STANDARDS Flashcards
What does the IAS16 state and deal with?
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- Tangible non current assets; PPE
- requires that on initial recognition PPE shall be measured at cost (purchase price incl. import duties + non refundable purchase taxes - trade discounts + any directly attr. costs bringing into working condition)
- states that PPE are tangible assets that are held (purchased/constructed) by entity for use in production, rental, admin purposes AND expected to be used for +1 period
What does IAS23 state and deal with?
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- tangible non current assets; Borrowing costs
- borrowing costs to be capitalized when expenditures incurr, we prepare the asset, borrowing costs incurr (stop when asset ready to use)
- if directly attributable to the acquisition, construction or building, of qualifying asset, they are to be capitalised (QA: taking time to prepare for sale or use)
- subsequent expenditure (eg maintenance) is to be EXPENSED (exception: cap if excess future economic benefits will flow; extended useful life; upgrade; adopting new processes) -> incentive not to have burden on profit
What does IAS 12 state and deal with?
- taxation in company accounts
- takes a balance sheet driven approach to deferred tax
- Deferred tax liabilities and assets are measured at the tax rates that are expected to apply to the peiord when the asset is realised or the liability is settled
- deferred tax must be recognised whenever temporary differences arise (TD: difference between carrying amount of an asset/liability in SoFP & its tax base)
Why has IAS17 been replaced by IFRS16?
- IAS17: company had option to off-balance sheet financing, where they could decide not to show the liability in the SoFP in relation to the asset -> company appeared less geared and could get cheaper or more debt funding
- under IFRS16: companies are required to recognize all leases on their balance sheet whether finance leases or operating leases -> they can no longer use operating leases to avoid reporting lease liabilities on their balance sheets
-> KPI like ROCE or gearing ratio were unreliable and distorted, especially when operating leases form a big part of a companys financing
-> no complete picture of financial position of the company
-> unable to compare companies
IAS16: what IS and whats NOT shown on Balance sheet?
- starting from jan 2019, most leases will appear on balance sheet now
- NOT: short term leases (under 12 months)
- leases for low value items (PCs, furniture etc)
The approach taken in IRFS 16 is to define…
A contract does not….
….a lease based upon economic substances rather than legal form.
… need to be legally established as a lease for the contract to be regarded as a lease for financial reporting purposes
What is IAS 12 and what does it state?
- taxation
- it takes a balance sheet driven approach to deferred taxes (balance sheet liability method)
- it states that deferred tax must be recognised whenever temporary differences arise (TD: difference between carrying amount of asset/liability in SoFP and its tax base)
- DTLs and DTAs are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled (based on tax rates that have been enacted ORRR substantially enacted by the end of the reporting period)
What are the key disclosure requirements of IAS12?
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- all major compontents of tax expense / income: current tax expense, deferred tax expense, …
- explanation of changes in the applicable tax rate
- explanation of relationship between tax expense and accounting profit (numerical reconciliation presented as % or currency amounts)
- amount of DTLs and DTAs recognised in SoFP + amount of deferred tas inc/exp recognised in P&L
What does IAS38 state and what are “criteria” for it?
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- relates to intangible assets; which is recognised if the asset is characterised by the following properties
- identifiable (seperate/ capable of being seperated from entity like solf, transferred rented licensed; arises from contractual rights like patent)
- asset controlled by entity (entity has power to obtain future economic benefits from underlying resource and restrict the access of others to those benefits)
- asset gives future economic benefits (identified with certainty)
ADDITIONALLY
- recognised if its probable that benefits attributable to asset will FLOW TO ENTITY and costs can be measured
IAS 38 requires the disclosure of the following….
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- whether useful lives are indefinite or finite
- amortisation methods for intangible assets with finite lives
- gross carrying amount and accumulated amortisation at beginning and end of period
- increaes/ decreases from revaluations and from impariment losses recognised or revesed directly in equity (IAS 36)
- for R and D, dosclosure of charge for research and development in the period
IAS 36 requires that….
impairment losses should first be allocated to goodwill, which is done fully
Whats IAS 40 and what does it entail? What are the measurements for recognition?
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- covers accounting for properties held to earn rentals, capital appreciation or both
- initial recognition: measured at cost, incl. transaction costs
- subsequent measuremnt:
1. fair value model: changes in fair value recognised in profit or loss
2. cost model: asset carried at cost less depreciation and impairment, but fair value must still be disclosed
IAS 16
- If the revaluation results in an increase in the carrying amount of the PPE, then…..
- Why is this revalutation not treated as income in the I/S?
- what happends if the revaluation increase reverses a previous decrease (which is already recognized as an expense)?
- Debit the PPE item and Credit “Revaluation surplus” reserve under equity (OCI in SoCI)
- Bc it is an unrealized gain -> by excluding it from profit its not available for payments for dividend/ tax
- then the revaluation increase is recognized as income
IAS 16
- If the revaluation results in a decrease in the carrying amount of the PPE item, then….
Debit an expense (directly affecting I/S!) and Credit the PPE item
Briefly explain what you would expect to find in the following sections of the annual report…
- Narrative Sections
2, Directors Report - Auditors Report
- very subjective, a lot of content not regulated; deals with review of business and its development; FUTURE oriented; discusses corporate strategies
- regulated; shows principle activities, future developments, political and charity contributions, info about directors
- true and fair view; expressing opinion on whether the financial statements are properly prepared according to the IFRS standards
