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Chapter 11 Advanced Asset and Liability Issues

Chapter 11 Advanced Asset and Liability Issues. Lecture Topics. Asset revaluations and recoverable amount Provisions and contingencies Discontinuing operations. Lecture References. Text - Chapter 11 AASBs - 1010 - 1041 - 1042 EDs - 99 - 101 - 88. Key Concepts.

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Chapter 11 Advanced Asset and Liability Issues

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  1. Chapter 11Advanced Asset and Liability Issues

  2. Lecture Topics • Asset revaluations and recoverable amount • Provisions and contingencies • Discontinuing operations

  3. Lecture References • Text - Chapter 11 • AASBs - 1010 - 1041 - 1042 • EDs - 99 - 101 - 88

  4. Key Concepts • Asset revaluation • Recoverable amount • Fair value • Increment/decrement • Provision • Contingency

  5. Asset Revaluations and Recoverable Amount • Evolution of the accounting standards • AASB 1041 • AASB 1010 • The recoverable amount upper limit • relevant cash flows • no requirement to measure using present value

  6. Asset Revaluations and Recoverable Amount • The recoverable amount upper limit • write-downs recognised as expense • no change to associated accumulated depreciation • Dr Expense: asset write-down x • Cr Asset x

  7. Asset Revaluations and Recoverable Amount • The recoverable amount upper limit • reversing write-downs • AASB 1018 • AASB 1041 • Dr Asset x • Cr Revenue: reversal of write-down x

  8. Asset Revaluations and Recoverable Amount • The recoverable amount upper limit • Disclosure requirements - AASB 1010 • carrying amount • write-down expense recognised • assumptions made • disclosures for each asset class

  9. Asset Revaluations and Recoverable Amount • ED 99 and the impairment of assets • The nature of impairment • measuring assets at recoverable amount • fair value concerned with exit not entry prices • not a revaluation • Using fair values • materiality

  10. Asset Revaluations and Recoverable Amount • ED 99 and the impairment of assets • Measuring fair values • quoted market price or equivalent • best available evidence • usually sold as part of cash generating operations • measurement process • Assets held for disposal

  11. Asset Revaluations and Recoverable Amount • ED 99 and the impairment of assets • Assets held for disposal • Foreign operations • Depreciation • Reversal of impairment losses • Impact on accounting records • Disclosures

  12. Asset Revaluations and Recoverable Amount • AASB 1041: Revaluation of non-current assets • Revaluing non-current assets to fair value • cost vs fair value basis • regularity of revaluations • revaluation of entire asset class • revaluation increments and decrements

  13. Cost (reversible) Fair Value (irreversible) Cost less depreciation plus recoverable amount test Usual method Carrying amount is FV at last revaluation less post revaluation accumulated depn. CM to differ from FV. Exception method Carrying amount comprises FV in new condition less accumulated depn. From acquisition date. CA not to differ from FV. Basis of selection

  14. Asset Revaluations and Recoverable Amount • AASB 1041: Revaluation of non-current assets • Revaluing non-current assets to fair value • treatment of accumulated depreciation • recognition of revenue/expense on sale of asset • changing form cost basis to fair value basis • separate accumulation of debits and credits to asset revaluation reserve

  15. Asset Revaluations and Recoverable Amount • AASB 1041: Revaluation of non-current assets • Evaluation of AASB 1041 • rationale • set-off of increments and decrements • determining fair value • depreciation and revaluation • the exception method

  16. Making a Revaluation Dr Accumulated Depreciation x Cr Asset x Dr Asset x Cr Asset Revaluation Reserve x Dr Asset x Cr Accumulated Depreciation x Cr Asset Revaluation Reserve x

  17. Asset Revaluations and Recoverable Amount • AASB 1041: Revaluation of non-current assets • Disclosure implications • Transitional provisions • Proposed changes • ED 101

  18. Provisions and Contingencies • Contingency: a condition arising from past events that exists at reporting date giving rise to an asset or a liability whose outcome will be confirmed only on the occurrence or non-occurrence of one or more uncertain future events that are outside the control of the entity • Provisions: liabilities for which the amount or timing of the future sacrifice of economic benefits that will be made is uncertain

  19. Provisions • Recognition • Present legal, equitable or constructive obligation • Amount or timing of future sacrifice is uncertain • Measurement • Initial measure • Subsequent measure

  20. Provisions • Future operating losses and onerous contracts • Restructuring vs discontinuing operations • AASB 1042 • Treatment of restructuring costs • Common types of provisions

  21. Contingencies • Recognition • Category 1 and 2 • Measurement • Recognised vs unrecognised contingent assets and liabilities • Common types pf contingencies

  22. Provisions and Contingencies • Presentation and disclosure - notes to the financial statements • Provisions • Contingencies • Recognition of asset/liability • No recognition of asset/liability • Set-off

  23. Discontinuing Operations • Disclosure requirements • AASB 1042 • Initial disclosure event • Subsequent disclosures • Withdrawal from planned discontinuation • Disclosure format

  24. Where to get more information • Other courses • List books, articles, electronic sources

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