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    Fsa c2 - Balance Sheet - Long-Lived Asset Analysis

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    K59 LE NGUYEN HA ANH
    This document summarizes accounting for intangible assets. It discusses: 1) How intangible assets are initially recorded depending on whether they are acquired or developed internally. Acquired assets are recorded at fair value while developed costs may be expensed or capitalized depending on the stage of development. 2) Requirements for subsequent capitalization of costs and disclosure of information about intangible assets in financial statements. Costs must be capitalized if they provide future benefits, and disclosures include carrying amounts, amortization, and impairments. 3) Accounting for impairment losses and revaluations of intangible assets to fair value under IFRS. Impairments result in writing down

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    Fsa c2 - Balance Sheet - Long-Lived Asset Analysis

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    K59 LE NGUYEN HA ANH
    8 views2 pages
    This document summarizes accounting for intangible assets. It discusses: 1) How intangible assets are initially recorded depending on whether they are acquired or developed internally. Acquired assets are recorded at fair value while developed costs may be expensed or capitalized depending on the stage of development. 2) Requirements for subsequent capitalization of costs and disclosure of information about intangible assets in financial statements. Costs must be capitalized if they provide future benefits, and disclosures include carrying amounts, amortization, and impairments. 3) Accounting for impairment losses and revaluations of intangible assets to fair value under IFRS. Impairments result in writing down

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    Fsa c2_balance Sheet_long-lived Asset Analysis

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    This document summarizes accounting for intangible assets. It discusses: 1) How intangible assets are initially recorded depending on whether they are acquired or developed internally. Acquired assets are recorded at fair value while developed costs may be expensed or capitalized depending on the stage of development. 2) Requirements for subsequent capitalization of costs and disclosure of information about intangible assets in financial statements. Costs must be capitalized if they provide future benefits, and disclosures include carrying amounts, amortization, and impairments. 3) Accounting for impairment losses and revaluations of intangible assets to fair value under IFRS. Impairments result in writing down

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    © All Rights Reserved
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    8 views2 pages

    Fsa c2 - Balance Sheet - Long-Lived Asset Analysis

    Uploaded by

    K59 LE NGUYEN HA ANH
    This document summarizes accounting for intangible assets. It discusses: 1) How intangible assets are initially recorded depending on whether they are acquired or developed internally. Acquired assets are recorded at fair value while developed costs may be expensed or capitalized depending on the stage of development. 2) Requirements for subsequent capitalization of costs and disclosure of information about intangible assets in financial statements. Costs must be capitalized if they provide future benefits, and disclosures include carrying amounts, amortization, and impairments. 3) Accounting for impairment losses and revaluations of intangible assets to fair value under IFRS. Impairments result in writing down

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    of 2

    Acquired in a

    Purchasing Price is recorded at fair value; business combination INTANGIBLE ASSETS


    Any remaining amount of the Purchasing Price is Accounting for Intangible Asset
    recorded as Goodwill (capitalized on BS) depends on how it is acquired Subsequent costs are capitalized if they are expected to
    provide benefit beyond one year => Go to Balance Sheet as PPE
    e.g.: purchasing price, freight and insurance, delivery, Go to Cash Flow Statement as Cash Flow from Investing
    Recorded at fair value at acquisition. installation and testing, reinforcing floor, rebuilding, etc.
    Purchased
    1. CAPITALIZATION Otherwise they are expensed => Go to Income Statement as Expenses, Depreciation
    Under IFRS: Research costs are expensed & vs. EXPENSING e.g.: staff training, painting, repair and maintenance Go to Cash Flow Statement as Cash Flow from Operating
    Development costs are capitalized.
    Under GAAP: Both are expensed
    Interest costs incurred during the construction of an asset can be capitalized as part of the
    Development costs for a software for sale to others: asset cost:
    IFRS: are expensed until technological feasibility Developed internally If no construction : Still use rate on borrowing related to construction to capitalize the
    has been established; Subsequent costs should be interest cost.
    capitalized. Capitalized interest NOT reported as Interest Expense on IS BUT part of the asset's cost
    GAAP: capitalized all development costs. CAPITALIZATION OF and depreciated or amortized over its useful life.
    INTEREST COSTS IFRS: Interest on short-term lending OFFSETs capitalized costs (not allowed in GAAP)

    Firms are require to disclose: Effects:


    +) Carrying value for each asset During the period of capitalization : Higher Net Income, EBIT (as Interest costs are being
    +) Accumulated depreciation & amortization spread over the asset's useful life) -> greater Interest Coverage Ratios
    +) Title restrictions and assets pledged as 4. FIXED ASSET DISCLOSURE Subsequent periods: Higher Asset Values and Depreciation (depreciation/ amortization
    collateral expense in subsequent periods will be higher because it is based on the increased asset value) ->
    +) For impaired assets: loss amount and Lower Net Income, EBIT and Interest Coverage.
    reasons under loss
    Straight-line method: Depreciation is the same amount each
    +) For valued assets: the revaluation date,
    year over asset's useful life
    fair value and carrying value
    [FINANCIAL STATEMENT ANALYSIS] 2. DEPRECIATION & AMORTIZATION DEPRECIATION
    CHAP 2: BALANCE SHEET
    (3) LONG-LIVED ASSET ANALYSIS Carrying amount ("Net book value"; reported on BS) = Accelerated methods: More depreciation expense is
    e.g., Historical cost (Gross) - Accumulated depreciation recognized in early years & less in later years of asset's life.
    Only permitted under IFRS
    An asset is carried at depreciated cost, but at each revaluation date, the
    carrying amounts is adjusted to fair value.
    REVALUATION Intangible assets with finite lives are amortized
    over useful lives.
    First Revaluation Date : Same methods as Depreciations Units-of-production methods : Depreciation is based on usage
    +) Fair value < Carrying value -> Record Loss in IS Infinite life: Trademark (have a specific expiration rather than time
    +) Fair value > Carrying value -> Record Revaluation surplus in Equity
    date, but can be renewed at minimum cost); AMORTIZATION
    .
    Franchise agreement; Goodwill
    Subsequent Revaluation Dates:
    +) Fair value < Carrying value -> Difference reduces RS and then the
    remaining (in difference, if any) is recorded as Loss in IS
    +) Fair value > Carrying value -> The gain reverses any previous Loss Effects of
    and the remaining (in gain, if any) is recorded in RS in Equity. Salvage (residual/ disposal) value
    Depreciation Methods
    3. IMPAIRMENT & REVALUATION
    e.g.,
    Reflect an unanticipated decline in the value of an asset. (e.g., adverse
    change in market conditions, technological/ legal changes) Useful Lives
    Both IFRS and GAAP require companies to write down the carrying
    amount of impaired assets. IMPAIRMENT
    Impairment reversals are permitted only under IFRS Indefinite lives -> NOT amortized but are tested for
    Under IFRS: Impaired when Carrying value > Recoverable amount -> impairment at lease annually (Trademark*, Goodwill,
    Written down to Recoverable Amount (on BS) -> Impairment Loss (in Franchise Agreement)
    IS) Intangible Assets Impairment loss is recognized when Carrying Amount > Fair
    Value
    IMPAIRMENT LOSS = Carrying Amount - Recoverable Amount
    Recoverable Amount = Max(Fair value - Cost to sell; Value in use)
    Value in use = PV of Asset's future cash flow

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