Ind AS 16: Property, Plant and Equipment Ind AS 38: Intangible Assets

Transcription

1 Ind AS 16: Property, Plant and Equipment Ind AS 38: Intangible Assets WIRC of the ICAI March 2016 Pirooz P Movdawalla piroozpm@alumni.carnegiemellon.edu Agenda 1 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Seminar on Ind-AS, WIRC of the ICAI 1 1

2 Methodology Focus on key elements Objective Scope Key definitions Ind AS structure Componentwise details Comparison with previous GAAP Practical Issues 2 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Ind AS 16: Property, Plant and Equipment Seminar on Ind-AS, WIRC of the ICAI 2 2

3 Objective Objective and Issues Objectives Issues Prescribe Accounting Treatment Users to be provided Information Recognition Measurement and Investment in PPE Changes in such Investment 4 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Scope Application PPE PPE held for sale Ind AS 105 Scope Unless covered by another Ind AS Biological Assets Ind AS 41 Exploration and Evaluation assets Mineral rights and reserves Ind AS 106 Recognition using different approach E.g. Leases Ind AS 17 (apply Ind AS 16 in other aspects) Application of Ind AS 16 Cost Investment Property Ind AS 40 5 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Seminar on Ind-AS, WIRC of the ICAI 3 3

4 Structure Costs Measurement Recognition Initial Costs Incurrence Subsequent Costs Charge Cost Revaluation Depreciable amount and period method De 6 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Key definitions Amount of Cash or Cash Equivalents Fair Value of other consideration Cost At the time of Acquisition Construction Amount when initially recognized Applicable Ind AS, e.g. Ind AS Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Seminar on Ind-AS, WIRC of the ICAI 4 4

5 Key definitions PPE Tangible Items Held for Use Expected to be used > 1 period Production of Goods Supply of Services Rental to others Administrative purposes 8 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Costs Measurement Recognition Initial Costs Incurrence Subsequent Costs Charge Cost Revaluation Depreciable amount and period method De 9 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Seminar on Ind-AS, WIRC of the ICAI 5 5

6 Recognition If and only if Recognition Future economic benefits are probable, AND Cost can be reliably measured C E.g. major spare parts, stand-by equipment and servicing equipment Charge D General spare parts carried as inventory De Unit of measure not prescribed Costs Incurrence Cost Revaluation Measurement Initial Costs Subsequent Costs AS 10 does not prescribe specific criteria Depreciable Component amount Accounting and period mandatory under Ind AS 16; recommended under AS 10; method effectively mandated by Companies Act, Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 of Cost C Testing De costs (net) No specific guidance under AS 10 for Costs inclusion of dismantling costs Measurement None under ICDS on Tangible Fixed Assets either Recognition AS 29 prohibits discounting of such end-of-life costs C Purchase price (including duties C Initial estimate Initial of Costs dismantling and non-refundable taxes, Incurrence and restoration costs excluding trade discounts and EXCLUSIONS: Subsequent Costs rebates) Cost D Opening a new facility C Costs Carrying attributable Amount to locating D Introducing new products, e.g. and preparing asset for use: Revaluation advertisement and promotion C Direct employee costs D New location or customer class, C Site preparation Depreciable e.g. training amount and period C Initial delivery and D Administration and general handling Charge overheads method C Installation and assembly D Regular use or redeployment C Professional fees D Internal profits on self constructed PPE 11 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Seminar on Ind-AS, WIRC of the ICAI 6 6

7 Measurement of Cost Recognition Charge De Costs No specific guidance under AS 10 for deferred payment terms Incurrence None under ICDS on Tangible Fixed Assets either Cost Cash price equivalent at date Revaluation Difference charged as interest or capitalized under Ind AS 23 Fair Value of exchanged non-monetary assets As determined under Ind AS 17 for assets held under a finance lease Measurement Initial Costs Subsequent Costs Depreciable amount and period method 12 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Initial Costs Costs Recognition Incurrence Cost Revaluation Cost of construction or acquisition of PPE C Safety and Charge environmentally essential PPE C Compliance related costs De Measurement Initial Costs Subsequent Costs Depreciable amount and period method 13 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Seminar on Ind-AS, WIRC of the ICAI 7 7

8 Subsequent Costs Capitalized if Recognition criteria met Costs Usually expensed off as repairs and maintenance under AS 10 or inventorized Incurrence under previously issued ASI 2 if specific to an asset Cost C Scheduled Replacement of parts C Scheduled Major Inspection costs EXCLUSIONS: Revaluation Charge D Routine servicing costs (repairs and maintenance) De Measurement Initial Costs Subsequent Costs Depreciable amount and period method 14 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Recognition Costs Recognition Incurrence Cost Revaluation Charge Carried at cost less depreciation and impairment losses De Measurement Initial Costs Subsequent Costs Depreciable amount and period method 15 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Seminar on Ind-AS, WIRC of the ICAI 8 8

9 Recognition Can be measured at Fair Value if reliably measurable Recognition To be carried at revalued amount less subsequent accumulated depreciation Sufficiently regular revaluations required, depending on asset type Carrying amount current FV Entire class to be revalued simultaneously or on a rolling basis Charge Fair Value to be derived from Market Value or Income De / Depreciated Replacement Cost approach Costs Incurrence Cost Revaluation Measurement Initial Costs Subsequent Costs Depreciable amount and period method AS 10 permits systematic, not comprehensive, selection of PPE for revaluation 16 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Treatment of Accumulated on Revaluation Option 1: Proportionate Change Step 1: Proportionately restate both Gross Block and Accumulated by the revaluation factor Option 2: Eliminate Accumulated and restate Net Block Step 1 :Eliminate Accumulated against Gross Block Step 2: Restate to Revalued amount 17 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Seminar on Ind-AS, WIRC of the ICAI 9 9

10 Treatment of Increase in on Revaluation Pre Revaluation Recognized in Other Comprehensive Income Accumulated in Equity as Revaluation Surplus Revalued Amount but recognized in P&L to the extent of reversal of previous revaluation decrease of same asset 18 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Treatment of Decrease in on Revaluation Recognized in P&L Pre Revaluation Revalued Amount but recognized in Other Comprehensive Income to the extent of credit balance in revaluation surplus of same asset, thus reducing revaluation surplus in Equity 19 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Seminar on Ind-AS, WIRC of the ICAI 10 10

11 Treatment of Revaluation Surplus Revaluation date PPE De date Interim date Option 2: Transfer to Retained Earnings based on differential Option 1: Transfer to Retained Earnings upon De 20 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Each significant item of PPE recognized and depreciated Recognition separately Recognized in P&L, unless included in carrying amount of another asset (e.g. inventory, intangible assets) Reasonable grouping permitted Charge De Costs Incurrence Cost Revaluation Measurement Initial Costs Subsequent Costs Depreciable amount and period method 21 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Seminar on Ind-AS, WIRC of the ICAI 11 11

12 Depreciable Amount and Period Allocated on a systematic basis over estimateduseful Recognition life accounting estimates as per Ind AS 8 De Costs = (Cost or Revalued Amount Residual Value) Useful Life Incurrence Residual value and useful life to be reviewed annually, changes recognized as change in Begins when available for use Cost Revaluation Ceases when held for sale under Ind AS 105 or derecognized, not when idle Land and buildings are accounted for separately Charge Measurement Initial Costs Subsequent Costs AS 10 requires periodical, not annual, review of RV or useful life Sch II, Companies Act 2013, fixes 5% and fixes indicative Depreciable (not minimum) useful amount livesand period method 22 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Method Recognition SLM, WDV, Units of Production methods available as choices method should reflect consumption pattern of future economic benefits To be applied consistently Should be reviewed annually, changes recognized as change in accounting estimates as per Ind AS 8 Charge De Costs Incurrence Cost Revaluation Measurement Initial Costs Subsequent Costs AS 6 recognizes any change in depreciation method as accounting Depreciable policy change, to amount and period be applied retrospectively method 23 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Seminar on Ind-AS, WIRC of the ICAI 12 12

13 of PPE Costs Recognition Incurrence Cost Ind AS 36 to be applied for Revaluation testing Charge De Measurement Initial Costs Subsequent Costs Depreciable amount and period method 24 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 De of PPE Recognition Charge De Costs Asset to be derecognized on disposal Measurement or when no future economic benefits are expected Gain/(Loss) = Disposal proceeds Initial (cash Costs equivalent) Carrying amount Incurrence Gain or loss on de Subsequent to be included Costs in P&L Cost Gains Revenue, unless transferred to Inventory as part of business model Revaluation Carrying amounts of replaced items of PPE are always derecognized Depreciable amount and period method 25 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Seminar on Ind-AS, WIRC of the ICAI 13 13

14 Requirements By class land, building, machinery, vehicles, Recognition furniture and fixtures, office equipment Base for measuring gross block methods Useful lives Gross block, accumulated depreciation, net block at beginning and end Movements and reconciliation Restrictions and lien Charge Expenditure capitalized during De Costs Incurrence Cost Revaluation construction Measurement Contractual purchase commitments Initial Costs Details of revaluation effective date, valuer, methods, Subsequent Costs assumptions, basis of Fair Value, impact and Revaluation Surplus Details of impairment under Ind AS 36 Depreciable amount and period Idle / retired / still in use / Fair Value if significantly different from cost method 26 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Decommissioning and Restoration costs Adjusted in cost, excess over carrying amount to P&L Additions tested for impairment Accounting for Changes Decrease in liability Increase in liability OCI and Surplus P&L to reverse previous deficit Excess over cost model to P&L P&L Adjusted amount depreciated over useful life Test carrying amount against Fair Value OCI and Surplus to reverse previous surplus Disclose change in Surplus as per Ind AS 1 27 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Seminar on Ind-AS, WIRC of the ICAI 14 14

15 Practical Issues Concept Historical Cost v Fair Value Discretionary Fair valuation Performance and benchmarking First time adoption Ind AS 101 requires retrospective restatement Deemed cost permitted on basis of fair value or carrying amount as per previous GAAP Internal performance and planning/benchmarking Operational challenges ERP treatment of restatement of useful lives or RV Revaluation of PPE Useful economic life estimates Shift working 28 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Seminar on Ind-AS, WIRC of the ICAI 15 15

16 Ind AS 38: Intangible Assets Objective Objective Prescribe Accounting Treatment List Recognition Criteria Measuring carrying amount Intangible Assets not dealt with in other Ind AS Allied disclosures 31 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Seminar on Ind-AS, WIRC of the ICAI 16 16

17 Scope Inventory / Ind AS 2 Scope Intangible Assets Excluding Excluding other specific Intangible Assets Intangible Assets covered by another Standard Financial Assets / Ind AS 32 Exploration and Evaluation Assets / Ind AS 106 Expenditure on development and extraction of oil, gas, etc. Deferred Tax Assets / Ind AS 12 Leases / Ind AS 17 Employee benefits / Ind AS 19 Financial Assets / Ind AS 32 / Ind AS 103 Insurance Contracts / Ind AS 104 Held for Sale / Ind AS 105 Including significant intangible assets on tangible media Excluding intangible assets dependent on tangible assets Major expenditure like R&D and advertisement 32 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Structure In exchange 33 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Seminar on Ind-AS, WIRC of the ICAI 17 17

18 Key definitions Asset Resource Controlled as result of past events Returning economic benefits 34 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Key definitions Intangible Assets Identifiable, else Non-monetary Asset Without physical substance Separable Arising from contractual rights Excluding money Excluding assets to be received in money Control Future economic benefits AS 26 refers to purpose of holding for provision of goods and services, rentals or administrative use Includes legal rights Excludes employee skills and training Revenue Cost savings 35 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Seminar on Ind-AS, WIRC of the ICAI 18 18

19 Key definitions Amount of Cash or Cash Equivalents Fair Value of other consideration Cost At the time of Acquisition Construction Amount when initially recognized Applicable Ind AS, e.g. Ind AS Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Key definitions R&D Research Original, planned investigation For knowledge and understanding Application of research findings Development For new processes, goods or services Before commercial production 37 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Seminar on Ind-AS, WIRC of the ICAI 19 19

20 In exchange 38 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Measurement For both acquired and internally generated internal assets, In exchange Reasonable and Revaluation supportable model assumptions / Must qualify as an intangible asset And meet criteria Recognition criteria: Future economic benefits expected Cost can be reliably measured best estimates of underlying economic conditions needed Initially measured at cost 39 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Seminar on Ind-AS, WIRC of the ICAI 20 20

21 Separate Acquisition Criteria AS 26 of gives expected no specific benefits and reliable In exchange considered to be guidance met; considered exclusion embedded of in purchase price specific items of costs Costs to be recognized include Purchase price, incl. duties and non-refundable taxes less trade discounts and rebates Put-to-use direct expenditure C Employee benefits, professional fees, testing expenses D Advertising and promotion, training, administration OH, redeployment Ceases when asset is capable of operating as intended 40 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Acquisition as part of a Business Combination AS 26 permits FV only for In exchange amalgamations in the Cost = Fair Value on date of acquisition nature (Ind of purchase AS 103) Criteria of expected Internally benefits generated and AS 26 does not considered permit FV to be met with; considered embedded in fair Other value intangible of intangible assets Recognized separately from assets if qualifying acquired from as an an identifiable/ separable intangible acquiree asset, even company Cost if model acquiree that did has not recognized it previously not recognize them Fair value could be derived from quoted market prices in an active market, or arms length price, or specialized techniques like multiples, DCF or replacement costs. Subsequent expenditure expensed if research, capitalized if qualifying as development 41 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Seminar on Ind-AS, WIRC of the ICAI 21 21

22 Acquisition by way of a Government Grant Intangible asset and grant recognized at Fair Value (Ind Recognition AS 20) of expense In exchange AS 26 Cost requires model such grant and asset to be recognized at Revaluation nominal model value or at acquisition cost 42 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Exchanges of Assets In exchange Recognized at Fair Value unless txn lacks substance or not reliably measurable Else measured at carrying amount of asset given up 43 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Seminar on Ind-AS, WIRC of the ICAI 22 22

23 In exchange Not an identifiable resource (separable and arising from legal rights) Cost Useful not life reliably measurable Hence not recognized 44 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 intangible assets Apart from tests for future benefits and reliable, additional tests needed / development phase to be identified (else fully research phase) Expenditure capitalized from date of qualification as intangible asset; no prior expenditure considered All direct costs to be considered C D Materials, services, employee benefits, legal fees, patents and licenses Selling, administrative and general OH, initial losses, training In exchange 45 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Seminar on Ind-AS, WIRC of the ICAI 23 23

24 No demonstrable evidence of existence future economic benefits Hence, no intangible asset recognized Examples: C C C C Obtaining new knowledge Search for applications Search for alternatives Final selection of possible alternatives In exchange 46 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Eligible if we can demonstrate all of: Technical feasibility Intention to use or market Ability to use or market Future economic benefits Availability of resources Measurability of expenditure Examples C C C C D Prototype design and testing New tools, jigs, molds and dies Pilot plant Testing alternatives brands, customer lists, etc. In exchange 47 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Seminar on Ind-AS, WIRC of the ICAI 24 24

25 Recognition or cannot be applied selectively In exchange 48 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Cost Initial Cost Less: Accumulated amortization Accumulated impairment losses In exchange 49 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Seminar on Ind-AS, WIRC of the ICAI 25 25

26 Revaluation Carried at revalued amount Revalued amount = Fair Value on revaluation date less subsequent accumulated amortization and impairment Recognition Regular revaluations of expense needed Initial has to be at cost Accounting treatment similar to that of PPE (Ind AS 16, para 35) / impairment If active market not available, valued at cost less amortization / impairment If Measurement Fair Value after not updatable, valued at last FV less subsequent amortization AS 26 has no provision for revaluation of In intangible exchange assets 50 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Treatment of Increase in on Revaluation Pre Revaluation Recognized in Other Comprehensive Income Accumulated in Equity as Revaluation Surplus Revalued Amount but recognized in P&L to the extent of reversal of previous revaluation decrease of same asset 51 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Seminar on Ind-AS, WIRC of the ICAI 26 26

27 Treatment of Decrease in on Revaluation Recognized in P&L Pre Revaluation Revalued Amount but recognized in Other Comprehensive Income to the extent of credit balance in revaluation surplus of same asset, thus reducing revaluation surplus in Equity 52 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Treatment of Revaluation Surplus Revaluation date Intangible Asset De date Interim date Option 2: Transfer to Retained Earnings based on differential Option 1: Transfer to Retained Earnings upon De 53 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Seminar on Ind-AS, WIRC of the ICAI 27 27

28 Useful Life Can be finite or infinite (no foreseeable limit to period of net cash inflows) Depends on usage, product life cycles, contemporary data, In exchange obsolescence, industry stability, competition, maintenance, legal control, other assets 54 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 useful life Intangible assets with finite useful lives to be amortized over its length or production units Recognition Residual and value assumed to be zero (rebuttable) Recognition Amortization of expensebegins when available for use Amortization ceases when held for sale (Ind AS 105) or de, whichever is earlier SLM, In business WDV, combination Units of Production methods available as choices method should reflect consumption pattern of In exchange future economic benefits To be applied consistently Should be reviewed annually, changes recognized as change in accounting estimates as per Ind AS 8 55 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Seminar on Ind-AS, WIRC of the ICAI 28 28

29 useful life Intangible assets with indefinite useful lives not to be amortized AS 26 assumes only finite lives for intangible assets, not more than 10 years (rebuttable) To be tested for impairment as per Ind AS 36 In exchange tested by comparing carrying amount with recoverable amount annually or upon indications to be tested for change to finite life, changes recognized as change in accounting estimates as per Ind AS 8 56 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 In exchange Tested for impairment as per Ind AS Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Seminar on Ind-AS, WIRC of the ICAI 29 29

30 Gains Revenue To be derecognized on disposal or when no future economic benefits are expected Gain/(Loss) = Disposal In proceeds exchange (cash equivalent) Carrying amount Disposal proceeds to be considered at cash price equivalent if deferred and unwound as interest Gain or loss on de to be included in P&L Carrying amounts of replaced items of intangible assets are always derecognized 58 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 By class (brand, software, licenses, copyrights, patents, under development) including separately for internal and acquired intangible assets Useful lives and amortization rates Justification for indefinite useful life assessment Amortization methods Gross block, accumulated amortization/ impairment, net block at beginning and end P&L In business references combination for amortization/ impairment Movements and reconciliation Restrictions and lien In exchange Contractual purchase commitments Details of revaluation effective date, assumptions, FV assessment methods, impact and Revaluation Surplus R&D Revaluation spend model recognized as expense 59 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Seminar on Ind-AS, WIRC of the ICAI 30 30

31 And now, are there any Questions? 60 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 THANK YOU FOR YOUR TIME AND CONSIDERATION. Pirooz P Movdawalla piroozpm@alumni.carnegiemellon.edu Seminar on Ind-AS, WIRC of the ICAI 31 31

32 Movements and Reconciliation Acquisition/ Construction Additions Via Business Combinations Deductions Movements in PPE Disposed of/ sold Held for Sale/ Disposal Losses recognized/ reversed Revaluation Changes Exchange differences Others 62 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Ind AS 8: Accounting Policies, Changes in Accounting Estimates and Errors 63 Ind AS 16 and Ind AS 38 WIRC of the ICAI March 2016 Seminar on Ind-AS, WIRC of the ICAI 32 32