Académique Documents
Professionnel Documents
Culture Documents
LONG-LIVED ASSETS
G/W
SL
RV
BV
B.S
PP&E
SV
=
=
=
=
=
=
Goodwill
Straight Line
Residual Value
Book Value
Balance Sheet
Property, Plant &
Equipment
= Salvage Value
30.a
Expenditure can either be capitalized as an asset (investing outflow) or expensed in I.S.
Nonmonetary exchange, cost is based on F.V.
If expensed then operating outflow, total CF is unaffected by expensing vs. capitalizing
decision.
NRV
FV
CF
BC
=
=
=
=
DDB =
CV =
HC =
G/L =
Capitalized Interest
Interest cost is capitalized when an asset is constructed for own use or for resale under
both standards.
Interest rate is based either on debt acquired to specifically finance the assets
construction or the firms existing borrowings.
Interest cost is charged to I.S through depreciation or COGS.
In CF statement, cap. Interest is an outflow from investing activities.
Income earned by temporarily investing borrowed funds reduces borrowing costs
available for capitalization (IFRS). No reduction under U.S. GAAP.
Items
Total assets
Equity
Income variability
Net income (1st year)
Net income (subsequent years)
CFO
CFI
Debt-to-equity & debt ratio
Interest coverage (1st year)
Interest coverage (subsequent
years).
Capitalizing
Higher
Higher
Lower
Higher
Lower
Higher
Lower
Lower
Higher
Lower
Expensing
Lower
Lower
Higher
Lower
Higher
Lower
Higher
Higher
Lower
Higher
30.b
Intangible assets long term assets that lack physical substance (e.g. brand
name, copyrights etc).
Finite-life intangible asset amortized; Indefinite-life impairment test.
Intangible Assets
30.b
Intangible Assets
Created Internally
Expensed as incurred except following exceptions.
R&D Costs
IFRS
U.S.GAAP
Expensed
IFRS
Obtained in B.C
Acquisition method is
used for B.C.
Purchase price is allocated
to assets & liabilities of
acquired firm on basis of
their FV, any remaining is
G/W.
U.S.GAAP
Same treatment as IFRS
for sale, capitalized for
own use once probability
of completion is
determined.
30. c,d
Purchased
Depreciation Methods
Straight-line depreciation
Same amount each year.
Dep. expense = (original cost SV)
/ useful life.
Accelerated depreciation
More dep. in early years & less in later years.
Less N.I in early years.
DDB dep. in year X =
Units-of-production
Based on asset production activity rather time.
Dep. =
BV
30. c,d
Component Depreciation
IFRS
U.S.GAAP
30.e
Amortization is identical to the depreciation of tangible assets, (same methods & estimates are used).
Indefinite life intangibles are tested for impairment at least annually.
30.f
Example
30.g
Most long-lived assets carried at depreciated cost & no FV alternative under U.S.GAAP.
IFRS provide alternative revaluation model (long-lived assets at FV).
FV < carrying amount loss in I.S, income & and thus equity.
Subsequent increase gain in I.S up to previous loss and any excess in equity.
in asset value above carrying amount component of shareholders equity (revaluation surplus).
Subsequent decline reduce surplus and remainder is recorded as loss in I.S.
Upward revaluation results in total assets & equity, dep. exp & profitability in periods after revaluation.
Impairment
30.h
IFRS
U.S.GAAP
Impairment Steps
Recoverability
Loss measurement
Impaired if CV >
future undiscounted
CF.
30.i
Derecognition
Sold
Abandoned
No proceeds.
CV removed from B.S & loss in I.S.
Exchanged
G/L is computed by comparing CV of
old asset with FV of old asset (or FV
of new asset if more evident).
CV of old asset removed & new
asset recorded at FV.
30.j
IFRS
U.S.GAAP
PP&E
Intangible assets
PP&E
Intangible assets
Similar as PP&E
except, must
disclose whether
useful lives are finite
or indefinite.
Provide an estimate of
amortization expense for
next five years.
Gross carrying amount and
accumulated amortization
expense in total and by
major asset classes.
The aggregate amortization
expense.