property had not -een )oun!. At that time the
+o$pany !#! not .#sh to re!u+e the pr#+e and hoped that marAet conditions *ould
improve. 7n 2& April 2&&4, a bid of G'T3 million *as received for the property and
eventually it *as sold !net of costs% for G;T0 million on 1 Fune 2&&4. 3he carrying
value of the head office land and buildings *as G; million at 31 2arch 2&&4.
,on-current assets are sho*n in the financial statements at historical cost.
Re"u#re!>
!a% 1iscuss the *ay in *hich the sale of the subsidiary, )ye, *ould be dealt *ith in the
group financial statements of /ocAby at 31 2arch 2&&4 under "./# 0 ,on-current
assets held for sale and discontinued operations. !' marAs%
!b% 1iscuss *hether the follo*ing non-current assets *ould be classed as held for sale if
"./# 0 had been applied to6
!i% the items of plant in the group financial statements at 31 2arch 2&&44
!; marAs%
!ii% the head office land and buildings in the group financial statements at 31 2arch
2&&3 and 31 2arch 2&&4. !0 marAs%
!3otal 2& marAs%
!Amended A++A 3.$ Advanced +orporate /eporting Fune 2&&4 H4%
39