A question from a student on Depreciation

[neva]

hi,

i hope you can help me with this one

if i have a building , with a useful life of 50 years, and after 3 yrs of having it on my current assets, i have decided to sell it, how should it be recognized?

- as a C.A (to match the standards but in this way, ill be providing a misleading fin.st.)


- or as N.C ( non misleading but not according to standards).


i think i should calculate the depreciation for the 3 years and the building value-dep.=x
"x" should be in the C.A

is that correct?

[Odyssee]

Dear neva,

My view is that IFRS 5 need to be applied in this scenario. The building should be classified as an Held-for-Sale Asset if it meets the following conditions.

In general, the following conditions must be met for an asset to be classified as held for sale [IFRS 5.6-8]

<ul><li>management is committed to a plan to sell </li><li>the asset is available for immediate sale </li><li>an active programme to locate a buyer is initiated </li> <li>the sale is highly probable, within 12 months of classification as held for sale (subject to limited exceptions)</li> <li>the asset is being actively marketed for sale at a sales price reasonable in relation to its fair value</li><li>actions required to complete the plan indicate that it is unlikely that plan will be significantly changed or withdrawn</li></ul>

Immediately before the initial classification of the asset as held for sale, the carrying amount of the asset will be measured in accordance with applicable IFRSs (IAS 16, in this case). Resulting adjustments are also recognised in accordance with applicable IFRSs. [IFRS 5.18]

After classification as held for sale, Non-current assets or disposal groups that are classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. [IFRS 5.15]

<b>Balance sheet presentation.</b> Assets classified as held for sale, <i><u>must be presented separately on the face of the balance sheet</u></i> (statement of financial position). [IFRS 5.38]

<b>Disclosures [IFRS 5.41]</b>
<ul><li>description of the non-current asset </li><li>description of facts and circumstances of the sale (disposal) and the expected timing </li><li>impairment losses and reversals, if any, and where in the statement of comprehensive income they are recognised </li> <li>if applicable, the reportable segment in which the non-current asset (or disposal group) is presented in accordance with IFRS 8 Operating Segments</li></ul>
http//www.iasplus.com/standard/ifrs05.htm

[Mujahid]

Neva,

How can you have a building in your current assets? As far as I know, its a fixed asset.

[neva]

mmm...what if the "held-for -sale " conditions are not met? in other words, i just have the mere intention to sell it?

[neva]

yes mujahed! a building is a fixed asset which is a part of the non-current assets as i know them!

there is a trick in that riddle the tutor gave us! he just gave us 2 options, C.A or Non-C.A!


[xx(] im lost here!

[kamranACA]

Dear

If you (you means the entity) have intention to sell it then all the conditions of IFRS 5 should have been met provided the fixed asset is not used by you.

If you have intention to sell but are not committed to such a plan/intention; are not locating a buyer actively; and don't look forward to sell within next reporting period (12 months); then logically it means you have no current plan or intention of doing so. Rather, you simply wish to window dress the balance sheet for strengthening the current ratio.

So, if there is no intention (which should meet IFRS 5 criteria) it will not be treated under IFRS 5 or in current assets by any means. Resultantly, it is non current asset.

Just to draw attention that land, buildings, properties if acquired by a trader of such assets for trading purpose, he will present such assets under IAS 2 as inventories instead of property, plant and equipment. However, this has nothing to do with the query under discussion.

Regards,


Kamran.

[skystar]

Following items are taken out of Balance Sheet of A&B Co Ltd.
a) Cash Rs. 20,000
b) Account receivable Rs. 100,000
c) Account payable Rs. 350,000
d) Notes payable Rs. 250,000
e) Inventory Rs. 300,000
f) Long term debt Rs. 500,000
g) Furniture Rs.1,500,000
h) Common Stock Rs 5,00,000
i) Retained Earnings Rs.3,20,000
j) Earning before interest and tax Rs 600,000
k) Company paid interest Rs.140,000
From the given data find out following ratios
1. Total debt ratio
2. Cash Ratio
3. Acid test Ratio
4. Current ratio
5. Interest Coverage Ratio

[Mujahid]

skystar,

kuch khud bhi karo. ye bohat easy hai.