Non-current assets: formula sheet

Key formulas

Initial cost

Cost = purchase price + directly attributable costs + initial estimate of dismantling/restoration

Exclude training, general overheads, initial operating losses and abnormal waste. Deduct trade discounts and rebates.

Depreciable amount

Depreciable amount = cost (or revalued amount) − residual value

Residual value is the amount you would get now for an asset of the age and condition expected at the end of its life.

Straight-line depreciation

Annual depreciation = (cost − residual value) ÷ useful life

Other methods, such as reducing balance or units of production, are allowed if they reflect the pattern of consumption.

Revaluation surplus

Surplus = fair value − carrying amount

Dr Asset, Cr Revaluation surplus (OCI). Any part reversing an earlier loss on the same asset goes to profit or loss.

Revaluation deficit

Deficit = carrying amount − fair value

Dr Revaluation surplus (to the extent of the balance for that asset), then Dr Profit or loss.

Excess depreciation transfer

Transfer = depreciation on revalued amount − depreciation on original cost

Optional. Dr Revaluation surplus, Cr Retained earnings. It is a reserve transfer, not an OCI item.

Gain or loss on derecognition

Gain/(loss) = net disposal proceeds − carrying amount

Recognised in profit or loss. It is not presented as revenue.

Specific borrowings

Capitalise = actual borrowing costs in the capitalisation period − investment income on temporary investment of unspent funds

Investment income is deducted when you work out the amount capitalised. The income itself is still earned and recognised in profit or loss, where it offsets the interest left in finance costs.

General borrowings

Capitalise = weighted average expenditure on the asset (funded by general borrowings) × capitalisation rate

Weight each expenditure by the time outstanding in the period. The result cannot exceed total general borrowing costs incurred.

Capitalisation rate

Rate = total borrowing costs on general borrowings ÷ weighted average general borrowings outstanding

Exclude borrowings made specifically to obtain a qualifying asset from the general pool until substantially all activities to prepare that asset are complete. Use the weighted average if balances changed in the period.

Commencement

Start when: expenditure incurred AND borrowing costs incurred AND activities to prepare the asset in progress

All three conditions must be met. Paying a deposit with no work started does not meet the third.

Suspension

Suspend capitalisation during extended periods of interrupted active development

Do not suspend for a temporary delay that is a necessary part of the process, such as waiting for concrete to cure or for high water levels on a bridge project.

Cessation

Stop when substantially all activities necessary to prepare the asset for use or sale are complete

Minor modifications, such as decorating to the buyer's specification, do not stop the asset being ready.

Impairment test

Impairment loss = Carrying amount − Recoverable amount (if positive)

If recoverable amount is higher than carrying amount, there is no loss.

Recoverable amount

Higher of (FVLCD, VIU)

FVLCD = fair value − direct costs of disposal. VIU = present value of expected pre-tax cash flows.

Allocation of CGU loss

1) Goodwill to zero; 2) other assets pro rata to carrying amounts

Do not reduce any asset below the higher of its FVLCD, VIU and zero. Reallocate any excess to the other assets pro rata.

Reversal limit

Reversed carrying amount ≤ carrying amount had no impairment been recognised (net of depreciation)

Applies to individual assets other than goodwill. Never reverse goodwill.

Reversal in a CGU

Allocate the reversal to assets other than goodwill pro rata to carrying amounts

Each asset is capped at the lower of its recoverable amount (if determinable) and its depreciated historical carrying amount.

Accounting for the loss

Cost model: loss in profit or loss. Revalued asset: treat the loss as a revaluation decrease, charged to OCI only up to the revaluation surplus held for that same asset, with any excess going to profit or loss

A reversal on a revalued asset goes to OCI as a surplus, except to the extent it reverses an earlier loss taken to profit or loss.

Goodwill with partial goodwill method

Gross up goodwill for the non-controlling interest before testing

Add notional goodwill of the NCI to the CGU and test the grossed-up amount. Allocate the loss to goodwill first, but recognise only the parent's share of the goodwill impairment. The NCI share of the goodwill loss is not recognised. Losses on other assets are shared between the parent and the NCI under the usual ownership split.

Definition of an intangible asset

Identifiable + controlled + future economic benefits + no physical substance

All parts must be met before you consider recognition.

Recognition criteria

Probable future benefits AND reliably measurable cost

Usually met for purchased assets. Internally generated assets need extra tests.

Development capitalisation criteria (PIRATE)

Probable future benefits; Intention to complete the asset; Resources to complete; Ability to use or sell it; Technical feasibility; Expenditure reliably measured

All six must be shown. Capitalise only from the date all are met.

Research costs

Research expenditure → expense to profit or loss when incurred

Applies even if the project later succeeds.

Amortisation

Amortisable amount ÷ useful life, over the period from when the asset is available for use

Residual value is normally assumed to be zero unless a third-party commitment or active market exists.

Indefinite useful life

No amortisation; impairment test annually and when there is an indication

Review each year whether the indefinite life assessment still holds.

Goodwill in a business combination

Consideration + non-controlling interest + fair value of previously held interest − net identifiable assets at fair value

Governed by IFRS 3. Not amortised. Tested for impairment annually under IAS 36.

Definition test

Investment property = held to earn rentals and/or for capital appreciation, not for use or ordinary-course sale

If held for own use it is IAS 16. If held for resale in ordinary business it is IAS 2.

Initial measurement

Cost = purchase price + directly attributable costs (e.g. legal fees, transfer taxes)

Applies to both models. Do not capitalise start-up losses or abnormal waste.

Fair value model gain or loss

Gain or loss = closing fair value − opening carrying amount (± additions and disposals)

Recognise in profit or loss. No depreciation is charged.

Transfer from owner-occupied to investment property (fair value model)

Apply IAS 16 up to the date of change in use. Any excess of fair value over carrying amount goes to OCI (revaluation surplus), as for a revaluation

If fair value is below carrying amount, treat as an IAS 16 revaluation decrease: first against any surplus, then to profit or loss. Under the cost model, transfers do not change the carrying amount, so the cost of the property for measurement and disclosure is unchanged.

Transfer from inventory to investment property (fair value model)

Difference between fair value and previous carrying amount is recognised in profit or loss

Evidenced by the start of an operating lease to another party. Under the cost model, the carrying amount does not change on transfer.

Transfer from investment property to owner-occupied or inventory

Deemed cost for later accounting = fair value at the date of change in use

Applies when the investment property was at fair value. Under the cost model, transfers do not change the carrying amount, so the cost of the property for measurement and disclosure is unchanged.

Completion of self-constructed investment property (fair value model)

Difference between fair value at completion and previous carrying amount is recognised in profit or loss (IAS 40 para 65)

Property under construction for future use as investment property is within IAS 40 and is measured at fair value if that can be reliably measured. Use fair value at the date of completion.

Disposal

Gain or loss = net disposal proceeds − carrying amount

Recognise in profit or loss in the period of disposal. Under fair value, the carrying amount is the latest fair value.

Measurement on classification

Carrying amount = lower of (carrying amount before classification, FVLCS)

Measure just before classification under the applicable standards, then compare with FVLCS.

Fair value less costs to sell

FVLCS = Fair value − Costs to sell

Costs to sell are incremental costs directly attributable to the sale, such as legal fees. Finance costs and tax expense are excluded.

Impairment on classification

Impairment loss = Carrying amount − FVLCS (if positive)

Recognised in profit or loss. For a disposal group it is allocated first to goodwill, then to the other assets within IFRS 5 measurement scope pro rata to carrying amounts.

Depreciation

Depreciation after classification = nil

Stops from the date of classification. Interest and other expenses on liabilities of the group continue to be recognised.

Classification criteria

Available for immediate sale + sale highly probable (usually within 12 months)

Both must be met at the reporting date. If met only after the reporting period, do not classify as held for sale at that date.

Discontinued operations single line

Single amount = post-tax profit or loss of operation + post-tax gain or loss on remeasurement or disposal

Shown on the face of the statement of profit or loss, with analysis in the notes or on the face.

Recognition test

Recognise grant only if reasonable assurance of (1) compliance with conditions AND (2) receipt

Cash received before conditions are met is deferred income, not profit.

Deferred income method (asset grant)

Annual release = Grant ÷ useful life; Dr Deferred income, Cr Profit or loss. Asset depreciated on full cost.

The asset stays at full cost. The grant appears as a liability, split into current and non-current parts.

Deduction method (asset grant)

Asset carrying amount = Cost − Grant; Depreciation = (Cost − Grant − residual value) ÷ useful life

Profit effect is the same as deferred income. Total assets are lower.

Repayment of an income grant

Repayment first reduces any unamortised deferred income; the excess is an immediate expense

A change in estimate, applied prospectively.

Repayment of an asset grant (deduction method)

Increase asset carrying amount by the repayment; cumulative extra depreciation that would have been charged is expensed immediately

The asset's new carrying amount is depreciated over the remaining life.

Below-market government loan

Grant benefit = Loan proceeds − Fair value of loan at market rate (IFRS 9)

Account for the loan at amortised cost. The benefit follows the asset or income rules.

Definition of fair value

Fair value = price received to sell an asset (or paid to transfer a liability) in an orderly transaction between market participants at the measurement date

It is an exit price from the market's view, not the entity's.

Fair value of an asset in its market

Fair value = market price − transport costs (if location is a characteristic)

Transaction costs are not deducted from fair value itself.

Most advantageous market test

Net proceeds = price − transaction costs − transport costs

Used only to choose the market. Pick the highest net proceeds. Then fair value uses that market's price less transport costs only.

Hierarchy

Level 1: quoted prices, identical items, active market. Level 2: other observable inputs. Level 3: unobservable inputs

The whole measurement is classified by the lowest level input that is significant.

Valuation approaches

Market approach, cost approach, income approach

Maximise relevant observable inputs and minimise unobservable inputs.

Non-financial assets

Highest and best use: physically possible, legally permissible, financially feasible

Judged from the view of market participants.

Quick revision

• IAS 16: cost includes purchase price, directly attributable costs and initial estimate of dismantling costs.
• Depreciate each significant component separately over its own useful life.
• Revaluation increase goes to OCI and revaluation surplus unless it reverses an earlier loss in profit or loss; a decrease first reduces any surplus on that asset.
• IAS 23: capitalise borrowing costs on qualifying assets from the start of activity until the asset is ready for use or sale.
• IAS 36: impairment loss = carrying amount minus recoverable amount, where recoverable amount is the higher of fair value less costs of disposal and value in use.
• Goodwill and intangibles with indefinite lives are tested for impairment at least annually; an impairment loss on goodwill is never reversed.
• An impairment loss is allocated first to goodwill, then to other assets pro rata.
• IAS 38: research costs are expensed; development costs are capitalised only when the recognition criteria are met.
• IAS 40: choose the cost model or fair value model; under fair value, gains and losses go to profit or loss and no depreciation is charged.
• IFRS 5: held-for-sale assets are measured at the lower of carrying amount and fair value less costs to sell, and are not depreciated.
• IAS 20: grants are recognised when there is reasonable assurance of compliance and receipt, and are matched to the related costs.
• IFRS 13: fair value is an exit price in an orderly transaction between market participants at the measurement date.

Common mistakes

• Revaluing without first depreciating up to the revaluation date. Fix: Charge depreciation to the revaluation date first. Then compare fair value with that carrying amount.
• Taking every revaluation deficit to profit or loss. Fix: Check the revaluation surplus balance for that same asset. Charge the deficit against it first and only the excess to profit or loss.
• Capitalising interest during a suspension period Fix: Interest still accrues, but it is expensed during extended suspension. Check whether active development stopped for a long period and was not a normal part of the process.
• Adding investment income to the amount capitalised or ignoring it Fix: For specific borrowings, deduct investment income earned on unspent funds from the borrowing costs capitalised. Do it for the same period only.
• Comparing carrying amount with the lower of FVLCD and VIU. Fix: Recoverable amount is always the higher of the two. The asset is impaired only if both are below carrying amount.
• Spreading the CGU loss across all assets including goodwill pro rata. Fix: Write goodwill off first. Only the balance goes pro rata to the other assets.
• Capitalising all development spend of the project, including costs before the criteria were met. Fix: Capitalise only from the date all criteria are demonstrated. Earlier spend stays expensed and cannot be reinstated.
• Treating research as capitalisable because the project is expected to succeed. Fix: Expense research always. At that phase future benefits cannot be demonstrated.
• Depreciating investment property held at fair value. Fix: Under the fair value model there is no depreciation. Only the fair value change goes to profit or loss.
• Taking fair value gains on investment property to OCI. Fix: Under IAS 40 fair value model, gains and losses go to profit or loss. OCI is used only on transfer from owner-occupied property.

Exam tips

• Read the requirement first. Many SBR questions ask whether a cost is capitalised or expensed, and you earn marks by naming the IAS 16 criterion and applying it to the facts.
• Show journals with clear Dr/Cr lines and state where the entry lands: profit or loss, OCI or equity. Markers look for the correct place.
• Look for traps in the scenario: a dismantling obligation, major inspection costs, land and buildings together, or a change in life. Each points to a specific rule.
• When a question mixes IAS 16 with IAS 36, IFRS 13 or IFRS 5, state the order: depreciate, revalue or impair, then reclassify if held for sale.
• Discuss the effect on key ratios and on comparability when management picks the revaluation model. Add scepticism where a revaluation looks timed to improve covenants or bonuses.
• Write the dates first. Most marks in this topic go to getting the start, suspension and end months right.
• Show the qualifying asset test in one sentence before any numbers. Markers look for it.
• If the scenario mentions a pause, say whether it is an extended interruption or a normal part of the process, and give a reason from the facts.