Conceptual principles of financial reporting

IAS 36 — Impairment of Assets

Checking whether the carrying amount of an asset exceeds its recoverable amount.

Recoverable amount = the greater of:

• Fair value less costs to sell,
• Value in use (PV of future flows).

Stage	Action
1	Identify indicators of impairment
2	Calculate recoverable amount
3	Recognize loss if FV > Recoverable amount

Impairment testing is mandatory:

• Goodwill,
• Intangible assets with an indefinite life,
• Intangible assets under development.

Impairment loss — to profit, except for revalued assets (reduces the revaluation reserve).

IAS 38 — Intangible Assets

An identifiable non-monetary asset without physical form (patents, licenses, software).

Recognition:

• Probability of future benefits;
• Reliable cost estimate.

Independently created intangible assets:

• Research → period expenses
• Development → capitalization if project feasibility is proven.

Accounting model	Example	Reflection
Costs	License purchase	In Profit
Revaluations	Asset with a market (rare)	Through equity (OCI)

Depreciation: over useful life (max. 10 years with uncertainty).

IAS 16 — Property, Plant, and Equipment

Tangible assets used for more than one period in production, rental, or management.

Recognition:

• Probability of economic benefits;
• Reliable estimate of cost.

Initial estimate: cost (purchase + delivery + completion + dismantling).

Model	Essence	Reflection
At cost	Cost – depreciation – impairment	In profit
At revaluation	Fair value – depreciation	In other comprehensive Income

Depreciation:

• Start — from the moment of completion;
• Review the term and method annually;
• Methods: straight-line, declining balance, units of production.

Main Depreciation Methods

Method	Formula	Features / Application	Example
Linear	(Cost – Liquidation Value) / Term	Equal Distribution of Costs by Year	Building, Office Equipment
Declining Balance Method	Balance × Standard (%)	Highest Costs at the Beginning, Decrease Over Time	Machinery, Equipment
Sum of Years Method	(Remaining years / Sum of years) × Depreciation value	Accelerated depreciation; RB equivalent	Specialized equipment
Production	(Actual output / Total output) × Depreciation Cost	Tied to the use of the asset	Machine, quarry, intangible asset with a patent
Component-Based	For each component	For fixed asset parts with different service lives	Aircraft (fuselage, engine)

Component-Based Accounting: fixed asset parts with different service lives are depreciated separately.