Financial Accounting & Reporting

Prepared by shahiL

Keep in
Topic Most Important Important
Knowledge
IFRS 15, 03, 10, 09, 16 11, 05 12, 07
IAS 02,12,16,21,36,37,38 08,10,32,19,20,24,28 23,33

Chapter 06 : Revenue & Inventories

Chapter 06 Revenue & Inventories, IFRS 15 & IAS 02

1. What Costs should be Capitalized for Inventory: The Costs that are directly attributable to bringing the
assets in present location & condition should be Capitalized in Inventory.
2. Costs to be Capitalized in Inventory: a. Purchase Price, b. Delivery Cost, c. C&F Cost, d. Insurance, e. Interest
Costs (Qualifying Assets, IAS 23), f. Dismantling Costs (Present Value), g. Normal Loss, h. Irrecoverable VAT.
3. Costs cannot be Capitalized in Inventory: a. Abnormal Loss (Unexpected Loss), b. Foreign Exchange
Gain/Loss, c. Interest on Loan (except Qualifying Assets, IAS 23), d. Recoverable VAT
4. Qualifying Asset (IAS 23): The Assets that take Substantial Time Period (more than one year) to build up.
5. Example Company Purchase a Building financed by 3 years Term Loan. Does Finance Cost be Capitalized?
Answer: No. Finance Cost would be charged in PNL as Finance Cost.
6. Example Company took a 10 years Term Loan of Tk. 100 Crore for making a Factory Building. Rate of interest
10%. Describe the Treatment of Finance Cost in each situation separately:
i. Building will be Ready to use at the end of Fifth year. Answer: Finance Cost for First Five years would be
Capitalized and added with Building-WIP Account, Finance Cost for Sixth to Tenth years would be charge in
PNL as Finance Cost;
ii. Construction stopped in 3rd year for Labour Strike and Building will be Ready to use in the end of Fifth
year. Answer: Finance Cost for First Two years would be Capitalized and added with Building-WIP Account,
Finance Cost of Third year would be charge in PNL as Finance Cost. Again, Finance Cost for Fourth & Fifth
years would be Capitalized and added with Building-WIP Account and Finance Cost for Sixth to Tenth years
would be charged in PNL as Finance Cost.
7. Inventory Write off & Reversal: If value of inventory write-off before and same inventory need to be
Revalued in next period and value would be increased then Reversal possible up to the write off value.
Example: Inventory Value as on January 31, 202X is Tk. 100 & NRV Tk. 80 so written-off Tk. 20. Same
Inventory as on February 28, 202X is Cost Tk. 100 & NRV Tk. 105. So, Reversal Possible for Tk. 20 and
Inventory Value would be Tk. 100
8. Sales an AC at a price of Tk. 100,000 on December 15, 2021 including Installation cost of Tk. 3,000; and 2 years
Warranty of Tk. 10,000. Installation Date January 01, 2022 and warranty has been commenced from the date
of Instalment. Warranty Service provided by their own Engineer.
Journal Entry: On December 15, 2021: Cash Dr. Tk. 100,000 to Revenue Cr. 87,000; Deferred Revenue Cr.
13,000. On January 01, 2022: (Installation) Deferred Revenue Dr. 3,000 to Revenue Cr. 3,000. On December 31,
2022: (Warranty - 1st year) Deferred Revenue Dr. 5,000 to Revenue Cr. 5,000. IFRS 15 Complied
9. Consignment Sales: No Sale Recognized.
10. Sale with Right of Return: Return Provision. Yearly Sales of Example Company is Tk. 10 Crore. Trend shows
that 10% sales had been returned. COGS is 80% of Sales.
Journal Entry: 1. Accounts Receivable Dr. 10 Crore to Revenue Cr. 9 Crore and Return Provision Cr. 1 Crore;
2. COGS Dr. 7.2 Crore and Assets for Returned Goods Dr. 0.8 Crore to Inventory Cr. 8 Crore.
When Actually Goods are Returned: Inventory Dr. 0.8 Crore to Assets for Returned Goods Cr. 0.8 Crore;
Sales Return Dr. 1 Crore to Account Receivable Cr. 1 Crore
11. Repurchase Agreement: Also Known as Sales with Condition of Return. It’s not any Sales, it’s a Loan: So,
Sales Dr. to Loan Cr.
12. Customer Loyalty Program (Reward Point Redemption): Meena Bazar made Sales Tk. 100,000 and reward
point 10,000 equivalent to Tk. 10,000. 5,000 Points already redeemed till the year end. But normally redeemed
80%.
Journal Entry: 1. Cash Dr. 100,000 to Revenue Cr. 90,000 and Deferred Revenue Cr. 10,000. As on Cut of Date
Deferred Revenue Dr. 6,250 to Revenue Cr. 6,250 (5,000/8,000 * 10,000)

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13. Sales with Warranty Obligation: Sales an AC at a price of Tk. 100,000 on December 15, 2021 including
Installation cost of Tk. 3,000; and 2 years Warranty of Tk. 10,000. Installation Date January 01, 2022 and
warranty has been commenced from the date of Instalment. Warranty Service provided by Third Party.
Journal Entry: On December 15, 2021: Cash Dr. Tk. 100,000 to Revenue Cr. 87,000; Provision for Installation
& Warranty Cr. 13,000. On January 01, 2022: (Installation) Provision for Installation & Warranty Dr. 3,000 to
Accounts Payable Cr. 3,000. On December 31, 2022: (Warranty - 1st year) Provision for Installation & Warranty
Dr. 5,000 to Accounts Payable Cr. 5,000. IAS 37 Complied
14. Non-Refundable Upfront Fee: It’s not Sale. Non-Refundable upfront fees received Tk. 10,000 on January 01,
2022. Price of Product is Tk. 100,000. i. Rest of the amount received on January 31, 2022. ii. Agreement
cancelled and fees forfeited on January 31, 2022.
Journal Entry: 1. Cash Dr. 10,000 to Deferred Revenue Cr. 10,000. 2. i. Cash Dr. 90,000 and Deferred Revenue
Dr. 10,000 to Revenue Cr. 100,000. ii. Deferred Revenue Dr. 10,000 to Other income Cr. 10,000
15. Licence: Distinct vs Non-Distinct: If License is sold separately with a product, then the price of Licence
should be allocated separately. That is License is Distinct. If the product is not workable without License, in
that case Licence is non-distinct with the product. Then price allocation is not required for License.
16. Contact Modification: On November 01, 2021 Example Company ordered 4,000 units Laptop at Tk. 40,000
each to the Computer Company. The Computer Company agreed to deliver in the next three months and
deliver 2,000 units within November. On December 01, 2022 Computer Company offered a bulk rate to
Example Company for 5,000 units at Tk. 35,000. Example Company Accept the offer. On December 31, 2021
Computer Company delivered 5,000 units of laptop. What will be the price for 5,000 units?
Answer: To solve this question we have to calculate Average Rate for offer units. Total Price of undelivered
7,000 units is Tk. 255,000,000 (2,000 * 40,000 + 5,000 * 35,000). And Average Rate Tk. 36,429 (255,000,000 /
7,000). So, Price of 5,000 units delivered in December is Tk. 182,145,000 (5,000 * 36,429). Price of 2,000 units
delivered in November is Tk. 80,000,000 (2,000 * 40,000)
17. Conditions for Contract Modification: For Contract Modification bulk offer products should be similar. If
offer is for other products, a new agreement is created
18. Variable Consideration: Discount, Rebate: Discount & Rebate Amount should be charged in Deferred
Revenue Account
19. Free Sample: Price Tk. 100 and COGS Tk. 40 but when offer Buy One Get One then Price would be Tk. 100
but COGS Tk. 80 (40 * 2)
20. Bundle Offer: Grameenphone offers a Bundle Package of Tk. 10,000 (Mobile Phone Tk. 8,000; Talk time (5,000
Minutes) Tk. 5,000; Data (100 GB) Tk. 2,000; Connection (1 Year) Tk. 1,000; Totalling Tk. 16,000) on July 01,
2022. Prepare Initial Journal and after 6th month assume the consumer used 60% of Talk time and 50% of Data.
Answer: We have to calculate Average Cost. Average Cost is Tk. 0.625 (16,000 / 10,000)
On July 01, 2022, Cash Dr. 10,000 to Revenue Cr. 5,000 (8,000 * 0.625) and Deferred Revenue 5,000 (0.625 of
Tk. (5,000+2,000+1,000)
On December 31, 2022, Revenue Recognized for Talk time Tk. 1,875 (5,000 * 60% * 0.625); for Data Tk. 625
(2,000 * 50% * 0.625); and for Connection Tk. 312.50 (1,000 * 50% * 0.625). So, Deferred Revenue Dr. Tk. 2,812.50
to Revenue Cr. Tk. 2,812.50
21. Referred to the previous example if Time mentioned for Talk time and Data is 1 year each. And Customers
generally used 80% of the offer’s Talk time & Data. Consumers used 3,000 Minute and 40 GB Data. Then what
will be the Revenue recognition as on December 31, 2022?
For Talk time: Tk. 2,343.75 [5,000 * 0.625 * (3000 / 5000 * 80%)]
For Data: Tk. 625.00 [2,000 * 0.625 * (40 / 100 * 80%)]
And for Connection: Tk. 312.50 (1,000 * 50% * 0.625).
22. Expected Loss Recognition (IAS 37): Assume Contract Value 1,000m for 5 years; Estimated cost 850m; and
Profit 150m. End of Year 1, Cost incurred 200m; Cost to be incurred 600m. So, Revenue Recognition Ratio
25% [200 /(200+600)]. Revenue 250m (1,000 * 25%); COGS 200m and Profit 50m (250m – 200m).
End of Year 2, Cost incurred 500m; Cost to be incurred 560m. So, Costs exceed Project Value by Tk. 60m (500m
+ 560m – 1000m). Revenue Recognition Ratio 47% [500/(500+560)]. Revenue 220m (1,000 * 47% - 250m); COGS
330m (220m + 60m +50m) and Loss 110m (220m – 330m). & Cumulative Loss 60m (110m - 50m)
23. Significant Financial Component: Example Company Sale an Equipment at 100m on account. Payment
received after the end of 24 months. Rate of Cost of Capital is 10%. So, Accounts Receivable Dr. 100m to Sales
Cr. 82.64m and Deferred Interest Income Cr. 17.36m. After 24th month, Deferred Interest Income Dr. 17.36m
to Interest Income Cr. 17.36m

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Chapter 02 : Format of Financial Statements

Chapter 04 Format of Financial Statements, IAS 12

1. Accounting Carrying Amount: As per IFRS & IAS; Tax base Carrying Amount: As per Tax Law
2. We found Two types of differences between Tax base and Accounting Carrying Amount. i. Temporary
Differences & ii. Permanent Differences
3. Temporary Differences are Two types. i. Taxable Temp Diff & ii. Deductible Temp Diff
4. Permanent Difference: The amount disallowed by the Tax base is Permanent Difference. Never include in
Deferred Tax calculation
5. Asset: CA>Tax Base = Taxable Temp Diff * Tax Rate = Deferred Tax Liability; CA<Tax Base = Deductible
Temp Diff * Tax Rate = Deferred Tax Asset
6. Liability: CA<Tax Base = Taxable Temp Diff * Tax Rate = Deferred Tax Liability; CA>Tax Base = Deductible
Temp Diff * Tax Rate = Deferred Tax Asset
7. Always use relevant Tax Rates. Because Tax rate varied according to type of Assets or Income
8. PPE of Example Company Limited is Tk. 160. On the end of the Accounting Period Asset Revalued to Tk. 200.
So, in this case Accounting Carrying Amount is Tk. 200 and Tax base is Tk. 160. Taxable Temporary Difference
Tk. 40 (200 – 160). Tax bracket 30%. Deferred Tax Liability is Tk. 12 (40*30%). Journal Entry: Deferred Tax
Expenses Dr. Tk. 12 to DTL Cr. Tk. 12. Effects in FS: DTE will be charged in OCI and DTL in Current Liabilities
9. Gratuity Provision: Gratuity Provision is disallowed by the Tax Authority but allows only Payment to
Employees during the period.
10. Example Company Limited made a provision of Tk. 100m as Gratuity Provision. In this case, Accounting
Carrying Amount is Tk. 100m and Tax base Tk. Nil. Deductible Temporary Difference is Tk. 100m. DTA is
Tk. 30m (100m * 30%). Journal Entry: DTA Dr. Tk. 30m to DTI Cr. Tk. 30m. Effects in FS: DTI will be charged
in PNL and DTA in Current Assets
11. In business accounting, other comprehensive income (OCI) includes revenues, expenses, gains, and
losses that have yet to be realized and are excluded from net income on an income statement. OCI represents
the balance between net income and comprehensive income.
12. Common items included in the OCI account include: i. Gains or losses on investments available for sale; ii.
Gains or losses on derivatives held as cash flow hedges; iii. Foreign currency exchange gains or losses; iv.
Pension plan gains or losses
13. Unabsorbed Depreciation & Carry forward Loss create Deferred Tax Asset.

Deferred Tax
Year Profit/(Loss) Carry forward
Calculation
2014 (10m) Loss. Carry forward Tk. 10m.
2015 (5m) Loss. Carry forward Tk. 15m.
2016 (6m) Loss. Carry forward Tk. 21m.
2017 (2m) Loss. Carry forward Tk. 23m.
2018 (2m) Loss. Carry forward Tk. 25m.
2019 (2m) Loss. Carry forward Tk. 27m.
2020 (1m) Loss. Carry forward Tk. 28m.
Projected Profit
Set off Tk. Nil. Carry forward Tk. 13m. (2014 & 2015 out
2021 0m Loss 18m. DTA 5.40m
of 6 years)
2022 3m Set off Tk. 3m. Carry forward Tk. 7m. (2016 out of 6 years) Loss 10m. DTA 3m
2023 2m Set off Tk. 2m. Carry forward Tk. 5m. (2017 out of 6 years) Loss 5m. DTA 1.5m
2024 3m Set off Tk. 3m. Carry forward Tk. 2m. (2018 out of 6 years) Loss 2m. DTA 0.6M
2025 3m Set off Tk. 2m. Carry forward Tk. Nil. (2019 out of 6 years) No Forwarded Loss.
2026 3m No Carried Forward Loss No Forwarded Loss.
2027 3m No Carried Forward Loss No Forwarded Loss.

14. Question Bank: Nov-Dec 2021 Q.3

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Chapter 04 : Property, Plant & Equipment

Chapter 04 Property, Plant & Equipment IFRS 05 & IAS 16, 23, 36 & 38
1. Borrowing Cost IAS 23: Borrowing Cost can only be Capitalized for Qualifying Assets.
2. Qualifying Asset: The Asset takes substantial time period to be build up
3. Substantial period should be more than one year
4. Weighted Average Interest Rate: In case of Portfolio of Loan (More than one Loan and various interest rate)
used for Qualifying Asset. Interest Rate % = Total Interest/Total Loan * 100
5. Income of Investment from Loan Amount: Income should be netted off with Interest Cost.
6. Cost Capitalized in PPE: i. Purchase Price, ii. Cost of Testing, iii. Borrowing Cost for Qualifying Assets, iv.
Dismantling Cost, v. Irrecoverable VAT, vi. Directly Attributable Costs (Duty, Shipping Cost, Insurance
Expenses etc)
7. Dismantling Cost is a Future cost. So, Present Value needs to be calculated and accounted for.
8. Sample Question: Asset Value is 100m and Dismantling Cost after 10 years is 10m. Cost of Capital is 8%.
What will be the Dismantling Cost and its Accounting treatment?
Answer: Dismantling Cost is Tk. 4.63m(10m * 1.08 ^ 10). Initial Recognition: PPE Dr. 4.63m to Provision for
Dismantling Cost Cr. 4.63m. Subsequent Recognition: Decommissioning expenses Dr. 0.37 (4.63 * 8%) to
Provision for Dismantling Cost Cr. 0.37m.
9. Costs not considered to be Capitalized in PPE: i. Feasibility Cost, ii. O/H Admin Cost, iii. Start-up Cost, iv.
Internal Profit or Abnormal Loss
10. Cost/Revaluation Model: If material change is occurred in the value of Assets. Assets need to be Revalued.
11. Sample Question: Cost of an Asset is 100m, Accumulated Depreciation is 50m as at the beginning of the 6th
year and Revaluation of Asset is to Tk. 80m. What will be the Accounting Treatment for Revaluation and
Depreciation expense.
Answer: Asset Dr. 30m and Accu Dep. Dr. 50m to Asset Cr. 50m and Revaluation Reserve Cr. 30m
Revaluation Reserve Dr. 6m (30m/5years) to Retained Earnings Cr. 6m
Depreciation Expenses Dr. 16m (80m/5years) to Accu Dep. Cr. 16m
12. Carrying Amount > Recoverable Amount = Impairment Loss
13. Carrying Amount = Cost – Accumulated Depreciation
14. Recoverable Value is Higher of a. Fair Value Less Cost to Sell; and b. Value in Use (PV of Future Economic
Benefit)
15. Sample Question: Carrying Amount = Cost/Revalued Amount 100m – Accu. Dep. 40m = 60m; Fair Value =
50m – 5m = 45m; and Value in Use = 52m. Revaluation Reserve 6m. Calculate Impairment Loss and Journalize
the entry if Revaluation Reserve exists and not.
Answer: Impairment Loss = 60m – 52m = 8m. If Revaluation Reserve Exist: Revaluation Reserve Dr. 6m and
Impairment Loss Dr. 2m to Asset Cr. 8m. If Revaluation Reserve Not Exist: Impairment Loss Dr. 8m to Asset
Cr. 8m.
16. Cash Generating Unit (CGU) - Impairment Loss:
17. Sample Question: Carrying Amount 120m; Fair Value 75m & Value in Use 70m. Balance Sheet of Example
Company shows the following information: PPE 100m; Intangible Asset 60m; Goodwill 30m; A/R 20m;
Inventory 30m; Investment (IFRS 9) 20m; and A/P 10m. Calculate Impairment Loss and Journalize the entry.
Answer: Impairment Loss = 120m – 75m = 45m. First, we have to nullify Goodwill entirely. Then rest of the
Impairment Loss (if any) adjusted with IAS 16 & 38 Assets on a pro-rata basis. So, Impairment Loss Dr. 45m
to Goodwill Cr. 30m and PPE Cr. 9.375m (100m/160m*15m) and Intangible Asset Cr. 5.625m
(60m/160m*15m)
18. Assets Held for Sell (IFRS 5): Valuation of Non-current Assets Held for Sell (Cost Model): Lower of: a.
Carrying Amount and b. Fair Value Less Cost to Sell. If Fair Value Less Cost to Sell is Lower than Carrying
Amount Impairment Loss should be charged. Valuation of Non-current Assets Held for Sell (Revaluation
Model): Fair Value Less Cost to Sell.
19. Sample Question: Carrying Amount 100m & Fair Value 80m. What will be the journal entry if the asset is
held for sale.
Answer: Impairment Loss Dr. 20m and Asset Held for Sell Dr. 80m to Asset Cr. 100m
20. No Depreciation is charged for HFS Assets. An impairment loss is possible but Revaluation is not possible.
The company should have intention to dispose the assets within 12 months

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21. Classification as Held for Sell: a. The asset must be available for immediate sale in its present condition; b.
Its sale must be highly probable (i.e., significantly more likely than probable: i. Committed, ii. Locate a buyer,
iii. The asset must be marketed for sale at a price that is reasonable)

22. Intangible Asset (IAS 38): An identifiable non-monetary asset without physical substance
23. Identifiable Criteria: a. It is Separable; b. Arises from Contractual or other Legal Rights
24. Internally Generated Intangibles: An entity cannot recognize its Internally Generated Intangibles. The
standard prohibits the recognition of internally generated Brands, Masthead, Publishing Titles, Customer
Lists and similar items as intangible assets.

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Chapter 09 : Other Standards

Chapter 09 Other Standards IFRS 05 & IAS 37, 8 & 10

1. Provision, Contingent Liabilities & Assets IAS 37
2. Provision: Liability for uncertainty of Timing or Amount. Example: Provision for doubtful debt, Warranty
obligation.
3. Provision Recognition Criteria: a. Present obligation as result of past event; b. Reliable Estimate; and c.
Probable outflow of resources (Probable > 50% > Possible)
4. Obligations are Two types. a. Legal obligation (Contract, Legislation, Other Laws); b. Constructive obligation
(Other than legal obligation)
5. Probable outflow of resources (Probable/Likely > 50% > Possible)
6. Contingent Liability: Outflow of Resource is Possible/Unlikely (Less than 50%). Need full Disclosure in
Notes to the FS. If the amount is immaterial no disclosure is required.
7. Contingent Asset: Inflow of Resource is Possible/Unlikely (less than 50%) or may be Probable (more than
50%). Need full Disclosure in Notes to the FS. When the event is Virtually Certain Assets can be Recognised.
8. Outflow of Resource is Remote then No impact in Financial Statement
9. If there is a range of probability, provision should be the midpoint. Mid-point = Lower Limit + (Upper Limit
– Lower Limit)/2 See Question Bank May-June 2017 & May-June 2016
10. Events after the Reporting Period IAS 10: From the Reporting date of FS to the date of FS issued for
authorization to Board Meeting are called events after the reporting period. Events during the period are
classified in two categories. a. Adjusting Event & b. Non-adjusting Event.
11. Adjusting Event: Conditions exist at the reporting date but result obtained after the reporting date. Impact
should be accounted for.
12. Non-adjusting Event: Condition occurred after the reporting date. Full Disclosure in Notes to the FS should
be provided if the amount is material. Example: Dividend Declaration
13. Exception: If there is a chance of Going Concern Threat event must be Adjusting Event and impact should
be account for
14. Accounting Policies, Changes in Accounting Estimates and Errors IAS 8: Accounts Policy Change =
Retrospective Impact (IFRS 16 Lease, IFRS 17 Insurance Contract); Estimate Change = Prospective Impact
(Depreciation Method, Rate, Estimated Life of Asset, Salvage Value of Asset, Bad Debt Allowance, Provision);
Error = Retrospective Impact
15. In case of Retrospective Impact Comparative figure also be restated
16. If Error incurred before the preceding period (if FY is 2022 then preceding year is 2021) need to prepare Three
column Balance Sheet
17. Accounting for Government Grants and Disclosure of Government Assistance IAS 20: If there is condition
for Government Grant, until or unless the condition is fulfilled the entity whoever gets the Grant cannot
recognise the grant as its Income. Initially grant has to be recorded as Deferred Income
18. Sample Question: A company has received a Govt. Grant of Tk. 100m in January 01, 20X1 with conditions,
over the 5 years the company has to make 200 employment opportunities in each year. Or Cumulative
employment in 5 years is 1200. Performance of the company over 5 years is 20X1: 220; 20X2: 230; 20X3: 180; .
Prepare the Journal entries.
Answer: 01-01-20X1 Bank Dr. 100m to Deferred Grant Income Cr. 100m. As on 31-12-20X1 & 31-12-20X2
Deferred Grant Income Dr. 20m to Grant Income Cr. 20m. As on 31-12-20X3: i. If Condition has failed only
for this year: Deferred Grant Income Dr. 20m to Provision for Grant Income Return Cr. 20m; ii. If Condition
has failed for the rest of the years: Deferred Grant Income Dr. 60m to Provision for Grant Income Return Cr.
60m.
19. IAS 20 identifies Two methods which could be used to account for government grants. i. Capital Approach:
Credit the Grant directly to shareholders’ interests; and ii. Income Approach: The Grant is credited to Profit
or Loss over one or more periods.
20. Grant related to Assets: Government Grant related to Assets should be presented in the Statement of
Financial Position either: i. Setting up Grant as Deferred Income or ii. Deducting the grant in arriving at the
carrying amount of the assets (that is Netting off).
21. Netting off Method: The Grant is recognized as income over the life of a depreciable asset by way of a reduced
depreciation charge.

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22. Sample Question: Example Company has purchased an Assets amounting of Tk. 100m and 60% of the asset
value received as Govt. Grant. useful life 5 years and no residual value. Journalized the transactions. Answer:
Asset Dr. 100m to Bank Cr. 100m. Bank Dr. 60m to Govt. Grant Cr. 60m, Govt. Grant Dr. 60m to Asset Cr.
60m. So, Depreciation of the assets is 8m each year instead of 20m.
23. An entity purchased an item of equipment for 50,000 on 1 January 20X5. It will depreciate this machinery on
a straight-line basis over its useful life of five years, with a zero residual value. Also, on 1 January 20X5, the
entity received a government grant of 5,000 to help finance this equipment. Under the netting-off method the
grant and the equipment should be presented in the statement of profit or loss for the year to 31 December
20X5 and in the statement of financial position at that date as follows: Equipment Cost 45,000 (50-5),
Depreciation 9,000 and Carrying Amount 36,000.
24. If Government Grant is other than Cash, Grant should be recorded in Fair Value
25. IFRS 15 Sales to Customer: Five Steps Model: 1. Identify the Contract with a customer; 2. Identify the
Performance Obligation; 3. Determine the Transfer Price; 4. Allocate the Transaction Price; and 5. Recognise
Revenue. Example: Sales of an AC at a price of Tk. 100,000 on December 15, 2021 including Installation cost
of Tk. 3,000; and 2 years Warranty of Tk. 10,000. Installation Date January 01, 2022 and warranty has been
commenced from the date of Instalment. Warranty Service provided by their own Engineer.
Journal Entry: On December 15, 2021: Cash Dr. Tk. 100,000 to Revenue Cr. 87,000; Deferred Revenue Cr.
13,000. On January 01, 2022: (Installation) Deferred Revenue Dr. 3,000 to Revenue Cr. 3,000. On December 31,
2022: (Warranty - 1st year) Deferred Revenue Dr. 5,000 to Revenue Cr. 5,000. IFRS 15 Complied
26. Sales with Warranty Obligation: Sales an AC at a price of Tk. 100,000 on December 15, 2021 including
Installation cost of Tk. 3,000; and 2 years Warranty of Tk. 10,000. Installation Date January 01, 2022 and
warranty has been commenced from the date of Instalment. Installation Service provided by Third Party.
Journal Entry: On December 15, 2021: Cash Dr. Tk. 100,000 to Revenue Cr. 87,000; Deferred Revenue
(Warranty) Cr. 10,000 Provision for Installation Cr. 3,000. On January 01, 2022: (Installation) Provision for
Installation Dr. 3,000 to Accounts Payable Cr. 3,000. On December 31, 2022: (Warranty - 1st year) Deferred
Revenue Dr. 5,000 to Revenue Income Cr. 5,000. IAS 37 Complied
27. Contact Modification: On November 01, 2021 Example Company ordered 4,000 units Laptop at Tk. 40,000
each to the Computer Company. The Computer Company agreed to deliver in the next three months and
deliver 2,000 units within November. On December 01, 2022 Computer Company offered a bulk rate to
Example Company for 5,000 units at Tk. 35,000 each. Example Company Accept the offer. On December 31,
2021 Computer Company delivered 5,000 units of laptop. What will be the price for 5,000 units? Answer: To
solve this question we have to calculate Average Rate for offer units. Total Price of undelivered 7,000 units is
Tk. 255,000,000 (2,000 * 40,000 + 5,000 * 35,000). And Average Rate Tk. 36,429 (255,000,000 / 7,000). So, Price
of 5,000 units delivered in December is Tk. 182,145,000 (5,000 * 36,429). Price of 2,000 units delivered in
November is Tk. 80,000,000 (2,000 * 40,000)
28. Conditions for Contract Modification: For Contract Modification bulk offer products should be similar. If
offer is for other products, a new agreement is created.

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Chapter 03 : Reporting Financial Performance
Chapter 03 Reporting Financial Performance IAS 19
1. Employee Benefits IAS 19: i. Short-term employee benefits - Salary, Wages and holiday pay; ii. Post-
employment benefits - PF, Pensions; iii. Other long-term benefits - Long-service awards or sabbatical leave;
iv. Termination benefits - Redundancy pay; v. Share-based payments - Shares and share options
2. Post-employment benefits: a. Defined Contribution Schemes - Where the Future Pension depends on the
value of the Fund. Example PF; b. Defined Benefit Schemes: Where the Future Pension depends on the Final
Salary and Years worked. Example GF;
3. Types of Defined Benefit Scheme/Plans: a. Funded Plans, b. Non-funded Plans.
4. Remeasurement Gain/Loss shall be charged in Other Comprehensive Income (OCI)

Chapter 03 : Reporting Financial Performance

Chapter 03 Reporting Financial Performance IFRS 05 & IAS 8, 21, 24 & 33
1. Accounting Policies: The specific Principles, Bases, Conventions, Rules and Practices applied by an entity in
preparing and presenting financial statements.
2. Accounting Policies are normally developed by Reference to the applicable IFRS or Interpretation together
with any Implementation Guidance issued by the IASB. The exception to this is where effect of applying the
accounting Policy set out in the IFRS is Immaterial.
3. Change in Accounting Estimates result from new information or new developments and accordingly, are not
corrections of errors.
4. The effect of a change in an Accounting Estimate is to be recognised Prospectively.
5. IAS 16 gives an Interpretation that Change in Depreciation Method is Accounting Estimation Change instead
of Accounting Policy Change
6. Where there is doubt as to which type of change it is, IAS 8 requires it to be treated as a change in Accounting
Estimate. So no Retrospective effect is required.
7. Prior Period Errors: Mathematical mistakes, Mistakes in applying accounting policies, Oversights or
Misinterpretation of facts and Fraud.
8. Material Prior period errors should be corrected Retrospectively.
9. Applying a requirement is Impracticable when the entity cannot apply it after making every reasonable effort
to do so.
10. Discontinued Operation IFRS 5: A Component of an entity that has been disposed of, or is classified as held
for sale and i. represents a separate major line of business or geographical area of operation, ii. Is part of a
single co-ordinated plan to dispose of a separate major line of business or geographical area of operations,
or iii. Is a subsidiary acquired exclusively with a view to resale
11. Component of an entity: Operations and cash flows that can be clearly distinguished, operationally and for
financial reporting purpose, from the rest of the entity.
12. Operations supported by assets which became idle because they are temporarily taken out of use may not be
described as discontinued. This includes, for example assets that are mothballed and may be brought back
into use if market condition improves.
13. An entity should disclose a single amount as Discontinued Operations in the Statement of Profit or Loss and
Other Comprehensive Income immediate after the Profit/(Loss) for the year from Continuing Operations.
Details of Discontinued Operations shall be shown in Notes to the Financial Statements.
14. In the Statement of Cash Flows an entity should disclosed the net cash flows attributable to the Operating,
Investing and Financing activities of discontinued operations. The disclosure may be presented either in the
statement of cash flows or in the notes to the financial statements.
15. If non-current assets held for sale have not been finally disposed of, they must be shown in the statement of
financial position separately from all other assets. In these circumstances there will be a separate line item
immediately below the sub-total for current assets for non-current assets held for sale.
16. The effects of change in foreign exchange rates IAS 21: Monetary items should be translated at the end of each
period.
17. Monetary Items: Units of currency held and assets and liabilities to be received or paid in a fixed or
determinable number of units of currency. Example: Receivables, Payables, Loans, Provisions etc.
18. An average rate for a period may be used if exchange rates do not fluctuate significantly.

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19. The following rules apply at each subsequent year end: a. Report foreign currency Monetary Items using the
Closing Rate; b. Report non-monetary items which are carried at Historical Cost in a foreign currency using
the exchange rate at the date of the transactions (Historical Rate); c. Report non-monetary items which are
carried at Fair Value in a foreign currency using the exchange rate that existed when the Values were
measured
20. Gain/(Loss) arose from payment should be reported in Profit or Loss Account. And Gain/(Loss) arose at the
end of period (by translating monetary item) should be reported in Profit or Loss Account
21. Where a monetary item has not been settled at the end of a period, it should be restated using the Closing
Exchange Rate and any Gain/(Loss) taken to Profit or Loss Account as Foreign Exchange Gain/(Loss). On
the other hand, when a Gain/(Loss) on a Non-monetary item is recognised in the Other Comprehensive
Income (OCI) (Property is revalued) any related exchange differences should also be recognised in Other
Comprehensive Income (OCI)
22. Related Party Disclosure IAS 24: A person or entity that is related to the entity preparing its financial
statements (the reporting entity). a. A person or close member of that person’s family member
23. Earnings per share (EPS) IAS 33: One of the most commonly used Performance Measures worldwide is Basic
Earnings Per Share (EPS), which is calculated as the Profit or Loss attributable to the Ordinary Equity Holders
divided by the Number of Shares in issue.
24. Compliance with IAS 33 is mandatory for: i. The separate financial statements of entities whose ordinary
shares are publicly traded or are in the process of being issued in public markets; ii. The consolidated financial
statements for groups whose parent have share similarly traded/being issued. Other entities need not present
EPS, but if they do voluntarily, they should comply IAS 33.
25. The fully worded calculation of EPS is: Profit or Loss attributable to the Ordinary Equity Holders of the
Parent divided by Weighted average number of Ordinary Shares outstanding during the period
26. Sample Question: Profit for the period 88m attributable to: Owners of the Parent 82m and Non-controlling
interest 6m. Dividend presented in statement of changes in equity: On irredeemable preference shares 20m
and On ordinary shares 5m. Note: The figure include 15m in respect of arrears of cumulative dividend not
paid in previous years due to lack of distributable profits. The weighted average number of ordinary shares
is 1,200m. Calculate the Basic EPS.
Answer: Profit attributable to Owners of the Parent 82m Less: One year’s dividend on irredeemable
preference shares (20m – 15m) divided by weighted average number of ordinary shares is 1,200m. That is
82m - (20m-15m)/ 1,200m = 0.064 Per Share.
27. Sample Question: Example Company Limited has 10 million ordinary shares in issue at 01 January 20X4. Its
accounting year end is 31 December. During 20X4 the following events occur: 01 April 20X4 2 million shares
are issued to acquire a subsidiary; 01 October 20X4 2 million shares are issued at full market price. What is
the weighted average number of ordinary shares outstanding during the period?
Answer: Weighted Average: January to March 10m x 3/12 = 2.50m; April to September 12m x 6/12 = 6.00m;
October to December 14m x 3/12 = 3.50m. Total 12.00m (2.50m+6.00m+3.50m).
28. If bonus share issued during the period, then no need to calculate weighted average. For example, issued
shares as on 01 January 20X4 is 10m and 4m bonus share were issued on September 20X4. So, Weighted
Average Ordinary shares should be straight 14m.
29. Sample Question: Example Company Limited has 10m ordinary shares in issue at 01 January 20X3. Its
accounting year end is 31 December. Earnings: 20X4 13m and 20X3 10m. Two million bonus shares are issued
on 01 October 20X4. What basic EPS amount was presented in the 20X3 financial statements and what two
basic EPS amounts should be presented in the 20X4 financial statements?
Answer: 20X3 financial statements: EPS (Taka 10m/10m Shares) = 1.00;
20X4 financial statements: Basic EPS for both years should be calculated as if the bonus shares had always
been in issue. Basic EPS for 20X4 (Tk. 13m/12m Shares) = 1.08 & Basic EPS for 20X3 (Tk. 10m/12m Shares) =
0.83.
30. Right issue is i. an issue of shares for cash to the existing ordinary equity holders in proportion to their current
shareholdings; ii. At a discount to the current market price.
31. In order to calculate the basic EPS, number of shares when there has been a right issue, an adjustment for the
bonus element is required: Pre-right issue price of shares / Theoretical ex-right price (TERP)
32. Sample Question: A one for three rights issue is made at 132p when the market price is 220p. What is TERP?
Answer: Pre-right issue holding 660p (3x220p) and Right share 132p (1x132p) Total 792p (660p + 132p). So,
TERP is 198p (792p/4)

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Chapter 01 : Reporting Framework and Ethics

Chapter 01 Reporting Framework and Ethics IFRS 01 & IAS 01

1. Roles of an Accountant are near about 15% of Recording, 15% of Grouping, 15% of Presenting and largest
portion 55% of Interpreting.
2. Truth is usually seen as an objective concept reflecting factual accuracy within the bounds of materiality.
Fairness is usually seen as meaning that the view given is objective and unbiased.
3. The IASB's Conceptual Framework makes it clear that information in an entity's financial statements should
be prepared on the accrual basis.
4. Accrual Basis: Sales are recorded in the period in which the risks and rewards of ownership pass from seller
to buyer, not when the seller receives full payment. Expenses are recognised in the period when the goods or
services are consumed, not when they are paid for.
5. Depreciation of Non-current Assets have been charged as per Accrual Basis of Accounting. The consumption
of non-current assets, such as plant and machinery, is recognised over the period during which they are used
by the entity (i.e., the asset is depreciated), not in the year of purchase as they would be under the cash basis
of accounting.
6. Going Concern Basis: The accrual basis of accounting assumes that an entity is a going concern. Under this
basis, financial statements are prepared on the assumption that the entity will continue in operation for the
foreseeable future, in that management has neither the intention nor the need to liquidate the entity by selling
all its assets, paying off all its liabilities and distributing any surplus to the owners.
7. Going concern is referred to by the IASB's Conceptual Framework as the 'underlying assumption'.
8. Break up Basis: There may be an intention or need to sell off the assets of the business. Such a sale typically
arises where the business is in financial difficulties and needs the cash to pay its creditors. Where this is the
case an alternative method of accounting must be used (in accordance with IAS 1, Presentation of Financial
Statements). In these circumstances the financial statements will be prepared on a basis other than going
concern, which is commonly referred to as the 'break- up' basis. The break-up basis values assets and liabilities
today as if the entity was about to cease trading and had to dispose of all its assets and liabilities. The effect
of this is seen primarily in the statement of financial position as follows: a. Classification of assets: All assets
and liabilities would be classified as current rather than non-current; b. Valuation of assets: Assets would be
valued on the basis of the recoverable amount on sale. This is likely to be substantially lower than the carrying
amount of assets held under historical cost accounting.
9. Qualitative characteristics are the attributes that make the information provided in financial statements useful
to users. The two fundamental qualitative characteristics are relevance and faithful representation. There are
then four enhancing qualitative characteristics which enhance the usefulness of information that is relevant
and faithfully represented. These are: comparability, verifiability, timeliness and understandability.
10. Materiality: Information is material if omitting it or misstating it could influence decisions that users make
on the basis of financial information about a specific reporting entity.
11. Faithful representation: A perfectly faithful representation should be complete, neutral and free from error.
12. Substance over form: The principle that transactions and other events are accounted for and presented in
accordance with their substance and economic reality and not merely their legal form. Example: Lease,
Group Financial Statements. This is not a separate qualitative characteristic under the Conceptual Framework.
The IASB says that to do so would be redundant because it is implied in faithful representation. Faithful
representation of a transaction is only possible if it is accounted for according to its substance and economic
reality.
13. Example of Substance over form: Sale and Repurchase agreement: A Ltd sells goods to B Ltd for £10,000,
but undertakes to repurchase the goods from B Ltd in 12 months' time for £11,000.
The legal form of the transaction is that A has sold goods to B as it has transferred legal title. To reflect the
legal form, A Ltd would record a sale and show the resulting profit, if any, in profit or loss for the period. In
12 months’, time when legal title is regained, A Ltd would record a purchase. There would be no liability to
B Ltd in A Ltd.’s statement of financial position until the goods are repurchased.
The above treatment does not provide a faithful representation because it does not reflect the economic
substance of the transaction. After all, A Ltd is under an obligation from the outset to repurchase the goods
and A Ltd. bears the risk that those goods will be obsolete and unsaleable in a year's time.

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The substance is that B Ltd has made a secured loan to A Ltd of £10,000 plus interest of £1,000. To reflect
substance, A Ltd should continue to show the goods as an asset in inventories (at cost or net realisable value,
if lower) and should include a liability to B Ltd of £10,000 in payables. A Ltd should accrue for the interest
over the duration of the loan. When A Ltd pays £11,000 to regain legal title, this should be treated as a
repayment of the loan plus accrued interest.
14. Comparability: Comparability is the qualitative characteristic that enables users to identify and understand
similarities in, and differences among, items. Information about a reporting entity is more useful if it can be
compared with similar information about other entities and with similar information about the same entity
for another period or another date.
15. Consistency: Consistency, although related to comparability, is not the same. It refers to the use of the same
methods for the same items (ie, consistency of treatment) either from period to period within a reporting
entity or in a single period across entities.
16. Comparability is not the same as uniformity. Entities should change accounting policies if those policies
become inappropriate.
17. Corresponding information for preceding periods should be shown to enable comparison over time.
18. Understandability: Financial reports are prepared for users who have a reasonable knowledge of business
and economic activities and who review and analyse the information diligently. Some phenomena are
inherently complex and cannot be made easy to understand. Excluding information on those phenomena
might make the information easier to understand, but without it those reports would be incomplete and
therefore misleading. Therefore, matters should not be left out of financial statements simply due to their
difficulty as even well-informed and diligent users may sometimes need the aid of an advisor to understand
information about complex economic phenomena.
19. The cost constraint on useful financial reporting: This is a pervasive constraint, not a qualitative characteristic.
When information is provided, its benefits must exceed the costs of obtaining and presenting it. This is a
subjective area and there are other difficulties: others, not the intended users, may gain a benefit; also, the
cost may be paid by someone other than the users. It is therefore difficult to apply a cost-benefit analysis, but
preparers and users should be aware of the constraint.
20. Assets: A resource controlled by an entity as a result of past events and from which future economic benefits
are expected to flow to the entity. Technically, the asset is the access to future economic benefits (eg, cash
generation) not the underlying item of property itself (eg, a machine).
21. Liability: A present obligation of the entity arising from past events, the settlement of which is expected to
lead to the outflow from the entity of resources embodying economic benefits. An obligation implies that the
entity is not free to avoid the outflow of resources.
22. Equity: The residual amount found by deducting all of the entity's liabilities from all of the entity's assets.
Equity = ownership interest = net assets. For a company, this usually comprises shareholders' funds (ie,
capital and reserves).
23. Income: Increases in economic benefits in the form of asset increases/liability decreases not resulting from
contributions from equity participants. Income comprises revenue and gains, including all recognised gains
on non-revenue items (eg, revaluations of non-current assets).
24. Expense: Decreases in economic benefits in the form of asset decreases/liability increases not resulting from
distributions to equity participants. Expenses include losses, including all recognised losses on non-revenue
items (such as write-downs of noncurrent assets).
25. Future Economic Benefit: The potential to contribute, directly or indirectly, to the flow of cash and cash
equivalents to the entity. The potential may be a productive one that is part of the operating activities of the
entity. It may also take the form of convertibility into cash or cash equivalents or a capability to reduce cash
outflows, such as when an alternative manufacturing process lowers the cost of production.
26. The four measurement bases referred to in the Conceptual Framework are Historical Cost, Current Cost,
Realisable Value and Present Value.
27. Historical cost: Assets are recorded at the amount of cash or cash equivalents paid or the fair value of the
consideration given to acquire them at the time of their acquisition. Liabilities are recorded at the amount of
proceeds received in exchange for the obligation, or in some circumstances (for example, income taxes), at the
amounts of cash or cash equivalents expected to be paid to satisfy the liability in the normal course of business.
28. Current cost: Assets are carried at the amount of cash or cash equivalents that would have to be paid if the
same or an equivalent asset was acquired currently. Liabilities are carried at the undiscounted amount of cash
or cash equivalents that would be required to settle the obligation currently.

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29. Realisable (settlement) value: Realisable value: The amount of cash or cash equivalents that could currently
be obtained by selling an asset in an orderly disposal. Settlement value: The undiscounted amounts of cash
or cash equivalents expected to be paid to satisfy the liabilities in the normal course of business.
30. Present value: A current estimate of the present discounted value of the future net cash flows in the normal
course of business.
31. Historical Cost: Historical cost is the most commonly adopted measurement basis, but this is usually
combined with other bases, e.g., an historical cost basis may be modified by the revaluation of land and
buildings.

Chapter 10 : Group Accounts: Basic Principles

Chapter 11 Group Accounts: Basic Principles IFRS 03, 10 & IAS 00

1. Group: In simple terms a group is created where one company, the parent (P) buys shares in another
company, the subsidiary (S), such that the parent company controls the subsidiary. A group may include one
or many subsidiaries. The shareholders (owners) of P plc may be individuals and/or institutions such as
pension funds.
2. Subsidiary: An entity, including an unincorporated entity such as a partnership, that is controlled by another
entity (known as the parent).
3. Control: Control is presumed where the parent acquires more than 50% of the other entity's voting rights,
unless it can be demonstrated otherwise.
Accounting Principles behind Group Accounts: The key issue underlying group accounts is therefore the
need to reflect the economic substance of the relationship between companies where one (a parent) has control
over another (a subsidiary), which together comprise a group. Producing consolidated accounts that present
the group as though it were a single economic entity reflects this economic substance. The terms 'group
accounts', 'consolidated accounts', 'group financial statements' and 'consolidated financial statements' can be
thought of as meaning the same thing and are used interchangeably in the accounting world.
4. Summary of Investment: A parent may hold other investments apart from subsidiaries. These can be
summarised as follows:
Treatment in
Investment Criterion
Group Accounts
Subsidiary Control (>50%) Consolidation
Associate Significant influence (20%+) Equity method
Joint venture Joint control Equity method
Investment Asset held for accretion of wealth Usually at cost

5. When we have to identify Nature of Investment? Answer: As on Reporting Date of Investing Company.
6. Consolidation is not permanent books of accounts. It is just Memorandum workings.
7. Reflecting fair values: The identifiable assets and liabilities of a subsidiary should be brought into the
consolidated financial statements at their fair value. Normally these fair values are not reflected in the single
entity financial statements. Therefore, the difference between fair values and carrying amounts should be
treated as a consolidation adjustment made only for the purposes of the consolidated financial statements.
The increase or decrease in value is treated as a revaluation at acquisition and also applies in subsequent years
if the assets is still held.
8. Class #09 Time Code# 3:25:00 please follow the math.
9. Five workings for preparing Consolidated Balance Sheet are: a. Group Structure; b. S Ltd. Net assets; c.
Goodwill Calculation; d. non-controlling interest; and e. Retained earnings.

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