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Summary ICAEW ACA Corporate Reporting - Assets and liabilities checklist
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All you need to know in regards to the Assets and liabilities topic (2/7) within the Corporate Reporting Advanced Level exam. Easy to use checklists perfect for the open book exam. The hard work has already been done for you!

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  • October 15, 2021
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  • 2021/2022
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IAS 16 PROPERTY, PLANT AND EQUIPMENT




Does not include
maintenance costs -->
these should be written off
to P/L

, EXAMPLE 1: RENOVATION OF PROPERTY EXAMPLE 2: PROPERTY COSTS
"Co A commenced this renovation during the YE 30-Jun-X2. The budgeted cost of this project is "The CA of the property in the consolidation reporting pack at 30-Apr-X7 are as follows:
£15m, of which £12m (80%) has been designated as capex by the project manager. The remaining
£3m is charged in the budget as repairs and maintenance cost. Initial purchase transaction on 30-Sept-X6 6,000
In the YE 30-Jun-X2, the company incurred costs of £11m on the project. Therefore I have Conversion and start-up costs incurred (funded from cash)
capitalised 80% of the cost (8.8m) incurred in line with the original budget." External contractor costs 4,200
Renovation of X property - allocation of costs Allocated salary costs of Co A employees 850
The basis on which the renovation costs have been allocated between repairs and maintenance Marketing costs 900
and capital appears to be somewhat arbitrary and has not been supported by adequate analysis. Security, insurance and other running costs while building empty 750
FV gain on property in 7-mnths to 30-Apr-X7 500
IAS 16 requires that only direct expenditure on property improvements should be capitalised CA in consolidation pack at 30-Apr-X7 13,200.
and that maintenance costs should be written off to P/L. The 80:20 split was based on budgeted
costs but has been used to allocate actual spend to date. From 1-Apr-X7 (YE 30-Apr-X7), Co A has used the property to run training courses for its clients."
It is possible that the expenditure to date may include a higher or lower proportion of
maintenance than that expected for the project as a whole. As repairs should be expensed as the Costs capitalised should be only the directly attributable costs of brining the asset into working condition for
work is performed this could affect the result of the period. Hence it is important to review a its intended use (IAS 16). As a result, it is incorrect for Co A to have capitalised the following:
breakdown of the costs actually incurred for the period. • $900k re: marketing costs
• $750k re: security, insurance and other running costs
For costs which are capital in nature, we need to evaluate whether any could more The $850k capitalised for allocated salary costs should only be capitalised if directly attributable to the
appropriately be recorded as plant and machinery rather than included within building costs. project and not if the members of staff would have been employed in any event. Assuming it was not
The asset lives and depreciation rates would then differ if the asset is not treated as a single correct to capitalise the allocated staff costs, the revised CV of the property is:
composite property asset. I need much more information on the nature of the project to do this.

No disposals have been recorded in the year for any previous renovation or construction work on Cost 6,000
the building which has been replaced by the work done in the year. In a major project of this type External contractor costs 4,200
it is likely that there will be elements of the original cost or of previous renovation projects which Capitalised interest (from BC example) 0.180
should be written off. I need to ascertain the nature of the building and previous work on it in 10,380
order to determine what element of the CA, if any, should be written off. E.g. there may be
partition walls which have been demolished and replaced. Depreciation
No depreciation has been charged but the property was bought into use one month before the YE. There
I need to review the budget and the basis for the 80:20 split proposed by the project manager. The should therefore be a charge for one month's depreciation although this is not material at $10. years
project manager may not understand the requirements of accounting standards and in particular x 1/12 = $34,600 (£9,600 @ £1 = $2.6 rate).
of IAS 16 and may have been motivated by capital budget constraints or other funding / approval
limits than by an analysis of the true nature of the costs to be incurred.
CV of property 10,380
The allocation of costs on a project which includes both types of cost is open to manipulation and Less depreciation (0.035)
can be judgmental and be challenged by our auditors. 10,345

I cannot at present quantify whether any adjustment is required without further analysis being $10.345m is translated at the YE rate of $3.6: £1 = £2.874m as this is translation arising on the consolidation
performed on the additions accounts in the general ledger. of a subsidiary which maintains its books in a currency other than the group functional currency.

EXAMPLE 3: NCA
EXAMPLE 4: LAND IMPAIRMENT
"At 1-Apr-X6, a plot of land included in Co A's assets had a CA of £2m which is equal to its MV based on its
current use as an industrial site. Residential development in the area meant that, if the land were to be
made available for residential purposes, it would have a value of £3.75m. I am unsure if this increase in
value should be recognised. Co A's accounting policy is to value assets at historical cost."

The land is not impaired on best alternative use basis, therefore no adjustment is needed. As Co A does
not have a revaluation policy, no revaluation should be included in its FS.

Implication for consolidation schedule
This will affect the GW calculation as the assets acquired are adjusted to FV.




Incorrect capitalising of wages
From the information provided the addition in respect to software engineers' wage costs appears to be
incorrect. To capitalise the cost, Co A needs to establish that it is probable that there is future economic
benefit associated with the item. The scenario does not indicate there is any third-party market for
these costs which appear to be bespoke to Co A. Although the cost can be measured reliably, the £1.3m
should be recorded as a cost in the SPL.

DR Profit or loss £1.3m
CR PPE £1.3m

Accounting policy - directors' judgment
Co A's accounting policies regarding asset lives and RVs are a matter of judgment by the directors of the
company. Although they appear to be generous in comparison with Parent, it would be a matter for the
company's auditors to ascertain whether the directors have chosen the best policies and used best
estimates. Judgment is involved but the RV for software is clearly wrong as a 10-year life with 15% RV
would appear unreasonable given the nature of software and would indicate that PPE is not fairly stated.

If the warehouse is newly constructed and well maintained, a high residual value is not unreasonable.
However, there appears to be insufficient depn being charged on equipment and software and for a like
for like comparison, and for analyzing the data and ratios an adjustment would be recommended as
follows:
£1.5m / 5 years 300,000
£2.1m / 3 years 700,000
Less already charged (£179k + £60k) (239,000)
Additional depreciation 761,000 so: DR Profit or loss £761k, CR PPE £761k

, IAS 38 INTANGIBLE ASSETS




[12] Identifiable ie that is capable of
being sold separately from the business
or arising from contractual or other legal
rights. [1] Probable inflow of economic benefits
[2] Cost of asset can be measured reliably

- active market can be demonstrated
- can measure costs reliably




[54] Research cost
examples:
In order for development costs to be capitalised, the following criteria
- obtaining new
have to be satisfied. The project must:
knowledge
- search for - be technically feasible
application of - be intended to be completed and used / sold
knowledge and - be able to be used / sold
material - be expected to generate probably future economic benefits
- testing of - have sufficient resources to be completed
materials - have costs that can be separately recognised --> If not satisfied, expense to
SPL e.g. DR Profit or loss as
Research costs are 'development costs incurred'
expensed as CR IA
incurred.
--> If satisfied, dev costs
capitalised. IA created

--> Once sales commence,
amortise dev costs (either on
sales or time basis).

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