Subsequent Measurement

3 rules of subsequent measurement of PPE

1. An entity may choose either cost model or revaluation model for a class of PPE

2. All assets within the same class have to be measured with the same model

3. When revaluation is carried out for an asset, the entire class of assets must also be revalued

Classes of PPE

Measurement model Carrying amount=

cost model balance on PPE, less accumulated depreciation, less

accumulated impairment
o this figure also known as book value

revaluation model Revalued amount (i.e. fair value on last revaluation-

subsequent accumulated depreciation- subsequent
accumulated impairment

Issue

Why subsequent measurement of an asset under cost model should be based on (balance on asset)
rather than (cost)

 this is because current balance on asset takes into account of 3 relevant factors: of initial
cost, subsequent capitalisation, and any derecognition following replacement
under the cost model the carrying amount= current balance on asset- acc. dep…, is it okay to find
carrying amount by multiplying a fraction in order to take into account of depreciation

 no, this approach is risky

 the correct approach is to find acc. dep first, the subtract this figure from the initial cost to
find the carrying amount

Subsequent measure of IP

2 rules

1. An entity may choose either cost model or fair value model for a class of PPE

2. All assets within the same class have to be measured with the same model

Measurement model Carrying amount=

cost model balance on IP account- accumulated depreciation-

accumulated impairment

o this figure also known as book value

Fair value model Adjusted amount, plus any sub. cap., less any sub
derecognition

o there is no depreciation/ impairment

Issue

Why subsequent measurement of an IP under cost model should be based on (current balance on
asset) rather than (cost)

 this is because current balance on asset takes into account of 3 relevant factors: of initial
cost, subsequent capitalisation, and any derecognition following replacement

Subsequent measure of IP

What models can be used for subsequent measurement of an intangible asset?

- Cost model
- Revaluation model

Subsequent measurement of inventory

Sub-measurement of inventory is based on?

 HKAS2 requires that inventory has to be measured at LCNRV

NRV=? estimated selling price less estimated costs necessary to make the sale

LCNRV=? Lower of cost and NRV

What steps to take for period end measurement of different assets

PPE under cost model i. Recognise depreciation

ii. Look for indications of impairment

PPE under revaluation model i. Depreciate

o If there has been dep. cost changing event during
the period, then need to recognise depreciation
for period before and after
ii. (Transfer)
iii. Look for indications of impairment
iv. (revalue)

Investment property under cost i. Recognise depreciation

model
ii. Look for indications of impairment

Investment property under fair i. Adjust to fair value (this is required after every
value model
accounting period)

Intangible asset under cost model i. Recognise amortisation

ii. Look for indications of impairment
Intangible asset under revaluation i. Amortise
model
o If there has been dep. cost changing event during
the period, then need to recognise depreciation
for period before and after
ii. (Transfer)
iii. Look for indications of impairment
iv. (revalue)

Intangible asset with indefinite i. Carry out Impairment test

useful life

Goodwill acquired in business i. Carry out Impairment test

combination
(since recoverable amount of goodwill is not
measurable, therefore impairment test can only be
carried out on CGU level)

Inventory i. Estimate NRV

ii. compare it with cost to see whether there is any
inventory loss
iii. (if there is inventory loss then that has to be
recognised)