Accounting Business Reporting for Decision Making

190 Accounting: Business Reporting for Decision Making

Measuring non-current assets

All non-current assets with limited useful lives (depreciable assets) must be depreciated. Land is not

required to be depreciated. Depreciation (the term ‘amortisation’ is used for non-physical non-current

assets such as intangibles and also for leased assets) is the allocation of the depreciable amount of a

depreciable asset over its estimated useful life. The concept of depreciation is illustrated in chapter 6.

Accumulated depreciation refers to the total depreciation charges for an asset from its acquisition to

the end of the reporting period. The carrying amount of depreciable assets on the balance sheet is their

cost (or fair value) less the accumulated depreciation.

In general, each class of non-current assets can be carried at either cost, written-down cost or fair

value. There are some notable exceptions.

• Goodwill cannot be revalued upwards and must be tested at least annually for impairment.


• Identifiable intangibles such as brand names can be revalued upwards only if an active and liquid

market exists.

• Financial instruments are measured at their fair value.


• Agricultural assets are measured at their fair value less costs to sell.

Non-current assets carried at cost or written-down cost must not have a carrying amount that is greater

than their recoverable amount. The recoverable amount of an asset is the higher of its expected fair

value less costs of disposal, and value in use. Value in use refers to the present value of the expected

future cash flows associated with the use and subsequent disposal of the asset. This means that the

carrying amount must be compared with the recoverable amount; if the latter is lower, the asset is deemed

impaired. The asset’s carrying amount must be reduced to its recoverable amount, and an impairment

loss (an expense) will be recognised immediately in the statement of profit or loss.

The impact of the need to write down assets if their recoverable amounts are less than their carrying

amounts is highlighted in the reality check, ‘Vocation, embattled education and skills trainer, posts

$273m first-half loss’.

REALITY CHECK

Vocation, embattled education and skills trainer, posts $273m

first-half loss

Embattled education and skills trainer Vocation Limited has slumped to a $273 million loss for the

six months to December 2015. The loss was largely driven by a $241 million write-down on the value of

its Victorian business, which was stripped last year of nearly $20 million in Victorian Government con-

tracts. Excluding such one-off items, Vocation reported a net loss after tax of $7 million.

‘Despite difficult trading conditions and substantial reputational damage to parts of the vocational

education business, the higher education business consisting of Endeavour and the Australian School of

Management have performed to expectations and carry momentum into the current half,’ said Vocation

chief executive Mark Hutchinson.

Source: Woolrich, N 2015, ‘Vocation, embattled education and skills trainer, posts $273m first-half loss’, ABC News, 2 March.

For entities electing to value one or more of their property, plant and equipment classes at fair value,

the fair value must be reviewed regularly. If the fair value of an asset increases from one reporting period

to the next, the asset’s carrying amount increases and the revaluation surplus increases. The exception

is if the increase reverses a previous decrease recorded in the statement of profit or loss. In such a case,

rather than increasing the revaluation surplus, the increase can be recorded in the statement of profit

or loss to the extent of the decrement previously recorded. If an asset’s fair value declines, the asset’s

carrying amount is reduced, with the corresponding entry recorded as an expense in the statement of

profit or loss. The exception to this is if the decrease reverses a previous increase recorded in the revalu-

ation surplus. In such a case, rather than recording an expense in the statement of profit or loss, the

revaluation surplus is reduced to the extent of the revaluation previously recorded.