documentp2

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STUDENT Notes

ACCA Paper P2 Corporate Reporting

(INTERNATIONAL AND UK STREAM)

For exams in 2012

To be used with the BPP Study Text for exams in 2012 (2011 edition)

ii

All our rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of BPP Learning Media Ltd.

BPP Learning Media Ltd 2012

First edition 2008 Sixth edition January 2012

ISBN 9781 4453 2501 9 (Previous edition 9781 4453 2072 4)

British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library

Published by

BPP Learning Media Ltd BPP House, Aldine Place London W12 8AA

www.bpp.com/learningmedia

Introduction iii

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chapter 1 FINANCIAL REPORTING FRAMEWORK

page 1

chapter 2 PROFESSIONAL AND ETHICAL DUTY OF THE

ACCOUNTANTpage 9

chapter 3 ENVIRONMENTAL AND SOCIAL REPORTING

page 21

chapter 4 NON-CURRENT ASSETS

page 31

chapter 5 EMPLOYEE BENEFITS

page 47

chapter 6 INCOME TAXES

page 59

chapter 7 FINANCIAL INSTRUMENTS

page 69

chapter 8 SHARE-BASED PAYMENT

page 83

chapter 9 PROVISIONS, CONTINGENCIES AND EARP

page 89

chapter 10 RELATED PARTIES

page 95

chapter 11 LEASESpage 99

chapter 12 REVISION OF BASIC GROUPS

page 111

chapter 13 COMPLEX GROUPS page 131

chapter 14 CHANGES IN GROUP STRUCTURES page 139

chapter 15 CONTINUING AND DISCONTINUED INTERESTS page 147

chapter 16 FOREIGN CURRENCY TRANSACTIONS AND ENTITIES page 155

chapter 17 GROUP STATEMENTS OF CASH FLOWS page 169

chapter 18 PERFORMANCE REPORTING page 177

chapter 19 CURRENT DEVELOPMENTS page 201

chapter 20 REPORTING FOR SPECIALISED ENTITIES page 209

chapter 21 REPORTING FOR SMALL AND MEDIUM-SIZED ENTITIES page 217

chapter 22 CHAPTER LEARNING EXAMPLES page 221

chapter 23 ANSWERS TO CHAPTER LEARNING EXAMPLES page 241

1

chapter 1

FINANCIAL REPORTING FRAMEWORK

This chapter sets out the regulatory and conceptual framework, discussing the advantages and disadvantages of the IASBs Conceptual Framework for Financial Reporting.

REGULATORY FRAMEWORK X

CONCEPTUAL FRAMEWORK X

REVENUE RECOGNITION X

2

Regulatoryframework

Revenuerecognition

Conceptualframework

Regulatory framework

National Listing Rules tobe complied with by listedcompanies.

Listed companies havecomplied with IFRS since2005.

IASC Foundation

Trustees

International Standing StandardsAccounting Interpretations AdvisoryStandards Committee Council

Board (SIC) (SAC)(IASB)

International Accounting Standards European Union

Stock Exchange

OtherNational laws Take precedence over

IASs/IFRSsOECD Undertakes its own research

into accounting standards, viaad hoc working groups,issuing guidelines formembers

REG

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1: Financial reporting framework 3

Context

The regulatory framework consists of the different entities responsible for standard setting that report to the IASC Foundation. Additionally, other regulatory bodies include stock exchanges and the European Union.

4

Revenuerecognition

Regulatoryframework

Conceptualframework

Conceptual framework a statement of generally accepted theoretical principles which form theframe of reference for financial reporting.

Avoids patchwork or firefighting approach Less open to criticism of political/external

pressure Some standards may concentrate on the

income statement, others on the SOFP

Advantages

Financial statements are intended for a varietyof users single framework may not suit all

May need different standards for differentpurposes

Preparing and implementing standards is stilldifficult with a framework

Disadvantages

IASB Conceptual FrameworkThe IASB Framework for the Preparation and Presentation of Financial Statements was produced in 1989 andis gradually being replaced by the new Conceptual Framework for Financial Reporting.

It is a joint IASB/FASB project and is being produced in phases.

Phase 1: Chapters 1 and 3, published in September 2010 Chapter 1: The objective of general purpose financial reporting Chapter 3: Qualitative characteristics of useful financial information

Chapter 2 The Reporting Entity has not yet been published and is still an ED

Chapter 4 includes the remaining chapters of the 1989 Framework: Underlying assumption The elements of financial statements Recognition of the elements of financial statements Measurement of the elements of financial statements Concepts of capital and capital maintenance

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Context

The conceptual framework is an essential part of effective financial reporting. It provides the framework from which accounting standards can be developed and provides a basis for dealing with transactions that are not covered by an accounting standard.

Learning example 1.1

Discuss why a principles based approach to accounting is preferable to a rules based approach.

Solution 1.1

6

Revenuerecognition

Regulatoryframework

Conceptualframework

IAS 18Revenue is that which arises in the course of ordinary activities such as that from sales, services provided,interest, royalties and dividends.

Fair value of considerationreceived/receivable. Deferred amountsdiscounted

In a sale financed by the seller, anydifference between the fair value of theitem and the nominal sales value shouldbe accounted for as interest revenue

MeasurementIncludes only those amounts receivable by the entity on itsown account. Not sales, goods and sales tax collected byagent to be passed to the principal.

Recent Developments

IAS 18 was amended to give guidance on whether an entityacts as principal or agent. In addition, an ED issued in June2010 proposes changes to the accounting for revenuerecognition in contracts with customers.

Recognition

When the following are met:1 Transfer of significant risks and rewards of

ownership (usually legal title)2 No more control over goods sold3 Amount of revenue can be reliably measured4 Probable that debt will be repaid5 Transaction costs can be reliably measured

Goods

Conditions 3 to 5 as for goods The stage of completion of the transaction at

the year end can be measured reliably and aproportion applied to the revenue

Interest time proportion basis (effective yield) Royalties accruals basis Dividends when the right to the dividend is

established

Services

DisclosureAccounting policy for each recognition; the amount of each significant category of revenue; amount of revenuefrom exchange of goods or services.

REVEN

UE R

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OG

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ION


Context

IAS 18 is a comprehensive accounting standard dealing with the recognition of revenue in specific transactions.

8

Reinforcement

Study Text Chapter 1

Expand notes on the conceptual framework discussion paper (para 4.7) as this is a key current issue and revenue recognition (section 5.2)

Attempt Quick Quiz

9

chapter 2

PROFESSIONAL AND ETHICAL DUTY OF THE ACCOUNTANT

Ethics are an important aspect of practising as an accountant. If financial statements are deliberately misleading this may amount to unethical behaviour. Professional institutions often have ethical guidelines that members should abide by in order to maintain professional integrity.

ETHICAL THEORIES X

INDIVIDUAL INFLUENCES X

ETHICS IN ORGANISATIONS X

PROFESSIONAL ETHICS X

ETHICS IN THE EXAM X

10

Ethical theories Individualinfluences

Ethics inthe exam

Professionalethics

Ethics inorganisations

Lack of objective standardsNon-cognitivism no possibility of acquiring objectiveknowledge of moral principles.Moral relativism right and wrong are culturallydetermined.

Objective standardsCognitivism objective, universal principles exist andcan be known, ethics can be regarded as absolute.

PluralismDifferent views may exist but it should be possible toreach a consensus; morality is a social phenomenon.

EgoismAct is ethically justified if decision-makers pursueshort-term desires or long-term interests (justificationfor free market).

Teleological Consequentalist ethicsDeontological ethics

Moral judgements based on outcomes orconsequences. Utilitarianism means acting for thegreatest good to the greatest number.

Kant stated that acts can be judged in advance bymoral criteria:

Do what others should be doing Treat people as autonomous beings and not as

means to an end Act as if acting in accordance with universal laws

ETH

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2: Professional and ethical duty of the accountant 11

Context This section goes beyond the ethics of professions like accountancy to consider what makes a good decision good. The practical value of this discussion to the Professional Accountant is:

A very important control is being able to trust staff to act ethically but do they understand the same thing by ethical as management does?

What is regarded as ethical business around the world may vary and getting it wrong could lose business or cause offence, even imprisonment.

Learning example 2.1 WWW is a global construction company that is seeking to win contracts to build roads and bridges in a foreign country. The Sales Director has reported that a government minister in the country has told him that WWW will get the contract providing an amount equivalent to 10% of the contract value is paid into his private bank account.

Identify the ethical position belonging to each of the following directors.

(a) We should agree to the payment because at least we will build the roads and bridges properly which is more than can be said for the other bidders and they would certainly pay the bribe.

(b) We should not pay the money. Its a bribe and it means that our company would be helping the minister abuse his position as an elected officer of the people.

(c) We should not pay the money, despite it being a very good contract, because it breaks our rules on not paying inducements that on the whole avoid our sales team from getting involved in offering bribes all over the place.

(d) We should agree to the payment because the winning of the contract will improve our share price and our share options fall due soon.

(e) We should not pay the money because we wouldnt like it if our government ministers took bribes and left us paying too much for roads and bridges.

(f) We should pay the money because in that part of the world it's how business is done and everyone knows it. Not paying would look like an insult to the minister and his country.

Solution 2.1

12


Ethics inthe exam

Professionalethics


National and cultural beliefsDifferences lie in four main areas. Role of individual v collective good Acceptance of power distribution Desire to avoid uncertainty Masculinity v femininity (money/possessions v

people/relationships)

MoralityActions are influenced not only by peoples ownintegrity but also how much awareness they have oftheir actions moral consequences.

Psychological factorsFocus is on how people think and how they decidewhat is morally right and wrong.

Moral developmentKohlbergs three levels ethics determined by:

Rewards/punishments (Pre-conventional)Others expectations/law (Conventional)

1

2

3 Individuals own decisions (Post-conventional)

Locus of control

Education and employmentPeoples education/work background seems to be moresignificant with globalisation.

Influence individuals believe they have over their ownlives. Internal individuals have significant influence External lives shaped by luck/ circumstances

IND

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Context

These are the sources of moral beliefs and how we account for the different moral behaviour of others.


GGG is a public practice which has just completed the audit of a major client. Unfortunately the audit team reports that it found it impossible to get clear and satisfactory answers from management on a technical issue which could potentially materially affect the final accounts if it was adverse.

Three partners of GGG are discussing the question of whether to qualify the audit report. Place each on Kohlbergs three levels.

Partner A This is a very good company and a good client. There is very little chance of anyone losing any money or us getting criticised if we go ahead and sign.

Partner B I agree with Partner A but for a different reason. If we qualify the report it will cause the clients share price to fall and they will start to lose investors and clients. We will damage a good business and cause people to lose their jobs for the sake of a small accounting technicality that really doesnt matter.

Partner C I agree with you both but I cant go along with the idea of signing. The whole reason investors accept accounts is because firms like GGG have independently audited them. If we simply turn a blind eye to this and bend the rules we undermine the whole basis of our profession and betray public confidence.

Solution 2.2

14


Ethics inthe exam

Professionalethics


EthicsNot necessarilyenforced by lawA code of moral principles that people follow with respect to what is right or wrong

Personal ethics eg deriving from upbringingor political or religious beliefs

Professional ethics eg medical ethics Organisation culture Organisation systems may be in a formal

code reinforced by the overall statement ofvalues

Ethical systems Two approaches Compliance based ensures that the company

acts within the letter of the law. Violations areprevented, detected and punished.

Integrity based combines a concern for the lawwith an emphasis on managerial responsibilityfor ethical behaviours. Strives to definecompanies guiding values, aspirations andpattern of thought and conduct.

ETH

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Context

Ethics in organisations is of utmost importance, relating to social responsibility and business practice.

16


Ethics inthe exam

Professionalethics


This lays out ACCAs rules stating the ethics and behaviour required by allmembers and students of the ACCA. Guidance is in the form of fundamentalprinciples (see below), specific guidance statements and explanatory notes.

Integrity Members should be straightforward and honest in all business and professional relationships.Objectivity Members should not allow bias, conflicts of interest or undue influence of others to override

professional or business judgements.Professionalcompetenceand due care

Members have a continuing duty to maintain professional knowledge and skill at a level required toensure that a client or employer receives competent professional service based on currentdevelopments in practice, legislation and techniques. Members should act diligently and in accordancewith applicable technical and professional standards when providing professional services.

Confidentiality Members should respect the confidentiality of information acquired as a result of professional andbusiness relationships and should not disclose any such information to third parties without proper orspecific authority or unless there is a legal or professional right or duty to disclose. Confidentialinformation acquired as a result of professional and business relationships should not be used for thepersonal advantage of members or third parties.

Professionalbehaviour

Members should comply with relevant laws and regulations and should avoid any action thatdiscredits the profession.

Code of ethics and conduct

PR

OFES

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TH

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Context The key reason that accountants need to have an ethical code is that people rely on them and their expertise.

18


Ethics inthe exam

Professionalethics


Ethics are most likely to be considered in the context of the accountants role as adviser to the directors.

A question on the Pilot Paper asked you to explain why a deliberate misrepresentation in thefinancial statements was unethical.

ETH

ICS

IN

TH

E E

XAM


Context

Ethical issues are most likely to be examined in Question 1 of the exam paper, the 50 mark case study question.

20

Reinforcement


Attempt Q2 in Exam Question bank Attempt Quick Quiz

21

chapter 3

ENVIRONMENTAL AND SOCIAL REPORTING

Environmental issues have become very topical over the last few years and businesses and individuals become more aware of their impact on the environment.

Environmental reporting has evolved into sustainability reporting looking at the effect of the business on society at large.

ENVIRONMENTAL REPORTING X

SUSTAINABILITY X

SOCIAL RESPONSIBILITY X

HUMAN RESOURCE ACCOUNTING X

22

Human resourceaccounting

Sustainability Socialresponsibility

Environmentalreporting

Environmental accountingEnvironmental issues are likely to have a growing impact on business in the future due to forthcominglegislation, consumer pressure and so on.

What is environmental accounting? Recognising and seeking to mitigate the negative environmental effects of conventional accounting practice Separately identifying environmentally related costs and revenues within the conventional accounting

systems Taking active steps to set up initiatives in order to ameliorate existing environmental effects of conventional

accounting practice Devising new forms of financial and non-financial accounting systems, information systems and control

systems to encourage more environmentally benign management decisions

What is environmental reporting? Developing new forms of performance

measurement, reporting and appraisal for bothinternal and external purposes

Identifying, examining and seeking to rectify areason which conventional (financial criteria) andenvironmental criteria are in conflict

Experimenting with ways in which sustainabilitymay be assessed and incorporated intoorganisational orthodoxy

Impact on financial statementsNo disclosure requirements relating to environmentalissues at present. Some companies adopt voluntarydisclosures (descriptive and unquantified) in thefollowing areas. Contingent liabilities Exceptional charges Management commentary Profit and capital expenditure forecastsIAS 37 Provisions, contingent liabilities and contingentassets (see Chapter 9) addresses environmentalliabilities (including site restoration costs).

Questions on environmental accounting are a good bet you can always write something!

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3: Environmental and social reporting 23

Context

Environmental reports are not compulsory, but many companies publish them as they wish to set out their policies regarding the environment to their stakeholders.


Jelly Bean Co operates in the mining industry and has a subsidiary which operates in a country without any legal requirement to clean up environmental damage. Jelly Bean Co are involved in open cast mining and in five years time when the mine is depleted can legally leave it in its current condition.

Jelly Bean Co have long had a published environmental policy of cleaning up sites after they have finished with them. In the past this policy has applied to operations in countries where there are no legal responsibilities to clean up as well as those where there is a legal requirement. The subsidiary estimates that the costs of clearing up the above site will be $11m which is payable in 5 years time.

Discuss whether Jelly Bean Co have a liability to clean up the damage to the environment, and if so, how this should be accounted for in the financial statements.

Solution 3.1

24




Pressure is mounting for companies to become more publicly accountable.

GRI guidelines1 Vision and strategy2 Profile3 Governance structure and

management systems4 GRI content index5 Performance indicators

Economic Environmental Social

Long-termMulti-stakeholder

International

Global Reporting Initiative

An increasing numberof companies follow

GRI guidelines eg Shell, BA

SU

STAIN

AB

ILIT

Y


Context

Sustainability reporting is wider in scope than environmental reporting as it focuses on environmental and social measures.

26




Few organisations would admit to being irresponsible. However, social responsibility as practised by business iscontroversial. A socially responsible business engages in activities and incurs costs not very relevant to itsbusiness mission but which benefit society or groups within it.

Examples Charitable donations Secondment of staff to voluntary organisations Imposing stricter pollution limits than required

by law Refusing to deal with suppliers who employ

child labour

The stakeholder view of company objectives is that many groups of people have an interest in what the companydoes. Management must balance the profit objective with the pressures from the non-shareholder groups.

Should social responsibility come at the expense of profit?

Its shareholders money The business of business is making money; its

for governments to impose the law; raise taxes Society, not business, is the best judge of moral

priorities and social welfare Its patronising to a workforce, whose lives might

become controlled by the company

Against

Property rights are not the only rights Businesses get government support Externalities - businesses often don't pay the

costs they impose on others Businesses are not just economic machines but

social institutions Shareholders rarely exercise power Society is not just a market place Social responsibility is good PR Social responsibility pre-empts legislation

For

There are no right or wrong answers to thiskind of question, but you must support yourviews with reasons.

SO

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Context

There is an argument that businesses have a responsibility beyond that of reporting to shareholders, in that they have a social responsibility towards their environment.

28




Human asset accounting was developed, later broadened into intellectual assets.

Implications People are a resource Organisation must protect its investment Deterioration in attitudes is a cost to the

company

Basic principle Employees are assets Competitive advantage is gained by

effective use of people

HU

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Context

Human resource accounting is an approach which regards people as assets. An entity can gain a competitive advantage by the effective use of the people within the organisation.

30

Reinforcement


Read through the examples of environmental reports and case studies within this chapter

Attempt Quick Quiz

31

chapter 4

NON-CURRENT ASSETS

This chapter covers the accounting standards on non-current assets property, plant and equipment, government grants, investment property, borrowing costs, impairment and intangible assets and goodwill.

DEFINITION OF AN ASSET X

IASs 16, 20 AND 23 X

IMPAIRMENT X

INVESTMENT PROPERTY X

IAS 38 X

GOODWILL X

32

GoodwillIAS 38Investmentproperty

ImpairmentIASs 16,20 and 23

Definition of an asset

IASB Framework: an asset is a resource controlledby an entity as a result of past events and fromwhich future economic benefits are expected to flowto the entity

ASB (UK): assets are rights or other access tofuture economic benefits controlled by an entity asa result of past transactions or events

FASB (USA): assets are probable future economicbenefits obtained or controlled by a particular entityas a result of past transactions or events

Key points Future economic benefit Control Transaction to acquire control has taken place

DEFIN

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4: Non-current assets 33

Context

The Framework defines the elements of financial statements which are of key importance.

34




Initial measurementOn initial recognition, property, plant and equipment(PPE) is measured at its cost.

Finance costs must be capitalised if they aredirectly attributable to the acquisition,construction or production of a qualifying assetas part of its cost

All other borrowing costs must be expensed

Costs of dismantling andremoving the asset andrestoring the site areincluded to the extent thatthey are recognised as aprovision under IAS 37.

Directly attributablecosts are included, egacquisition, sitepreparation, installation,delivery and professionalfees.

PPE must be written down where necessary to its recoverable amount following IAS 36.Subsequent expenditure (repairs and maintenance) must be recognised in profit or loss as it is incurred,unless: It enhances the economic benefits A component of an asset that is treated separately for depreciation purposes has been restored or replaced It relates to a major inspection/ overhaul restoring economic benefits consumed and reflected in depreciation

IAS 16 Property, plant and equipment

Depreciation

Depreciable amount (cost residual value) of PPEshould be allocated on a systematic basis overuseful life

Depreciation should be recognised as anexpense unless included in carrying value ofanother asset (eg capitalising depreciation onassets used for development)

Main points

Useful life and depreciation method should bereviewed period at least annually and adjustedfor current and future periods where necessary

Investment properties are still exempt fromdepreciation

Other points

Subsequent measurement Cost model: is cost less accumulated depreciation and impairment losses. Revaluation model: carry at arevalued amount less subsequent accumulated depreciation/impairment losses.

IAS

s16, 20 A

ND

23


Context

IAS 16 is a key accounting standard dealing with the basics of recognising and measuring non-current assets.


See Chapter 22 for learning example.

Solution 4.1

36

Revaluations gains are credited to a revaluation surplus except to the extent that they reverse revaluationdecreases of the same assets in which case P/L for the year

Revaluation decreases are charged First against any revaluation surplus relating to the same asset Thereafter in profit or loss

RevaluationThere was a problem in the past with cherry pickingfor revaluation. Also, valuations became out of date.Under the allowed alternative of IAS 16, revaluingassets is still optional, but:

Where a policy of revaluation is adopted, it must beapplied to a whole class of assets.

The valuations must be kept up to date: annually forsignificant movements/volatile items, 3-5 years forother items.

IAS 20 Government grantsProblems: Conflict of accruals vs prudence.

Matching is difficult.

Accounting entriesRevenue grantsDebit CashCredit P/LIn expenditure period

Capital grantsDebit CashCredit Deferred income

Or Asset accountRelease to P/L overexpected useful life Matched in P/L with related costs on a

systematic basis Grants not recognised until reasonably certain

conditions of receipt complied with Capital grants are presented either as deferred

income or by deducting grant in arriving atcarrying value of asset

Revenue grants are shown as other income ordeducted from the related expense

If repayable, accounted for as a change inaccounting estimate (IAS 8), ie in current period

Accounting treatment

IAS 23 Borrowing costsMust be capitalised if they are directly attributable

Other borrowing costs must be expensed

IAS

s16, 20 A

ND

23


Context

Revaluation of non-current assets is an important area of accounting for non-current assets.

Government grants are funds provided to an entity for a specific purpose.

Borrowing costs are finance costs that are capitalised into the cost of a non-current asset.

Learning examples 4.2, 4.3 and 4.4

See Chapter 22 for learning examples.

Solutions 4.2, 4.3 and 4.4

38




IAS 36Only review assets for impairmentif there are indicators of it, eg: Decline in market value Adverse change in market,

technology, economics or law Increased interest rates Fall in value below carrying

value Obsolescence or physical

damage Change in use Poor performanceIf possible test individual assets,otherwise cash generating unit(CGU)

Impairment losses arerecognised: For non-revalued

assets arerecognised in theP/L

For revalued assetsaccording to therelevant IFRS

May be reversed ifevents causing itreverse

An impairment lossrecognised forgoodwill is notreversed.

Compare carrying value with recoverable amount An impairment loss for a CGU should be

allocated First to any goodwill of the CGU Then to other assets on a pro-rata basis,

but not below recoverable amount Under IAS 36, impairment losses are now

recognised for intangible assets with anindefinite useful life and goodwill acquired in abusiness combination

Allocation of loss with unallocated corporateassets or goodwillWhere not all assets or goodwill have beenallocated to an individual CGU then differentlevels of impairment tests are performed toensure the unallocated assets are tested.

Questions are likely to involve both calculation and discussion. Impairmenthas come up nearly every sitting of the current syllabus.

Test of group of CGUs

Test the smallest group of CGUs thatincludes the CGU under review and towhich the goodwill can be allocated/aportion of the carrying amount of corporateassets can be allocated on a reasonableand consistent basis.

Test of individual CGUs

Then test the individual CGUs (includingallocated goodwill and any portion of thecarrying amount of corporate assets thatcan be allocated on a reasonable andconsistent basis) basis.

IMPAIR

MEN

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Context

IAS 36 aims to ensure that an asset is not carried in the statement of financial position at more than its recoverable amount.

Learning examples 4.5, 4.6 and 4.7

See Chapter 22 for learning examples.

Solutions 4.5, 4.6 and 4.7

40




IAS 40

Accounting treatment Choice of fair value model or cost model Fair value model

Revalue to fair value at each accounting date Do not depreciate Gain or loss to P/L

Cost model Follow cost model of IAS 16

Note. Leasehold investment properties are accountedfor as finance leases

ExceptionsOwner-occupied property or property held for sale to orbeing constructed for third parties are not investmentproperty (IAS 16, IAS 2, IAS 11 respectively)Disclosures Criteria for classification Assumptions in determining fair value Use of independent professional valuer Rental income and expenses Any restrictions or obligations

An investment property is property (land or building) held to earn rentals or for capital appreciation or both, ratherthan for: Use in the production or supply of goods or services or for administrative purposes

Sale in the ordinary course of business

INVES

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Context

IAS 40 Investment properties provides guidance on dealing with assets held for investment rather than for use in the business.

42




IAS 38Intangible assets deals with research and development costs, as well as intangible assets.

Intangible asset: an identifiable non-monetary assetwithout physical substance held for use in theproduction or supply of goods or services, for rentalor others, or for administrative purposes.

Development: the application of research findings orother knowledge to a plan or design for theproduction of new/substantially improved materials,devices, products, processes, etc.

Internally generated brands, mastheads,publishing titles, customer lists and similar itemsshould not be recognised as intangible assets.Internally generated goodwill should not berecognised as an asset.

Research: original or planned investigationundertaken with the prospect of obtaining newscientific or technical knowledge and understanding.

For R & D, the problem is one of matching concept vs prudence concept.

Development: use of scientific/technical know-ledge in order to produce new/substantiallyimproved materials devices, processes etc

Initial measurement R&D, as above Purchased intangible

assets capitalised atcost

Circumstances Probable future economic benefits Intention to complete and use/sell Resources adequate to complete and

use/sell Ability to use/sell Technical feasibility Expenditure can be reliably measured

Write off as incurred Write off in year of expenditure except incertain circumstances when it can be

capitalised and amortisedMeasurementSubsequent measurement Cost model: cost less

accumulated depreciation andimpairment losses

Revaluation model: revaluationAmortisation Systematic over useful life At least annual review of UL and amortisation period Intangibles with indefinite useful life are not amortised but

reviewed at least annually for impairment

Research: original and planned investigation undertakenwith the prospect of gaining new scientific or technicalknowledge and understanding

IAS

38


Context

IAS 38 defines intangible assets as non-monetary assets without physical substance.


See Chapter 22 for learning example.

Solution 4.8

44




Goodwill can be purchased or be acquired as part of a business combination. In either case, the treatment iscapitalisation at cost or fair value under IFRS 3.

A bargain purchase arises when the fair value of theacquisition-date identifiable net assets acquired exceeds theconsideration transferred. Before recognising a gain on bargain purchase, the

acquirer must reassess whether it has correctly identifiedall the assets acquired and liabilities assumed.

Then the acquirer must review the procedures used tomeasure the amounts recognised for:- Identifiable net assets- Non-controlling interest (if any)- Interest previously held (if any)- Consideration transferred

Bargain purchase

Future economic benefits arising from assetsthat are not capable of being individuallyidentified and separately recognised Recognise as an asset and measure at

cost/excess of purchase cost overacquired interest

Do not amortise Test at least annually for impairment

(IAS 36)

Definition

You may be asked for a complicatedcalculation of goodwill as part of a group

accounts question.

GO

OD

WIL

L


Context

Purchased goodwill is recognised on the statement of financial position as an intangible asset.

46

Reinforcement


Revise basic standards on non-current assets Attempt Q4, Q5 and Q6 from Exam Question Bank Attempt Quick Quiz

Front PagesContentsChapter 1 - Financial Reporting FrameworkChapter 2 - Professional and Ethical Duty of the AccountantChapter 3 - Environmental and Social ReportingChapter 4 - Non-Current AssetsChapter 5 - Employee BenefitsChapter 6 - Income TaxesChapter 7 - Financial InstrumentsChapter 8 - Share-based PaymentChapter 9 - Provisions, Contingencies and EARPChapter 10 - Related PartiesChapter 11 - LeasesChapter 12 - Revision of Basic GroupsChapter 13 - Complex GroupsChapter 14 - Changes in Group StructuresChapter 15 - Continuing and Discontinues InterestsChapter 16 - Foreign Currency Transactions and EntitiesChapter 17 - Group Statements of Cash FlowsChapter 18 - Performance ReportingChapter 19 - Current DevelopmentsChapter 20 - Reporting for Specialised EntitiesChapter 21 - Reporting for Small and Medium-sized EntitiesChapter 22 - Chapter Learning ExamplesChapter 23 - Answers to Chapter Learning ExamplesAnswer Bank(28)ACP2SN12_Barcode_KH

documentp2

Documents

chapter learning examples

performance reporting

specialised entities

current developments

complex groups page

group structures page

discontinued interests

iasbs conceptual framework