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Aspects of Initial Acquisition Cost - 532 Words - Report Example

Knowledge is power

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22 views3 pages

Aspects of Initial Acquisition Cost - 532 Words - Report Example

Knowledge is power

Uploaded by

mtahir777945
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Aspects of Initial Acquisition Cost Report

Table of Contents

1. Introduction
2. IAS 36. Impairment of Assets
3. IAS 38. Intangible Assets
4. References

Introduction
Initial acquisition cost refers to the actual costs associated with the procurement of an asset. The initial acquisition cost of an
asset takes into account all the items that are attributed to its purchase and its utilization (Gissel, 2016). These costs include
the purchase price and factors associated with its purchase, such as transportation fees, appraisals, warranties, and back
taxes. Initial acquisition costs can be used in valuing an asset type.

Acquisition cost = (Purchase price+ Additional direct expenses relative to acquisition) – (Depreciation + Amortization + Taxes +
Impairment costs)

= (25,000+ 3.00 + 1.150) – (122) = €24,882.15

Amortization fees refer to the accumulated portion of the recorded cost of a fixed asset that is charged to expense via
amortization or depreciation. It reflects the consumption of an intangible fixed asset over its useful life and ratably reducing its
cost (Gul et al., 2003).

Amortization fees = Total interest amount/period in the debt’s life

Interest amount = 24,882.15 -5,000 – (250*12) = 16,882.15

Period in the debt’s life = 10 years

Amortization fee = €1688.215

Maintenance cost includes the total costs for maintenance parts, working hours, and other costs associated with the
maintenance effort.

Cost derived from daily maintenance = 250*12*10

= €30,000

IAS 36. Impairment of Assets


Impairment of assets is concerned with ensuring that a firm’s assets are not carried at more than their recoverable aggregate.
Firms are required to carry out impairment tests where there is an indication of impairment of an asset (Goex & Wagenhofer,
2009).

Impairment loss of Camera 1 = Carrying cost – Recoverable amount

= €1.750 – € 575 = € (573.25)

Impairment loss of Camera 2 = Carrying cost – Recoverable amount

= €3.500 – €1.500 = €2
Impairment loss of Camera 3 = Carrying cost – Recoverable amount

= €1.950 – €750

= € (748.05)

Impairment loss of Accessories = Carrying cost – Recoverable amount

= €4.550 – €2.200

= €2.350

IAS 38. Intangible Assets


Intangible assets are assets that are not physical in nature and may include brand recognition, goodwill and intellectual property
including, patents and copyrights (Denekamp, 1995). They are calculated as follows.

Acquisition of the asset:

March 1, 2016

Dr Cr

Patent 7,500

Bank 7,500

At Year end:

December 31, 2016

Dr Cr

Patent 1,500

Revaluation Reserve 1,500

December 31, 2017 devaluation of 1000 euros

Dr Cr

Revaluation Reserve 1,000

Patent 1,000

The assumption is that Normally Patents are not valued within the revaluation model as they are unique, and they do not have
an active market. In the question, we assume it fulfills the revaluation criteria (Lirios et al., 2018). On March 1, 2016, the patent
will be recognized as cost. Patent will be revalued, its gains and losses calculated at the end of the year. There is a gain of
€1,500 as at December 31, 2016, which is transferred to a revaluation reserve account. There is a revaluation loss that will
adjust any prior accumulated gains first as of December 31, 2017, and then charged to profit and loss as revaluation loss. Since
there is an excess gain of €1,500 and an entire loss of €1,000, they will be adjusted in the revaluation reserve account.

References
Denekamp, J. G. (1995). Intangible assets, internationalization and foreign direct investment in manufacturing. Journal of
International Business Studies, 26(3), 493-504. Web.

Gissel, J. L. (2016). A case of fixed asset accounting: Initial and subsequent measurement. Journal of Accounting Education, 37,
61-66. Web.
Goex, R. F., & Wagenhofer, A. (2009). Optimal impairment rules. Journal of Accounting and Economics, 48(1), 2-16. Web.

Gul, F. A., Chen, C. J., & Tsui, J. S. (2003). Discretionary accounting accruals, managers’ incentives, and audit fees.
Contemporary accounting research, 20(3), 441-464. Web.

Lirios, C. G., Espinosa, F., & Guillén, J. C. (2018). Model of intangible assets and capitals in organizations. International Journal of
Research in Humanities and Social Studies, 5(6), 1-12. Web.

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