Question
With reference to relevant International Accounting Standards (IAS) /International Financial Reporting Standards (IFRS), briefly describe and explain the accounting for non-current tangible assets. 1500 words
With reference to relevant International Accounting Standards (IAS) /International Financial Reporting Standards (IFRS), briefly describe and explain the accounting for non-current tangible assets. 1500 words
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Non-current tangible assets are accounted for according to International Accounting Standard (IAS) 16 - Property, Plant, and Equipment under International Financial Reporting Standards (IFRS). This standard offers guidelines on how to identify, value, and disclose physical assets that are anticipated to be utilized in the creation or supply of products and services, in the leasing of such assets to others, or in handling administrative tasks. The International Accounting Standard (IAS) 16 - Property, Plant, and Equipment), IAS 36 - Impairment of Assets), and IAS 40 - Investment Property, serve as the top guidelines for accounting for non-current tangible assets. The following vital steps are involved in accounting for non-current tangible assets:
Recognition: In this stage, the firm discovers non-current tangible assets and registers them on its financial accounts. The asset has to be predicted to produce future economic advantages and have a cost that may be accurately determined in order to be recognized. Initial Measurement: At first, all costs associated with obtaining and preparing physical assets for use are included in the asset's cost, which determines how tangible assets are valued. This covers the purchase price, import tariffs, non-refundable taxes, shipping and handling expenses, as well as any additional expenses that may be clearly linked to the transaction. Overall, costs like those associated with launching new facilities or maintaining and repairing them are incurred rather than capitalized.
Subsequent Measurement: The cost model or the revaluation model is used to calculate the value of non-current tangible assets. A company's accounting strategy after first recognition can be either the cost model or the revaluation model. In the cost model, assets are held at cost less cumulative depreciation and impairment losses. During the duration of an asset's useful life, depreciation is carefully recorded, indicating the use of the asset's financial advantages. The revaluation model requires that assets be kept at a revalued amount, which is equal to their actual value as of the revaluation date less any later cumulative depreciation and subsequent accrued losses due to impairment.
Revaluation Model: The revaluation approach enables organizations to record non-current tangible assets at their true value, with less cumulative depreciation and impairment losses over time. Assets must undergo frequent fair value revaluations if the reassessment approach is adopted. Fair value adjustments are recorded in other comprehensive income and stored in an individual revaluation excess under equity.
Depreciation: Depreciation is the methodical distribution of an asset's depreciable value over the period of its usefulness. The cost of the asset less its anticipated residual value is the amount that can be depreciated. The way in which the potential economic advantages of the asset are anticipated to be effectively utilized needs to be reflected in the approach to depreciation selected.
Impairment: Non-current tangible assets are examined for impairment, every time there is signs of a possible impairment loss. An impairment loss is recorded when the current value of an asset is greater than its recovering value (which is greater fair value, lower selling costs, or value in use).
Disposal: Any gain or loss that occurs upon the disposition of a non-current tangible asset is recorded in the income statement. The asset is recorded in the financial statements at its current value. In accordance with IAS 16, non-current tangible assets must also be disclosed, covering their measurement bases, depreciation schedules, useful lifespans, and any limitations on ownership or usage.
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