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1 114
15 16 17 18

3 4 is

1 8 9
10 11


The co:nceptl!.ial fmmew·mk The reglJll,atory fmmewnrk Presentation of pu blislhed finallciial startements Non-ctllrU'lEd assets IInt~mgiblie assets IInnlpaii rment o.f assets IReportingl fil'1!8Jmlialperlornn!amle IIntrodu:ctiioll to groups The consolidated statemelnt offinarnciiall posaioll The consolidated statemelnt of com prehelnsiive inoome Acoounting for assDciat:es IIrwentD:riies and cOl"lshiuc:tion contrnds IProviisiollS, contingi9lnt Iliiahiliitiiesand cOl"lltiin:gentassets

Finarl'1ciiall ssets and Iliiabiliitiies a T.h:elie~al verstl.~ t~e connmerdal Vilew of accolmtlllng Il.easiin:g Acoountingl for taxatiion Eaniings per share Alla. Iy. siin. u and inte~p:retil"llgfiinancial 9 st:atemenls IlimitatiD:ns off ~inanciall stat>elments and iinterpr,et'alticmtec~niqlJl es Stat:em9lnts of cash ·nows AI~ermIllti~e models and pmctioes INot-for-pmfiit. and pUI~liic sector elltities


13 19

11m 1107 11~3 11H 1123 1127 1133

27 33 41 49



63 86




1: The conceptual framework

The IASBB Framework for ihe Presenta'iio.ri of Finaricia~ Statements represents the' cof1'Ce:/J'iual framework on whic.h alIIFRS!; and .lASs ,are based. concepfual framewo rk GAAP Objectives: assu mption s Quall i~SJtivech aracteri'strics Capi~al nnali tenanca n



Conceptual framework - a statement of genera~ly accepted theoretical principles which form the frame of reference fer financia~ r,eportingl.


Avoiidis 'patdhwork' or fiirefightiinl9 approach less open to maicisr1f1l po'lli~i~.l/e'xtennal of pressure Some standams may oo:ncenimte on t~e i'noo:me statement! o~hers on the Ibalanoe shee~


Finan.ciial staternenls are ill1~en.oedfo:ra variiety Qiff users - singllie framn:ework may not sua all



May need dif~er,erntstandards for dii~f:erent purposes and iimplemelntingl starnoaros is stilll oiifiliclUltwiii~ a framework




GAAP' si'Qlnifies all the rules, from whatever seurce, which gm1ern accounting.

Nlational connpany Ilaw Nlational accounting standards Local stock exchange, reqairements IASsJlllFRSs iif applicable,

Other countries' statutory requirements

lin marny oountriies, llilke11he UK, GAAP does not have anystatutmy a dynamiio concept,

or r,e,glUla!~ory aLUlt~ority or definiitlo:n..,GAAP iis



Objectives, of finanlcial stalemene

Statement o,ffinancial position State ment ,ofoomprehensive income State ment ,ofcash flows State ment of changes in equ iily Statement of comprehensive income Statement of cash flbws Nbtes to the ~inancial statements Directors' report


Underlyi ng assUlmptions

IRelevaJl0B Ma~eri'alliity



Beliiability Faithfull Substance representation oVierfo rm ~!B~tralliity IPirude~oB COnrllpl'Bt.eneoo








Disclmmre of aaoounting pollicies

Users' k~owledige


r---_ ......

I ~"-I_----,
ILiab\lities + IEquity








IProbaJble~haian~ ~uture eoono:mic benelit associaled wiii~ ~he iitternwilill flow~otheentiit.y


The item has a cost or yalue~hat Gain be measured wah relliiabiliit.y

Probability ;;;a degree o~uncertainty that the~uture economic benefits will ~Iowto orfrern the entilty.

Measu remelt
iHiistowic cost (acquisiitiion valllH~)

ourre.. In.h.) n .~ ..
acquired GLUlnren~ly) ~



HOW.:S.....•O.'.Uld i8J.-.,"item '~ .. ..

be vallued?

Reallisa!ble {settIIBtment) valll.~,e(amount selliing in GllIlrr,ernt state)



PrQi~itis earned iffthe financial amount of the, net assets at the end offa period exceedlsthe financial amount of net assets at the beginning offa period after excluding any distribu~ions to, and contributions from, owners duringl pejicd,

Can be measured! in either nominal monetary units

of uniits O'fconstant purohasi ng power.

Proflit is earned iifthe physical productii\fe capacity (or operating capacity) of the entity at the end of the poe riiod exceeds the physical productive capacity at the beginning offthe period, after excludingl any d istri butions to' and contri butions from, owne rs duriing the period This concept requires the current cost basis o,f measurennentt.

The selection c,' the measurement bases and concept of capital maintenance tcg,ether determine the accounting model used.


2: The regulatory framework

~llil already halve covered the JASS'in your earlier studies.




IFiinltllncialrepoliiing iis govemed on a worldwide basis by lhe Interna.iio:nal Accountingl Standardls Board. lDecisions on aaocmntingl priincipil,es am made by the Board and iissued in the form of IIIFRS ,(I.AS).. .

May 2000 - 10Soo gave 'qualified backi ng to 30 IIIAS.

EC diirectitve: fmm 2005 consolidated accounts ,of listed entities must use lAS (I FRS)..

Detailed comparison off international and national standards .. The Convergence Ha'ndbook~

The lASS, issued 41 ~ASes. Sta~darrls are now ealledlFRS and 8 IFIRSISha~e been issued so far" The, procedure for i'ssui~g an IIFRS csn be surnmarisedl asfolillows. Dtilning the earliystaJges of a IP:rujocl, IASIB may estaJblislhan Adviisory C'omlmiilttee~oglive advioe on issues. alrisiing iin the pro~lect Go:nsultati'o:n wiit~ t~e Adiviso:ry Committee and tie Standams Adviso:ry Gounoil occmsthnnJIQlhcd the project, lASS, may de~ellop and publislh Imsouss~on IPape:rs,for publlic comment. Fo!llbwling~he receipt and review of comments, ~ASB would develbp, and pubiiisih an IEXposure Draft: for publli:c comment. Fo!llbwling~he r,Bceipt and review of oomments, the IIASBwoulld issue a finrallllliltemHia~iolila~ IFinanciial1 F!'eiPorUlilg Stalildard.

1 2 3 4




lack offlexiibiilliiiy in aP1pilyli~grules Rooelnt s1andia:rds egllA.S3i9' very de~ailedl and p:rescripiiive Rul!es may not be applicablle irl alill ciircumsiarlces


IBenchmamk treatment and ailliowed al1ernati'ves. These ariel Deiing eliiminaied.., Stalndards may be, subject to Ilobo}tilng or government pressure



3,: Presentatlon of' pubnshed flnanclal statements

.Ali of yoursf,w::Jies f'OrPaper F7 will be ooncerned with ,the accounts ()If limited liability c().mpani~~, so it is imponal1',t that you ,are familial' with the lAS 1 t'O,rmats. Statennent of flnancial poslton Statennent of comprehellsive inoome Challges in equi~ other nnatters

Statement oJ

Ilx Ix


Ilx Ix

Statement of


II x I x II x I x

x x

II x I x II x I x


II x I x I:E II x I x IB

xx xx

3: IPmoomation11 of published finaJr1Icialsltaternems



Statement oJ

,statement Dlf chianlges inl eqUlity (liAS 11 revised)

Share cap#aJ $1000 BaJanceat

Reifained Revaruafio,l!} ~mings surplus $'000 $'000

TotaJ $'000

NOfN)Qr#roJling inf€resf :$'000

equily $"000

1,Jail1u~ry 20X6 in accoUil1ting poliCy


ResmfedOOfance Ch'all1g€S in 6qU'ily for 20X6: Dividends TotaJ co.mprehensJv.e income tor .the ye~











Chall1g€S in ,et1U'ily for 2mJi7:' JSS'U\'!l' of ,stJlaffJ' capital' Dividends TotaJ ,comprehensJllle income for .the year





to retained earnings




BaJanceat 31 Deoomber 20)(7

Statement of

S1ate:ment 01

lAS 11
The stand1ard sUlQiQ,ests all sets of mlnaJn,ci'allmatemenmsmould apply the discllosulres. An eniiity must that ,explain all departures and! ~ r,el!ev,('.d~wlhyby foillowi~g IASJlllFRSfaiir pr,eS!elntaticmis not ach~,eved"


Expected to be reel is!edthel~dfor sale in nmmall OOtlrsB of entity's ope:rati~g oycl!e


H el!dIfor tradili,QIpUI~poses andexpocted to be

realised within twelive montms Gasm or cash equiivalent asset ~ot remri:cted i~ uS!e

Alii other assets ar,B ~on-cune~t Eacm entny mm;,t decidewhetmerto pr'Bsent c'UwrenU'n!O:n"cUlrtr,ent ,a:ooets11iabili~ies sepam~eliy" ~fnot, present thBm iiln order of lIiiquidity.


3: IPmoomation11 of published

finaJr1Icial s'taternems

4: Non-current assets

lAS 16 lAS 20 lAS 40 lAS 23

studies. lAS 20, ,on g.ove,rnment grants, is a straigh.tforwam standa.rd and you should halve tew p.robIemswith .ii. Borrowing oosts are' rurrered .by lAS 23 (~evised)

lAS 16 s'houid be tamiJiar to)"DU .fmm)"DUl' earlier

IIIAS 1,6 Pfoper~ plant and ,equipment Govern alillaspeots

nom-current assets.


a.ccountimg for these items, w~iiG~ are moot talngibl,e'

IProbaJblethai futlUw,e
eoon.o:mic beneiits associated wiit~ ~he assets wiilillflow tOo t~e I~dity. Cost of asset can be re!iably measUilred.

Initial measuremenit
Import duties
Nion-retundable purchase taxes LESS Silte preparation Delivery/handlingl Testling IProfessional fees IEstlimate of dismantling/rem oval costs and siite restoration (1IIAS37) Finance costs (lAS 23)

Irade discounts/rebates

S ubseq uent ex pend it Ulre

Same cri~eriiaas in~ial costs. O~herwise do not capitalise bllt. G~tngi~to iinoo:mestatBment.

Subsequent measurement


Cost less accUlmula~oo dep:reciatiiornand aceu mUllat~d imlPairmernt. losses




IRevallioo amoum (fairvalu:Bai ~e diaIte off rnwJllIation),less smooequerut aoclllmul~ted depmciailiio:n and iimpairnrumt looses IRevaJ:ueslll~Wiri9'~ly regUlI~ul:y so c1:lnying amournt not maffiBIJ'~ iaJllydifferent fHlml fair value AlIIIaems. off same class shoulld be revalluBd


Syst.ematlc basis over lIseful life reflectingl pat.tem of use of assets eoonome benB~its I~e:riiodicn~viiewof useflill life and delPr,eciia.tiionneihod and r any G~ange aocoun~edl for as charnge ~naccourl,ti'rng estimate


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4: NOrlK:imro:ml ,assets


Ch anlges, in value

~II ~~~~~

To ,e'xt~mt. ff any revalluation o surplUlsfo:r saJr1f1le asset

IRecoglrniiseand cmdiit to reYaJlUlati:ornllJl~pilus'" s


....... 1~~ 1

....... ...... III I~~"'""11

Beyo:nd m~vallllJaJtion sUI~plllJS


Charge to revalUlaJti:orn sllJlrpilllJs

Clharge to income statement

'" Lll'1Illessreversiin,g a p,reviiously reoogllrniisedlf7evalllJanondecrease of the same asset, in which case r,ecognise as inoome to the extent of r,eversall of the previous decf,eaJse.

IIIAS20 .A!Cl{lQunling gDvernment gmntsand disclosure of gam,mme.ntassistanoo tOf aoceu mting tr,ea.tmemt

reqtulin~Js fbilirowing t~e

Either show as credit in the income statement (other income) or deduct in reporting the related expense.

Treat as deferred income and credit to income statement on systematic rational basis.over useful life oiff asset OIR deduct grant in a~riviingat carryingl value offasset and recognise as income over asset's liife by means ,of reduced depredefion charge.

Disdose; • • • AccouIl1iing policy ~atur,e and e'ldemt.()iff grajn~8 reaognised Llnlf1Ul~illll'E9d condl~iolls, and ather oo:ntingiE9llciies rela!~ingltogrccmis. recoglmiisE9d Becognise onliy whem reasonable asstulmn.oo i~aJt aJny oo:ndi~iorJ:swililbe met an.d monies r,ooeiivedi.
4: NOrlK:imro:ml ,assets

Investment IPirope:rty is prqperty held to earn m·rntals orler capitall apjp:reciatibrn 0 r both! mt~,er tharn for: a) use in the produ:ctiorn or suppty of gooos or serviices orfo:r admirnii$trati~vepurposes

b) sale iin tlhe omiirnary course of business

Owrner-' ,occupied property cannot be cliassiiii,ed as irnl/l®stlmentproperty"

Accountingl treatment An entity camchooseto holld iinvestment property undle:r either:

a) thefClJirwllue model; or b) the cost model

This choiaewilillajpply to aill of iits inverumBlnt property.

lAS 2,3 Borrowinlg co,sts

The starnaClJrodl8ClJls wiit~ Ibo:rrowiing costsfor selif ..oo:nstiirtlcted assets, • Interest and other costs incurred by an entity in connection with the borrowingl of funds. • • An asset that necessarily takes a substantial period of time~o get ready for its intended sale or use, • • Included in bOfH)Wilrngcosts IInterest on bank o\li8irdra!Wtsand shari and licmg tenn bomrowiin:gs .Amor~isation ,of di:soounts or premiums relatedtn bomnwirngs. Amor~isation of arnciilillary costs inclUllY'oo with the armrngennernt. off borrowing:s IFi'rnClJnceharges in respect ()iff iirnClJnoe c leases under lAS. ~7

IExclh~lJnigl8iiUerenoes as far as they d are en ClJdjUistmentto in~erest costs CClJpitallisatib:nis malndato:ry n~he costs are (Ii'rectily aH,ribtltabile to the acqliiisiitlo:n~,constmctiion or produ:cliiorn off a qUialliifyiililgasset
4: NOrlK:imro:ml ,assets


Intangible assets

lAS ';38 aims to presCfibethe accounting treatment for

lAS 38

intangible' assets no[ dealt with under another lAS. The' standa.rd deals with the' crite,fra' sx recognifio.n and me,as,urement Goodwill te a oontroversial are,a. ft oom~sup again in conneciionwiih gliOUp ,accoun.ts.



An intangible asset i,san iden~imiablenen-menetary asset w~hout physiicaJlsubstance held for use in the production or suppliy of goods or services! for rental to others! or for administrative purposes.

IAecogll1iiSie' and only iif: if

Inlitial measu remen!

th~t ~r,eatl,riiburtableto thB' asset Willlllnow~o~hB

It is proba~le ~halthe fuhl re eeonomc berH~TIits


The cost of the t;lS;Siet be mrOOsm,ooreliiabliy cain

~.I~ ..

Resear6~ phase





IReoogniise as IEl'XpBlnse


Develfojpment pbase
~~I ~

whe~ i~cluned

Capitalise andiamorti:S!8 iif foillowi~g oo:ndaionsare met:

Recognise as: expense w~en iinourred

P robaiblefultl!Jlre eoorlo:mic beneiits II I I"lItelntion~ocomlPilete and UlS!elsell II R esourees adequat,e to Gomple~e arld I!JseJsell II A. billiiiy to. I!JseJsell .. I eclhnical feasiibilliit.y II E xpendli'tuire can be relliiably measured Illntemallly genera~ed baJnds~mastlheads", pUI~liis~iingmles~ customer lists and simliilar iitelms slhould not be moognised as inta~giblie assets

5: Ilnmngible ,assets

Subsequenti expend iture

Subsequent expendiiIDuremust meet the original recogn ition c~iteria to be added to the cost of the intangibl e asset.

Subsequenm re·measurement
Cosl model: cost less aroumrullatted amo rtisaIDlonand
impairment losses, Revaluatjon model: revalued mount less. subsequent accumulated amorfisaton end impairment losses. Revalued amount iis fair velue at date ,of revaluation by reference to an active market. Alii other assets in the same class shoukl be revalued unlless there is no actirve market for themr, in which case the cost modell value shoulk:i be used for those assets. Reval uafons so that the carrying val ue does not offer materially fmm fair value.

AmorUsali Dill
Shoulk:i be charg:ed on a systematic basis over the useiJlllirfe of the asset. Should commence when asset avaJlllablefor use. Period end method to be reviewed at each year end. Intangii:lles wirth indefinfe useful life are not amortised, but reviiewed at least aJnnuaJllly for imrpaii ment, r

Imp,airmemt losses
The recoverablieamount of t~e asset should be deterrW1liin:~d least at each fiinam:ial year end anda~y at impaiirment loss slhoulid be aCCQunt,oofor iin aeeordance wi't~ lAS 3ft

IDisclosu res,
Need to maJkethe followin,gl dlii,scliosures.

Distinguislh between ii~ternalliy gen:e'rated andl ot~elr itntan:g~bleassets Useful lliivesoff assets an,d[amclrtiisation m,B,~hod!s ,Bross aanyingl amount and amumullatedl amortisatiion at start and end off [period Where theamoriiisation is, induded in the stateme~i on oo:mpr,elhenrsiive income

A Ir:eoo,~cilliiatiionf operliing balanoe to closirng balanoe o If research and devel!opnf1le~t'r ow rnuch was c~ar'gied as expense ~

[Page 311


Ilnmngible ,assets

Gooowilil can be pumhaSied or be aoquiired as part of a business comoiinratiion.lln either case, the treatment is capitalliisatio:n at cost or fair vallu,eunder IFIRS3.

Negative goodWill
Arises when acquirer's interest iin identifiable net assets e'xooods the cost of the oombinati on. Res ults from errors or a bargai n Reassess cost .of co mbination and assets. Recognise any remaining goodwill iimmediately iin profit or loss" that is iin the iincome statement

Future economic benefits arisingl from assets that are not capable .of beiing iindividually identilfied and separately recognised Recognise as an asset and measure at costlexcess off purchase cost ave r acqu ired iinterest Do not amortise Test at least annually for iimpairment (lAS 36)


will be calculating ,goodwill as part of a group accounts question,

61: Impairment of' assets

lAS .36 oowrs impairme.nt ,of assets'.

lAS 36

The arn of ~AS 36 .lmp~irmfmrj(Jf assets iisto em;IUIf7etha.t assets ene eanied in tlhefinamci:aJlstatememts at no more tlhan theiir Ir,ecoveralbl~e,armolllnif.Nlote t~~t liAS 36 does, mot apply to nOrl,"current investmelnts he!dfor sale wlhich are oovered by IFRS 5.

IIINet seilliimgprice (NlSf) I Amount dbrttlJinalJlefrom t~e salle of an asset in arm"s lenglt~ tmnsa.c:tllon less cost of disposal IPV of estiimated fUlturrecash flows expeded to a!riisefrom fhe co:ntinui'm9 use of am aSS!etend its disposal at the end ()if i~suseful Iliife

Where iit is not possiibJleto estinnraie ~he lf7eaovembJle emount of en iindividuall asset, an ,elntityshould rdiet.en1f1line the r,ecoverable amount of the ,oash1lene:r,ating lIInit: to w~iic:h it bellongs. The standard also specifies when am lentity should reverse an im pailnment less and p:re~cribes certain disclosures for impaimd assets.

I ndicalors of jrnpai rmel1ll

A reviiew for im:pailrlmenri f a no:n~cUl~~e~t o asset or goodwiiIIII hcmlldbe carried Ollt iif,e~elntsor cha~ges iin s cil~umstarmes tlhaJtthe Ga~ryiil'lganmmnt of tlhe ron-current asset or goodwiill may ~ot be r,oco\l\ernbJle. EX.temali ndli6a~o:rs

Internall ~nd~oators
II II iii

Falll iin market value Change intech~ological, legiallor econcmic ielnviro:nme~t lncrease iin market int~m~strate Iliikelyto affec~ diisoount rates Garryii~g ann,ollnt of entity's net assets;:. market capitalisa!tion



physiball damagie

Adverse Ghtmges in use Adverse chl!mges in asset's econo:mic pelrfornfllamle



It may not be possllble to assoeiate cash filows wii1hi~diviiduaJlassets so the review of the recoverabl!e amount willi often have~o be~ppliiedto cash gene[ra.t~nlg units ·that ,ao~tain groups of r,ella.tedassets.
6: Ilrlllairmenlt of .asse1s

Calcul ation olf value in use

lDiIfOCiliy bu~alb!e aIti~1 An appropriaIte proportion t~at can be allocated on a rfJasonable and ,aom;ijsient basis Net cash flows to be recei~ed or paid forth e disposall o,i the asset at the end ou its lI:S!efullliife on a fairvallllJe basis



Any futllre Ifestmcturinrgl to whi:ch the eln~ityis

not yet commiitled IFlIturie GajpiitJ11 6,xpelnditUirethaItwillll imlproveJen~anae asset in excess of originalll!y assessed stJ1nd!rudof periiormanoe IFirnancingl~cliivtlies Illncome talX H~oeiiptsor pa)l1mernts




The discount rate sihould be apre-tax rate t~at reflocts GUlrlr:eni arket assessments off t~e tiime valll!.leof monley m aInd t~e ~isks speciiflic to fhe asset.

Allocation of imp,airment loss

To t~e goodwiill allocated to ~he cash ge~eratl~g unit

IRecogl1lith:m of losses

Assets carried arthistoric cost sta,t:errtelnt Revallued assets




under rules of~pplliioablie I.AS

To alii other assets in the' cash genemtingllmi~ on a pro mta basis


D8jp:reciatin:nadjus~oo in fUliuJlre perinds to ailloca!~e t~e asset's reviised ctllrryingl amounrt less r,e'sidrual value over as r,emainingl uS!e~ulIliife


Ilrlllairmenltof ,asseis

IReversal olf pas,t impairmenlts,

Where the reoovemblle amount iincreases, ~he Ir,esulitimg reversal s~ou!d be recognisoo in the curmmt periodlo theeldent t~at. iit increases the caJrrylingamollnt up to the amount t~at iit WGulldhave been (net of amo:rtiisatiion or depmoiatiom) had no impaJimmnt loss been reoogniised in prior years. • • individual asseis: mcogniiseas ineome iimmlooiiat:elyiin ~he st.atement of 'oompm'~ensil.lle inco:me unless the' asset is carried at m:vall ed amount under another I.AS in which casea:PiPilythe rules of that lAS u CGLls," exad opposiite off iitsoriigiimal reoogniitiionwlhille ensuriing t~at assets are not inoreased above~hB Ilower of theiir reooverablle amount and their .camrylimgmount I(after deprecia~ionl or amortisation) ~a.dthere a been no inn,paiilnmentoss l GoodwiJi: mot Ireverned iin subseqllent period unless: The i'mpairmemt.was caused! by a :SIpecii'ffiio ierlemall e\lIelntof an ex.ceptiomallma.tur,emot e)(peot:ed~o recur Subseq lIEmt external evenlts ha.I.II®' oceerred w~iiclh reverse ~he effect of that ,evemt


The amount of infllpaiirment losses r1ecognisoo i'n the' st.atenn:elntof cOrn1lprehe~siiveincome duringl the pe:riiod end the line items affected The amount of innlpaiirment loss m:\I\e:rsalsI~eaognised in the statJE!lmenrt oompr,elhensive irlconnle dumirig tlhe of period and ihe Ili~lE!itelms affected i The amount of innlpaiirment losses dleibiit:eddir,edlYaJgainst equ iily in the period The amount of innlpaiirment loss m:\I\eirsalsQredi'ted dilrectliy~o ,eq~iity i~ t~e period for nnlaierial iimpairmelnt bsses or loss reversalls:



The events and circumstances T~e amounl The ~atUire ()iff ~he asset or cas~ generatingl

U rlii!

For in~iaillosseswhet~er r,eco\l\E!rabJle nnrmJln~ NISP or VIIIUI {an.d details of basis of selliing price or a is discourlt. rate aSajpplrqp:nla.t:e)


Ilrlllairmenltof ,asseis

7: Reporting financial performance

This chapter ts targely with' the income statement: 'There' is no ,one single lAS concerned with reporfing financial pe.rlo:rmance' as there' is in the UK.
lAS 8


S~ouldl include allIIit,ems of iinoo:me and expernse for ~he period (ii1enot Ihiddiern i'rnreserves) unless an IIIAS mquilr;e~pertmits o~herwiise.

AccOUl1Ili ng p alicie!
Accouniung poilides are ttle specific principles" preparing and presenting statements.

oornvent~orns! rules arnd practices aRplll:edby an entity ~n

An entity follows extant Standards and Iinterpretations when determiinirng i~sacoounti'ng pOlic[es" In the absence of a S1arndardor Interpmtati:orncovering aspeefic transaction, of heir event or oondniorn"management uses illsjUdgemerntto develop an accourntirngpolicy whl~h results ~ninformation that is relevarntand Ireli~e~ rons[derirng iinthe follow~ng order: 1. standalrds or Inrte~pretationsdealing with similalr and related issues 2. The .Fi'amework def~nni:orns nd !recognition criteria a 3. other nati:onal GAAPs based en a similar cooreptual Trramework. providing the ~reatrnent does not conflict with ~ extant standalrds" IlntelrpretatiOOIs r the mmework). o

Only allowed if: Required by standaJrd or interpretation Ilfthe change willi p:r,ovidemore rclevant ,airreliablie information about events or transactions Aocoontiing 1reatmen1: Restatte pr~oryear statemenl: of com prehensive income and statement of financial position Restatte opening ballance of retained eaJrnings lneluee as second Ilineof SOC lIE Show effect on pr~arperiod at foot of pr~aryear SaCIE

7: Rep{l~~ingfinanClia'1performance

App!ly prospectively, i,ein the current period (and future periods iif also affocled).

Omiissiions from and misstatements in the enEity's financiallstatements for one or more periods,

Corred maJtB riiall:p:riiolr period errors retrospectivelly i~ t~e ii rst set of flnaJn,ciiallstatBm~I''''5altltf'lOriisoofor iSSU!B aJftBrtheir disoovery. • • • • R:~smte com:pan!dive aJmountslo:r each pribr period pmsenrtBd in w~i~~ t~e error occurred R~smtethe qp!Blninglballtmces of assets, IliaJbillliitii~s IBquityfD:r the earl ii~st JP'nlo:r and period IP:rese~ted l~c!Iude any adjushW1;B~t openi~g equi~ as the second line off the staJtement of Gha.~ges in equiity to Disclose fhe ~a!turle'of the error an.d t~e amou~t. of the correotion to pribr periods for eac~ Iline iitem in eaeh period affectoo

Where iit is iimpradicatlllB to delermine ~he peried-specfic effects or the Gumul1aiiiveeffec~ oftheel1ror~ the >®lnti~y corrects the error from the ,ealrllii,est. period~da!h~practicabll'B (and diisclooBS t~at fad)",

III FRS 5 NOn-o,uffent assets heidfor sale and discontinued opemtionswas publislhed in 20Q4.

IDefjrn iIiD ns
[liocanilinued o]p®lration Ii I)omponen~ of an en1i~ that ei~her has been disposed of or is,dasslified as held for sale ami: (a) R~presen~s,a separate ma]or Iline,of busnsss or gE!ographi~al area


~b) Is part of a s~ngleco-omil1iam®d lan to d~spose of a s®parafe major liine of bus~ne'Ss p or gE!ogl'alphica~ area ()f operatllons! or (c) Is a sulbsiduary,a{)quiN~d exclluslivEl~ywitha view to Ir'E!8a~e Component: offan entity [li~p08a] glroup Operatiolls and cash Haws that can be dearly distillglLJished,opemt~onall~ and for fiillalnciallrePo:rting pu ~pooes, ffmmthe mst of Ihe entilly Ii 9 N:lUP of assets te IbE!d[rsposed of (by sallE!or ntherwllse) tog:elher as a group in a siing~e lransacio:n; ,andll~abilities direotly assoalaied wlith IhoSE!assets ti1laiwilillbe transmr~d lin the ~ran8acUon lts calrryingamount wiilillbe mcovered plrillciipallythlrOuglh sele mther than oontinui ng IUIS8
7: Rep{l~~ingfinanClia'1performance

Asoot held for sale


N€m·cunenf assets held 'for sale


The 9iSOO~ (or diisPQs8l1'gr,Qup} mI!Jsllbe mJEJilabliefor 'immedi9lte salle in lits presel'llt o()~dii~i(m, slJlbjet:!t o.n'ly to uiSuall and custoITlary sales terms and The sale musit be highly prob8lblle.,. W;Qrhis to. bethe case: i - llhe appmp:riia~El Ilevell 0.1manageme:lid mlls~ be ,oolmmiiil1OO to. a. pl8Jn ~o sell; - An acHve programme to IOc8lte' a. bl!!l~er and IcoITl:p!leie the pllan rnust h81'!!',e een ilfliiti8Jted b - llhe asset (o:r disposal group) musit be a~tivel:y marketed fo:r sale alt a p:nioe 1h8Jtis reaS<l\nI'ilble in relation to its c:mrent fair'!f.a!l:u1e - llhe salle should be ,~pecled to qualii~'y for ret:!Ogrllitiol1l as 81. cOITlJlleil-edlsalle with~in 01i1l.e ye8lr' tram the dale o;f cI!a:ssific-altiio:n,as held fur ,sale (slJlb~e(}t to I'imiited ,speciflied ID:)cep~iol1ls} - AcliQIfIS reqI!Jiir~d tlJ c©ITl:p!leit.ethe pllan siho.u'ld ilfldi!cate fu8lt 'it iis IUllilliiikely thalt siigln~licaJlil~ t:!h8Jrllges.~o the pl'anl wililbe made orr that t~e Iplalllwill bewithidil"aliVn

Assets ami disposal 'gr,mJpB (im:clilJdilng associated dassiflied as held fur ,sale .ar~ plie'..9~lfIted::



On the face of th~ .staJt.~mel1ltol financiallpooiiticm Se;pa.rately tram .other assets and liialbiilities INJo:rmally as ClWirlre[IiI~: aSSIets and l'iabiliiU~s (not o:fi®e1)

An entity musit lmeaSljlne a. n©IfI·CIJIlrren~asseil or dlis:poo8J11 'grol!Jlp cI!a:ssified as hel:d tor s8Jl!e81tthe lowe:r ot ~ ~ Calrrryirng amolJll'llt Ifair'!f.a!l'u:e less costs
~© seili.

Immediately before ilfliiti8J11 cI!a:ssific-altiio:nlS,measulre asset per appl'iooh!e IIFRS, AnlY limp8JiirmelnJt.l!oosa:cc~lJIl'lI~ed fo.r as lfIoml8Jll. NOIfI·oolnl\elnl~assetsJdlis:pooal gmups. {i,lamii1ied as n'flild fo:r .sale are not d~pli',eciated"





7: Rep{l~~ingfinanClia'1 performance

8: Introduction to groups

ConsolidatiOn is a' vefY importan.t area 'Of fOur Paper F7 syllabus, as you will get a 25-mark computsofY queslio.n on this in the' ,examination. G roup accounts lAS 27 This chapter tooks at the basic definllionsand relelfant accounting slandarris..

An entity that i,scontrolled by another entity Iknown as the parent

An entity in which an inves~or has significant influence and which is nenher a subsidiary nor a joint venture, oif the iinvestor


...r-- Siigniifi:oalnmiinnuence: t~e power to particiipate in

fiinlam:ial and ope:rati~g policy decisiiol1s of an eao~omic ac~ivitybut ~ot contrdl over fhose pollicies

These definitions ar,e \f'ery important in deal ing with 'gIrO ac cou nts, Make su re you up' u n de rstand them.

SUlmmary of: oJassificationJ and treatmenit



Significant infillence (2GPfo + mile) ,A:s:S!etseld 'fa:r h aacr,etiionofweaRh

IEquity accollnting {see Chajptter 1111)

Im~estmerntwh,i'c~ is none offt~e above

[Page 511

B: Introductio:rn to groups

Other pro1visionls of liAS 27 Co nsoll idated financial statemen ts:

The mnancialstatements aif a group' presented as those ,of asingl,e economic entity The reviised liAS 27 effectirvely removes any exclusions. Subsidiaries held for salle must be accounted for in accordance wiith IFRS 5.

A parent need not pr'e]par,eglwupacoounts if:: II ~ is iitS!ellff whoilily owned subsiidiia!ry a II it. is pa.rtiiallliyow~ed and the other ow~ers do lir(jit. objlect II its secur~ies are ~O:~pulJliicliy traded II the, ulil:imah~or inriermediate, lPam,~t publliishes lAS ~. compiliialnt oonsollidlated aceounts


Diflelr,e~t reportingl .~ adjustm®lnts shou Ira be made Uniifunm accournting pol'ioiies ~ iifnot, dioclbse wh~, AdjustmBnts should be made on ,oo:nsollidation


9: The consolidated statement of' financial posflon,n.
Co:nsollidated statement offinanaial posiiti'on IFRS 3 revisio:n Method Fair vallues

This chapter intmduces. the .basic technlquesYlJu will need' to prepare a consolidated 8iatemenf ()if financial

The revision to IFRS3 has .brought another issue into c(J,nsolidation qoostjons,'. There is now the option to' value the non-contm,llfng interffst at fair value. Look ou.f for this.


Assets and liiabilities

Always 100% P plus S providing P has control

P onl~
Reason Sinnipl~reportJing to the parent's shareholders in another form 1100o/~P pilus group share of post~acquisition mtaiined reserves of 81ieoo omnsolidaticm aajushnernts Reason

10 show the e:dent to, whieh the gr'oup actually owns assets and IliiabiliitJies
included in the statement of financial position NICI of 8's ocmsolliida~ooassets I!ess Iliahililiitiies :rfaiir valll!e* o


10 show the edent to wh ieh other parties own assets andlliabilities but under the oontrol of the parent

~.Note: If the Nell is .a~fair va]lu:e you may be 'givell a) Um, share pri:oo or b) thefai r val us of th,e Nell.

Oon901[da~oo siatefl1i8lrnt of flinancial posilion


Fair vallu:es

IIFRS 3 revision
IfRS 3< now intmduo~s ~h~ optf:cmto vailUie~he,nOIl:·oontDIII~l'1ig int:e,~st at fair vallUi9'"This allf'Bcm~h@Q!oodwililland nonGon~rollinig~ntrerestGall(]Ulllati:cms.lhedetails a~ as foillow:s: [P holds, !60% of S. Goodwill impailred by $100,000 Fair vaiue of INICII$,900~OOO] No:n-oo:ntmlliing iil1mrest: at sihar,s of net assets Goodwilll Canside:raJt[on tral1sfe rred Group share of net assets (2!000 x 00%) Goodwiilll Impailrmenlt Carrying value
$'iQlJO 1 ~61JO

ti.lo:n-oo:nlrolliil1g iil1l't:er'9sta,t failr vallu9' 'Goodwiill Consideratiol1 tmnsmmld Fair vailluieof NJ CII Net asseis 'Goodwill
Ilfilpairm~lllt $'000 1,600 900 :(2000 500 400




Carrying amount

$1 OO~OOO 'goodwilll atftn1tlUitabli~ to, the

Norte ti,aft Ih~ tnt~ Qloodwilll is now $41JO,OOO, lrefllectingthe 1100n-controllingl~l1t'®IFest

9,: Tl1:e oom~oIidatoo staJtenmernt of finarnciBl position


N,ol1lo(onrtrolUnlg interest at end of reportinlg period

The optio:1'1Io value the lI1on·contolllling ~ntemst at fair vallmJ' applies to nOfHJCll1rtlr'Clllill1QI t iin~8rest at: a.oquiisiiliIl:n. However! iit wilill affed Ihe, valuation On iliCU11.;OOll1troll ~nrtem'st at tills .,salr Isnd. ing UndeiF Ihe two options ,ab;()\(®~ willi be as fo~~ows(nlet asse~snow $3m) Ihfls Nanl"cGntroll1 ililgl iililterest at: siham of! net: assets S net assets NCI140Plh
$'000 3000 ~ 1~2oo

Nonr·oolltlrolll ingl intsli'QSt at: f,aiir'V3.llUs

$; '000


IFair vallue of rNCI NC II ~haJr'e011 incir'ease IIm:rel8Js,ein net assets

(3)JOO·2000) XOO,(}) 400

Goodwill impaiil1ment

x ~(l%)


[If YOUI are raqurad to a,ccount for NOI[eui faiir valu,e ~n,ereare! two o:ptiens: 11l 'Iou may be toile!wlnat mi r value! eif the NClII iis 'Iou may be gi~en the share! p~iceat the da.te of acquiisitiion


ihe exanniln,erhas said that he!wiill mma.lly examine! NCISJt FV, so be pmpared for this,.

9.: Tl1:e oom~oIidatoo staJtenmerntof final'llciBl position

R.ead th e question and t~e reqUJii rernents, Prepare neoessary pmlorma IFe.quiiredi question. by



Le~ell of detAilJils dictated by level of detaiiII i

in questib:n

Consider adjustl'W1:elntsnd note on questiio~ paper. a


out cos,t of iimJIE';!s,tme~t. Illndude Ili'~IE';!' ~on-co~trolilling inhuest fm IDiviidencdis PUP IRevalu,a.tiio:no fajir value t IReooncillliati'o:nof ii~tra-group balla~ces Support adliiustments by working eglPUP

I\ggleg~teadjustedassets ~mlli~bill~~

Illnoo~polrateadjustmelnts Canoell a~y i~tra-gro'Up items ,eg Gurr,e~t aJ.cbaanoas, divide~ds, loan notes

8~(ne Gapiitallof P only.

Goodwilll Cic)nsidemtion transferred N'on.,oolltrolling ~nrtemst Nietassets acq uiimd as replreSiented ~y Share ~p~taJl Share p:N~Jm~Unlr Re'serves Re1ain~deamings Goodwilll (Qlain 011 bargain IpulrIGlhiasEJ)


X (X) XJ(X) p

Rennember that gooowii II is retai ned iin the statement, subject to impairment reviews. IRemember miles for gain on a bargai n purchase.


Per q~,estion
Aditmtments as noted on qUeJ'sti'o:n [paper Share of S, post aoquisition 0/0
AWj im:pailnmenrt of good willi


xt(X), Y


9,: Tl1:e oom~oIidatoo staJtenmerntof final'llciBl position

NOI1-cOintm!II~I1!girilt~iN~st Fai r wi us at aGqluisiiian SihanlJ of post ..aoqlUisit~cm ootai ned 'E'Jarnllngs ~pE'Jr8) Sham of any goociwi II Ilnnpailrme:nt

(X) X

Oon901[da~oo siatefl1i8lrnt of flinancial posilion

IIFRS 3 mvisimll


IFair va~u:es (1IIFRS3,)

On COllsolli'e,ation~~hB fair vatue of the cOr'hsio'Bra1iio:n psid for a subsiidli:aJryis compan~d wi~h~he fair value of the lilei assets. III FRS :3 sets OLJ~ rules detelnminingl the' fair value of~he purohase consid'Bratio:n~, thefaiir vallu!B (liff identifiabile assets arne IlilaJb~11 iiiiiBsacquir,oo and tlhefaiir vallu~e(liff spec~ic ruet assets,

IFair value
The amount for wbich an asset could 00 exchanged~ or a liability setlled, between knowledg:eable, willing] parties in an arm's length transaction.

[Page 011

9,: Tl1:e oom~oIidatoo staJtenmernt of finarnciBl position


IFairva~u:ead,iustmenl calculations

Gooowilil is ~he difWer,emlebe~w6B~ ~he cost of theaoq~iisiiiio:n andthB acquilrers interest in thefai r vallu'8 ou ~he identi~iraibleassets and Iliraibilliiti,es" mr we ha.~eused book vallue fa:r tlhe assetsaad Ilirabiilli'tiies" So IHowever, IFRS 3, states t~at we slhou!d use fair vallue. Therefore revaluaiib:ns may be rmecessaryto eli's~rethai book value is equall lofaiir wllue",

Revalues assets andliabi lities~ofai r value


Revalues assets and Iiab:illrti,esas a i consolidation adjustment Subsidiary's books unchanged

In the exam the usual scenario is fhat the subsidiary has not revalued to fair value and so a consclioation ,adjustment is needed.

10: The consolidated statement of' comprehensive income

Co:nsollidated lnoorne statement Co:nsollidated statement of cornpreh ensirve iincome

Under the revised ,lAS 1fhe fuJIsiatement is now called ,the 'statement (if comp.rehensive' income? A,t F7 lerel masi qU(fsti~s will only require :fhe first part of the statement; which we wilt rel/larto as the 'income statemenf.,

Oonsolidated st8Jtem~rnlof cmnpmhensive linoorne

P'Lu'IPose Salles rev!ernue tD pnJ,fIi after tax IReason Intlra.~gllitl'Ulpisalles Umeallisedl proUt ,o:n intlra.~gllitl'Ulpisalles

10 show i~e resu I~:s f the glroUJIP' sn a.ccountillg period as if iit.were a single en1iity o for 100% P + H)[)'DkS (eX)duaillg diiviidendl receivable from subsidiary andl adljIUs.tmenis. for illtra-grouptralnsactiom;) 10 show i~e resu I~:s f the glroUJIP' o whiic~ were controlled by lhe psrent Strip' out iillha-group activity from both sales revenue and cost of sales I~a) B,oods sold by IP: increase cost ,of sales by unr,oolliisledpmfiii I~b) Goods sold by S: in.crease cost of sales by fulillamount of UJI1IFealli'soo an.d profiit deCirease n.():n~oolltmillingiinterest by t~eiilr share (Jiff unr,eallised plmfiit
Iff tlhevallue off S's nOI"l,-CUrr,elnt assets have been subjected to a faiir value upllift then any ad~iitllonal depreciatioll must be charged in the oom,olliidaJ~ooinoo:me statement. The no:n~oolltm~lingl interestwilill I"l:Bedto be adljlusied fo:r tlheir share


Transfer of assets


Expenses must be inDr,eased by &rlly !proflii on t~e tral'nsf:e'rand reduced by Cllny addiitiional dejp,mciaticm amisil'ngfmm t~e il'nareased carrying vallue of the asset

llhe net: umiealliised proiit (iiietihe t~~allprofit on the sale less cUlmlullativ,e 'excess! depmciatiol'n charges) s~ou!dI be ,ellmiinatoo frolmlthe carr~ing alm;Ollnt of the asset and from t~e profi~ of the oo:mparlly that made the prQiflt i For il'nstanoe, H transfers an asset wah & camryil'ngvalue of$1,mm to S for $,1 1,1 ml Deplroci'atiio:nist CWOp.a, The net unmalliisBd profiit is $90. llhis, iisdsb:lted to Hs inoo:me statement and to tihe carryingl vallue of the asset Nlo:n~(mtroilli mgl interests

INCIO/o of S!s PAT

10: The cO:rlIsdlidated s'iatement of (:()mprehem~ive, lrllco:me

Oonsolidated st8Jtem~rnlof cmnpmhensive linoorne

Adjus,lmenls required
• • • • Elimil"l~aie intra 9 reupseles and IPulrchiases Elimil"l~aie un real ised p:rofi!t: en ~ Iltragroup pUlrcha;S!~sstilll in iirIrvelltory at. the YOOlr end Elimil"l~aie intra 9 roup' dh,~dends Show UneINCI asa sepa!rat~' Iliirl:~ after PAT

Appo rtion diiviidendls preacquisition/post acqLli,saio.n Pre acqn: Debit cash, Credit cost oin investment

Post. acq n: Depit cash, Credit

retained eamlngs

• • • 'Combiine all , and S results from revenu~~ p:rofa aft~:r tax", to Time apportion w~er,e t~,~' .cquisition is mid-year a Exdutd!e intra group hlYestment: illcome 'CalcUilla.te Nell (NC~% x PAT)

Umealised prom and losses;

Only 'line re S sellIs to. P, allocate tne

unrealiised pr,ofirtbetween NICIIand P: Debit group retained earnings" Debit NCI, .credit iinventory

C'onsoUdated statemenm af: comprehensive il1lcome

If tme~feis a revaluatiion gain or loss in the parent or subsidiar~ you willllP:repare a oormolliidlat.edstat~ment of
oompr,elhensiV1e, i~come.llhi8 wilillon~ mquilfe a few addiitiio~s to Ime oonsollidated iincome statrennelnt Revaluation gain in p.amn~: R!9\',allua,tion ,gaiin lin slUlbsiidiary (SIO/O) Profit fOIF y€!!u the .other oompmh:ensive inoome: Gains on prqpEJlrtymval mdion Tntall comlPrnherliS~V€!ncome fOIr~he YEJar i To!t~ comlPrehenls~v€!income a[trib:ultB1bl)e~(}::
7,000 3~000 10:,000 $'iQOO 8,000*

prom fOF~hEJ y€!aJF .o~her oompr'EJtMulSiveinoome:: GWI1IS on pmp~rty revaluaHol1l lot~ compm!h~I1!s~v€!noome fOir~hEJ €!aJF i y lotall compm!h~I1!s~v€!inoome i a[tributaJbl,e~o: .owners of the pamnt (50~OOO~2)JOO) Nan·contmU~n!g intemst
"3,000 allitnitnuwble Nell to

8~000'" 2:,000 10~000



.owmJ:rs of th8 paren~ (5,000't{2~000 x 80%) Non·cantm~llil1ig inte:mm (3",0001(2,000 x 2!0%)}

6",600 3,;000 10,,000

10: The cO:rlIsdlidated siatement of


11: Accounting tor associates


.As yauknow~ an investment canbfJ' carried at cllsf fully co.nsolidated ,or accounted tor using the'equity m.etilod depending ,on' the' degree Of con,froJflxerctsed, An assocwa'teis accounted for using the'equity method.

Individual inves'tor's books


Conlsondated 'fin:anlcial s,mtements,

Use eqlJllity method unl!ess:

Garry at cost!,or In acoomanoowi~h 1.1.839 Acoount. for as an avaihlble for sal!e f1ruaJnciall asset

Irn~estJmenlt .cquir,oo and held excllusiiveliywiitlh a. a vi'ew to diisposal soon Irn~estor ceases to have si':gniflaant influernce


IniitiaJlcost AddVl,ess: post acquisition share of profitsJlosses (before dividends) Less: post~acquisii~ion dividends received to, a\toid double, co,untingl Ca~ryi ng value


IIn fhese cases record a.t cost

_N_ X

Group share of associate's PAT

12: Inventories and construction contracts

~llve met inven.tary and inventDryvaiuation in you.r fJarMerst1Jdi~~ so onJy is! bdef .summary te given .here. lAS 2 lAS 11 Construction contracts ~eftl~(Jiiv,eJy long-term 'work in p.rog,es'S ~ are' a new area. You ooedto faa.k atfhe dmJbJee.n1ry care~lJlly.

1III'lventoies r II Ilowe:r of



Nlet r,ealiisablievalue

II Cost of pl!JlrchaS!e



Es~imated selliing price less costs to compiletion less costs neoe.ooa.ry to make the salle

Permitted,lrealmenf ofoosf.: FIFO or weigMed averalge

LIFO is not p!enmit~oounder the reviSied lAS 2 1~IDecember20Qi3)I.


OUiltoo:mecan be emima.ted r,elliiably.

A contrad spec~icailly ne>gotill~edfor

the m:msinuction of an fiSS!Bta:r a combinatio~ .of assets tlhat ar,B cilosely iinterrelatoo or ~nterdepe~dent in terms .of t~'Biilr dlesiign~,tech~olog:y and hmc:tion or t~eir ultim!t.l.teuse.

OLJ~oomecannot be estim!at.ed r,elliaJbly.

R:ooognise contract r,e\liB~ueand oo:ntrac:t costs by referenceto of com piletion of oon~raci.

Any expect,oo

be reoognised as an expenise immediateliy"

1[000 shaulld

Recognise Ir,e\l'e~ue onliy~o ,extent .of contract costs incl!ll~rOO that ~ is proObablewilli be recoVle:redl. Recognise as expense in period in,CUlI~'OO.

1:2: Inventories and oonstruction'll contracls

Wlhere t~e oUI~oomeof a contract can be estimated relliiaJb!y, p:ropo:rti:o~()iff oo:ntract revenue and costs should a be recognisoo in the iinoo:mestaJtemenrtby mfere~oe to ~he stag)e',of ,oompleticm (iilea. p:ropo:rti:o~t~at miirliy r,efllects~he amrOlLlll1t work done)., of

The of compiletion can be ,ealrmllated in various ways includi~g:

Pr'qporiion of contract costs incurred: Costs to date x Estimatedl~otaJl lotaJl es~imated' revenue/oosts costs Surveys of work perle rmed: Work certified x Contract price IEstllmated total revenue/costs Physical proportion completed

IDisclosu re
Revenue (x% x total contract revenue) Expenses (x% x total contract cost) Expected loss Recognised profiUloss

(X) .

(X) .

Gross amount duefromlto customers Contract costs incu rred Recognised profits less recogniised losses Less progll"essbililiings to date



Trade receivables
Progress oillingrsto date Less cash received

X {Xl X

1:2: Inventories and oonstruction'll contracls

The fo~lowi'~!g,not covemd afbove~I'imJst. liso be disclosed under IIlA8111 (reviised),. a


Me~hods used to determiine contrnm m,v.elnue Methods used to determiine stagie of oompleticm off oo:ntmcts i~ progress Arw oo~tiingent g,aiinsand losses, eg due to wam:mty costs, c!iaims, penalties or possi ble losses, in accord1alnce wiill lAS 37 Arrtaunt of advanaes received Am,aunt of any rehmrtib:ns (progr,e'ss bilillingrsn.ot ]paid until the sati'smction of ,oeriaiin ,acmditions)


13,: Prevlslcns, contingent llabllltes and contingent assets

lAS ,37 s'houid be tamiJiar to)"ou {mm your earlier

sturjes. If is pariic-ufarly topical in the .light of increasing environmental awareness. lAS 37

lAS 37

Entaies shoulld not: IProvide for 'costs Umlt need to be imculrmd to ,olperate, in the futlllre., if thooe ,costs could Ibearllloiidled by the ,emtity'sfl!JtIur,eaciiio:ns Costs ,o,fIn!stl!'lllc1illll!'ingl re to be r,eoognisedi as a proeision oniy a when 1Jhe entiity has am olbl igMiolil to GElJfY out the r,esiruduriing llhe 'fulill3mlOlUllilto~any deOOMmliissi'o:niililg costs or ,ernvir,omlmenrtall !iabililaiesshnulld be Ir!eoogniised froM the dale onwh ich they ariise

A liabilirty of uncertein ~iming or amount. Liabilliities are obliigations~o transfer economic benefits as a res ult of pasttrensacliens or events,



Should be declosed unless Ile possibility of any olltllaw off eoon omic benefits to settle it is remote.

Should be disclosed where an inflbw off economic benefits is probable.




13: Provisions, rontingenlt lliabilities and oonlinge:mt ,assets

14: Financial assets and llabllltles

lAS 32 lAS 39


.A financ~ai ins'immerl!i is definer} in lAS 32' as any cO.ri'iractthat gives ris,e to ,both a financial asset of one ,entity and a financial /iabiliiy or equity ins,tro.mmt of another. lAS 319' deals with how financial investments are measured and IFRS 7 cmrers disclosure'. ,IFRS 19' is the most ,recent stanriardwhlCh deals with dassification and me,asu~emmfof.asse~s.When if nas bee.nexte.nded to rover .Iiabiiities it will repface' aJi of
,lAS 319.'.

Because of the iin~er,e~t,dii]ficlUl~iesiin this complex cnea, iit is hard for usersto assess the ~a,tur,e'~, ann,ountand cost ofa~ en,tiily"'sdebt and equ iily resctrees, Before lAS 32 and lAS 39 many 'financiall instruments, were treated as. off balance sheet IDinanoeand iinvisible to the user ,of accounts. Because of their significance, the IASIB taoded the prujoct in 3 phases: 11. lAS 32: Presentation (1995) ensured the user was aware of the instruments and riisks 2. lAS 39: IReoognii~ionand Measurement (199B) prescribed specfie accOlmtJlngtrootrnent as an interir1l1l rneasure were revised in December 20013"

IFinlan ci 01 j natrument:
Any contract that giives rise to a IDinancial asset of one entity and a financiallliiaJbiliity or equity instrument of anoither.


3. IIFRS 7:: Disclosure (2005) specfies disdosures required farfinanciall instruments,

Cash; equiity in:st~ument oif another entity; contractual riight to receive cash/other financial assets; contract that can be settled in the entity's own equiity instruments and may be eiither a de riivatilw or a non-de riivative"

Financial liability:





IFi'~am)ial iinstrume[n~s slhould be cl1assiifiiedas ,eiitlher ~, Iliability {deibit) or ~, ISqtliit,y Compound iilnst~uments {exhibi~ing charac~e1rist1os bnth) of must be splliitiintn thejilrdebt and '9quiiiy compcmenrts Substa~ce mthelrtha~ Ilegal mrmajppliies I~egl r,edeem.ab!e pref,e:renoe s.h~uesare a,fli~ancialliiability)' IInt~rest~ diivid!e~ds~loss orgiaii ns relatingl to a fin!tJlncial instm ment eleimed as a IliiaJbii Iliityare repeted in the ~!' while distribUJtionsto holldle:rsof equiity instmments are debited dir,octliy to ,equity (in the SOCIIE) OffS!et of a fi~am)ial asset and !iabilility is only aillowoo where there iis a legallliy enforoeablle riight andthee~tiit.y inte~ds to seUie net or siimultaneously

Contractual oblig~~ion to deliver cash/,other financial asset; contractual obligation to E!'xchangefinandiaJl in:st~urnents under potenti alliy unfavoll rabie conditions.

Equity instrument:
Contract that evidences a residual interest in the assets of an entilty after deducting all its liabilaies.

14: Firnarill::ialassets and lliabilities

lAS 39 IRecogl1liti 0111 nd measuremenlt a

Recognition and derecoglniition
Financial instruments shauld be reC()gnised when the entity becomes a party to Ihe ,contractual provisions ·of~he instrument Derecognition financial assets: whe re the oomractual rights ~o the cash flows expire or the 1inaociall asset is transferred financialliabil'iti:es: when obl'ig8!tions expire/are discharged1calllCelll~1

Finandal instruments are iniltially measured at fair value plus tmnsaotion costs direc'llyatilributable ~o the .acquisition or issue lrans8!c'lion costs are included in initial measurement subsequent measurement} (Ibut not

Finandal assets sre divided into four types for subsequem measurement Loans and reoehmbles o:ri:gin8!ted by the enti't.y (Md not held for trad'ing) Held·to-maturity investments Financial assets at failr value through profit and less' Av:ail8!ble·for·sa.le finMciaiassets (any omer fina.ncial assets)

..This means either an asset that is hel:dlfor tradingl (ie a derivative ora 1inaociall asset acquired principall/i for sell ing in the near telrm) or .any haociall asset that the entity decides upon initial reC()gnition to designate as held at fair WlJI:ue through profit o:r loss.

Subsequernt lI1IleaSUlrement: filnanciallassels (FA)!

Subsequernt lI1IleaSUlrement:

lilniarncial Iliabilliitiies (FL)

Amortised cost

Faiir val:Llle

Fair value

AII1IlQlrUsedi oost


H elfd.;to-trmaturily
loarus and receivables o riigiinatoo by' leln~i~y rud ruot held a for tmdiiinrg


Fimurnciiall assets at fa.i'rvalue througl~ profi!t or Ibss AvaiiI!aible-for-salle f1nanciiall assets I(any ntlher)




Ri~arucialliiabilities at fair vallUJe th rougl~ lP:rof~or loss Fil 81risiingwhen transfer of FA does ~O~ quallify for derecogl~iitio:n


All others

14: Firnarill::ialassets and lliabilities

Cal cUilatii0 ns
The method used in thefdillowing examplie~ppliies to deep dj'scount bonds and other simillar iinstmmerns (inclludiirngzero ooupon bends], Debt issued for $400,000 {nominal) on 11.1.. t lo r proceeds of $3Hi,,526; 20X redeemedlo r ~OO,OOO(ie par) on 31.12.20X5 $ Ann ual inttere'stpayments (4% x $400,000 x 5) Deep diiscount$(400,000·~ 315,528) 80,000

Interest rate .:::::: 4%

Effledive interest rate::::::: 9.5%

84,4741 164,4741
$315,,526 $3115,526

At iinception

Cash CRED IT Liability


liS cIlarge 2OX1 2OX2 2OX3 2OX4 2OX5

*$ 29,975 31,303 32,156 34,348 36,092 164,474

Actual interest payable $

16,000 16,000 16,000 16,000 16,000 80,000

Roiled up interest charged to lIS $

13,975 15,303 16,156 18,348 20,092 84,474

fiabHity $
329,501 344,804 361,560 319,008 400,000

*9.5% x open~ng liability in statement ,of firnancial positiicm (315,,526)

Fair va~ueis measured as quoted market price in an active market where possible.
14: Firnarill::ialassets and lliabilities

Impairment review where eviidenoe of financial asset being impaired Hel d at fair vaJl e: liS u Availallle~for-sale financia.l assets: reported in eq uiity untill disposal, when gaJinor loss recognised in statement of comprehensive income OriglinaJleffective interest rate should be used when discounting future cash flows to calculla.te the impallrment Impairment loss is charged to IllS Where aVaJlllable-for~sal.e financial asset suffers impairment loss! cumulative losses on fair value adjustments previiously moogniised in eq uiity are recognised in the lIS as weill as im pairment loss Reversals: liS

IFRS 7: Financial inls,lrumel1lls: DiscJosUire

The objecti\l\e ()iff IFIRS? is to Ir'equiireenrtiitiies, proviidle diisdbsuw,es in 'theiir fillancial staltements 'that ,emlJblle to. users tn 'BValluate: (a) The siglil~icamle (liff funarmiallinstmmentsforthe ,emtiitysfinraIncialposition and perlormance

(0) The natll~e and e'nellt, off misksarisi'ng from finrtmciial illstmmellts to whiich ~he entiily is exposed and how the ,eln~i~y anHges those risks, m This inform!f!Jtio:ncan influellce a user's assessmeet of thefinallciiallpo5iit~on and pe:rrfiO:nmanoe an ieln~ityand of of the natme of ~s fU~lIre c8shflows. Illnad.diiiio:nto the numerical disclosures requiired by I.A,S39', IFRS 7ellcourages a lIl!alrrnUve,oommernlary by issuers of fiinralncialiills,tfUlmeln~s~ hich willi ,ellabl,e,usersto undle:rstalld ~heir 8!tl:i~lIdeto risk." w

14: Firnarill::ialassets and lliabilities

~FRS '9'was iissued as an aUempt to siilmp!ifythe provisions of IA839'.It. o:nly applies to assets and does not come into foree ullti[120'13, so I'Wlll:lrny entaieswil[1 cOlltinu!e to aiPply IA839'. [In,itiial[ tneaSUlr,eMent:

Exc:eptiiollal[lyfair vallue thro~gh pmi~itor [loss

rallr va~l!J.eil"liimortlSe



· .lld~E

.. enl

f" xcepllo:na IIY·lll:lllr a Iue v through profit or loss


15,: The legal versus the commercial view of' accounting

Thi'S i'S a very topioal issue givenfhe .financiaf'SCanCiats ,of recent years.~u must be' aware' ,of ,the various (nrm-s of of{:.bafanoe ,'Sheetfinance and the me,asure.s: taken fiJi p,reven,f it.

Off balan.ce sheet fli nance

S ubstancs overform Framework Revenue recognition

on balance sheet finanlC!

The fundillg or refillancingl of all ell~itys opersfions iin such a way that, under Ilegal requiirements and existing accountingl oonventions, some or all of the finance may not be shown all ilts statement of fiaancial posilion,

-&took II

markel advarl'lages.:Ilower gearingl ra~io

A situation is.created where

Ke,sp aJ. comp.alny wii~hinrcu!moomnants IExdiude highly geared stu'bsildii,8.ry from cDrl'sdli'oClltionfor reasons of dissirnilar actiiviitiis's and ther,eiby reduce geariinlg IExpectatiro:noff Inlghts issue (to redu:oegisallring) decreased, thereby maiintaiining share price

off accounts. db not have a clear Vilew on the state oif the entity's affairs.lllsufficient disclosure creates prdblems.


Oil ha~noe


Subs,mnce over 'fOrm

Transactions and other events should be accounted for and presented in accordance with their substance and financial reality and not merely with theiir Ilegalforrn {liAS 1).



lAS ~7 Leaoos: ~ risks and riBwaros.offownership t:ra~s.fBIY'OO Ilease isan asset of the lessee tiitl!~mas not passed lAS 11 Gans#udiofl oonfraaiR"takingl atlriibuliab!e profits lAS 24:: related p'euty transactions



IFIR83: d~iirliitjion of subsidiiary based on contml

Aocountinlg for items t)ocordil1!g to substanoB alnd econo:mic reallity and nnt mer'Blly !egall form is a lkey detBlrminant of reliiablie inforrnatiion"

Majo.rity of tmnsanfions:


differenoe, so



Other ,transactions: subs~an.oB and form dii'IJerge;:clhoice oftmatmel1t. cain give diiffer'Blntlresulits due to nonrecogll1iitio:nof an assetlllilab~lli'ty,evel1i~ougl~ bBlnefasJobligaiib:ns resuH

IDetermining the substan,ce af: transact~ons

Does tlhe~r.alnsacticm ,chalnge thB ,Bxistinglassetslllii,albiliitiies off the enti'ty, eithB,r by cr,oo.tiingnew ones, or al~B'riil1g the existing 011-B's1

past events and from which futu re economic
bene~its are expected to flbw to the entity Resources controlled by the entity as a result of

Present obligations of the entity a~ising from past events, the settlement of vdlich is expected to' resuR iin an outflow from the entity of economic benef~s

The proeess of inco~ponitlr1g an iitern into the IP:riilmary mnanciiallstatelmerlts wnh~ppr,opriia1e headings. It invol~es depi:ctiro:noff 11he item inwards and by mo:netal"l( amount and U~eiindusion of thai amount in the siat.emerl1 totals.

Where siignificantly all the risks and oonefitsW11111 flow to, the entity Sufficient evidence that benefits exist Abl,e to measu re iin monetary te rms with suHiciient reliabi lity

Whe're significan~ly all the risks and benelits have beentransle rred

15: lIlhe lega'l versus the (:()mmerdal vliew of accounting