CORPORATE REPORTING YEAR

•
IAS 16 – PROPERTY, PLANT AND EQUIPMENT(PPE)
IAS 23- ACCOUNTING FOR BORROWING COSTS
IAS 40 - INVESTMENT PROPERTY
IAS 2 - INVENTORIES
IAS 41 – AGRICULTURE/BIOLOGICAL ASSETS
IFRS 5 – NON-CURRENT ASSETS HELD FOR SALE AND
DISCONTINUED OPERATIONS
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 IAS 16 – PROPERTY, PLANT AND EQUIPMENT(PPE)
Objective: The objective of IAS 16 is to prescribe the accounting
treatment for property, plant, and equipment.
• Definitions: Property plant and equipment are tangible assets
that:
 Are held for use in the production or supply of goods or
services ,for rental to others, or for administrative purposes; and
 Are expected to be used during more than one years.
• Carrying amount is the amount at which an asset is recognized
after deducting any accumulated depreciation and accumulated
impairment losses
• Depreciation is systematic allocation of the depreciable amount of
assets over its useful life. 2
 IAS 16 – PROPERTY, PLANT AND EQUIPMENT(PPE)
• Residual Value is the estimated amount that an entity can obtain when disposing of
an asset after its useful life has ended. When doing this the estimated costs of
disposing of the asset should be deducted.
• Recognition: PPE are recognized if
The entity controls the asset
 It is probable that future economic benefits will flow to the entity; and
The cost of the item can be measured reliably .
• Aggregation and segmenting
This IAS does not provide what constitute an item of property, plant and equipment
and judgment is required in applying the recognition criteria to specific circumstances
or types of enterprise. That is: -
i. It may be appropriate to aggregate individually insignificant items, such as moulds,
tools, dies, etc.
ii. It may be appropriate to allocate total expenditure on an asset to its component
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parts and account for each component separately e.g. an aircraft and its engines.
IAS 16 – PROPERTY, PLANT AND EQUIPMENT(PPE)
• Initial measurement:
• PPE are initially recognized at the cost. Elements of costs comprise:
• Its purchase price
• Any costs directly attributable to bringing the asset to the location and condition
necessary for it to be capable of operating.
• The initial estimate of the costs of dismantling and removing the item and
restoring the site on which it is located (the present value of dismantling cost will
be added to the cost of asset and provision will be created and it will be unwinded
at every year-end and the amount will be recognized in statement of profit or loss
as finance cost and provision will be created in statement of financial position).
• The cost of site preparation
• Initial delivery and handling costs
• Installation costs
• Cost of testing whether the asset is functioning properly after the net proceeds
from the sale of any trial production (samples produced while testing equipment)
• Professional fees (architects, engineers) 4
 IAS 16 – PROPERTY, PLANT AND EQUIPMENT(PPE)
• Cost of self-constructed assets will be the cost of its production.
• If an asset is exchanged, the cost will be measured at the fair value unless
• (a) The exchange transaction lacks commercial substance or
• (b) The fair value of neither the asset received nor the asset given up is
reliably measurable. If the acquired item is not measured at fair value, its
cost is measured at the carrying amount of the asset given up.
Measurement Subsequent to Initial Recognition:
• IAS 16 permits two accounting models:
• Cost Model. The asset is carried at cost less accumulated depreciation and
impairment.
• Revaluation Model. The asset is carried at a revalued amount, being its fair
value at the date of revaluation less subsequent depreciation and
impairment, provided that fair value can be measured reliably. 5
 Revaluation model

• Revaluations should be carried out regularly, so that the carrying amount of an asset does not
differ materially from its fair value.
• If an item is revalued, the entire class of assets to which that asset belongs should
be revalued.
• Revalued assets are depreciated in the same way as under the cost model but
depreciation is calculated based on the remaining useful economic life
• Gain in revaluation should be credited to other comprehensive income and accumulated in
equity under the heading "revaluation surplus" unless it represents the reversal of a
revaluation decrease of the same asset previously recognized as an expense, in which case it
should be recognized as income.
• A loss on revaluation should be recognized as an expense to the extent that it exceeds any
amount previously credited to the revaluation surplus relating to the same asset.
• Each year, the amount by which the new depreciation exceeds the old depreciation should be
transferred from the revaluation reserve in the capital section of the statement of financial
position to the retained earnings.
• When a revalued asset is disposed of, any revaluation surplus may be transferred directly
6 to
 Depreciation

• The residual value and the useful life of an asset should be reviewed at least at each
financial year-end.
• The depreciation method used should reflect the pattern in which the asset's
economic benefits are consumed by the entity. However, Land is not subject to
depreciation
• Depreciation should be charged to the statement of profit or loss.
• Depreciation begins when the asset is available for use and continues until the asset is
derecognized.
• Impairment:
• An item of PPE shall not be carried at more than recoverable amount. Recoverable
amount is the higher of an asset's fair value less costs to sell and its value in use.
Impairment is included in profit or loss when the claim for impairment becomes
receivable.
• De-recognition:
• Remove from statement of financial position when disposed of or abandoned 7
 COMMON METHODS OF DEPRECIATION
Method Characteristics

Straight line Equal consumption of benefit over time (popular!)

Reducing balance Unequal benefit with decreasing trend

The method of depreciation used should be reviewed at least

annually. If the expected pattern of consumption has changed, the
method should be changed to a more appropriate one. A change in
method is treated as a change in estimation technique and applied
prospectively (IAS 8). 8
 Review of useful life and residual value

• Useful life and residual value should be reviewed at the end of each
reporting period and revised if expectations are significantly different
from previous estimates. The carrying amount of the asset at the date
of revision less any residual value should be depreciated over the
revised remaining useful life.
Ex. B Co acquired a non-current asset on 1 January 20X2 for $80,000. It had no residual
value and a useful life of ten years. On 1 January 20X5 the remaining useful life was
reviewed and revised to four years. What will be the depreciation charge for 20X5?
Solution $
Original cost 80,000
• Depreciation 20X2 – 20X4 (80,000  3/10) (24,000)
• Carrying amount at 31 December 20X4 56,000
• Remaining life 4 years
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 ACCOUNTING FOR BORROWING COSTS (IAS-23)

• OBJECTIVE:
• To prescribe the accounting treatment for borrowing cost.
• DEFINITIONS:
• Borrowing costs are costs, for example interest costs, incurred by an entity in connection with the
borrowing of funds in order to construct an asset.
• A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its
intended use or sale.
• ACCOUNTING TREATMENT:
• RECOGNITION
• An entity should capitalize the borrowing costs that are directly attributable to the acquisition,
construction or production of a qualifying asset as part of the cost of that asset and, therefore,
should be capitalized.
• Other borrowing costs are expensed in statement of profit or loss when occurred.
• Return on any surplus funds invested is first deducted from the amount of interest and then the
remaining amount is capitalized.
• Where funds are borrowed specifically, costs eligible for capitalization are the actual costs incurred
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 ACCOUNTING FOR BORROWING COSTS (IAS-23)

Where funds are part of a general pool, the eligible amount is determined by applying a capitalization rate
to the expenditure on that asset. The capitalization rate will be the weighted average of the borrowing
costs applicable to the general pool
• PERIOD OF CAPITALIZATION
Commence capitalization
• when expenditure on asset being incurred
• Borrowing cost being incurred
• Activities to prepare asset for use/sale are in progress
Suspend capitalization if construction is suspended (due to bad weather, strikes etc).
Cease capitalization when substantially all activities necessary to prepare the asset for use/sale are
complete.
• DISCLOSURE
• The accounting policy adopted.
• Amount of borrowing cost capitalized during the period.
• Capitalization rate used
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The weighted average cost of general borrowings is taken. Capitalization rate should be the weighted
 IAS 40-INVESTMENT PROPERTY
• OBJECTIVE
The objective of this Standard is to prescribe the accounting treatment for investment property and
related disclosure requirements.
DEFINITIONS:
• Investment property is property held to earn rentals or for capital appreciation or both,
rather than for: a) Use in the production or supply of goods or services or for administrative
purposes; or b) Sale in the ordinary course of business.
• Owner-occupied property is property held (by the owner or by the lessee under Right To Use) for
use in the production or supply of goods or services or for administrative purposes.
• The following are examples of investment property: a) Land held for long-term capital appreciation
b) Land held for a currently undetermined future use c) A building that is vacant but is held to be
leased. d) Property that is being constructed or developed for future use as investment property
• The following are examples of items that are not investment property: a) Property intended for
sale in the ordinary course of business b) Property being constructed or developed on behalf of
third parties c) Owner-occupied property (see IAS 16), including (among other things) property held
for future use as owner-occupied property, property held for future development and subsequent
use as owner-occupied property, property occupied by employees (whether or not the employees
pay rent at market rates) and owner-occupied property awaiting disposal. 12
 IAS 40-INVESTMENT PROPERTY
RECOGNITION:
Investment property shall be recognized as an asset when:
(a) It is probable that the future economic benefits that are associated with the investment property will flow to
the entity; and
(b) The cost of the investment property can be measured reliably.
MEASUREMENT
Initial measurement :An investment property shall be measured initially at its Cost + Transaction costs.
The cost of a purchased investment property = Purchase price + any directly attributable expenditure.
SUBSEQUENT MEASUREMENT
IAS 40 permits entities to choose between
A fair value model, and A cost model.
Fair value model Under the fair value model the entity should:
• Revalue all its investment property to 'fair value' (open market value) at the end of each financial year, and
• Take the resulting gain or loss to profit or loss for the period in which it arises.

Fair value is the price that would be received to sell an asset or paid to transfer a liability, in an orderly transaction
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between market participants at the measurement date.
 IAS 40-INVESTMENT PROPERTY
• Cost model: Under cost model, investment property should be measured at
depreciated cost, less any accumulated impairment losses.
• EXCEPTION:
• All investment property must be valued under either one model or the other.
• TRANSFERS:
• Transfers to, or from, investment property should only be made when there is
a change in use, evidenced by one or more of the following
• commencement of owner-occupation
• commencement of development with a view to sale end of owner-occupation
• commencement of a short term lease to another party end of construction or
development
• When an entity decides to sell an investment property without development,
the property is not reclassified as investment property but is dealt with as
investment property until it is disposed of. 14
 IAS 40-INVESTMENT PROPERTY
• RULES FOR TRANSFER:
• For a transfer from investment property carried at fair value to owner-occupied property or inventories,
the fair value at the change of use is the 'cost' of the property under its new classification
• For a transfer from owner-occupied property to investment property carried at fair value, IAS 16 should be
applied up to the date of reclassification. Any difference arising between the carrying amount under IAS 16
at that date and the fair value is dealt with as a revaluation under IAS 16
• For a transfer from inventories to investment property at fair value, any difference between the fair value
at the date of transfer and it previous carrying amount should be recognized in profit or loss
• When an entity completes construction/development of an investment property that will be carried at fair
value, any difference between the fair value at the date of transfer and the previous carrying amount
should be recognized in profit or loss.
• When an entity uses the cost model for investment property, transfers between categories do not change
the carrying amount of the property transferred, and they do not change the cost of the property for
measurement or disclosure purposes.
• DISPOSAL
• An investment property should be derecognized on disposal :the gain or loss on disposal should be
calculated as the difference between the net disposal proceeds and the carrying amount of the asset and
should be recognized as income or expense. Compensation from third parties is recognized when 15
it
becomes receivable.
 IAS 2 - INVENTORIES
• Objective
• The objective of this IAS is to prescribe the accounting treatment of inventories.
• Definitions
• Inventories are assets; -
• a) Held for sale in the ordinary course of business
• b) In the process of production for such sale; or (work in progress, finished goods
awaiting to be sold)
• c) In the form of materials or supplies to be consumed in the production process or in
the rendering of services
Net Realizable Value is the estimated selling price in the ordinary course of business less
the estimated costs of completion and the estimated cost necessary to make a sale.
Cost of Inventories
The cost of inventories will comprise all costs of purchase, costs of conversion and other
costs incurred in bringing the inventories to their present location and condition. 16
 IAS 2 - INVENTORIES
• (a) Purchase cost comprise the; i) Purchase price plus; ii) Import
duties and other non –refundable taxes; iii) Transport, handling and
any other cost directly attributable to the acquisition of finished
goods, services and materials; less iv) Trade discounts, rebates and
other similar amounts
• (b) Cost of conversion i) Costs directly related to the units of
production (direct labor); and ii) Systematic allocation of fixed and
variable production overheads that are incurred in converting
materials into finished goods. (Factory rent, depreciation of
machinery, supervisor salary, power consumption)
• The allocation of fixed overheads to the costs of conversion is based
on the normal capacity of the production facilities.
• (c) Other cost incurred in bringing the inventories to their present
location and condition (i.e. non production overheads or costs of17
 IAS 2 - INVENTORIES

• The Standard excludes the following from the cost of inventories

a) The abnormal amount of wasted material, labor or other production cost;
b) Storage costs unless necessary for production before the further production
process/stage;
c) Administrative overheads that do not contribute to bringing inventories to their present
location and condition; and
d) Selling cost
The cost of inventories of service providers includes primarily the labour and other cost of
the personnel directly engaged in providing the service including supervisory personnel and
directly attributable overheads.
• First –in –first out (FIFO) or weighted average cost formula. Measurement of inventory
• Inventory shall be measured at the lower of cost and net realizable value.
• Rule: The write down of inventories would normally take place on an item-by-item basis
but similar or related items may be grouped together. The NRV should be based on the
most reliable evidence available at the time of estimates are made. NRV should 18 be
reassessed at each reporting date. Reversal of write down is limited to the original write
 IAS 41 – AGRICULTURE/BIOLOGICAL ASSETS
• OBJECTIVE
• The objective of IAS 41 is to establish standards of accounting for agricultural activity
• SCOPE
• Within scope are Biological assets, Agricultural produce at the point of harvest and Government
grants related to biological assets.
• Excluded from scope are Land and Intangible assets related to agricultural activity
• DEFINITIONS
• ACTIVE MARKET:
• Exists when; the items traded are homogenous, willing buyers and sellers can normally be found at
any time and prices are available to the public.
• AGRICULTURAL ACTIVITY:
• The management of the transformation of a biological asset for sale into agricultural produce or
another biological asset.
• Biological asset: A living animal or plant.
• Agricultural produce: The harvested produce of the entity’s biological assets.
• Biological transformation: The process of growth, degeneration, production, and procreation that
cause an increase in the value or quantity of the biological asset. 19
IAS 41 – AGRICULTURE/BIOLOGICAL ASSETS
• RECOGNITION
• Biological assets or agricultural produce are
recognised when:
• Entity controls the asset as a result of a past event
• Probable that future economic benefit will flow to
the entity; and
• Fair value or cost of the asset can be measured
reliably.
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IAS 41 – AGRICULTURE/BIOLOGICAL ASSETS
• MEASUREMENT
• Biological assets within the scope of IAS 41 are measured on initial recognition and at subsequent
reporting dates at fair value less estimated costs to sell, unless fair value cannot be reliably measured.
• If no reliable measurement of fair value, biological assets are stated at cost less accumulated
depreciation and accumulated impairment losses.
• Agricultural produce is measured at fair value less estimated costs to sell at the point of harvest.
• The gain on initial recognition of biological assets at fair value less costs to sell, and changes in fair value
less costs to sell of biological assets during a period, are included in profit or loss.
• A gain on initial recognition (e.g. as a result of harvesting) of agricultural produce at fair value less
costs to sell are included in profit or loss for the period in which it arises.
• All costs related to biological assets that are measured at fair value are recognised as expenses when
incurred, other than costs to purchase biological assets.
• An unconditional government grant related to a biological asset is measured at fair value less estimated
point of-sale costs is recognised as income when, and only when, the government grant becomes
available.
• A conditional government grant, including where a government grant requires an entity not to engage in
specified agricultural activity, is recognised as income when and only when, the conditions of the grant
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are met.
 IAS 41 – AGRICULTURE/BIOLOGICAL ASSETS
BEARER PLANTS
• Bearer plants are accounted for under IAS 16 Property, Plant and
Equipment, rather than IAS 41 Agriculture. A bearer plant is a living
plant that:
• is used in the production or supply of agricultural produce;
• is expected to bear fruit for more than one period; and
• has a remote likelihood of being sold as agricultural produce, except
for incidental scrap sales.
Therefore items such as vines, tea bushes and fruit trees may be classed
as bearer plants and treated as property, plant and equipment rather
than being accounted for under the provisions of IAS 41 Agriculture
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 The table below gives examples of each.
Biological assets (Included in IAS 41, Agricultural produce (included in IAS Products resulting from processing
except bearer plants) 41 at the point of harvest, treated as after harvest (Outside the scope of
inventory after that point) IAS 41)
Sheep Wool Yarn, carpet
Trees in a timber plantation Felled trees Logs, lumber
Dairy cattle Milk Cheese
Pigs Carcass Sausages, cured hams
Cotton plants Harvested cotton Thread, clothing
Sugarcane Harvested cane Sugar
Tobacco plants Picked leaves Cured tobacco
Tea bushes Picked leaves Tea
Grape vines Picked grapes Wine
Fruit trees Picked fruit Processed fruit
Oil palms Picked fruit Palm oil
Rubber trees Harvested latex Rubber products

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IFRS 5 – NON-CURRENT ASSETS HEAD FOR SALE AND
DISCONTINUED OPERATIONS
• OBJECTIVE -The objective of this standard is to specify
the accounting for Non-current assets held for sale, and
presentation and disclosure of discontinued operations.
Non-Current Assets Held For Sale
• HELD FOR SALE
• This term refers to a non-current asset whose carrying
amount will be recovered principally through a Sale
transaction rather than through continuing use.
• DISCONTINUED OPERATION
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IFRS 5 – NON-CURRENT ASSETS HEAD FOR SALE AND
DISCONTINUED OPERATIONS
•A discontinued operation includes the
following criteria:
• is a separately identifiable components
• must represent a major line of the entity’s
business
•is part of a plan to dispose of a major line of
business or a geographical area
•is a subsidiary acquired with a view to resell 25
 IFRS 5 – NON-CURRENT ASSETS HEAD FOR SALE AND
DISCONTINUED OPERATIONS
• DISPOSAL GROUP
• This is a group of assets and possibly some liabilities that an entity
intends to dispose of in a single transaction.
ACCOUNTING TREATMENT:
• Non-current assets that meet the criteria are presented separately
on the Statement of Financial Position within current assets.
• If the held for sale item is a disposal group, then related liabilities
are also reported separately within current liabilities.
• Discontinued operations and operations held for sale must be
disclosed separately in the statement of financial position at the
lower of their carrying value less costs to sell. 26
IFRS 5 – NON-CURRENT ASSETS HEAD FOR SALE AND
DISCONTINUED OPERATIONS
CLASSIFICATION OF NON-CURRENT ASSETS AS HELD FOR SALE
For an asset to be classified as held for sale:
a) It must be available for immediate sale in its
present condition allowing for terms that are usual
or customary;
b) Its sale must be highly probable (expected within
1 year of reclassification);
c) It must be genuinely sold, not abandoned
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 IFRS 5 – NON-CURRENT ASSETS HEAD FOR SALE AND
DISCONTINUED OPERATIONS
• For a sale to be highly probable it must be significantly more
likely than probable. In addition, the standard sets out the
following criteria to be satisfied:
• Management, at a level that has the authority to sell the assets
or disposal group, is committed to a plan to sell;
• An active program to locate a buyer and complete the sale
must have begun.
• The asset or disposal group must be actively marketed at a
price that is reasonable compared to its current fair value.
• The sale of the asset is expected to be recorded as completed
within time a year from the date of classification. 28
 IFRS 5 – NON-CURRENT ASSETS HEAD FOR SALE AND
DISCONTINUED OPERATIONS
• The actions required to complete the plan should
indicate that it is not likely that there will be significant
changes made to the plan or that the plan will be
withdrawn.
MEASUREMENT
• They are measured at the lower of:
• Fair value less costs to sell; and
• Carrying amount (in accordance with the relevant
Standard).
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 IFRS 5 – NON-CURRENT ASSETS HEAD FOR SALE AND
DISCONTINUED OPERATIONS
• Any impairment loss on initial or subsequent write-down of the asset
or disposal group to fair value less cost to sell is to be recognised in the
statement of profit or loss.

• Any subsequent increase in fair value less cost to sell can be

recognised in the statement of profit or loss to the extent that it is not
in excess of the cumulative impairment loss that has been recognised
in accordance with the IFRS 5 or previously in accordance with IAS 36
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 IFRS 5 – NON-CURRENT ASSETS HEAD FOR SALE AND
DISCONTINUED OPERATIONS
• SUBSEQUENT REMEASUREMENT

• Whilst a non-current asset/disposal group is classified as held for sale it

should not be depreciated or amortized. At each reporting date where a
non-current asset or disposal group continues to be classified as held for
sale it should be re-measured at fair value less costs to sell at that date.

• This may give rise to further impairments or a reversal of previous

impairment losses. In either case recognise in the income statement.
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