Fair value hierarchy and Reducing balance: Difference between pages

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''Financial reporting - IFRS 13''.
1.


IFRS 13 seeks to increase consistency and comparability in fair value measurements and related disclosures through a 'fair value hierarchy'.  
A basis of allocating costs or allowances across successive time periods by applying a consistent periodic percentage charge to - for example - the reducing net book value of a fixed asset.




The hierarchy categorises the inputs used in valuation techniques into three levels i.e. Level 1, Level 2 and Level 3.
For example,  
a fixed asset has a cost of $12m, to be depreciated on a reducing balance basis at a rate of 40% per year.


*Level 1 inputs: quoted prices in active markets for identical assets or liabilities that the entity can access at the measurement date.
The depreciation charge for Year 1 would be


*Level 2 inputs: inputs other than quoted market prices that are observable for the asset or liability, either directly or indirectly.
$12m x 40%


*Level 3 inputs: unobservable inputs for the asset or liability.
= $4.8m.
 
 
The net book value at the end of Year 1 (and the start of Year 2)
 
= 12 - 4.8
 
= $9.2m.
 
 
The depreciation charge for Year 2
 
= $9.2m x 40%
 
= $3.68m.
 
 
The net book value at the end of Year 2 (and the start of Year 3)
 
= 9.2 - 3.68
 
= $5.52m.
 
And so on.
 
Using a reducing balance basis of depreciation, the net book value never falls to zero (unless the asset is disposed of).
 
 
2.
 
''UK tax.''
 
UK Writing Down tax Allowances are normally available to be claimed on a reducing balance basis.




== See also ==
== See also ==
* [[Fair value]]
* [[Depreciation]]
* [[FVTPL]]
* [[Straight line]]
* [[FVTOCI]]
* [[Sum of the digits]]
* [[IFRS 13]]
* [[Writing down allowance]]
* [[International Accounting Standards Board]]


[[Category:Compliance_and_audit]]
[[Category:Accounting,_tax_and_regulation]]

Revision as of 15:00, 26 November 2014

1.

A basis of allocating costs or allowances across successive time periods by applying a consistent periodic percentage charge to - for example - the reducing net book value of a fixed asset.


For example, a fixed asset has a cost of $12m, to be depreciated on a reducing balance basis at a rate of 40% per year.

The depreciation charge for Year 1 would be

$12m x 40%

= $4.8m.


The net book value at the end of Year 1 (and the start of Year 2)

= 12 - 4.8

= $9.2m.


The depreciation charge for Year 2

= $9.2m x 40%

= $3.68m.


The net book value at the end of Year 2 (and the start of Year 3)

= 9.2 - 3.68

= $5.52m.

And so on.

Using a reducing balance basis of depreciation, the net book value never falls to zero (unless the asset is disposed of).


2.

UK tax.

UK Writing Down tax Allowances are normally available to be claimed on a reducing balance basis.


See also

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