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Ministry of Justice of Ukraine

January 20, 2011

No. 92/18830

Approved by the Order of the Ministry of Finance of Ukraine of December 24, 2010 No. 1629

National provision (standard) of financial accounting in public sector 127 "Reduction of usefulness of assets"

(as amended on 13-06-2017)

I. General provisions

1. This National provision (standard) determines the methodological principles of forming in financial accounting of information on reduction of usefulness of assets and its disclosure in the financial reporting.

2. Regulations of this National provision (standard) are applied by subjects of financial accounting in public sector (further - subjects of public sector).

3. This National provision (standard) does not extend on:

inventories;

assets which are estimated at fair value;

the paragraph the fourth Item 3 is excluded according to the Order of the Ministry of Finance of Ukraine of 18.05.2012 No. 568

the assets arising from payments to workers;

other assets concerning which accounting requirements concerning reduction of usefulness are determined by other national provisions (standards) of financial accounting in public sector.

4. Terms which are used in national provisions (standards) of financial accounting in public sector have such value:

the assets providing cash receipt - assets which main objective of content is income acquisition;

assets which do not provide cash receipt, assets which main objective of content is another, than income acquisition;

benefits from usefulness recovery - the size at which the amount of the expected compensation of asset (within the book (residual) value of this asset determined for date of recovery of usefulness without the previous amount of losses from reduction of its usefulness) exceeds its book (residual) value;

losses from reduction of usefulness of asset - the amount on which the asset carrying amount exceeds the amount of its expected compensation and/or the expected compensation of potential of usefulness;

group of assets which provides cash receipt, - the minimum group of assets which can be identified which use leads to increase in money separately from other assets (group of assets);

the amount of the expected compensation of potential of usefulness - the greatest of two estimates: net value of asset realization or present cost of potential of usefulness of asset which does not provide cash receipt.

II. Determination and assessment of reduction of usefulness of asset

1. For date of the annual financial reporting the subject of public sector determines availability of sign of reduction of usefulness of asset.

2. About reduction of usefulness of asset can witness such signs:

2.1. Reduction of market value of asset during the accounting period at significantly big size, than was expected.

2.2. Lack of need for services which provision is connected with use of asset.

2.3. Essential negative changes in technological, legal and political conditions in which the subject of public sector acts and change of level, method of use of asset which took place during the accounting period or are expected in the nearest future.

2.4. Obsolescence, physical damage of asset.

2.5. The decision to stop asset construction before its completion or bringing to the working condition.

2.6. Other certificate of the fact that efficiency of asset is or will be much less, than it was expected.

3. In the presence of signs of reduction of usefulness of asset the amount of the expected compensation is determined.

4. Irrespective of availability of signs of reduction of usefulness the subject of public sector shall check for date of the annual financial reporting on usefulness reduction intangible assets with unrestricted useful life and intangible assets which are not used.

5. The amount of the expected compensation is determined separately for each asset, except case, the stipulated in Item 1 Section IV of this National provision (standard).

6. Net value of asset realization is determined based on the prices of the active market, less the expected expenses on realization. Expenses which can be connected directly with sale of asset, except for financial expenses belong to expenses on realization.

In the absence of the active market for specific asset its net value of realization is determined based on the available information on the amount which the subject of public sector can receive for asset for date of the annual financial reporting in transaction between the informed, interested and independent parties after deduction of expenses on its realization.

7. The present cost of future net cash receipts from asset is determined by application of the corresponding rate of discount to future cash flows from continuous use of asset and its sale (write-off) at the end of useful life (operation). Future cash flows from asset are determined, proceeding from appointment and the existing procedure for use of asset. If it is planned to change appointment or method of use of asset, future cash flows from asset are determined based on the corresponding forecast calculation for no more than five years. At the same time future cash flows should be estimated previously for asset, proceeding from appointment and the existing procedure for use of asset. If the subject of public sector has experience of determination of the amount of the expected compensation of asset and there are calculations testimonial of reliability of assessment of future cash flows, then such assessment can be determined based on forecast calculations of the subject of public sector which cover the period more than five years.

At the same time cash flows in the year following after the last year on which forecast calculation is constituted and for each next year of use of asset are accepted in the amount which (without taking note of inflation) does not exceed the size of cash flows of the last year on which forecast calculation is constituted.

8. In case of determination of future cash flows from asset do not consider the expected receipts or disposal of money as a result:

8.1. Future restructuring concerning which obligations are not recognized as subject of public sector.

8.2. Future capital investments for increase in primary utility level of asset.

8.3. Future cash flows from financial activities.

9. Future cash flows from sale (write-off) of asset at the end of the term of its useful use are estimated on the net value of its realization.

10. The rate of discount is based on market rate of percent (to deduction of taxes and fees) which is used in transactions with similar assets.

In case of determination of rate of discount risks, except risks which were considered in case of determination of future cash flows are considered.

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