IAS 16 IAS 38 IAS 40

IFRS

Property, plant and Intangible assets Investment property IAS 2

equipment Inventories
Non-current assets Current asset
Tangible items that: An identifiable, non-monetary asset Property (land or building – Assets:
ation -Identific

 Are held for use in the production without physical substance or part of a building - or  Held for sale in the
or supply of goods or services, for both) held to earn rentals ordinary course of
rental to others, or for or for capital appreciation, business
n criteriaRecognitio

 Meets the definition of an asset

 Probable that future economic benefits associated with the asset will flow to the entity
 Cost can be measured reliably

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 IAS 16 IAS 38 IAS 40
IFRS

Property, plant and Intangible assets Investment property IAS 2

equipment Inventories
Non-current assets Current asset
Component approach: Internally generated: Not applicable Inventory systems:
(Based on materiality and  Periodic method
difference in useful life) Research costs:  Work with
Allocate cost of PPE-item to Always expense Purchases
Unique requirements

(material) components, account and

depreciate separately
Eg: major inspection to be
repeated regularly.
close off against
Inventory
Development costs: account at year-
Only capitalise if all of end (O/S +
the criteria are met Purchases - C/S
= COS)
 1 journal when
inventory is sold

 Perpetual method
 Update inventory
account with
each purchase
and sale

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 IAS 16 IAS 38 IAS 40
IFRS

Property, plant and Intangible assets Investment property IAS 2

equipment Inventories
Non-current assets Current asset
Recognise initially at cost plus transaction costs, i.e.:
All costs of purchase,
Purchase price (or cash price equivalent(CPE)) plus any directly attributable expenditure costs of conversion and
Measurement at initial recognition

other costs incurred in

Examples of costs you may or may not capitalize? (standard) bringing the inventories
Do not capitalise costs of inefficiency or wastage to their present location
Principle for capitalisation of costs on and condition.
PPE and IA:
Examples of costs
Costs to bring asset to condition excluded from the cost
necessary for it to be capable of of inventories?

We do not capitalize
costs of inefficiency or
wastage.
Payment:
Cash of normal credit terms (30 days) – credit bank

If payment deferred – recognise asset at cash price equivalent, credit payable (excluding interest i.e at the present value); -
recognise interest as it accrues over duration of credit term

Exchange: - FV of asset given up

- FV of asset received (if more clearly evident)
- CA – if exchange lacks commercial substance or the FV cannot be measured reliably
Recognise profit/loss on exchange where FV’s differ

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 IAS 16 IAS 38 IAS 40
IFRS

Property, plant and Intangible assets Investment property IAS 2

equipment Inventories
Non-current assets Current asset
Acquisition date
Initial recognition

Date when risks and rewards of ownership have been transferred from seller to buyer (past event aspect satisfied)

Consider substance vs
legal form, if IP is
controlled, recognise
expenditureSubsequent

Day-to-day maintenance/ Difficult to justify capitalisation, therefore Normal repairs and

replacement of small parts - expense (P/L) maintenance – expense All expenditure incurred
Expense (P/L) (P/L) after inventory is in the
(asset still in good order location and condition
Major servicing and inspection/ and able to be used for necessary for sale -
replacement of major parts – intended purpose) Expense (P/L)
Measurement models

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 IAS 16
IFRS
Property, plant and
equipment
Revaluation model
(Allowed alternative PPE & IA)
Measurement modelsSubsequent measurement
 Report asset at revalued amount
(FV less accumulated
depreciation and accumulated
impairment losses)
 Accumulated depreciation
o eliminated against gross CA of
asset or
o restated proportionately
 Revalue at regular intervals
(policy - entire class)
 Difference – revaluation surplus
(OCI)
 Revaluation surplus released to
RE through depreciation or
disposal
 Start depreciating when available
for use (see cost model)
Subsequent measurement continued:
(Applicable to Revaluation and Cost models)
IAS 38 IAS 40
Intangible assets Investment property
Non-current assets
Cost model Fair value model
(Benchmark treatment PPE & IA) (Benchmark treatment)
(Allowed alternative Investment
Property)
 Report asset at cost less accumulated  Report Investment
depreciation and accumulated property at end of every
impairment losses reporting period at fair
 Depreciation to p/l (or capitalised value
against manufactured asset)  Difference to p/l
 Start depreciating when available for  Apply to all investment
use (in location and condition property with similar use
necessary to operate in way which and nature
management intends it to operate)  Land and buildings not
separated
 No depreciation
recognised
 No imp losses
recognised
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IAS 2
Inventories
Current asset
Measured at the lower of
cost and net realizable
value
 Formula for calculating
NRV?
 Estimated selling price
Less: estimated costs
of completion
Less: estimated costs
necessary to make the
sale
Cost formulae:
 FIFO
 Weighted average
 Specific identification
 Retail formula
 Standard costing
 LIFO
 IAS 16 IAS 38 IAS 40
IFRS

Property, plant and Intangible assets Investment property IAS 2

equipment Inventories
Non-current assets Current asset
Depreciation methods: Not applicable Not applicable
 Straight line (asset evenly and consistently used)
 Diminishing balance (derive more benefits from use of asset in earlier
periods)
 Sum-of-the digits method (specific form of diminishing balance)
 Units-of-production method (useful life based on number of units produced)

For land and buildings – separate (land normally has unlimited useful life)

For intangible assets the term “amortisation” is used instead of

“depreciation”
at Y/EActions

Review the following at end of each reporting period: Not applicable Review NRV at the
(FV method requires end of each reporting
 Depreciation method Change in accounting estimate – measurement of fair period
 Estimated useful life apply from current reporting value and recognition
 Residual value period into of difference in P/L as
(orfuture 
entImpairm

Check assets for signs of impairment reversal thereof): Not applicable to Write up/down to NRV
 Identify an asset that may be impaired investment property at the end of each
 If evidence exists – calculate recoverable amount (RA) measured at fair value reporting period.
 RA = greater of FV-costs to sell and value-in-use (VIU)  Reversal of write-down
If cost model is applied – is limited to the amount
If CA
If CA>RA
of asset asset is impaired
is expected to be recovered principally through sale rather than continuing use (i.e. decide Not applicable
to sell asset):
Ensure it complies with criteria NB!!! This is an AND test therefore ALL criteria must be met.

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 IAS 16 IAS 38 IAS 40
IFRS

Property, plant and Intangible assets Investment property IAS 2

equipment Inventories
Non-current assets Current asset
If asset meets criteria above, do the following: Apply measurement Not applicable
saleIFRS 5 - Non-current assets held-for-

 Ensure CA is correct (recognise depreciation for part of rep period, requirements of IAS 40
revalue and impair if relevant) Follow same steps as set
 Remeasure asset at lower of CA and FV less costs to sell, recognize out to the left
difference in p/l
 Reclassify asset (derecognise asset according to “old” classification
and recognise non-current asset held-for-sale)
Next important events for such asset:
 At reporting date remeasure to FV less costs to sell – difference to P/L
 At disposal – derecognise i.t.o. relevant IFRS
 Reversal of decision to sell – remeasure to lower of:
o Recoverable amount and
o CA that would have been, if asset was not classified as held for
sale (HCA)
o Cost model – reversal should not exceed accumulated imp loss
o Reval model – excess above acc imp loss is a revaluation
 Gain/loss to P/L
Presentation (described as non-current assets held for sale):
 Present separately as last line item under non-current assets
Income/expenses relating to asset held for sale, presented separately
 Comparatives are not restated

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 IAS 16 IAS 38 IAS 40
IFRS

Property, plant and Intangible assets Investment property IAS 2

equipment Inventories
Non-current assets Current asset

Derecognise when asset no longer meets definition or recognition criteria of an asset (when asset is disposed of or
permanently withdrawn from use and no future economic benefits are expected from its disposal)

Disposal date – when risks and rewards are transferred to buyer and entity has no further managerial involvement

 Calculate carrying amount When inventories are

Derecognition

 Proceeds - carrying amount = gain/loss on disposal sold, the carrying

 Net disposal proceeds - amount receivable less costs incurred to make the sale amount of those
 Payment deferred – consideration received is recognised as cash price equivalent inventories shall be
(difference interest received, recognised over duration of payment term in P/L as recognised as an
interest received) expense in the period
 Revalued asset sold – balance on revaluation surplus may be transferred to retained in which the related
earnings (not included in P/L) revenue is recognised:
 Component approach – replacement of component part necessitates derecognition DR Cost of sales
of portion of original cost of asset attributable to that component CR Inventory

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 IAS 16 IAS 38 IAS 40
IFRS

Property, plant and Intangible assets Investment property IAS 2

equipment Inventories
Non-current assets Current asset
(on the face of a statement)Presentation

Statement of financial position:

Present under non-current assets – classification must be clear Present under current
Revaluation surplus is shown as part of “other components of equity” under the heading “Equity assets
attributable to owners”.
If an asset is classified as held for sale – present under non-current assets, described as held for sale

Statement of other comprehensive income - Profit or loss section:

If company decides to present on the face, rather than by note: Nothing on the face Contained in Cost of Sales
 Depreciation – per category If cost model applied –
 Impairment loss – per category information on the left
 Impairment loss reversed – per category

Statement of other comprehensive income - Other comprehensive income section:

 Gains/losses on revaluation N/A N/A

 Revaluation surplus N/A N/A

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