DUCHARME ARTICLE on GRAP 100 Discontinued Operations Implementation consideration for 2014/15 AFS due to revised standard

Transcription

1 DUCHARME ARTICLE on GRAP 100 Discontinued Operations Implementation consideration for 2014/15 AFS due to revised standard GRAP 100 Non-current assets held for sale and Discontinued Operations was revised in February The revised GRAP 100 Discontinued Operations is applicable from 1 April The impact of the changes to the standard and the relevant transitional provisions are explained below. Transitional provisions in terms of GRAP An entity shall apply the amendments as follows: a) Changes to the way in which non-current assets held for sale are measured, shall be applied prospectively at the beginning of the period in which these amendments are adopted. b) Changes to the way in which non-current assets held for sale are classified and presented on the statement of financial position and accompanying notes, shall be applied retrospectively by adjusting information for the earliest period presented. Example 1: Asset classified as non-current held for sale in 2013/2014 and the asset is sold in 2014/2015 SA Local Municipality has an office building (Office building Ditshwane) which was purchased on 1 January 2010 at a cost price of R500,000. The asset was deemed to have a useful life of 10 years and depreciation is written off according to the straight line method. On 1 January 2014, the municipality decides to dispose of the asset during the next twelve months and all the criteria for classification of the asset as non-current asset held for sale have been met. The fair value less costs to sell has been calculated as R200,000 on 1 January Scenario 1: The asset was sold on 1 December 2014 for R185,000. Scenario 2: The asset remained unsold at 30 June 2015.

2 Step 1 (for both scenarios): reclassification: Calculate the carrying amount of the office building (PPE) at date of Cost price 1 January 2010 R500, 000 Accumulated depreciation and impairment at 1 January 2014 (500,000/10*4) (R200, 000) Carrying amount on 1 January 2014 R300, 000 Note that the carrying amount of the PPE to be disposed of has been measured at the date of reclassification as a non-current asset held for sale by applying the applicable standard namely GRAP 17. Once the item has been classified as non-current asset held for sale at 1 January 2014 no further depreciation is written off for the period 1 January 2014 to the end of the financial year 30 June Step 2: Calculate any impairment loss on reclassification date: Carrying amount 1 January 2014 R300, 000 Fair value less cost to sell at 1 January 2014 (R200, 000) Impairment loss on 1 January 2014 R100, 000 Note that the impairment loss is disclosed as a separate expenditure in the Statement of Financial Performance. Journal entries: Impairment loss 100,000 Accumulated depreciation and impairment 100,000 Recognise the impairment loss on date of reclassification Non-current assets held for sale 200,000 Accumulated depreciation and impairment 300,000 PPE - Office building (asset at cost price) 500,000 Reclassify from PPE to Non-current asset held for sale

3 Disclosure for 2013/2014 financial year For the 2013/14 financial year GRAP 100 Non-current Asset held for sale and Discontinued Operations will be applied. The new revised GRAP 100 Discontinued Operations (revised 2013) only became effective 1 April Extract of Statement of Financial Position for SA Local Municipality for the year ended 30 June 2014 Notes ASSETS Non-current assets Property, plant and equipment 830, ,000 Heritage assets xxx xxx Non-current assets held for sale , Extract of Note 13. Non-current assets held for sale Assets meeting the definition and recognition criteria of non-current assets held for sale are reclassified and measured in accordance with GRAP 100 requirements. Office building 11154, Ditshwane The Council s approval for the transfer of the property was obtained on 1 January The deed of sale was signed and attorneys were instructed to attend to the registration of the transfer in the Deeds Office, which will be effected by 30 June Non-current assets held for sale comprises of the following: Erf no. 109 Zwelithu 125,005 Office building Ditshwane 200, , ,005 Consideration for 2014/2015 financial year On the 1 July 2014, the office building 11154, Ditshwane will be reclassified again from Non-current asset held for sale back to PPE. There was no depreciation on the building from 1 January 2014 (when it was initially classified as Noncurrent asset held for sale) to 30 June From the 1 July 2014 the PPE measurement principles will again apply to Office building 11154, i.e. a residual value, remaining useful life and the asset has to be tested for impairment, due to the fact that the building has remained idle for some time. Step 1: Reclassify the asset as PPE and determine if there is any impairment on date of reclassification This will result in retrospective application for disclosure and classification purposes. The measurement will be applied prospectively. Therefore from 1 July 2014 one has to apply the PPE principles, i.e. determine a useful life, residual value etc.

4 On 1 July 2014, the Ditshwane building has a remaining useful life of 5 years and a residual value of R0. The following journal entries will be processed: Property, plant and equipment: Buildings 200,000 Non-current asset held for sale 200,000 Reclassify the property from Non-current asset held for sale to property, plant and equipment If the recoverable service amount (RSA) of the Ditshwane building is worth R180,000 on 1 July 2014, the following impairment journal entry will be processed: Carrying amount 1 July 2014 R200, 000 RSA at 1 July 2014 (R180, 000) Impairment loss on 1 July 2014 R20, 000 The following journal entry will be processed: Impairment loss 20,000 Accumulated depreciation impairment 20,000 Recognise the impairment loss on date of reclassification There can now follow 2 scenarios, i.e. The property can either be sold within the 2014/2015 financial year or remain unsold. Scenario 1: If the property was sold on 1 December 2014 for R185,000: Depreciation: Buildings 15,000 Accumulated depreciation and impairment: Buildings 15,000 Depreciation charge for 2014/2015 financial year.

5 On 1 December 2014 the asset is disposed and the profit/loss on sale of the asset is calculated: Carrying amount 1 December 2014 (200,000-15,000-20,000) R165, 000 Selling price (R185, 000) Profit on the sale of disposal R20, 000 The following journal entry will be processed: Accumulated depr. & impairment: Buildings 35,000 Bank 185,000 Asset 200,000 Profit on sale of disposal 20, 000 Disposal of the asset Scenario 1: Disclosure for the 2015 financial year (Property was sold in 2015) GRAP b requires retrospective application for classification and presentation. Therefore, Ditshwane will be included as part of the PPE figures for the 2014 year. It will be included at R200,000 which was the measurement under Non-current asset held for sale. There will be no disclosure as Non-current asset held for sale. Extract of Statement of Financial Position for SA Local Municipality for the year ended 30 June 2015 ASSETS Non-current assets Notes Property, plant and equipment xxx 1,030,000 Heritage assets xxx xxx Extract of Statement of Financial Performance of SA Local Municipality 30 June Depreciation on buildings 15,000 Impairment loss on asset 20,000 Profit on disposal of asset 20,000

6 Extract of Note 4: Property, plant and equipment Reconciliation of the carrying value Land & buildings Office equipment Total Carrying values at 1 July 2014 Cost Reclassification (see Note 18) 200,000 Extract of Note 18: Change in accounting policy GRAP 100 revised in February 2013, withdrew the measurement, presentation and disclosure requirements related to non-current assets held for sale. The comparative closing balances have been appropriately restated. The effect of this change in accounting policy is as follows: Increase in property, plant and equipment 500,000 Increase in accumulated depreciation (300,000) Decrease in non-current assets held for sale (200,000) Scenario 2: Asset remained unsold during the 2015 financial year If the asset remained unsold at 30 June 2015, the following will be applicable: The asset is reclassified as property, plant and equipment on 1 July From 1 July 2014 apply the measurement principles of PPE. (No retrospective application such as depreciation will be applied) On 1 July 2014, the asset has to be tested for impairment, due to the fact that the building has remained idle for some time. As the asset remained unsold at the end of June 2015 the following entries will be applicable: Depreciation charge for the entire year: Depreciation: Buildings 36,000 Accumulated depreciation: Buildings 36,000 Depreciation charge for 2015 financial year. (R180,000/5)

7 Extract of Statement of Financial Position for SA Local Municipality for the year ended 30 June 2015 Notes ASSETS Non-current assets Property, plant and equipment 1,030,000 1,030,000 Heritage assets xxx xxx Extract of Statement of Financial Performance of SA Local Municipality 30 June Depreciation on buildings 36,000 Impairment loss on asset 20,000 Extract of Note 4: Property, plant and equipment Reconciliation of the carrying value Land & buildings Office equipment Total Carrying values at 1 July 2014 Cost Reclassification (see Note 18) 200,000 Extract of Note 18: Change in accounting policy GRAP 100 revised in February 2013, withdrew the measurement, presentation and disclosure requirements related to non-current assets held for sale. The comparative amounts have been appropriately restated. The effect of this change in accounting policy is as follows: Increase in property, plant and equipment 500,000 Increase in accumulated depreciation (300,000) Decrease in non-current assets held for sale (200,000) For more information For more information as to GRAP & AFS assistance and support, give us a call or send us an DUCHARME COASTAL CAPE TOWN OFFICE Francois Conradie CA(SA) fconradie@ducharmeconsulting.co.za DUCHARME COASTAL KING WILLIAM S TOWN Luyanda Mbekeni CA(SA) lmbekeni@ducharmeconsulting.co.za DUCHARME NORTHERN PRETORIA OFFICE Marnus Coetzee CA(SA) mcoetzee@ducharmeconsulting.co.za DUCHARME TRAINING INSTITUTE Anton Slabbert CA(SA) aslabbert@ducharmeconsulting.co.za DUCHARME CENTRAL BLOEMFONTEIN OFFICE Danie Grobler CA(SA) dgrobler@ducharmeconsulting.co.za DUCHARME TRAINING INSTITUTE Rianda Maritz CA(SA) rmaritz@ducharmeconsulting.co.za