IndAS quiz

Based on the principles of accounting standards (such as Ind AS 38 and Ind AS 16), here are the answers to your quiz questions:

1. Why does a non-monetary intangible have a cost?

A non-monetary intangible asset is assigned a "cost" because, like any other asset, it represents an investment of resources by an entity to acquire or develop something that provides future economic benefits.

• Measurement: To be recognized as an asset, the cost must be measured reliably. This cost typically represents the "sacrifice" made (such as purchase price, professional fees, or internal development costs) to bring the asset to the condition necessary for its intended use.

• Economic Value: Even though it lacks physical substance, the asset is recognized because it is expected to generate revenue, cost savings, or other benefits for the entity over time. The "cost" provides the basis for its initial recognition on the balance sheet and subsequent systematic allocation (amortization) over its useful life, matching the expense to the period in which the benefits are consumed.

2. Expenses capitalized into PPE during initial recognition can be written off before the dismantling of the oil rig.

False.

• Reasoning: Under accounting standards like Ind AS 16 (Property, Plant and Equipment), the cost of an item of PPE includes the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located. These costs are capitalized as part of the asset's carrying amount.

• Accounting Treatment: These capitalized costs are depreciated or depleted over the useful life of the asset (the oil rig). They are not "written off" as a separate expense before the dismantling occurs; rather, the provision for the dismantling cost is unwound (using the effective interest method) through the profit and loss account over the life of the asset, while the asset itself is depreciated.

Summary:

1. A non-monetary intangible has a cost because it represents a measurable investment made to secure future economic benefits, which must be systematically recognized in the financial statements.

2. The statement is False; dismantling costs capitalized into PPE are part of the asset's cost and are accounted for over the life of the asset rather than being written off independently before dismantling.