Week 7

Week 7

1. AASB 138 Intangible Assets

   • AASB 138 will permit some intangible assets to be revalued upwards only when there is an 'active market' for the asset. Active Market: An active market is deemed to exist when items being traded within the market are homogenous. 
   • Recoverable amount
     • AASB 138 requires that non-current assets be written down to its recoverable amount. Depreciation is recognised even if the recoverable amount of an asset exceeds its carrying amount.

2. Measuring of PPE at Cost or Fair Value - the choice

   • AASB 116 PPE
     • AASB 116 requires each class of PPE to be measured either at 'Cost' of 'Fair value' (revaluation model). It is permissible for some classes of PPE to be valued at cost and other classes to be valued at fair value, but an entire class must be measured on the same basis.
     • AASB 116 allows an entity to switch from the FV basis of valuation back to the Cost basis as long as the change generates financial information that is more relevant and reliable and as long as adequate disclosures of the change in accounting policy is made.

3. The use of fair values (FV)

   • Where a revaluation of an item of PPE is undertaken, the revaluation must be the ;fair value' rather than to any other value. Definition of Revaluation: Act of recognising a reassessment of the carrying amount of a non-current asset to its fair value as at a particular date, but excluding impairment losses. Accounting standards definition in accordance with AASB 13 of Fair Value Measurement: The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
   • How does an entity determine FV
     • FV are determined on the basis that the entity is a going concern and there is no need or intention to liquidate its assets.
     • • Fair value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction. It is defined in AASB 13 Fair Value Measurement as:   –The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.     
   • Valuations to be kept up to date
     • Revaluation must be kept up to date. - Revaluations must be made with sufficient regularity so the carrying amount of each asset in the class does not differ materially from its fair value (AASB 116 PPE). 'Sufficient regularity': depends upon the nature of the class of assets. - If values change regularly and changes are material, revaluations might be necessary each reporting period (Remember agricultural/biological assets). - If changes are not material, revaluation can be made every 3 to 5 years.   
     • Items within the same class of PPE are revalued simultaneously to avoid the selective revaluation of assets.

4. Revaluation increments