SU 1 Conceptual Framework - GG Ch1,2,3 - Slides

STUDY UNIT
Overview of the standard setting process of the IASB,

Conceptual framework and IAS 1
Learning
Outcomes
Overview
• Refer to Chapter 1 of GG
• This chapter is self study
Conceptual framework
• Framework already done
in First year
• Revise where needed
• Refer to GG ch 2
• Financial
3
• Objective
1 statements
• Qualitative
2 Characteristics
4 • Elements
• Recognition • Presentation
and
7
and
5 derecognition disclosure
• Capital
6 • Measurement
8
Objective
General purpose financial statements that are useful
Existing/potential shareholders, lenders, other creditors
Financial position, performance, cash flows
Accrual accounting Depicts transaction when occurs,

not when cash flows.
Qualitative characteristics
Fundamental characteristics
Enhancing characteristics
Fundamental qualitative characteristics

Relevance
Faithful representation
Enhancing qualitative characteristics
Enhancing qualitative characteristics
REVISE ON YOUR OWN PLEASE

Financial statements
SFP, SPLOCI, Notes, SCF, SCE
A & L AT a date, I & E for a period comparative year
Going concern
Consolidated fin statements

Elements
Assets, liabilities, equity
Income and expenses

Assets
Present economic resource controlled

by the entity as a result of past events.
Economic resource is a right that has

the potential to produce economic
benefits
• Right to receive cash

• Right to receive goods/services
• Rights over physical objects
• Rights over intellectual property
RIGHT
• Some goods or services are received and

immediately consumed.
• Right to obtain economic benefits exists only
momentarily until consumed!
RIGHT
• Does not need to be certain or likely
• Right must already exist AND in at
least one circumstance it will give
economic benefits beyond those
available to all other parties.
• Even if probability is low
POTENTIAL TO PRODUCE ECONOMIC BENEFITS

• Present ability to direct the use AND
• Obtain economic benefits from it OR
• Prevents others from directing use
and obtaining benefits from it.
CONTROL
PSP
Liabilities
Present obligation to transfer economic resource as

a result of past events.
• Duty or responsibility that the
entity has no practical ability
to avoid.
• Always to another party (don’t
need to identify)
Legal and constructive
OBLIGATION
• Potential to require transfer
• Does not need to be certain or
likely
• Even if probability is low
Transfer economic resource

Entity ALREADY obtained
economic benefit or taken
action
AND
As consequence entity
will/may have to transfer
economic resources that it
would not otherwise have
had to transfer.
Present obligation past event

• Bestaan SLEGS as:
Entiteit REEDS ekonomiese
NB!!
voordeel bekom of aksie
Can exist even if
geneem
EN
transfer cannot be
Gevolglik sal/mag die
enforced by law until
entiteit ekonomiese
hulpbronne moet oordra
date in future.
wat nie andersins nodig sou
wees nie.
BigM
Equity
Residual interest in assets after deducting liabilities

Income
Increase in assets or decrease in liabilities that

result in increases in equity other than those
relating to contributions from equity holders.
Expenses
Decrease in assets or increase in liabilities that

result in decreases in equity other than those
relating to distributions to equity holders.
Recognition and derecognition
Can only recognise if provides users with useful

information
Relevant
e.g. Billboards
Relevant (Def vs reg)
Not if there is existence uncertainty
Probability of inflow or outflow of economic

benefits are low. (outcome) (Amount and
timing)
Measurement uncertainty
High level of measurement

uncertainty does not necessarily
prevent estimate from being useful
Derecognition
When loses control of asset
No longer has present obligation for liability

Measurement
Historical cost
Current value
Fair value
Value in use
Current cost
Historical cost
ASSET Price of transaction plus transaction costs
LIABILITY Value of consideration received minus transaction

costs
If not available or relevant use

current value as starting point.
Historical cost updated for:
Depicting consumption (depreciation)
ASSET
Payment received for extinguishing (sale)
Impairment
Financing component
Historical cost updated for:
Fullfilment (payments)
LIABILITY
Increases in obligation
Interest
WHY Historical cost ?

WHY Historical cost?
Price of transaction
Amount at least expected to be recovered
Value to fullfil obligation

Current value
Ignores price of transaction
Reflects conditions at measurement date
Bases include
- Fair value
- Value in use /Fulfilment value
- Current cost
Fair value
Price that would be received to sell an asset or paid

to transfer a liability in an orderly transaction
between market participants at measurement date
Fair value
Observing prices in active market
Indirectly by estimating future cash flows, time

value of money etc
Does not reflect transaction costs

WHY Fair value?

WHY Fair value??
Shows market participants current expectations

Value in use / Fulfilment value
Present value of cash flows expected to be

derived from use of asset and from disposal
Present value of cash/other resources the entity

expects to be obliged to transfer to fulfil.
Value in use / Fulfilment value
Does not include transaction costs
Entity-specific assumption
WHY Value in use?

WHY Value in use?
Shows present value of future cash flows

Current cost
Cost of equivalent asset at measurement date (what

would have paid now plus transaction costs
Presentation and disclosure
Effective communication
Entity-specific info
Duplication
Classification
Sorting of elements (PPE, Inventory))
Offsetting – not appropriate (assets and liabilities))
Equity with different characteristics - separate

Aggregation
Summarises large volume of info
Offsetting – not appropriate (assets and liabilities)
Equity with different characteristics - separate

Capital maintenance
IGNORE
IAS 1
• Complete framework has
already been done in ACCC121
• Revise where necessary
• Refer to GG ch 3
• What does it look like
again?
• NOTES!!!
• NB!!! Profit before tax
note
Homework
• See work program

SU 1 Conceptual Framework - GG Ch1,2,3 - Slides

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STUDY UNIT

Overview of the standard setting process of the IASB,

Existing/potential shareholders, lenders, other creditors

Financial position, performance, cash flows

Accrual accounting Depicts transaction when occurs,

Fundamental qualitative characteristics

REVISE ON YOUR OWN PLEASE

A & L AT a date, I & E for a period comparative year

Consolidated fin statements

Assets, liabilities, equity

Income and expenses

Present economic resource controlled

Economic resource is a right that has

• Right to receive cash

• Some goods or services are received and

POTENTIAL TO PRODUCE ECONOMIC BENEFITS

Present obligation to transfer economic resource as

Legal and constructive

Transfer economic resource

Present obligation past event

Residual interest in assets after deducting liabilities

Increase in assets or decrease in liabilities that

Decrease in assets or increase in liabilities that

Can only recognise if provides users with useful

Not if there is existence uncertainty

Probability of inflow or outflow of economic

High level of measurement

When loses control of asset

No longer has present obligation for liability

ASSET Price of transaction plus transaction costs

LIABILITY Value of consideration received minus transaction

If not available or relevant use

Depicting consumption (depreciation)

Historical cost updated for:

WHY Historical cost ?

WHY Historical cost?

Amount at least expected to be recovered

Value to fullfil obligation

Ignores price of transaction

Reflects conditions at measurement date

Price that would be received to sell an asset or paid

Observing prices in active market

Indirectly by estimating future cash flows, time

Does not reflect transaction costs

WHY Fair value?

WHY Fair value??

Shows market participants current expectations

Present value of cash flows expected to be

Present value of cash/other resources the entity

Value in use / Fulfilment value

Does not include transaction costs

WHY Value in use?

WHY Value in use?

Shows present value of future cash flows

Cost of equivalent asset at measurement date (what

Sorting of elements (PPE, Inventory))

Offsetting – not appropriate (assets and liabilities))

Equity with different characteristics - separate

Summarises large volume of info

Offsetting – not appropriate (assets and liabilities)

Equity with different characteristics - separate

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