The key international standards governing the
accounting of long-term assets are primarily established by the International Financial Reporting Standards (IFRS) and the Generally Accepted Accounting Principles (GAAP). These standards provide a comprehensive framework for the recognition, measurement, presentation, and
disclosure of long-term assets in financial statements.
Under IFRS, long-term assets are primarily governed by the International Accounting Standard (IAS) 16 - Property, Plant and Equipment. This standard outlines the accounting treatment for property, plant, and equipment, including their initial recognition, subsequent measurement,
depreciation,
impairment, and derecognition. IAS 16 requires entities to recognize an asset if it is probable that future economic benefits will flow to the entity and its cost can be reliably measured. It also provides
guidance on determining the cost of an asset, subsequent measurement using either the cost model or revaluation model, and the depreciation method to be used.
Additionally, IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations is relevant when long-term assets are classified as held for sale or when a component of an entity is classified as discontinued. This standard specifies the accounting treatment for such assets and requires their measurement at the lower of carrying amount and
fair value less costs to sell.
Furthermore, IFRS 36 - Impairment of Assets provides guidance on assessing and recognizing impairment losses for long-term assets. It requires entities to test their assets for impairment whenever there is an indication of potential impairment. If the carrying amount exceeds the recoverable amount, an impairment loss is recognized.
On the other hand, under GAAP, long-term assets are governed by various standards issued by the Financial Accounting Standards Board (FASB). The most relevant standard is FASB ASC 360 - Property, Plant, and Equipment. This standard is similar to IAS 16 and provides guidance on the recognition, measurement, depreciation, impairment, and derecognition of long-term assets. It also requires entities to assess the recoverability of long-lived assets whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.
Additionally, FASB ASC 360-10 - Impairment or Disposal of Long-Lived Assets provides guidance on the recognition and measurement of impairment losses for long-term assets held and used, as well as those held for sale. It requires entities to compare the carrying amount of an asset to its fair value and recognize an impairment loss if the carrying amount exceeds the fair value.
In summary, the key international standards governing the accounting of long-term assets are IAS 16, IFRS 5, and IFRS 36 under IFRS, and FASB ASC 360 and FASB ASC 360-10 under GAAP. These standards provide a comprehensive framework for the accounting treatment of long-term assets, ensuring consistency, comparability, and
transparency in financial reporting across different jurisdictions.
International standards define long-term assets as assets that are expected to provide economic benefits to an entity for a period exceeding one year or the normal operating cycle, whichever is longer. These assets are held by an entity for use in the production or supply of goods and services, for rental to others, or for administrative purposes. Long-term assets are also known as non-current assets, fixed assets, or property, plant, and equipment (PPE).
Differentiating long-term assets from other types of assets is crucial for financial reporting purposes. International standards provide specific criteria to distinguish long-term assets from current assets and intangible assets. Current assets are those that are expected to be realized, consumed, or converted into cash within the normal operating cycle or one year, whichever is shorter. Examples of current assets include cash, accounts
receivable, and
inventory.
On the other hand, intangible assets are non-monetary assets that lack physical substance but have identifiable value and are expected to provide future economic benefits. Examples of intangible assets include patents, trademarks, copyrights, and
goodwill. While long-term assets can include certain intangible assets such as land use rights or leasehold improvements, they primarily refer to tangible assets like buildings, machinery, vehicles, and equipment.
International standards further differentiate long-term assets by prescribing specific recognition, measurement, and disclosure requirements. These standards aim to ensure that long-term assets are reported at their historical cost or fair value and are systematically depreciated or amortized over their useful lives. The objective is to accurately reflect the economic value of these assets over time and provide relevant information to users of financial statements.
Additionally, international standards require entities to assess the impairment of long-term assets regularly. Impairment occurs when the carrying amount of an asset exceeds its recoverable amount, which is the higher of its fair value less costs to sell or its value in use. If an impairment is identified, the asset's carrying amount is reduced, and a corresponding impairment loss is recognized in the financial statements.
In summary, international standards define long-term assets as assets that provide economic benefits to an entity for a period exceeding one year or the normal operating cycle. They are distinguished from current assets and intangible assets by their expected duration and physical nature. These standards provide specific guidelines for the recognition, measurement, and disclosure of long-term assets to ensure accurate reporting and transparency in financial statements.
Under international accounting standards, specifically International Financial Reporting Standards (IFRS), there are specific reporting requirements for long-term assets. Long-term assets, also known as non-current assets or fixed assets, are resources that a company owns and expects to use for more than one year. These assets include property, plant, and equipment (PPE), intangible assets, and investment properties.
The reporting requirements for long-term assets under international accounting standards can be summarized as follows:
1. Recognition: Long-term assets should be recognized in the financial statements when it is probable that future economic benefits associated with the asset will flow to the entity and the cost of the asset can be reliably measured. This means that the asset should be initially recorded at its cost, which includes all directly attributable costs necessary to bring the asset to its working condition.
2. Measurement: After recognition, long-term assets are measured differently depending on their nature:
a. Property, Plant, and Equipment (PPE): PPE is initially measured at cost and subsequently measured at cost less accumulated depreciation and any impairment losses. Depreciation is calculated systematically over the asset's useful life using an appropriate depreciation method.
b. Intangible Assets: Intangible assets, such as patents, copyrights, trademarks, and goodwill, are initially measured at cost. Subsequently, they are measured at cost less accumulated amortization and any impairment losses. Amortization is calculated systematically over the asset's useful life using an appropriate amortization method.
c. Investment Properties: Investment properties are initially measured at cost and subsequently measured at fair value. Fair value changes are recognized in the
income statement.
3. Depreciation and Amortization: Long-term assets subject to depreciation or amortization should be systematically allocated over their useful lives. The choice of depreciation or amortization method should reflect the pattern in which the asset's economic benefits are expected to be consumed.
4. Impairment: Long-term assets should be tested for impairment whenever there is an indication of potential impairment. If the carrying amount of an asset exceeds its recoverable amount (higher of fair value less costs to sell and value in use), an impairment loss should be recognized in the income statement.
5. Disclosure: The financial statements should provide sufficient information about long-term assets to enable users to understand their nature, carrying amounts, depreciation or amortization methods, useful lives, and any restrictions on their use.
It is important to note that the reporting requirements for long-term assets may vary depending on the specific IFRS standard being applied, such as IAS 16 for property, plant, and equipment or IAS 38 for intangible assets. Additionally, companies may have additional reporting requirements imposed by local regulations or industry-specific standards.
Overall, adherence to the reporting requirements for long-term assets under international accounting standards ensures transparency and comparability in financial reporting, enabling stakeholders to make informed decisions about a company's financial position and performance.
International standards, such as the International Financial Reporting Standards (IFRS) and the Generally Accepted Accounting Principles (GAAP), provide guidelines for the recognition and measurement of long-term assets. These standards aim to ensure consistency, comparability, and transparency in financial reporting across different countries and industries.
Recognition refers to the process of including an item in the financial statements, while measurement involves determining the monetary value assigned to the recognized item. International standards provide specific criteria for recognizing and measuring long-term assets to ensure that they are reported accurately and fairly.
Under international standards, long-term assets are recognized when it is probable that future economic benefits will flow to the entity and the asset's cost can be reliably measured. This means that an entity must have a reasonable expectation of receiving future economic benefits from the asset, and the cost of the asset can be determined with sufficient reliability.
The recognition criteria for long-term assets are further refined based on their nature. For example, property, plant, and equipment (PPE) are recognized when it is probable that future economic benefits will flow to the entity, and the cost of the asset can be reliably measured. Intangible assets, on the other hand, are recognized if it is probable that future economic benefits will flow to the entity, and the asset's cost can be reliably measured.
Once recognized, long-term assets are measured at either historical cost or fair value. Historical cost refers to the amount initially paid or incurred to acquire or produce the asset. Fair value, on the other hand, represents the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date.
Under international standards, long-term assets are generally measured at historical cost less accumulated depreciation and impairment losses. However, certain long-term assets may be revalued to fair value if there is an active market for the asset or if fair value can be determined through other reliable methods.
Impairment testing is another important aspect of the measurement of long-term assets. International standards require entities to assess whether there are any indications of impairment for long-term assets and, if so, to estimate the recoverable amount of the asset. If the carrying amount of the asset exceeds its recoverable amount, an impairment loss is recognized.
In summary, international standards provide comprehensive guidance on the recognition and measurement of long-term assets. These standards ensure that long-term assets are recognized when future economic benefits are probable and their costs can be reliably measured. The measurement of long-term assets can be based on historical cost or fair value, with impairment testing being a crucial component in assessing the recoverability of these assets. By adhering to these standards, entities can provide accurate and transparent information about their long-term assets in their financial statements.
Under international accounting standards, specifically International Financial Reporting Standards (IFRS), there are specific disclosure requirements for long-term assets. These requirements aim to provide users of financial statements with relevant and reliable information about an entity's long-term assets, enabling them to make informed decisions.
The disclosure requirements for long-term assets under international accounting standards can be categorized into several key areas:
1. Measurement Basis: Entities are required to disclose the measurement basis used for their long-term assets. This includes information on whether the assets are measured at cost, fair value, or revalued amounts. Additionally, if fair value is used, entities must disclose the valuation techniques and inputs used in determining fair value.
2. Depreciation and Amortization: Entities must disclose the depreciation and amortization methods used for their long-term assets. This includes information on the useful lives or depreciation rates applied to different categories of assets. Any changes in these methods or estimates should also be disclosed.
3. Impairment: If there are indicators of impairment for long-term assets, entities are required to disclose the carrying amount of the assets, the nature of the impairment indicators, and any impairment losses recognized. Additionally, if impairment losses are reversed, entities should disclose the reasons for the reversal.
4. Revaluations: If an entity chooses to revalue its long-term assets, it must disclose the basis for revaluation, including the frequency of revaluations and the date of the most recent revaluation. The carrying amount of revalued assets should be disclosed separately from those measured at cost or fair value.
5. Leased Assets: For leased long-term assets, entities must disclose information about the nature and extent of their leasing arrangements. This includes details about lease terms, contingent rent arrangements, and any restrictions or covenants imposed by lease agreements.
6. Government Grants: If long-term assets have been acquired or constructed with the assistance of government grants, entities should disclose the nature and extent of such grants. This includes information on any conditions attached to the grants and how they have been accounted for.
7. Disposals and Retirements: Entities must disclose significant disposals or retirements of long-term assets during the reporting period. This includes information on the gain or loss recognized, as well as any commitments or contingencies related to the assets disposed of.
8. Other Disclosures: Additional disclosures may be required depending on the nature of the long-term assets. For example, if an entity holds investment properties, it must disclose information about rental income, operating expenses, and fair value measurements.
It is important to note that the specific disclosure requirements may vary depending on the nature of an entity's operations and the industry it operates in. Therefore, entities should carefully review the applicable accounting standards and related guidance to ensure compliance with the disclosure requirements for long-term assets under international accounting standards.
International standards, such as the International Financial Reporting Standards (IFRS) and the Generally Accepted Accounting Principles (GAAP), provide guidance on impairment testing and the recognition of impairment losses for long-term assets. Impairment refers to a situation where the carrying amount of an asset exceeds its recoverable amount, which is the higher of its fair value less costs to sell or its value in use. The impairment testing process involves assessing whether there are any indicators of impairment, estimating the recoverable amount, and recognizing impairment losses if necessary.
Under international standards, entities are required to assess at each reporting date whether there are any indicators of impairment for their long-term assets. These indicators can be both external, such as a significant decline in the
market value of an asset, and internal, such as obsolescence or physical damage. If there are any indicators of impairment, the entity needs to estimate the recoverable amount of the asset to determine if an impairment loss should be recognized.
The recoverable amount is determined based on either the fair value less costs to sell or the value in use. Fair value less costs to sell represents the amount that could be obtained from selling the asset in an arm's length transaction, after deducting any costs directly associated with the sale. Value in use, on the other hand, represents the
present value of the future cash flows expected to be derived from the asset.
To estimate the recoverable amount, entities may use various valuation techniques, such as market comparables, discounted
cash flow analysis, or independent appraisals. The choice of valuation technique depends on the nature of the asset and the availability of reliable inputs. The estimates used should be based on reasonable and supportable assumptions that reflect current market conditions.
If the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recognized. The impairment loss is calculated as the difference between the carrying amount and the recoverable amount. The recognized impairment loss reduces the carrying amount of the asset and is recognized as an expense in the income statement.
It is important to note that impairment losses can be reversed under certain circumstances. If, in a subsequent period, the recoverable amount of an impaired asset increases due to a change in circumstances, the impairment loss previously recognized may be reversed, up to the original carrying amount of the asset. However, such reversals are limited to the extent that the carrying amount of the asset after reversal does not exceed what the depreciated historical cost would have been if no impairment loss had been recognized.
In conclusion, international standards provide a comprehensive framework for addressing impairment testing and the recognition of impairment losses for long-term assets. These standards require entities to assess indicators of impairment, estimate the recoverable amount using appropriate valuation techniques, and recognize impairment losses when the carrying amount exceeds the recoverable amount. By following these standards, entities can ensure transparent and reliable reporting of their long-term assets' values and potential impairments.
Under international accounting standards, there are specific criteria that need to be met in order to capitalize costs related to long-term assets. These criteria are designed to ensure that only costs that enhance the future economic benefits of an asset are capitalized, while costs that are considered maintenance or repair expenses are expensed immediately.
The first criterion for capitalizing costs is that the expenditure should result in an increase in the future economic benefits expected to be derived from the asset. This means that the cost should directly contribute to the asset's ability to generate revenue or reduce future costs. For example, if a company invests in upgrading its manufacturing equipment to increase production capacity, the costs incurred would likely meet this criterion as it enhances the asset's ability to generate more revenue.
The second criterion is that the cost can be reliably measured. This means that the cost must be quantifiable and can be reasonably estimated. If a cost cannot be reliably measured, it should be expensed immediately. For instance, if a company spends
money on research and development activities to develop a new product, but it is uncertain whether the project will be successful or if the costs can be accurately estimated, then these costs would be expensed rather than capitalized.
The third criterion is that it is probable that the future economic benefits associated with the asset will flow to the entity. This means that there should be a reasonable expectation that the asset will generate future economic benefits. If it is unlikely that the asset will generate such benefits, then the costs should be expensed. For example, if a company acquires land for potential development but has no concrete plans or market demand for development, the costs associated with acquiring the land would not meet this criterion and would be expensed.
Additionally, it is important to note that costs incurred during the construction or development phase of an asset should be capitalized if they meet the above criteria. These costs include direct materials, direct labor, and overhead costs directly attributable to the construction or development of the asset. However, costs incurred after the asset is ready for its intended use, such as routine maintenance or repairs, should be expensed as they do not enhance the future economic benefits of the asset.
In summary, under international accounting standards, costs related to long-term assets are capitalized if they increase future economic benefits, can be reliably measured, and it is probable that the benefits will flow to the entity. These criteria help ensure that only costs that enhance the value of the asset are capitalized, providing a more accurate representation of an entity's financial position and performance.
International standards, such as the International Financial Reporting Standards (IFRS) and the Generally Accepted Accounting Principles (GAAP), provide guidelines for the subsequent measurement and depreciation of long-term assets. These standards aim to ensure that financial statements accurately reflect the value of long-term assets and provide relevant information to users of financial statements.
Subsequent measurement refers to the process of determining the carrying amount of long-term assets after their initial recognition. International standards provide specific guidance on how to measure long-term assets subsequent to their initial recognition. The two main methods used for subsequent measurement are the cost model and the revaluation model.
Under the cost model, long-term assets are initially recognized at cost and subsequently measured at cost less any accumulated depreciation and impairment losses. This method is commonly used for assets such as property, plant, and equipment (PPE) and intangible assets. The cost model ensures that the carrying amount of long-term assets reflects their historical cost and any subsequent reductions in value due to depreciation or impairment.
On the other hand, the revaluation model allows entities to measure certain long-term assets at their fair value, which is determined through periodic revaluations. Fair value represents the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm's length transaction. Revaluations are typically performed by independent valuers and are subject to specific criteria outlined in international standards.
The choice between the cost model and the revaluation model depends on the nature of the asset and the accounting policy chosen by the entity. However, it is important to note that the revaluation model is not available for all long-term assets. For example, IFRS prohibits the use of the revaluation model for intangible assets with indefinite useful lives and certain financial assets.
Depreciation is a key component of subsequent measurement for long-term assets. It represents the systematic allocation of an asset's cost over its useful life. International standards provide guidance on how to calculate and account for depreciation. The most common method used for depreciation is the straight-line method, where the cost of the asset is allocated evenly over its useful life. Other methods, such as the reducing balance method or units of production method, may also be used depending on the nature of the asset.
The useful life of an asset represents the period over which it is expected to generate economic benefits for the entity. International standards require entities to assess the useful life of long-term assets regularly and make adjustments if necessary. Factors considered in determining useful life include the expected usage, physical wear and tear, technical obsolescence, legal or contractual limits, and expected residual value.
In conclusion, international standards provide comprehensive guidance on the subsequent measurement and depreciation of long-term assets. These standards ensure that financial statements accurately reflect the value of long-term assets and provide relevant information to users. The choice between the cost model and the revaluation model depends on the nature of the asset and the accounting policy chosen by the entity. Depreciation is a key component of subsequent measurement, and international standards provide guidance on how to calculate and account for depreciation based on the useful life of the asset.
Under international accounting standards, specifically International Financial Reporting Standards (IFRS), there are specific rules and guidelines for the revaluation and derecognition of long-term assets. These rules aim to ensure that financial statements accurately reflect the value and status of these assets, providing transparency and comparability for users of financial information. In this answer, we will delve into the rules for revaluation and derecognition separately.
Revaluation of long-term assets refers to the process of adjusting the carrying amount of an asset to its fair value. Fair value represents the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. The revaluation process is typically applied to certain types of long-term assets, such as property, plant, and equipment (PPE), investment properties, and intangible assets.
The rules for revaluation of long-term assets under international accounting standards can be summarized as follows:
1. Initial Recognition: Revaluation is only permitted after an asset has been initially recognized at cost. Cost includes all directly attributable costs necessary to bring the asset to its present location and condition for its intended use.
2. Regular Revaluations: Revaluations should be performed regularly to ensure that the carrying amount of the asset is not materially different from its fair value. The frequency of revaluations depends on the nature of the asset and the
volatility of its fair value.
3. Fair Value Measurement: Revaluation should be based on the fair value of the asset at the date of revaluation. Fair value can be determined using various methods, such as market-based evidence, income-based approaches, or cost-based approaches. The method chosen should be appropriate for the specific asset being revalued.
4. Recognition of Revaluation Gain/Loss: Any increase in the carrying amount of an asset due to revaluation is recognized as a revaluation surplus directly in equity, unless it reverses a previous revaluation decrease. In that case, it is recognized as income or expense. Conversely, any decrease in the carrying amount is recognized as an expense unless it offsets a previously recognized revaluation surplus.
5. Accumulated Revaluation Surplus: Revaluation surpluses related to a specific asset should be accumulated in a separate component of equity, known as the "revaluation surplus." This surplus is not distributable as dividends and can only be transferred to
retained earnings upon disposal of the asset.
Moving on to derecognition of long-term assets, which refers to the removal of an asset from an entity's financial statements when it no longer meets the recognition criteria. The rules for derecognition are as follows:
1. Transfer of Control: An asset is derecognized when an entity transfers the risks and rewards associated with the asset to another party. This typically occurs when the entity no longer has control over the future economic benefits of the asset.
2. Measurement of Derecognition: Upon derecognition, the carrying amount of the asset is removed from the
balance sheet, and any resulting gain or loss is recognized in
profit or loss. The gain or loss is calculated as the difference between the carrying amount of the asset and the consideration received, less any cumulative impairment losses.
3. Retained Rights and Obligations: If an entity retains some rights or obligations related to the derecognized asset, these should be separately recognized and measured.
4. Disclosures: Entities are required to disclose information about derecognized assets, including the nature of the assets, the reasons for derecognition, and any continuing involvement in the assets.
It is important to note that these rules for revaluation and derecognition of long-term assets under international accounting standards are subject to ongoing developments and updates. Therefore, it is crucial for entities to stay updated with the latest accounting standards and interpretations to ensure compliance and accurate financial reporting.
International standards, such as the International Financial Reporting Standards (IFRS) and the Generally Accepted Accounting Principles (GAAP), provide guidance on the accounting treatment of intangible long-term assets. Intangible assets are non-physical assets that lack a physical substance but have value to an organization. Examples of intangible long-term assets include patents, copyrights, trademarks,
brand names, customer lists, and software.
Under international standards, the accounting treatment of intangible long-term assets depends on their nature and whether they are acquired separately or as part of a
business combination. The initial recognition and subsequent measurement of intangible assets are crucial aspects addressed by these standards.
When an intangible asset is acquired separately, its initial recognition is based on its cost. The cost includes all directly attributable costs necessary to bring the asset to its intended use, such as purchase price, legal fees, and registration costs. However, costs incurred internally to develop or maintain an intangible asset are generally expensed as incurred and not capitalized.
After initial recognition, intangible assets are measured at cost less accumulated amortization and impairment losses. Amortization is the systematic allocation of the asset's cost over its useful life. The useful life represents the period over which the asset is expected to contribute to the organization's operations. The method of amortization should reflect the pattern in which the asset's economic benefits are consumed or used up.
The useful life of an intangible asset is assessed based on factors such as legal or contractual provisions, expected usage, technological obsolescence, and competition. If there is an indefinite useful life, such as with trademarks or brand names, the asset is not amortized but subject to an annual impairment test.
Impairment occurs when the carrying amount of an intangible asset exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell or its value in use. If an impairment loss is identified, the asset's carrying amount is reduced, and a corresponding impairment loss is recognized in the income statement.
In the case of intangible assets acquired as part of a business combination, international standards require their recognition at fair value. Fair value represents the price that would be received to sell the asset in an orderly transaction between market participants at the measurement date. This fair value includes not only the identifiable intangible assets but also goodwill, which represents the excess of the purchase price over the fair value of the net identifiable assets acquired.
Subsequent to initial recognition, intangible assets acquired in a business combination are subject to the same measurement and impairment requirements as separately acquired intangible assets.
It is important to note that international standards provide specific guidance for certain types of intangible long-term assets. For example, research and development costs are generally expensed as incurred, except for development costs that meet strict criteria for
capitalization. Similarly, internally generated brands, mastheads, publishing titles, customer lists, and similar items are not recognized as assets.
In conclusion, international standards address the accounting treatment of intangible long-term assets by providing guidance on their initial recognition, subsequent measurement, amortization, impairment testing, and specific requirements for different types of intangible assets. These standards ensure that financial statements accurately reflect the value and economic benefits associated with intangible assets, enhancing transparency and comparability in financial reporting across different jurisdictions.
Under international standards, accounting for long-term assets acquired through business combinations requires careful consideration of several factors. These considerations include the recognition, measurement, and subsequent accounting treatment of these assets.
Firstly, the recognition of long-term assets acquired through business combinations is governed by the International Financial Reporting Standards (IFRS) 3, Business Combinations. According to IFRS 3, an entity should recognize and measure identifiable assets acquired, liabilities assumed, and any non-controlling
interest in the acquiree at their fair values at the
acquisition date. Fair value represents the amount for which an asset could be exchanged or a liability settled between knowledgeable, willing parties in an arm's length transaction.
To determine the fair value of long-term assets acquired through business combinations, entities may employ various valuation techniques such as market approach, income approach, or cost approach. The market approach involves comparing the asset's fair value to similar assets in the market. The income approach estimates the present value of future cash flows generated by the asset. The cost approach determines the cost to replace or reproduce the asset.
Once recognized, long-term assets acquired through business combinations are subsequently accounted for based on their nature. Tangible assets, such as property, plant, and equipment, are initially measured at their fair value and subsequently accounted for using the relevant IFRS standard applicable to those assets. For example, IAS 16, Property, Plant and Equipment, provides guidance on the subsequent measurement, depreciation, and impairment of tangible assets.
Intangible assets, on the other hand, are also initially measured at their fair value but are subsequently accounted for based on their specific characteristics. Intangible assets with finite useful lives are amortized over their useful lives using a systematic and rational method. Examples of intangible assets include patents, copyrights, trademarks, and customer relationships. Intangible assets with indefinite useful lives are not amortized but are subject to impairment testing at least annually or whenever there is an indication of impairment.
Goodwill, which represents the excess of the purchase price over the fair value of net identifiable assets acquired, is also a significant consideration in accounting for long-term assets acquired through business combinations. Under IFRS, goodwill is initially measured as the excess of the cost of the business combination over the acquirer's interest in the fair value of net identifiable assets acquired. Subsequently, goodwill is tested for impairment at least annually or whenever there is an indication of impairment. Impairment testing involves comparing the carrying amount of goodwill to its recoverable amount, which is the higher of its fair value less costs to sell and its value in use.
In conclusion, accounting for long-term assets acquired through business combinations under international standards requires careful consideration of various factors. These considerations include the recognition and measurement of assets at their fair values, subsequent accounting treatment based on their nature, and the assessment of impairment for goodwill. Adhering to these standards ensures transparency and comparability in financial reporting, providing stakeholders with relevant and reliable information about an entity's long-term assets acquired through business combinations.
International standards, such as the International Financial Reporting Standards (IFRS), provide guidance on the accounting treatment of investment properties as long-term assets. Investment properties are defined as properties held to earn rental income, for capital appreciation, or both. These properties can include land, buildings, or both.
According to IFRS, investment properties are initially recognized at cost, which includes the purchase price and any directly attributable costs. Subsequently, investment properties are measured at fair value, with changes in fair value recognized in the income statement. Fair value is determined based on market prices or other appropriate valuation techniques.
However, there are certain conditions that must be met for an asset to be classified as an investment property. Firstly, the property must be held to earn rental income, for capital appreciation, or both. Secondly, the property must be held under a lease agreement or be available for lease to third parties. If these conditions are not met, the property may be classified as property, plant, and equipment or inventory, depending on its nature and purpose.
Once an investment property is recognized, it is accounted for using either the cost model or the fair value model. Under the cost model, the property is carried at cost less accumulated depreciation and impairment losses. Depreciation is calculated using the straight-line method over the estimated useful life of the property. Any impairment losses are recognized when there is a significant and prolonged decline in fair value below its carrying amount.
Alternatively, under the fair value model, investment properties are measured at fair value at each reporting date. Changes in fair value are recognized in the income statement. This model provides more relevant and timely information about the performance of investment properties.
It is important to note that once an entity chooses either the cost model or the fair value model for its investment properties, it should apply that model consistently to all of its investment properties. However, entities have the flexibility to change their accounting policy from one model to another if there is a change in the use of the property.
Furthermore, international standards also require disclosure of significant information about investment properties in the financial statements. This includes the measurement basis used (cost or fair value), the methods and significant assumptions applied in determining fair value, and any restrictions on the realization of fair value.
In conclusion, international standards provide comprehensive guidance on the accounting treatment of investment properties as long-term assets. These standards ensure that investment properties are recognized, measured, and disclosed in a consistent and transparent manner, enabling users of financial statements to make informed decisions about the entity's financial position and performance.
Under international standards, the accounting for biological assets as long-term assets is governed by the International Accounting Standard (IAS) 41 - Agriculture. This standard provides guidance on the recognition, measurement, and disclosure of agricultural activity, including biological assets.
To be classified as a biological asset, an item must meet certain criteria. Firstly, it must be a living organism, such as plants or animals. Secondly, it must be managed by an entity for the purpose of producing agricultural produce, such as crops or livestock. Lastly, the biological asset must be expected to undergo biological transformation, meaning it will grow, degenerate, or reproduce.
Once an item is identified as a biological asset, it is initially recognized at its fair value. Fair value represents the amount for which an asset could be exchanged between knowledgeable and willing parties in an arm's length transaction. The fair value of a biological asset is determined at the point of initial recognition, which is usually the time of acquisition or production.
Subsequently, the biological asset is measured at fair value less estimated point-of-sale costs until the point of harvest or sale. Any changes in fair value during this period are recognized in the income statement. However, if fair value cannot be reliably measured, the biological asset is measured at cost less accumulated depreciation and impairment.
When a biological asset is harvested or sold, any difference between the fair value at the point of harvest or sale and its carrying amount is recognized as a gain or loss in the income statement. This gain or loss represents the change in value of the biological asset during its growth or production phase.
It is important to note that agricultural produce harvested from biological assets is not considered a biological asset itself but rather an agricultural produce inventory. Therefore, it is accounted for separately under International Financial Reporting Standards (IFRS) 2 - Inventories.
Disclosure requirements for biological assets include information about the nature of the biological assets, significant accounting policies applied, and any restrictions on the realization of fair value. Additionally, entities are required to disclose the carrying amount of biological assets and any commitments or contingencies related to these assets.
In conclusion, under international standards, the accounting for biological assets as long-term assets is governed by IAS 41 - Agriculture. This standard provides guidance on the recognition, measurement, and disclosure of biological assets, ensuring that entities accurately report the value and changes in value of these assets throughout their growth or production phases.
International standards, such as the International Financial Reporting Standards (IFRS), provide guidelines for the accounting treatment of long-term assets held for sale or disposal. These standards aim to ensure consistency and transparency in financial reporting across different countries and facilitate comparability of financial statements.
According to IFRS, long-term assets held for sale or disposal are classified as "non-current assets held for sale" and are presented separately from other non-current assets in the balance sheet. To be classified as held for sale, an asset must meet specific criteria outlined in IFRS 5, which include:
1. Management's commitment to sell: The decision to sell the asset must be made, and the asset must be available for immediate sale in its present condition.
2. Active
marketing: The asset must be actively marketed for sale at a reasonable price, and it must be highly probable that a sale will be completed within one year from the classification date.
3. Available for immediate sale: The asset should be available for immediate sale in its current condition, except for usual and customary terms and conditions.
Once an asset meets these criteria, it is reclassified as held for sale, and its carrying amount is measured at the lower of its carrying amount or fair value less costs to sell. Fair value less costs to sell represents the amount that would be obtained from selling the asset in an orderly transaction between market participants at the measurement date, less any costs directly attributable to the sale.
Subsequently, any further changes in fair value less costs to sell are not recognized in the income statement but are instead recorded in a separate line item within equity called "discontinued operations." This treatment ensures that the financial statements reflect the results of continuing operations separately from those of discontinued operations.
Additionally, when an asset is classified as held for sale, it is no longer subject to depreciation or amortization. Instead, it is tested for impairment, and any impairment loss is recognized immediately in the income statement.
It is important to note that the classification of an asset as held for sale is significant, as it triggers specific accounting treatment and disclosure requirements. These requirements include providing additional information in the financial statements, such as the nature of the asset, the expected timing of the sale, and any significant risks and uncertainties associated with the sale.
In conclusion, international standards address the accounting treatment of long-term assets held for sale or disposal by providing specific criteria for their classification, measurement, and presentation. These standards ensure that such assets are appropriately recognized, measured, and disclosed in the financial statements, enhancing transparency and comparability for users of financial information.
Under international accounting standards, specifically International Financial Reporting Standards (IFRS), there are guidelines for the presentation and disclosure of long-term assets in financial statements. These guidelines aim to ensure that financial statements provide relevant and reliable information about an entity's long-term assets, enabling users to make informed decisions.
Firstly, long-term assets are typically presented separately from current assets on the balance sheet. This separation allows users to distinguish between assets that are expected to be converted into cash within the next year (current assets) and those that will be held for a longer period (long-term assets). This presentation provides a clearer picture of an entity's long-term investment and capital structure.
Long-term assets are further classified into different categories based on their nature, such as property, plant, and equipment (PPE), intangible assets, investment properties, and biological assets. Each category has specific disclosure requirements that entities must adhere to.
For property, plant, and equipment (PPE), entities are required to disclose the measurement basis used (e.g., historical cost or revaluation), the depreciation method employed, and the useful lives or depreciation rates applied. Additionally, any restrictions on the title or use of PPE should be disclosed, along with any significant commitments for the acquisition of PPE.
Intangible assets, which include items like patents, copyrights, trademarks, and goodwill, also have specific disclosure requirements. Entities must disclose the useful lives or amortization periods of intangible assets and any restrictions on their use. If intangible assets have indefinite useful lives, they should be tested for impairment annually and disclosed accordingly.
Investment properties, which are properties held for rental income or capital appreciation, should be disclosed separately from other property holdings. Entities must disclose the measurement basis used (e.g., fair value or cost model), any significant restrictions on the ability to transfer investment properties, and the methods and assumptions used in determining fair value.
Biological assets, such as agricultural produce or livestock, should be disclosed separately and measured at fair value less costs to sell. Entities must disclose the methods and significant assumptions used to determine fair value, any restrictions on the ability to sell biological assets, and any commitments for the development or acquisition of biological assets.
Apart from specific disclosures for each category of long-term assets, there are general disclosure requirements as well. Entities must disclose any restrictions on the title or use of long-term assets, any contractual obligations related to long-term assets (e.g., lease commitments), and any significant events or transactions that have occurred after the reporting date but before the financial statements are authorized for issue.
Furthermore, entities should disclose any impairments or reversals of impairments recognized during the reporting period, along with the methods and assumptions used in determining impairment. If long-term assets are pledged as
collateral, entities should disclose this information, including the nature and extent of the pledged assets.
Overall, the guidelines for the presentation and disclosure of long-term assets in financial statements under international accounting standards require entities to provide detailed information about the nature, measurement, and significant events related to their long-term assets. These disclosures enhance transparency and enable users of financial statements to assess an entity's long-term asset position and its impact on financial performance.
International standards, such as the International Financial Reporting Standards (IFRS), provide guidance on the accounting treatment of government grants related to long-term assets. These standards aim to ensure transparency, comparability, and reliability in financial reporting across different countries and jurisdictions. The accounting treatment of government grants is important as it can have a significant impact on a company's financial statements and overall financial performance.
Under IFRS, government grants related to long-term assets are recognized initially as deferred income or as a liability. This recognition occurs when there is reasonable assurance that the entity will comply with the conditions attached to the grant and that the grant will be received. The deferred income or liability is then recognized in the statement of financial position and subsequently recognized in profit or loss over the useful life of the related asset.
The recognition of government grants as deferred income or as a liability ensures that the grant is not recognized as income immediately upon receipt. This treatment aligns with the accrual basis of accounting, which requires income to be recognized when it is earned rather than when it is received. By deferring the recognition of government grants, the financial statements provide a more accurate representation of the economic benefits associated with the grant.
Once recognized as deferred income or a liability, government grants related to long-term assets are typically recognized in profit or loss over the useful life of the asset. This recognition can be done systematically using either the straight-line method or another systematic basis that reflects the pattern of benefits derived from the asset. The recognition of the grant in profit or loss over the useful life of the asset ensures that the grant is matched with the related expenses and revenues it helps to generate.
It is important to note that international standards also require disclosure of government grants in the financial statements. These disclosures provide users of financial statements with relevant information about the nature and extent of government grants received, as well as any conditions attached to them. This transparency helps users to assess the impact of government grants on the financial position and performance of an entity.
In summary, international standards address the accounting treatment of government grants related to long-term assets by requiring their initial recognition as deferred income or a liability. These grants are subsequently recognized in profit or loss over the useful life of the asset. The disclosure of government grants in the financial statements ensures transparency and provides users with relevant information to assess their impact on an entity's financial position and performance.
Under international standards, there are several considerations to be taken into account when accounting for long-term assets in foreign currencies. These considerations are crucial in ensuring accurate and reliable financial reporting, as well as providing transparency and comparability across different entities operating in various countries. The key considerations include the determination of the functional currency, initial recognition and measurement, subsequent measurement, and presentation and disclosure.
The first consideration is the determination of the functional currency. The functional currency is the currency of the primary economic environment in which an entity operates. It is determined based on various factors such as the currency that mainly influences sales prices, the currency in which funds are generated and expended, and the currency in which financing is obtained. The functional currency is important as it determines the appropriate
exchange rate to be used for translating foreign currency transactions and balances into the reporting currency.
Once the functional currency is determined, the next consideration is the initial recognition and measurement of long-term assets. Under international standards, long-term assets are initially recognized at their cost. When a long-term asset is acquired or constructed using a foreign currency, the amount in that foreign currency is translated into the functional currency using the exchange rate at the date of acquisition or construction. Any transaction costs incurred in acquiring or constructing the asset are also included in the cost of the asset.
Subsequent measurement of long-term assets in foreign currencies involves two main aspects: revaluation and depreciation. Revaluation refers to the adjustment of the carrying amount of a long-term asset to reflect its fair value at a particular date. If a long-term asset is revalued, any exchange differences arising from the translation of the asset's carrying amount at the beginning and end of the reporting period are recognized in other comprehensive income or accumulated in equity. Depreciation, on the other hand, is recognized over the asset's useful life and is based on its cost or revalued amount.
Presentation and disclosure of long-term assets in foreign currencies are also important considerations. The financial statements should clearly disclose the functional currency used, the exchange rates used for translation, and any exchange differences arising from the translation of long-term assets. Additionally, any gains or losses on the disposal of long-term assets should be recognized in the income statement.
It is worth noting that international standards provide guidance on the accounting for long-term assets in foreign currencies to ensure consistency and comparability across different entities. However, it is essential for entities to consider any specific requirements or guidance provided by their local accounting standards or regulatory bodies, as these may differ from international standards in certain aspects.
In conclusion, accounting for long-term assets in foreign currencies under international standards requires careful consideration of the functional currency, initial recognition and measurement, subsequent measurement, and presentation and disclosure. These considerations aim to ensure accurate and transparent financial reporting, as well as comparability across different entities operating in various countries.
International standards, specifically International Financial Reporting Standards (IFRS), provide guidance on the accounting treatment of borrowing costs related to the construction or acquisition of long-term assets. These standards aim to ensure consistency and comparability in financial reporting across different countries and jurisdictions.
According to IAS 23, "Borrowing Costs," borrowing costs that are directly attributable to the acquisition, construction, or production of a qualifying asset should be capitalized as part of the cost of that asset. Qualifying assets are those that require a substantial period of time to get ready for their intended use or sale.
To determine whether borrowing costs are directly attributable to the qualifying asset, entities need to meet certain criteria. Firstly, they should incur borrowing costs during the period when they are actively engaged in activities necessary to prepare the asset for its intended use or sale. Secondly, they should suspend capitalization of borrowing costs during periods of significant delays in the construction or production of the asset.
The amount of borrowing costs eligible for capitalization is determined by applying a capitalization rate to the expenditures on the qualifying asset. The capitalization rate is the weighted average of the borrowing costs applicable to the entity's outstanding borrowings during the period. However, if an entity incurs specific borrowings for a qualifying asset, it may use the actual borrowing costs incurred on those borrowings instead of the weighted average.
During the period of time when activities necessary to prepare the asset for its intended use or sale are interrupted, entities should suspend capitalization of borrowing costs. The suspension period starts when the interruption occurs and ends when the activities resume. However, if an interruption is for an extended period and is beyond the entity's control, capitalization of borrowing costs should cease.
Once an asset is ready for its intended use or sale, or when it is no longer actively being prepared, capitalization of borrowing costs should cease. At this point, any remaining borrowing costs should be recognized as an expense in the period in which the asset is completed or no longer being actively prepared.
It is important to note that IFRS allows entities to choose between two methods of accounting for borrowing costs: the capitalization model described above or the immediate expensing model. Under the immediate expensing model, entities recognize borrowing costs as an expense in the period in which they are incurred. However, once an entity chooses a particular method, it should apply it consistently to all qualifying assets.
In conclusion, international standards, specifically IAS 23, provide guidance on the accounting treatment of borrowing costs related to the construction or acquisition of long-term assets. These standards require the capitalization of borrowing costs that are directly attributable to qualifying assets during the period of their preparation. The amount eligible for capitalization is determined by applying a capitalization rate to the expenditures on the asset. However, entities have the option to expense borrowing costs immediately instead of capitalizing them.
Under international accounting standards, specifically International Financial Reporting Standards (IFRS), the rules for impairment testing and recognition of impairment losses for long-term assets are outlined in IAS 36, "Impairment of Assets." This standard provides guidance on how entities should assess the carrying amount of their long-term assets and recognize impairment losses when the assets' recoverable amounts are lower than their carrying amounts.
Impairment testing is a crucial process that involves assessing whether the carrying amount of a long-term asset exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell (FVLCTS) and its value in use (VIU). FVLCTS represents the amount that an entity could reasonably expect to receive from selling the asset in an arm's length transaction, after deducting any costs directly associated with the sale. VIU, on the other hand, represents the present value of the estimated future cash flows expected to be derived from the asset.
To determine whether an impairment loss should be recognized, an entity compares the carrying amount of the asset with its recoverable amount. If the carrying amount exceeds the recoverable amount, an impairment loss is recognized. The impairment loss is calculated as the difference between the carrying amount and the recoverable amount.
However, IAS 36 also sets out specific rules for different types of long-term assets. For example, for goodwill and intangible assets with indefinite useful lives, an annual impairment test is required. If there is any indication of impairment, such as a significant decline in the asset's value or adverse changes in market conditions, an impairment test must be performed regardless of whether there are any external indicators.
For other long-term assets, such as property, plant, and equipment, and intangible assets with finite useful lives, impairment testing is required only when there are indications of impairment. These indications may include physical damage, obsolescence, legal or regulatory changes, or a significant decline in the asset's market value.
It is important to note that impairment losses are recognized as an expense in the income statement and reduce the carrying amount of the asset. Once an impairment loss is recognized, it cannot be reversed in subsequent periods unless there is a change in the estimates used to determine the asset's recoverable amount.
In summary, under international accounting standards, impairment testing and recognition of impairment losses for long-term assets involve comparing the carrying amount of the asset with its recoverable amount. If the carrying amount exceeds the recoverable amount, an impairment loss is recognized. The specific rules for impairment testing vary depending on the type of long-term asset, with some assets requiring annual tests and others only when there are indications of impairment. Impairment losses are recognized as expenses and cannot be reversed unless there is a change in the estimates used.
International standards, such as the International Financial Reporting Standards (IFRS), provide guidance on the accounting treatment of long-term assets used in research and development (R&D) activities. These standards aim to ensure that financial statements accurately reflect the value and economic substance of these assets, enabling users of financial statements to make informed decisions.
Under international standards, long-term assets used in R&D activities are generally classified as intangible assets. Intangible assets are non-monetary assets without physical substance that are identifiable and controlled by an entity. They can be either acquired or internally generated.
When it comes to acquired intangible assets used in R&D activities, such as patents or licenses, international standards prescribe specific accounting treatment. These assets are initially recognized at cost, which includes the purchase price and any directly attributable costs necessary to bring the asset to its intended use. Subsequently, they are measured at cost less accumulated amortization and impairment losses.
Amortization is the systematic allocation of the asset's cost over its useful life. The useful life of an intangible asset used in R&D activities is typically difficult to determine due to the uncertain nature of the outcomes of research projects. Therefore, international standards require entities to assess the useful life of such assets at least annually and revise it if necessary. The amortization method should reflect the pattern in which the asset's economic benefits are expected to be consumed or realized.
Impairment testing is another important aspect of accounting for long-term assets used in R&D activities. International standards require entities to assess whether there are any indicators of impairment at each reporting date. If indicators exist, an impairment test is performed to determine if the carrying amount of the asset exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and its value in use. If the carrying amount exceeds the recoverable amount, an impairment loss is recognized.
In contrast, internally generated intangible assets, such as research costs or development costs, are subject to more stringent criteria for recognition. Generally, research costs are expensed as incurred since they are considered to be consumed in the process of generating new knowledge. Development costs, on the other hand, can be capitalized if certain criteria are met. International standards require entities to demonstrate that the technical feasibility of the project has been established, there is an intention to complete the asset, there is an ability to use or sell the asset, and there are sufficient resources available to complete the project. If these criteria are met, development costs are capitalized and treated as an intangible asset.
It is worth noting that international standards also provide guidance on the subsequent measurement of internally generated intangible assets. Once capitalized, these assets are measured at cost less accumulated amortization and impairment losses, similar to acquired intangible assets.
In conclusion, international standards address the accounting treatment of long-term assets used in research and development activities by classifying them as intangible assets. Acquired intangible assets are initially recognized at cost and subsequently measured at cost less accumulated amortization and impairment losses. Internally generated intangible assets are subject to more stringent criteria for recognition and are capitalized if certain conditions are met. These standards ensure that financial statements accurately reflect the value and economic substance of long-term assets used in R&D activities, enhancing transparency and comparability for users of financial statements.
