Tangible and Intangible Assets

Tangible and Intangible Assets KamilleBarroga Czarina Cabatay DaniloGalang Madonna Nilo CarmelNucum

Investments in land, buildings (or part of a building), and some property interests of a lessee in finance leases held to earn rentals or for capital appreciation or both The property’s FV can be measured reliably without undue cost or effort on an ongoing basis. Sec 16: Investment Property

Initial Recognition SMEs Full IFRS • at cost • if deferred payments, cost is the PV of future payments • if held under lease, lower of PV of minimum lease payments and FV of PPE • In case of mixed use, property, PPE and investment property must be separated. If FV of investment property portion can’t be determined, recognize whole as PPE • SAME • Separation depends on the ability of the portions to be sold/leased out separately • If portions can’t be sold separately, the property is investment property if only an insignificant portion is held for use in the production/ supply/ administrative

Subsequent Measurement SMEs Full IFRS • Use the Fair Value model • Gains and Losses arising from changes in FV, recognized in Profit &Loss • Property interest held under operating lease, is the item measured at FV (not the underlying property) • May choose either Fair Value or Cost model, but only one must apply to all investment properties • SAME (for FV model) • SAME. Add’l: Property interest under operating lease but considered Investment Property triggers FV model policy for all investment property

Disposal SMEs Full IFRS • NOT COVERED • Derecognize when the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposal

Transfers SMEs Full IFRS • If FV is no longer available without undue cost or effort, account for item as PPE • If no longer meets Investment Property criteria, transfer to PPE • Transfer only when there is change in use • (doesn’t matter if FV is not measured without undue cost or effort) • SAME • More guidance on transfer between categories

Key Differences • Mixed use property • SME: based on ability of entity to determine FV of Inv. Prop • FULL: based on ability of entity to sell both parts separately • Subsequent Measurement • SME: Fair Value Model only • FULL: Fair Value Model or Cost Model • Transfers • SME: based on availability of FV • FULL: based on change in use • Disposal • SME: not covered • FULL: when withdrawn from use, no future economic benefit

Sec 17: Property, Plant and Equipment Tangible assets that are: • Held for use in the production or supply of goods and services, for rental to others or for administrative purposes. • Expected to be used during more than one period

Initial Recognition SMEs Full IFRS • Recognize PPE if and only if: • It is probable that future economic benefits associated w/ the item will flow to the entity • The cost can be measured reliably • Spare parts are PPE if they will be used from more than one period, or can only be used with another PPE • Lands and building are separate items • SAME • SAME • SAME

Initial Recognition SMEs Full IFRS • at cost, including costs to get the property ready for its intended use • Elements of cost: • its purchase price • any costs directly attributable to bringing the asset its necessary condition • the initial estimate of the costs of dismantling the item • If deferred, PV of payments • SAME

Subsequent Measurement SMEs Full IFRS • Historical cost less depreciation less impairment model only • The carrying amount, less estimated residual value, is depreciated over the asset's anticipated useful life. • Both Cost and Revaluation models are allowed

Initial Recognition Full IFRS SMEs • This applies to Exchanges of Assets • if transaction has commercial substance, at FV • If it has no commercial substance and FV can’t be measured reliably, at carrying value of asset given up • SAME • SAME

Depreciation SMEs Full IFRS • Depreciation method shall be the best that reflects the consumption of the asset's benefits over its useful life • Useful life is determined by factors such as expected usage, wear & tear, obsolescence, legal limits • Depreciation expense is recognized in P&L (unless it’s part of another asset) • Review of residual value, useful life, depreciation method if indicators of changes in such exist • SAME • SAME • SAME • Review is done annually

Components SMEs Full IFRS • Major parts of an item of PPE have significantly different patterns of consumption of economic benefits must be depreciated separately • Each part of a PPEwith a cost that is significant in relation to the total cost of the item shall be depreciated separately.

Impairment SMEs Full IFRS • PPE is tested for impairment when there is an indication that the asset may be impaired. • Existence of impairment indicators is assessed at each reporting date. • Compensation for impairment from third parties is included in P&L when compensation becomes receivable • SAME • SAME • SAME

Impairment Full IFRS SMEs • Plan to dispose of an asset is an indicator of impairment that triggers the calculation of the asset’s recoverable amount for the purpose of determining whether the asset is impaired. • No classification for Non Curren Held For Sale • Essentialy the same, but there’s an explicit classification of assets held for sale (IFRS 5: Non Current Assets Held for Sale and Discontinued Operations)

Derecognition SMEs Full IFRS • Carrying amount of PPE shall bederecognised: • on disposal; or • when no future economic benefits are expected from its use or disposal. • Gain or loss is recognized in profit and loss • Gain or loss is the difference between the net disposal proceeds and the carrying amount of the item • SAME

Key Differences • Subsequent measurement • SME: Cost Model • FULL: Cost Model and Revaluation Model • Review of depreciation estimates • SME: when indicators of change exist • FULL: annually • Components approach • SME: differences in patterns of consumption • FULL: significant cost of component relative to total cost

Sec 18: Intangible Assets Other than Goodwill an identifiable non-monetary asset without physical substance. Such an asset is identifiable when: (a) it is separable, i.e. capable of being separated or divided from the entity and sold, transferred, licensed, rented or exchanged, either individually or together with a related contract, asset or liability, or (b) it arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations.

General Principle for Recognition SMEs Full IFRS • Intangible asset shall be recognized if, and only if: • it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity; • the cost or value of the asset can be measured reliably; and • the asset does not result from expenditure incurred internally on an intangible item. • SAME except (c)

Initial Measurement SMEs Full IFRS • Initially at cost • If separately acquired • its purchase price; and • any directly attributable cost of preparing the asset for its intended use. • As part of business combination • the cost is its FV at the acquisition date • SAME • SAME • SAME

Initial Measurement SMEs Full IFRS • Exchange of Assets • At FV unless • the exchange transaction lacks commercial substance or • the FV of neither the asset received nor the asset given up is reliably measurable. In that case, the asset’s cost is measured at the carrying amount of the asset given up. • SAME

Initial Measurement SMEs Full IFRS • Internally generated intangible assets • All research and development costs are recognized as an expense • Research costs are expensed as incurred. Development costs are capitalized when specific criteria are met.

Subsequent Measurement SMEs Full IFRS • At cost less any accumulated amortization and any accumulated impairment losses. • Either the Cost model or the Revaluation model • Revaluation Model: FV at revaluation date less any accumulated amortization and subsequent accumulated losses

Useful Life SMEs Full IFRS • All intangible assets have finite life • For intangible that arises from contractual/other legal rights • Useful life shall not exceed the period of the contractual or other legal rights, but may be shorter depending on the period over which the entity expects to use the asset. • Can be either finite or infinite • SAME

Useful Life SMEs Full IFRS • With finite useful life • Amortized on the systematic basis of useful life • If useful life can’t be reliably estimated the life shall be presumed to be ten years. • With infinite useful life • Not applicable. All intangible assets are considered to have finite lives. • Intangible assets with finite useful life are amortized. Amortization is carried out on a systematic basis over the useful lives of the intangibles. • With infinite useful life • Assets are not amortized

Amortization Method and Period SMEs Full IFRS • Allocate the depreciable amount of an intangible asset on a systematic basis over its useful life. • Amortization charge for each period shall be recognized as an expense. • Amortization begins when the intangible asset is available for use • SAME • SAME • SAME

Amortization Method and Period SMEs Full IFRS • Amortization ceases when the asset is derecognized. • The entity shall choose an amortization method that reflects the pattern in which it expects to consume the asset’s future economic benefits. • If the entity cannot determine that pattern reliably, it shall use the straight-line method. • At the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognized. • SAME • SAME

Residual Value SMEs Full IFRS • Assume that the residual value is zero unless: • there is a commitment by a 3rd party to purchase the asset at the end of its useful life, or • there is an active market for the asset and: • RV can be determined by reference to that market, and • it is probable that such a market will exist at the end of the asset’s useful life. • SAME

Residual Value SMEs Full IFRS • Review if there are indicators of change in the values of residual and amortization method • Review each period

Retirement and Disposal SMEs Full IFRS • An intangible asset shall be derecognized: • on disposal; or • when no future economic benefits are expected from its use or disposal • SAME

Key Differences • Recognition • SME: the asset does not result from expenditure incurred internally on an intangible item • FULL: development costs may be capitalized • Initial measurement (by way of government grant) • SME: FV at the date the grant is received or receivable • FULL: FV or nominal amount plus any expenditure that is directly attributable to preparing the asset for its intended use.

Key Differences • Initial measurement (internally generated) • SME: expensed • FULL: development costs are capitalized when specific criteria are met. • Subsequent measurement • SME: At cost less any accumulated amortization and any accumulated impairment losses. • FULL: Either the Cost model or the Revaluation model

Key Differences • Useful life • SME: finite life • FULL: can be either finite or infinite • Amortization period • SME: Amortization ceases when the asset is derecognized. • FULL: At the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognized.

Key Differences • Residual value • SME: Review if there are indicators of change in the values of residual and amortization method • FULL: Review each period

Sec 25: Borrowing Costs Borrowing costs are interest and other costs arising on an entity's financial liabilities and finance lease obligations Also includes exchange differences arising from foreign currency borrowings to the extent that they are regarded as adjustment to interest cost

Recognition SMEs Full IFRS • All are expensed • may be capitalized if certain conditions are met (if directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset are capitalised)

Key Differences • Recognition • SME: all are expensed • FULL: may be capitalized if certain conditions are met

Tangible and Intangible Assets