Valuation FRS 15 Tangible Fixed Assets
FRS 15 Tangible Fixed Assets Valuation FRS 15 Tangible Fixed Assets Valuation: Carrying value of TFA: – Fixed Assets may be stated at Historical Cost less depreciation or – Fixed assets may be stated at Current Value less depreciation Carrying value should never exceed recoverable amount FRS 15 Tangible Fixed Assets Valuation: TFA should be re-valued only where the entity adopts a policy of revaluation Apply to individual classes of TFA Where a TFA is re-valued, its carrying amount should be its current value at BS date Annual revals are not required FRS 15 Tangible Fixed Assets Valuation’s Cont’d Full valuation at least every five years, interim in year 3 Where ‘material’ change in value likely, revalue in years 1,2,4 also Material ‘reasonably influence the decisions of a user of the accounts’ Full valuation conducted by qualified valuer FRS 15 Tangible Fixed Assets Class of Assets: All TFA of same class should be re-valued Companies Legislation categories: – Land and Buildings – Plant & Machinery – Fixtures, fittings, tools & equipment Companies may adopt other, narrower classes, as appropriate to their business FRS 15 Tangible Fixed Assets Reporting Revaluation Losses: All reval losses that are caused by a clear consumption of economic benefits should be recognised in the P&L a/c. (physical damage, deterioration in quality of service provided by asset) FRS 15 Tangible Fixed Assets Reporting Gains on Revaluation v Revaluation gains should be recognised in the P&L a/c only to the extent (after adjusting for subsequent depreciation) that they reverse revaluation losses on the same asset that were previously recognised in the P&L a/c v All other revaluation gains should be recognised in the STRGL FRS 15 Tangible Fixed Assets Material gains and losses on revaluation on individual assets in a class of asset should not be aggregated for purposes of deciding whether G/Ls go in STRGL or P&L FRS 15 Tangible Fixed Assets Gains/Losses on Disposal Include in the P&L the difference between: – Net sales proceeds – Carrying amount (Per FRS 3) FRS 15 Tangible Fixed Assets Disclosures where assets revalued: For each class of re-valued assets: – – – – Names and qualifications of valuers Basis of valuation Date and amount of valuation Carrying amount had assets been included under HC – Whether the person carrying out the valuation is internal or external – Where valuation had not been updated or is not a full valuation, the date of the last full valuation FRS 15 Tangible Fixed Assets Depreciation FRS 15 Tangible Fixed Assets Depreciation Depreciable Amount of TFA should be allocated on a systematic basis over its useful economic life. The depreciation method used should reflect as fairly as possible the pattern in which economic benefits are consumed Depreciation charge for each period is expensed to the P&L account FRS 15 Tangible Fixed Assets Objective of Depreciation: Reflect the cost of use of the TFA in the period That is the amount of economic benefit consumed The cost to the entity of using the asset to generate its revenues FRS 15 Tangible Fixed Assets Where asset re-valued: Depreciation is based on re-valued amount Depreciation is remaining UEL based on the FRS 15 Tangible Fixed Assets Methods of Depreciation: Most Common – Straight-line – Reducing balance If uncertain of consumption of benefits – use straight line FRS 15 Tangible Fixed Assets Change from one method to another: Only to give a fairer presentation of the results and financial position This is not a change of accounting policy FRS 15 Tangible Fixed Assets Where TFA comprises two or more major components with substantially different UEL, each component should be accounted for separately for depreciation purposes (e.g. land and buildings, buildings and the fittings) FRS 15 Tangible Fixed Assets Non-depreciation of TFA? – Maintenance or refurbishment is carried out regularly, significantly extending the UEL or maintaining the Residual Value of the asset – ASB states that subsequent expenditure that maintains or enhances the previously assessed standard of performance of the asset does not negate the need to charge depreciation FRS 15 Tangible Fixed Assets However, some TFAs may have very long useful economic lives and thus the depreciation charge may be immaterial FRS 15 Tangible Fixed Assets When No Depreciation is permissable: Land Depreciation may not be charged where that charge would be immaterial: – Depreciation may be immaterial if: Asset has a very long useful life Asset has a high residual value FRS 15 Tangible Fixed Assets UEL and Residual Value UEL should be reviewed at the end of each period and revised if expectations are significantly different from previous estimates Where residual value is material, it should be reviewed at the end of each reporting period to take account of expected technological changes based on prices prevailing at the date of acquisition FRS 15 Tangible Fixed Assets Disclosures FRS 15 Tangible Fixed Assets Disclosures: The following information should be disclosed separately in the FS for each Class of TFA Depreciation method UEL Total depreciation charged Financial effect of a change during the period in either the estimate of UEL or the estimate of residual values FRS 15 Tangible Fixed Assets Cost or re-valued amount at beginning and at BS date Cumulative amount of provisions for depreciation or impairment at the beginning of the period and at BS date Reconciliation of movements, separately disclosing additions, disposals, revaluations, transfers, depreciation, impairment losses, and reversals of past impairment losses written back FRS 15 Tangible Fixed Assets Net carrying amount at beginning and at BS date Where there is a change in depreciation method, the effect, and reason for the change should be disclosed.
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