t8 - ACCT 3102 Tutorial 8 Semester 1 / 09 NON-CURRENT...

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1 ACCT 3102 Tutorial 8 Semester 1 / 09 NON-CURRENT ASSETS (REVALUATION AND IMPAIRMENT) HPH Chapter 10 - Questions 8 AASB 116 requires property, plant and equipment to be recognised initially at cost. Subsequent to initial recognition management may choose either the cost model or the revaluation model to measure property, plant and equipment. The revaluation model is to be applied to an item of property, plant and equipment only if its fair value can be measured reliably. This implies that management may revert to the cost method in the event that the item’s fair value in some future period cannot be measured reliably. In any event, there is no prohibition in AASB 116 on changing the measurement model. In fact, AASB 116 provides no comment on the ability of an entity to change the measurement model of a class of assets (e.g. change from cost model to revaluation model). Instead, any change in accounting policy is governed by AASB 108 ‘Accounting Policies, Changes in Accounting Estimates and Errors’. 13 (a) AASB 116 describes a reduction in the carrying amount of a non-current asset to its fair value as a ‘revaluation decrement’. AASB 116 refers to a reduction in the carrying amount of an asset to its recoverable amount as ‘an impairment loss’. Paragraph 5 of AASB 136 requires that the revaluation requirements of AASB 116 are first applied before an entity applies AASB 136 to determine whether the asset may be impaired. (b) AASB 116 requires that assets are carried at revalued amount (i.e. fair value). Fair value does not take account of the costs of disposal which are defined in paragraph 28 of AASB 136 to include ‘legal costs, stamp duty and similar transaction costs, costs of removing the asset, and direct incremental costs to bring t he asset into condition for its sale’. Thus, if an asset’s fair value is its market value, disposal costs are the only difference between fair value (required by AASB 116 ) and fair value less costs to sell (required by AASB 136 ). (i) Immaterial: If disposal costs are immaterial, it is unlikely that a revalued asset will be impaired since the recoverable amount of the revalued asset will be close to its revalued amount (para. 5, AASB 136 ). (ii) Material: If disposal costs are material, the fair value less selling costs of the revalued asset is necessarily smaller than its fair value (para. 5, AASB 136 ). Therefore, the revalued asset will only be impaired if its value in use is less than its revalued amount (i.e. fair value).
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2 15. (a) In many cases it is not possible to calculate the recoverable amount of an individual asset because it belongs to a larger unit. The asset, by itself, may not produce cash flows but does so in combination with other assets. In this situation, AASB 136 requires that the standard be applied to a cash-generating unit (para. 66).
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This note was uploaded on 07/07/2009 for the course ACCT 3102 taught by Professor Drk.herbohn during the Three '09 term at Queensland.

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t8 - ACCT 3102 Tutorial 8 Semester 1 / 09 NON-CURRENT...

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