Cost-based measurement for assets

Report
International Financial Reporting Standards
Cost-based
measurement for
assets
Joint World Bank and IFRS Foundation ‘train
the trainers’ workshop hosted by the ECCB,
30 April to 4 May 2012
The views expressed in this presentation are those of the
presenter, not necessarily those of the IASB or IFRS Foundation.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
International Financial Reporting Standards
What is historical cost?
The views expressed in this presentation are those of the
presenter, not necessarily those of the IASB or IFRS Foundation
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org
Historical cost ‘concept’
3
• Assets are recorded at the amount of cash or
cash equivalents paid or the fair value of the
consideration given to acquire them at the time of
their acquisition.
• Liabilities are recorded at the amount of proceeds
received in exchange for the obligation, or in some
circumstances (for example, income taxes), at the
amounts of cash or cash equivalents expected to
be paid to satisfy the liability in the normal course
of business.
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IFRS IFRS
Foundation
| 30 Cannon
StreetStreet
| London
EC4M
6XH 6XH
| UK.| UK.
www.ifrs.org
©
Foundation.
30 Cannon
| London
EC4M
www.ifrs.org
Cost-based IFRS measures
4
• Few things measured at historical cost
– unimpaired land (IAS 16 + IAS 40 cost model)
– unimpaired indefinite life intangibles (IAS 38)
– unimpaired inventories (IAS 2)
• Cost-based measures are more common
– unimpaired depreciated historic cost (IAS 16)
– unimpaired amortised historical cost (IAS 38)
– amortised cost (IFRS 9)
Impairment changes to a fair value or other
measure
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IFRS IFRS
Foundation
| 30 Cannon
StreetStreet
| London
EC4M
6XH 6XH
| UK.| UK.
www.ifrs.org
©
Foundation.
30 Cannon
| London
EC4M
www.ifrs.org
International Financial Reporting Standards
When are cost-based
measures used for assets?
The views expressed in this presentation are those of the
presenter, not necessarily those of the IASB or IFRS Foundation
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Asset
6
Classification, recognition and
measurement
PP&E
Intangible
Inventory
Assets
Inv
Property
Financial
Etc
Defined
Benefit
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Deferred
Tax
ASSET TYPE
MEASUREMENT AT
INITIAL RECOGNITION
COST MODEL
BASIS OF
IMPAIRMENT
7
TEST
IAS 2 Inventory
Cost of purchase and/or conversion
costs and costs to get the item to
the location and condition for sale
Cost unless impaired
Lower of cost
(initial recognition)
and net realisable
value
IAS 16 Property, Plant
and Equipment
Purchase costs + construction costs
+ costs to bring to the location and
condition necessary to be capable
of operating in the manner intended
by management.
Accounting policy
choice: cost less
accumulated
depreciation and
impairment, if any
Compare carrying
amount to
recoverable
amount.
IAS 38 Intangibles
Assets
Purchase costs + development
costs + costs to bring to the location
and condition necessary to be
capable of operating as intended by
management
Accounting policy
choice: cost less
accumulated
amortisation (unless
indefinite life asset)
and amortisation, if
any
IAS 40 Investment
Property
Cost including transaction costs
Accounting policy
choice: cost less
accumulated
depreciation (unless
land) and impairment
(if any)
IFRS 9 Financial
© 2010 IFRS Foundation.
Instruments
Fair value
For particular business
models amortised cost
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Recoverable
amount is greater
of value in use and
fair value less
disposal costs
(IAS 36)
IAS 39 specifies
impairment rules
International Financial Reporting Standards
IAS 2
Inventories
The views expressed in this presentation are those of the
presenter, not necessarily those of the IASB or IFRS Foundation
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Measurement
9
• Inventories are initially measured at cost.
• The cost of inventory includes costs of purchase
and production or conversion.
– cost does not include abnormal wastage,
administrative overheads that are not
production costs and selling costs.
• Cost is assigned to each item of unique inventory
using specific identification. FIFO or weighted
average cost are used for ordinarily
interchangeable inventory items. LIFO is prohibited.
• Inventory can be a qualifying asset in terms of IAS
23 Borrowing Costs
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Example—cost of purchase
•
10
A buys a good priced at CU500 per unit from
Z. Z awards A a 20% discount on orders of
+100 units and 10% discount when A buys
+999 units in 1 year. The discounts apply to
all units acquired in a year.
A buys as follows: 800 units on 1/1/20X1 and
200 units on 24/12/20X1.
On 31/12/20X1, 150 units were unsold (ie
inventories of A).
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Example—cost of purchase
A measures the cost of the inventories in
20X1 at CU350,000 [ie 1,000 units × (CU500
list price less 30%(CU500) volume discount)],
because all units purchased in the year get
the full 30% discount.
• A recognises:
– expense (cost of sales) of CU297,500 [ie
850 units sold × (CU500 list price less
30%(CU500) volume discount)] in profit or
loss in 20X1
– asset (inventories) of CU52,500 [ie 150
units unsold × (CU500 less 30%(CU500)
discount)] at 31/12/20X1.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
11
Example—conversion costs
•
12
A makes concrete blocks in reusable moulds.
Blocks dry in a drying room for 2 weeks.
Dried blocks & raw mat’s stored in separate
rooms.
A front-end loader (man 1) adds materials to
the mixing machine operated by man 2.
Casual labourers remove blocks from moulds.
Man 3 supervises the factory. Man 4 does
admin, finance and sales.
A operates from rented premises (fixed
payments).
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Example—conversion costs
13
Costs of conversion include
– direct costs: casual labour.
– production overheads: factory rent (incl.
raw mat’s area & drying room but excl.
finished goods room); staff cost of man 1,2
& 3; depreciation of equipment (front end
loader, mixing machine and moulds).
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Write-down to net realisable value
(NRV)
14
• Inventories are reduced to NRV when this is lower
than cost.
– NRV is estimated selling price less estimated
costs to complete and sell (entity specific
value).
• The write-down is made on an item by item basis.
The write-down of groups of items may occur when
the grouped items have similar uses, are produced
or marketed in the same area and cannot be
practicably evaluated separately from other items in
that product line.
• Write-downs can be reversed.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Examples—NRV write-down
•
Ex 1: At reporting date
– CA (cost) of raw materials = 100
– replacement cost = 80
– est. selling price of finished good = 200
– est. costs to convert the raw material into
finished good = 60
– est. costs to sell the finished good = 30
•
Ex 2: Same as Ex 1 except est. selling price
= 180
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15
Example—reverse impairment
•
At 31/12/20X1
– because of a decline in economic
circumstances recognised an impairment
loss on an item of inventory of 30 (ie cost =
100 & SP-CTC&S = 70)
At 31/12/20X2
– because of an improvement in economic
circumstance the SP-CTC&S of that item is
120
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
16
Comparison to IFRS for SMEs
17
• Inventory may qualify as a qualifying asset in
accordance with IAS 23—borrowing costs
incurred on qualifying assets may be
considered for capitalisation.
• Unlike IAS 23, Section 25 Borrowing Costs of
the IFRS for SMEs prohibits the capitalisation of
borrowing costs—all borrowing costs are
expensed.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Judgements and estimates
• Calculating the cost of a manufacturer’s
inventory involves a number of judgements,
including:
• normal wastage
• allocating overheads (including plant
depreciation)
• allocating joint costs to joint products.
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18
Judgements and estimates continued
19
• Impairment
• identifying impaired inventories
• estimating net realisable value.
• Net realisable value is an entity-specific
measure and therefore judgement is
required in order to determine the amounts
expected to be realised upon sale of the
inventory.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
International Financial Reporting Standards
IAS 16
Property, Plant and Equipment
The views expressed in this presentation are those of the
presenter, not necessarily those of the IASB or IFRS Foundation
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Measurement
21
• PPE is initially recognised at cost
• Cost includes:
• purchase costs
• construction costs
• costs to bring to the location and condition
necessary to be capable of operating in the manner
intended by management
• Subsequent costs qualify for capitalisation if
they meet the asset recognition criteria
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Measurement continued
22
• After initial recognition entity chooses to
measure PPE either:
• at cost less accumulated depreciation and
accumulated impairment (cost model); or
• at fair value less subsequent accumulated
depreciation and accumulated impairment
(revaluation model).
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Measurement continued
23
• Depreciation:
• PPE with a finite useful life is depreciated.
• land usually has an indefinite useful life and consequently
land is not usually depreciated.
• Depreciation is the systematic allocation of the
depreciable amount of an asset over its estimated useful
life
• The depreciable amount of an asset is its cost (or
substitute) less its residual value
• Different methods may be used but should best reflect
the pattern of benefits associated with the asset
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Example—depreciation
•
On 1/1/20X1 buy machine for CU100,000.
Initial estimates & judgements:
– useful life = 10 yrs & residual value = 0
– straight-line depreciation is appropriate
At 31/12/20X5 year-end reassess:
– useful life = 24 yrs (from the date of acq)
and residual value = CU20,000
– straight-line depreciation is appropriate
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
24
Comparison to the IFRS for SMEs
25
• Full IFRSs require an annual review of residual
value, useful life and depreciation method of
property, plant and equipment. Section 17
Property, Plant and Equipment of the IFRS for
SMEs requires a review only if there is an
indication that there has been a significant
change since the last annual reporting date.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Judgements and estimates
26
• Cost of some items includes significant
estimates
• costs of dismantling, removal, restoration
• costs of self constructed PPE
• Depreciation requires:
• identifying significant components to be
depreciated separately
• estimating useful life and residual value
• identifying the depreciation method that reflects
most closely the consumption of the service
potential of the item of PPE
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Judgements and estimates continued
27
• Determining the classes of property, plant and
equipment for presentation purposes.
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International Financial Reporting Standards
IAS 38
Intangible Assets
The views expressed in this presentation are those of the
presenter, not necessarily those of the IASB or IFRS Foundation
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Measurement
29
• Intangible assets are measured initially at cost.
• Thereafter, intangible assets are usually measured
using the cost model—cost less accumulated
amortisation (unless indefinite life) and impairment,
if any.
• An intangible asset with a finite useful life is
amortised and tested for impairment similarly to
PPE.
• An intangible asset with an indefinite useful life is
not amortised, but is tested annually for impairment
or where evidence of impairment exists.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Examples—estimating useful life
• Ex 1: A acquires a customer list. Expects to
benefit from list for 1–3 years.
• Ex 2: B acquires a 5-year airline route
authority (ARA) that is renewable every 5
years at no cost
– renewal is routine if specified rules and
regulations are complied with
– B is compliant and expects to fly the route
indefinitely
– an analysis of demand and cash flows
supports those assumptions
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
30
Comparison with the IFRS for SMEs
31
• The main differences between IAS 38 and Section 18
Intangible Assets other than Goodwill of the IFRS for
SMEs include that, in accordance with Section 18:
• all intangible assets are considered to have definite useful
lives and, therefore, must all be amortised
• amortisation estimates need only be reviewed where there is
an indication of a significant change
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Judgements and estimates
32
• Control of an asset arises when the entity has
the power to obtain future economic benefits
from the underlying resource and to restrict the
access of other to those benefits. Intangible
items of value to an entity may not be controlled
by it, eg the assembled workforce and customer
relationships.
• Research phase expenditures cannot be
capitalised as assets. Development phase
expenditures are capitalised when the specified
criteria for asset recognition are satisfied.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Judgements and estimates continued
33
• Amorisation requires:
• identifying a finite useful life intangible asset
• estimating useful life
• (residual value is usually assumed to be zero
unless there is an active market)
• identifying the amortisation method that reflects
most closely the consumption of the service
potential of the item of the intangible asset.
• Impairment testing requires many estimates
(see IAS 36).
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
International Financial Reporting Standards
IAS 40
Investment Property
The views expressed in this presentation are those of the
presenter, not necessarily those of the IASB or IFRS Foundation
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Initial measurement
35
• An investment property is measured initially at
cost.
• The cost of a property interest held under a
lease is measured in accordance with IAS 17
Leases at the lower of the fair value of the
property interest and the present value of the
minimum lease payments.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Subsequent measurement
36
• For subsequent measurement an entity must
adopt either the fair value model or the cost
model for all investment properties.
• All entities must estimate the fair value of
investment property, either for measurement (if
the entity uses the fair value model) or for
disclosure (if it uses the cost model).
• Measure fair value in accordance with IFRS 13
Fair Value Measurement.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Cost model
37
• Investment property is measured at cost less
accumulated depreciation and any accumulated
impairment losses (ie using the cost model in
IAS 16 Property, Plant and Equipment).
• Similar impairment consideration and principles
must be applied.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Comparison to the IFRS for SMEs
38
• The main differences between IAS 40 and Section
16 Investment Property of the IFRS for SMEs
include:
– the IFRS for SMEs does not have an accounting policy
choice for measurement. The accounting for investment
property is driven by circumstances. If an entity knows or
can measure the fair value of an item of investment
property without undue cost or effort on an ongoing
basis, it must use the fair value through profit or loss
model for that investment property. It must use the costdepreciation-impairment model
– unlike IAS 40, the IFRS for SMEs does not require
disclosure of the fair values of investment property
measured on a cost basis.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Judgements and estimates
39
• Sometimes it is difficult to identify investment
property. In such cases an entity develops criteria
so that it can exercise that judgement consistently
• eg, owner of a hotel transfers some responsibilities
to third parties under a management contract (PPE
or investment property?)
• In some cases measuring fair value (see IFRS 13)
• When cost model used measuring depreciation
(see IAS 16 for estimating residual value,
depreciation method and useful life)
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Judgements and estimates
40
• Sometimes it is difficult to identify investment
property. In such cases an entity develops criteria
so that it can exercise that judgement consistently
• eg, owner of a hotel transfers some responsibilities
to third parties under a management contract (PPE
or investment property?)
• In some cases measuring fair value (see IFRS 13)
• When cost model used measuring depreciation
(see IAS 16 for estimating residual value,
depreciation method and useful life)
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
International Financial Reporting Standards
IAS 23
Borrowing Costs
The views expressed in this presentation are those of the
presenter, not necessarily those of the IASB or IFRS Foundation
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Introduction
42
• IAS 23 prescribes the accounting treatment for
borrowing costs.
• Borrowing costs are interest and other costs
incurred in connection with borrowing.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Recognition
• An entity shall capitalise borrowing costs that
are directly attributable to the acquisition,
construction or production of an asset that
takes a substantial time to get ready for its
intended use or sale (a qualifying asset).
• Other borrowing costs are recognised as an
expense in the period in which they are
incurred.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
43
Recognition continued
44
• Borrowing costs directly attributable to the
acquisition, construction or production of a
qualifying asset are those that would have been
avoided if the expenditure on the asset had not
been made.
• They may be borrowing costs incurred on funds
borrowed specifically for obtaining a qualifying
asset or a calculated amount based on a
weighted average borrowing rate applied to
expenditure on the asset.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Recognition continued
45
• Capitalisation of borrowing costs takes place
during the development of the asset, and ends
when the asset is ready for its intended use or
sale.
• When the asset is completed in parts,
capitalisation of borrowing costs ceases when
each part is ready for intended use or sale.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Comparison to IFRS for SMEs
46
• Unlike IAS 23, Section 25 Borrowing Costs of
the IFRS for SMEs prohibits the capitalisation of
borrowing costs—all borrowing costs are
expensed.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Judgements and estimates
47
• Determining the amount of borrowing costs that
are directly attributable to the acquisition of a
qualifying assets requires judgement. For
example:
• it might be difficult to identify a direct
relationship between particular borrowings and
a qualifying asset and to determine the
borrowings that could otherwise have been
avoided, particularly when financing is coordinated centrally.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
International Financial Reporting Standards
IAS 36
Impairment of Assets
The views expressed in this presentation are those of the
presenter, not necessarily those of the IASB or IFRS Foundation
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Which assets?
49
• IAS 36 applies to all assets other than those not
within the scope of the Standard (IAS 36.2)
• Assets not within the scope include:
• Inventories
• Deferred tax assets
• Financial assets within the scope of IFRS 9
• Investment property measured at fair value
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
When to test for impairment?
50
• An entity must, at the end of every reporting
period, assess whether there is any indication
that an asset (or cash-generating unit) is
impaired
• Irrespective of whether an indication of
impairment exists, annual impairment tests
must be conducted for:
• Intangible assets with an indefinite useful life;
• Intangible assets not yet available for use; and
• Goodwill acquired in a business combination.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Measurement
51
• Impairment (IAS 36):
• Comparison of the asset’s (or cash-generating unit’s) carrying
amount to its recoverable amount
• Recoverable amount is the higher of fair value less costs to
sell and value in use.
– Fair value less costs to sell is the arm’s length sale price
between knowledgeable, willing parties less the costs of
disposal.
– The value in use of an asset is the expected future cash
flows the asset in its current condition will produce,
discounted to present value using an appropriate pre-tax
discount rate.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Measurement
52
• Impairment (per IAS 36):
• An impairment loss is recognised immediately in the
statement of comprehensive income.
• When an impairment loss is recognised, the
carrying amount of the asset (or cash-generating
unit) is reduced.
• In a cash-generating unit, goodwill is reduced first,
then other assets are reduced pro rata.
• The depreciation charge is adjusted in future
periods to allocate the asset’s revised carrying
amount over its remaining useful life.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Example—CGU impairment
•
53
At 31/12/20X1 CA of a CGU’s assets = 210 (ie
150 taxis, 50 taxi licence & 10 goodwill)
Impairment indicated & RA = 170.
Fair value of taxis = 140.
Impairment loss = 40 (ie 210 CA less 170 RA)
1st allocate 10 loss to goodwill
2nd allocate remaining 30 loss, ie 22.5 to taxis &
7.5 to licence (pro rata on CA)
3rd reallocate 12.5 loss from taxis to licence
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Measurement continued
54
• Reversing an impairment loss (per IAS 36)
• Consistent with the ‘principle’ of not recognising
an asset for internally generated goodwill, an
impairment loss for goodwill is never reversed.
• For other assets, when the circumstances that
caused the impairment loss are resolved, the
impairment loss is reversed.
• However, the reversal is limited to the amount
that the asset would have been had there been
no impairment loss in prior years.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Example—impairment reversal
•
55
Facts from CGU impairment example. At
31/12/20X2 CA of CGU = 120 (ie 100 taxis &
20 licence)
Impairment reversal indicated & RA estimated
= 150
Potential impairment reversal = 30 (ie 150 RA
less 120 CA) but limited to 20 (as follows)
1st allocate to assets pro rata on CAs, ie 5 to
licence & 25 to taxis
2nd limit amt allocated to taxis to 7 (if no
impairment in 20X1, CA at 20X2 = 107)
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Example—impairment reversal
56
3rd reallocate 18 reversal from taxis to licence
Total reversal provisionally allocated to licence
= 23 (ie 5 + 18)
4th limit amt allocated to licences to 13 (if no
impairment in 20X1, CA at 20X2 = 33)
5th as there are no other assets to reallocate
the unallocated 10 (ie 23 less 13) reversal to,
limit the total impairment reversal to 20
(ie 7 for taxis and 13 for licence)
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Comparison to the IFRS for SMEs
57
• IAS 36 and Section 27 Impairment of Assets of the
IFRS for SMEs share similar principles, but the
IFRS for SMEs is drafted in simplified language.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Judgements and estimates
58
• Identifying some indicators of impairment
requires judgement (eg decline in an asset’s
market value; adverse changes in the
technological, market, economic or legal
environment; increase in market interest rates,
among others).
• Identifying the lowest level of independent cash
inflows for some groups of assets (ie cashgenerating unit) requires judgement.
• Allocating goodwill to cash-generating units
requires judgement.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Judgements and estimates continued
59
• Measuring the value in use (an entity-specific
measure) of an asset or group of assets
involves
• estimating future cash flows that the entity
expects to derive from the assets (its use and
subsequent disposal) taking account of
expectations about possible variations in the
amount or timing of those cash flows
• adjusting for risks specific to the asset that
market participants would reflect in pricing the
asset
• identifying appropriate discount rates.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Judgements and estimates continued
60
• Measuring the fair value less costs to sell of an
asset or group of assets involves judgement
• see IFRS 13 for judgements and estimates in
measuring fair value.
• estimating costs to sell can involve significant
estimates.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
International Financial Reporting Standards
IFRS 9
Financial Instruments
The views expressed in this presentation are those of the
presenter, not necessarily those of the IASB or IFRS Foundation
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Financial assets at ‘cost’ measurement
62
• Financial assets are initially measured at their
fair value (which may be cost) adjusted for
transaction costs if the subsequent
measurement of the financial asset is not at fair
value
• Amortised cost is the amount initially
recognised for the financial asset less principal
repayments and adjusted for cumulative
amortisation using the effective interest rate
method less any impairment losses (see
paragraph 9 of IAS 39)
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Financial assets at ‘cost’ measurement
continued
63
• Impairment
• if there is evidence of impairment, the impairment
loss is the difference between the financial asset’s
carrying amount and the present value of the
estimated future cash flows discounted at the
financial asset’s original effective interest rate.
• the reduction of the asset’s carrying amount is
reflected directly to the asset or through an
allowance account.
• the impairment loss is recognised in profit or loss.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
64
The requirements are set out in International Financial
Reporting Standards (IFRSs), as issued by the IASB at
1 January 2012 with an effective date after 1 January
2012 but not the IFRSs they will replace.
The IFRS Foundation, the authors, the presenters and
the publishers do not accept responsibility for loss
caused to any person who acts or refrains from acting
in reliance on the material in this PowerPoint
presentation, whether such loss is caused by
negligence or otherwise.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org

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