Non-current Assets: PP&E, Intangibles, Impairment and Investment Property
PP&E, intangibles, impairment and investment property
This domain tests cost and revaluation models, depreciation, development capitalisation, impairment of CGUs, and the investment property fair value model. IAS 16 requires component depreciation and annual review of useful lives and residual values. IAS 38 capitalises development costs only after technical feasibility, intention, ability, probable benefits, resource availability and reliable measurement are demonstrated. IAS 36 uses the higher of fair value less costs of disposal and value in use; goodwill is tested annually.
- A revaluation surplus goes to OCI; an excess revaluation loss goes to profit or loss.
- Impairment reversal is allowed for assets other than goodwill, but not above the depreciated historical cost.
- Investment property: cost model or fair value model; fair value changes go to profit or loss; no depreciation under the fair value model.
- Transfers to or from investment property occur only on a change in use.
Worked example
A machine costs 100,000, has a residual value of 10,000 and a 5-year life. Annual depreciation is (100,000 − 10,000)/5 = 18,000. After 2 years, carrying amount is 64,000. An impairment indicator appears and the recoverable amount is 55,000. Recognise impairment of 9,000. The revised carrying amount of 55,000 is depreciated over the remaining 3 years, subject to the residual value.
Traps
- Depreciating land unless it has a finite useful life.
- Capitalising research costs.
- Reversing goodwill impairment.
- Classifying owner-occupied property as investment property.