Single Entity Flashcards
Accounting for payment of ordinary dividend
DR Retained Earnings
CR Cash
Accounting for payment or declaration in accounting period of dividend on irredeemable preference shares
DR Retained Earnings
CR Cash
Accounting for payment or declaration in accounting period of dividend on redeemable preference shares
DR Finance Costs
CR Cash/ Other Payables
treated as a loan
The effect of changes in foreign exchange rates - initial recognition
A transaction should be recorded on the initial recognition by translating at the spot rate at the transaction date.
The effect of changes in foreign exchange rates - at subsequent year end (monetary items)
Must be retranslated at the closing rate, giving rise to transaction exchanges gain and losses which are recognised in P&L.
(receivables, payables, loans and cash)
The effect of changes in foreign exchange rates - at subsequent year end (non monetary items)
Held at historical cost (eg inventories) are not retranslated.
The effect of changes in foreign exchange rates - at subsequent year end (non monetary items held at fair value)
Translated at the rates when the values were measured, the translation exchange gains and losses would be recognised in other comprehensive income. (revalued PPE)
The effect of changes in foreign exchange rates - At point of receipt/payment
Conversion exchange gains and losses will be created at the point of receipt or payment of receivables and payables. These will again be recognised in P&L.
Accounting for revaluation on PPE - Increases in value basic rule
Revaluation is recognised in other comprehensive income and form part of equity under the heading of revaluation surplus.
Accounting for revaluation on PPE - Journal entries
DR PPE Cost/valuation - Cost up to revalued amount
DR PPE acc dep’n - Remove all depreciation
CR Revaluation Surplus
Accounting for revaluation on PPE - Depreciation of revalued assets
Depreciation charge is based on the revalued amount less residual value.
This will produce higher depreciation charge - under IAS 16 excess depreciation is transferred from revaluation to retained earnings.
DR Revaluation Reserves
CR Retained Earnings
Revaluation Proforma
Year 1 2 3
Opening Cost
Revaluation
Revalued
Remaining useful life
Dep’n Charge
Carrying amount
Transfer excess dep’n
IAS 36 - Impairment of asset
Recoverable amount of an asset is the higher of:
Value in use
Fair value less costs of disposal
IAS 36 - Impairment of asset - Value in use
Being the present value of the future cash flows expected to be dereived from using the asset. e.g if kept using
IAS 36 - Impairment of asset - Fair value less costs of disposal
Fair value being the price that would be received to sell an asset in an orderly transaction less costs to dispose.
IFRS 5 - Non-current assets held for sale - Criteria
Certain criteria must be met
(a) It must be available for immediate sale in its current condition
(b) The sale should be highly probable
(c) The sale should be expected to take place within a year of the reclassification
IFRS 5 - Non-current assets held for sale
(1) Shown separately under current assets in the statement of financial position as ‘non-current assets held for sale’
(2) Valued at the lower of its carrying amount and fair value less costs of disposal
(3) No longer depreciated
IFRS 5 - Non-current assets held for sale -Disposal of PPE measured under revaluation
- The asset must be revalued at fair value before classification
- Once adjusted use normal held for sale basis so fair value less costs of disposal. The effect is that the costs of disposal are immediately recognised in P&L as an impairment loss.
Government Grants - Initial recognition
Government grants are recognised when there is reasonable assurance that:
- The entity will comply with the conditions of the grant
- The entity will receive the grant
Government Grants - Subsequent treatment
Income Approach - the grant is recognised in the P&L
Grants relating to assets - where grants are received for depreciating assets, the grant will be released to P&L over the useful life of the asset
Grants relating to income - will be released to the P&L over the periods in which the costs of meeting any grant conditions are incurred
Government Grants - Presentation (Capital)
(a) Deferred Income (Separate asset DR and deferred income CR)
(b) a deduction in the carrying amount of the asset
Government Grants - Presentation (Revenue)
(a) a credit in P&L (other income)
(b) a deduction from the related expense (netting off)
IAS 23 Borrowing Costs - Relating to capital expenditure
If it is directly attributable to the acq’n, construction or production it forms part of the costs of that asset.
Capitalisation of borrowing costs:
- Start of construction and time during
- Should cease when substantially all the activities necessary to get the asset ready for its intended use
- Should cease if construction ceases for any reason
IAS 38 Intangible assets - R&D (Research)
All expenditure of research should be recognised as an expense when incurred.
Examples:
- Activities aimed at obtaining new knowledge
- The search for alternative materials
