Short forms used :

FS = Financial statement
WIP = Work in Progress
NRV = Net Realisable Value
AVCO = Average Cost
SCF: Statement of Cash Flow
CA = Carring Amount
DTA = Deferred Tax Asset
OCI = Other Comprehensive Income
SPL = Statement of Profit & Loss
SOFP = Statement of Financial Position
RP = Related Party
dot = date of transaction
doa = date of acquisition
FV = Fair Value
PV = Present Value
FVTPL=Fair Value through Profit & Loss
FVTOCI= Fair Value through other
Comprehensive Income
CGU = Cash Generating Unit
NCA = Non Current Asset
g / s = good or service
PVFLP= Present Value of
future Lease Payment
 Relevant IFRSs for ACCA FR Exam
1) IAS 1 Presentation of Financial Statements : In order to achieve fair presentation, an
entity must present information in accordance with the principles in the Conceptual Framework and apply IFRS
standards, which include all IFRSs, IASs and IFRIC Interpretations originated by IFRS Interpretations Committee.
Fair presentation also requires an entity to: -Select & apply appropriate accounting policies; -Present info in a
manner that provides relevant, reliable, comparable and understandable info; and –Provide additional disclosures
when compliance with the specific requirements of IFRS standards is insufficient to enable users to understand the
impact of particular transactions on the entity’s financial position & performance.

2) IAS 2 Inventories : Raw materials, WIP, Finished Goods - Measure at lower of Cost & NRV…. Cost
includes cost of purchase (trade discounts & rebates excluded), costs of conversion & other costs (related to
bringing inventories to present location and condition). Only FIFO and AVCO allowed.

3) IAS 41 Agriculture : Covers a/c ing of biological assets (except bearer plants) and agricultural
produce at the point of harvest. Biological assets are “living animals or plants”. Biological transformation = growth,
degeneration, production and procreation- which change the biological asset. Biological assets are measured at
“FAIR VALUE LESS COSTS TO SELL”. Agricultural Produce at the point of harvest is measured at “FV – Costs to sell”.
After harvest, at lower of cost & NRV (under IAS 2).

4) IAS 7 Statement of Cash Flows : SCF is a useful component of the FS because it recognizes
that accounting profit is not the only indicator of co’s performance. Only Indirect method in FR exam. Operating
activities, Investing activities & Financing activities. CashFlowRatio = Net Cash Flow/Total Debt x 100.

5) IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors

: Accounting policies are specific principles, bases, conventions, rules & practices applied by an entity in
preparing and preparing FS. E.g. inventory valuation method, method of dep., etc. A change in a/c policy is
rare & only made if required by IFRS, or results in FS providing reliable & more relevant info. Note that
‘adopting an a/c policy for a new type of transaction’ is ‘NOT a change in accounting policy’. The change in a/c
policy is “APPLIED RETROSPECTIVELY”. 2) Changes in accounting estimates= adjustment of CA of an
asset/liability, or the amount of periodic consumption of an asset, that results from the assessment of the
present status of, and expected future benefits & obligations associated with assets & liabilities. E.g.
Allowances for doubtful debts, inventory obsolescence, useful lives, warranty obligations. “APPLIED
PROSPECTIVELY” not retrospectively. 3) Prior period errors= omissions from, and misstatements in,
the entity’s FS for one or more prior period arising from a failure to use, or misuse of reliable info that was
available. E.g. mathematical errors, mistakes in applying a/c policies, oversights, fraud, misinterpretation of
facts. “Entity should CORRECT MATERIAL Prior period errors RETROSPECTIVELY” in FS after discovery by
restating/adjusting amounts.
6) IAS 10 Events After the Reporting Period : “Those events, both favourable &
unfavourable, that occur between the end of reporting period and the date when FS are authorized for issue”.
Adjusting- those that provide evidence of conditions that existed at the end of reporting period.
Non-adjusting- Arose after reporting period.

7) IAS 12 Income Taxes : DTAs & DTLs arise because of ‘temporary differences’. The ‘tax base’ of
an asset/liability is amount attributed to that a/l for tax purposes….. Current tax is amount ‘actually payable’
to tax authorities. Deferred Tax is an ‘accounting measure’ used to match the tax effects of transactions with
their accounting impact & thereby produce less distorted results…… Deferred tax may arise due to PPE (bcs
difference b/w accounting dep. & tax dep.), Accrued Income/expenses (included in FS, but not in tax bcs inc.
& exp. are taxed on cash basis), Provisions & Allowances for doubtful debts (bcs tax relief only when debt
becomes irrecoverable & written off)… For an asset, CA>Tax Base => DTL arises, when CA<Tax Base =>DTA
arises.

8) IAS 16 Property, Plant & Equipment : PPE are tangible items that -Are held for use in
production/supply of g/s, for rental to others, or for administrative purposes; and –Are expected to be used during
more than one period. Tangible NCAs should initially be measured at cost (cost includes -purchase price, -costs of
dismantling & removing the item and restoring the site, -directly attributable costs to bring asset to intended
location and ready to use). Note that cost doesn’t include costs of maintenance contracts, staff training costs,
startup & similar pre-production costs. Subsequent exp. is added to CA of the asset only when “future
economic benefits, in excess of the originally assessed standard of performance of asset, will flow…” Depreciation
is the systematic allocation of the depreciable amount of an asset over its useful life. Depreciation method be
reviewed each year end….change if suitable…prospectively, not retrospectively………. NCAs can be revalued – the
increase in CA credited to OCI and accumulated in a revaluation surplus, unless there was previously a decrease on
the revaluation of the same asset……. Imapairment loss is charged first to OCI, and any remainder as an expense in
profit or loss.

9) IAS 40 Investment Property : Investment property = property held to earn rentals or for
capital appreciation or both. Fair Value= price that would be received to sell an asset/paid to transfer a liability, in
an orderly transaction between market participants at the measurement date…… Initial measurement of IP is at
COST (like IAS 16). For Subsequent Measurement, entity can choose whether to use –Cost Model(=IAS 16); or
–Fair Value Model in which -> Measure at fair value at the end of each reporting period ->Gain/loss to SPL; and No
Depreciation is charged……… Transfers from IP to PPE/Inventory can be made when there’s change in use.

10) IAS 23 Borrowing Costs : Borrowing Costs relating to a qualifying asset must be capitalized as
part of the cost of the asset. A “qualifying asset” is one that necessarily takes a long period of time to be ready for
its intended use or sale. Commence capitalisation when exp. for the asset are being incurred, borrowing costs
are being incurred, and activities to make asset are in progress… Suspend capitalization when development is
interrupted. Cease capitalization when all activities to prepare the qualifying asset for intended use or sale are
complete.
11) IAS 20 Accounting For Government Grants : Govt grants=assistance by govt in form
of transfer of resources to entity in return for past or future compliance with certain conditions relating to
operating activities of entity. Forgivable loans= loans for which lender undertakes to waive repayment under
certain prescribed conditions……. Grants shouldn’t be recognized until there’s reasonable assurance that
conditions will be complied with & grant will be received. 1)Grants relating to income- shown in SPL
separately or as part of ‘other income’, or alternatively deducted from related assets. 2)Grants relating to assets-
Presented in SOFP either –As deferred income, this is then released to SPL over useful life of the asset; or
–By deducting the grant in calculating the CA of the asset………. A Govt grant that becomes repayable is accounted
for as a change in accounting estimates per IAS 8. Repayment of grants relating to income are applied first against
any unamortized deferred credit and then in profit or loss. Repayment of grants relating to assets are recorded by
increasing CA of the asset or Reducing the Deferred Income balance.

12) IAS 24 Related Party Disclosures : Related party= A person/entity that’s related to the
reporting entity. A) A person(or his close family member) is related to reporting entity if that person: 1)has
control/joint control over the entity; 2)has sig. infl. over the entity; or 3)is a member of the key management
personnel of entity(or of a parent of the entity). B) An entity is related to a reporting entity if any of the following
apply: 1)the entity & the reporting entity are members of same group; 2)one entity is an associate/joint venture of
other entity or joint venture of a member of a group of which the other entity is a member; 3)both entities are JVs
of same third party; 4)one entity is a j.v. of a third entity and the other entity is an associate of the third entity;
5)the entity is controlled/jointly controlled by a person identified in a); 6)the entity is a post-employment benefit
plan for the benefit of employees of either the reporting entity/an entity related to the reporting entity; 7)the
entity provides key mgt personnel services to reporting entity/parent of reporting entity. Note that two entities
aren’t said to be related simply bcs they have a director/other member of key mgt personnel in ‘common’……..
DISCLOSURE REQUIREMENTS : 1)Name of Parent… 2)Total Key Mgt Personnel Compensation (broken down by
category) 3)If the entity has had related party transactions: -Nature of related party relationship –Info about
transactions & outstanding balances, for users to understand the potential effect of the relationship on FS……
Note that no disclosure is required of intragroup related party transactions in consolidated FS……
Possible effects of RP Transactions on FS: Higher/lower revenue/profit bcs artificial prices, Costs/savings bcs diff.
terms&conditions, Loans to/from RPs @preferential rates, etc.

13) IAS 21 The Effects of Changes In Foreign Exchange Rates : Functional

currency= the currency of primary economic environment in which the entity operates. It is the currency in which
the FS transactions are measured…. When an entity undertakes a transaction that is not in its functional currency,
it’s called foreign currency transaction. The foreign currency transaction must be converted into entity’s functional
currency before it can be recognized in FS….. Initial recognition @spot exchange rate @dot… At the end of
reporting period, a)Monetary assets&liabilities are “restated at closing date”; b)Non-monetary assets @historical
cost method should “NOT be Restated- these items remain @historical cost”; c)Non-monetary assets
@FV should be “Restated at exchange rate when the FV was determined”………. Exchange differences are
recognized as part of profit or loss (but differences for OCI items recognized in OCI).

14) IAS 27 Separate Financial Statements : Separate FS= FS of a parent, an investor with
joint control of, or significant influence over, an investee, in which the investments are accounted for at cost or in
accordance with IFRS 9….. Note that FS in which equity method is applied are not separate FS. Similarly, FS of an
enity not having a subsidiary/associate/joint venture’s interst in a jv are not separate FS.
15) IAS 28 Investment in Associates & Joint Ventures : Associate= An entity over
which the investor has significant influence. Significant influence= The power to participate in financial & operating
policy decisions of the investee but is not control or joint control over those policies. Presumption: If an investor
holds, directly or indirectly : ≥20% of voting power=>presumption of sig inf. unless demonstrated otherwise,
<20% of voting power=> presumption of no sig inf. u.d.o. Equity method= A method of
accounting whereby the investment is initially measured at cost and adjusted thereafter for the post-acquisition
change in investor’s share of investee’s net assets. The investor’s profit or loss includes its share of investee’s
profit or loss and the investor’s OCI includes its share of investee’s OCI. Consolidated SOFP: Investment in
Associate (=Cost of Associate+Share of post acquisition retained reserves-Impairment losses on associate to date
-Group share of unrealized profit)

16) IAS 32 Financial Instruments : Presentation : Financial instrument= Any contract

that gives rise to both a financial asset of one entity & a financial liability/equity instrument of another entity.
Financial Asset= Any asset that’s a)cash; b)an equity instrument of another entity; or c)a contractual right to
receive cash/another financial asset from another entity, or to exchange financial instruments with another entity
under conditions that are potentially favourable to the entity. Financial Liability= Any liability that’s a
contractual obligation : a)to deliver cash or another financial asset to another entity; or b)to exchange financial
instruments with another entity under conditions that are potentially unfavorable. Equity instrument= Any
contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities……………. In
Compound Financial Instruments, component parts ie the liability & equity element, should be classified
separately. Dividends to ordinary shareholders->debited directly to equity. Transaction costs of an equity
transaction ->deduction from equity (usually debited to share premium).

17) IAS 33 Earnings per Share : Objective->provide a basis for comparision of performance of
different entities in same period or of the same entity in different periods. Only for publicly listed entities.
Dilution=A reduction in EPS or increase in loss per share, resulting from the assumption that convertible
instruments are converted, that options or warrants are exercised, or that ordinary shares are issued upon the
satisfaction of specified conditions……. Presentation-> Both Basic & Diluted EPS are shown on the face of SPLOCI.
EPS=Earnings/Weighted Avg Number of Shares outstanding during the period…….. Bonus Fraction=New no of
shares after bonus issue/No of shares before bonus issue. In a rights issue, another bonus fraction must be applied
for all periods-> Bonus fraction=FV per share immediately before exercise of rights/TERP………… Diluted EPS
shows how basic eps would change if potential ordinary shares(eg convertible debt) become ordinary shares. It’s
therefore a ‘warning measure’ of what may happen in future for current ordinaryholders…… Share
options/warrants-> No of shares treated as issued for nil consideration= No of shares under option – Number that
would have been issued @AvgMktPrice (AMP).
18) IAS 36 Impairment of Assets : Impairment loss= The amount by which the CA of an asset or
a CGU exceeds its Recoverable amount. Recoverable amount= The Higher of FV-costs to sell, and its ValueInUse.
CGU= The smallest identifiable group of assets that generates cash inflows that are largely independent of cash
inflows from other assets Value in Use= PV of estimated cash flows expected to be derived from the use of an
asset….. There can be various indicators of impairment, both internal & external. Recognition of Impairment
losses-> 1)Losses for individual assets: -Assets carried @historical cost, loss in SPL -Revalued assets, loss
treated under relevant IFRS (eg under IAS 16); 2)Losses in CGU: Impairment loss is allocated to reduce CA of the
assets in order –first to any goodwill allocated to CGU –then to other assets on a pro-rata basis based on CA of
each asset in the unit…. Minimum value: Highest of –FV-CostsToSell; -ValueInUse; -Zero………… Reversal of
Impairment loss->only if there’s a change in circumstances. But the “asset can’t be revalued to a CA that’s higher
than what it would have been if the asset had not been impaired originally” (ie, its depreciated CA, had the
impairment not taken place).

19) IAS 37 Provisions, Contingent Liabilities & Contingent Assets : A

provision is a liability of uncertain timing or amount….. Provision recognized when –present
obligation(legal/constructive) ; -probable(>0.5) that outflow will be required; and –reliable estimate made….
Provisions are ‘discounted’ where the effect of time value of money is material….. If the provision relates to an
asset, then it can be “capitalized” as part of the cost of that asset. Restructuring=A programme that’s
planned and controlled by mgt and materially changes one of –scope of business; -manner in which business
conducted… A provision for restructuring costs is recognized only when the entity has a constructive obligation to
restructure. Such obligation only arises where entity: -Has detailed formal plan for restructuring; and –Has raised a
valid expectation in those affected that it will carry out restructuring……. A restructuring provision includes only
direct expenditures arising from restructuring and which are: -Necessarily entailed by restructuring: and –Not
associated with ongoing activities of the entity. (NOT includes retraining/relocating staff, marketing, investment in
new systems, etc.)…… Contingent Liabilities=A possible obligation that arises from past events & whose
existence will be confirmed by occurrence/non-occurrence of uncertain future event not wholly within control of
entity; OR A present obligation arising from past events but not recognized bcs: -Not Probable that outflow
will be required; or –Amount can NOT be Reliably Measured….. Disclosed in Notes: -Nature; -Estimate; -
Indication of uncertainties relating to timing/amount; -Possibility of reimbursement……….. Contingent Assets= A
possible asset that arises from past events & whose existence will be confirmed only on occurrence/non-occurrence
of uncertain future event. Disclosure: -A brief description of nature of contingent asset; -Where possible, an
estimate of its financial effect.
19) IAS 38 Intangible Assets : Intangible Asset= An identifiable non-monetary asset without
physical substance….. Identifiable= -Separable; or –Arises from contractual/other legal rights. Monetary= -Money
held; or –Assets to be received in fixed/determinable amounts of money….. Recognise IA if meets definition and
probable future EBs and cost measured reliably……. Internally generated goodwill not recognized. Goodwill arising
as a result of business combination recognized in group accounts. Research= Original & planned investigation to
gain new knowledge/understanding.->Recognise as expense in SPL. Development= Application of research to
develop/enhance products ->Capitalise as IA if meets “PIRATE” criteria. Prohibitions for recognition as IA->
Exp on internally generated brands, mastheads, publishing titles, customer lists, start-up, training, advertising,
relocation, reorganization…….. Initial Measurement-> If acquired separately, measure @Cost (including
directly attributable costs); If ‘Acquired as part of business combination’, measure @FairValue; If Internally
Generated, measure @Cost ie, sum of exp incurred from date IA first meets recognition criteria(pirate)+directly
attributable costs…… Subsequent Measurement-> Either @Cost Model OR @Revaluation Model (increase in
value to OCI…like in IAS 16)………. Finite Useful Life->Amortise over useful life, Review useful life &
amortization method atleast every y/e- adjust if necessary. Indefinite useful life->Do NOT Amortise, Conduct
Impairment Reviews annually and where indication of possible impairment, Review useful life atleast annually…..
Derecognise IA on disposal, or when no future benefits expected.

20) IFRS 3 Business Combinations :

21) IFRS 5 Non-Current Assets Held for Sale & Discontinued Operations :
Disposal group= A group of assets to be disposed off, by sale or otherwise, together as a group in a single
transaction, and liabilities directly associated with those assets that will be transferred in the transaction. E.g. a
subsidiary, a CGU, etc….. NCAs are classified as “Held for Sale” if their CA will be recovered principally through a
sales transaction rather than through a continuing use. Criteria: -Assets must be available for immediate sale in
present condition; and –Sale must be highly probable (mgt committed to sell, active programme to locate a buyer,
marketed at reasonable price, sale expected within 1 year, unlikely that plan be withdrawn)…… NCAs held for sale
be measured at “Lower of CA and FV-costs of disposal”. They should NOT be Depreciated/amortised…… Shown on
the face of SOFP under “Current Assets”…… Discontinued Operation= A component of an entity that either has
been disposed off or is classified as ‘held for sale’ and: a)Represents a major line of business/geographical area of
operations; OR b)Is part of a single co-ordinated plan to dispose off a separate major line of business/geographical
area of operations; OR c)Is a “subsidiary” acquired exclusively with a view to resell…. Disclosure requirements:
On the face of SPLOCI: Single amount comprising the total of: -PostTax profit/loss of discontinued operations; and
–PostTax gain/loss recognized on the measurement to FV-CostsToSell or on the disposal of assets comprising
discontinued operations.

22) IFRS 7 Financial Instruments: Disclosures

23) IFRS 9 Financial Instruments : Financial instruments initially recognized when reporting
entity becomes a party to contractual provisions of instrument…. Financial assets decrecognised when contractual
rights to cash flows expire; or when it is transferred (transferred substantially all risks & rewards). Financial liability
derecognized when the obligation is discharged, cancelled or expires….. Measurement:

Type of financial asset Initial Measurement Subsequent Measurement

a) Investment in debt instruments
->Held to collect contractual CFs
(principal & interest)
->Held to collect contractual CFs and to
sell
b) All other Financial Assets
FV + Transaction costs Amortised cost
FV + Transaction costs FVTOCI (with reclassification to SPL on
derecognition)
FV (transaction costs expensed in SPL) FVTPL

Equity instruments can be held either at FVTPL or FVTOCI. If held at FVTPL, no transaction costs are included in CA.
Can be held at FVTOCI only if –Not held for trading; -An irrevocable election made at initial recognition to measure
the investment at FVTOCI. Financial Liabilities measurement:

Type of Financial Liability Initial Measurement Subsequent measurement

a)Most FLs (eg, TPs, loans, R. Pref. FV – Transaction Costs Amortised Cost
shares)
b)FLs at FVTPL FV FVTPL
->Held for trading (transaction costs expensed in SPL)
->Derivatives that are liabilities

24) IFRS 10 Consolidated Financial Statements : Control= An investor controls an

investee when the investor is exposed, or has rights, to variable returns from its involvement with the investee and
has the ability to affect those returns through power over the investee. Power= right to direct relevant activities.
Associate= An entity over which investor has significant influence and which is neither a subsidiary nor an interest
in joint venture. When a parent acquires a subsidiary, it’s required to produce an additional set of FS, called
group or consolidated FS, which aim to record the substance of its relationship with the subsidiary rather than its
strict legal form. Features: -present results & financial position of group as if it was a single business entity; -issued
to shareholders of parent; -issued in addition to, and not instead of parent’s own FS; -provide info on all
companies controlled by parent; -show share capital of parent only; -show no investment in subsidiary. Instead the
assets & liabilities of subsidiary are included; -goodwill arising recognized per IFRS 3 -NCIs in net assets of
subsidiaries be presented separately in consolidated SOFP; -intragroup balances, transactions, income and
expenses shall be eliminated in full
25) IFRS 15 Revenue from Contracts with Customers : Contract= An agreement
between two or more parties that creates enforceable rights & obligations. Performance obligation= A promise in a
contract with customer to transfer to the customer either: -A g/s that’s distinct; or –A series of distinct g/s that are
substantially the same and that have the same pattern of transfer to the customer. Revenue is recognized when
there’s “transfer of control” to the customer. Indicators of transfer of control: -entity has present right to payment;
-customer has legal title to asset; -entity transferred physical possession; -significant risks & rewards of ownership
transferred……. IFRS 15- Five Steps to recogniose & measure revenue: 1)Identify Contract: Only when –both
are committed to carry out; -each party’s rights identified; -payment terms identified; -contract has commercial
substance; and –probable that entity will collect the consideration. 2)Identify Performance Obligations:
POs be accounted for separately for “distinct” g/s 3) Determine Transaction Price: The amount to which
entity ‘expects’ to be entitled. Probability-weighted avg expected value or most likely amount is used for variable
consideration 4) Allocate transaction price to POs: In case of multiple deliverables, transaction price
allocated to each separate PO in proportion to the stand-alone selling price at contract inception of each PO.
5) Recognise revenue as and when PO is satisfied: ie, when entity transfers control of a promised g/s to customer.

26) IFRS 16 Leases : Lease=A contract is, or contains, a lease if there’s an identifiable asset and the
contract conveys the right to control the use of the identified asset for a period of time in exchange for
consideration. Underlying asset= An asset that’s the subject of a lease, for which the right to use that asset has
been provided by a lessor to lessee. Right to control= Entity must have right to –obtain substantially all economic
benefits from use of the asset; and –direct the use of the asset. Identified asset= -Stated in contract –May be part
of a larger asset –Lessor has no substitution rights……… Lease Liability: Initial measurement-> “PVFLP”
(discounted @interest rate implicit in the lease). Subsequent Measurement-> ↑ bcs interest accrued on
outstanding liability, ↓ bcs lease payments made. Presentation-> Disclosed separately from other liabilities. The
balance remaining at the y/e needs to be split between current & non-current liabilities. Interest expense should
be presented as part of finance costs. Right-of-use Asset= An asset that represents a lessee’s right-to-
use an underlying asset for the lease term. Initial measurement-> Initial measurement of lease liability +
(Payments made before or at commencement of lease – Incentives received) + Initial direct costs + PV of costs
of dismantling, removing or restoring the site. Subsequent measurement-> Measured @Cost Model in IAS 16,
unless it’s an I.P. or belongs to a class of asset to which revaluation model applies. Depreciation must be provided
on right-of-use asset over –Useful life, if ownership transfers to lessee at the end of lease term; or -Shorter of
lease term and useful life, if there’s no transfer of ownership at end of lease……. Recognition exemptions:
Optional exemptions from applying full requirements of IFRS 16 on: -ShortTerm leases(<12 months) -LowValue
leases (if underlying asset not highly dependent on, or highly interrelated with, other assets). Lease payments are
recognized as expense in SPL . Sale and Leaseback Transactions: If transaction is a sale per IFRS 15, -> Right-of-
use Asset measured @CA x PVFLP/Fair Value. Recognise only the amount of any gain/loss on the sale that relates
to the rights transferred (=Total gain – Gain on Rights retained). Total gain= FV – CA, Gain relating to rights
retained= Gain x PVFLP/Fair Value. If the transaction is not a sale per IFRS 15, -Seller must continue to recognize
the transferred asset, -The transfer proceeds are treated as financial liability.