MGT401 Short Notes Set 2

Mgt401 Final term Short notes by Ac

Short Term Investment in Instruments

a) Equity Instruments b) Debt Instruments

Measurement of Investment in Equity Instruments

a) Initial measurement at fair value b) Subsequent measurement at fair value through profit or loss

It’s a simple concept

• Increase in fair value causes a gain (SOPL – Cr.)
• Decrease in fair value causes a loss (SOPL – Dr.)

Dividend Income

Dividend received during the reporting period is recognized as income for the year.

Asset

Non-Current Assets

Property Plant & Equipment Intangible Assets Long Term Investments

Current Assets

Inventory Trade Receivable Cash Balances

Fixed Asset

• Property Plant & Equipment are the Fixed Tangible Asset.
• These are subject to Depreciation charge.

Accumulated Depreciation

• Also is known as Provision for Depreciation. Carrying Amount of Fixed Asset is measure at each reporting period as below: • Historical cost of asset • Less accumulated depreciation • Less accumulated impairment loss

• Revaluation Model

Fixed Assets are measured at: • Fair Value • Less accumulated depreciation (subsequent to revaluation) • Less accumulated impairment loss (subsequent to revaluation)

Accounting for Revaluation of Fixed Assets

Step 1 – Calculate depreciation of the asset till the date of revaluation and transfer accumulated depreciation account to the asset account Step 2 – Adjust the net carrying amount of the asset to its fair value that will result into a gain or loss on revaluation Step 3 – Recognise; revaluation gain as a Reserve in Equity and; revaluation loss as an Expense in SOPL (if it is first time / initial revaluation)

Excess Depreciation

The depreciation charge had the asset not been revalued is subtracted from the depreciation of revalued asset to calculate excess deprecation that is transferred to retained profits, considering realised.

Treatment of Revaluation Surplus

Revaluation surplus of the same asset that has been disposed of is transferred to retained profits.

Accounting for Fixed Assets Depreciation – Important Points

• The depreciable amount is allocated on a systematic basis over the asset’s useful life
• The residual value, the useful life and the depreciation method of an asset are reviewed annually at reporting date
• Changes in residual value, depreciation method and useful life are changes in estimates are accounted for prospectively in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
• Depreciation is charged to profit or loss, unless it is included in the carrying amount of another asset
• Depreciation commences when the asset is available for use.
• Revenue based depreciation is prohibited.
• Depreciation method reflects the pattern in which future economic benefits are expected to be consumed.

Component accounting

• Significant parts or components are required to be depreciated separately over their estimated useful life.
• Costs of replacing components are required to be capitalized.

Disclosures include but are not limited to:

• Measurement bases for determining the gross carrying amount
• Depreciation methods
• Useful lives or the depreciation rates used
• Gross carrying amount and the accumulated depreciation at the beginning and end of reporting period

Reconciliation

A reconciliation of the carrying amount at the beginning and end of the period showing:

• Additions
• Assets classified as held for sale
• Other disposals
• Acquisitions through business combinations
• Changes resulting from revaluations
• Impairment losses recognized and reversed in profit or loss
• Depreciation
• Exchange differences