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Sources of IFRS
IAS 16 - PROPERTY, PLANT AND
EQUIPMENT (PPEs) • IAS 16 - Property, Plant and Equipment
• IAS 38 – Intangible assets
• Amendment to IAS 16 and 38
IAS 38 - INTANGIBLE ASSET • IAS 38 – Investment property

IAS 40- Investment Property

5-2 School of Accounting - UEH

Learning objectives
Definition
After studying this topic, you should be able to: Recognition
• Understand the recognition and measurement of PPEs, Classify
Intangible asset, Investment property.
• Identify the various costs included in the initial cost and PPEs
carrying amount of PPEs, Intangible asset, Investment IA Measurement
property. IP
• Determine the depreciation and impairment losses of
PPEs, Intangible asset, Investment property.
• Discuss the information of PPEs, Intangible asset, Presentation
& Disclosure
Investment property that is presented and disclosed in
financial statements.
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Definition - PPEs:
Expected to Benefit Asset
Future Periods
are expected to be used
during more than one period

Long – lived
Asset

 use in the production or supply

of goods or services
tangible items held for
 for rental to others
 for administrative purposes

PPEs

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Definition - PPEs: Definition – Intangible Asset:

Expected to Benefit Asset
Future Periods
held for are expected to be used
 use in the production or supply during more than one period
of goods or services
 for rental to others Long – lived
 for administrative purposes Asset

is an identifiable non-monetary
asset without physical substance.
(IAS 38.8)

Intangible Asset

Recognition criteria: Recognition criteria:

1. Whether PPEs or the intangible asset can be
identified separately from other aspects of the
business entity;
2. Whether the use of PPEs or the intangible asset
is controlled by the entity as a result of its past
actions and events;
3. Whether future economic benefits can be
expected to flow to the entity; and
4. Whether the cost of the asset can be measured
reliably.
IAS 38 states that an intangible meets the
identifiability requirement if:
1. It is separable (i.e., is capable of being
separated or divided from the entity
and sold, transferred, licensed, rented Identifiability
or exchanged, either individually or
together with a related contract, asset
or liability); or
2. It arises from contractual or other
legal rights, regardless of whether
those rights are transferable or
separable from the entity or from other
rights and obligations.

Recognition criteria: Recognition criteria:

Control
Control implies the power to both obtain future
economic benefits from the asset as well as
restrict others’ access to those benefits.
Normally, entities register patents, copyrights,
etc. to ensure control over these intangible
assets, although entities often have to engage
in litigation to preserve that control.
Future economic benefit
The future economic benefits may take
the form of revenue from the sale of
products or services, cost savings or
other benefits resulting from the use of
the intangible asset by the entity.
A good example: of other benefits resulting from the use of
the intangible asset is the use by an entity of a secret
formula (which the entity has protected legally) that leads to
reduced levels of competition in the marketplace, thus
enhancing the prospects for substantial and profitable future
sales and reduced expenditures on such matters as product
development and advertising.

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Definition – Intangible Asset: Intangible Asset - Patent

• An exclusive right recognized by law and granted by a

Lack physical (Không có hình sovereign state for a limited period (usually 20 years.)
substance. thái vật chất)
Intangible • Holder has the right to use, manufacture, or sell the patented
Assets product or process without interference or infringement by
others.
Exclusive
(Độc quyền)
Rights.
 Future benefit ?
 Lack physical
IA
Future benefits less certain substance ?
than tangible assets.  Exclusive rights ?

Intangible Asset - Patent Intangible Asset - Copyright

• Some Rearch (R) & Development (D) costs that lead to an
internally developed patent are expensed in the period
incurred, while others are capitalized
R D
Expense
• A form of protection given by law to
authors of literary, musical, artistic,
and similar works.
• Copyright owners have exclusive
rights to print, reprint, copy, sell or
distribute, perform and record the
work.
• Generally, the legal life of a
copyright is the life of the author
plus 50-100 years (or a finite period
for anonymous or corporate
creations).

Intangible Asset - Franchise Intangible Asset – Trademarks

Trademarks (nhãn hiệu)

A contractual arrangement where the franchisor grants
the franchisee exclusive rights to use the franchisor’s  A symbol, design, or logo
trademark within a certain area for a specified period of associated with a business.
time.
If internally Intangible
developed Assets

Trademarks

If purchased Intangible
Assets

Registered national authority and renewable indefinitely in (usually)

10 years.

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Intangible Asset – Goodwill Intangible Asset – Goodwill

Eddy Company paid $1,000,000 to purchase all of James

Goodwill Company’s assets and assumed James Company’s liabilities of
$200,000. James Company’s assets were appraised at a fair
Occurs when one Only purchased value of $900,000. What amount of goodwill should Eddy
company buys goodwill is an company record as a result of the purchase?
another company. intangible asset.

The amount by which the

consideration exchanged exceeds
the fair value of net assets acquired.

Definitions – Investment Property Definitions – Investment property

What is investment property?
The investment property is a land, a building (or a part of it), or
 Here, the strong impact in on purpose. If you hold a building or a
both, held for the following specific purposes (IAS 40.5) :
land for any of the following purposes, then it cannot be classified

o To earn rentals; as Investment property:

o For capital appreciation; or  For production or supply of

o Both. goods or services,
 For administrative purposes, or
 For sale in ordinary course of
business

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Examples of investment property Examples of investment property

• Examples of investment property: [IAS 40.8]  A building owned by the entity and leased out under one
 land held for long-term capital appreciation or more operating leases. This includes a building that is
 land held for a currently undetermined future use still vacant, but you plan to lease it out
 building leased out under an operating lease
 vacant building held to be leased out under an operating lease
 property that is being constructed or developed for future use
 .
as investment property

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PPEs Intangible Investment

Asset Property
FS
Physical
substance
Property
Purpose

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Initial: Measurement of the Cost of PPEs

Recognition
Estimated costs
Purchase Directly of
Cost
price attributable costs dismantlement,
Initial
PPEs removal &
IA Measurement restoration
IP
Subsequent

These costs bring an asset into working condition

Presentation
& Disclosure These costs are capitalized and are not to be expensed in
the period in which they are incurred.

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Initial: Measurement of the Cost of PPEs
Equipment
• Net purchase price
• Taxes
• Transportation costs
• Installation costs
• Modification to building
necessary to install
equipment
• Testing and trial runs
Initial: Measurement of the Cost of PPEs
Land (not depreciable)
• Purchase price
• Real estate commissions
• Attorney’s fees
• Title search
• Title transfer fees
• Title insurance premiums
• Removing old buildings
Decommissioning cost included in initial measurement
The elements of cost to be incorporated in
the initial recognition of an asset are to
include the estimated costs of its eventual
dismantlement (“decommissioning costs)
Recognize the restoration costs
as a liability and a corresponding
increase in the related asset.

Record at fair value, usually the

present value of future cash
outflows associated with the
reclamation or restoration.

Initial: Measurement of the Cost of Intangibles Initial: Measurement of the Cost of Investment Asset

The cost of a separately acquired intangible asset

includes: Purchase
1. Its purchase price, including legal and brokerage fees, Price (less
import duties and nonrefundable purchase taxes, after trade
deducting trade discounts and rebates; and discount)
2. Any directly attributable costs incurred to prepare the Initial
asset for its intended use. cost of
IP
Directly attributable costs would include costs of employee benefits or Professional fees for
costs of employee benefits arising directly from bringing the asset to its Directly legal services
intended use, and professional fees incurred in bringing the asset to its attributable
costs Property transfer taxes
working condition, costs of testing whether the asset is functioning
properly. Other transaction costs

Costs incurred subsequent to purchase or seft - construction

PPEs, Investment property

- Repairs and Maintenance

These costs - Regular major inspections
Cost Purchase price Directly Decommissioning bring an asset - Additions
attributable costs cost into working - Improvements
condition - Rearrangements
PPEs

Capitalize Capitalize
Intangible
Asset PPEs PPEs Expense
Investment
Property

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Costs incurred subsequent to purchase or seft - construction Measurement Subsequent

Type of Expenditure Definition Usual Accounting Treatment Cost model

Repairs and Costs of day-to-day servicing to Expense in the period incurred
Maintenance maintain a given level of Benefits
Expenditure required for continuing Capitalize and amortize over the period
Regular major Revaluation
operation of the Asset between major Inspections
inspections Initial Subsequent model
The addition of a new major Capitalize and depreciate over the
component to an existing asset remaining useful life of the original asset
Additions or its own useful life, whichever is Revaluation
shorter
model
The replacement of Capitalize and depreciate over the useful
Improvements a major component life of the improved asset
 Depreciation / Amortization
Expenditures to restructure If expenditures are material and clearly  Impairment loss
an asset without addition, increase future benefits, capitalize and
Rearrangements replacement, or improvement depreciate over the future periods
benefited

Measurement Subsequent – Depreciation Measurement Subsequent – Depreciation

The costs of PPE are allocated through depreciation to the periods

that will have benefited from the use of the asset.
Time-based Methods
Depreciable Useful Systematic Straight-line (SL)
amount life basic Accelerated Methods
 Sum-of-the-years’ digits (SYD)
Diminishing balance
HOW MUCH HOW LONG HOW /IN WHAT MANNER (Declining Balance (DB))
Depreciation method
Residual Number
Cost Periods Depreciation method based on actual
value of units
physical use
Units-of-production method (UOP).
Depreciation method should be reviewed at least annually.

Measurement Subsequent – Depreciation Measurement Subsequent – Amortization

The amortization process also uses the straight-line

method, but usually assumes residual value = 0.

Amortization period is the shorter of

the asset’s legal or contractual life.

The amortization entry is:

Amortization expense .................................. $$$

Intangible asset ………………........ $$$
To record amortization expense.

A contra-asset account is generally not used when

recording the amortization of intangible assets.

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Ex: Amortization:

Torch, Inc. has developed a new device. Patent registration

costs consisted of $2,000 in attorney fees and $1,000 in federal
registration fees. The device has a contractual (useful) life of 5
Goodwill and Trademarks
years. The legal life is 20 years. IAS 36
For year 1, what is Torch’s amortization expense?
Subject to assessment
for impairment of
Use the shorter of contractual life (5 years) or Not amortized.
value and may be
legal life (20 years). written down.
Amortization = Cost ÷ Contractual life
= $3,000 ÷ 5 years
= $ 600 per year
Amortization expense ................................... 600
Patent ………………........................ 600
To record amortization of patent.

Non_current Asset Depreciation/ Depreciable Depreciation

Amortization amount method
PPEs

Investment Property

Intangible Patent
Asset Copyright
Franchise
Goodwill
Trademark

Measurement Subsequent Measurement Subsequent

Cost model

Models
Revaluation
• PPE and Intangible assets may be
Initial Subsequent model reported at (1) cost less accumulated
Cost amortization or (2) fair value, if fair
value can be determined in an active
Revaluation
model
market.
• If revaluation is chosen, all assets
Revaluation
 Depreciation / Amortization within the class of PPEs or intangibles
 Impairment loss must be revalued on a regular basis.
• Goodwill cannot be revalued.

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Measurement Subsequent Measurement Subsequent

Models

Models PPEs = Cost – Accumulated Depreciation

Cost model vs revaluation model: Cost – Accmulated Impairment Loss
Cost  One method must be adopted for all of
an entity's investment property
 Property interest: Fair value model PPEs = Fair value – Subsequent Acc.Depreciation
Revaluation – Subsequent Acc. Impairment Loss
Fair value

Cost Model Revaluation Model

• Ignore all subsequent changes in fair Definition of Fair value:
Carry at cost value of the assets
The price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market
Allocation participants at the measurement date.
• Depreciation recognized every period (IFRS 13 – Fair value measurement)
Required

• required when the fair values of its
Disclosures assets are materially different from
the assets’ carrying amounts
• Assets are not exempted from
Impairment impairment analysis
For property, plant and equipment’s fair value can be
determined with reference to an active market, or it can be
estimated using an income or a depreciated replacement cost
approach.

Revaluation Model EQUITY

All assets within a class of property, plant and equipment must

be revalued on a regular basis. Records the difference between Capital
(1) the book value of a revalued asset and (2) its fair value contribution
at the end of each financial period
INCOME STATEMENT Retained
A revaluation surplus is reported (Profit or Loss) earnings
as other comprehensive income Revaluation deficit is recognized
and accumulated in a as an expense in the income Other comprehensive
revaluation surplus account in statement unless there is a income
equity unless a revaluation balance in the revaluation
deficit has been charged to the surplus account
income statement previously

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Initial revaluation:

Ex1: Example:
Assume Henan Corporation (HC) acquired a plot of land
Revaluation Model with a cost of €100,000. After one year the land is
appraised as having a current fair value of €110,000.

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Subsequent revaluation:

1 Balance in the revaluation

reserve
Revaluation
Loss
2 Expense

1 Credited income statement

(previous revaluation dificit)
Revaluation
Gain
OCI  accumulated in a
2
revaluation reserve

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Ex2: Year 1 Year 2 Ex3:

Cost 100,000 CA Year 1 Year 2 Year 3
FV 110,000 FV 95,000 Revaluation Revaluation Revaluation
CA OCI
Revaluation Revaluation Expense
Revaluation
OCI reserve
Expens

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Ex4: Ex5:
Year 1 Year 2 Year 3 Year 1 Year 2 Year 3
Revaluation Revaluation Revaluation Revaluation Revaluation Revaluation
OCI OCI
Expense Expense
Revaluation Revaluation
reserve reserve

Ex6: Ex7:
Year 1 Year 2 Year 3 Year 1 Year 2 Year 3
Revaluation Revaluation Revaluation Revaluation Revaluation Revaluation
OCI OCI
Expense Expense
Revaluation Revaluation
reserve reserve

. Revaluation Model
Depreciation has to be recognized in the current financial
year before computing revaluation surplus or deficit
Ex8:
Revaluation Model
The accumulated depreciation can either be:

• Eliminated against the gross carrying amount of asset

before restating that net amount to the revalued amount
• Restated proportionally with the gross carrying amount of
the asset so that the difference between the restated
accumulated depreciation and the restated carrying
amount is equal to the revalued amount

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Konin Corporation owns buildings with a cost of €200,000 The statement of financial position.
and estimated useful life of five years.
Year 1 Year 2 Gross
method
Depriciation Carrying FV Revaluation PPEs
amount
Year 1 Cost
Year 2 300,000
Accumulated
depreciation
The statement of financial position.

Year 1 Year 2 Net

Method
PPEs

Fair value Model Fair value Model

 an IP is carried at fair value at the reporting date.
Each Carrying amount Re-measured FAIR VALUE
 A gain or loss from re-measurement to FV shall be subsequent
financial
recognized in profit or loss. reporting
date The difference:
 Sometimes, the FV cannot be reliably measurable after Reported in the Profit or Loss

initial recognition (rare circumstances: e.g. active marked Debit Profit or Loss Loss from Debit Investment property Gain from fair
ceased existing): To measure the IP using COST model Credit Investment fair value Credit Profit or Loss value change
property change

When choosing fair value model, all investment properties must be measured at fair
value, except for those whose fair value cannot be reliably measured

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Ex9:
At the year end, its fair value is determined to be $10million
ABC Ltd. applies IFRS and applied the fair value model for its
investment properties. The company has acquired a property for
$2million

then it spent a further $7million on renovations to be let as an

investment property.

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The fair value model is the same as the revaluation model.

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Transfer to or from investment property is made only when there is

Transfers to, or from, IP should only be made when there is a change a “change in uses”

in use, evidenced by one or more of the following:

 commencement of owner-
IP PPEs Change in management’s
occupation
intention for the use of a
property is not an evidence of
 commencement of development change in use
IP Inventory
with a view to sale

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Transfer
Transfers
Determining carrying value

(2) =>(1) When owner • Under cost model: transfers do not change the
occupation ends carrying amount of property.
(1) Investment property Transfer to/from
(2)Owner occupied • Under fair value model: carrying amount is adjusted
property to its fair value at the date of change
(3)=>(1) When operating lease
(1) =>(2) When owner
to a third parties commences
occupation commences

(3)Inventories

(1) =>(3) On commencement of

development with a view to sale

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Transfer Transfer
Under fair value model Under fair value model

• Owner-occupied property => investment property (fair value model) • Inventories => investment property (fair value model)
Carrying amount Fair value Carrying amount Fair value
Adjust to Adjust to
(Apply IAS 16 until the (at the date of change ) (Apply IAS 02) (at the date of change
date of change)

Difference at the date of change: treated in a same way as a  Differences: recognized in the Profit or Loss
revaluation under IAS 16
 Fair value < Carrying amount: Decrease is recognized in the Profit or Loss. However, to the extent that amount is
included in revaluation surplus, decrease is recognized in Other comprehensive Income & reduce revaluation
surplus within equity.
 Fair value > Carrying amount: to the extent that the increase reverses previous impairment loss, increase is
recognized in the Profit or Loss. The remaining part of increase is recognized in Other comprehensive Income

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Derecognition of PPEs & Intangible Asset

 An PPE or Intangible Asset shall be derecognised:

(a) on disposal; or
(b) when no future economic benefits are expected from
its use or disposal.
 The gain or loss arising from the derecognition shall be
determined as the difference between the net disposal
proceeds, if any, and the carrying amount of the asset.
 Gains shall not be classified as revenue.

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Derecognition of PPEs & Intangible Asset Derecognition of Investment property

Revaluation model
• The realized amount is the difference between (1) the
depreciation or amortization based on the revalued amount
and (2) the depreciation and amortization based on the
asset’s original historical cost
• The realized surplus is transferred directly from the assets
revaluation reserve account to the retained earnings
• It is not compulsory for companies to realized the
revaluation surplus as the relating asset is being used

thuhien-19 88

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