Intangible Assets
What is Intangible asset?
An intangible asset is an identifiable non-monetary asset without physical substance
Depreciation is the process in which...?
the depreciable amount of plant and equipment is allocated to expense over the time periods in which the company benefits from the use of the asset.
What is the accounting formula used to calculate Cost of Goods Sold (COGS) for a period?
Beginning Inventory+Purchases−Ending Inventory=COGS
Goodwill and impairment testing is ...?
Goodwill arises from business combinations when purchase price exceeds fair value of net identifiable assets. It is not amortised but tested annually for impairment at the CGU level.
What is the difference in straight-line depreciation and declining method?
Straight-line method: Constant depreciation
Declining balance: Higher depreciation at the start, lower depreciation towards the end of useful life
According to Keppel’s accounting policies, inventories are measured at the lower of which two values?
Cost or Net Realizable Value (NRV)
The accounting life of intangible assets is determined by what?
their legal lives or useful lives, whichever is shorter.
In the Straight-Line method, we depreciate based on the "Depreciable Amount". Does the Double-Declining Balance method also use it as the base for its annual calculation? Elaborate.
No. Declining balance applies the depreciation rate to the opening net book value at the start of the year
Define inventory and COGS.
Inventory includes goods held for sale or production. COGS represents the cost of inventory sold during the accounting period.
An entity will recognise an intangible asset when it meets the definition of an intangible asset, and what criteria?
Recognition
Imagine you are in Year 3 of owning an asset, and you decide to change its estimated useful life from 10 years to 15 years. Do you go back and correct the depreciation expense for Years 1 and 2, or do you only adjust calculations for Year 3 onwards?
A change in useful life is considered a change in accounting estimate, not an error.
Recall that depreciation estimation is prospective. Therefore, you do not restate past financial statements. Instead, you take the current net book value and depreciate it over the remaining new useful life
Explain inventory valuation methods and effects.
FIFO assigns earliest costs to COGS; weighted average smooths costs. Different methods affect gross profit, ending inventory, and tax in changing price environments.