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83 Cards in this Set
- Front
- Back
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IAS 40 - Investment Property
Investment property - IAS 16 requirements is not considered to be an appropriate accounting treatment. |
Sets out the accounting treatment, and disclosure requirements, for investment property.
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Investment Property
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Property held to earn rent for capital appreciation but not being used in the ordinary course of business
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Owner-Occupied Property
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Property being used in the ordinary course of business
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Investment property can be land and/or building
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- Land being held for long-term capital appreciation
- Land being held for undecided future - A building leased out under operating lease - A vacant building which is being held to be leased out under an operating lease |
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Investment property is to be recognised as an asset when:
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- It is probable that the future economic benefits that are associated with the property will flow to the entity and ;
- The cost of the investment property can be measure reliably |
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IAS 40 required that investment property is to be measured initially at cost including transaction costs - eg Legal fee's
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After acquisition of investment property an entity must choose either the fair value model or the cost model
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Fair Value Model
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Fair value the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm's length transaction. Any gain or loss arising from a change in fair value is recognised in the SCI for the period to which it relates to. NOTE - different from the accounting treatment for PPE where increased in values are credited to a revaluation surplus
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Cost Model
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Measured at cost - accumulated depreciation and impairment losses NOTE - this is the same as accounting for PPE
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Disposals
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De-recognition occurs when the investment property is disposed of, or when it is permanently withdrawn from use and no future economic benefits are expected from its disposal.
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IAS 17 - Leases
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Leasing is the means by which companies obtain the right to use assets. The lessee makes agreed payments for a period of time to a lessor. There may be provision in a lease contract for legal title of the leased asset to pass to the lessee
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IAS 17 sets out the accounting treatment where assets are obtained for use by a business under:
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- A finance lease - usually a longer term lease, under which substantially all the ricks and rewards of ownership are transferred to the lessee
- An operating lease - usually a shorter term lease, where there is no transfer of the risks and rewards of ownder |
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A finance lease is initially recognised on the SFP as both an asset and a liability.
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The amount shown will be the lower of the fair value of the asset and the present value of the minimum lease payments.
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IAS 20 - Accounting for Government Grants and Disclosure of Government Assistance
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From time to time the government may provide grants to help companies buy non-current assets.
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Government Grants
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Assistance by government in the form of transfers of resources to an entity in return for past or future compliance with certain conditions relating to the operating activities of the entity,
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Grants Related to assets
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are government rants whose primary condition is that an entity qualifying for them should purchase, construct or otherwise acquire long-term assets.
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Grants Related to Income
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are government grants other then those related to assets
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Government grants are not to be recognised in the financial statements until it is reasonably certain that:
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- The business receiving that grant will comply with the conditions of the grant; and
- The grant will be received. |
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Grants related to assets
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-The grant is to be recognised as income over the expected useful life of the assets.
- Under no circumstances can the grant be credited to equity. |
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Either treat the amount of the grant as a deferred credit, a portio of which is credited to each years SCI ( with the remaining amount of the deferred credit shown as a liability in the SFP)
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Or reduce the carrying amount of the non-current asset acquired by the amount of the grant (this means that the annual depreciation of the non-current asset will be reduced and, in this way, the grant will be recognised as income)
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Grants related to income
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- Either shown as a credit in the SCI (shown separately, or under the heading for other income)
- Or is deducted from the expense to which it related in the SCI |
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IAS 2 - Inventories
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Applies to all types of inventories, expect or the valuation of construction contracts and certain other specialist assets.
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Inventories should be valued at the lower of cost and net realisable value
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Cost - including additional costs t bring the product or service to its present location and condition
Net Realisable Value - the estimated selling price less the estimated costs of completion and the estimated costs necessary to make the sale |
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IAS 2 - 2 different methods to be used to calculate the cost price of inventories
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LIFO - Last in first out can not be used under IAS 2
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FIFO - First in first out
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this method assumes that the first items acquired are the first to be used, so tht the valuation of inventory on hand at any time consists of the most recently acquired items
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AVCO - Average cost or weighted average cost method
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The average cost of items held at the beginning of the period is calculated; as new inventory is acquired a new average cost is calculated
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IAS 12 - INCOME TAXES
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Sets out the account treatment for taxes on income.
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Current Tax
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is the amount of income taxes payable in respect of the taxable profit for the year.
Note that taxable profit may well differ from the accounting profit shown by the SCI. |
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Tax expense for the year is recognised on the face of SCI. The amount of unpaid current tax is recognised as a liability on the SFP
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Current tax is to be measured in the financial statement using the tax rates applicable at the date of the SFP
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Deferred Tax
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are the amounts of income taxes payable in future periods in respect of taxable temporary difference.
The temporary differences arse when the tax due for a particular accounting period is deferred because of the impact of capital allowances and other factors. |
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IAS 37 - PROVISIONS, CONTINGENT LIABILTIES AND CONTINGENT ASSETS
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These 3 represent uncertainties that may have affect on future financial statements
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IAS 37 ensures that appropriate recognition criteria and measurements bases are applied to provisions, contingent liabilities and contingent assets
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Sufficient information must be enclosed in the notes to the financial statements to enables users to understand their nature, timing and amount.
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PROVISIONS
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Is a liability of uncertain timing or amount.
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OBLIGATING EVENT
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is an event that creates a legal or constructive obligation resulting in an entity having no realistic alternative to settling the obligation.
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LEGAL OBLIGATION
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derives from a contract, legislation o other operation of law.
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CONSTUCTIVE OBLIGATION
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derives from an entity's actions such as an established pattern of past practise, or where the entity has created a valid expectation.
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A provision is to be recognised as a liability in the financial statements when:
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- An entity has a present obligation as a result of a past event
- It is probable that an outflow of economic benefits will be required to settle the obligation - A reliable estimate can be made of the amount of the obligation. Unless all of these conditions are met, no provision should be recognised. |
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Probable - is more then likely to occur than not - more than 50%.
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Provisions are contingent, but the word 'contingent' is used for assets and liabilities that are not recognised in the financial statements.
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CONTINGENT LIABILITES
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EITHER a possible obligation arising from past events whose existence will be confirmed on by the occurrence or non-occurrence of one or more uncertain future events not wholly within the entity's control
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OR - a present obligation that arises from past event but is not recognised because:
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A) Either it is not probable that an outflow of economic benefits will be required to settle the obligation
B) Or the obligation cannot be measured with sufficient reliability. |
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Contingent liability is a possible obligation - Less then 50% likelihood of its occurrence.
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A contingent liability is not recognised in the financial statements but is requires in the notes. Where a contingent liability is considered to be remote (contrast with possible), then no disclosure is required in the notes to the statements
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CONTINGENT ASSETS
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is a possible asset arising from past events whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the entity's control.
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Contingent asset should be recognised in its financial statements. However when the realisation of the profit is virtually certain then the asset is no longer contingent and it is recognised appropriate.
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Contingent asset is disclosed in the notes only where an inflow of economic benefits is probable. Where the asset is considered t be either possible or remote, then no disclosure is required in the notes to the statements.
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IAS 10 - EVENT AFTER THE REPORTING PERIOD
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are favourable or unfavourable events that take place after the financial statement have been prepared at the year end and before the time when the statements are authorised for issue to interested parties.
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Any such changes can only be made in the period
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- After the end of the financial year
- Before the financial statements are authorised for issue. |
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ADJUSTING EVENTS
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provide evidence of conditions that existed at the end of the reporting period. If material changes should be made to the amounts shown in the financial statements
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Examples of adjusting events include:
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- The settlement after the end of the reporting period of a court case which confirms that a present obligation existed.
-Non-current assets, the determination after the reporting period of the purchase price, sale price of the asset bought or sold - Assets, where a valuation shows impairment - Inventories, where net realisable value falls below cost price - Trade receivables, where a customer has become insolvent - The determination after the reporting period of the mount of profit-sharing or bonus payments -The discovery of fraud or errors that show that the financial statements are incorrect |
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NON-ADJUSTING EVENTS
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are indicative or conditions that arose after the end of the reporting period. No adjustment is made to the financial statements; instead, if material they are disclosed by way of notes which explain the nature of the event.
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Examples of non-adjusting events include:
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- Business combinations
- discontinuing a significant part of the business - Major purchase of assets - Losses of production capacity - Announcing or commencing a major restructure - Major share transactions - Large changes in asset price or foreign exchange rates - Change in tax rates - Entering into significant commitments or contingent liabilities - Commencing litigation based on events arising after the reporting period. |
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DIVIDENDS
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declared or proposed on ordinary shares after the reporting period are not to be recognised as a liability on the SFP, instead they are non-adjusting events disclosed in the notes
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GOING CONCERN
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an entity cannot prepare its financial statements on a going concern basis if: after the reporting period, management determines either that it intends to liquidate the business or to cease trading, or that there is no realistic alternative to these courses of action.
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DATE OR AUTHORISATIN FOR ISSUE
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Entities must disclose the date when the financial statements were authorised for issues and who gave that authorisation.
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IAS 18 REVENUE
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Revenue is the gross inflow of economic benefits arising from the ordinary activities of an entity.
EG- sales of goods, rendering of services, interest, royalties and dividends. |
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Revenue is to be measured at the fair value of the consideration received or receivable.
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Fair value - is the amount for which an asset could be exchanged or a liability settled, between knowledgeable, willing parties in an arms length transaction
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SALE OF GOODS - Revenue from the sale of goods is to be recognised when all of the following criteria have been met:
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- The seller of the goods has transferred to the buyer the significant risk and rewards of ownership
- The seller retains no continuing managerial involvement in the goods and no effective control over the goods. - The amount of revenue can be measured reliably - It is probable that the economic benefits will flow to the seller - The costs incurred, or to be incurred, in respect of the transaction can be measure reliably. |
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RENDERING SERVICES - sale of service, revenue is to be recognised by reference to the stage of completion of the transaction at the date of the SFP. All of the following criteria must be met:
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- The amount of revenue can be measured reliably
- It is probable that the economic benefits will flow to the seller of the service - At there date of the SFP, the stage of completion can be measured reliably - The costs incurred and the cost to complete in respect of the transaction can be measured reliably. |
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INTEREST, ROLALITIES & DIVIDENDS - Revenue for these items, provided that it is probable that the economic benefits will flow to the entity and that the amount of revenue an be measured reliably, is to be recognised in the following way:
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- For interest - using a time basis to calculate the interest
- For royalties - on an accrual basis in accordance with the royalties agreements - For dividends - when the shareholder's right to receive payments is established. |
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IAS 23 -BORROWING COSTS
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are interest and other costs that an entity incurs in connection with the borrowing funds.
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Qualifying Asset
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is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale.
Eg- may include, depanding on circumstances, manufacturing plants, power generation facilities, inventories, investment properties and intangible asset. |
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IAS 33 - EARNINGS PER SHARE
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is an accounting ratip that is used by investors and others to measure the performance of a company.
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EPS is prensented on the face of the SCI of all public limited companies whose shares are pubicly traded.
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EPS related to ordinary shares - these are equity instruments that are subordinate to all other classes of equity instruments. This means holders of ordinart shares will be the last to recieve their money in the event of the company winding up.
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Profit for the year
/ Number of issued ordinary shares |
Note that the profit (or loss) used in the calculation is the amount that is arributable to equity holders, ie after allowing for:
- Finance Costs - Tax - Non-Controlling interests - Dividends on perference shares |
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2 EPS calculations are required to be given:
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- Using the profit or loss attributable to equity holders
- Using profit or loss from continuing operations. Both are presented on the face of the SCI. |
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IAS 20 - ACCOUNTING FOR GOVERNMENT GRANTS AND DISCLOSURE OF GOVERNEMENT ASSISTANCE.
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The standard affects both the statement of financial position and that statement of comprehensive income.
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For grants related to assets, the statement of comprehensive income is, depending on the accounting treatment adopted:
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- Either credited with deferred income, being the amount of the grant recognised as income over the expected useful life of the asset acquired, and debited with annual depreciation expense
- Or debited with a reduced annual depreciation expense where the carrying amount of the asset acquired has been reduced by the amount of the grant received. |
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For grants related to income, the grant is:
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- Either shown as a credit in the statement of comprehensive income
- Or is deducted from the expense to which it related in the statement of comprehensive income |
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PROFITABILITY
Gross Profit Percentage |
Gross Profit / Revenue x 100%
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PROFITABILITY
Expense/Revenue Percentage |
Specified Expense / Revenue x 100%
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PROFITABILITY
Operating Profit Percentage |
Profit From Operations / Revenue x 100%
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PROFITABILITY
Return on Capital Employed |
Profit from Operations / (Total Equity * Non-Current Liabilities) x 100%
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PROFITABILITY
Return on Total Assets |
Profit from Operations / Total Assets x 100%
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PROFITABILITY
Return on Equity |
Profit for the Year / Total equity x 100%
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PROFITABILITY
Earning Per Share |
Profit for the Year / Number of Issed Ordinary Shares
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LIQUIDITY
Current Ratio (or Working Capital Ratio) |
Current Asset / Current Liabilities = x:1
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LIQUIDITY
Acid Test Ratio (Or Quick Ratio/Liquid Capital Ratio) |
Current Assets - Inventories / Current Liabilities = x:1
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USE OF RESOURCES
Inventory Holding Period |
Inventoies / Cost of Sales x 365 Days =
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USE OF RESOURCES
Inventory Turnover (Days) |
Cost of Sales / Inventories = x times
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USE OF RESOURCES
Trade Receivables Collection Period (Days) |
Trade Receivables / Revenue x 365 Days
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USE OF RESOURCES
Trade Payables payment period (Days) |
Trade Payables / Cost of Sales x 365 Days
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USE OF RESOURCES
Working Capital Cycle |
Inventory days + Receivables days - Payable Days
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USE OF RESOURCES
Asset Turnover (Total Assets) Ratio |
Revenue / Total Assets = x Times
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USE OF RESOURCES
Asset Turnover (Net Assets) Ratio |
Revenue / (Total Assets - Current Liabilities) = X Times
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FINANCIAL POSITION
Interest Cover |
Profit from Operations / Finance Costs = x Times
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FINANCIAL POSITION
Gearing |
Non-Current Liabilities / (Total Equity + Non-Current Liabilities)
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