F3 revision notes
REVISION FOR F3 FINANCIAL ACCOUNTING
PILOT PAPER ANALYSIS
分数分析：
1．IAS：（IAS 10，1，8，2， 38，37，2）共8道题
errors 共5道题
2．Correction
of
Accounts 共5道题
3．Control
Convention 共4道题
4．Accounting
5．Fixed Aeests 共3道题
6．Sole Trader 共3道题
7．Partnership 共3道题
8．Cash Flow 共3道题
Company 共3道题
9．Limted
Accural 共3道题
and
10．Prepayment
Document 共2道题
of
11．Souce
Reconciliation 共2道题
12．Bank
Entry 共2道题
13．Double
Records 共2道题
14．Incomplet
15．Petty Cash 共1道题
16．Computer 共1道题
Non-current assets and depreciation: (IAS 16 Property, Plant and Equipment)
Part A: Basic Knowledge
Double Entry:
Fixed Assets Accumulative Depreciation
Depreciation Accounts Disposal
Net Book Value Revaluation Reserve
Depreciation methods and Policy:
1.Straight Line
2.Reducing Methods:
3.Policy is to charge depreciaiton at 20% per year on the straight line basis, with
proportionate deprection in the year of purchase and disposal (or ignore depreciation in the year of disposal or charge the full year depreciation in the year of acquistion)
Non-current assets questions: (Piolot Paper Q12, Q22, Q48,Q50, two question for calculation, one question for double entry)
Q1:
The following balances appeared in the balance sheet of Addax, a limited liability company, at 31 March 2001.
$
Plant and equipment – cost 840,000
Accumulated depreciation 370,000
In the year ended 31 March 2002 the following transactions took place:
(1)Plant which had cost $ 100,000 with a written down value of $ 40,000 was sold
for $ 45,000 on 10 December.
(2)New plant was purchased for $ 180,000 on 1 October 2001.
It is the policy of the company to charge depreciation at 10% per year on the straight line basis with a proportionate charge in the year of acquisition and no charge in the year of sale. None of the plant was over ten years old at 31 March 2001.
Required:
(a)Prepare ledger accounts recording the above transactions. A cash account is Not
required. (5 marks)
(b)List the items which should appear in Addax’s cash flow statement for the year
ended 31 March 2002 based on these transactions and using indirect method, including the headings under which they should appear.
Note: The headings from IAS 7 are to be used. (4 marks) Revaluation:
Q2: The accounting records of Riffon, a limited liability company included the following balances at 30 June 2002:
–
cost 1,600,000
Office
buildings
-accumulated depreciation
-(10 years at 2% per year) 320,000
Plant and machinery – cost (all purchased in 2000 or later) 840,000
-accumulated depreciation
-(straight line basis at 25% per year) 306,000
During the year ended 30 June 2003 the following events occured:
2002:
1 July It was decided to revalue the office building to $ 2,000,000, with no change to the estimate of its remaining useful life.
1 October New plant costing $ 200,000 was purchased.
2003:
1 April Plant which had cost $ 240,000 and with accumulated depreciation at 30 June 200
2 of 180,000 was sold for $ 70,000.
It is the company’s policy to charge a full year’s depreciation on plant in the year of acquisition and none in the year of sale.
Required
Prepare the following ledger accounts to record the above balances and events:
(a)Office building: cost/ valuation
Accumulated deprecation
Revaluation reserve
(b)Plant and machinery: Cost
Accumulated depreciation
Disposal
IAS 16
IAS 16 Property, Plant and Equipment
1. Objective of IAS 16
The objective of IAS 16 is to prescribe the accounting treatment for property, plant, and equipment. The principal issues are the timing of recognition of assets, the determination of their carrying amounts, and the depreciation charges to be recognised in relation to them.
2. Scope
While IAS 16 does not apply to biological assets related to agricultural activity (see IAS 41) or mineral rights and mineral reserves such as oil, natural gas and similar non-regenerative resources, it does apply to property, plant, and equipment used to develop or maintain such assets. [IAS 16.3]
3. Recognition
Items of property, plant, and equipment should be recognised as assets when it is probable that: [IAS 16.7]
?the future economic benefits associated with the asset will flow to the enterprise; and
?the cost of the asset can be measured reliably.
This recognition principle is applied to all property, plant, and equipment costs at the time they are incurred. These costs include costs incurred initially to acquire or construct an item of property, plant and equipment and costs incurred subsequently to add to, replace part of, or service it.
IAS 16 does not prescribe the unit of measure for recognition – what constitutes an item of property, plant, and equipment. [IAS 16.9] Note, however, that if the cost model is used (see below) each part of an item of property, plant, and equipment with a cost that is significant in relation to the total cost of the item must be depreciated separately. [IAS 16.43]
Major inspection or overhaul costs
IAS 16 sets out the treatments:
z if the costs of inspections and overhauls are significant then they can be treated as a separate component of the asset
z they will be depreciated over the period up until the next overhaul date
z overhaul costs which have not been identified as a separate component must still be charged to the income statement as they incurred
4. Initial Measurement
They should be initially recorded at cost. [IAS 16.15] Cost includes all costs necessary to bring the asset to working condition for its intended use. This would include not only its original purchase price but also costs of site preparation, delivery and handling, installation, related professional fees for architects and engineers, and the estimated cost of dismantling and removing the asset and restoring the site (see IAS 37, Provisions, Contingent Liabilities and Contingent Assets). [IAS 16.16-17]
If payment for an item of property, plant, and equipment is deferred, interest at a market rate must be recognised or imputed. [IAS 16.23]
If an asset is acquired in exchange for another asset (whether similar or dissimilar in nature), the cost will be measured at the fair value unless
(a) the exchange transaction lacks commercial substance or
(b) the fair value of neither the asset received nor the asset given up is reliably
measurable. If the acquired item is not measured at fair value, its cost is measured at the carrying amount of the asset given up. [IAS 16.24]
5. Measurement Subsequent to Initial Recognition
IAS 16 permits two accounting models:
Cost Model. The asset is carried at cost less accumulated depreciation and impairment. [IAS 16.30]
Revaluation Model. The asset is carried at a revalued amount, being its fair value at the date of revaluation less subsequent depreciation, provided that fair value can be measured reliably. [IAS 16.31]
5.1 The Revaluation Model
Under the revaluation model, revaluations should be carried out regularly, so that the carrying amount of an asset does not differ materially from its fair value at the balance sheet date. [IAS 16.31] This is an allowed alternative treatment and not a requirement
If an item is revalued, the entire class of assets to which that asset belongs should be revalued. [IAS 16.36]
Revalued assets are depreciated in the same way as under the cost model (see below).
If a revaluation results in an increase in value, it should be credited to equity under the heading "revaluation surplus" unless it represents the reversal of a revaluation decrease of the same asset previously recognised as an expense, in which case it should be recognised as income. [IAS 16.39]
A decrease arising as a result of a revaluation should be recognised as an expense to the extent that it exceeds any amount previously credited to the revaluation surplus relating to the same asset. [IAS 16.40]
The reversal of a revaluation deficit can be dealt with in two ways:
z If it reverses a deficit charged as an expense, then the reversal will be credited to the income statement
z If it reverses a deficit taken to reserves, then the reversal will be credited to reserves
When a revalued asset is disposed of, any revaluation surplus may be transferred directly to retained earnings, or it may be left in equity under the heading revaluation surplus. The transfer to retained earnings should not be made through the income statement (that is, no "recycling" through profit or loss). [IAS 16.41]
Lecture example 1
In 20X8 E Plc decided to revalue all its freehold buildings. The following information is relevant:
(a) Extract from the BS at 31 dec 20X7
Buildings:
Cost 1,500,000
Depreciation 450,000
1,050,000
(b) Depreciation has been provided at 2% pa on a straight line
(c) The building was revalued on 30 June 20X8 to its market value of
$1,380,000. there is no change to its remaining estimated useful life Required
(a) Prepare all relevant extracts for 20X8
(b) Show the movements on the revaluation reserves
Solution
Same questions in the text book. Pg115.
6. Depreciation (Cost and Revaluation Models)
For all depreciable assets:
The depreciable amount (cost less prior depreciation, impairment, and residual value) should be allocated on a systematic basis over the asset's useful life [IAS 16.50].
The residual value and the useful life of an asset should be reviewed at least at each financial year-end and, if expectations differ from previous estimates, any change is accounted for prospectively as a change in estimate under IAS 8. [IAS 16.51]
The depreciation method used should reflect the pattern in which the asset's economic benefits are consumed by the enterprise [IAS 16.60];
The depreciation method should be reviewed at least annually and, if the pattern of consumption of benefits has changed, the depreciation method should be changed prospectively as a change in estimate under IAS 8. [IAS 16.61]
Depreciation should be charged to the income statement, unless it is included in the carrying amount of another asset [IAS 16.48].
Depreciation begins when the asset is available for use and continues until the asset is derecognised, even if it is idle.
7. Derecogniton (Retirements and Disposals)
An asset should be removed from the balance sheet on disposal or when it is withdrawn from use and no future economic benefits are expected from its disposal. The gain or loss on disposal is the difference between the proceeds and the carrying amount and should be recognised in the income statement. [IAS 16.67-71]
8. Disclosure
For each class of property, plant, and equipment, disclose: [IAS 16.73] ?basis for measuring carrying amount;
?depreciation method(s) used;
?useful lives or depreciation rates;
?gross carrying amount and accumulated depreciation and impairment losses;
?reconciliation of the carrying amount at the beginning and the end of the period, showing:
o additions;
o disposals;
o acquisitions through business combinations;
o revaluation increases;
o impairment losses;
o reversals of impairment losses;
o depreciation;
o net foreign exchange differences on translation;
o other movements.
9. Criticisms of current valuation rules
The current mix of historic cost and FV in the BS is known as modified historic cost. It lacks logic and consistency
z an enterprise may include some assets at historic cost and others at FV even the FV could be up to five years out of date
z capital gains can be recognized on disposal or when an asset is revalued.
Gains on disposal are recorded in the income statement, but gains on revaluation are recorded in RR
z all the assets of a new subsidiary will be at FV, whereas the rest of the group will be using modified historic cost
z there is no consistency between enterprises
Correction of Errors (Pilot Paper Q8, 9,21,37,42)
Q3：
The draft financial statements of Choctaw, a limited liability company, for the year ended 31 December 2004 showed a profit of $ 86,400. The trial balance did not balance, and a suspense account with a credit balance of $ 3,310 was included in the balance sheet.
In subsequent checking the following errors were found:
(a)Depreciation of M/V at 25% was calculated for the year ended 31 December
2004 on the reducing balance basis, and should have been calculated on the straight-line basis at 25%. Relevant figures:
Cost of M/V $ 120,000, net book value at 1 January 2004, $ 88,000
(b)rent received from subletting part of the office accommodation $ 1,200 had
been put into the petty cash box. No. receivable balance had been recognized when the rent fell due and no entries had been made in the petty cash book or elsewhere for it. The petty cash float in the trial balance is the amount according to the records, which is $ 1,200 less than the actual balance in the box.
(c)Bad debts totaling $ 8,400 are to be written off.
(d)The opening accrual on the motor repairs account of $ 3,400, representing
repair bills due but not paid at 31 December 2003, had not been brought down at 1 January 2004.
(e)The cash discount totals for December 2004 had not been posted to the
discount accounts in the nominal ledger.
$
allowed 380
Discount
Discount
received 290
After the necessary entries, the suspense account balanced.
Required
Prepare journal entries, with narratives, to correct the errors found, and prepare a statement showing the necessary adjustments to the profit. (10 marks)
3: Accounting Conventions and policies (Pilot paper Q3,4,43,33)
The going concern concept
The prudence concept
The accrual or matching concept
The consistency concept
Substance over form
The entity concept
The money measurement concept
The materiality concept
Fair presentation (true and fair view)
Realization
The historical cost convention
Objectivity or neutrality
The dual concept
Question 5:
Explain Four Ways the use of historical cost accounting may cause users of financial statements to be misled when prices are rising.
Question 6:
State four accounting concepts, and explain how each one contributes to fair presentation in the financial statements.
Question 7:
The IASB’s framework for the preparation and presentation of financial statements, and IAS 1 Presentation of financial statements, together present concepts important in the preparation of financial statements, including materiality, prudence and comparability among others.
Required:
(a)Explain the meaning of the following terms, giving one example of the application
of each of them:
(1)Materiality
(2)Prudence (6 Marks)
(3)Explain how international accounting standards and the Framework
promote comparability. (4 marks)
Question: 8
1.The historical cost convention looks backwards but the going concern convention
looks forwards.
Required:
(a)to explain clearly what is meant by :
(1)the historical cost convention
(2)the going concern convention.
(b) Does traditional financial accounting, using the historical cost convention, make the going concern convention unnecessary? Explain your answer fully.
(c ) Which do you think a shareholder is likely to find more useful – a report on the past or an estimate of the future? Why?
4.IAS (including IAS 1, 2,7,8,10,16,18, 37,38) (Pilot Paper Q1,14,15,30,31,49,
10,24)
IAS 2 Inventories
1. Objective of IAS 2
The objective of IAS 2 is to prescribe the accounting treatment for inventories. It provides guidance for determining the cost of inventories and for subsequently recognising an expense, including any write-down to net realisable value. It also provides guidance on the cost formulas that are used to assign costs to inventories.
2. Scope
Inventories include assets held for sale in the ordinary course of business (finished goods), assets in the production process for sale in the ordinary course of business (work in process), and materials and supplies that are consumed in production (raw materials). [IAS 2.6]
However, IAS 2 excludes certain inventories from its scope: [IAS 2.2] ?work in process arising under construction contracts (see IAS 11,
Construction Contracts
?financial instruments (see IAS 39, Financial Instruments)
?biological assets related to agricultural activity and agricultural produce at the point of harvest (see IAS 41, Agriculture).
Also, while the following are within the scope of the standard, IAS 2 does not
apply to the measurement of inventories held by: [IAS 2.3]
?producers of agricultural and forest products, agricultural produce after harvest, and minerals and mineral products, to the extent that they are measured at net realisable value (above or below cost) in accordance
with well-established practices in those industries. When such inventories are measured at net realisable value, changes in that value
are recognised in profit or loss in the period of the change.
?commodity brokers and dealers who measure their inventories at fair value less costs to sell. When such inventories are measured at fair value less costs to sell, changes in fair value less costs to sell are recognised in profit or loss in the period of the change.
3. Fundamental Principle of IAS 2
Inventories are required to be stated at the lower of cost and net realisable value (NRV). [IAS 2.9]
4. Measurement of Inventories
Cost should include all: [IAS 2.10]
?costs of purchase (including taxes, transport, and handling) net of trade discounts received
?costs of conversion (including fixed and variable manufacturing overheads) and
?other costs incurred in bringing the inventories to their present location and condition
Inventory cost should not include: [IAS 2.16-2.18]
?abnormal waste
?storage costs
?administrative overheads unrelated to production
?selling costs
?foreign exchange differences arising directly on the recent acquisition of inventories invoiced in a foreign currency
?interest cost when inventories are purchased with deferred settlement terms.
The standard cost and retail methods may be used for the measurement of cost, provided that the results approximate actual cost. [IAS 2.21-22]
For inventory items that are not interchangeable, specific costs are attributed
to the specific individual items of inventory. [IAS 2.23]
For items that are interchangeable, IAS 2 allows the FIFO or weighted average cost formulas. [IAS 2.25] The LIFO formula, which had been allowed prior to the 2003 revision of IAS 2, is no longer allowed.
The same cost formula should be used for all inventories with similar characteristics as to their nature and use to the enterprise. For groups of
inventories that have different characteristics, different cost formulas may be justified. [IAS 2.25]
5. Write-Down to Net Realisable Value
NRV is the estimated selling price in the ordinary course of business, less the estimated cost of completion and the estimated costs necessary to make the sale. [IAS 2.6] Any write-down to NRV should be recognised as an expense in the period in which the write-down occurs. Any reversal should be recognised in the income statement in the period in which the reversal occurs. [IAS 2.34] 6. Expense Recognition
IAS 18, Revenue, addresses revenue recognition for the sale of goods. When inventories are sold and revenue is recognised, the carrying amount of those inventories is recognised as an expense (often called cost-of-goods-sold). Any write-down to NRV and any inventory losses are also recognised as an expense when they occur. [IAS 2.34]
7. Disclosure
Required disclosures: [IAS 2.36]
?accounting policy for inventories.
?carrying amount, generally classified as merchandise, supplies, materials, work in progress, and finished goods. The classifications depend on what is appropriate for the enterprise.
?carrying amount of any inventories carried at fair value less costs to sell.
?amount of any write-down of inventories recognised as an expense in the period.
?amount of any reversal of a writedown to NRV and the circumstances that led to such reversal.
?carrying amount of inventories pledged as security for liabilities.
?cost of inventories recognised as expense (cost of goods sold). IAS 2 acknowledges that some enterprises classify income statement expenses by nature (materials, labour, and so on) rather than by function (cost of goods sold, selling expense, and so on). Accordingly, as an alternative to disclosing cost of goods sold expense, IAS 2 allows
an enterprise to disclose operating costs recognised during the period by nature of the cost (raw materials and consumables, labour costs, other operating costs) and the amount of the net change in inventories
for the period). This is consistent with IAS 1, Presentation of Financial
Statements, which allows presentation of expenses by function or nature.
IAS 38 Intangible Assets
1. Objective
The objective of IAS 38 is to prescribe the accounting treatment for intangible assets that are not dealt with specifically in another IAS. The Standard requires an enterprise to recognise an intangible asset if, and only if, certain criteria are met. The Standard also specifies how to measure the carrying amount of intangible assets and requires certain disclosures regarding intangible assets.
2. Scope
IAS 38 applies to all intangible assets other than: [IAS 38.2-3]
?financial assets
?mineral rights and exploration and development costs incurred by
mining and oil and gas companies
?intangible assets arising from insurance contracts issued by insurance companies
?intangible assets covered by another IAS, such as intangibles held for sale, deferred tax assets, lease assets, assets arising from employee benefits, and goodwill. Goodwill is covered by IFRS 3.
3. Key Definitions
Intangible asset: An identifiable non-monetary asset without physical substance. An asset is a resource that is controlled by the enterprise as a result of past events (for example, purchase or self-creation) and from which future economic benefits (inflows of cash or other assets) are expected. Thus, the three critical attributes of an intangible asset are: [IAS 38.8] ?identifiability
?control (power to obtain benefits from the asset)
?future economic benefits (such as revenues or reduced future costs) Identifiability: An intangible asset is identifiable when it: [IFRS 38.12] ?is separable (capable of being separated and sold, transferred, licensed,
rented, or exchanged, either individually or as part of a package) or ?arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations.
Examples of possible intangible assets include:
?computer software
?patents
?copyrights
?motion picture films
?customer lists
?mortgage servicing rights
?licenses
?import quotas
?franchises
?customer and supplier relationships
?marketing rights
Intangibles can be acquired:
?by separate purchase
?as part of a business combination
?by a government grant
?by exchange of assets
?by self-creation (internal generation)
4. Recognition
Recognition criteria. IAS 38 requires an enterprise to recognise an intangible asset, whether purchased or self-created (at cost) if, and only if: [IAS 38.21] ?it is probable that the future economic benefits that are attributable to the asset will flow to the enterprise; and
?the cost of the asset can be measured reliably.
This requirement applies whether an intangible asset is acquired externally or generated internally. IAS 38 includes additional recognition criteria for internally generated intangible assets (see below).
The probability of future economic benefits must be based on reasonable and supportable assumptions about conditions that will exist over the life of the asset. [IAS 38.22] The probability recognition criterion is always considered to be satisfied for intangible assets that are acquired separately or in a business combination. [IAS 38.33]
If recognition criteria not met. If an intangible item does not meet both the definition of and the criteria for recognition as an intangible asset, IAS 38 requires the expenditure on this item to be recognised as an expense when it is incurred. [IAS 38.68]
Business combinations. There is a rebuttable presumption that the fair value (and therefore the cost) of an intangible asset acquired in a business combination can be measured reliably. [IAS 38.35] An expenditure (included in the cost of acquisition) on an intangible item that does not meet both the definition of and recognition criteria for an intangible asset should form part of the amount attributed to the goodwill recognised at the acquisition date. IAS 38 notes, however, that non-recognition due to measurement reliability should be rare: [IAS 38.38]
The only circumstances in which it might not be possible to
measure reliably the fair value of an intangible asset acquired in
a business combination are when the intangible asset arises
from legal or other contractual rights and either:
?(a) is not separable; or
?(b) is separable, but there is no history or evidence of
exchange transactions for the same or similar assets, and
otherwise estimating fair value would be dependent on
immeasurable variables.
Reinstatement. The Standard also prohibits an enterprise from subsequently reinstating as an intangible asset, at a later date, an expenditure that was originally charged to expense. [IAS 38.71]
5. Initial Recognition: Research and Development Costs
?Charge all research cost to expense. [IAS 38.54]
?Development costs are capitalised only after technical and commercial feasibility of the asset for sale or use have been established. This means that the enterprise must intend and be able to complete the intangible asset and either use it or sell it and be able to demonstrate how the asset will generate future economic benefits. [IAS 38.57]
If an enterprise cannot distinguish the research phase of an internal project to create an intangible asset from the development phase, the enterprise treats the expenditure for that project as if it were incurred in the research phase only.
6. Initial Recognition: In-process Research and Development Acquired in
a Business Combination
A research and development project acquired in a business combination is recognised as an asset at cost, even if a component is research. Subsequent expenditure on that project is accounted for as any other research and development cost (expensed except to the extent that the expenditure satisfies
the criteria in IAS 38 for recognising such expenditure as an intangible asset). [IAS 38.34]
7. Initial Recognition: Internally Generated Brands, Mastheads, Titles, Lists
Brands, mastheads, publishing titles, customer lists and items similar in substance that are internally generated should not be recognised as assets. [IAS 38.63]
8. Initial Recognition: Computer Software
?Purchased: capitalise
?Operating system for hardware: include in hardware cost
?Internally developed (whether for use or sale): charge to expense until technological feasibility, probable future benefits, intent and ability to use or sell the software, resources to complete the software, and ability to measure cost.
?Amortisation: over useful life, based on pattern of benefits (straight-line is the default).
9. Initial Recognition: Certain Other Defined Types of Costs
The following items must be charged to expense when incurred: ?internally generated goodwill [IAS 38.48]
?start-up, pre-opening, and pre-operating costs [IAS 38.69]
?training cost [IAS 38.69]
?advertising cost [IAS 38.69]
?relocation costs [IAS 38.69]
10. Initial Measurement
Intangible assets are initially measured at cost. [IAS 38.24]
Measurement Subsequent to Acquisition: Cost Model and Revaluation Models Allowed
An entity must choose either the cost model or the revaluation model for each class of intangible asset. [IAS 38.72]
Cost model. After initial recognition the benchmark treatment is that intangible assets should be carried at cost less any amortisation and impairment losses. [IAS 38.74]
Revaluation model. Intangible assets may be carried at a revalued amount (based on fair value) less any subsequent amortisation and impairment losses only if fair value can be determined by reference to an active market. [IAS
38.75] Such active markets are expected to be uncommon for intangible assets. [IAS 38.78] Examples where they might exist:
?Milk quotas.
?Stock exchange seats.
?Taxi medallions.
Under the revaluation model, revaluation increases are credited directly to "revaluation surplus" within equity except to the extent that it reverses a revaluation decrease previously recognised in profit and loss. If the revalued intangible has a finite life and is, therefore, being amortised (see below) the revalued amount is amortised. [IAS 38.85]
11. Classification of Intangible Assets Based on Useful Life
Intangible assets are classified as: [IAS 38.88]
?Indefinite life: No foreseeable limit to the period over which the asset is expected to generate net cash inflows for the entity.
?Finite life: A limited period of benefit to the entity.
12. Measurement Subsequent to Acquisition: Intangible Assets with Finite Lives
The cost less residual value of an intangible asset with a finite useful life should be amortised over that life: [IAS 38.97]
?The amortisation method should reflect the pattern of benefits.
?If the pattern cannot be determined reliably, amortise by the straight line method.
?The amortisation charge is recognised in profit or loss unless another IFRS requires that it be included in the cost of another asset.
?The amortisation period should be reviewed at least annually. [IAS
38.104]
The asset should also be assessed for impairment in accordance with IAS 36. [IAS 38.111]
13. Measurement Subsequent to Acquisition: Intangible Assets with Indefinite Lives
An intangible asset with an indefinite useful life should not be amortised. [IAS 38.107]
Its useful life should be reviewed each reporting period to determine whether events and circumstances continue to support an indefinite useful life assessment for that asset. If they do not, the change in the useful life assessment from indefinite to finite should be accounted for as a change in an accounting estimate. [IAS 38.109]
The asset should also be assessed for impairment in accordance with IAS 36. [IAS 38.111]
14. Subsequent Expenditure
Subsequent expenditure on an intangible asset after its purchase or completion should be recognised as an expense when it is incurred, unless it is probable that this expenditure will enable the asset to generate future economic benefits in excess of its originally assessed standard of performance and the expenditure can be measured and attributed to the asset reliably. [IAS 38.60]
15. Disclosure
For each class of intangible asset, disclose: [IAS 38.118 and 38.122] ?useful life or amortisation rate
?amortisation method
?gross carrying amount
?accumulated amortisation and impairment losses
?line items in the income statement in which amortisation is included
?reconciliation of the carrying amount at the beginning and the end of the period showing:
o additions (business combinations separately)
o assets held for sale
o retirements and other disposals
o revaluations
o impairments
o reversals of impairments
o amortisation
o foreign exchange differences
?basis for determining that an intangible has an indefinite life
?description and carrying amount of individually material intangible assets
?certain special disclosures about intangible assets acquired by way of government grants
?information about intangible assets whose title is restricted
?commitments to acquire intangible assets
Additional disclosures are required about:
?intangible assets carried at revalued amounts [IAS 38.124]
?the amount of research and development expenditure recognised as an expense in the current period [IAS 38.126]
IAS 10 Events After the Balance Sheet Date
1. Key Definitions
Event after the balance sheet date: An event, which could be favourable or unfavourable, that occurs between the balance sheet date and the date that the financial statements are authorised for issue. [IAS 10.3]
Adjusting event: An event after the balance sheet date that provides further evidence of conditions that existed at the balance sheet, including an event that indicates that the going concern assumption in relation to the whole or part of the enterprise is not appropriate. [IAS 10.3]
Non-adjusting event: An event after the balance sheet date that is indicative of a condition that arose after the balance sheet date. [IAS 10.3]
2. Accounting
?Adjust financial statements for adjusting events – events after the balance sheet date that provide further evidence of conditions that existed at the balance sheet, including events that indicate that the going concern assumption in relation to the whole or part of the enterprise is not appropriate. [IAS 10.8]
?Do not adjust for non-adjusting events – events or conditions that arose after the balance sheet date. [IAS 10.10]
?If an entity declares dividends after the balance sheet date, the entity shall not recognise those dividends as a liability at the balance sheet date. That is a non-adjusting event. [IAS 10.12]
3. Going Concern Issues Arising After Balance Sheet Date
An entity shall not prepare its financial statements on a going concern basis if management determines after the balance sheet date either that it intends to liquidate the entity or to cease trading, or that it has no realistic alternative but to do so. [IAS 10.14]
4. Disclosure
Non-adjusting events should be disclosed if they are of such importance that non-disclosure would affect the ability of users to make proper evaluations and decisions. The required disclosure is (a) the nature of the event and (b) an estimate of its financial effect or a statement that a reasonable estimate of the effect cannot be made. [IAS 10.21]
A company should update disclosures that relate to conditions that existed at the balance sheet date to reflect any new information that it receives after the balance sheet date about those conditions. [IAS 10.19]
Companies must disclose the date when the financial statements were authorised for issue and who gave that authorisation. If the enterprise's owners or others have the power to amend the financial statements after issuance, the enterprise must disclose that fact. [IAS 10.17]
IAS 37 Provisions, Contingent Liabilities and Contingent Assets
1. Objective
The objective of IAS 37 is to ensure that appropriate recognition criteria and measurement bases are applied to provisions, contingent liabilities and contingent assets and that sufficient information is disclosed in the notes to the financial statements to enable users to understand their nature, timing and amount. The key principle established by the Standard is that a provision should be recognised only when there is a liability i.e. a present obligation resulting from past events. The Standard thus aims to ensure that only genuine obligations are dealt with in the financial statements - planned future expenditure, even where authorised by the board of directors or equivalent governing body, is excluded from recognition.
2. Scope
IAS 37 excludes obligations and contingencies arising from: [IAS 37.1] ?financial instruments carried at fair value (but IAS 37 does apply to
financial instruments carried at amortised cost)
?non-onerous executory contracts
?insurance company policy liabilities (but IAS 37 does apply to non-policy-related liabilities of an insurance company)
?items covered by another IAS. For example, IAS 11, Construction Contracts, applies to obligations arising under such contracts; IAS 12, Income Taxes, applies to obligations for current or deferred income taxes; IAS 17, Leases, applies to lease obligations; and IAS 19, Employee Benefits, applies to pension and other employee benefit obligations.
3. Key Definitions [IAS 37.10]
Provision: A liability of uncertain timing or amount.
Liability:
?Present obligation as a result of past events
?Settlement is expected to result in an outflow of resources (payment)