AFA 717 Lecture Notes - Lecture 9: Impaired Asset
• Property, plant and equipment – tangible items expected to be used for more than one period,
and held for use in the production or supply of goods and services, or for rental to others, or for
administrative purposes
• Investment property – land and/or buildings held for rent and/or capital appreciation
• Biological assets – living plants and animals and can also be long-lived assets
• Intangible assets – long-lived assets that do not have a physical substance and are separately
identifiable
• Goodwill – does not have physical substance and is not a separately identifiable asset. Arises as
the residual in the purchase of other assets acquired in a business combination
• Three possible models that are used in the valuation of long-lived assets:
• Cost Model
• Revaluation Model
Fair-Value Model
Cost Model – records the asset at original cost less accumulated depreciation less accumulated
impairment losses; this is called net book value
• Depreciation /amortization is recorded annually if the asset has a limited life
• Asset is tested for impairment
• Does not reflect current value
• Most common model used in practice
Revaluation Model – revalues the asset to fair value as its measurement base; revaluation does
not need to be done annually
• Can choose to be applied to PP&E, intangibles with an active market; and
exploration and evaluation costs for mineral resources
• Asset is recorded at its revalued amount less subsequent accumulated
depreciation and subsequent accumulated impairment losses
Fair-Value Model – assets are adjusted to fair value annually, at each reporting period
• Can choose to apply only on investment properties
• No depreciation is recorded
• Biological assets must be recorded at fair value, as long as fair value can be
measured reliably. Changes in fair value are recorded in earnings
The purchase price for PP&E is capitalized
Capitalization means that the expenditure is debited to an asset account
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Document Summary
Property, plant and equipment tangible items expected to be used for more than one period, and held for use in the production or supply of goods and services, or for rental to others, or for administrative purposes. Investment property land and/or buildings held for rent and/or capital appreciation: biological assets living plants and animals and can also be long-lived assets. Intangible assets long-lived assets that do not have a physical substance and are separately identifiable: goodwill does not have physical substance and is not a separately identifiable asset. Arises as the residual in the purchase of other assets acquired in a business combination. Three possible models that are used in the valuation of long-lived assets: cost model, revaluation model. Changes in fair value are recorded in earnings. Capitalization means that the expenditure is debited to an asset account. Expenditures related to the acquisition of pp&e are capitalized if:
