FAC3702 IFRS 5 Recap of theory, impairments, reversals of impairment and example

Transcription

1 FAC3702 IFRS 5 Recap of theory, impairments, reversals of impairment and example

2 WHAT IS IT? IFRS 5 - NCAHFS Classify a non-current asset (or disposal group) as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. Such assets and liabilities shall be remeasured to the lower of carrying amount and fair value less costs to sell and carried as current items on the face of the statement of financial position.

3 IFRS 5 - NCAHFS CRITERIA TO QUALIFY AS HELD FOR SALE: IFRS 5 makes it clear that items should only be classified as held for sale once they have met all the criteria! Available for immediate sale in its current condition subject only to terms that are usual and customary for sale of such assets AND its sale must be highly probable. For the sale to be highly probable: o Management must be committed to a plan to sell the asset, AND o An active program to locate a buyer and complete the plan must be initiated. Asset must be actively marketed for sale at a price that is reasonable. The sale should be expected to qualify for recognition as completed sale within one year from date of classification Actions required to complete the plan should indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn

4 IFRS 5 Initial Measurement The carrying amount of a non current asset (or all the assets and liabilities in a disposal group) shall, immediately before the initial classification as held for sale, be measured in accordance with the applicable IFRSs. An entity shall measure a non current asset (or disposal group) classified as held for sale at the lower of its carrying amount (at the moment of reclassification) and fair value less costs to sell this adjustment is an impairment loss. (IFRS 5.15) If it falls outside the scope of IFRS 5 the individual item shall instead be carried at the value determined by applying the relevant standard relating to that asset. For example IAS 40 and IAS 2

5 STEP 1: IFRS 5 Initial Measurement for a Disposal Group Determine the carrying amount of all the individual assets in the disposal group at date of classification by applying the IFRSs applicable to them. STEP 2: Determine the fair value less costs to sell of the disposal group. Note: CGT is excluded specifically per the definition of costs to sell. STEP 3: Determine the lower of carrying amount and fair value less costs to sell. Measure the disposal group held for sale at the lower of the two figures calculated. STEP 4: Calculate the impairment loss (Carrying amount less figure calculated in step 3) STEP 5: Allocate the impairment loss to non-current assets within the scope of the measurement requirements of IFRS 5 If outside the scope carried at their values determined by applying their applicable standards. IAS 40 and IAS 2

6 IFRS 5 Subsequent Measurement Assets or disposal groups classified as held for sale will have to be remeasured to its fair value less costs to sell if a year-end occurs between the date of initial classification as held for sale and the final date of disposal. Outside Scope Inside Scope Remeasured in accordance with applicable Standards before the fair value less costs to sell of the disposal group is remeasured Remeasured to the "new" fair value less costs to sell, resulting in a further impairment loss or a reversal of a previous impairment loss

7 IFRS 5 Presentation and Disclosure NCAHFS NOTE - REMEMBER! 1) A decision to dispose of the assets Name the asset/ group the assets form part of that is being disposed. 2) When was the decision taken. 3) Formal detailed plan was approved. 4) At a stage of completion no realistic possibility of withdrawal exists. 5) Sale expected to be completed by when? Cash or credit (how)? 6) Disposal group amounts are at fair value less cost to sell at year-end (further impairment/ reversal of impairment?) 7) Remember special rules IAS 2 and IAS 40. 8) Narrative information impairment loss/ reversal of impairment recognised. - Amount thereof - Where included in Statement of profit or loss and other comprehensive income

8 At initial classification and measurement as well as subsequent remeasurement for instance year-end The impairment loss calculated will be treated in terms of IFRS 5. DT Impairment loss account in P/L (NOT Revaluation surplus) CR NCAHFS account in SFP (NOT PPE or Investment property accounts!!) Disposal group- allocate to assets that fall within the scope of IFRS 5 only. Do not allocate to current assets (inventory, debtors etc.) or if outside the scope Outside scope = IAS 40 Fair value model IFRS 5 Impairment Loss IFRS 5 Impairment Reversal Gain for any subsequent increase in fair value less costs to sell of an asset Not in excess of the cumulative impairment loss that has been previously recognised

9 Machinery IFRS 5 Measurement Example- Question 14 extract from TUT102 IFRS 5 Khona Ltd purchased a machine criteria which was immediately available for use, as intended by management, on 1 September for R The machine has an estimated useful life of units, with a residual value of R However, due to the fact that the machine did not meet its expected Depreciation production = capacity, the directors decided to dispose of it. A detailed formal disposal plan units was publicly of announced and on 30 April the disposal was at a stage of completion where production no realistic possibility of withdrawal existed. A binding sales agreement for the machine was concluded method and management expects the sale to be completed on 20 December The machine will be sold for cash. From acquisition date until 31 October 20.12, the machine had produced a total of units. During the current financial year until 30 April 20.13, the machine had produced units. On 30 April the machine s fair value less costs to sell, was determined to be R On 31 October 20.13, the fair value less costs to sell of the machine increased to R due to an unprecedented demand for this type of machinery. Impairment and reversal of impairment?

10 Details on a Timeline: IFRS 5 Measurement Example- Question 14 extract from TUT102 Current financial year 1 Sept Nov April Oct 2013 Purchased Beginning of year Transfer to NCAHFS Year end Cost = R FV cost to sell FV cost to sell Useful life= units = R = R Res. Value= R units produced units produced

11 Example- Question 14 extract from TUT April 2013 Initial measurement Day of transfer to NCAHFS STEP 1: DETERMINE CARRYING AMOUNT Cost = R Accumulated depreciation BOY = (( ) / ) x ) = R Carrying amount 31 October (BOY) = = R Current year depreciation up till date of transfer to NCAHFS = (( ) / ) x ) = R Final carrying amount on day of transfer = = R

12 Example- Question 14 extract from TUT April 2013 Initial measurement Day of transfer to NCAHFS STEP 2: DETERMINE LOWER OF CARRYING AMOUNT AND FAIR VALUE LESS COST TO SELL Final carrying amount on day of transfer = = R Fair value less cost to sell on 30 April 2013 (given) = R = LOWEST! STEP 3: CALCULATE IMPAIRMENT LOSS = Carrying amount LESS FV-cost to sell = = R

13 Example- Question 14 extract from TUT102 STEP 4: REMEASURE AT YEAR- END 31 October 2013 (NCAHFS Currently sitting on R from initial measurement) 3 Scenarios: 1) Fair value less cost to sell = R at year-end Reverse impairment loss previously recognised with R ( ) Limited to the impairment loss previously recognised of R ) Fair value less cost to sell = R at year-end Value stayed the same- nothing happens/ changes 3) Fair value less cost to sell = R at year-end Further impairment loss is recognised in P/L = R

14 IFRS 5 Allocation of an Impairment Losses Impairment loss calculated = R Allocate only to non current assets! Inventory = current Machinery [ / x ] = Software package [ / x ] = Carrying amount on initial Classification R Impairment loss Allocated R Carrying amount after impairment allocated R Inventory nil =

15 ANSWER (Disclosure): IFRS 5 Disclosure of the Note Same as IFRS 5 criteria 3. Non-current assets held for sale A decision to dispose of the assets of the Gauteng bottling plant was taken on 31 October after a formal detailed disposal plan for the assets of the bottling plant was approved. The plan regarding the once-off sale of the assets was at a stage of completion on 31 December 20.10, where no realistic possibility of withdrawal existed. It is expected that the plan for the sale of the assets will be completed by 1 May for cash. The disposal group under discussion comprises: Final amounts after impairment loss allocated at year end Assets R Plant and equipment Intangible assets Inventory ( ) IAS 2 special rules. Writedown to NRV at Y/E An impairment loss of R was recognised upon initial classification of the disposal group as held for sale. The impairment loss was included under loss after tax o remeasurement on the face of the statement of profit or loss and other comprehensive income.

16 Contact us The course telephone number: Please send all e mails to: FAC S1@unisa.ac.za (Semester 1) or FAC S2@unisa.ac.za (Semester 2)

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