The property, plant and equipment portion of the Consolidated Balance Sheet of Sterling Homex shows a significant increase from 1970 to 1971. The Major contributor to its drastic increase is the “Buildings” account. From 1,702,924. 00 it increased to 4,822,055. 00, the movement was not explained in the notes though it may be attributed to the expansion of Homex in 1971. This is the time wherein they doubled their manufacturing facilities and created the U. S. Shelter Corporation, a wholly owned subsidiary, to provide construction and permanent financing for its customers.
Deferred Charges * Another account in the Balance Sheet that moved drastically is the Deferred Charges account. From 944,109. 00 it grew to 2,558,792. 00. A noticeable increase is in the Training and professional development and in the Research and development component. Numbers grew from 148,636. 00 and 84,496. 00 to 491,641. 00 and 671,897. 00, respectively. * In the Balance Sheet of Homex, they capitalized Research and development, as well as the training and professional development. As a general rule, reaserch and development and trainings should be expensed rather than capitalized.
The reason behind it is because future economic benefits are uncertain and accountants follow a conservative type of approach. However, if it can be shown that these costs have future alternate uses, then a company may capitalize the cost. In this case, the company would capitalize the cost as an asset and then depreciate or amortize the asset over the expected life. Note that personnel, indirect and contract costs can never be capitalized, regardless of whether a future alternative use exists or not.
Therefore, the research and development account is properly classified and recorded but the training and professional development was erroneously classified overstating the assets and net income and understating the expense to be recognized during the time it was incurred. 2012 Technical Summary IAS 38 Intangible Assets as issued at 1 January 2012. Includes IFRSs with a n effective date after 1 January 2012 but not the I FRSs they will replace. This extract has been prepared by IFRS Foundation s taff and has not been approved by the IASB. For th e requirements reference must be made to International Financial R porting Standards. The objective of this Standard is to prescribe the accounting treatment for intangible assets that are not dealt with specifically in another Standard. This Standar d requires an entity to recognise an intangible ass et if, and only if, specified criteria are met. The Standard a lso specifies how to measure the carrying amount of intangible assets and requires specified disclosure s about intangible assets. An intangible asset is an identifiable non-monetary asset without physical substance. Recognition and measurement The recognition of an item as an intangible asset r quires an entity to demonstrate that the item meet s: (a) the definition of an intangible asset; and (b) the recognition criteria. This requirement applies to costs incurred initiall y to acquire or internally generate an intangible a sset and those incurred subsequently to add to, replace part of, or service it. An asset is identifiable if it either: (a) is separable, ie is capable of being separated or d ivided from the entity and sold, transferred, licen sed, rented or exchanged, either individually or togethe r with a related contract, identifiable asset or li ability, egardless of whether the entity intends to do so; or (b) arises from contractual or other legal rights, rega rdless of whether those rights are transferable or separable from the entity or from other rights and obligation s. An intangible asset shall be recognised if, and onl y if: (a) it is probable that the expected future economic be nefits that are attributable to the asset will flow to the entity; and (b) the cost of the asset can be measured reliably. The probability recognition criterion is always con sidered to be satisfied for intangible assets that are acquired separately or in a business combination.
An intangible asset shall be measured initially at cost. The cost of a separately acquired intangible asset comprises: (a) its purchase price, including import duties and non-refundable purchase taxes, after deducting tra de discounts and rebates; and (b) any directly attributable cost of preparing the asset for its intended use. In accordance with IFRS 3 Business Combinations , if an intangible asset is acquired in a business combination, the cost of that intangible asset is its fair value at the acquisition date. If an asset acquired in a business combination is separable or arises from contractual r other legal rights, sufficient information exis ts to measure reliably the fair value of the asset. In accordance with this Standard and IFRS 3 (as rev ised in 2008), an acquirer recognises at the acquis ition date, separately from goodwill, an intangible asset of the acquiree, irrespective of whether the asset had been recognised by the acquiree before the business comb ination. This means that the acquirer recognises as an asset separately from goodwill an in-process resear ch and development project of the acquiree if the p roject meets the definition of an intangible asset. Internally generated intangible assets
Internally generated goodwill shall not be recognis ed as an asset. No intangible asset arising from research (or from the research phase of an internal project) shall be recognised. Expenditure on research (or on the rese arch phase of an internal project) shall be recogni sed as an expense when it is incurred. An intangible asset arising from development (or fr om the development phase of an internal project) sh all be recognised if, and only if, an entity can demonstra te all of the following: (a) the technical feasibility of completing the intangi ble asset so that it will be available for use or s ale. (b) ts intention to complete the intangible asset and use or sell it. (c) its ability to use or sell the intangible asset. (d) how the intangible asset will generate probable fut ure economic benefits. Among other things, the enti ty can demonstrate the existence of a market for the o utput of the intangible asset or the intangible ass et itself or, if it is to be used internally, the usefulness of the intangible asset. (e) the availability of adequate technical, financial a nd other resources to complete the development and to use or sell the intangible asset. (f) its ability to measure reliably the expenditure att ibutable to the intangible asset during its develo pment. Internally generated brands, mastheads, publishing titles, customer lists and items similar in substan ce shall not be recognised as intangible assets. The cost of an internally generated intangible asse t for the purpose of paragraph 24 is the sum of exp enditure incurred from the date when the intangible asset fi rst meets the recognition criteria in paragraphs 21 , 22 and 57. Paragraph 71 prohibits reinstatement of expendi ture previously recognised as an expense. Expenditure on an intangible item shall be recognis ed as an expense when it is incurred unless: a) it forms part of the cost of an intangible asset th at meets the recognition criteria; or (b) the item is acquired in a business combination and cannot be recognised as an intangible asset. If thi s is the case, it forms part of the amount recognised as goo dwill at the acquisition date (see IFRS 3). Measurement after recognition An entity shall choose either the cost model or the revaluation model as its accounting policy.
If an intangible asset is accounted for using the revaluation model, all the other assets in its class shall also be ac counted for using the same model, unless there is no active mar et for those assets. Cost model: After initial recognition, an intangibl e asset shall be carried at its cost less any accum ulated amortisation and any accumulated impairment losses. Revaluation model: After initial recognition, an in tangible asset shall be carried at a revalued amoun t, being its fair value at the date of the revaluation less any subsequent accumulated amortisation and any subsequ ent accumulated impairment losses. For the purpose of revaluations under this Standard, fair value shall be measured by reference to an active market. Revaluat ions shall be made with such regularity that at the nd of the reporting period the carrying amount of the ass et does not differ materially from its fair value. An active market is a market in which all the follo wing conditions exist: (a) the items traded in the market are homogeneous; (b) willing buyers and sellers can normally be found at any time; and (c) prices are available to the public. If an intangible asset’s carrying amount is increas ed as a result of a revaluation, the increase shall be recognised in other comprehensive income and accumu lated in equity under the heading of revaluation su rplus. However, the increase shall be recognised in profit r loss to the extent that it reverses a revaluati on decrease of the same asset previously recognised in profit o r loss. If an intangible asset’s carrying amount i s decreased as a result of a revaluation, the decrease shall be recognised in profit or loss. However, the decreas e shall be recognised in other comprehensive income to the ext ent of any credit balance in the revaluation surplu s in respect of that asset.
Useful life Useful life is: (a) the period over which an asset is expected to be av ailable for use by an entity; or (b) the number of production or similar units expected o be obtained from the asset by an entity. An entity shall assess whether the useful life of a n intangible asset is finite or indefinite and, if finite, the length of, or number of production or similar units consti tuting, that useful life. An intangible asset shall be regarded by the entity as having an indefinite useful life w hen, based on an analysis of all of the relevant fa ctors, there is no foreseeable limit to the period over which the a sset is expected to generate net cash inflows for t he entity. The useful life of an intangible asset that arises from contractual or other legal rights shall not ex eed the period of the contractual or other legal rights, bu t may be shorter depending on the period over which the entity expects to use the asset. If the contractual or oth er legal rights are conveyed for a limited term tha t can be renewed, the useful life of the intangible asset sh all include the renewal period(s) only if there is evidence to support renewal by the entity without significant c ost. To determine whether an intangible asset is impaire d, an entity applies IAS 36 Impairment of Assets . Intangible assets with finite useful lives The depreciable amount of an intangible asset with finite useful life shall be allocated on a system atic basis over its useful life. Depreciable amount is the co st of an asset, or other amount substituted for cos t, less its residual value. Amortisation shall begin when the a sset is available for use, ie when it is in the loc ation and condition necessary for it to be capable of operati ng in the manner intended by management. Amortisati on shall cease at the earlier of the date that the ass et is classified as held for sale (or included in a disposal group that is classified as held for sale) in accordance with IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations and the date that the asset is derecognised. The amortisation method used shall reflect the pattern in which the asset’s future eco nomic benefits are expected to be consumed by the e ntity. If that pattern cannot be determined reliably, the straight-line method shall be used. The amortisatio n charge for each period shall be recognised in profit or lo ss unless this or another Standard permits or requi res it to be included in the carrying amount of another asset. The residual value of an intangible asset is the es timated amount that an entity would currently obtai n from isposal of the asset, after deducting the estimate d costs of disposal, if the asset were already of t he age and in the condition expected at the end of its useful lif e. The residual value of an intangible asset with a finite useful life shall be assumed to be zero unless: (a) there is a commitment by a third party to purchase the asset at the end of its useful life; or (b) there is an active market for the asset and: (i) residual value can be determined by reference to th at market; and (ii) it is probable that such a market will exist at the end of the asset’s useful life. The amortisation period and the amortisation method or an intangible asset with a finite useful life shall be reviewed at least at each financial year-end. If th e expected useful life of the asset is different fr om previous estimates, the amortisation period shall be changed accordingly. If there has been a change in the exp ected pattern of consumption of the future economic benef its embodied in the asset, the amortisation method shall be changed to reflect the changed pattern. Such change s shall be accounted for as changes in accounting e stimates in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimate s and Errors .
