Page 29 - 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 (stricter!)
IFRS

Long • Cost model -at depreciated cost – acc’t depreciation and impairment
lived charges); OR • At depreciated cost
(original cost – acc’t
asset • Revaluation model – report at Fair Value (FV), as long as an active depreciation and
reportin market exists, so fair value can be estimated. impairment charges)
g on
First re-evaluation date:
balance • If FV < Carrying Value –loss recorded on income statement • No Fair Value
sheet • FV > Carrying Value –revaluation surplus taken to equity (net income –not alternative allowed.
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