SME Tangible Assets IFRS.

2011 IFRS Foundation*The IFRS for SMEs

2011 IFRS Foundation

2011 IFRS Foundation*


2011 IFRS Foundation*Section 13 scopeInventories are assets:held for sale in the ordinary course of business (finished goods); in the process of production for such sale (work in process); or in the form of materials or supplies to be consumed in the production process or in the rendering of services (raw materials & consumables). Section 13 specifies accounting + reporting for inventories


2011 IFRS FoundationSection 13 scope exclusionsSection 13 applies to all inventories, exceptwork in progress arising under construction contractsfinancial instrumentsbiological assets related to agricultural activity and agricultural produce at the point of harvest*


2011 IFRS Foundation*Section 17 definition of PP&EProperty, plant and equipment (PP&E) are tangible assets: held for use in the production or supply of goods or services, for rental to others, or for administrative purposes;& are expected to be used in +1 period.


2011 IFRS Foundation*Section 17 scope

Section 17 specifies accounting & reporting for: property, plant and equipment; and investment property whose fair value cannot be measured reliably without undue cost or effort on an ongoing basis.


2011 IFRS Foundation*Section 16 scopeInvestment property is land or a building (or part of a building, or both) held by the owner or by the lessee under a finance lease to earn rentals or for capital appreciation or both. Section 16 specifies accounting & reporting for: investment property whose fair value can be determined reliably without undue cost or effort on an ongoing basis


2011 IFRS Foundation*Section 18 definition intangible assetIntangible = identifiable non-monetary asset without physical substance Identifiable when:separable, ie can be separated from the entity & sold, transferred, licensed, rented or exchanged, either individually or together with a related contract, asset or liability, orarises from contractual or legal rights


2011 IFRS Foundation*Section 18 scope

Section 18 specifies accounting & reporting for intangible assets, excluding goodwillfinancial assetsmineral rights & mineral reserves, such as oil, natural gas and similar nonregenerative resources


2011 IFRS FoundationSections 13 & 1618 scope examplesIn scope of S13, S16, S17 or S18?Ex 1*: A trades in property (ie it buys property to sell it at a profit near-term) Ex 2*: B trades in transferable taxi licencesEx 3*: C produces wine from grapes harvested from its vineyards in a 3-year production cycle

* see example with the same number in Module 13 of the IFRS Foundation training material*


2011 IFRS FoundationSections 13 & 1618 examples continuedIn scope of S13, S16, S17 or S18?Ex 4*: D holds lubricants that are consumed by its machine in producing goods Ex 6*: E maintains its plant using: a bespoke long-life cleaning machine; & a set of low-value common tools acquired from a local hardware store.

* see example with the same number in Module 13 of the IFRS Foundation training material*


2011 IFRS FoundationSections 13 & 1618 examples continuedIn scope of S13, S16, S17 or S18?Ex 9*: F operate a hotel from a building it ownsit rents out hotel rooms for short-staysguest services included in the room rate = breakfast and televisionservices charged for separately = other meals, room bar, gymnasium facilities & guided tours* see example 9 in Module 16 of the IFRS Foundation training material*


2011 IFRS FoundationSections 13 & 1618 examples continuedIn scope of S13, S16, S17 or S18?Ex 3*: G buys a building to earn rentals under an operating lease from its subsidiary. The sub sells its products from the buildingEx 7*: H ownsa herd of cattlebreeding stock of its agricultural activities a tractor used to transport feed to the herd* see example with the same number in Module 17 of the IFRS Foundation training material

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2011 IFRS FoundationSections 13 & 1618 examples continuedIn scope of S13, S16, S17 or S18?Ex 1: I owns digital films and audio recordings which it licenses to its customersEx 12: In accounting for the acquisition of the net assets and operations of a competitor J recognised future economic benefits arising from assets that are not individually identified as an asset (goodwill)

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2011 IFRS FoundationExamples of classification judgementswhen unclear what purpose of acquiring property is (inventories, IP or PP&E?)when property owner provide ancillary services to the occupants of a property (IP or PP&E?)mixed use property (IP or PP&E?)when is undue cost or effort necessary to measure the fair value of an IP on an ongoing basis (IP or PP&E?) *


2011 IFRS Foundation*Section 13 measurementInventories in the scope of Section 13 are measured at the lower of: cost; and estimated selling price less costs to complete and sell (SP-CTC&S).


2011 IFRS FoundationSection 13 measurement exemptionsSection 13 does not apply to the measurement of inventories of producers of agricultural and forest products, agricultural produce after harvest, and minerals and mineral products, orcommodity brokers and dealerswhen measured at fair value less costs to sell through profit or loss*


2011 IFRS FoundationSection 13 measurement examplesAre these inventories measured in accordance with Section 13?Ex 7*: A commodity broker-trader acquires wheat in anticipation of selling it in the short-term. The broker-trader measures such inventories at fair value less costs to sell Ex 8*: Same as Ex 7 except the brokertrader measures inventories at cost* see example with the same number in Module 13 of the IFRS Foundation training material*


2011 IFRS Foundation*Section 13 costCost = costs of purchase + costs of conversion + other costs incurred in bringing the inventories to their present location and condition


2011 IFRS Foundation*Section 13 cost of purchaseCost of purchase = purchase price + import duties + other taxes (non-refundable in nature) + other direct costscosts of purchase is after deducting trade discounts, rebates etcif purchase arrangement effectively contains an unstated financing element, eg a difference between the purchase price for normal credit terms and the deferred settlement amount, the difference is recognised as interest expense over the period of the financing (ie it is not added to the cost of the inventories)


2011 IFRS Foundation*Section 13 examples cost of purchaseEx 13*: A buys a good priced at CU500 per unit from Z. Z awards A a 20% discount on orders of +100 units and 10% discount when A buys +999 units in 1 year. Thediscounts apply to all units acquired in a year. A buys as follows: 800 units on 1/1/20X1 and 200 units on 24/12/20X1.On 31/12/20X1, 150 units were unsold (ie inventories of A).* see example 13 in Module 13 of the IFRS Foundation training material


2011 IFRS Foundation*Section 13 examples cost of purchaseEx 13 continued:A measures the cost of the inventories in 20X1 at CU350,000 [ie 1,000 units (CU500 list price less 30%(CU500) volume discount)], because all units purchased in the year get the full 30% discount.A recognises: expense (cost of sales) of CU297,500 [ie 850 units sold (CU500 list price less 30%(CU500) volume discount)] in profit or loss in 20X1asset (inventories) of CU52,500 [ie 150 units unsold (CU500 less 30%(CU500) discount)] at 31/12/20X1.


2011 IFRS Foundation*Section 13 examples cost of purchaseEx 17*: A buys inventory for CU2,000,000 on 2year interestfree credit. Appropriate discount rate = 10% per year.The cost of the inventory is CU1,652,893 (ie the present value of the future payment). Calculation: CU2,000,000 future payment (1.1)2.* see example 17 in Module 13 of the IFRS Foundation training material


2011 IFRS Foundation*Section 13 cost of conversionCost of conversion = direct costs + indirect costs (allocated production overheads)allocated production overheads = fixed production overheads + variable production overheads


2011 IFRS Foundation*Section 13 examples conversion costsEx 18*: A makes concrete blocks in reusable moulds. Blocks dry in a drying room for 2 weeks. Dried blocks & raw mats stored in separate rooms. A front-end loader (man 1) adds materials to the mixing machine operated by man 2. Casual labourers remove blocks from moulds. Man 3 supervises the factory. Man 4 does admin, finance and sales.A operates from rented premises (fixed payments). * see example 18 in Module 13 of the IFRS Foundation training material


2011 IFRS Foundation*Section 13 examples conversion costEx 18 continued: Costs of conversion includedirect costs: casual labour.production overheads: factory rent (incl. raw mats area & drying room but excl. finished goods room); staff cost of man 1,2 & 3; depreciation of equipment (front end loader, mixing machine and moulds).


2011 IFRS Foundation*Section 13 allocate production overheadsAllocate fixed production overheads onnormal capacity if low or normal production actual production (units) if abnormally high production (so that inventory is not measured above cost)note: unallocated overheads are expensed when incurredAllocate variable production overheads on actual production


2011 IFRS Foundation*Section 13 example FP overheadsEx 20*: Fixed production (FP) overheads = CU900,000. 200,000 units produced. Normal capacity = 250,000 units. Allocation rate: CU900,000 250,000 units normal capacity = CU3.6 per unit produced.Allocate to inventories: CU3.6 200,000 units = CU720,000.Unallocated overheads of CU180,000 are expense (ie CU900,000 less CU720,000 in inventory). * see example 20 in Module 13 of the IFRS Foundation training material


2011 IFRS Foundation*Section 13 example FP overheadsEx 21*: Same as Ex 20 except 300,000 units produced. Normal capacity = 250,000 units. Allocation rate: CU900,000 300,000 units actual production = CU3 per unit produced. Allocate to inventories: CU3 300,000 units = CU900,000* see example 21 in Module 13 of the IFRS Foundation training material


2011 IFRS Foundation*Section 13 example wastageEx 27*: Total costs of a production run = CU100,000 (including a cost of normal wastage of CU2,000). The weakening of operating controls while the owner-manager was in hospital caused the wastage of raw materials to increased to CU7,000 per production run. The abnormal wastage cost of CU5,000 (CU7,000 CU2,000) is not included in the cost of inventory but recognised as an expense. * see example 27 in Module 13 of the IFRS Foundation training material


2011 IFRS Foundation*Section 13 joint and by-productsProduction process results in more than one product being produced simultaneously joint product, ormain product and by-product.Allocate joint costs on a rational and consistent basisIf by-product is immaterialmeasure by-product at selling price less costs to complete and sell (SP-CTC&S) deduct this amount from the cost of the main product.


2011 IFRS Foundation*Section 13 example by-productEx 22*: Aproduction process costs CU100,000 (including allocated overheads). It mixes base chemicals to produce:5,000 litres of product A (sales value = CU250,000); and1,000 litres of by-product C (sales value = CU2,000).Cost per litre of A = CU19.60 (ie CU100,000 less CU2,000 SP of C) 5,000 litres = CU19.60.* see example 22 in Module 13 of the IFRS Foundation training material


2011 IFRS Foundation*Section 13 example joint productEx 23*: Same as in Ex 22 except, instead of byproduct C there is a joint product B. Total costs = CU300,000 to produce: 5,000 litres of A (sales value = CU250,000); and4,000 litres of B (sales value = CU400,000).Allocate joint process costs on relative sales values. * see example 23 in Module 13 of the IFRS Foundation training material


2011 IFRS Foundation*Section 13 example joint product continuedEx 23 continued: Cost per litre of A = CU23.08 & B = CU46.15.Calculation A: CU250,000 SP of A CU650,000 combined SP of A & B CU300,000 costs = CU115,385 cost of 5,000 litres of A. CU115,385 5,000 litres = CU23.08.Calculation B: CU400,000 SP of B CU650,000 combined SP of A & B CU300,000 costs = CU184,615 cost of 4,000 litres of B. CU184,615 4,000 litres = CU46.15.


2011 IFRS Foundation*Section 13 other costsInclude other costs in the cost of inventories only to the extent that they are incurred in bringing the inventories to their present location and condition.Ex 25*: A manufactures individually packaged pens. The cost of the inventory includes the cost of manufacturing the pens and the individual packaging in which they are presented for sale.* see example 25 in Module 13 of the IFRS Foundation training material


2011 IFRS Foundation*Section 13 cost formulasSpecific identification of costs if goods not ordinarily interchangeable or segregated for specific projectsOther inventoriesFIFO orweighted average (WA)Can use other ways if approximates cost standard cost retail method most recent purchase price


2011 IFRS Foundation*Section 27 impairment of inventoriesAssess at each reporting date whether any inventories are impaired, bycomparing the carrying amount (CA) of each item of inventory with its selling price less costs to complete and sell (SP-CTC&S)if CA > SP-CTC&S reduce CA to SP-CTC&Sthat reduction = impairment loss impairment loss = expense in profit or loss


2011 IFRS Foundation*Section 27 examples impairmentEx 1: At reporting dateCA (cost) of raw materials = 100replacement cost = 80 est. selling price of finished good = 200 est. costs to convert the raw material into finished good = 60est. costs to sell the finished good = 30Ex 2: Same as Ex 1 except est. SP = 180


2011 IFRS Foundation*Section 27 impairment exceptionInventory is assessed for impairment item by itemonly if it is impracticable to determine SP-CTC&S item-by-item may items of inventory: relating to the same product line that have similar purposes or end uses; and that are produced and marketed in the same geographical area be grouped for the purpose of assessing impairment.


2011 IFRS Foundation*Section 27 examples impairmentEx 3: A has 3 items of inventory (finished goods) that qualify for impairment testing as a groupCA (cost) 90 + 100 + 130 = 320est. SP-CTC&S for the 3 items = 330Ex 4: Same as Ex 3 except items do not qualify for impairment testing as a group; and est. SP-CTC&S = 110 each.


2011 IFRS FoundationSection 27 reversal of impairment Reverse the impairment when: circumstances that caused inventories to be impaired no longer exist; or there is clear evidence of an increase in SP-CTC&S because of changed economic circumstances Amount of reversal is limited to the amount of the original impairment lossie CA cannot be > cost*


2011 IFRS Foundation*Section 27 example reverse impairmentEx 5: At 31/12/20X1 because of a decline in economic circumstances recognised an impairment loss on an item of inventory of 30 (ie cost = 100 & SP-CTC&S = 70)At 31/12/20X2 because of an improvement in economic circumstance the SP-CTC&S of that item is 120


2011 IFRS Foundation*Section 13 measurement judgementsFor cost, examples includedetermining normal capacityseparating normal & abnormal wastageallocating joint cost to joint productsif no market for joint products at separationif multiple joint products and exit joint production at different stages For the impairmentestimating SP-CTC&S


2011 IFRS Foundation*Section 13 derecognitionExpense inventory whenimpairedderecognised (ie when sold)Allocate inventory to another asseteg inventory used as a component of self-constructed PP&E.


2011 IFRS Foundation*Section 13 disclosureDiscloseaccounting policies for measuring inventories carrying amount of inventories analysed by classamount expensed in the periodimpairment losses recognised or reversedamount pledged as security for liabilities


2011 IFRS Foundation*Section 17 recognitionRecognise the cost of an item of PP&E as an asset if:probable future benefits inflows; andcost can be measured reliably.


2011 IFRS Foundation*Section 17 measurementInitial measurement of PP&E = costcost = purchase price + direct cost for PP&E become capable of operating as intended + initial estimate of obligation to dismantle/remove cash price equivalent at the recognition dateif payment deferred beyond normal credit terms, cost = present value of future payments Subsequent measurement = cost less depreciation and impairment losses


2011 IFRS Foundation*Section 17 replacing partsParts that require replacement at regular intervals (eg roof and furnaces lining) add cost of replacement to the carrying amount of the item if the replacement adds benefitsif consumption pattern different, depreciate component separately over its useful life derecognise the parts replaced. Day-to-day servicing costs = expense


2011 IFRS Foundation*Section 17 exchange of assetsCost of PP&E acquired in exchange for a non-monetary asset = fair value unless the transaction lacks commercial substanceif fair value cannot be measured reliably, cost = carrying amount of the asset given up


2011 IFRS Foundation*Section 17 costCost of PP&E comprises:purchase price (incl. fees, duties & purchase taxes after deducting trade discounts & rebates)costs directly attributable to bring the PP&E to location & condition necessary for it to be capable of operating as intended by management: site prep. costs, delivery & handling, installation & assembly, & testing functions.initial estimate of dismantling & removing costs and site restoration.


2011 IFRS Foundation*Section 17 example costEx 15*: Costs before ready for use as intended: purchase price = 600 (incl 50 refundable purch tax)costs 120 to get equip to site and to installin 10 yrs must restore land (PV to restore = 100)costs 135 to modify equip to operate as intendedcosts 10 to train staff to operate equip. costs 37 for testing and final modifications23 = operating loss after ready for use.* Adapted from example 15 in Module 17 of the IFRS Foundation training material


2011 IFRS Foundation*Section 17 depreciationTo allocate depreciable amount over items useful life use judgement to estimateuseful liferesidual valuedepreciation method (eg straight-line, diminishing balance, units of production) Re-evaluate estimates if change indicatorchange is a change in accounting estimate


2011 IFRS Foundation*Section 17 depreciation continuedDepreciation begins when the PP&E is available for useie when it is in the location and condition necessary for it to be capable of operating in the manner intended by management Depreciation stops when the PP&E is derecognised


2011 IFRS Foundation*Section 17 example depreciationEx 20*: On 1/1/20X1 buy machine for CU100,000. Initial estimates & judgements: useful life = 10 yrs & residual value = 0 straightline depreciation is appropriateAt 31/12/20X5 yearend reassess:useful life = 24 yrs (from the date of acq) and residual value = CU20,000straightline depreciation is appropriate * adapted from example 20 in Module 17 of the IFRS Foundation training material


2011 IFRS Foundation*Section 17 derecognitionDerecognise PP&E on disposal or when no further benefits are expected from its use or disposalGain or loss = net disposal proceeds (if any) less carrying amountshow gain or loss in profit or loss (except for some sale & leasebacks)gain is not revenue


2011 IFRS Foundation*Section 17 example derecognitionEx 35*: On 1/11/20X5 sold building for 3,500. Carrying amount = 2,000. Selling costs = 350 commission & 10 legal fees. On 1/11/20X5 recognise gain of CU1,140 in profit or loss [calculation: 3,500 less (2,000 + 350 + 10)]* see example 35 in Module 17 of the IFRS Foundation training material


2011 IFRS Foundation*Section 17 disclosuresDisclose for each class of PP&Emeasurement basesdepreciation methodsuseful lives or depreciation ratesgross carrying amount & accumulated depreciation (incl. impairment losses) at beginning & end of periodreconciliation of carrying amount at beginning & end of the reporting period showing specified items (comparatives not required)


2011 IFRS Foundation*Section 17 other disclosuresAlso discloseexistence and carrying amounts of PP&E when entity has restricted title or PP&E is pledged as security for liabilitiesamount of contractual commitments for the acquisition of PP&E


2011 IFRS Foundation*Section 18 recognitionRecognise the cost of intangible as asset if:probable future benefits inflows, andcost can be measured reliablythe asset does not result from expenditure incurred internally on an intangible item cannot recognise R&D costs; internally generated brands, logos, publishing titles, customer lists; expenditure to open new facilities or launch new products; training activities; advertising; relocating or reorganising costs.


2011 IFRS Foundation*Section 18 recognise this brand?Ex 1: A developed a brand that allows it to charge a premium for its products. A maintains & enhances its brand by sponsoring local events & advertising. Ex 2: Same as Ex 1 except A bought brand from a competitor in a separate acquisition.


2011 IFRS Foundation*Section 18 intangibles in business comIntangible asset acquired in a bus comis normally recognised as a separate asset fair value can be measured reliablyhowever, not recognised when arises from legal/contractual rights & fair value cannot be measured reliably because the asset either:is not separable from goodwill; or is separable but no history or evidence of exchange transactions for similar assets, and otherwise estimating fair value would be dependent on immeasurable variables.


2011 IFRS Foundation*Section 18 initial measurementInitial measurement of intangible = costif separately acquired, cost = purchase price + directly attrib. cost of preparing for intended useif acquired in a business combination, cost = at acquisition fair valueif acquired in government grant, cost = fair value at the date the grant is received or receivable

Internally generated intangibles are not recognised & therefore are not measured


2011 IFRS Foundation*Section 18 example business comEx 3: A buys B when Bs intangibles were:

A incurred 200 to complete in-process R&D project & decides to develop the related product commercially.

CAFVCustomer list050In process R&D project080Licence to operate100150Brand (trademark & brand name)0300


2011 IFRS Foundation*Section 18 judgements about costJudgements in measuring cost include:deferred paymentdetermining the discount rateexchange transactionestimating fair value if no active market for asset received or asset given upacquired in a business combinationestimating fair value if no active markets & judging if fair value can be measured reliably (for recognition)acquired by government grantestimating fair value of if no active market


2011 IFRS Foundation*Section 18 subsequent measurementAfter initial recognition measure intangibles at cost less amortisation & impairment lossesSimilar to PP&E butall intangibles considered to have finite useful lifeuseful life not > the contractual/legal rightuseful life includes renewal periods only if evidence to support likely renewal without significant costuseful life = 10 yrs if cannot estimate reliablyresidual value is 0, except in specified circumstances


2011 IFRS Foundation*Section 18 estimating useful lifeEx 4: A acquires a customer list. Expects to benefit from list for 13 yrs. Ex 5: B acquires a 5-yr airline route authority (ARA) that is renewable every 5 yrs at no costrenewal is routine if specified rules & regulations are complied withB is compliant & expects to fly the route indefinitelyan analysis of demand and cash flows supports those assumptions


2011 IFRS Foundation*Section 18 derecognitionDerecognise intangibles on disposal or when no further benefits are expected from its use or disposalGain or loss = net disposal proceeds (if any) less carrying amountshow gain or loss in profit or loss (except for some sale & leasebacks)gain is not revenue


2011 IFRS Foundation*Section 18 disclosuresDisclose for each class of intangibleline item in income statement (or SOCI or SOI&RE) in which amortisation is includedamortisation methodsuseful lives or amortisation ratesgross carrying amount & accumulated amortisation (incl. impairment losses) at beginning & end of periodreconciliation of carrying amount at beginning & end of the reporting period showing specified items (comparatives not required)


2011 IFRS Foundation*Section 18 other disclosuresR&D expenditure expensed in the periodexistence & carrying amounts of intangible with restricted title or pledged as security for liabilityamount of contractual commitments for the acquisition of intangibles(i) description, (ii) carrying amount and (iii) remaining amortisation period of individual intangible asset that is material to the entitys financial statementsif acquired as government grant & initially recognised at fair valuethe fair value initially recognised & the carrying amount


2011 IFRS Foundation*Section 27 scopeSection 27 specifies accounting and reporting of impairment losses of all assets except:deferred tax assetsassets arising from employee benefitsfinancial assets in scope of Sections 11 & 12assets measured at fair value


2011 IFRS Foundation*Section 27 general principlesAssets except inventories:at reporting date assess whether there is any indication that an asset may be impaired if any such indication exists, estimate the recoverable amount (RA) of the asset impair if carrying amount (CA) > RArecognise impairment loss in profit or lossNote: if impairment indicatedreview the remaining useful life, the depreciation (amortisation) method or the residual value for the asset even if no impairment loss found


2011 IFRS Foundation*Section 27 impairment testing levelImpairment test at level ofindividual asset (if possible)otherwise cash-generating unit (CGU) eg when need to calculate value in use and the individual assets do not generate cash flows by themselvesA CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.


2011 IFRS Foundation*Section 27 impairment indicatorsConsider, as a minimum:External sources of information in a periodassets market value declined significantly > expectedsignificant changes in the technological, market, economic or legal environmentmarket rates increased (eg effect on discount rate)CA of the net assets > estimated fair value of the entity


2011 IFRS Foundation*C Section 27 impairment indicators continuedInternal sources of informationobsolete or physical damaged assetsignificant changes in the extent or manner in which, an asset is (or is expected to be) used eg idle assets, plans to discontinue or restructure operation, plans to dispose before expected, and reassessing the useful life of an asset as finite rather than indefinite.internal reporting indicates that the economic performance of an asset is, or will be, worse than expected (eg operating results & cash flows)


2011 IFRS Foundation*Section 27 recoverable amountRecoverable amount = higher of value in use (VIU) & fair value less costs to sell (FV-CTS)if either VIU or FV-CTS > CA then no need to determine the otherif no reason to believe VIU > FV-CTS, then FV-CTS may be used as RA


2011 IFRS Foundation*Section 27 estimating FV-CTSFV-CTS = amount obtainable from the sale of an asset in an arms length transaction between knowledgeable, willing parties, less the costs of disposalbest evidence is a price in a binding sale agreement in an arms length transaction or a market price in an active market if not available, estimate using best information available considering the outcome of recent transactions for similar assets within the same industry


2011 IFRS Foundation*Section 27 estimating VIUVIU = present value of the future net cash flows expected to be derived from an asset. Steps to calculate VIU:estimate future cash flows (in & out) from continuing use of the asset & its ultimate disposal, andapply appropriate discount rate to future cash flows


2011 IFRS Foundation*Section 27 estimating VIUReflect in calculation of VIU:est. future cash flows (FCFs) entity expectsexpectations about possible variations in the amount or timing of those FCFstime value of money (current market risk-free rate of interest)price for uncertainty inherent in the assetother factors (eg illiquidity) that market participants would adjust forAvoid double-counting in FCFs & discount rate


2011 IFRS Foundation*Section 27 est. VIU cash flowsEstimates of FCFs include:cash inflows from the continuing usecash outflows necessary to generate cash inflows (directly attributed or allocated on reasonable & consistent basis)net cash flows, if any, expected from disposal at end of useful life May:use recent budgets/forecasts to est. cash flowsextrapolate beyond forecast period using steady or declining growth rate, unless another is justified


2011 IFRS Foundation*Section 27 est. VIU cash flows continuedEst. FCFs for asset in current condition Est. FCFs dont include in/outflows from:a future restructuring to which an entity is not yet committed, or improving or enhancing the assets performance.Est. FCFs also dont include:cash in/outflows from financing activities, and income tax receipts/payments.


2011 IFRS Foundation*Section 27 est. VIU discount rateDiscount rate/s is a pre-tax rate/s that reflect/s current market assessments of:the time value of money (ie current market risk-free rate of interest); andthe risks specific to the asset for which the future cash flow estimates have not been adjusted (ie avoid double-counting).


2011 IFRS Foundation*Section 27 cash generating unit (CGU)Allocate impairment loss:1st to any goodwill allocated to the CGU2nd to other assets pro rata on the basis CA of each asset in CGUhowever, cannot reduce the CA of any asset below the highest of 0, FV-CTS & VIU (if determinable)reallocate to other assets of CGU


2011 IFRS Foundation*Section 27 example CGU impairmentEx 1: At 31/12/20X1 CA of a CGUs assets = 210 (ie 150 taxis, 50 taxi licence & 10 goodwill)Impairment indicated & RA = 170. Fair value of taxis = 140.Impairment loss = 40 (ie 210 CA less 170 RA)1st allocate 10 loss to goodwill2nd allocate remaining 30 loss, ie 22.5 to taxis & 7.5 to licence (pro rata on CA)3rd reallocate 12.5 loss from taxis to licence


2011 IFRS Foundation*Section 27 goodwillOn acquisition date goodwill is allocated to each cash-generating unit that is expected to benefit from the synergies of the business combinationCA of partly-owned CGU is notionally adjusted for the NCIs share of goodwill before being compared with its RA


2011 IFRS Foundation*Section 27 example goodwillEx 2: Goodwill of CU40 on As acquisition of 75% of Bs shares on 1/1/20X1.To reflect synergies the group allocated the goodwill 10 to As CGU and 30 to Bs CGU.For impairment testing purposes only Bs goodwill is notionally grossed up to 40 (ie additional goodwill for NCI = 10).


2011 IFRS Foundation*Section 27 goodwill continuedIf goodwill cannot be allocated to CGU/s on a non-arbitrary basis, then for the purposes of testing goodwill for impairment, the entity determines the recoverable amount of either:the acquired entity in its entirety (if goodwill relates to an acquired entity that has not been integrated). the entire group of entities, excluding any entities that have not been integrated (if the goodwill relates to an acquired entity that has been integrated).


2011 IFRS Foundation*Section 27 reversing impairment lossGeneral principles:at reporting date assess whether there is any indication that impairment has reversed if any such indication exists, estimate RAreverse impairment in profit or loss if CA < RA, butreversal cannot increase the CA above the CA that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised in prior years.goodwill impairment cannot be reversed


2011 IFRS Foundation*Section 27 example reverse impairmtEx 3: Facts from Ex 1. At 31/12/20X2 CA of CGU = 120 (ie 100 taxis & 20 licence)Impairment reversal indicated & RA estimated = 150Potential impairment reversal = 30 (ie 150 RA less 120 CA) but limited to 20 (as follows)1st allocate to assets pro rata on CAs, ie 5 to licence & 25 to taxis2nd limit amt allocated to taxis to 7 (if no impairment in 20X1, CA at 20X2 = 107)


2011 IFRS Foundation*Section 27 example reversal continuedEx 3 continued:3rd reallocate 18 reversal from taxis to licenceTotal reversal provisionally allocated to licence = 23 (ie 5 + 18)4th limit amt allocated to licences to 13 (if no impairment in 20X1, CA at 20X2 = 33)5th as there are no other assets to reallocate the unallocated 10 (ie 23 less 13) reversal to, limit the total impairment reversal to 20 (ie 7 for taxis and 13 for licence)


2011 IFRS Foundation*Section 27 after reversalAfter reversing impairment lossadjust the depreciation/amortisation charge for the asset in future periods to allocate the assets revised CA, less its residual value (if any), on a systematic basis over its remaining useful life.


2011 IFRS Foundation*Section 27 impairment disclosuresDisclose separately for each of(a) inventories; (b) PP&E; (c) goodwill; (d) intangibles other than goodwill; (e) investments in associates; (f) investments in joint ventures: amount of impairment losses recognised in profit or loss & line item(s) in the income statement (or SOCI or SOI&RE) in which included.same for reversals of impairment losses


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SME Tangible Assets IFRS.

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