Accounting Elements Flashcards
Inventories
1) Def : Inventories are current assets held for sale/in the process of production/raw materials (IAS 2.6)
2) Initial measurement : - Cost of purchase = purchase price + non-refundable tax (no VAT) - trade discounts
- Cost of constructions = cost of conversion + cost of materials + fixed costs (e.g. salaries)
3) Cost of sales : - FIFO (oldest purchases sold first)
- Weighted average : the cost of each item is the weighted average of all items sold during period
4) Subsequent measurement : the lower between
- Cost (of initial measurement)
- Net Realisable Value = market value - (cost of completion + selling)
Provisions
1) Def : Provisions are liabilities with uncertain timing/amount of future outflow (IAS 37)
2) Recognition : must be a present obligation arising from a past event + outflow must be probable (>50% -> otherwise contingent liability)
3) Initial measurement : at best estimate
- Most likely amount method (one off events)
- Probability weighted expected value method : when a range of possible outcomes exist
Sustainability Reporting Landscape
1) Global goals & principles : 17 SDGs from UN
2) Reporting standards & frameworks : GRI, EFRAG, ISSB
3) ESG rating agencies : measure a company’s sustainability performance
4) Legal requirements : e.g. EU regulations, such as the EU Sustainable Finance Framework
Non Financial Reporting Standards
1) GRI : Global Reporting Initiative, the de facto world standard setter
- Three different types of standards : Universal (3 standards), Sector, and Topic Standards
2) ESRS : European Sustainability Reporting Standards (developed by CSRD and EFRAG), built on a 3 layer structure (rules of 3)
- Sector agnostic - Sector specific - Entity specific
3) ISSB : International Sustainability Standard Board, responsible for IFRS sustainability standards
- So far, only 2 standards : IFRS S1 (general disclosure requirements about governance & strategy) + IFRS S2 (climate related requirements)
Intangible Assets
1) Def : An intangible asset is a non-monetary asset without physical substance (IAS 38)
2) We have two types : - Acquired assets
- Self-generated assets : are only recognised as assets if the PIRATE criteria are fulfilled : Probable economic benefits, Intention to complete project, Resources available, Ability to use or sell, Technologically feasibility, Expenses can be measured -> otherwise is an Expense
- Customer lists, brands, publishing titles CANNOT be capitalised if self-generated
3) Initial measurement : measured at cost
4) Subsequent : - Cost model = cost - (amortisation + impairment costs)
- Revaluation model = fair value - (amortisation + impairment)
-> For revaluation, active market needed
-> If IA has indefinite useful life, we need an impairment-only approach (annual tests)
Tangible Assets
1) Investment Property (IAS 40) : held to earn rentals/capital appreciation -> NOT use for production/administration or to be sold
- Initial measurement : cost of purchase OR cost of conversion (if the entity constructs the item)
2) PPE (IAS 16) : held for production of goods and services/for administrative purposes, and expected to be used for more than one period
-> Both can be subsequently measured at cost model or fair value model
Depreciation under IFRS
- Def : Depreciation represents the decrease in value of an asset based on time/use. Under IFRS, there are 3 methods to calculate depreciation :
1) Straight-line : depreciable amount spread equally over asset’s useful life (linear graph)
2) Diminishing balance : a constant depreciation rate is charged on the carrying amount over the useful life (depreciation decreases exponentially)
3) Units of production : the depreciable amount depends on the expected number of units to be produced by the asset (more units = higher depreciation)
Impairment (test & loss)
1) Def : an impairment test is a review of the actual value of assets (only done when there’s an indication of an impairment)
2) Indications : - External : fall in the market value, material adverse change in regulations
- Internal : material change in operations, loss of key personnel, major reorganisations
3) During the test, we compare the carrying amount to the recoverable amount (max value) :
- The revised carrying amount : the lower of the 2
- Impairment loss when : carrying > recoverable
4) Recoverable amount : higher value between :
- Fair value = market price - cost of disposal
- Value in use : value received from continuing using the asset (estimate of cash-inflows)
Technology in Accounting
1) Entreprise Resource Planning : an IT based system controlling available resources. Goals :
- Faster adaptability to changes
- Improvement of organizational processes
- Optimization of business processes
2) Robotic Process Automation : technology that allows robot to manipulate data like humans. Benefits are : short payback period, scalability, cost reduction, speed increase, 24/7 operation
3) Process Mining : technique wherein existing data is used to visualise business processes
