Escolar Documentos
Profissional Documentos
Cultura Documentos
June 2013
FINANCIAL REPORTING
Canadian Series
June 2013
Table of Contents
Preface
Research Resources
Notice to Readers
Introduction to IAS 16
Standards Update
IASB
Annual Improvements
IFRIC
IAS 16 Definitions
10
12
Scope
12
14
14
15
Subsequent Costs
15
Measurement at Recognition
17
18
Borrowing Costs
19
20
20
21
21
Non-Monetary Transactions
21
22
Subsequent Measurement
24
Cost Model
24
Revaluation Model
24
June 2013
iii
iv
31
Depreciation
33
Component Accounting
34
Residual Value
36
Useful Life
36
39
40
Depreciation Method
40
43
44
44
Disclosure
46
50
53
55
List of Extracts
Extract 1Excerpt from The Brick Ltd. 2012 Financial Statements
Note 3Significant Accounting Policies 13
Extract 2Excerpt from Sherritt International Corporation 2012
Financial Statements
Note 2Summary of Significant Accounting Policies 15
Extract 3Excerpt from Air Canada 2012 Financial Statements
Note 2Basis of Presentation and Summary of Significant
Accounting Policies 16
Extract 4Excerpt from Saskatchewan Transportation Company 2012
Financial Statements
Note 4Significant Accounting Policies 16
Extract 5Excerpt from Bombardier Inc. 2012 Financial Statements
Note 2Summary of Significant Accounting Policies 17
Table of Contents
vi
List of Illustrations
Illustration 1Included and Excluded Costs of PP&E
17
25
28
32
37
46
Illustration 7Some Significant Judgments and Sources of Estimation Uncertainty Under IAS 16
53
IAS 16
Property, Plant
and Equipment
Preface
This publication is part of the Guide to International Financial Reporting Standards in Canada series published by the Chartered Professional Accountants
of Canada (CPA Canada) to support its members.
The objective of this publication, IAS 16 Property, Plant and Equipment, is
to help you understand IAS 16 and the IASB material that accompanies it.
The publication begins with an introduction and standards update and then
includes definitions, an overview chart, an analysis section, a section on
accounting policies and one on significant judgments and estimates.
Every attempt has been made to use plain language and to avoid mere
restatement of the IFRS standards although, where deemed necessary,
specific wording from the standards is referred to.
This publication has been carefully prepared, but it necessarily contains information in summarized form and is, therefore, intended for general guidance
only. It is not intended to be a substitute for detailed research or the exercise
of professional judgment.
The overview section takes a high-level look at the key requirements of the
standard in a chart format (the Overview chart). Specific touchstone references to IAS 16 are included in the Overview chart to help you navigate the
standard. These are not meant to be comprehensive references, rather a
June 2013
starting point for your research. The Analysis section analyzes the more complex areas of the standard in more depth. Note that, where parts of the standard are more straightforward, they are included in the Overview chart only
as it is felt that this coverage is at a sufficient level.
Illustrations, examples and extracts have been used to explain a particular
concept and/or provide insight into how the standard is applied. Financial
statement note extracts have been selected to illustrate a particular point
but do not necessarily represent best practices.
Several features have been included to enhance understanding as follows:
1. I llustrations, including the following:
charts
decision trees
summaries
These illustrations add value by summarizing, grouping, highlighting similarities/differences and working through decision processes in applying
the standard.
2. E
xamples
IASB Illustrative Examples excerpts
IASB examples excerpted from the standard
other examples
These examples add value by showing how a particular part of the standard
might be applied in a specific situation. Note that IAS 16 does not include
any illustrative examples and therefore the examples included in this publication are not authoritative.
3. Extracts from the IASB standards, including the following:
definitions
select quotes
Even though every attempt has been made to use plain language, in some
cases, it has been important to use the specific wording in the standard to
get a point across.
4. Extracts from financial statementsfinancial statements of prominent
Canadian companies have been selected, including those that were recipients of the CPA Canada Corporate Reporting Awards. The report on the
Corporate Reporting Awards, including a list of winners, may be found at
www.cpacanada.ca.
The extracts included illustrate a particular aspect. It may be useful to
review the complete note, which may be found at www.sedar.com.
Insight
Viewpoints
E xa mple
Viewpoints refer to the Viewpoints: Applying IFRSs in the Mining Industry or the Viewpoints: Applying IFRSs in the Oil and
Gas Industrya series of papers that addresses specific IFRS
application issues.
Examples illustrate how a particular part of an IFRS might be
applied in a specific situation.
June 2013
Statistics
Resources
Research Resources
CPA Canada has compiled various IFRS technical summaries, practical application guides and frequently-asked-question documents aimed at supporting the
understanding and application of IFRSs. For more information on IFRSs visit
our website.
Notice to Readers
The Research, Guidance and Support Group of the Chartered Professional
Accountants of Canada (CPA Canada) commissioned this publication as part of
its continuing research program. The views and conclusions expressed in this
publication are those of the authors. They have not been adopted, endorsed,
approved or otherwise acted upon by a Board or Committee of CPA Canada
or any Provincial Institute / Ordre. CPA Canada and the authors do not accept
any responsibility or liability that might occur directly or indirectly as a consequence of the use, application or reliance on this material.
Introduction to IAS 16
IAS 16 prescribes the accounting treatment for property, plant and equipment
(PP&E) held for use in the production or supply of goods or services, for rental
to others or for administrative purposes, that are expected to be used for more
than one period. IAS 16 allows an accounting policy choice for PP&E: items
may be carried at cost or at a revalued amount.
IAS 16 provides guidance on what may, and what may not, be considered
PP&E, the recognition and measurement of initial and subsequent costs and
the derecognition of an item of PP&E.
IAS 16 includes a Basis for Conclusions document that summarizes the International Accounting Standards Boards (IASB) considerations and conclusions
in the development of this standard. IAS 16 does not include any illustrative
examples.
The costs to dismantle, remove and restore items of PP&E are included in the
carrying amount of the asset. IFRIC 1 Changes in Existing Decommissioning,
Restoration and Similar Liabilities, provides guidance on accounting for the
effect of changes in the measurement of existing decommissioning liabilities
and discusses the related impact on PP&E.
IFRIC 18 Transfers of Assets from Customers, applies to the accounting for
transfers of items of PP&E by entities that receive such transfers from their
customers. This IFRIC provides guidance on the recognition and measurement
of such asset transfers.
This publication is based on the requirements of IFRS standards and interpretations for annual periods beginning January 1, 2013. Where appropriate,
for illustration purposes, certain note-disclosure examples are presented from
financial statements with annual periods ending before January 1, 2013.
This publication has not been updated since the publication date of
June2013. Readers are cautioned that certain aspects of IFRSs may
have changed since the publication date.
June 2013
Standards Update
IASB
Methods of Depreciation and Amortization
In December 2012, the IASB issued an Exposure Draft (ED), Clarification of
Acceptable Methods of Depreciation and Amortization (Proposed Amendments
to IAS 16 and IAS 38), based on a submission from the IFRS Interpretations
Committee. IAS 16.60 requires the depreciation method to reflect the pattern
in which an assets future economic benefits are expected to be consumed.
The proposed revisions are intended to clarify that revenue-based methods are
not acceptable methods of depreciating or amortizing an item of PP&E or an
intangible asset. This is because a revenue-based method reflects the economic benefits being generated from an asset rather than the expected pattern of consumption of the asset.
The proposed amendment also provides further guidance on the application
of the diminishing balance method of depreciation. This proposed guidance
clarifies that information about technical or commercial obsolescence of the
output of the asset (product or service) is relevant for estimating the pattern
of consumption of future economic benefits and the useful life of the asset. As
an example, the ED notes that an expected future reduction in the unit selling
price of the output, as a result of technical or commercial obsolescence, could
be an indication of the diminution of the future economic benefits of the asset.
The comment period on this ED closed April 2, 2013, and the expected completion date is the fourth quarter of 2013.
Bearer Biological Assets
The IASB has a limited-scope project to amend IAS 41 to address bearer biological assets (e.g., grapevines, dairy cows, etc.). These assets are accounted
for under IAS 41 at fair value less costs to sell based on the principle that the
transformation of bearer biological assets is best reflected by fair value measurement. The counter argument is that mature bearer biological assets are not
going through biological transformation and, as such, are similar to manufacturing assets and should be accounted for under IAS 16.
This project will focus on measurement of bearer biological assets that are
plants. This ED was issued on June 26, 2013, and was available for comment
until October 28, 2013.
Annual Improvements
20102012 cycle (ED issued May 2012)
The IASB proposes an amendment to IAS 16 to address concerns about the
computation of accumulated depreciation at the date of a revaluation of PP&E
for entities that apply the revaluation method to account for PP&E. The concern stems from differing practices in computing accumulated depreciation
for a revalued item where the residual value, the useful life or the depreciation
method is re-estimated before a revaluation.
When an item of PP&E is revalued, IAS 16 currently allows entities a choice to
(1) restate accumulated depreciation proportionately with the change in the
gross carrying amount of the asset, or (2) eliminate accumulated depreciation
against the gross carrying amount of the asset. A problem arises with the use
of method (1) if the residual value, useful life or depreciation method is reestimated before a revaluation adjustment. In these situations, the restatement
of accumulated depreciation proportionately would not result in the carrying
amount of the asset being equal to the revalued asset amount less the revalued accumulated depreciation. The proposed amendment to IAS 16 (and IAS
38) would state that the accumulated depreciation is computed as the difference between the gross and net carrying amounts. The proposed amendment
would also clarify that the determination of accumulated depreciation does not
depend on the selection of the valuation technique.
A similar amendment is proposed in IAS 38 for intangible assets measured
using the revaluation model.
It is expected that this amendment will be approved and issued in the fourth
quarter of 2013 and will be effective for annual periods beginning on or after
January 1, 2014, with early adoption permitted.
IFRIC
The Interpretations Committee received a request to address an issue related
to contractual arrangements within the scope of IFRIC 12, Service Concession
Arrangements. This request is to clarify in what circumstances contractual payments made by an operator under a service concession arrangement should:
1. be included in the measurement of an asset and liability at the start of the
concession; or
2. be accounted for as executory in nature (i.e., be recognized as expenses as
incurred over the term of the concession arrangement).
June 2013
Subsequently, only the standard number will be referenced, not the name
(e.g., IAS 36).
IAS 16 Definitions
[IAS 16.6]
These definitions were taken directly from IAS 16.
Carrying amount
Cost
Cost is the amount of cash or cash equivalents paid or the fair value
of the other consideration given to acquire an asset at the time
of its acquisition or construction or, where applicable, the amount
attributed to that asset when initially recognized in accordance with
the specific requirements of other IFRSs (e.g., IFRS 2 Share-based
Payment).
Depreciable amount
Depreciable amount is the cost of an asset or other amount substituted for cost less its residual value.
Depreciation
Entity-specific value
Fair value
Impairment loss
Recoverable amount
Residual amount
Useful life
June 2013
10
RecognitionIAS 16.7.14
General recognition criteria:
1. must be probable that an item of PP&Es future economic benefits will flow to the entity;
and
2. the item of PP&Es cost can be measured reliably.
Items acquired for safety and environmental reasons, certain spare parts, standby equipment,
servicing equipment and major inspection costs are recognized as they enable an entity to
obtain future economic benefits from other assets.
Measurement at recognitionIAS 16.15.28
An entity considers the IAS 16 recognition criteria for all PP&E costs at the time they are
incurred. These costs include costs incurred initially to acquire or construct an item of PP&E
and costs incurred subsequently to add to or replace part of PP&E.
An item of PP&E should be recognized at cost, which is the amount of cash or cash equivalents paid, or the fair value of other consideration given, to acquire an asset at the time of its
acquisition or construction.
There are specific elements to consider when assessing what contributes to the cost of an
item of PP&E, particularly when such an item is self-constructed rather than acquired. IAS16
provides guidance as to what cost elements should be included and those that should be
excluded from the cost determination.
June 2013
11
12
Scope
[IAS 16.2.5]
Several other standards may be used in conjunction with, or in lieu of, IAS 16 to
recognize and measure PP&E.
IAS 16 does not apply to investment property such as land and buildings
used to earn rental income or held for capital appreciation purposes. Instead,
the provisions of IAS 40 apply. The IAS 16 cost model is relevant in circumstances where this policy is chosen for subsequent measurement of investment
properties.
The following examples look at the relationship between IAS 16 and IAS 40.
Application ExampleS
Relationship between IAS 16 and IAS 40
E xa mple
E xa mple
Company DEF is in the real estate business and has invested in several buildings in many cities across the country. Company DEF derives its revenue
from rental income and would recognize a capital gain or loss from the sale
of these buildings.
These buildings are considered investment property because they are held
to earn rentals and for capital appreciation purposes. As such, they are
recognized under IAS 40. Under this standard, Company DEF may choose to
measure the buildings after recognition by using either the fair value model
or the cost model. Should it choose the cost model, the requirements of
IAS16 would apply.
establish the asset in working condition given its intended use. Cost also includes expenditures
for dismantling and removing items and restoring the site on which they were located, and
borrowing costs on qualifying assets. Purchased software and costs directly related to the
purchase and installation of such software are capitalized as IAS
a component
of related
equipment
16 Property,
Plant
and Equipment
when the software is integral to its functionality. Software that is not considered integral to the
functionality of equipment is classified as an intangible asset.
When parts of an item of property, plant and equipment have different useful lives, they are
accounted for as separate items (major components) of property, plant and equipment.
Gains and losses on disposal of an item of property, plant and equipment are determined by
comparing
the proceeds
fromThe
disposal
withLtd.
the carrying
amount of property,
plant and
Extract
1Excerpt
from
Brick
2012 Financial
Statements
equipment and are recognized within other income (expense) on the consolidated statements of
Note 3Significant
Accounting Policies
comprehensive income.
Property, plant and equipment are used in the ordinary course of business in the production or
supply of goods or services or for administrative purposes. Investment property is property
held to earn rental revenue or for capital appreciation or both. When the use of a property
changes from use in the business to investment property, the propertys cost and accumulated
depreciation is reclassified from property, plant and equipment to investment property.
24
The following insight looks at accounting for the right to use land as to
whether IAS 16, IAS 17 or IAS 38 applies.
Application Insights
Purchase of right to use land
Source
NIFRIC
Meeting Date
September 2012
The following insights were obtained from IFRICitems not taken onto the
agenda report.
Insight
Issue
In January 2012, the Interpretations Committee received a request
to clarify whether the purchase
of a right to use land should be
accounted for as a:
purchase of property, plant and
equipment;
purchase of an intangible asset;
or
lease of land.
In the fact pattern submitted, the
laws and regulations in the jurisdiction concerned do not permit
entities to own freehold title to land.
Instead, entities can purchase the
right to exploit or build on land.
According to the submitter, there is
diversity in practice in the jurisdiction on how to account for a land
right.
Details of the issues that have been considered by the IFRIC but not added to its agenda are
available online at www.ifrs.org/.
June 2013
13
14
E xa mple
Property, plant and equipment include capitalized development and pre-production expenditures that are recorded at cost less
Extract
2Excerpt
fromimpairment
Sherritt
Corporation
accumulated
depreciation and accumulated
losses. International
Cost includes expenditures that
are directly attributable 2012
to the
acquisition of the asset. Also included in the cost of property, plant and equipment are borrowing costs on qualifying capital
Financial
Statements
projects. These are incurred while construction is in progress and before the commencement of commercial production. Once
construction
of an asset is substantially
complete and the Accounting
asset is ready for its intended
use, the costs are depreciated.
Note
2Summary
of Significant
Policies
equipment
andand
land equipment (in part)
2.8 Plant,
Property,
plant
Plant, equipment and land includes assets under construction, equipment and processing, refining, power generation and other
Plant,
equipment
and land (in part)
manufacturing
facilities.
The Corporation recognizes major long-term spare parts and standby equipment as plant, equipment and land when the parts
and equipment are significant and are expected to be used over a period greater than a year, or when the parts and equipment
can be used only in connection with an item of plant, equipment and land. Major inspections and overhauls required at regular
intervals over the useful life of an item of plant, equipment and land are recognized in the carrying amount of the related item if
the inspection or overhaul provides benefit exceeding one year.
Subsequent Costs
Plant and equipment are depreciated using the straight-line method based on estimated useful lives, once the assets are available
for use. Plant and equipment may have components with different useful lives. Depreciation is calculated based on each
Repairs
and Maintenance
individual components useful life. New components are capitalized to the extent that they meet the recognition criteria of an
asset.
The carrying amount of the replaced component is derecognized, and any gain/loss is included in net earnings (loss). If
[IAS
16.12]
the carrying amount of the replaced component is not known, it is estimated based on the cost of the new component less
estimated depreciation. The useful lives of the Corporations plant and equipment are as follows:
Replacement Parts
[IAS 16.13]
Oil and gas properties
Oil and gas properties include acquisition costs and development costs related to properties in production, under development
Costs
incurred
subsequently
in order costs
to relating
add to,
replace
part
of, or service
an
and held
for future development.
Ongoing pre-development
to properties
held for
future development
are
capitalized as incurred, including exploration costs. Development costs incurred to access reserves at producing properties and
item are capitalized if they meet the recognition criteria. In such cases, the
properties under development are capitalized and are depreciated on a unit-of-production basis over the life of such reserves.
Reserves are
measured based
proven andto
probable
reserves.
standard
requires
anonentity
derecognize
the carrying amount of the part
thatDerecognition
has been replaced. This applies whether or not the replaced item has been
An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to
separately
identified and depreciated since acquisition. If the carrying amount
arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference
between
the
net
disposal
proceeds
and the carrying
amount of the item)
is included
net the
earnings
(loss) in the period thesuitably
item
of the replaced
part
cannot
be identified,
the
costinof
replacement,
is derecognized.
depreciated, can be used to estimate the carrying amount of the part being
Capitalization of borrowing costs
replaced
andonderecognized.
Borrowing costs
funds directly attributable to finance the acquisition, construction or production of a qualifying asset are
capitalized until such time as substantially all the activities necessary to prepare the qualifying asset for its intended use or sale
are complete. A qualifying asset is one that takes a substantial period of time to prepare the asset for its intended use. Where
money borrowed specifically to finance a project is invested to earn interest income, the income generated is also capitalized to
reduce the total capitalized borrowing costs.
13
June 2013
15
16
option award
is expensed
on the
grant date.
Forcard
a stock
option
award attributable
to an Current
employee
who will
accounts
relating
to Air Canada
Vacations
credit
booking
transactions,
recorded under
liabilities,
forbecome
certain
eligiblerelated
to retire
during the vesting period, the fair value of the stock option award is recognized over the period from the
travel
activities.
grant date to the date the employee becomes eligible to retire. The Corporation recognizes compensation expense and a
Restricted
cashadjustment
with maturities
greater than
one year
thefair
balance
is recorded
in Deposits
corresponding
to Contributed
surplus
equalfrom
to the
value sheet
of thedate
equity
instruments
granted and
usingother
the
Guide
to International
Financial
Reporting
inwith
Canada
assets.
This restricted
cash
relates
funds
on deposit
various
financial
institutions
as collateral
for letters
of credit
Black-Scholes
option pricing
modeltotaking
into
consideration
forfeiture
estimates.
Compensation
expense
is adjusted
for
and
other items.
subsequent
changes in managements estimate of the number of options that are expected to vest.
S) AIRCRAFT
FUEL
INVENTORY
AND as
SUPPLIES
INVENTORY
Grants
of PSUs are
accounted
for asAND
cash SPARE
settled PARTS
instruments
described
in Note 14. Accordingly, the Corporation
recognizes compensation expense at fair value on a straight line basis over the applicable vesting period, taking into
Inventories of aircraft fuel and spare parts, other than rotables, and supplies are measured at the lower of cost and net
consideration forfeiture estimates. Compensation expense is adjusted for subsequent changes in the fair value of the
realizable value, with cost being determined using a weighted average formula.
PSU and managements current estimate of the number of PSUs that are expected to vest. The liability related to cash
settled
PSUs is recorded
Other long-term
liabilities.
to Noteor17reversals
for a description
of derivative
instruments
The
Corporation
did not in
recognize
any write-downs
onRefer
inventories
of any previous
write-downs
duringused
the
by the Corporation to hedge the cash flow exposure to PSUs.
periods presented.
Included in Aircraft
is $43 related
to spare
parts and supplies
consumed during the year
Extract
3Excerpt
frommaintenance
Air Canada
2012
Financial
Statements
(2011 $39).
Air Canada also maintains an employee share purchase plan. Under this plan, contributions by the Corporations
Note
2Basis
of Presentation
and
Summary
of must
Significant
employees
are matched
to a specific percentage by
the Corporation.
Employees
remain with the Accounting
Corporation until
T) PROPERTY AND EQUIPMENT
March
31
of
the
subsequent
year
for
vesting
of
the
Corporations
contributions.
These
contributions are expensed in
Policies
Property
and equipment
is recognized
usingthe
thevesting
cost model.
Wages, salaries,
and benefits
expense over
period.Property under finance leases and the related obligation for
future lease payments
initially recorded
at an amount equal to the lesser of fair value of the property or equipment
J) Maintenance
and are
repairs
(in part)
J) the
MAINTENANCE
and
present value ofAND
thoseREPAIRS
lease payments.
Maintenance
and allocates
repair costs
both leased
andrecognized
owned aircraft
are charged
Aircraft
maintenance
as incurred,towith
The Corporation
theforamount
initially
in respect
of an to
item
of property
and equipment
its
the
exception
of maintenance
and repair costs
relatedeach
to return
conditions
on aircraft
operating
which are
significant
components
and depreciates
separately
component.
Property
and under
equipment
are lease,
depreciated
to
Saskatchewan
accrued
over
the
term
of
the
lease,
and
major
maintenance
expenditures
on
owned
and
finance
leased
aircraft,
which
are
estimated residual values based on the straight-line method over their estimated service lives. Aircraft and flight
capitalized
as
described
below
in
Note
2T.
equipment are componentized into airframe, engine, and cabin interior equipment and modifications. Airframe and
engines are depreciated over 20 to 25 years, with 10% to 20% estimated residual values. Cabin interior equipment and
Maintenance and repair costs related to return conditions on aircraft leases are recorded over the term of the lease for
modifications
are depreciated
over the lesser
of 5 years or the remaining useful life of the aircraft. Spare engines and
T) Property
and
equipment
part)
the end of lease
maintenance
return(in
condition
obligations within the Corporations operating leases, offset by a prepaid
related parts (rotables) are depreciated over the average remaining useful life of the fleet to which they relate with
maintenance asset to the extent of any related power-by-the-hour maintenance service agreements or any recoveries
10% to 20% estimated residual values. Cabin interior equipment and modifications to aircraft on operating leases are
under aircraft subleasing arrangements. The provision is recorded within Maintenance provisions using a discount rate
amortized over the term of the lease. Major maintenance of airframes and engines, including replacement spares and
taking into account the specific risks of the liability over the remaining term of the lease. Interest accretion on the
parts, labour costs and/or third party maintenance service costs, are capitalized and amortized over the average
provision is recorded in Other non-operating expense. For aircraft under operating leases which are subleased to third
expected life between major maintenance events. Major maintenance events typically consist of more complex
parties, the expense relating to the provision is presented net on the income statement of the amount recognized for
inspections and servicing of the aircraft. All maintenance of fleet assets provided under power-by-the-hour contracts are
any reimbursement of maintenance cost which is the contractual obligation of the sublessee. The reimbursement is
charged to operating expenses in the income statement as incurred, respectively. Buildings are depreciated on a
recognized when it is virtually certain that reimbursement will be received when the Corporation settles the obligation.
(continued)
straight-line basis over their useful lives not exceeding
50 years or the term of any related lease, whichever is less.
Any changes in the maintenance cost estimate, discount rates, timing of settlement or difference in the actual
Leasehold improvements are amortized over the lesser of the lease term or 5 years. Ground and other equipment is
maintenance cost incurred and the amount of the provision is recorded in Aircraft maintenance in the period.
depreciated over 3 to 25 years.
c.Extract
Property 4Excerpt
and equipment from Saskatchewan Transportation
Property and equipment are recorded at cost less accumulated
Financial Statements
depreciation and any provisions for impairment. Cost includes
Note
4Significant
Accounting
expenditure
that is directly
attributable to Policies
the acquisition of the
asset. The and
cost of
self-constructed
assets includes materials,
c. Property
equipment
(in part)
services, direct labour and directly attributable overheads.
g.
The costs of maintenance, repairs, renewals or replacements which do
not extend productive life are charged to operations as incurred. The
costs of replacements and improvements which extend productive life
are capitalized. The cost of replacing part of an item of property and
equipment is recognized in the carrying amount of the item if it is
probable that the future economic benefits embodied within the part
will flow to the Company and its cost can be measured reliably. The
carrying amount of the replaced part is derecognized. The costs of
the day-to-day servicing of property and equipment are recognized in
total comprehensive loss as incurred.
When property and equipment are disposed of or retired, the
related costs and accumulated depreciation are eliminated from the
Major
Inspections
accounts.
Any resulting gains or losses are reflected in the
statement
[IAS
16.14] of comprehensive loss for the period.
Company recognizes
Company
2012 a portion of the capital grant as reve
PP&E are carried at cost less accumulated amortization and impairment losses. The cost of an item of PP&E
IAS 16 Property, Plant and Equipment
includes its purchase price or manufacturing cost, borrowing costs as well as other costs incurred in bringing the
asset to its present location and condition. If the cost of certain components of an item of PP&E is significant in
relation to the total cost of the item, the total cost is allocated between the various components, which are then
separately depreciated over the estimated useful lives of each respective component. The amortization of PP&E
is computed on a straight-line basis over the following useful lives:
Buildings
Equipment
Other
5 to 75 years
2 to 15 years
3 to 20 years
accounted for prospectively. The amortization expense and impairments are recorded in cost of sales, SG&A or
R&D expenses
the function of(in
thepart)
underlying asset. Amortization of assets under construction begins
Property,
plant based
and on
equipment
when the asset is ready for its intended use.
When a significant part is replaced or a major inspection or overhaul is performed, its cost is recognized in the
carrying amount of the PP&E if the recognition criteria are satisfied, and the carrying amount of the replaced part
or previous inspection or overhaul is derecognized. All other repair and maintenance costs are charged to income
when incurred.
Intangible assets
Internally generated intangible assets include development costs (mostly aircraft prototype design and testing
costs) and internally developed or modified application software. These costs are capitalized when certain criteria
for deferral such as proven technical feasibility are met. The costs of internally generated intangible assets
include the cost of materials, direct labour, manufacturing overheads and borrowing costs.
Measurement at Recognition
[IAS 16.15.28]
Acquired intangible assets include the cost of development activities carried out by vendors for which the
Corporation controls the underlying output of the usage of the technology, as well as the cost related to externally
PP&E
is initially
recognized
at cost. Cost is the cash price equivalent or fair value
acquired
licences, patents
and trademarks.
of other
consideration given at the recognition date. If payment is deferred
Intangible assets are recorded at cost less accumulated amortization and impairment losses and include goodwill,
aerospace
programcredit
tooling, as
well as other
assets such
as licenses,
patents
and price
trademarks.
Other
beyond normal
terms,
theintangible
difference
between
the
cash
equivalent
intangible assets are included in other assets.
and the total payment is recognized as interest over the period of credit unless
such interest is capitalized in accordance with IAS 23. Cost includes all expenditures directly attributed to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.
IAS 16 provides guidance on the elements of the cost of an item of PP&E. The
following illustration summarizes some elements of the cost of PP&E and some
costs that are excluded. Note that this is not meant to be a comprehensive list.
Illustration 1Included and Excluded Costs of PP&E
142
Included
costs
Excluded costs
June 2013
17
18
NIFRIC
Meeting Date
July 2011
The following insights were obtained from IFRICitems not taken onto the
agenda report.
Insight
Issue
The Committee noted that paragraph 17(e) of IAS 16 applies separately to each item of property, plant
and equipment. It also observed that
the commercial production date
referred to in the submission for
the whole complex was a different
concept from the available for use
assessment in paragraph 16(b) of
IAS 16. The Committee thinks that
the guidance in IAS 16 is sufficient
to identify the date at which an item
of property, plant and equipment
is available for use and, therefore,
is sufficient to distinguish proceeds
that reduce costs of testing an asset
from revenue from commercial
production.
As a result, the Committee does not
expect diversity to arise in practice
and therefore decided not to add
this issue to its agenda.
Details of the issues that have been considered by the IFRIC but not added to its agenda are
available online at www.ifrs.org/.
If an entity makes similar assets for sale in the normal course of business, the
costs of the asset are usually the same as the costs of constructing an asset
for sale. Therefore, any internal profits are excluded.
IAS 16 specifically excludes the cost of abnormal amounts of wasted material,
labour
or other resources
incurred in self-constructing an asset.
(ii) Termination
benefits:
Termination benefits are recognized as an expense when the
Company6Excerpt
is committed
without
realistic
possibility of
Extract
from
Rogers
Communications
Inc. 2012 Financial
withdrawal, to a formal detailed plan to terminate employment
before the normal retirement date.
Statements
(r)
(r) (i)
Property,
plant and equipment: (in part)
Recognition and measurement:
(i) Items
Recognition
andare
measurement:
part)less accumulated
of PP&E
measured at(in cost
depreciation and accumulated impairment losses.
onsolidated statements of income over the estimated useful lives of the PP&E as follows:
are
Basis
An entity must capitalize borrowing costs for qualifying assets that are directly
Diminishing balance
5 to 25 years
attributable to the acquisition, construction 3ortoproduction
of the qualifying asset.
Straight-line
30 years
Straight-line
Straight-line
Straight-line
Diminishing balance
4 to 10 years
3 to 5 years
Over shorter of estimated
useful life and lease term
3 to 20 years
June 2013
19
ACCOUNTING POLICIES
Incidental income derived from operating PP&E prior to its substantial completion and readiness for use is recognized as part of the cost of the asset provided it is necessary to bring the asset to its intended use.
Income and related expenses of incidental operations that are not necessary
to bring an asset to the condition and location for its intended use, or that are
incurred after the asset is already in the location and condition necessary for
operating as intended, are recognized in profit or loss.
Application Example
Incidental income
E xa mple
Extract
8Excerpt from Cenovus Energy Inc. 2012 Financial
Q) Borrowing Costs
Statements
Borrowing costs are recognized as an expense in the period in which they are incurred unless there is a qualifying
asset. Borrowing costs directly associated with the acquisition, construction or production of a qualifying asset are
Note
3Summary
of period
Significant
Accounting
Policies
capitalized
when a substantial
of time is required
to make the asset
ready for its intended use. Capitalization
of borrowing costs ceases when the asset is in the location and condition necessary for its intended use.
R) Government Grants
Government grants are recognized at fair value when there is reasonable assurance that the grants will be received
and the Company will comply with the conditions of the grant. Grants related to assets are recorded as a reduction
of the assets carrying value and are depreciated over the useful life of the asset. Grants related to income are
treated as a reduction of the related expense in the Consolidated Statements of Earnings and Comprehensive
Income.
S) Leases
Leases in which substantially all of the risks and rewards of ownership are retained by the lessor are classified as
operating
leases.
Operating
lease payments
are recognized as an expense on a straight-line basis over the lease
Assets
Held
under
a Finance
Lease
term.
[IAS
16.4where
andthe.27]
Leases
Company assumes substantially all the risks and rewards of ownership are classified as finance
leases within property, plant and equipment.
TheT)initial
measurement
cost for PP&E acquired under the form of a finance
Business
Combinations and of
Goodwill
Business
combinations are under
accountedthe
for using
the acquisition
of accounting
the identifiable
assets
lease
is determined
provisions
ofmethod
IAS 17.
Once ain which
leased
asset held
acquired, liabilities assumed and any non-controlling interest are recognized and measured at their fair value at the
date
of
acquisition.
Any
excess
of
the
purchase
price
plus
any
non-controlling
interest
over
the
fair
value
of
the
under a finance lease has been recognized, its subsequent measurement net
assets acquired is recognized as goodwill. Any deficiency of the purchase price over the fair value of the net assets
acquired
is credited
to net earnings.in IAS 16 (e.g., use of the cost model or revaluation
follows
the
requirements
At acquisition, goodwill is allocated to each of the CGUs to which it relates. Subsequent measurement of goodwill is
model
depreciation).
at costand
less any
accumulated impairment losses.
U) Provisions
Non-Monetary
Transactions
General
[IAS
16.24.26]
A provision
is recognized if, as a result
18
June 2013
21
22
An entity determines whether an exchange transaction has commercial substance by considering the extent to which its future cash flows are expected to
change as a result of the transaction. An exchange transaction has commercial
substance if:
the configuration (i.e., risk, timing and amount) of the cash flows of the
asset received differs from the configuration of the cash flows of the asset
transferred; or
the entity-specific value of the portion of the entitys operations affected by
the transaction changes as a result of the exchange; and
GREAT
CANADIAN
GAMING
CORPORATION
the
difference
in the
points above is significant relative to the fair value of
Notes to the Consolidated Financial Statements
exchanged.
For thethe
Yearsassets
Ended December
31, 2012 and 2011
3.
Recall that entity-specific value is the present value of the cash flows an entity
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (Continued)
expects to arise from the continuing use of an asset and from its disposal at
intangible assets purchased and liabilities assumed on the basis of their fair values at the date of
For the
purpose of determining commercial substance, the entity-specific value
acquisition. The identification of assets purchased and liabilities assumed and the valuation thereof is
Where
appropriate, the
Company engages
valuators should
to assist in
of thespecialized
portionand
ofjudgmental.
the entitys
operations
affected
by thebusiness
transaction
the valuation of tangible and intangible assets acquired. Any excess of purchase price over the fair
reflectvalue
post-tax
cash flows.
of the identifiable
tangible and intangible assets purchased and liabilities assumed is allocated to
goodwill.
Extract
from
the Great
Gaming
Corporation
2012
When 9Excerpt
a business combination
involves
contingent Canadian
consideration, an
amount equal
to the fair value of
the
contingent
consideration
is
recorded
as
a
liability
at
the
time
of
acquisition.
The
key
assumptions
Financial Statements
utilized in determining fair value may include probabilities associated with the occurrence of specified
events, financial
projections of the
acquired business,
timing of future cash flows, and the
Note future
3Critical
Accounting
Estimates
and the
Judgments
appropriate discount rate.
The Company
estimates
the Customers
cost of equity-settled
share-based
Transfers
of Assets
from
[IFRIC
18] compensation using the Black-Scholes
option pricing model. The model takes into account an estimate of the expected life of the option, the
current
price of the underlying
common
share, theor
expected
volatility,
an estimate
future dividends
on
In some
industries,
suppliers
of goods
services
require
(or of
allow)
their custhe underlying common share, the risk-free rate of return expected for an instrument with a term equal
tomers
toexpected
contribute
PP&E
cash
to construct
or acquire PP&E items)
to the
life of the
option,items
and the (or
expected
forfeiture
rate.
to support the customers ongoing access to a supply of goods or services.
Income taxes
Examples include PP&E to connect to utilities such as gas, electricity or water
Deferred tax assets and liabilities are due to temporary differences between the carrying amount for
and PP&E
provided
outsourcing
provider.
The
Interaccounting
purposes to
andan
theinformation
tax basis of certain
assets and liabilities,
as well
as IFRS
undeducted
tax
losses. Estimation is required for the timing of the reversal of these temporary differences and the tax
pretations
Committee
clarified
the
accounting
treatment
for
how
the
entity
rate applied. The carrying amounts of assets and liabilities are based on amounts recorded in the
financial
statements
and are subject to
thereceipt
accountingof
estimates
inherent(or
in those
balances.
The tax
receiving
the
PP&E recognizes
the
the assets
cash
specifically
basis of assets and liabilities and the amount of undeducted tax losses are based on the applicable
designated
forlegislation,
the acquisition
or construction
oftiming
PP&E
items)
from
itstemporary
customincome tax
regulations and
interpretations. The
of the
reversal
of the
differences and the timing of deduction of tax losses are based on estimations of the Companys future
ers (IFRIC
18).
financial results.
Changesthat
in thetransfer
expected is
operating
results,
tax rates, legislation
or regulations,
and the if
Essentially,
treated
as aenacted
non-monetary
transaction.
Therefore,
Companys interpretations of income tax legislation will result in adjustments to the expectations of
future
timing
difference reversals
may require meets
material deferred
tax adjustments.
a PP&E
item
received
from aand
customer
the definition
of an asset (i.e., the
item is a resource the entity controls as a result of past events and from which
Page 18
future economic benefits are expected to flow), that item should be measured
at fair value as a non-monetary transaction as described above. If, however, the
customer continues to exercise control after ownership of the item is transferred, the item cannot be recognized as an asset.
It is important to note that government grants in the form of transfers of
resources to an entity in return for past or future compliance with certain conditions relating to the entitys operating activities are excluded from IFRIC 18
and should be accounted for under IAS 20. In addition, IFRIC 18 does not apply
to agreements covering the transfer of infrastructure used in public-to-private
service concession arrangements and falling within the scope of IFRIC 12.
The following insight looks at the issue of how IFRIC 18 applies to customer
transfer of assets within the scope of IFRIC 18. Note the date of the NIFRIC.
Even though some NIFRICs are older, they still provide some insight into how
the standards are interpreted by the standard setters.
Application Insights
Applicability of IFRIC 18 to the customer
Source
NIFRIC
Meeting Date
July 2009
The following insights were obtained from IFRICitems not taken onto the
agenda report.
Insight
Issue
June 2013
23
24
Subsequent Measurement
Cost
[IAS 16.30]
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the
period in which the liability is settled or the asset realized, based on tax rates (and tax laws)
that cost
have been
enacted
or substantively
enacted
by is
the recognized
end of the reporting
Theit is
Under the
model,
once
an item of
PP&E
as anperiod.
asset,
measurement of deferred tax liabilities and assets reflects the tax consequences that would
carried at
its from
costtheless
any
accumulated
accumulated
follow
manner
in which
the Companydepreciation
expects, at the endand
of theany
reporting
period, to
recover
or settle This
the carrying
amount
of its assets method
and liabilities.
impairment
losses.
is the
traditional
of accounting for PP&E.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off
Extract
10Excerpt
from
The
Brick and
Ltd.
2012
income
tax assets against
income
tax liabilities
when
they Financial
relate to incomeStatements
taxes levied by
3.9
3.9.1
Revaluation Model
Gains and losses on disposal of an item of property, plant and equipment are determined by
[IAS 16.31.42]
comparing the proceeds from disposal with the carrying amount of property, plant and
equipment and are recognized within other income (expense) on the consolidated statements of
Once a model
is selected,
it applies to an entire class of PP&E. Thus, if an item
comprehensive
income.
of3.9.2
PP&EReclassification
is revalued, to
the
entire
class of PP&E to which that asset belongs has
investment property
to be revalued
to prevent
selective
revaluation.
A class
of PP&E
is defined
as
Property, plant
and equipment
are used in
the ordinary course
of business
in the production
or
supply
of
goods
or
services
or
for
administrative
purposes.
Investment
property
is
property
a grouping of assets of a similar nature and use in an entitys operations. The
held to earn rental revenue or for capital appreciation or both. When the use of a property
followingchanges
illustration
includes
examples
separate
asset cost
classes
identified in
from use in
the business
to investmentofproperty,
the propertys
and accumulated
IAS 16. depreciation is reclassified from property, plant and equipment to investment property.
24
June 2013
25
26
June 2013
27
28
included in other comprehensive income (OCI) and accumulated in equity under the heading revaluation surplus.
Subsequent revaluation
increase
Subsequent revaluation
decrease
E xa mple
Revaluation
FV
Difference
between
FV and CA
#1
$600,000
+$100,000
+$100,000
#2
$400,000
-$200,000
-$100,000
-$100,000
#3
$750,000
+$350,000
+$250,000
+$100,000
Recognized
in OCI
Recognized
in profit or loss
Application Example
Initial revaluation is an increase in carrying amount
At the first revaluation, a $100,000 increase in the carrying amount of the building and a corresponding increase in OCI is recognized. A revaluation surplus of $100,000 is included as a
separate line item in equity.
At the second revaluation, the carrying amount of the building is decreased by $200,000,
which represents the difference between the carrying amount of the building before revaluation ($600,000) and the revalued amount (fair value of $400,000). Because the second
revaluation decreases the carrying amount, the decrease is applied first to the revaluation
surplus balance. A reversal of $100,000 will be recognized in OCI and a loss of $100,000
will be recognized in profit or loss.
For the third revaluation, the carrying amount of the building has increased $350,000, which
represents the difference between the carrying amount of the building before the revaluation ($400,000) and the revalued amount (fair value of $750,000). An amount of $100,000
is recognized in profit or loss to reverse the loss recognized in the previous revaluation. The
remaining $250,000 is recognized in OCI. A revaluation surplus of $250,000 is included as
a separate line item in equity.
Application Example
Initial revaluation is a decrease in carrying amount
E xa mple
Revaluation
FV
Difference
between
FV and CA
#1
$400,000
-$100,000
-$100,000
#2
$700,000
+$300,000
+$200,000
+$100,000
#3
$350,000
-$350,000
-$200,000
-$150,000
Recognized
in OCI
Recognized
in profit or loss
At the first revaluation, a $100,000 decrease in the carrying amount of the building and a
corresponding charge to profit or loss is recognized (there is no revaluation surplus related
this asset).
At the second revaluation, the carrying amount of the building is increased by $300,000,
which represents the difference between the carrying amount of the building before revaluation ($400,000) and the revalued amount (fair value of $700,000). The $100,000 loss recognized for the previous revaluation is reversed, with the difference of $200,000 recognized in
OCI. A revaluation surplus of $200,000 is included as a separate line item in equity.
For the third revaluation, the carrying amount of the building has decreased to $350,000,
which represents the difference between the carrying amount of the building before the
revaluation ($700,000) and the revalued amount (fair value of $350,000). The decrease is
applied first to the revaluation surplus balance. A reversal of $200,000 will be recognized
in OCI and a loss of $150,000 will be recognized in profit or loss.
June 2013
29
30
Application Example
Initial revaluation is a decrease in carrying amount
E xa mple
This example includes the impact of revaluation adjustments and the effect
on depreciation.
ABC Ltd. has elected the revaluation model to account for its building. There
is only one building in the asset class. The building cost is $1 million and
is being depreciated on a straight-line basis over its estimated useful life
of 20 years.
Year
CA at
the end of
the year
FV at
the end
of the
year
Difference
CAFA
Depreciation
for the year
(in profit
or loss)
Revaluation
recognized
in OCI
Revaluation
recognized
in profit
or loss
$950,000
$950,000
$50,000
$900,000
$900,000
$50,000
$850,000
$850,000
$50,000
$800,000
$600,000
-$200,000
$50,000
-$200,000
$562,500
($600,000
$37,500)
$562,500
$37,500
($600,000
/16)
$525,000
$525,000
$37,500
$487,500
$700,000
+$212,500
$37,500
$50,000
$162,500
In years one through three the carrying amount approximates fair value. Depreciation is
$50,000 yearly ($1,000,000 / 20 years).
At the end of the fourth year, when the carrying amount is $800,000, a revaluation results in a
revaluation adjustment of -$200,000 recognized in profit or loss. Depreciation is $50,000 for
year four but decreases to $37,500 for year five based on the carrying amount of $600,000
at the beginning of the year and an estimated remaining useful life of 16 years.
At the end of the seventh year, when the carrying amount is $487,500, the fair value is
$700,000. This results in a revaluation adjustment of $212,500. To determine the amount to
recognize in profit or loss, the loss previously recognized in profit or loss and the reduction in
depreciation as a result of the revaluation adjustment need to be considered. The portion of
the revaluation adjustment recognized in profit or loss is equal to $200,000 (the reversal of
the previous revaluation loss) less an adjustment for the extra depreciation that would have
been recognized in profit or loss without the revaluation adjustment (($50,000 $37,500)
3 years = $37,500). Thus $162,500 is a credit to profit or loss and the remainder is recognized
in OCI ($212,5000 $162,500 = $50,000). A revaluation surplus of $50,000 is included as
a separate line item in equity. This represents the excess of the carrying amount using the
revaluation method ($700,000) over what it would have been using the cost method, with
no revaluations recognized (($1,000,000 ($50,000 7 years) = $750,000).
A constructive obligation is an obligation derived from an entitys actions where an established pattern of
past practice, published policy or a sufficiently specific current statement indicating to other parties that
it will accept certain responsibilities have created a valid expectation on the part of other parties that the
entity will discharge those responsibilities.
June 2013
31
32
The change is recognized either in the revaluation surplus or deficit previously recognized.
A decrease in the obligation is recognized
in OCI and increases the revaluation surplus in equity unless it reverses a revaluation deficit recognized previously in profit
or loss. If, so, this portion is recognized in
profit or loss.
If the liability decrease exceeds the carrying amount that would have been recognized had the asset been measured using
the cost model, the excess is recognized
in profit or loss.
An increase in the obligation is recognized in profit or loss unless there is a
credit balance in the revaluation surplus
related to the asset. If so, the increase is
recognized in OCI to the extent of the
credit balance in the revaluation surplus
in equity.
The change in the obligation may be
an indication that the asset has to be
revalued. If a revaluation is necessary,
the entire class has to be revalued.
Once the related asset has reached the end of its useful life, all subsequent
changes in the liability must be recognized in profit or loss as they occur.
Moreover, the unwinding of the discount should be recognized in profit
or loss as a finance cost. Under IAS 23, capitalization is not permitted.
An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment
losses recognized with respect to CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the units and
then to reduce the carrying amounts of the other assets in the CGU or group of CGUs on a pro rata basis. Impairment losses are
recognized in depletion, depreciation, amortization and impairment in the consolidated statements of income.
Impairment losses recognized for other assets in prior years are assessed at the end of each reporting period for any indications
Extract
11Excerpt from Husky Energy Inc. 2012 Financial Statements
that the impairment condition has decreased or no longer exists. An impairment loss is reversed only to the extent that the
carrying
amount of the asset or CGU
does not exceed the
carrying amount that would have been determined, net of depletion,
Note
3Significant
Accounting
Policies
depreciation and amortization, if no impairment loss had been recognized.
Depreciation
and Other
Contingent
Mattersto income for depreciation based on an
IASj) 16Legal
requires
an annual
charge
allocation
ofliabilities
the cost
less
itsareresidual
itscircumstance
useful life,
Provisions and
for legalof
andan
otherasset,
contingent
matters
recognized invalue,
the periodover
when the
becomes
probable that a future cash outflow resulting from past operations or events will occur and the amount of the cash outflow can be
including
any idleTheperiod
or period
in whichofthe
assetrequires
is retired
fromof active
use.
reasonably estimated.
timing of recognition
and measurement
the provision
the application
judgment to
existing facts and circumstances, which can be subject to change, and the carrying amounts of provisions and liabilities are
Depreciation
may
be
nil,
however,
if
a
usage
method
is
applied
and
there
is
no
reviewed regularly and adjusted accordingly. The Company is required to both determine whether a loss is probable based on
judgment and from
interpretation
laws and regulations, and determine that the loss can be reasonably estimated. When a loss is
production
theofasset.
recognized, it is charged to net earnings. The Company continually monitors known and potential contingent matters and makes
appropriate provisions when warranted by the circumstances present.
The mechanics of depreciation are the same for the cost and revaluation model
k) Share Capital
in that
cost or revalued amount, less any residual value, is amortized over
Preferred
shares
areof
classified
equity since
they are cancellable
and redeemable
only at the
option and dividends
are
the useful
life
an as
asset.
Although,
as we
have seen
in Company's
the application
examdiscretionary and payable only if declared by the Board of Directors. Incremental costs directly attributable to the issuance of
ples
in and
the
section
the as
application
of the
the
shares
stock
options areon
recognized
a deduction from equity,
net ofrevaluation
tax. Common sharemodel,
dividends are
paidmechanics
out in common
shares or in cash, and preferred share dividends are paid in cash. Both common and preferred share dividends are recognized as
of calculating
distributions within the
equity.depreciation expense under the revaluation model may pose
some difficulties, the determination of depreciation remains fundamentally the
same under both models.
Consolidated Financial Statements
June 2013
33
34
Component Accounting
[IAS 16.43.47]
IAS 16 requires the application of component accounting. The main objective
of component accounting is to ensure the costs of an assets significant components are depreciated over their appropriate useful lives, rather than the
useful life of the asset taken as a whole. Note that a separate component can
be either physical (e.g., a motor on an aircraft) or nonphysical (e.g., a major
overhaul or inspection).
The allocation of cost to components requires judgment and careful analysis of
facts and circumstances. There is no prescribed methodology for determining
significant components.
One could, however, consider the use of a valuator to determine values of
assets and components. Alternatively, insurance appraisal reports may have
components listed for significant assets, which could be useful in determining the value of significant components. Where an entity has several locations
(e.g., a company with relatively homogeneous manufacturing plants around the
world) it might consider using a pilot-project approach. Under a pilot project,
the company would pick one plant for evaluation by valuators, engineers or
other appropriate personnel. Their findings would then be applied to the other
plants in the organization and produce results not materially different from
what might have been obtained had all individual plants been evaluated on
their own. One must recall that the components must be significant to the
overall asset. Therefore, the asset should not have a significant number of
components.
Each component part of a PP&E item costing a significant amount in relation
to the items total cost is depreciated separately. When, however, significant
parts of a PP&E item have the same useful lives and depreciation method, they
may be grouped together for depreciation purposes.
As an example, a building may have several components (e.g., the roof, door
frames, walls, floors, elevators, escalators, etc.), but only some of these components may be considered significant. In addition, the walls, doorframes and
floors may all have the same useful lives and can be grouped together.
assumed to be purchased are included in the calculation. The number of shares included with respect to performancebased employee
share
and PSUs are treated as contingently issuable shares because their issue is contingent
Allocation
of cost
tooptions
components
based employee share options and PSUs are treated as contingently issuable shares because their issue is contingent
upon satisfying specified conditions in addition to the passage of time. If the specified conditions are met, then the
upon satisfying specified conditions in addition to the passage of time. If the specified conditions are met, then the
number of shares included
is alsoacquires
computed using
the treasury
method unless
they areproposes
anti-dilutive.
ABC Ltd.
a building.
Anstock
insurance
valuator
number of shares included
is also computed using
the treasury
stock
method unless
they are anti-dilutive.that the building has two significant components (i.e., the roof and the elevators) repreP) CASH AND CASH EQUIVALENTS
P) CASH AND CASH
EQUIVALENTS
senting
15% and 18% respectively of the relative fair value of the building.
Cash and cash equivalents
include $218
to investments
with original
maturities
three
months
or less at to
The building
waspertaining
acquired
for $750,000
and its
usefulof
was
determined
Cash and cash equivalents
include $218
pertaining
to investments
with original
maturities
oflife
three
months
or less at
December 31, 2012be
($356
at December
31, 2011).
acceptances
and bankers
50as
The roof
and Investments
elevatorsinclude
have bankers
an estimated
useful
life of discount
15 years
December 31, 2012 ($356
asyears.
at December
31, 2011).
Investments
include
bankers
acceptances
and bankers
discount
notes, which may be liquidated promptly and have original maturities of three months or less.
25 years
respectively.
The
building
is measured
using the cost model.
notes, which may beand
liquidated
promptly
and have original
maturities
of three
months or less.
simplicity, residual value is deemed to be nil.
Q) SHORT-TERMFor
INVESTMENTS
Q) SHORT-TERM INVESTMENTS
investments,
comprised of bankers
acceptances and bankers discount notes, have original maturities over
TheShort-term
components
are depreciated
as follows:
Short-term
investments,
comprised of bankers
acceptances and bankers discount notes, have original maturities over
E xa mple
R) RESTRICTED CASH
Component
R) RESTRICTED CASH
Carrying amount
Useful life
Depreciation
The Corporation has recorded Restricted cash under Current assets representing funds held in trust by Air Canada
The (15%)
Corporation has recorded Restricted cash under Current15assets
representing funds held in trust by Air Canada
Roof
Vacations in accordance with$112,500
regulatory requirements governingyears
advance ticket sales, as well$7,500
as funds held in escrow
Vacations in accordance with regulatory requirements governing advance ticket sales, as well as funds held in escrow
accounts relating to Air Canada Vacations credit card booking transactions, recorded under Current liabilities, for certain
accounts relating to Air Canada Vacations credit card booking transactions, recorded under Current liabilities, for certain
Elevator
(18%)
$135,000
25 years
$5,400
travel related
activities.
travel related activities.
Restricted(67%)
cash with maturities
greater than one year from the
date is recorded
in Deposits and other
Building
$502,500
50 balance
years sheet
$10,050
Restricted cash with maturities
greater than one year from the
balance
sheet date is recorded
in Deposits and other
assets. This restricted cash relates to funds on deposit with various financial institutions as collateral for letters of credit
assets. This restricted cash relates to funds on deposit with various financial institutions as collateral for letters of credit
$750,000
$22,950
The Corporation did not recognize any write-downs on inventories or reversals of any previous write-downs during the
The Corporation did not recognize any write-downs on inventories or reversals of any previous write-downs during the
periods presented. Included in Aircraft maintenance is $43 related to spare parts and supplies consumed during the year
periods presented. Included in Aircraft maintenance is $43 related to spare parts and supplies consumed during the year
(2011 $39).
Extract
12Excerpt from Air Canada 2012 Financial Statements
(2011 $39).
NoteT)2Basis
of EQUIPMENT
Presentation and Summary of Significant Accounting
PROPERTY AND
T) PROPERTY AND EQUIPMENT
Property and equipment is recognized using the cost model. Property under finance leases and the related obligation for
Policies
Property and equipment is recognized using the cost model. Property under finance leases and the related obligation for
future lease payments are initially recorded at an amount equal to the lesser of fair value of the property or equipment
The Corporation allocates the amount initially recognized in respect of an item of property and equipment to its
The Corporation allocates the amount initially recognized in respect of an item of property and equipment to its
significant components and depreciates separately each component. Property and equipment are depreciated to
significant components and depreciates separately each component. Property and equipment are depreciated to
estimated residual values based on the straight-line method over their estimated service lives. Aircraft and flight
estimated residual values based on the straight-line method over their estimated service lives. Aircraft and flight
equipment are componentized into airframe, engine, and cabin interior equipment and modifications. Airframe and
equipment are componentized into airframe, engine, and cabin interior equipment and modifications. Airframe and
engines are depreciated over 20 to 25 years, with 10% to 20% estimated residual values. Cabin interior equipment and
engines are depreciated over 20 to 25 years, with 10% to 20% estimated residual values. Cabin interior equipment and
modifications are depreciated over the lesser of 5 years or the remaining useful life of the aircraft. Spare engines and
modifications are depreciated over the lesser of 5 years or the remaining useful life of the aircraft. Spare engines and
related parts (rotables) are depreciated over the average remaining useful life of the fleet to which they relate with
related parts (rotables) are depreciated over the average remaining useful life of the fleet to which they relate with
10% to 20% estimated residual values. Cabin interior equipment and modifications to aircraft on operating leases are
10% to 20% estimated residual values. Cabin interior equipment and modifications to aircraft on operating leases are
amortized over the term of the lease. Major maintenance of airframes and engines, including replacement spares and
amortized over the term of the lease. Major maintenance of airframes and engines, including replacement spares and
parts, labour costs and/or third party maintenance service costs, are capitalized and amortized over the average
parts, labour costs and/or third party maintenance service costs, are capitalized and amortized over the average
expected life between major maintenance events. Major maintenance events typically consist of more complex
expected life between major maintenance events. Major maintenance events typically consist of more complex
inspections and servicing of the aircraft. All maintenance of fleet assets provided under power-by-the-hour contracts are
inspections and servicing of the aircraft. All maintenance of fleet assets provided under power-by-the-hour contracts are
charged to operating expenses in the income statement as incurred, respectively. Buildings are depreciated on a
charged to operating expenses in the income statement as incurred, respectively. Buildings are depreciated on a
straight-line basis over their useful lives not exceeding 50 years or the term of any related lease, whichever is less.
straight-line basis over their useful lives not exceeding 50 years or the term of any related lease, whichever is less.
Leasehold improvements are amortized over the lesser of the lease term or 5 years. Ground and other equipment is
Leasehold improvements are amortized over the lesser of the lease term or 5 years. Ground and other equipment is
depreciated over 3 to 25 years.
depreciated over 3 to 25 years.
13
13
June 2013
35
36
Residual Value
[IAS 16.6 and .51.54]
Notes to Consolidated Financial Statements
For16.6
the years
ended December
31, 2012 and 2011
IAS
provides
a detailed
definition of the residual value of an asset. Resid(Stated in thousands of Canadian dollars, except share and per share amounts)
ual value should reflect the amount an entity would currently receive from
1. Statement of significant accounting policies (continued)
the(i)disposal
of an asset after deducting estimated costs of disposal if it were
Inventory
already
of
the
ageatand
inofthe
condition
expected
at determined
the end
its first-out
useful
life.
Inventories are valued
the lower
cost and
net realizable value,
with cost being
on aof
first-in,
basis
and a
specific item basis depending on the nature of the inventory. The Corporations inventory balance consists of aircraft fuel, deicing fluid, retail merchandise and aircraft expendables.
IAS(j)16
requires an annual review of the residual value of an asset. If a change
Property and equipment
is required,
should
be ataccounted
forto as
a change
in an
accounting
estimate
Property anditequipment
is stated
cost and depreciated
its estimated
residual value.
Assets
under finance leases
are initially
recorded at the present value of minimum lease payments at the inception of the lease. Expected useful lives and depreciation
(unless
thearechange
reflects a correction of an error).
methods
reviewed annually.
Asset class
Basis
Rate
Aircraft,13Excerpt
net of estimated residual
value Westjet Airlines Ltd.
Straight-line
20 years
Extract
from
2012 Financial
Engine, airframe and landing gear overhaul
Straight-line
Straight-line
Ground property and equipment
Straight-line
Spare
engines
and
rotables,
net
of
estimated
residual
value
Note 1Statement of Significant AccountingStraight-line
Policies
Buildings
Straight-line
Leaseholdand
improvements
Straight-line
(j) Property
equipment (in part)
Assets under finance leases
Straight-line
8 to 15 years
10 years/Term of lease
5 to 25 years
20 years
40 years
5 years/Term of lease
Term of lease
Estimated residual values of the Corporations aircraft range between $4,000 and $6,000 per aircraft. Spare engines have a
residual value equal to 10% of the original purchase price. Residual values, where applicable, are reviewed annually against
prevailing market rates at the consolidated statement of financial position date.
Major overhaul expenditures are capitalized and depreciated over the expected life between overhauls. All other costs relating to
the maintenance of fleet assets are charged to the consolidated statement of earnings on consumption or as incurred.
Rotable assets is
are recognized
purchased, depreciated
disposed
on a assets
pooled basis.carrying
When parts areamount
purchased, the
cost is addedits
to
Depreciation
as and
long
as ofthe
exceeds
the pool and depreciated over its useful life of 20 years. The cost to repair rotable parts is recognized in maintenance expense as
incurred.
residual
value. In circumstances where the residual value of an asset increases
(k) Intangible assets
to an amount greater than its carrying amount, the depreciation charge is zero
Included in intangible assets are costs related to software, landing rights and other. Software and landing rights are carried at
until the
residual
falls
the
amount.
cost less
accumulatedvalue
amortization
and below
are amortized
on aassets
straight-linecarrying
basis over their
respective useful lives of five and 20
years. Expected useful lives and amortization methods are reviewed annually.
(l) Impairment
Useful Life
Property and equipment and intangible assets are grouped into cash generating units (CGUs) and reviewed for impairment when
[IAS 16.6,
.56.59]
events or.50.51
changes in and
circumstances
indicate that the carrying value of the CGU may not be recoverable. When events or
circumstances indicate that the carrying amount of the CGU may not be recoverable, the long-lived assets are tested for
recoverability by comparing the recoverable amounts, defined as the greater of the CGUs fair value less cost to sell or value-inuse, with the
amount
of theis:
CGU. Fair value is defined as the amount for which an asset could be exchanged, or a
The useful
lifecarrying
of an
asset
liability settled, between knowledgeable willing parties, in an arms length transaction. Value-in-use is defined as the present
value
of
the
cash
flows
expected
from
future use
eventual sale ofto
the be
asset available
at the end of itsfor
useful
life. Ifby
the an
carrying
the period over which antheasset
isorexpected
use
value of the CGU exceeds the greater of the fair value less cost to sell and value-in-use, an impairment loss is recognized in net
earnings or
for the difference. Impairment losses may subsequently be reversed and recognized in earnings due to changes in
entity;
events and circumstances, but only to the extent of the original carrying amount of the asset, net of depreciation or
amortization,
had the
impairment not
recognized.
the
number
oforiginal
production
orbeen
similar
units an entity expects to obtain from
the asset.
The useful life of an asset is defined in terms of the assets expected utility to
the entity and may sometimes be shorter than its economic life.
The estimation of the useful life of an asset is a matter of judgment based on
the experience of the entity with similar assets. The illustration below lists facWestJet Year End 2012 11
tors included in IAS 16 that should be considered in determining the expected
useful life.
expected usage assessed by reference to the assets expected capacity or physical output.
expected physical wear and tear, which depends on operational factors such as the number of shifts for which the asset is to be used, the repair and maintenance program and the
care and maintenance of the asset while idle.
technical or commercial obsolescence arising from changes or improvements in production, or from a change in the market demand for the product or service output of the
asset.
legal or similar limits on the use of the asset, such as the expiry dates of related leases.
Land and building are separate assets and accounted for separately. With
some exceptions (e.g., quarries and landfill sites) land has an unlimited useful
life and is not depreciated. In cases where land has a limited useful life, it is
depreciated in a manner that reflects the benefits to be derived from it. If the
cost of the land includes costs of site dismantlement, removal and restoration
costs, these costs are depreciated over the period of benefits obtained by
incurring those costs.
C) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, less accumulated amortization and impairment. Amortization rates
Extract
14Excerpt
from
Newalta
2012
tanks and mobile
equipment) or from
5-14 years
straight line Corporation
(vehicles, computer hardware
andFinancial
software and leasehold
improvements), depending on the expected life of the asset. Some equipment is depreciated based on utilization rates.
Statements
The utilization rate is determined by dividing the cost of the asset by the estimated future hours of service. Residual
Note
2Significant
Accounting
Policies
values,
up to 20% of original cost,
may be established for
buildings, site improvements, and tanks. These residual values
are not depreciated.
Theand
estimated
useful lives,(in
residual
values and amortization methods are reviewed at the end of
C) Property,
plant
equipment
part)
each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.
Landfill assets represent the costs of landfill available space, including original acquisition cost, incurred landfill
construction and development costs, including gas collection systems installed during the operating life of the site,
and capitalized landfill closure and post-closure costs. The cost of landfill assets, together with projected landfill
construction and development costs for permitted capacity, is amortized on a per-unit basis as landfill space is
consumed. Management annually updates landfill capacity estimates, based on survey information provided by
independent engineers, and projected landfill construction and development costs. The impact on annual amortization
expense of changes in estimated capacity and construction costs is accounted for prospectively.
E) LEASES
Lessee
All of the Corporations leases are classified as operating leases and the leased assets are not recognized in the
Corporations consolidated balance sheets. Payments made under operating leases are recognized in profit or loss on
a straight-line basis over the term of the lease unless another systematic basis is representative of the time pattern of
the users benefit, including any rent-free periods. Lease incentives are recognized as an integral part of the total lease
expense, over the term of the lease.
June 2013
Leases where the Corporation assumes substantially all the risks and rewards of ownership would be classified as
finance leases and the corresponding asset would be classified as property, plant and equipment and the liability as
obligations under finance lease.
37
38
Viewpoints
Application Insights
Useful life of leasehold improvements
Source
Insight
Meeting Date
Topic
Insights
Application Insights
Useful life of leasehold improvements
The Groups Discussion
Group members noted that it is difficult to understand how the lessee in this
fact pattern can expect to exercise the extension option but not be reasonably certain it will do so. As a result, Group members questioned how often
the fact pattern would occur in practice.
Several Group members observed that there is a relatively unclear distinction between expected and reasonably certain. They expressed the view that
expected and reasonably certain do not represent different thresholds.
Group members also noted that, from a practical perspective, management
would align the lease term with the economic life of significant leasehold
improvements and, in most cases, a financial statement preparer would
arrive at compatible approaches.
Group members made several other observations, including that there may
be an economic incentive to renew the lease and that only IAS 16 applies to
the amortization of the asset (i.e., IAS 17 does not apply).
The Group agreed that this issue should not be brought to the attention of
the IFRS Interpretations Committee because the issue is not expected to
arise in practice frequently.
Written reports and audio webcasts of the Groups discussion for each agenda topic are available online at www.frascanada.ca.
E xa mple
June 2013
39
40
Application statistics
CICA Survey of Selected Accounting Policies of Junior Oil and Gas Entities
January 2013
Statistics
In practice, oil and gas properties are depleted by analogy to IAS 16 and
IAS38. The unit of production method is most commonly used to deplete
such assets. In a survey of select junior oil and gas company financial statements, 90% disclosed the use of proved and probable reserves for application of this method and 7% disclosed the use of proved reserves.
The following two insights look at methods of depreciation. Note the date
of the NIFRICs. Even though some NIFRICs are older, they still provide some
insight into how the standards are interpreted by the standard setters.
Application Insights
Depreciation of fixed assets
Source
NIFRIC
Meeting Date
May 2004
The following insights were obtained from IFRICitems not taken onto the
agenda report.
Insight
Issue
The Committee considered a potential issue as to whether the production method of depreciation could
be used under IAS 16 Property,
Plant and Equipment if an asset is
not consumed (worn down) directly
in relation to the level of use. For
example, if a road with a greater
capacity than current demands is
built, should depreciation in the
initial period be lower than in later
periods, if usage is expected to
increase over the life of the asset?
Details of the issues that have been considered by the IFRIC but not added to its agenda are
available online at www.ifrs.org/.
June 2013
41
42
Application Insights
IAS 16 and IAS 17: Depreciation of assets leased under operating leases
Source
NIFRIC
Meeting Date
November 2004
The following insights were obtained from IFRICitems not taken onto the
agenda report.
Insight
Issue
The IFRIC considered whether interest methods of depreciation were
permissible under IFRSs. Use of such
methods would permit an entity
to depreciate an asset that is not a
receivable in much the same way as
if it were a receivable, with the result
that the depreciated amount of the
asset reflects the present value of
future net cash flow expected from it.
Details of the issues that have been considered by the IFRIC but not added to its agenda are
available online at www.ifrs.org/.
Short-term investments include investments with maturities between 91 to 364 days from the date of purchase.
2.7 Inventories
Inventories are measured at the lower of cost and net realizable value. Cost is determined
the weighted
average
cost
method,
IAS 16using
Property,
Plant
and
Equipment
based on individual items. The cost is comprised of the purchase price, plus the costs incurred in bringing the inventory to its
present location and condition. Net realizable value is the estimated selling price in the ordinary course of business less the estimated
costs to sell. Rebates and allowances received from vendors are recognized as a reduction to the cost of inventory, unless the
rebates clearly relate to the reimbursement of specific expenses. A provision for shrinkage and obsolescence is calculated based
on historical experience. All inventories consist of finished goods.
2.8 Property, plant and equipment
Property, plant
and equipment are measured
cost or deemed
cost less accumulated
depreciation
and accumulated
impairment
Extract
15Excerpt
from atSears
Canada
Inc. 2012
Financial
Statements
losses. Costs include expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets
includes
site preparation costs, design
and engineering fees,
freight (only on initial freight costs incurred between the vendor and
Note
2Significant
Accounting
Policies
the Company), installation expenses and provincial sales tax (Saskatchewan, Manitoba and Prince Edward Island), and is net of
2.8 any
Property,
plant
and equipment
(in of
part)
vendor subsidies
or reimbursements.
An allocation
general and specific incremental interest charges for major construction
projects is also included in the cost of related assets.
When the significant parts of an item of property, plant and equipment have varying useful lives, they are accounted for as separate
Goodwill
components
of property,
plant and equipment.
Depreciation
is calculated
on the
the purpose
depreciable
amount of
the asset
or significant
Goodwill
is allocated
to cash-generating
units or groups
of cash-generating
units based
(CGU) for
of impairment
testing,
which
is
undertaken
the lowest
at whichwhich
goodwill
monitored
Impairment
is value.
performed
annually as is
at
componentat thereof,
if level
applicable,
is isthe
cost of for
theinternal
asset ormanagement
significantpurposes.
component
less its testing
residual
Depreciation
August
1, or more
frequently
if there are method
indications
impairment
maycomponent
have occurred,
the recoverable
of a CGU with
recognized
using
the straight-line
forthat
each
significant
of by
ancomparing
item of property,
plant amount
and equipment
anditsis
carrying amount. The recoverable amount of a CGU is the higher of its value in use and its fair value less costs to sell. Value in use is the present
recorded
Selling,
administrative
and aother
value
of theinexpected
future
cash flows from
CGU.expenses in the Consolidated Statements of Net Earnings (Loss) and Comprehensive
Income
(Loss)judgment
. The estimated
useful
lives are the
2 tomodel
13 years
forused
equipment
and fixtures
and 10 to
50 years
forCGU,
buildings
and building
Significant
is involved
in estimating
inputs
to determine
the recoverable
amount
of our
in particular
future
cash
flows, discount
and terminal
duevalues
to the uncertainty
in the timing
and for
amount
of cash
flows
and
the forward-looking
improvements.
Therates
estimated
usefulgrowth
lives,rates,
residual
and depreciation
methods
property,
plant
and
equipment
are reviewed
nature
of these
Future
cash flows arewith
based
financial
plans
agreed by
which arefor
estimated
based on forecast
annually
and inputs.
adjusted,
if appropriate,
theoneffect
of any
changes
in management
estimates accounted
on a prospective
basis. results,
business initiatives, planned capital investments and returns to shareholders. Discount rates are based on the bank-wide cost of capital,
adjusted
for
CGU-specific
risks
and
currency
exposure
as
reflected
by
differences
in
historical
and
expected
inflation.
CGU-specific
risks
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets
or,include
where
country risk, business/operational risk, geographic risk (including political risk, devaluation risk, and government regulation), currency risk, and
shorter,
the
term
of
the
relevant
lease,
unless
it
is
reasonably
certain
that
the
Company
will
obtain
ownership
by
the
end
of the
price risk (including product pricing risk and inflation). Terminal growth rates reflect the gross domestic product and inflation for the countries
lease which
term. the CGU operates. Changes in these assumptions may impact the amount of impairment loss recognized in Non-interest expense.
within
The carrying amount of a CGU includes the carrying amount of assets and goodwill allocated to the CGU. If the recoverable amount is less
Thethe
gain
or loss
arising
on the disposal
retirement
itemthe
ofcarrying
property,
plantofand
is determined
as and
the then
difference
than
carrying
value,
the impairment
loss isorallocated
firstof
to an
reduce
amount
anyequipment
goodwill allocated
to the CGU
to the
other
non-financial
assetsfrom
of the
CGU
based onand
the the
carrying
amount
of each
Any impairment
loss is charged
to income in
between
the proceeds
sale
orproportionately
the cost of retirement
carrying
amount
ofasset.
the asset,
and is recognized
in the Consolidated
the
period in which
impairment
is identified.
Goodwill is stated
at cost
less accumulated impairment losses. Subsequent reversals of
Statements
of NettheEarnings
(Loss)
and Comprehensive
Income
(Loss).
goodwill impairment are prohibited.
Upon
disposal
of
a
portion
of
a
CGU,
the
carrying
amount
of
goodwill
relating
to the portion
of and
the CGU
sold is included
in the determination
For a discussion on the impairment of tangible assets refer to Note 2.11. Property,
plant
equipment
are reviewed
at the end of
of gains or losses on disposal. The carrying amount is determined based on the relative fair value of the disposed portion to the total CGU.
The Companys
property
consists
of vacantofland
which isat not
in its operations. Investment property is
generally
from 10 toinvestment
20 years, and
are assessed
for indicators
impairment
eachcurrently
reporting used
period.
If there at
is an
that less
a finite-life
intangible
asset may be
impaired, an impairment test is performed by comparing the carrying
measured
its indication
deemed cost
accumulated
impairment
losses.
amount of the intangible asset to its recoverable amount. Where it is not possible to estimate the recoverable amount of an individual asset, we
estimate
recoverable
of theproperty
CGU to which
the assetusing
belongs.
If the recoverable
amount
of the
asset (or
CGU)
is less thancomparable
its carrying
The fairthe
values
of the amount
investment
is estimated
observable
data based
on the
current
cost
of acquiring
amount,
the within
carryingthe
amount
of the
intangible
is written down
its recoverable
amount as
an impairment
loss.
properties
market
area
and the asset
capitalization
of thetopropertys
anticipated
revenue.
The Company
engages independent
An impairment loss recognized previously is reversed if there is a change in the estimates used to determine the recoverable amount of the
qualified
third
parties
to conduct
appraisals
of its investment
property.loss is subsequently reversed, the carrying amount of the asset
asset
(or CGU)
since
the last
impairment
loss was recognized.
If an impairment
(or CGU) is revised to the lower of its recoverable amount and the carrying amount that would have been determined (net of amortization) had
there been no prior impairment. Due to the subjective nature of these estimates, significant judgment is required in determining the useful lives
and recoverable amounts of our intangible assets, and assessing whether certain events or circumstances constitute objective evidence of
impairment. To make these estimates, management relies on sales projections, allocated costs and risk-adjusted discount rates that take into
consideration the market environment and our business objectives. Changes
56 in these assumptions may impact the amount of impairment loss
recognized in Non-interest expense. We do not have any intangible assets with indefinite lives.
To determine whether a PP&E item is impaired, an entity applies IAS 36. This
standard provides guidance as to when to assess impairment, how to determine the recoverable amount and when to recognize an impairment loss.
It also provides guidance on reversal of impairment losses. When there is
a subsequent increase in the recoverable amount of an impaired asset, the
previously recognized impairment loss is reversed. For PP&E assets carried at
Other
cost,
the ofamount
of the recovery is limited to the carrying value of the asset
Translation
foreign currencies
Monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars at rates prevailing at the balance sheet
date.would
Foreign exchange
gains
and losses
resulting from the translation
of these items arehad
recognized
Non-interest income in loss
that
have
been
determined
(net and
ofsettlement
depreciation)
noinimpairment
the Consolidated Statements of Income.
assets and
liabilities
are measured
at historical
cost are translated
Canadian dollars at historical
rates.that an
been Non-monetary
recognized
for
thethatasset
in prior
years.
This into
requirement
means
Non-monetary financial assets classified as AFS securities, such as equity instruments, that are measured at fair value are translated into
Canadian
dollars
at
rates
prevailing
at
the
balance
sheet
date,
and
the
resulting
foreign
exchange
gains
and
losses
are
recorded
in Otherof
entity must be able to reconstruct the pre-impairment carrying amount
components of equity until the asset is sold or becomes impaired.
Assets and liabilities of our foreign operations with functional currencies other than Canadian dollars are translated into Canadian dollars at
therates
asset.
prevailing at the balance sheet date, and income and expenses of these foreign operations are translated at average rates of exchange for
the reporting period.
Unrealized gains or losses arising as a result of the translation of our foreign operations along with the effective portion of related hedges
Extract
from
Royal
Bank
of
Canada
Financial
are reported in16Excerpt
Other components of equity
on an after-tax
basis. Upon
disposal
or partial
disposal of a2012
foreign operation,
an appropriate portion
of the accumulated net translation gains or losses is included in Non-interest income.
Statements
Note
2Summary
of
Accounting
Policies,
Estimates
Premises
and equipment includes
land,Significant
buildings, leasehold improvements,
computer equipment,
furniture, fixtures
and other equipment, and
are stated at cost less accumulated depreciation and accumulated impairment losses. Cost comprises the purchase price, any costs directly
attributable
to bringing the asset to the location and condition necessary for its intended use, and the initial estimate of any disposal costs.
and
Judgments
Depreciation is recorded principally on a straight-line basis over the estimated useful lives of the assets, which are 25 to 50 years for buildings, 3
to 10 years for
computer
equipment, and
7 to part)
10 years for furniture, fixtures and other equipment. The amortization period for leasehold
Premises
and
equipment
(in
improvements is the lesser of the useful life of the leasehold improvements or the lease term plus the first renewal period, if reasonably assured
of renewal, up to a maximum of 10 years. Land is not depreciated. Gains and losses on disposal are recorded in Non-interest income.
Premises and equipment are assessed for indicators of impairment at each reporting period. If there is an indication that an asset may be
impaired, an impairment test is performed by comparing the assets carrying amount to its recoverable amount. Where it is not possible to
estimate the recoverable amount of an individual asset, we estimate the recoverable amount of the CGU to which the asset belongs and test for
impairment at the CGU level. An impairment charge is recorded to the extent the recoverable amount of an asset (or CGU), which is the higher of
fair value less costs to sell and value in use, is less than its carrying amount. Value in use is the present value of the future cash flows expected
to be derived from the asset (or CGU).
After the recognition of impairment, the depreciation charge is adjusted in future periods to reflect the assets revised carrying amount. If an
impairment is later reversed, the carrying amount of the asset is revised to the lower of the assets recoverable amount and the carrying amount
that would have been determined (net of depreciation) had there been no prior impairment loss. The depreciation charge in future periods is
adjusted to reflect the revised carrying amount.
Consolidated Financial Statements
105
June 2013
43
44
Derecognition of PP&E
[IAS 16.67.72]
The carrying amount of an item of PP&E is derecognized:
on disposal; or
when no future economic benefits are expected from its use or disposal.
The disposal date is the date at which the criteria for recognizing revenue from
the sale of goods in IAS 18 are met. IAS 17 applies to disposal by a sale and
leaseback.
An entity is required to derecognize the carrying amount of a part of a PP&E
item if that part has been replaced and the entity has included the cost of the
replacement part in the carrying amount of the item. This is required even if
the part was not a significant component and was, therefore, not depreciated
separately.
When a PP&E item is disposed of, the gain or loss on disposal is included in
profit or loss unless IAS 17 requires otherwise on the sale and leaseback of an
asset. The gain or loss is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the asset.
Consideration receivable is recognized at fair value and, if payment is deferred,
the compensation is recognized at the cash price equivalent; any difference
between the recognized amount and the nominal amount is recognized as
interest revenue reflecting the effective yield on the receivable. The gain or
loss arising from derecognition of a PP&E item is not classified as revenue.
The following insight looks at the issue of classification of revenue from the
sale of assets held for rental. Note the date of the NIFRIC. Even though some
NIFRICs are older, they still provide some insight into how the standards are
interpreted by the standard setters.
Application Insights
IAS 16 Property, Plant and EquipmentSale of assets held for rental
Source
NIFRIC
Meeting Date
May 2007
The following insights were obtained from IFRICitems not taken onto the
agenda report.
Insight
Issue
net realizable value is the estimated selling price in the ordinary course of business, less the estimated selling expenses.
(l) Property and Equipment and Investment Property
Details of the issues that have been considered by the IFRIC but not added to its agenda are
(i) Recognition and Measurement
available online at www.ifrs.org/.
items of property and equipment are carried at cost less accumulated depreciation and any recognized impairment losses
(see (p) impairment).
Cost includes
expenditures that are
directlyShoppers
attributable to theDrug
acquisition
of the asset.
the cost of self-constructed
Extract
17Excerpt
from
Mart
Corporation
2012 assets
includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition
Financial Statements
for their intended use, and, where applicable, the costs of dismantling and removing the items and restoring the site on which
Note
Accounting
Policies
they3Significant
are located. Borrowing costs
are recognized as part
of the cost of an asset, where appropriate.
purchased software
that is integral to and
the functionality
of the related
equipment
(l) Property
and Equipment
Investment
Property
(inis capitalized
part) as part of that equipment.
When componentsand
of property
and equipment (in
have part)
different useful lives, they are accounted for as separate items of property
(i) Recognition
Measurement
and equipment.
gains and losses on disposal of an item of property and equipment are determined by comparing the proceeds from disposal
with the carrying amount of property and equipment and are recognized net, within operating and administrative expenses,
in net earnings.
Fully depreciated items of property and equipment that are still in use continue to be recognized in cost and accumulated
depreciation.
(ii) Subsequent Costs
the cost of replacing part of an item of property and equipment is recognized in the carrying amount of the item if it is probable
that the future economic benefits embodied within the part will flow to the Company and its cost can be measured reliably.
the carrying amount of the replaced part is de-recognized. the costs of repairs and maintenance of property and equipment
are recognized in earnings as incurred.
June 2013
45
46
An entity that, in the course of its ordinary activities, routinely sells PP&E items
held for rental to others, should transfer such assets to inventory at their carrying amount when they cease to be rented and are held for sale. The proceeds
from the sale of such assets should be recognized as revenue in accordance
with IAS 18. In such cases, IFRS 5 does not apply.
Disclosure
[IAS 16.73.79]
For many entities, PP&E is a major part of the statement of financial position.
The depreciation of these assets can have a material impact on profit or loss.
Thus, it is not surprising that IAS 16 includes significant disclosure requirements. The following chart summarizes some of the disclosures relating to
PP&E.
Illustration 6Summary of Some IAS 16 Disclosure Requirements
Type
Disclosure
Depreciation
Type
Disclosure
Estimate changes
Revaluation model
Constructed assets
Impaired assets
Restrictions and
commitments
June 2013
47
48
IAS 16 suggests but does not require disclosure of the gross carrying amount
of fully depreciated PP&E still in use. As IAS 16 requires a review of the useful
life, residual value and depreciation method at least at each financial year-end,
the existence of such assets is likely to be rare.
More general disclosure requirements under IAS 1 must also be met as they
relate to PP&E. These include accounting policies, significant judgments made
in applying accounting policies and sources of estimation uncertainty. Examples include:
IAS 1.117 requires that the entity disclose a summary of significant accounting policies. This is especially important where there are accounting policy
choices.
IAS 1.122 requires disclosure of judgments made in the process of applying
the entitys accounting policies that have the most significant effect on the
amounts recognized in the financial statements.
IAS 1.125 requires disclosure of information about the future and other major
sources of estimation uncertainty at the end of the reporting period that
have a significant risk of resulting in material adjustment to the carrying
amounts of assets and liabilities within the next financial year.
Application Resources
Disclosure checklist
Resources
The following insight looks at the disclosure of temporarily idle assets or assets
under construction when further construction has been postponed. Note the
date of the NIFRIC. Even though some NIFRICs are older, they still provide
some insight into how the standards are interpreted by the standard setters.
Application Insights
Disclosure of idle assets and construction in progress
Source
NIFRIC
Meeting Date
May 2009
The following insights were obtained from IFRICitems not taken onto the
agenda report.
Insight
Issue
The IFRIC received a request for
more guidance on the extent of
required disclosures relating to property, plant and equipment temporarily idle or assets under construction
when additional construction has
been postponed. In accordance with
paragraph 74(b) of IAS 16, an entity
is required to disclose the amount of
expenditures recognised in the carrying amount of an item of property,
plant and equipment in the course
of its construction. Paragraph 79(a)
encourages an entity to disclose
the amount of property, plant and
equipment that is temporarily idle.
June 2013
49
50
15
(millions)
At cost
As at January 1, 2011
Additions (1)
Additions arising from business
acquisitions (Note 16(e))
Dispositions, retirements and other
Reclassifications
As at December 31, 2011
Additions (1)
Additions arising from business
acquisitions (Note 16(e))
Dispositions, retirements and other
Reclassifications
Network assets
Buildings and
leasehold
improvements
Assets under
finance lease
Other
Land
Assets under
construction
Total
$22,691
516
$2,351
20
$21
1
$1,550
41
$49
7
$438
887
$27,100
1,472
(220)
779
11
(8)
99
7
(51)
75
(1)
(953)
18
(279)
23,766
569
2,473
21
23
1,622
42
55
372
980
28,311
1,612
(1,126)
795
(16)
142
(17)
2
(80)
38
(975)
2
(1,239)
$24,004
$2,620
$ 6
$1,624
$55
$377
$28,686
Accumulated depreciation
As at January 1, 2011
Depreciation
Dispositions, retirements and other
$16,555
1,091
(218)
$1,443
121
(4)
$10
2
8
$1,261
117
(39)
$19,269
1,331
(253)
17,428
1,192
(1,127)
1,560
126
(12)
20
3
(17)
1,339
101
(92)
20,347
1,422
(1,248)
$17,493
$1,674
$ 6
$1,348
$20,521
$ 6,338
$ 913
$ 3
$ 283
$55
$372
$ 7,964
$ 6,511
$ 946
$ 276
$55
$377
$ 8,165
(1) For the year ended December 31, 2012, additions include $49 (2011 $15) in respect of asset retirement obligations (see Note 19(a)).
Policy choice
Alternatives
Insights
IAS 16.29
Measurement of PP&E
after recognition
1. Cost model
2. Revaluation model
Reference
Policy choice
Alternatives
Insights
IAS 16.35
Alternative 1 is often
used when an asset is
revalued by means of
applying an index to
determine its replacement cost (see IFRS 13).
1. Transfer revaluation
surplus to retained
earnings on asset
derecognition
2. Transfer a relevant
portion of the
revaluation surplus
to retained earnings as the asset
is depreciated,
with the balance
remaining (if any)
transferred on asset
derecognition
3. No transfer of
revaluation surplus
to retained earnings
Alternative 1 may
involve transferring the
whole of the surplus
when the asset is
retired or disposed of.
IAS 16.41
Transferring revaluation
surplus
Alternative 2 is often
used for buildings.
2 Note: Refer to the Standards Update section in this publication. A proposed amendment to IAS 16 would
change the guidance in (1) below and state that accumulated depreciation is computed as the difference
between the gross and net carrying amounts. The amendment will also clarify that the determination of
accumulated depreciation does not depend on the selection of the valuation technique.
June 2013
51
52
Reference
IAS 16.41
(continued)
Policy choice
Alternatives
Insights
The revaluation surplus
transfers referred to in
IAS 16.41 are implied to
be at the option of the
reporting entity, rather
than being mandated
by the Standard. There
would, therefore,
appear to be another
alternativeto make no
reserve transfer (alternative 3). That option
would, however, result
in the permanent retention of the portion of
the revaluation reserve
relating to assets that
have been fully depreciated or disposed of.
Transfers from revaluation surplus to retained
earnings are not made
through profit or loss.
Policy choice
whether to measure PP&E using the cost
model or the revaluation model value
(IAS16.29)
Revaluation model
determination of fair value of revalued
items of PP&E
Revaluation model
frequency of revaluations
how to treat accumulated depreciation on
revaluation of an item of PP&E (IAS 16.35)
when to transfer a revaluation surplus to
retained earnings (IAS 16.41)
June 2013
53
4. SIGNIFICANTFinancial
ACCOUNTING
ESTIMATESin
AND
JUDGMENTS
Guide NOTE
to International
Reporting
Canada
The preparation of the Companys consolidated financial statements requires management to make judgments, estimates and
assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent
liabilities, at the end of the reporting period. Estimates and judgments are continually evaluated and are based on historical
experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to
the carrying amount of the asset or liability affected in future periods. In the process of applying the Companys accounting
policies, management has made the following judgments, estimates and assumptions which have the most significant effect on
Extract
19Excerpt
from financial
Enerflex
Ltd. 2012STATEMENTS
Financial Statements
the
amounts
recognized
in the
consolidated
statements:
NOTES
TO ThE
CONSOLIDATED
fINANCIAL
Note 4Significant
Accounting
Estimates and Judgments
> Revenue Recognition Long-Term
Contracts
The Company reflects revenues generated from the assembly and manufacture of projects using the percentage-of-
completion approach of accounting for performance of production-type contracts. This approach to revenue recognition
The preparation of the Companys consolidated financial statements requires management to make judgments, estimates and
requires management to make a number of estimates and assumptions surrounding the expected profitability of the
assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent
contract, the estimated degree of completion based on cost progression and other detailed factors. Although these
liabilities, at the end of the reporting period. Estimates and judgments are continually evaluated and are based on historical
factors are routinely reviewed as part of the project management process, changes in these estimates or assumptions
experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
could lead to changes in the revenues recognized in a given period.
However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to
> Provisions for Warranty
the carrying amount of the asset or liability affected in future periods. In the process of applying the Companys accounting
Provisions set aside for warranty exposures either relate to amounts provided systematically based on historical
policies, management has made the following judgments, estimates and assumptions which have the most significant effect on
experience under contractual warranty obligations or specific provisions created in respect of individual customer issues
the amounts recognized in the consolidated financial statements:
undergoing commercial resolution and negotiation. Amounts set aside represent managements best estimate of the
settlement
and the
timing of any
resolution with the relevant customer.
> likely
Revenue
Recognition
Long-Term
Contracts
The Company reflects revenues generated from the assembly and manufacture of projects using the percentage-of> Property, Plant and Equipment
completion approach of accounting for performance of production-type contracts. This approach to revenue recognition
Property, plant and equipment are stated at cost less accumulated depreciation, including any asset impairment losses.
requires management to make a number of estimates and assumptions surrounding the expected profitability of the
Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. The estimated
contract, the estimated degree of completion based on cost progression and other detailed factors. Although these
useful lives of property, plant and equipment are reviewed on an annual basis. Assessing the reasonableness of
factors are routinely reviewed as part of the project management process, changes in these estimates or assumptions
the estimated useful lives of property, plant and equipment requires judgment and is based on currently available
could lead to changes in the revenues recognized in a given period.
information. Property, plant and equipment are also reviewed for potential impairment on a regular basis or whenever
events or changes
in circumstances indicate that the carrying amount may not be recoverable.
> Provisions
for Warranty
Provisions set aside for warranty exposures either relate to amounts provided systematically based on historical
Changes in circumstances, such as technological advances and changes to business strategy can result in actual
experience under contractual warranty obligations or specific provisions created in respect of individual customer issues
useful lives and future cash flows differing significantly from estimates. The assumptions used, including rates and
undergoing commercial resolution and negotiation. Amounts set aside represent managements best estimate of the
methodologies, are reviewed on an ongoing basis to ensure they continue to be appropriate. Revisions to the estimated
likely settlement and the timing of any resolution with the relevant customer.
useful lives of property, plant and equipment or future cash flows constitute a change in accounting estimate and are
applied prospectively.
> Property,
Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation, including any asset impairment losses.
> Allowance for Doubtful Accounts
Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. The estimated
An allowance for doubtful accounts is made when there is objective evidence that the collection of the full amount
useful lives of property, plant and equipment are reviewed on an annual basis. Assessing the reasonableness of
is no longer probable under the terms of the original invoice. Impaired receivables are derecognized when they are
the estimated useful lives of property, plant and equipment requires judgment and is based on currently available
assessed as uncollectible. Amounts estimated represent managements best estimate of probability of collection of
information. Property, plant and equipment are also reviewed for potential impairment on a regular basis or whenever
amounts from customers.
events or changes in circumstances indicate that the carrying amount may not be recoverable.
> Impairment of Inventory
Changes in circumstances, such as technological advances and changes to business strategy can result in actual
The Company regularly reviews the nature and quantities of inventory on hand and evaluates the net realizable value of
useful lives and future cash flows differing significantly from estimates. The assumptions used, including rates and
inventory items based on historical usage patterns, known changes to equipment or processes and customer demand
methodologies, are reviewed on an ongoing basis to ensure they continue to be appropriate. Revisions to the estimated
for specific products. Significant or unanticipated changes in business conditions could impact the magnitude and
useful lives of property, plant and equipment or future cash flows constitute a change in accounting estimate and are
timing of inventory impairment.
applied prospectively.
82
82
EnErflEx ltd.
CPA Canada
ED
Exposure Draft
IAS
IASB
IDG
IFRIC
IFRS
NIFRIC
OCI
PP&E
VIU
Value in use
June 2013
55