Page 36 - FINAL CFA I SLIDES JUNE 2019 DAY 8

Session Unit 8:

29. Long-lived Assets

LOS 29.g: Describe how the choice of amortisation method and assumptions concerning useful life and residual value
affect amortisation expense, financial statements, and ratios. p.221

The choice of amortization method will affect expenses, assets, equity, and financial ratios in exactly the same
way that the choice of depreciation method will:
• Increasing estimate of an asset’s useful life or residual value will reduce annual amortization expense and
increase net income, assets, ROE, and ROA.

LOS 29.h: Describe the revaluation model. p. 222
tanties US GAAP
IFRS

Long lived asset • Cost model -at depreciated cost – acc’t depreciation and • At depreciated cost
reporting on impairment charges); OR (original cost – acc’t
balance sheet • Revaluation model – report at Fair Value (FV), as long as an depreciation and
active market exists, so fair value can be estimated. impairment charges)

• No Fair Value
First re-evaluation date: alternative allowed.
• If FV < Carrying Value –loss recorded on income statement
• FV > Carrying Value –revaluation surplus taken to equity
(net income –not affected)

Subsequent re-evaluation dates:
• FV > Carrying Value –gain to income statement (to the extent of
reversing previous loss in income statement, any excess gain to
re-valuation surplus account)
• If FV < Carrying Value –loss direct to revaluation surplus and any
excess taken to income statement