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17.2.2.2 Replacement of a major components and periodic replacement
17.2.2.3 Separation of land and buildings
17.2.3 Measurement at initial recognition
17.2.3.1 Extract from FRS 102 – Section 17.9-17.13
17.2.3.3 Directly attributable costs
17.2.3.4 Not directly attributable costs
17.2.3.5 Decommissioning costs
17.2.3.6 Self-constructed assets
17.2.3.7 Cessation of capitalisation
17.2.3.9 Deferred payment terms – measurement of cost
17.2.4.1 Extract from FRS 102 – Section 17.14
17.2.5 Measurement after Initial Recognition
17.2.5.1 Extract from FRC – FRS 102 – Section 17.15-17.15F
17.2.5.2.2.1 Frequency of revaluations
17.2.5.2.2.2 Meaning of fair value
17.2.5.2.2.3 Accounting for revaluation surpluses/deficits
17.2.5.2.2.4 Treatment of depreciation on upward revaluations
17.2.6 Depreciation, residual value and useful lives
17.2.6.0 Extract from FRS 102 Sections 17.16 to 17.23
17.2.6.1.2 Depreciation and useful economic life
17.2.6.1.4 Change in residual value, depreciation rate or useful economic life – change in estimate
17.2.6.1.5 Non-depreciable assets
17.2.6.1.6 Commencement and cessation of depreciation
17.2.6.1.7 Depreciation methods
17.2.6.1.5.1: Straight line method
17.2.6.1.5.2: Diminishing balance method/sum of digits
17.2.6.1.5.3: Units of production method
17.2.7 Recognition and measurement of impairment.
17.2.7.1 Extract from FRS 102 Section 17.24-17.26
17.2.8.1 Extract from FRS 102 Section 17.27-17.30
17.2.9.0 Extract from FRS 102 – Section 17.31-17.32A
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17.2.7 Recognition and measurement of impairment
17.2.7.1 Extract from FRS 102 Section 17.24-17.26
17.24 At each reporting date, an entity shall apply Section 27 Impairment of Assets to determine whether an item or group of items of property, plant and equipment is impaired and, if so, how to recognise and measure the impairment loss. That section explains when and how an entity reviews the carrying amount of its assets, how it determines the recoverable amount of an asset, and when it recognises or reverses an impairment loss.
Compensation for impairment
17.25 An entity shall include in profit or loss, compensation from third parties for items of property, plant and equipment that were impaired, lost or given up only when the compensation is virtually certain.
Property, plant and equipment held for sale
17.26 Paragraph 27.9(f) states that a plan to dispose of an asset before the previously expected date 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.
17.2.7.2 OmniPro comment
Section 17.24 to 17.26 of FRS 102 requires an entity to review for indicators of impairment annually as detailed in Section 27.9 & 27.10 of Section 27 of FRS 102 Impairment of Assets, and where an indicator is identified, an impairment review is required. The standard does not require an impairment review to be performed on an annual basis for assets depreciated over 50 years. This was a requirement under old GAAP. Where the carrying amount is in excess of the recoverable amount, then an impairment is required to be booked. As was required under old GAAP, the 5 year look back rule no longer applies. See Section 27.5 to 27.6 of Section 27 of FRS 102
Impairments can be reversed where the event that caused the impairment ceases or there is proof that the selling price is in excess of the impaired amount. Note the reversal cannot result in the carrying amount being in excess of what it would have been carried had no impairment occurred. See example 17 in Section 27 for a practical example of how this applies in practice .
A decision to replace an asset is an indicator of impairment, and therefore an impairment review is required. However, if the results still indicates no impairment, an entity will still need to review and adjust the useful economic life and residual value such that depreciation is accelerated such that the asset is depreciated over its remaining useful economic life.
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Example 2: Replacement of a major component which was previously not separated
Example 3: Periodic replacement
Example 4: Separation of land and buildings
Example 5: Employee costs during construction
Example 6: purchasing on deferred credit terms
Example 7: Exchange of assets- assets that lack commercial substance
Example 8: Revaluation of assets of the same class
Example 9: Accounting for revaluations and subsequent movements – depreciable assets
Example 11: Transfer of depreciation on revalued amount from profit and loss reserves
Example 12: Revising a residual value of an asset
Example 13: Change in accounting policy disclosure
Example 14: Commencement of depreciation
Example 15: Depreciation on basis of units of production
Example 17: Extract from notes to the financial statements (assuming revaluation upwards)
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