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Required readings Issues in Financial Reporting and Analysis (ACCT3563) Accounting for Assets Deegan chapters 4, 5, 6 & 8 AASB 116 AASB 123 AASB 136 AASB 138 2 Learning Objectives Assets: Definition Recognition and measurement issues in accounting for non-current Definition AASB Framework (par. 49): Resource controlled by an entity as a result of past events and from which future economic benefits are expected to flow to the entity. physical assets in the balance sheet including meaning of cost of acquisition the role of valuations impairment borrowing costs Accounting for intangible assets identifiable intangibles versus goodwill recognition and measurement rules research and development costs Goodwill impairment Comparison between accounting for physical assets and accounting for intangible assets 3 Assets: Recognition Criteria 4 Proposed change in the definition of an Asset Recognition criteria IASB's proposed definition: \"An asset is a present economic resource controlled by the entity as a result of past events. An economic resource is a right that has the potential to produce economic benefits.\" Under AASB Framework (par. 89) an asset is to be recognised in the balance sheet only when: it is probable that future economic benefits embodied in the asset will flow to the entity; and the asset possesses a cost or other value that can be measured reliably. -> Remove \"probable\School of Accounting ACCT3563: Issues in Financial Reporting and Analysis Session 1, 2017 Accounting for assets Website: http://telt.unsw.edu.au SEMINAR QUESTIONS 1. Impairment Loss and Cash Generating Unit RA Ltd calculates an impairment loss of $4,800,000 that must be applied to one of its cashgenerating units. The carrying amounts of the assets that comprise the cash-generating unit are as follows: $'000 Goodwill 4,000 Building 2,000 Plant 1,000 Office Equipment 3,000 $10,000 RA Ltd determines that the net selling price of the building is $1 800 000 and its value in use is $1 900 000. Determine the carrying amount of each of these assets in accordance with AASB 136 Impairment of Assets. Show all workings. 2. Accounting for Intangible Assets Part A: Morris Limited is a company involved in the research and development of a new mechanical toy soldier. The company incurs the following costs: a. $150,000 on understanding the current toy market; b. $250,000 on determining whether there still exists demand for mechanical toys in the current computer-based toy environment; c. $500,000 in designing and testing a prototype; d. $500,000 in developing and testing the product. Part B: Morris Limited has an intangible asset on its books which was initially recorded on 1 July 2014 at $300,000. The asset has a finite life (10 years). At 30 June 2016, the asset was assessed as having a recoverable amount of $200,000 Required: i. Determine how each of the four incurred costs outlined in Part A (above) would be treated for accounting purposes ii. Identify if the accounting treatment of any four incurred costs outlined in Part A (above) is conditional, and explain those conditions iii. Show the journal entries to account for the intangible asset in Part B (above): (a) at 30 June 2015 and (b) at 30 June 2016