3.1 SW_ACIS211Lecture4_Impairment_Learn

3.1 SW_ACIS211Lecture4_Impairment_Learn - 6-1ACIS...

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Unformatted text preview: 6-1ACIS 211Financial AccountingWeek 3 Lecture 1ASSETS:ASSETS:Revaluations and Revaluations and Impairment Testing Impairment Testing of of Non-Current AssetsNon-Current Assets6-2Learning ObjectivesUnderstand the difference between Historical Cost and Fair value measurementUnderstand how and when to revaluean item of property, plant and equipment in accordance with NZ IAS 16.Understand how to account for revaluation increments. Understand how to account for revaluation decrements.Understand how balances of accumulated depreciationshould be treated on revaluation.6-3Learning Objectives (2)Understand how to account for revaluations that reverse previous revaluation increments and decrements.Understand how profit on disposal of a revalued non-current asset is determined and how the revaluation affects the final profits or losses on disposal.Know what an impairment lossis and understand the accounting treatment for impairment losses -NZIAS 36.6-4Learning Objectives (3)Be able to explain the possible economic consequences of revaluing non-current assets that could motivate a firm to revalue or not to revalue.Know the disclosure requirementspertaining to asset revaluations.Reading:-Deegan & Samkinchapter 6-NZ IAS 16 PPE6-5IntroductionHistorical costhas been criticised for bearing no relation to current asset values - for not providing “relevant” information cf Fair Value.(but: issues of objectivity vs subjectivity) In NZ, entities may revalue many non-current assets - NZ IAS 16 allows option.Note: NZ IAS 38 specifically excludesthe revaluation of some intangibles, eg Goodwill.Asset revaluationsRecognizing a reassessment of the “carrying amount” of a non-current asset to “fair value” as at a particular dateExcludes “recoverable amount” write-downs (impairment losses).(NB: depreciation is nota revaluation method; it is a cost allocation)6-6IntroductionIf a non-current asset’s carrying amountexceeds its recoverable amountit must be written downto its recoverable amount (NZ IAS 36).Carrying amount:cost of asset (or revalued amount) less accumulated depreciation and impairment losses.Recoverable amount:higherof an asset’s net selling priceand value in use.Net selling price:amount estimated from the sale of an asset in an arm’s length transaction between knowledgeable, willing parties, less estimated costs of disposal.Value in use:present value of the future cash flows expected from an asset.The write-down is called an impairment loss.6-7Measuring property, plant and equipment at cost or fair valueIn determining the carrying amount, NZ IAS 16 requires each class of property, plant and equipment to be measured bythe Cost Model, orthe Revaluation ModelCost ModelCost less accumulated depreciation and any accumulated impairment losses....
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3.1 SW_ACIS211Lecture4_Impairment_Learn - 6-1ACIS...

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