Property, Plant, Equipment, Intangibles and Impairment

Introduction and context

Property, plant and equipment (PPE), intangible assets and goodwill are central to the reporting of capital-intensive and knowledge-based businesses. They affect the statement of financial position, profit or loss, cash-flow interpretation, taxation, borrowing capacity, performance measures and investment valuation. Unlike inventory or ordinary operating expenses, these assets generate benefits over several reporting periods. Accounting therefore requires decisions about recognition, measurement, depreciation or amortisation, impairment and disposal.

This chapter is primarily based on IFRS principles, especially IAS 16 Property, Plant and Equipment, IAS 23 Borrowing Costs, IAS 36 Impairment of Assets, IAS 38 Intangible Assets and IFRS 3 Business Combinations. Equivalent national standards may differ in detail. Professional judgement is particularly important where useful lives, residual values, technological obsolescence, cash-flow forecasts and asset boundaries are uncertain.

Learning objectives

After studying this chapter, the reader should be able to:

1. Identify when expenditure qualifies as PPE or an intangible asset.
2. Determine the initial cost of an asset, including directly attributable costs and eligible borrowing costs.
3. Apply the cost and revaluation models.
4. Calculate depreciation and amortisation and account for changes in estimates.
5. Distinguish research expenditure from development expenditure.
6. Explain the recognition and measurement of goodwill.
7. Apply impairment testing to individual assets, cash-generating units and goodwill.
8. Account for derecognition and disposal.
9. Evaluate the effects of asset accounting on financial analysis, investment decisions and governance.

1. The asset-recognition framework

An asset is recognised when it is probable that future economic benefits will flow to the entity and its cost or fair value can be measured reliably. The asset must also be controlled by the entity as a result of a past event. Control does not necessarily require legal ownership: a qualifying right-of-use asset, for example, may arise from a lease.

The recognition threshold prevents every expenditure from being capitalised. Capitalisation records an expenditure as an asset and allocates its cost over future periods. Expensing records the expenditure immediately in profit or loss. The distinction affects both current profit and later depreciation or amortisation.

PPE

PPE is tangible property held for production, supply, rental or administrative purposes and expected to be used during more than one period. Examples include land, buildings, plant, machinery, vehicles, office equipment and specialised production facilities.

An item may be recognised as PPE when:

• the entity controls the item;
• future economic benefits are probable; and
• the cost can be measured reliably.

Material components with different useful lives are accounted for separately. A major aircraft inspection, furnace lining or engine may therefore be a separate depreciable component even though it forms part of one physical asset.

Intangible assets

An intangible asset is an identifiable non-monetary asset without physical substance. Identifiability exists when the asset is separable or arises from contractual or other legal rights. Examples include patents, licences, copyrights, customer relationships acquired in a business combination, software and development assets.

Internally generated brands, mastheads, publishing titles, customer lists and goodwill are not recognised as internally generated intangible assets because their costs cannot generally be distinguished reliably from the cost of developing the business as a whole.

2. Initial measurement and capitalisation

An asset initially measured at cost includes:

• purchase price, including import duties and non-refundable taxes, net of discounts;
• directly attributable costs of bringing the asset to the location and condition necessary for intended operation;
• the initial estimate of dismantling, removal and site-restoration obligations, where a present obligation exists; and
• for qualifying assets, capitalised borrowing costs.

Directly attributable costs may include employee costs, site preparation, delivery, installation, testing and professional fees. Abnormal waste, general administration, staff training, start-up losses and advertising are normally expensed. Testing costs are capitalised only to the extent necessary to establish that the asset functions as intended; proceeds from items produced during testing are accounted for according to applicable standards rather than automatically deducted from asset cost.

Land and buildings are separate assets even when acquired together, because land normally has an unlimited useful life while buildings do not. The purchase price is allocated on a rational and supportable basis, usually using relative fair values.

Subsequent expenditure

Routine repairs and maintenance are expensed because they preserve, rather than enhance, the asset’s existing condition. Replacement of a significant component is capitalised if recognition criteria are met, while the carrying amount of the replaced component is derecognised. Major inspections may be capitalised and the previous inspection component removed from the accounts.

Borrowing costs

Under IAS 23, borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset form part of that asset’s cost. A qualifying asset requires a substantial period to become ready for intended use or sale. Examples include a major factory, power station, infrastructure project or large property development.

Capitalisation begins when all three conditions exist:

1. expenditures for the asset are being incurred;
2. borrowing costs are being incurred; and
3. activities necessary to prepare the asset for use or sale are in progress.

Capitalisation is suspended during extended periods in which active development is interrupted, except where the interruption is a necessary part of the process. It ceases when substantially all activities necessary to prepare the asset are complete.

For a specific borrowing, the eligible amount is generally the actual borrowing cost incurred, reduced by temporary investment income. For general borrowings, a weighted-average capitalisation rate is applied to qualifying expenditures.

The capitalisation rate is calculated from the weighted-average borrowing costs applicable to the entity’s general borrowings, excluding specific borrowings already considered separately. The rate should not exceed the borrowing costs actually incurred during the period.

Worked example: borrowing costs

An entity spends $2,000,000 on a qualifying factory on 1 January and $1,000,000 on 1 July. It has general borrowings of $10,000,000 at 8%. Assuming construction continues throughout the year:

Weighted-average expenditure = $2,000,000 + ($1,000,000 × 6/12) = $2,500,000.

Capitalised borrowing cost = $2,500,000 × 8% = $200,000.

The factory’s cost includes the qualifying expenditure and $200,000 borrowing cost, subject to any other applicable adjustments.

3. Measurement after recognition

An entity chooses either the cost model or the revaluation model for an entire class of PPE. The selected policy must be applied consistently.

Cost model

Under the cost model, an asset is carried at cost less accumulated depreciation and accumulated impairment losses.

This model provides a cost-based measure and is generally easier to apply, but the carrying amount may become substantially different from current economic value.

Revaluation model

Under the revaluation model, an asset is carried at fair value at the revaluation date less subsequent accumulated depreciation and impairment losses. Revaluations must be sufficiently regular to ensure that carrying amount does not differ materially from fair value. If one asset in a class is revalued, the entire class must be revalued, avoiding selective upward revaluation.

An upward revaluation is generally recognised in other comprehensive income and accumulated in equity as a revaluation surplus. However, it is recognised in profit or loss to the extent that it reverses a previous decrease recognised in profit or loss. A downward revaluation is generally recognised in profit or loss, except to the extent of an existing surplus for that asset.

When a revalued asset is depreciated, the difference between depreciation based on the revalued amount and depreciation based on original cost may be transferred from revaluation surplus to retained earnings. Such transfers are made directly within equity and do not pass through profit or loss.

Revaluation may improve relevance but introduces valuation uncertainty, volatility and potential measurement costs. It can also affect debt covenants and return ratios.

4. Depreciation and component accounting

Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life. It is not a valuation technique and does not necessarily represent a fall in market value.

Depreciation begins when the asset is available for use, not necessarily when it is first used. It ceases when the asset is derecognised or classified as held for sale, whichever occurs earlier under the relevant requirements. Land normally is not depreciated because it usually has an unlimited useful life.

The depreciation method must reflect the pattern in which the asset’s future economic benefits are consumed. Common methods include:

Straight-line method

Units-of-production method

Period depreciation equals depreciation per unit multiplied by units produced in the period. A revenue-based depreciation method is generally inappropriate because revenue reflects selling prices, inflation and other factors rather than consumption of the asset.

Useful life, residual value and method are reviewed at least at each financial year-end. A change caused by new information is a change in accounting estimate and is applied prospectively. It is not treated as an error correction unless prior information was improperly ignored.

Worked example: depreciation

A machine costs $500,000, has a residual value of $20,000 and an estimated useful life of eight years. Under straight-line depreciation:

Annual depreciation = ($500,000 − $20,000) ÷ 8 = $60,000.

After three complete years, assuming no impairment or change in estimates:

Carrying amount = $500,000 − (3 × $60,000) = $320,000.

If at the beginning of year four the remaining useful life is revised to five years and residual value to $10,000, depreciation from year four is:

($320,000 − $10,000) ÷ 5 = $62,000 per year.

The revised amount is applied prospectively.

5. Intangible assets: finite and indefinite lives

An intangible asset has a finite useful life if the period over which it is expected to generate net cash inflows is limited. Finite-life intangibles are amortised systematically from the date they are available for use. The method should reflect consumption; otherwise straight-line amortisation is used.

An intangible asset has an indefinite life when there is no foreseeable limit to the period over which it is expected to generate net cash inflows. “Indefinite” does not mean infinite. Indefinite-life assets are not amortised but are tested for impairment annually and whenever an impairment indicator exists. The assessment of useful life is reviewed each period.

An intangible asset is measured after recognition using the cost model or, only where an active market exists, the revaluation model. Active markets for unique patents, brands and customer relationships are uncommon.

Research and development

Research is original investigation undertaken to obtain new scientific or technical knowledge. Research expenditure is expensed when incurred because future benefits cannot yet be demonstrated.

Development is the application of research findings or other knowledge to a plan for producing new or substantially improved products, processes or systems before commercial production or use. Development expenditure is capitalised only when the entity can demonstrate all relevant criteria, including:

• technical feasibility of completing the asset;
• intention to complete and use or sell it;
• ability to use or sell it;
• probable future economic benefits, often demonstrated through a market or internal usefulness;
• availability of adequate technical, financial and other resources; and
• ability to measure expenditure reliably.

Capitalisation begins only when all criteria are satisfied. Earlier research or development expenditure cannot later be reinstated as an asset. Capitalised development costs are amortised when the asset is available for use and tested for impairment when required.

Internally generated software

Preliminary investigation, training, data conversion and general administration are normally expensed. Costs of the application-development stage may qualify if the development criteria are satisfied. Cloud-computing arrangements require careful analysis: some implementation expenditure creates a controlled intangible asset, while other services are received over time and expensed or prepaid according to the service arrangement.

6. Goodwill and business combinations

Goodwill is not an internally generated asset. In a business combination, acquired goodwill is measured as the excess of consideration transferred, plus any non-controlling interest and the fair value of any previously held interest, over the fair value of identifiable net assets acquired and liabilities assumed.

The formula applies to an acquisition-method business combination. If the result is negative after reassessing measurements, the excess is generally recognised as a bargain-purchase gain in profit or loss.

Goodwill represents expected benefits from assets that are not individually identifiable, such as assembled workforce, synergies, reputation and economies of scale. It is allocated to cash-generating units (CGUs), or groups of CGUs, expected to benefit from the combination. Goodwill is not amortised under IFRS, but is tested for impairment annually and when indicators arise. Some other accounting frameworks permit goodwill amortisation; analysts must therefore identify the applicable reporting regime.

7. Impairment of non-financial assets

Impairment accounting prevents assets from being reported above recoverable amount. An impairment loss exists when carrying amount exceeds recoverable amount.

Fair value less costs of disposal reflects a market-participant perspective. Value in use is the present value of future cash flows expected from continuing use and ultimate disposal, using entity-specific assumptions consistent with the asset’s condition and approved budgets, subject to the requirements of IAS 36.

For value in use, the general present-value relationship is:

Here, CF_t is the expected net cash flow in period t, r is a pre-tax discount rate reflecting the time value of money and asset-specific risks not already reflected in the cash flows, and t is the period number. Cash flows must be internally consistent with the discount rate, avoid double-counting risks and normally exclude financing cash flows and income-tax cash flows when applying the pre-tax approach.

Impairment indicators

Indicators may be external or internal. Examples include a significant fall in market value, adverse technological or legal change, increased interest rates, physical damage, obsolescence, worse-than-expected performance, restructuring or plans to discontinue operations.

Annual testing is required for goodwill, indefinite-life intangible assets and intangible assets not yet available for use. Other assets are tested when indicators exist. The impairment test is performed first at the individual-asset level where possible. If an asset does not generate largely independent cash inflows, it is tested as part of a CGU.

CGUs and goodwill

A CGU is the smallest identifiable group of assets generating cash inflows largely independent of those from other assets or groups. Goodwill is allocated to the CGU or group of CGUs expected to benefit from synergies, and the allocation must not be larger than an operating segment before aggregation.

An impairment loss for a CGU is allocated first to goodwill and then pro rata to other assets, subject to safeguards that an asset is not reduced below its individual fair value less costs of disposal, value in use, or zero. Goodwill impairment losses are never reversed. For other assets, reversal is permitted when estimates change, but not above the carrying amount that would have existed after normal depreciation or amortisation had no impairment occurred.

Worked example: impairment

A CGU has a carrying amount of $4.8 million, including goodwill of $0.6 million. Its fair value less costs of disposal is $4.1 million and its value in use is $4.3 million.

Recoverable amount = max($4.1m, $4.3m) = $4.3m.

Impairment loss = $4.8m − $4.3m = $0.5m.

The $0.5 million loss is allocated first against goodwill. Goodwill becomes $0.1 million and no further allocation is required. If the loss had exceeded $0.6 million, the balance would have been allocated to other CGU assets subject to the allocation limits.

8. Derecognition and disposal

PPE or an intangible asset is derecognised on disposal or when no future economic benefits are expected from its use or disposal. The gain or loss is:

The gain or loss is generally recognised in profit or loss, and gains are not classified as revenue unless selling such assets is part of ordinary activities. For a non-cash exchange, the new asset is usually measured at fair value unless the transaction lacks commercial substance or fair value cannot be measured reliably.

Depreciation or amortisation is recorded up to the relevant derecognition date. Any accumulated revaluation surplus associated with a disposed asset may be transferred directly to retained earnings, not through profit or loss.

9. Financial statement and investment implications

Asset accounting affects reported performance in several ways:

• Capitalisation increases assets and current-period profit relative to immediate expensing, but creates future depreciation or amortisation.
• Longer useful lives reduce annual depreciation and increase current profit, while increasing the risk of later impairment.
• Revaluation increases equity and may increase future depreciation.
• Impairment reduces assets and profit, often signalling deteriorating operating prospects.
• Development capitalisation can increase earnings before amortisation but depends on demanding evidence of technical and commercial feasibility.
• Goodwill may be a substantial portion of an acquirer’s assets and creates exposure to forecast errors and acquisition underperformance.

Analysts should compare capital expenditure with depreciation, inspect impairment assumptions, distinguish maintenance from growth investment and consider cash flows rather than relying only on reported earnings. Useful measures include asset turnover, return on assets, capital intensity, maintenance expenditure and free cash flow. However, ratio comparisons require adjustment for revaluation, acquisition accounting, inflation, leasing and different accounting policies.

10. Governance, ethics and professional judgement

Asset accounting is vulnerable to earnings management. Management may be tempted to capitalise ordinary repairs, delay impairment recognition, extend useful lives, use optimistic residual values or allocate excessive purchase price to goodwill. Such actions can temporarily improve profit, leverage and covenant compliance.

Effective governance includes:

• documented capitalisation policies;
• approval controls for major projects;
• engineering evidence for useful lives and residual values;
• independent valuation for material revaluations;
• impairment models reconciled to budgets and board-approved forecasts;
• sensitivity analysis for discount rates and terminal assumptions;
• review of post-acquisition performance;
• audit trails for research-to-development transition; and
• transparent disclosure of assumptions and estimation uncertainty.

Auditors and audit committees should challenge internally inconsistent cash flows, unsupported growth rates, unexplained changes in useful lives and impairment tests that rely on highly favourable assumptions. Ethical reporting requires neutrality, completeness and faithful representation rather than compliance with the minimum disclosure requirement alone.

11. Contemporary developments and technology

Digitalisation has increased investment in software, platforms, data, cloud services and artificial intelligence. Accounting often struggles to distinguish a controlled identifiable asset from access to a continuing service. Expenditure on internally generated data, algorithms and AI training may not qualify for recognition where control, identifiability or reliable measurement is absent.

Technology can improve asset registers through barcode, RFID, GPS and Internet-of-Things monitoring. Predictive maintenance can provide evidence about useful lives and component replacement, but automated estimates do not remove management responsibility. AI-generated forecasts used in impairment tests require validation, version control, explainability and governance over data quality. Models should be tested for bias, especially where forecasts affect asset values, acquisitions or restructuring decisions.

Illustrative case: Meridian Components Ltd

Background

Meridian Components Ltd, a manufacturer, constructs a new automated plant and acquires a smaller robotics business. The plant costs $12 million, including $0.4 million of abnormal start-up losses and $0.3 million of staff training. A $5 million general borrowing facility carries interest at 7%. Construction expenditures are $6 million on 1 January and $6 million on 1 July. The plant is ready for use on 31 December. Its useful life is ten years and residual value is $1 million.

The acquisition includes identifiable technology with a fair value of $2.5 million, customer relationships of $1.2 million and identifiable net assets of $6 million. Consideration is $10 million, with no previously held interest and no non-controlling interest.

Analysis and solution

The abnormal start-up losses and staff training are expensed. Qualifying construction expenditure is $11.3 million before borrowing costs. Weighted-average expenditure is:

$6m + ($6m × 6/12) = $9m.

Capitalised borrowing cost is:

$9m × 7% = $0.63m.

The plant’s initial cost is therefore $11.93 million, assuming all remaining construction expenditure is directly attributable and eligible. Annual straight-line depreciation is:

($11.93m − $1m) ÷ 10 = $1.093m.

The technology and customer relationships are separately identifiable intangible assets and are not subsumed into goodwill. Goodwill is:

$10m − $6m = $4m.

Meridian must allocate the $4 million goodwill to benefiting CGUs and test it annually. It must also amortise the technology and customer relationships over their respective finite useful lives once available for use.

Outcome and learning points

The case demonstrates that capitalisation is not a mechanism for deferring all project expenditure. Directly attributable construction expenditure and eligible borrowing costs are capitalised, while abnormal losses and training are expensed. Acquisition accounting separates identifiable intangible assets from residual goodwill. The reported outcome depends materially on useful-life evidence, allocation of goodwill and future impairment testing.

Challenges and limitations

Several limitations remain. Fair value may be difficult to estimate for specialised assets without active markets. Value-in-use calculations are sensitive to growth, margins, terminal values and discount rates. Useful lives may be uncertain in rapidly changing industries. Goodwill is a residual measure and may combine many different expected benefits. Comparability is reduced when entities select different depreciation methods or use cost and revaluation models differently.

Accordingly, users should interpret carrying amounts together with cash-flow information, segment disclosures, sensitivity analysis, management commentary and industry conditions. No single accounting number provides a complete measure of economic value.

Best-practice checklist

Before finalising accounting for a major asset, ask:

1. Does the entity control an identifiable resource or service right?
2. Are future benefits probable and is measurement reliable?
3. Which costs are directly attributable, and which are abnormal or administrative?
4. Are significant components separately identified?
5. Is the asset available for use, and what evidence supports useful life and residual value?
6. Is borrowing-cost capitalisation permitted and correctly timed?
7. For development costs, were all recognition criteria met at the capitalisation date?
8. Are impairment indicators present, and are forecasts internally consistent?
9. Has goodwill been allocated to the correct CGUs?
10. Are disclosures sufficient for users to understand estimation uncertainty and policy choices?

Chapter Summary

PPE and intangible assets are recognised only when control, probable future benefits and reliable measurement are established. Initial cost includes purchase price and directly attributable expenditure, while qualifying borrowing costs are capitalised during active construction. After recognition, PPE may be measured using the cost or revaluation model. Depreciation allocates depreciable amount systematically over useful life, and significant components are depreciated separately.

Finite-life intangibles are amortised; indefinite-life intangibles are not amortised but are tested annually for impairment. Research expenditure is expensed, whereas development expenditure is capitalised only after strict technical, commercial and measurement criteria are satisfied. Goodwill arises only from a business combination and is tested for impairment through the CGUs benefiting from the combination.

Impairment occurs when carrying amount exceeds recoverable amount, defined as the higher of fair value less costs of disposal and value in use. Judgements about forecasts, discount rates, useful lives and residual values have significant effects on reported performance. Investors and managers should therefore analyse accounting numbers alongside cash flows, operational evidence, governance controls and disclosure quality.

Key Terms

Asset recognition: The process of determining whether expenditure qualifies for recognition as an asset.

Carrying amount: The amount at which an asset is reported after accumulated depreciation, amortisation and impairment.

Capitalisation: Recording expenditure as an asset rather than immediately in profit or loss.

Component accounting: Depreciating significant parts of an asset separately when they have different useful lives.

Cost model: Measurement at cost less accumulated depreciation or amortisation and impairment.

Development: Application of research findings to a plan for producing a new or improved product or process.

Depreciable amount: Cost or revalued amount less residual value.

Fair value less costs of disposal: Market-based recoverable amount net of directly attributable disposal costs.

Goodwill: Residual excess arising when consideration in a business combination exceeds identifiable net assets acquired.

Impairment loss: Excess of an asset’s carrying amount over its recoverable amount.

Intangible asset: An identifiable non-monetary asset without physical substance.

Recoverable amount: Higher of fair value less costs of disposal and value in use.

Research: Original investigation undertaken to obtain new scientific or technical knowledge.

Residual value: Estimated amount obtainable from disposal of an asset at the end of its useful life, net of disposal costs.

Revaluation model: Measurement at fair value at revaluation date less subsequent depreciation and impairment.

Useful life: Period or production capacity over which an asset is expected to be available for use.

Value in use: Present value of future cash flows expected from continuing use and disposal.

Cash-generating unit: Smallest identifiable group of assets generating largely independent cash inflows.

Review Questions

Short Answer Questions

1. What conditions must be satisfied before an item is recognised as PPE?
2. Why are land and buildings normally accounted for separately?
3. Distinguish research expenditure from development expenditure.
4. What is the difference between finite-life and indefinite-life intangible assets?
5. Define recoverable amount under impairment accounting.

Long Answer Questions

1. Explain the cost and revaluation models for PPE, including their effects on profit, equity and comparability.
2. Discuss the accounting treatment of borrowing costs and the conditions for commencing, suspending and ceasing capitalisation.
3. Explain component accounting and show why it can improve the faithful representation of depreciation.
4. Describe the recognition criteria for internally generated development expenditure and the reasons for expensing research expenditure.
5. Explain how goodwill is measured, allocated to CGUs and tested for impairment.

Analytical / Application Questions

1. An entity capitalises repairs, training and start-up losses as part of a new factory. Evaluate which costs should remain capitalised and which should be expensed, giving reasons.
2. A CGU has a carrying amount of $9 million, including goodwill of $1.5 million. Its fair value less costs of disposal is $7.2 million and value in use is $7.8 million. Calculate the impairment loss and explain its allocation.
3. An investor compares two manufacturers: one uses the cost model and the other uses revaluation, while both have similar physical assets. Analyse the adjustments and cautions needed before comparing return on assets and leverage.

Multiple Choice Questions with Answers

Question 1

Which cost is normally directly attributable to bringing PPE to the location and condition necessary for operation?

A. General advertising expenditure

B. Staff training costs

C. Installation and testing costs

D. Abnormal start-up losses

Correct Answer: C. Installation and testing costs

Question 2

Under the cost model, the carrying amount of PPE is calculated as:

A. Fair value plus accumulated depreciation

B. Cost less accumulated depreciation and impairment losses

C. Replacement cost less revenue

D. Cost plus revaluation surplus

Correct Answer: B. Cost less accumulated depreciation and impairment losses

Question 3

A machine costs $500,000, has a residual value of $20,000 and a useful life of eight years. What is annual straight-line depreciation?

A. $60,000

B. $62,500

C. $65,000

D. $80,000

Correct Answer: A. $60,000

Question 4

Which statement about research expenditure is correct under IAS 38?

A. It is always capitalised if management expects success.

B. It is expensed when incurred because future benefits cannot yet be demonstrated.

C. It is capitalised from the date a project is first proposed.

D. It is recognised as goodwill.

Correct Answer: B. It is expensed when incurred because future benefits cannot yet be demonstrated.

Question 5

Which asset is not amortised but is tested annually for impairment under IFRS?

A. A finite-life patent

B. A vehicle

C. An indefinite-life intangible asset

D. A building with a ten-year life

Correct Answer: C. An indefinite-life intangible asset

Question 6

Recoverable amount is the:

A. Lower of fair value and value in use

B. Higher of fair value less costs of disposal and value in use

C. Original cost less depreciation

D. Replacement cost plus disposal proceeds

Correct Answer: B. Higher of fair value less costs of disposal and value in use

Question 7

A CGU has a carrying amount of $4.8 million and a recoverable amount of $4.3 million, including goodwill of $0.6 million. What is the first allocation of the impairment loss?

A. $0.5 million against goodwill

B. $0.6 million against goodwill

C. $0.5 million against property only

D. No impairment is recognised

Correct Answer: A. $0.5 million against goodwill

Question 8

Goodwill in a business combination is generally measured as:

A. Consideration less cash acquired only

B. Fair value of all acquired assets without liabilities

C. Excess of consideration and relevant interests over identifiable net assets acquired

D. The acquirer’s internally generated brand value

Correct Answer: C. Excess of consideration and relevant interests over identifiable net assets acquired

Question 9

When an asset’s useful life is revised because of new information, the change is normally:

A. Applied retrospectively as an error

B. Ignored until disposal

C. Applied prospectively as a change in estimate

D. Recognised directly in goodwill

Correct Answer: C. Applied prospectively as a change in estimate

Question 10

If construction expenditure eligible for general borrowing-cost capitalisation has a weighted-average amount of $9 million and the capitalisation rate is 7%, the borrowing cost capitalised is:

A. $0.07 million

B. $0.63 million

C. $1.26 million

D. $16 million

Correct Answer: B. $0.63 million