CIGFARO Assets

Management Presentation
ASSETS MANAGEMENT

✓ Initial recognition up to disposal

ASSETS MANAGEMENT
PROCESS FLOW

PROCUREMENT &
DEPRECIATION & VALUATION &
OPENING NEED ANALYSIS ADDITION - IMPAIRMENT DISPOSAL REPORTING
AMMORTIZATION REVALUATION
VERIFICATION
OPENING

Corrected
Asset
Prior period Register
error=
Corrections+
Audit action
plan
Financial
statements
= asset
register
ADDITIONS: CONCEPTUAL FRAMEWORK

Asset Definition
▪ “A resource presently controlled by the entity as a result of a past
event”- Conceptual Framework for General Purpose Financial
Reporting

Recognition criteria
The recognition criteria are that:
▪ an item satisfies the definition of an element; and
▪ can be measured in a way that achieves the qualitative
characteristics and takes account of constraints on information in
GPFRs.

Classify, and verify to barcode and record

ADDITIONS: CLASSIFICATION

• Investment property vs PPE

 ADDITIONS: CLASSIFICATION

• Operating lease vs Finance lease: GRAP 13

• A lease is classified as a finance lease if it transfers
substantially all the risks and rewards incidental to ownership.
A lease is classified as an operating lease if it does not transfer
substantially all the risks and rewards incidental to ownership.
ADDITIONS: RECORDING

▪ Disclosure requirements
▪ Classification requirements
▪ Location
▪ Condition
▪ Unique identifier(Eg; barcode)
▪ Basis for recognition
▪ Project information(supplier, consultant,etc)
▪ Useful lives
▪ Take on date
DEPRECIATION & AMMORTIZATION
DEPRECIATION & AMMORTIZATION

✓ Depreciable amount
▪ is the cost of an asset, or other amount substituted
for cost, less its residual value
✓ Residual value
▪ estimated amount that an entity would currently
obtain from disposal of the asset, after deducting
the estimated costs of disposal, if the asset was
already of the age and in the condition expected at
the end of its useful life.
✓ Depreciation
▪ is the systematic allocation of the depreciable
amount of an asset over its useful life.
✓ Depreciation methods
▪ The depreciation method used shall reflect the
pattern in which the asset’s future economic
benefits or service potential are expected to be
consumed by the entity. These methods include the
straight-line method, the diminishing balance
method and the units of production method
DEPRECIATION & AMMORTIZATION

✓ FORMULA
▪ Depreciable amount(DA)/useful life(UL)
▪ Straight line: (DA/UL)*days/365(6)
▪ Deminishing balance: (DA*%)*days/365(6)
▪ Units of production: DA*units produced/total units
DEPRECIATION & AMMORTIZATION
IMPAIRMENT: GRAP 21
IMPAIRMENT

✓ DEFINITIONS
▪ impairment is a loss in the future economic
benefits or service potential of an asset, over and
above the systematic recognition of the loss of the
asset’s future economic benefits or service potential
through depreciation.
▪ Recoverable service amount is the higher of a
non-cash-generating asset’s fair value less costs to
sell and its value in use.
▪ Value in use of a non-cash-generating asset is the
present value of the asset’s remaining service
potential.
▪ Fair value less costs to sell is the amount
obtainable from the sale of an asset in an arm’s
length transaction between knowledgeable, willing
parties, less the costs of disposal.
Impairment process

Assets for presence

Identify portfolio of impairment
indicators

Determine If CA>RA, difference

recoverable amount = Impairment loss

If RA<CA; no
impairment
IMPAIRMENT: INDICATORS
Impairment situations
100%

90%

80%

70%

60%
Carrying amount

50% Carrying amount

40% Impairment loss

Recoverable amount
30%

20%

10%

0%
Category 1 Category 2 Category 3
Possibilities
IMPAIRMENT
IMPAIRMENT
VALUATION & REVALUATION: IFRS13

✓ DEFINITION:
▪ Fair value is the amount for which an asset could be
exchanged, or a liability settled, between
knowledgeable, willing parties in an arm’s length
transaction
VALUATION & REVALUATION: ACCOUNTING
POLICY
VALUATION & REVALUATION: IFRS13

✓ PRINCIPLE:
▪ Fair value is a market-based measurement, not an
entity-specific measurement. For some assets and
liabilities, observable market transactions or market
information might be available. For other assets and
liabilities, observable market transactions and
market information might not be available.
However, the objective of a fair value measurement
in both cases is the same—to estimate the price at
which an orderly transaction to sell the asset or to
transfer the liability would take place between
market participants at the measurement date under
current market conditions (ie an exit price at the
measurement date from the perspective of a market
participant that holds the asset or owes the
liability).
VALUATION & REVALUATION: IFRS13

✓ PRINCIPLE:
▪ When a price for an identical asset or liability is not
observable, an entity measures fair value using
another valuation technique that maximises the use
of relevant observable inputs and minimises the use
of unobservable inputs. Because fair value is a
market-based measurement, it is measured using
the assumptions that market participants would use
when pricing the asset or liability, including
assumptions about risk. As a result, an entity’s
intention to hold an asset or to settle or otherwise
fulfil a liability is not relevant when measuring fair
value.
VALUATION & REVALUATION: IFRS13

✓ CONSIDERATIONS: What would a willing

buyer consider?
▪ the condition and location of the asset; and
▪ restrictions, if any, on the sale or use of the asset.
VALUATION & REVALUATION: IFRS13

✓ ASSUMPTIONS: Current market conditions

▪ Principal market
▪ Most advantageous market
▪ Highest and best use – usually current use
An entity need not undertake an exhaustive search
of all possible markets to identify the principal
market or, in the absence of a principal market,
the most advantageous market, but it shall take
into account all information that is reasonably
available. In the absence of evidence to the
contrary, the market in which the entity would
normally enter into a transaction to sell the asset
or to transfer the liability is presumed to be the
principal market or, in the absence of a principal
market, the most advantageous market.
VALUATION & REVALUATION: IFRS13

✓ METHODS
▪ Quoted prices
▪ Calculation using observable inputs;eg
▪ Income approach(NPV)
▪ Market approach(Comparable sales)
▪ Current replacement cost
VALUATION & REVALUATION: IFRS13

✓ ACCOUNTING
▪ Initial recognition: Non exchange transaction
▪ Annual measurement: Fair value model
▪ Revaluation related accounting: Accounting policy
VALUATION & REVALUATION

✓ FAIR VALUE MODEL

▪ Annual measurement
▪ Fair value adjustment – Profit/Loss
VALUATION & REVALUATION

✓ REVALUATION MODEL
▪ Valuation frequency – accounting policy
▪ Revaluation surplus or deficit
▪ Previous revaluation surplus must first be
consumed before recognizing deficit
▪ Previous revaluation deficit must first be consumed
before recognizing surplus
DISPOSAL

When the definition and recognition criteria is no

longer met. Usually cessation of economic
benefits/service potential

Derecognition
▪ “Derecognition is the process of evaluating
whether changes have occurred since the
previous reporting date that warrant removing an
element that has been previously recognised from
the financial statements, and removing the item if
such changes have occurred. In evaluating
uncertainty about the existence of an element the
same criteria are used for derecognition as at
initial recognition.” – Conceptual framework
REPORTING: Presentation & Disclosure

Dictated per standard. We will use PPE as an

example

✓ Financial statements
✓ Disclosure notes
✓ Accounting policies
✓ Narrating paragraphs
REPORTING: Presentation & Disclosure
REPORTING: Presentation & Disclosure
INFORMATION SOURCES

✓ Cars.co.za: valuation of used vehicles

✓ SMD: valuation of damaged vehicles
✓ National Treasury: Accounting guideline on
non current assets
✓ IFRS foundation: Accounting standards
✓ Accounting standards board: Accounting
standards
✓ Vhembe District Municipality: PPE note
Thank You!