How is recoverable amount determined?

How is recoverable amount determined?

The recoverable amount of an asset refers to the present value of the expected cash flows that are to arise from the sale or use of the asset and is calculated as greater of the two amounts, namely, the fair value of the asset as reduced by the related selling costs, and value in the use of such assets.

What factor must be present to use the units of production method of depreciation?

There are four main factors that affect the calculation of depreciation expense: asset cost, salvage value, useful life, and obsolescence.

What are the criteria for capitalization of fixed assets IFRS?

IAS 16 states that the cost of an item of property, plant and equipment shall be recognized as an asset if, and only if: it is probable that future economic benefits associated with the item will flow to the entity; and. the cost of the item can be measured reliably.

How should the recoverable amount of assets that have no active market be measured?

The recoverable amount of an asset or a CGU is the higher of its fair value less costs to sell and its value in use. If it is not possible to determine the fair value less costs to sell because there is no active market for the asset, the company can use the asset’s value in use as its recoverable amount.

What is a recoverable amount?

Recoverable amount is the higher of (a) fair value less costs to sell and (b) value in use. Sometimes, the value in use of an individual asset cannot be determined. In that case, recoverable amount is determined for the smallest group of assets that generates independent cash flows (cash-generating unit).

Is recoverable amount same as fair value?

Recoverable amount is the higher of fair value less costs to sell (FVLCTS) and value in use. The carrying value of a fixed asset is compared with recoverable amount to find out impairment loss, if any. Recoverable amount is the concept introduced by IAS 36 Impairment of Assets.

What are the 3 methods of depreciation?

Your intermediate accounting textbook discusses a few different methods of depreciation. Three are based on time: straight-line, declining-balance, and sum-of-the-years’ digits. The last, units-of-production, is based on actual physical usage of the fixed asset.

How do you use the units of production method?

How to Calculate Units of Production Depreciation. To calculate units of production depreciation, you need to divide the cost of the asset (less its salvage value) by the total units you expect the asset to produce over its useful life. Then you will multiply this rate by the actual units produced during the year.

What is the recoverable amount of an asset?

Recoverable amount is the greater of an asset’s fair value less costs to sell, or its value in use. Value in use refers to the present value of future cash flows expected to be derived from an asset.

What are the conditions need to be satisfied in order to Recognise the cost of an item of property plant and equipment as an asset?

The cost of an item of property, plant and equipment is recognised as an asset if, and only if: it is probable that future economic benefits associated with the item will flow to the entity; and. the cost of the item can be measured reliably.

What happens if recoverable amount is higher than carrying amount?

If the carrying amount exceeds the recoverable amount, the asset is described as impaired. The entity must reduce the carrying amount of the asset to its recoverable amount, and recognise an impairment loss.

Which of the following assets should not be adjusted for reversal of impairment loss quizlet?

Fair value at the date of the revaluation. B. Fair value at the date of the revaluation less any accumulated depreciation and any accumulated impairment losses. C.

When do you have to make a formal estimate of recoverable amount?

If any of those indications is present, an entity is required to make a formal estimate of recoverable amount. Except as described in paragraph 10, this Standard does not require an entity to make a formal estimate of recoverable amount if no indication of an impairment loss is present.

When is an asset carried at more than its recoverable amount?

An asset is carried at more than its recoverable amount if its carrying amount exceeds the amount to be recovered through use or sale of the asset. If this is the case, the asset is described as impaired and the Standard requires the entity to recognise an impairment loss.

Is it possible to recover the impairment of a revalued asset?

In this case, after the revaluation requirements have been applied, it is unlikely that the revalued asset is impaired and recoverable amount need not be estimated. (ii) if the disposal costs are not negligible, the fair value less costs to sell of the revalued asset is necessarily less than its fair value.

What is the accounting treatment for research and development costs?

The FASB’s required accounting treatment for research and development costs often understates both net income and assets. According to International Financial Reporting Standards, all research and development expenditures are expensed in the period incurred.