and IAS

Company
by:Shahmeer Dada
 umuand
FAS preparation Notes

Limited companies:
·

incorporated businesses
· owned
by shareholders
·
row
by directors who are appointed by shareholders at
AGM.
·
Has to be registered after the preparation "Memorandum of
assocation"and "Articles of Assocation".

Limited companies

Private
Ltd. Public Linlid
Companies compaines
·
family owned biz. shares
·
can be boughtand
· cuitsell shares atstock exclude sold atstock
exchange
canthave authorized authorized show
capital
· ·

share capital more that should be more than $50,000

$ 50,803 ·
Have to follow IAS
·
Have" Ltd" at the end of ·

Have"pla"at end of
the

Eg"Shahmee Ltal." plu

"

the the Hasan

name: name,
e.g
 Capital Structure of Led Companies
comprises of:

meshareholders : . real owners of the biz

as have

voting rights. Can appointDirectors.

·
no fixed amount of divident.
Depends on
profitabilityofthe
biz
·
Giver last priority
atthe tim
distribution and
of
insolvency.
uneShareholders: given preferance over ordinary
shareholders
fixed amount of
· dividit. Dividet
biz cannot
is compensated if pay
atthe given time
will
·
recue dividentregardless
of biz profitability
caitvote
·

4
types of Preterans Shares

Gemulative
1)
Preferent start
will
↳ recieve dividents regardless of bir pristtability
↳
unpaid dividents will be compensated the
next
year
and treated as correct liabilities.

2) Non-Imulahe Prefaron Shaves

↳ will dividents we
only recied biz
is
making good
pers tit
↳
paymentofdividentwill be
lapsed if notpaid.
 3) Participating Preferance Shares
↳ can rote AGM
in

↳ lowest
priorityamong prefarance shares

2) Now.
Participating
I can'tvete

Debentures: a
certificate
ofloan issued to lenders in

exchange capital/cash.
of

have
·
to fixed interest
be paid back with
interest Debentine
expense.
·
on is

Convertible bar stock. Long-term Liability

· of
fixed rate interest

Matinty, lenders are given

An
·
an

option to comment lone into

shares
·
details
All the are pre-dicded
double
entry
-

De Cr

Convertible Loan Stock xXX

0.S.C XxX

more shares
~If are issued

Convertible Law Stock X XX

Share Premie XX
OSL xXX
 -

if less shares are issued

Convertible can stock Xxx

Share Premie xXX
OSL xxX

Reserves
Deere Reserves Capital Reserves
·
tracing activities ·

now-tracing activities
1) General Reserves 1) Premim Ressures
Share

2) Retained Profits Reserves

2) Revaluation

Issue of
Shares

Offering (IPO):
mic ·shares offered to the

general public for the first

time.

De Cu

Bank XX
0.SL XX

Wamtssue: ·
Newly Issued shaves offered to the
existing shareholder
S In order to authority
dilution of
avoid
of
previous shareholders
·
Usually offered at premires a

Bank XX
Share Premier XX
OSC XX
 -

Bonus Issue, offered when

company is
facing liquidity
crises

place dividents, offers

company
·
in of

shareholders more shares to raise cash

·financed through capital/receive reserves in

1)
following
the
Share
order:
Premium

i Retained Earrings
General Resour
2

3
 Accounting Standards (IAS)
mmmmmmm

Q) Why are IAS imp?

·
so that financial statements can be made in the
same

manner.

·
so thatcomparison is
possible.
· so that white collar crimeis prevented.
·
Financials statements can be widely understood

IAS 1:Representation of Statements

Financial
· instructs all
companies thatthe
following statements
mustbe prepared and published.
StatementofComprehensive
1) Income
2) Statementofchanges in Equity
3) Statemento f Financial Position
4) Statement of Cash Flows
5) Schedule of NCA
Notes to Accounts
6)

Statementof
Comprehensive Income:
and
Income statement statementof
+

Recognized Gains Losses

IAS 2:Inventory Valection

IAS 2 Prudence concept,
follows the thatinventories
would be valued at lower of cost or NRU

Lost:Purchase Price + all costs associated with

purchase
NRV: Price All costs associated to
Selling -

sales
 IAS 2 applies to: ·Raw Materials
· WID
· Manufactured Finished Goods
·
Purchased Finish Goods

In terms valuation
of of
inventory (AS 2 accepts:
·
FIFy
·
Arco

costs included IAS 2

in are:
· DirectMaterial
· Direct Labore
·
Direct Expenses
costs
·Other related to production
costs excluded in IAS I are
·
Selling Distribili
⑧
Admin
Stowage
·

IAS 7:Cash Flow Statements

IAS7 states thatthe of

incision Cash Flow Statements

necessary
in
(compulsary along with
published
other
statements. Cash Flow Statementincludes 3 headings
1) Cash Flow from
operatingActuities
2) Cash Flow from Investing Activities

3) Cash Flow from Financing Activities

 steps involved preparation
in cash flow statements
of
are;

1) calculating operating profits

2) Calculating Cash Flow from operating activities
3) PreparationofCash Flow Statement
4)Reconcelation of
cash and cash equivalent

Cash and Cash Equivalentare cash, bank and

shortterm depositlinvestment. Essentially anything
convertible into cash within 3 months.

IAS 8:Accounting Policies (Changes

Accounting Estimates
in

and Errors

This IAS relates to

accounting policies and concepts
such prudence, accruals,
etc.
as
going concern,
consistency

·
This IAS states to rselmention relevat
the
standard instructed to relevant
the
according
treatmento fany transaction or cent
· It also allows business to use theirjudgement
or refer to standards
other when an exact
standard is notavailable for treatmentfor
any
eventor transaction

to
· IAS 8, as
per consistency
the concept suggests use

the
same method/policies for the
similar transaction
Bic can
only be exempted it:
Ifthe
1)
change authorized by is standard a new

2) Ifthe
change will
being religibility/accuracy to more the
statements.
 any change
· IAS 8 also commands to mention in

the published accounts to

estimates in
promote
more
knowledge to users of accounts

· IAS 8 demands from firms to correcterrows

which
are reliability
responsible for changing the
ofaccounts. Itadvices compares to correct
accounts in and thencontine to show
retrospect
the corrected chronological series
occuring the
in

The corrected should mentional

present.Notes items
to Accords(mistakes
be
accountants)
in the by

IAS 10:Events after reporting period.

IAS 10 takes into account. The
events within
occurring
or
accounting period. It
after an
puts emphasison
correcting adjustmenting relevantfinancial
or statement
changing factors related to the
to the company.

events the events thatare revealed after

Adjusting are

the
accounting period which
are related to the

period or have taken place accounting

withinthe
These are two in nature:
year.

1) Material: Changes in the numerical appearance of the

published accounts
statements, so the
should be altered to cater these changes.

2) Immaterial:Mustbe disclosed inthe "Notes to Acuit's

 Examples of
Adjusting Events:
1) Trade Reciable
becoming bankrupt
2) Errors the financial statements Coverstating etc.)
in

3) Changes in the value ofNat of the

previous year
4) Impairment of NCA
5) Ifthe cost inventory is greater than NRV.
of

outside
Non
Adjusting Events are the
events which
our

of relevant
the
accounting period. Perhaps the
in
year
relation
after
accomiting year. These factors have
the no

to accounting year but still

the influence compaines,
also 2
monetary
both and non-monetarily. These are

Lips "Notes
Material:Should be disclosed in to Accounts"
Immaterial:Ignored

Examples of Non-Adjusting Events

Tax Rate
1) Changes in
Purchase or Sale ofNot after accounting
i Natural Disaster (Clarity
causing damage
year

Special Non-Adjusting Events

1) Dividents Proposed for future

the are notliabilities

They should be stated in the to Accounts"

"Notes

2) owner/director
Ifthe announces the commencement
business
of
operations (disconturation). The Financial
Accounts of the
violation
12
isn'tbe
1
published on

Going Concent concept.

3) The entitiesinduidials behind the authorization
or

must be date of
disclosed. In addition to the
and if
authorization thefinancial statements can
be I will
be ammended after

IAS 16:Property, Plant, and Equipment

its
IAS 16 serves
purpose of determining
the

accounting treatment ofProperty, Plant, and Equipment

The 4 main issues (AS16 disusses are:

The recognitionofasset.
1)

2) The determination
of their carrying amsout
3) Depreciation ofNCA
4)Impairmentlosses (AS36)
The
Recognition ofAsset
IAS 16 states thatan NCAcan only be recognised
company's accounts when it.
the
in

expected NCA will future

· It is that the bring
economic benefits to the
company.
·
The cost of an assetcan be measured reliabily
Petermination of
the amount
carrying
The amount
of assetis the cost atwhich
carrying an

the NCA is recognised financial statements

the
in

minus
any
accumulated deprevation or impairment
loss
 considered
IAS 16 prescribes thatthe
following can be
as an asset'sinitial
cost:
The
·
prochase price
·
Any importduties or tax
· installation
costs
·
delivery and handling
·
assembly
·
specialistfees (E.g: Plumber fees of
installing a new
sinks
*

repair must
such not
Any revere
expenditive as be

included financial statement*

the
in

parts replacementor any

*

Capital expenditures such as

inspection or alteration costs to be considered (added

to the carrying amount.

IAS models
companies to adopt one of two
16 instructs
ofassetvaluation:
1) Cost Model:Assetwhich is carried atcost-

depreciation/impairmentloss
fair value
2) Revalvation Model:Asset which
is carried at
-

any deprecation impairmentloss.

Depreciation
IAS 16
urges deprecation systematic
to be on a basis

over assets useful life. The standard also states that:

the

·
deprecations should keep
charging even if
I fair value
has/is actively exceeding the
carrying amount.
 · residual value is
Depreciation not to be charged when the
exceeding the
fair value
·
Depreciation
to be treated as IIS.
expense in the an

IAS firms to assets useful life

16
suggests justify
an

by taking following
accountofthe

·
expected capacity
of the NCA
·
expected wear and tear
· technical obserence
·
other limits on NCA.
the

IAs 16 provides firms with option to choose its

the

depreciation below stated selection:

policy from the
·

straight lin
·
reducing balance
·
reralvation model

*
The method depreciation charge
of should notbe based on

the the Assets useful life.

of
any revenue butour pattern
The
policy
depreciation should bereviewed at the
end
of each
accounting period and if
any more reliability
is

to be ensured, the method be

changed as
can
per
IAS 8.

As eventof asset,
the
the
selling/disposal
on of
any
profit or loss on disposal should be mentioned the
in

I/S
IAS 36:Impairmentof Assets

IAS 36 seeks to ensure that the NCA is valued us

more than the recoverable amount. Itis applied to

all NCA's

As per the prudence concept, a

company
should alway
look assets lower/or
to value appropriately
in

financial
the statement.

IAS 36instructs accountants to calculate an assets

recoverable amount-which is the highice of the
assets "value in Use" or "Netfairvalue"

value in Use:The combined present values of future

cash flows thatthe assetwill
bring in

valu:Fair
NetFair value the
is amount on the
which
asstcan be sold immediately, is its
marketvalue. NotFair value is obtained
after
declecting any selling expenses.

After thatthe standards asks to compare

the
carrying
amount with
the recoverable amount. The lower of the
two values is chosen to be recorded the
in statement.

The answet
by which carrying amountis
the exceeding
the recoverable value is known as impairmentloss.
the
Impairment loss is an
expense and is recorded in the
income statement.
 costPep NBV
E.g !

Machnery 40,000 10,000) 30,000

value Use
in 25,000
=

Value
Fair 23,000
=

Value of Asset

2
25,000

Carrying Amount I Recoverable Amount

25Tone -
25,000

4
↓
30,800
in
Fair Valu Value in Use

New value of Asset 25,000

23,000
-
Highiew
=

Impairment Loss Recoverable Amount

= -

Carrying Amount
25,00)
=
-
30,00 3

:
-
5oD --
Impairmet loss

Note:Ifin case recoverable amount

the is
higher
any
than the
carrying wont be amount, there
-I 11

any impairment gain as we

record the
value of
assetlower of the
the carrying
and recoverable

ams wits because of prodence

t he concept

Factors leading to impairment

· Fall the market value
in

·
Change in
technology/laws
interestrates
⑧
change in
·
physical damage
·
worse performance asset
oft he

IAS 37:Provisions. ContingentLiabilities and

Contingent
Assets

IAS 37 demonstrates the accounting treatmento f

provisions, contingentassets and liabilities.

Provision:Itis a liability
ofuncertain amountor
timing
Liability:Itis a
presentobligation certain amount
with
and
timings
ContingentLiability:Possible obligation from
pastevents
depending on future circumstances
which are not in control of
the
the
company,
This IAS defines 4 events:
Highly likely:more than 90% chance ofoccurance
1)

2) Probable: 50%to 90% chance of occurance

3) Possible:10% to 50% chance of occurrance

4) Remote:Less Han 15% chance of accurance

ContingentAsset contingentLiability
tightly likely Adjusted in Final Statent
Adjusted in Final Statut
Probable Notes to Accounts Statuet
Adjusted in Final
Possible Ignored Notes to Accounts
Remote
Eg nowed Ignored
IAS 38:Intangible Assets

Intangible Assets are assets which are not

physically present
buthave a
monetary value

3 attributes of
Intangible Assets:
· must be identifiable
· mustbe controlled by the
org.
must future benefits
economic
give
·

IAS 38 instructs an
entityto recognise intangible NCA
if:
only
it is
probable thattheassetwill keep economic
giving
·

benefits for the foreseeable future.

· costo fthe asset can be measured reliabily
·
Probable economic benefits should be based on

well calculation assumptions and conditions that

will
be presentover life
the the asset,
of

2
types of
goodwill:1) InherentGoodwill
2) Purchased Gosduilt

Purchased Gordiel:Purchase Price - Fair

Value of
Netassets

acquired
If NCA
the criteriathen itshould
does not meet the
be considered as an expense.
 There are some specific cases intangible Assets
of

and there treatmentis as follows

· Research and Development: Research costs should be

treated as an
expense
·

Developementcost should only

be capitilized when the
technical and commercial
feasibilityhas been established

Computer purchased then

Software:.If itshould be

capitalized.
it
·

generated internally
if then
until
should charged as
expense
technical and feasibility
commercial
has been established.

A
company
i ts
should measure/mantain intangible
assets using the following methods:

· cost models:costless accumulated deprecation

/impairmentloss.

· Pevalvation Melod:Intangible Assets may be

measured by their fair value

to generatethe
butistisunlikely
these assets do notexist.
Intangible Assets can have a definite
or indefinite
life
Indefinity:No deprecation should be charged
Definite:Depreciation should be changed
systematically over the assets useful
life until itreaches its residual
value.