7 March 2013 Class Accounting
Content
Capital Assets - Used greater than 1 year
FA can now be reevaluated upwards as per IFRS
LCM rule was there earlier
historical book value
net realized book value - used when we are planning to sell an asset
equals selling price - selling cost
replacement cost
Value in use - NPV of future cash flow the asset will generate in future
---------------------------------------------------------------------------------------decomponentization of assets
---------------------------------------------------------------------------------------capital cost are broken down into depreciation which impact NI
or
some parts of coapital cost is not booked in B/S but are considered as expense
ie Expense vs Capitalization
Capitalization Costs
purchase price
architecure design
engineering fees
taxes
inbound delivery (freight-in)
transport insurance cost
duties
testings
installation costs
legal fees for the arrangement or acquiring of the asset
interest until asset is up and strat running
ways to depreciate
1 straight line
2 accelerated
3 units of usage / output
acceptable for tax purposes
tax purposes for mining / natural resource industry
Straight Line
=
(Capital cost - residual cost ) / estimated useful life
accelerated
=
capital cost * rate
%
book value will never be absolute zero, though it can become infinitesimal small
P8-17
a)
Dr
mining property
equipment
building
cash
Cr
225000000
115000000
35000000
375000000
b)
mining property
residual value
estimated useful life
purchased on
year
30-Jun-13
30-Jun-14
30-Jun-15
30-Jun-16
30-Jun-17
30-Jun-18
30-Jun-19
30-Jun-20
30-Jun-21
30-Jun-22
Equipment
residual value
estimated useful life
225000000
0
10 years
1-Jul-13
Book Value
depreciation
accumulated
Book Value end
beg of year
expense
depreciation
of year
225000000
22500000
22500000
202500000
202500000
22500000
45000000
180000000
180000000
22500000
67500000
157500000
157500000
22500000
90000000
135000000
135000000
22500000
112500000
112500000
112500000
22500000
135000000
90000000
90000000
22500000
157500000
67500000
67500000
22500000
180000000
45000000
45000000
22500000
202500000
22500000
22500000
22500000
225000000
0
115000000
10500000
10 years
purchased on
1-Jul-13
Book Value
beg of year
year
30-Jun-13
30-Jun-14
30-Jun-15
30-Jun-16
30-Jun-17
30-Jun-18
30-Jun-19
30-Jun-20
30-Jun-21
30-Jun-22
Building
residual value
estimated useful life
purchased on
115000000
104550000
94100000
83650000
73200000
62750000
52300000
41850000
31400000
20950000
30-Jun-13
30-Jun-14
30-Jun-15
30-Jun-16
30-Jun-17
30-Jun-18
30-Jun-19
30-Jun-20
30-Jun-21
30-Jun-22
10450000
10450000
10450000
10450000
10450000
10450000
10450000
10450000
10450000
10450000
accumulated
depreciation
10450000
20900000
31350000
41800000
52250000
62700000
73150000
83600000
94050000
104500000
Book Value end
of year
104550000
94100000
83650000
73200000
62750000
52300000
41850000
31400000
20950000
10500000
35000000
0
10 years
1-Jul-13
Book Value
beg of year
year
depreciation
expense
35000000
31500000
28000000
24500000
21000000
17500000
14000000
10500000
7000000
3500000
depreciation
expense
3500000
3500000
3500000
3500000
3500000
3500000
3500000
3500000
3500000
3500000
accumulated
depreciation
3500000
7000000
10500000
14000000
17500000
21000000
24500000
28000000
31500000
35000000
Book Value end
of year
31500000
28000000
24500000
21000000
17500000
14000000
10500000
7000000
3500000
0
earlier year, more income, as there is less expense, however in later years it has lesser income than declining bala
g / natural resource industry
depreciation - used for tangible assets
amortization - used for intangible assets
deplection - used in natural resouce based industry eg mining
declining balance continuity
there is no impact of Salvage value in this method
mining property
225000000
residual value
0
estimated useful life
10 years
purchased on
1-Jul-13
year
30-Jun-13
30-Jun-14
30-Jun-15
30-Jun-16
30-Jun-17
30-Jun-18
30-Jun-19
30-Jun-20
30-Jun-21
30-Jun-22
Equipment
residual value
estimated useful life
Book Value
depreciation accumulated Book Value
beg of year
expense
depreciation end of year
225000000
45000000
45000000
180000000
180000000
36000000
81000000
144000000
144000000
28800000
109800000
115200000
115200000
23040000
132840000
92160000
92160000
18432000
151272000
73728000
73728000
14745600
166017600
58982400
58982400
11796480
177814080
47185920
47185920
9437184
187251264
37748736
37748736
7549747
194801011
30198989
30198989
6039798
200840809
24159191
115000000
10500000
10 years
er income than declining balance
purchased on
1-Jul-13
year
30-Jun-13
30-Jun-14
30-Jun-15
30-Jun-16
30-Jun-17
30-Jun-18
30-Jun-19
30-Jun-20
30-Jun-21
30-Jun-22
mining property
residual value
estimated useful life
purchased on
year
30-Jun-13
30-Jun-14
30-Jun-15
30-Jun-16
30-Jun-17
30-Jun-18
30-Jun-19
30-Jun-20
30-Jun-21
30-Jun-22
Book Value
beg of year
115000000
92000000
73600000
58880000
47104000
37683200
30146560
24117248
19293798
15435039
depreciation
expense
23000000
18400000
14720000
11776000
9420800
7536640
6029312
4823450
3858760
3087008
accumulated
depreciation
23000000
41400000
56120000
67896000
77316800
84853440
90882752
95706202
99564961
102651969
Book Value
end of year
92000000
73600000
58880000
47104000
37683200
30146560
24117248
19293798
15435039
12348031
35000000
0
10 years
1-Jul-13
Book Value
beg of year
35000000
28000000
22400000
17920000
14336000
11468800
9175040
7340032
5872026
4697620
depreciation
expense
7000000
5600000
4480000
3584000
2867200
2293760
1835008
1468006
1174405
939524
accumulated
depreciation
7000000
12600000
17080000
20664000
23531200
25824960
27659968
29127974
30302380
31241904
Book Value
end of year
28000000
22400000
17920000
14336000
11468800
9175040
7340032
5872026
4697620
3758096
ce based industry eg mining
mining property
residual value
estimated useful life
Estimated Output
purchased on
year
30-Jun-13
30-Jun-14
30-Jun-15
30-Jun-16
30-Jun-17
30-Jun-18
30-Jun-19
30-Jun-20
30-Jun-21
30-Jun-22
Equipment
residual value
estimated useful life
225000000
0
10 years
825000
1-Jul-13
Book Value
beg of year
225000000
212727273
188181818
160909091
133636364
106363636
79090909
51818182
24545455
4090909.1
depreciati
on
expense
12272727
24545455
27272727
27272727
27272727
27272727
27272727
27272727
20454545
4090909
115000000
10500000
10 years
accumulate
d
depreciatio
n
12272727
36818182
64090909
91363636
118636364
145909091
173181818
200454545
220909091
225000000
Book Value
end of year
212727273
188181818
160909091
133636364
106363636
79090909
51818182
24545455
4090909.1
-3.07E-08
Estimated Output
purchased on
year
30-Jun-13
30-Jun-14
30-Jun-15
30-Jun-16
30-Jun-17
30-Jun-18
30-Jun-19
30-Jun-20
30-Jun-21
30-Jun-22
Equipment
residual value
estimated useful life
Estimated Output
purchased on
year
30-Jun-13
30-Jun-14
30-Jun-15
30-Jun-16
30-Jun-17
30-Jun-18
30-Jun-19
30-Jun-20
30-Jun-21
30-Jun-22
825000
1-Jul-13
Book Value
beg of year
115000000
109300000
97900000
85233333
72566667
59900000
47233333
34566667
21900000
12400000
depreciati
on
expense
5700000
11400000
12666667
12666667
12666667
12666667
12666667
12666667
9500000
1900000
accumulate
d
depreciatio Book Value
n
end of year
5700000 109300000
17100000 97900000
29766667 85233333
42433333 72566667
55100000 59900000
67766667 47233333
80433333 34566667
93100000 21900000
102600000 12400000
104500000 10500000
35000000
0
10 years
825000
1-Jul-13
Book Value
beg of year
35000000
33090909
29272727
25030303
20787879
16545455
12303030
8060606.1
3818181.8
636363.64
depreciati
on
expense
1909091
3818182
4242424
4242424
4242424
4242424
4242424
4242424
3181818
636363.6
accumulate
d
depreciatio
n
1909090.9
5727272.7
9969697
14212121
18454545
22696970
26939394
31181818
34363636
35000000
Book Value
end of year
33090909
29272727
25030303
20787879
16545455
12303030
8060606.1
3818181.8
636363.64
1.746E-09
Output
Produced
45000
90000
100000
100000
100000
100000
100000
100000
75000
15000
%
Produced
0.054545
0.109091
0.121212
0.121212
0.121212
0.121212
0.121212
0.121212
0.090909
0.018182
Output
Produced
45000
90000
100000
100000
100000
100000
100000
100000
75000
15000
%
Produced
0.054545
0.109091
0.121212
0.121212
0.121212
0.121212
0.121212
0.121212
0.090909
0.018182
Output
Produced
45000
90000
100000
100000
100000
100000
100000
100000
75000
15000
%
Produced
0.054545
0.109091
0.121212
0.121212
0.121212
0.121212
0.121212
0.121212
0.090909
0.018182
FNEN 6840 risk mgmt
FNEN 6820 Advanced Derivative Securities
sb/fine 6200 and SB/FINE 6800.030, or SB/FNEN 6210.030 and SB/FNEN 6810.030
FNEN 6810 or FINE 6800 - Derivative Securities
FA can now be reevaluated upwards as per IFRS
LCM rule was there earlier
historical book value
net realized book value - used when we are planning to sell an asset
equals selling price - selling cost
replacement cost
Value in use - NPV of future cash flow the asset will generate in future
---------------------------------------------------------------------------------------decomponentization of assets
---------------------------------------------------------------------------------------capital cost are broken down into depreciation which impact NI
or
some parts of coapital cost is not booked in B/S but are considered as expense
ie Expense vs Capitalization
Capitalization Costs
purchase price
architecure design
engineering fees
taxes
inbound delivery (freight-in)
transport insurance cost
duties
testings
installation costs
legal fees for the arrangement or acquiring of the asset
interest until asset is up and strat running
ways to depreciate
1 straight line
2 accelerated
3 units of usage / output
acceptable for tax purposes
tax purposes for mining / natural resource industry
Straight Line
=
(Capital cost - residual cost ) / estimated useful life
accelerated
=
capital cost * rate
%
book value will never be absolute zero, though it can become infinitesimal small
P8-17
a)
Dr
mining property
equipment
building
cash
Cr
225000000
115000000
35000000
375000000
b)
mining property
residual value
estimated useful life
purchased on
year
30-Jun-13
30-Jun-14
30-Jun-15
30-Jun-16
30-Jun-17
30-Jun-18
30-Jun-19
30-Jun-20
30-Jun-21
30-Jun-22
Equipment
residual value
estimated useful life
225000000
0
10 years
1-Jul-13
Book Value
depreciation
accumulated
Book Value end
beg of year
expense
depreciation
of year
225000000
22500000
22500000
202500000
202500000
22500000
45000000
180000000
180000000
22500000
67500000
157500000
157500000
22500000
90000000
135000000
135000000
22500000
112500000
112500000
112500000
22500000
135000000
90000000
90000000
22500000
157500000
67500000
67500000
22500000
180000000
45000000
45000000
22500000
202500000
22500000
22500000
22500000
225000000
0
115000000
10500000
10 years
purchased on
1-Jul-13
Book Value
beg of year
year
30-Jun-13
30-Jun-14
30-Jun-15
30-Jun-16
30-Jun-17
30-Jun-18
30-Jun-19
30-Jun-20
30-Jun-21
30-Jun-22
Building
residual value
estimated useful life
purchased on
115000000
104550000
94100000
83650000
73200000
62750000
52300000
41850000
31400000
20950000
30-Jun-13
30-Jun-14
30-Jun-15
30-Jun-16
30-Jun-17
30-Jun-18
30-Jun-19
30-Jun-20
30-Jun-21
30-Jun-22
10450000
10450000
10450000
10450000
10450000
10450000
10450000
10450000
10450000
10450000
accumulated
depreciation
10450000
20900000
31350000
41800000
52250000
62700000
73150000
83600000
94050000
104500000
Book Value end
of year
104550000
94100000
83650000
73200000
62750000
52300000
41850000
31400000
20950000
10500000
35000000
0
10 years
1-Jul-13
Book Value
beg of year
year
depreciation
expense
35000000
31500000
28000000
24500000
21000000
17500000
14000000
10500000
7000000
3500000
depreciation
expense
3500000
3500000
3500000
3500000
3500000
3500000
3500000
3500000
3500000
3500000
accumulated
depreciation
3500000
7000000
10500000
14000000
17500000
21000000
24500000
28000000
31500000
35000000
Book Value end
of year
31500000
28000000
24500000
21000000
17500000
14000000
10500000
7000000
3500000
0
earlier year, more income, as there is less expense, however in later years it has lesser income than declining bala
g / natural resource industry
depreciation - used for tangible assets
amortization - used for intangible assets
deplection - used in natural resouce based industry eg mining
declining balance continuity
there is no impact of Salvage value in this method
mining property
225000000
residual value
0
estimated useful life
10 years
purchased on
1-Jul-13
year
30-Jun-13
30-Jun-14
30-Jun-15
30-Jun-16
30-Jun-17
30-Jun-18
30-Jun-19
30-Jun-20
30-Jun-21
30-Jun-22
Equipment
residual value
estimated useful life
Book Value
depreciation accumulated Book Value
beg of year
expense
depreciation end of year
225000000
45000000
45000000
180000000
180000000
36000000
81000000
144000000
144000000
28800000
109800000
115200000
115200000
23040000
132840000
92160000
92160000
18432000
151272000
73728000
73728000
14745600
166017600
58982400
58982400
11796480
177814080
47185920
47185920
9437184
187251264
37748736
37748736
7549747
194801011
30198989
30198989
6039798
200840809
24159191
115000000
10500000
10 years
er income than declining balance
purchased on
1-Jul-13
year
30-Jun-13
30-Jun-14
30-Jun-15
30-Jun-16
30-Jun-17
30-Jun-18
30-Jun-19
30-Jun-20
30-Jun-21
30-Jun-22
mining property
residual value
estimated useful life
purchased on
year
30-Jun-13
30-Jun-14
30-Jun-15
30-Jun-16
30-Jun-17
30-Jun-18
30-Jun-19
30-Jun-20
30-Jun-21
30-Jun-22
Book Value
beg of year
115000000
92000000
73600000
58880000
47104000
37683200
30146560
24117248
19293798
15435039
depreciation
expense
23000000
18400000
14720000
11776000
9420800
7536640
6029312
4823450
3858760
3087008
accumulated
depreciation
23000000
41400000
56120000
67896000
77316800
84853440
90882752
95706202
99564961
102651969
Book Value
end of year
92000000
73600000
58880000
47104000
37683200
30146560
24117248
19293798
15435039
12348031
35000000
0
10 years
1-Jul-13
Book Value
beg of year
35000000
28000000
22400000
17920000
14336000
11468800
9175040
7340032
5872026
4697620
depreciation
expense
7000000
5600000
4480000
3584000
2867200
2293760
1835008
1468006
1174405
939524
accumulated
depreciation
7000000
12600000
17080000
20664000
23531200
25824960
27659968
29127974
30302380
31241904
Book Value
end of year
28000000
22400000
17920000
14336000
11468800
9175040
7340032
5872026
4697620
3758096
ce based industry eg mining
mining property
residual value
estimated useful life
Estimated Output
purchased on
year
30-Jun-13
30-Jun-14
30-Jun-15
30-Jun-16
30-Jun-17
30-Jun-18
30-Jun-19
30-Jun-20
30-Jun-21
30-Jun-22
Equipment
residual value
estimated useful life
225000000
0
10 years
825000
1-Jul-13
Book Value
beg of year
225000000
212727273
188181818
160909091
133636364
106363636
79090909
51818182
24545455
4090909.1
depreciati
on
expense
12272727
24545455
27272727
27272727
27272727
27272727
27272727
27272727
20454545
4090909
115000000
10500000
10 years
accumulate
d
depreciatio
n
12272727
36818182
64090909
91363636
118636364
145909091
173181818
200454545
220909091
225000000
Book Value
end of year
212727273
188181818
160909091
133636364
106363636
79090909
51818182
24545455
4090909.1
-3.07E-08
Estimated Output
purchased on
year
30-Jun-13
30-Jun-14
30-Jun-15
30-Jun-16
30-Jun-17
30-Jun-18
30-Jun-19
30-Jun-20
30-Jun-21
30-Jun-22
Equipment
residual value
estimated useful life
Estimated Output
purchased on
year
30-Jun-13
30-Jun-14
30-Jun-15
30-Jun-16
30-Jun-17
30-Jun-18
30-Jun-19
30-Jun-20
30-Jun-21
30-Jun-22
825000
1-Jul-13
Book Value
beg of year
115000000
109300000
97900000
85233333
72566667
59900000
47233333
34566667
21900000
12400000
depreciati
on
expense
5700000
11400000
12666667
12666667
12666667
12666667
12666667
12666667
9500000
1900000
accumulate
d
depreciatio Book Value
n
end of year
5700000 109300000
17100000 97900000
29766667 85233333
42433333 72566667
55100000 59900000
67766667 47233333
80433333 34566667
93100000 21900000
102600000 12400000
104500000 10500000
35000000
0
10 years
825000
1-Jul-13
Book Value
beg of year
35000000
33090909
29272727
25030303
20787879
16545455
12303030
8060606.1
3818181.8
636363.64
depreciati
on
expense
1909091
3818182
4242424
4242424
4242424
4242424
4242424
4242424
3181818
636363.6
accumulate
d
depreciatio
n
1909090.9
5727272.7
9969697
14212121
18454545
22696970
26939394
31181818
34363636
35000000
Book Value
end of year
33090909
29272727
25030303
20787879
16545455
12303030
8060606.1
3818181.8
636363.64
1.746E-09
Output
Produced
45000
90000
100000
100000
100000
100000
100000
100000
75000
15000
%
Produced
0.054545
0.109091
0.121212
0.121212
0.121212
0.121212
0.121212
0.121212
0.090909
0.018182
Output
Produced
45000
90000
100000
100000
100000
100000
100000
100000
75000
15000
%
Produced
0.054545
0.109091
0.121212
0.121212
0.121212
0.121212
0.121212
0.121212
0.090909
0.018182
Output
Produced
45000
90000
100000
100000
100000
100000
100000
100000
75000
15000
%
Produced
0.054545
0.109091
0.121212
0.121212
0.121212
0.121212
0.121212
0.121212
0.090909
0.018182
FNEN 6840 risk mgmt
FNEN 6820 Advanced Derivative Securities
sb/fine 6200 and SB/FINE 6800.030, or SB/FNEN 6210.030 and SB/FNEN 6810.030
FNEN 6810 or FINE 6800 - Derivative Securities
