Ifrs 1 First Time Adoption Of Ifrs

Question 1

First time adopter

Answer 1

An entity that for the first time makes an explicit and unreserved statement that its annual financial statements comply with IFRS standards

Question 2

5 issues that need to be addressed when adopting IFRS standards

Answer 2

1, date of transition to IFRS standards
2, which IFRS standards should be adopted
3, how gains or losses arising on adopting IFRS standards should be accounted for
4, explanations and disclosures to be made in the year of transition
5, what exemptions are available

Question 3

Date of transition

Answer 3

Beginning of the earliest period for which an entity presents full comparative information under IFRS standards in its first financial statements produced using IFRS standards

Question 4

Which IFRS standards should be adopted

Answer 4

1. Use the same accounting policies for all periods presented
2. May apply a new standards not yet mandatory if the standard allows early application
3. Opening IFRS SOFP must
   - recognise all assets and liabilities required by IFRS standards
   - not recognise assets and liabilities not permitted by IFRS standards
   - measure all assets and liabilities in accordance with IFRS standards
   - reclassify all assets liabilities and equity components in accordance with IFRS standards
4. Estimate should be consistent with with estimates made earlier unless wrong

Question 5

Gains and losses arising on adoption of new standard

Answer 5

Goes directly to retained earning. Never to p/l

Question 6

Explain and disclose

Answer 6

1. explain how transition to IFRS standard affects reported financial performance , financial position and cash flows.
2. Correct errors identified from previous years and disclose separately.
3. When preparing statements in accordance with IFRS standards for the first time, the fair value of property , plant and equipment, intangible assets and investment properties can be used as deemed cost.

Question 7

Exemptions

Answer 7

Exemptions are given in situations where cost of compliance would outweigh benefits to the user

E.g.

1. Previous business combinations do not have to be restated
2. An entity can choose to deem past translation gains and losses on an overseas subsidiary to be nil
3. An entity need not restate the borrowing cost component that was capitalized under previous GAAP at the date of transition

Question 8

Before adopting new accounting standards entity should consider

Answer 8

1. Transitional guidance
2. Bonus and profit related pay - since it will affect profit
3. IT systems - capability
4. Covenant on loans - loan conditions will have to be renegotiated since ratios will be effected
5. EPS -
6. Perception- will be taken favorably
7. Knowledge- training existing staff or recruiting new staff

Question 9

Question ( Kaplan 21 (b)

Practical considerations when implementing IFRS standard

Answer 9

Make an IMPACT ASSESSMENT and PROJECT PLAN

Cost on training staff or on updating and replacing systems. New process new controls , documentation

Communicate impact to investors and other stakeholders especially if it will reduce profits or increase liabilities.

New reporting requirements may affect ratios and therefore banking agreements that state specific ratios or debt levels may be breached

Dividends may be be affected

Reassess bonus schemes ( new calculations any affect performance related pay)

Competitive advantage could be lost

Question 10

Financial statements implications when implementing new IFRS ( Kaplan 21

Answer 10

F/s need to reflect its recognition measurement and disclosure.

Ias 8 - changes in accounting policies are applied retrospectively unless there is a specific transitional provision in the new IFRS

Ias 1 - entity needs to create a 3rd SOFP if if it retrospectively applies a accounting policy, restated items , reclassified items, and those adjustments have material effects on info in SOFP at the beginning of the comparative period

Ias 33 - eps - requires basic and diluted eps to be adjusted in case of changes in accounting policyand disclosure of amount of adjustment

Change in accounting standard will change asset liability and affect deferred tax

Question 11

Principles to be applied when first time adoption ( Kaplan 21

Answer 11

Must produce an opening SOFP in accordance with IFRS standardsas at the date of transition

At date of transition entity must

1. Recognize assets and liabilities requi by IFRS
2. Derecognise assets and liabilities not permissible
3. Reclassify asset liability equity as per IFRS
4. Measure assets and liabilities in accordance with IFRS