1 COMPANY ACCOUNTING IN AUSTRALIA – 5 th edition Ken Leo & John Hoggett CHAPTER 12 REVALUATION AND...
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Transcript of 1 COMPANY ACCOUNTING IN AUSTRALIA – 5 th edition Ken Leo & John Hoggett CHAPTER 12 REVALUATION AND...
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COMPANY ACCOUNTING IN AUSTRALIA – 5th edition
Ken Leo & John Hoggett
CHAPTER 12 REVALUATION AND IMPAIRMENT
OF NON-CURRENT ASSETS
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Learning objectives1. To understand principles of AASB 10412. To prepare journal entries – revaluation
increments & decrements3. To account for depreciation subsequent
to revaluation4. To apply the disclosure
requirements:AASB 10415. To be able to account for the
recoverable amount test
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Revaluation & Recoverable amount
AASB 1041 allows companies to revalue non-current
assets to their fair values AASB 1010
states that assets cannot be valued at greater than their recoverable amount
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AASB 1041
Applies to non-current assets Does not include Inventories which have
to be valued @ the lower of cost or market value.
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AASB 1041 – measurement choices
2 choices cost basis or fair value basis
FV = current market price
by class of assets
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Net revaluation increment- example
An entity acquires land for $75 000. Asset is revalued to $100 000. Tax rate is 30%
Land Dr25 000 Asset Reval’n Reserve Cr 25 000
Asset Reval’n Reserve Dr7 500 Deferred Tax Liability Cr 7 500NB for increment the ARR must be the after tax adjustment
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Revaluation Increment– depreciable assets
Entity has depreciable asset at carrying amount of $100 000 – cost $120 000, accumulated depreciation $20 000. Revalue to $110 000. Tax base is $100 000.Accum. Depreciation 20 000
Asset 20 000Asset 10 000
ARR 10 000ARR 3 000
Deferrd Tax Liability 3 000
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Net revaluation decrement
Recognise as expense in P&LAsset carried at $100 000, cost $120 000. Revalued to $90 000.
Accum. Depreciation 20 000Asset 20 000
Expense 10 000 Asset 10 000
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Revaluation decrement – tax-effect
No tax-effect entry necessary- not adjusted via other equity account
- tax-effect worksheet will adjust for difference between tax base and carrying amount
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Net decrement reverses prior revaluation incrementFirstly adjust against existing Revaluation Reserve – consider tax-effectAsset has carrying amount of $50, previously revalued upwards by $10, now revalued down to $35. Asset Reval’n Reserve 7
Deferred Tax Liability 3 Asset 10
Expense 5
Asset 5
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Revaluation increment reverses prior decrement Asset carried at $100, accumulated depreciation of $20, revalued to $130. Previously revalued downwards by $10.Accum. Depn 20
Asset 20Asset 10
Revenue 10Asset 20
ARR 14Deferred Tax Liability 6
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Depreciation of revalued assets Both AASB 1041 and AASB 1021 require the calculation of depreciation as a process of allocation.At 1/7/02, asset revalued to $100. Useful life is 5 years..Depreciation is $20However company will need to look at the Fair Value @ end of the year may need to revalue
again.
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Disclosure requirements –where assets at fair value AASB 1041, paragraph 9:
Method used to determine fair valuesStatement re independent valuation If index of replacement costs usedBalance of revaluation reserve
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Disclosure requirements
AASB 1041, paragraph 4.1:Whether cost or fair value is used, show for each class of assets a reconciliation of carrying amount at beginning and end of period, showing: Additions Disposals Acquisitions via acquiring other entities net revaluation increment recoverable amount write-downs reversals of recoverable amount write-downs depreciation expense other movements--
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Disclosure requirements AASB 1018Net credit or debit to asset revaluation reserveNet increment/decrement for each class of non-current assetsAASB 1040Total reservesFor each reserve: description of nature and purpose amount at beginning of period nature and amount of each increase/decrease amount as at reporting date
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The cost method Asset recorded at cost of
acquisition
Depreciated as per AASB 1021
Recoverable amount test applied
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AASB 1010 AASB 1010 “Recoverable Amount of
Non-Current Assets”, issued 1999
Does NOT apply to: assets measured at fair value or
net market value inventories not-for-profit entities
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The recoverable amount testCompare carrying amounts of assets with recoverable amounts
Recoverable amount is the net amount expected to be recovered through cash inflows/outflows arising from continued use and subsequent disposal
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The recoverable amount test If recoverable amount < carrying amount
- write down the asset- recognise an expense- write-back accumulated depreciation
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The recoverable amount test An asset is carried at $12 000 - cost of $20 000 and accumulated depreciation of $8000. Recoverable amount estimated to be $10 000.
Accum. Depreciation Dr 8 000Asset Cr 8 000
Expense Dr 2 000 Asset Cr 2 000
Depreciation now based on $10 000
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Disclosures - AASB 1010 For assets written down in the current
period, for each class of assets:- carrying amount
- amount of write-down- assumptions made in determining recoverable amount
Assets measured at recoverable amount, less depreciation
Whether cash flows have been discounted in determining recoverable amount
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Impairment test ED 99 “Impairment of Assets”,
issued December 1999. <<Since Withdrawn>> Expect impairment standard to replace
AASB 1010 Recoverable amount in the future
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Tutorial Questions Exercise 12.1 Exercise 12.2 Exercise 12.3