Principles of Accounting Volume 1 - Financial Accounting
2nd Term notes for Financial Accounting 389. All the things you need to know and understand to pass Financial Accounting 389. These summaries also show how to fill in financial statements and so forth. These summaries are here to help you pass Financial Accounting.
Class notes Introduction To Business Principles of Accounting Volume 1 - Financial Accounting
Class notes Introduction To Business Principles of Accounting Volume 1 - Financial Accounting
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Stellenbosch University (SUN)
Financial Accounting 389 (FINANCIALACCOUNTING389)
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CHAPTER 7 – IMPAIRMENT OF ASSETS
RECOVERABLE AMOUNT = Higher of Fair Value – Cost to sell and Value in use
VALUE IN USE = PV (Continuous use and cash flow generated through sale at FV – CTS)
FAIR VALUE – COST TO SELL = Price assets could be sold for – cost of disposal
o Cost of disposal = legal costs, transaction taxes, cost to remove asset, direct incremental cost
DISCOUNT RATE =Current market rate before tax
INDICATION OF IMPAIRMENT
HIGHER OF 1. Value in use
CALCULATE THE RA 2. Fair value – Cost to sell
IMPAIRMENT LOSS = CA – RA
Loss = CA>RA
Entire impairment loss must be recognised
Asset @ COST PRICE Asset previously
revalued
1. Revaluation surplus written down to 0 – OCI
SCI
2. Balance of impairment loss – SCI
[impairment loss – revaluation surplus = IL in SCI]
RECOVERABLE AMOUNT:
Value in use: Fair value less cost to sell:
PV – Calculate this Price at which the asset could be sold on the measurement date
after the deduction of cost of disposal.
N – Remaining useful life
INCLUDES: (-)
PMT – Estimate annual cash INFLOW – OUTFLOW
Legal costs
FV – Net cash inflow from expected sale at end of life Transaction taxes
Cost of removing asset
I/YR – discount rate before tax Direct costs to bring asset for condition for sale
(Values used must be before tax values) EXCLUDES:
- Rxx / 0,72 Costs already provided for
Income tax
Financial costs
If annual cash inflow differs, use CFj
Cost to re-organise entity as result
instead of PMT & FV and NPV instead of PV
Termination benefits
for value. Year-end: Begin of year:
CFj0 = 0 CFj0 = xx
CFj1 = xx
CFj2 = Sale amount + xx
,RECOGNITION OF IMPAIRMENT LOSS:
Assets carried at Cost Price:
• Carrying Amount decreased to Recoverable Amount (Loss goes to SCI)
Impairment loss = CA – RA
Impairment Loss (SCI)
Accumulated Impairment Loss (SFP)
Revalued assets:
1. If there is a revaluation surplus, the impairment first decrease s it through OCI in
SCI until it has a balance of 0.
2. Any more impairment loss goes to SCI.
Revaluation Surplus (OCI -SCI)
Impairment Loss (SCI)
Accumulated Impairment Loss (SFP)
STATEMENT OF COMPREHENSIVE INCOME
Profit/(Loss) before tax
(Income tax expense)
Profit for the year
Other comprehensive income
Revaluation:
-Surplus Revaluation
-(Impairment loss) (A)
-Reversal of impairment loss F
Total comprehensive income/(loss)
STATEMENT OF FINANCIAL POSITION
Non-Current
PPE
Current
Equity
Retained earnings (see SCE)
Revaluations surplus (see SCE)
,STATEMENT OF CHANGES IN EQUITY
Revaluation Retained
Reserve Earnings
Opening balance
Profit/(loss) for the year
(Revaluation x 0,72)
Revaluation of PPE
Realised through depreciation
(New dep – Old dep x 0,72) (Rxx) Rxx
(Impairment loss of PPE) (A)
(Effect of revaluation on revaluation surplus) – make balance 0
Reversal of impairment loss
(Effect of reversal on revaluation surplus)
Closing balance
NOTES
2. Profit/(Loss) before tax
Profit/(Loss) is shown after the following was takin into account
Depreciation
Impairment loss
Reversal of impairment loss
What would the carrying amount been if no i mpairment was previously recognised?
Reversal = RA limited to historical CA – Current CA
Asset @ COST PRICE
Revalued asset
1. Revaluation surplus written down to 0 – OCI
SCI
2. Balance of impairment loss – SCI
[impairment loss – revaluation surplus = IL in SCI]
If the Recoverable amount increases, to exceed the Carrying amount:
• Previously recognised IL may be reversed
• CA must be adjusted upward to new RA
• The increased CA is limited to what the CA would have been if no impairment loss was
recognised in prior years.
Assets carried at Cost Price:
• Reversal of IL is recognised in P/L in SCI
• Reversal is limited to historical CA
Reversal = (RA limit Historic CA) – (Current CA)
Accumulated Impairment Loss (SFP)
Reversal of Impairment Loss (SCI)
Revalued Assets:
• Reversal of IL is recognised as INCOME in SCI up till IL is reversed to 0.
• Remaining balance is recognised as an increase in revaluation surplus through OCI in the SCI.
• Reversal is limited to the revalued CA that the asset would have been with no previous IL.
Accumulated Impairment Loss (SFP)
Reversal of Impairment Loss (SFP)
Revaluation Surplus (SFP)
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