State how an impairment loss is to be treated in the financial statements
The impairment loss is treated as an expense in the income statement unless it relates to a revalued asset when the loss is recognised as a revaluation decrease and hence debited to the revaluation surplus up to the maximum of any previously recognised surpluses on the asset.
State how, according to IAS 36, an impairment loss is calculated and which two figures are needed
An impairment loss arises when the recoverable amount falls below the carrying amount. The loss is thus calculated as the difference between the asset’s recoverable amount and its carrying amount
explain what is meant by Carrying Value & Recoverable amounts
The ‘carrying value’ of an asset is the amount at which an asset is recognised in the balance sheet after deducting any accumulated depreciation (amortisation) and accumulated impairment losses
The ‘recoverable amount’ is the higher of an asset’s fair value less costs to sell and its value in use. The latter is the present value of the future cash flows expected to be derived from an asset, including cash from its ultimate disposal.
Explain the term ‘inventories’ as defined by IAS 2
Inventories are assets held for sale in the ordinary course of business (finished goods), assets in the production process for sale in the ordinary course of business (work in process), and materials and supplies that are consumed in production (raw materials)
State which costs should be included when measuring the value of inventories
Cost should include all:
costs of purchase (including taxes, transport, and handling) net of trade discounts received
costs of conversion (including fixed and variable manufacturing overheads) and other costs incurred in bringing the inventories to their present location and condition
State which costs should NOT be included when measuring the value of inventories
Inventory cost should not include: [IAS 2.16-2.18]
abnormal waste
storage costs
administrative overheads unrelated to production
selling costs
foreign exchange differences arising directly on the recent acquisition of inventories invoiced in a foreign currency
interest cost when inventories are purchased with deferred settlement terms.
What is the definition of an asset
An asset is a resourse controlled by an entity as a result of past event and from which future economic benefits are expected to flow to the entity
What is meant by a property, plant and equipment in accordance with IAS 16
PPE are tangible assets held by an entity for more than one accounting period for use in production or supply of goods or services, for rental to others, or for administrative purposes
What items are included when PPE is initially measured and subsequently remeasured
Costs should include all costs directly attributable to bringing an asset into working condition for it’s intended use
Items to be included would be the purchase price, delivery costs, legal costs, site preparation costs, installation costs etc
Subsequent costs should only be capitalized only if additional economic benefits are expected at the time of the assets original acquisition
What are the key disclosure requirements for property, plant and equipment?
Disclosure requirement – for each classification of asset must:
State the cost to revalued amount at the beginning of a period and at the year end date
Accumulated depreciation at the beginning of a period and at the year end date
Must also disclose this year’s charge to the income statement
Carrying amount at the beginning of the period and at the year end date
An increase in inventories will have a negative impact on cash flow in the calculation of net cash flows from operating activities
True
An increase in payables from the previous year means that less cash is held by an entity
False
A decrease in trade receivables will have a negative impact on cash flow ib the calculation of net cash flow from operating activities
False
Which statement best describes the valuation of inventories under IAS2 Inventories at the end of the financial year?
At the lower of cost and net realizable value
Teign Ltd prepares its financial statements to 30 September each year. The following events took place between 30 September and the date on which the financial statements were authorised for issue.
(I) The company made a major purchase of plant and machinery
(II) A customer who owed the company money at 30 September was declared bankrupt
Which of the above is likely to be classified as an adjusting event (according to
IAS 10 Events) after the reporting period?
A (I) only
B (II) only
C Both
D Neither of them
B (II) is given in IAS 10 (para 9) as an example of an adjusting event
