QUALITATIVE CHARACTERISTICS The IASB Conceptual Framework for Financial reporting

Fundamental Enhancing
RECOGNITION CRITERIA:
• ➢ ____________: Information should be comparable between different entities or time
1. Relevant information about the asset or 2. A faithful representation
• periods;
➢ ____________ Independent and knowledgeable observers are able to verify the
the liability and about any income, To be useful, financial information must also represent
information; expense or changes in equity faithfully the phenomena it purports to represent.
➢ ___________: Information is available in time to influence the decisions of users;
➢ Is capable of making a ___________in
➢ _______________: Information shall be classified, presented clearly and concisely. ➢ Faithful representation means representation of the
the decisions made by users; ___________ of an economic phenomenon instead
➢ it has predictive value, confirmatory of representation of its legal form only.
Prudence is understood here as the exercise of caution when making judgements under uncertain value which are interrelated ➢ seeks to maximise the underlying characteristics of
conditions. ➢ Materiality is an ______-specific aspect completeness, neutrality and freedom from error.
an important role. of relevance based on the nature or
New definition: Information is material if _______, misstating or _________ it could magnitude (or both) of the items A neutral depiction is supported by the exercise
of prudence.
reasonably be expected to influence the decisions that the primary users of general purpose
financial statements make on the basis of those financial statements, which provide financial 3. information that results in ……………… exceeding the cost of providing that information.
information about a specific reporting entity

The definition of material, an important accounting concept in IFRS Standards, helps

companies decide whether information should be included in their financial statements and to
avoid over -disclosures.

MEASUREMENT UNCERTAINTY
• It does not prevent information from being useful. Derecognition -is ‘the removal of all or part of a
• However, the most relevant information that is subject to high measurement uncertainty reduces the usefulness of such information. recognised asset of liability from an entity’s statement
of financial position’. It goes on to say that
ASSET A ________________________________________________ by the entity as a result of past events. derecognition normally occurs:
(Economic resource -A right that has the potential to produce economic benefits)
LIABILITY A _________________________ of the entity to transfer an economic resource as a result of past events. For an when the entity loses ……………… of all or
➢ An entity’s obligation to transfer and economic resource must have the potential to require the entity to transfer an economic asset part of the recognised asset
resource to another party.
➢ Obligation -A duty of responsibility that an entity has no practical ability to avoid. Meaning, a company will take an asset
EQUITY Equity is the residual interest in the assets of the entity after deducting all its liabilities off (remove from) SOFP when it loses
INCOME is increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities control over it – i.e. the focus is no
that result in increases in equity, other than those relating to contributions from equity participants longer on the transfer of risks and
Income encompasses both revenue and gains. Revenue arises in the course of the ordinary activities of an entity. rewards under the revised CF
Gains represent other items that meet the definition of income and may, or may not, arise in the course of the ordinary activities of an entity. Gains
represent increases in economic benefits and as such are no different in nature from revenue. Hence, they are not regarded as constituting a separate For a when the entity no longer has a
element in the IFRS Framework. liability …………………………………………… for all or
EXPENSES are decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of part of the recognised liability
liabilities that result in decreases in equity, other than those relating to distributions to equity participants
Expenses encompasses losses as well as those expenses that arise in the course of the ordinary activities of the entity. Expenses that arise in the course
of the ordinary activities of the entity. They usually take the form of an outflow or depletion of assets such as cash and cash equivalents, inventory, PPE. Derecognition should aim to faithfully represent those
Losses represent other items that meet the definition of expenses and may, or may not, arise in the course of the ordinary activities of the entity. Losses assets and liabilities retained after the transaction, if
represent decreases in economic benefits and as such they are no different in nature from other expenses. Hence, they are not regarded as constituting
any, and any change in assets and liabilities as a result of
a separate element in the IFRS Framework.
the transaction that led to the derecognition
measurement methods-entities can adapt mixed measurement approach
whichever methods that would be relevant and faithful representation
Entry or Transaction ROLE OF SUBSTANCE OVER FORM
exit value costs?

Historical costs purchaseor

Historical cost - reflects the cost of …………………… The Conceptual Framework now places more emphasis on the importance of
creating an asset or taking on a liability, with both entry plus providing information needed to assess management’s stewardship and states
measures being adjusted for transaction costs. explicitly that a faithful representation of a transaction or event reports its
➢ Over time, historical cost is further adjusted to reflect substance rather than merely its legal form.
for example the consumption of an asset or the Cost in
Bring Usually, the legal form of a transaction and its substance,
fulfilment of part or all of a liability. concludes the same. However, when there is a conflict, then
Could The a
➢ It is described as an entry value. we record transaction based on economic reality and not the
have Set legal form.
Bought the ➢ HC can provide relevant information about assets
asset 20 and liabilities and the price of the transaction that
yrs ago ➢ gave rise to each. One e.g would be amortised cost
A lessee who enters into a lease agreement in
EXAMPLE 1:
and it will
still refer
Current value
renting an office building for 10years
to the
A current value measurement basis on the other hand reflects conditions at the measurement date and Under IFRS 16: lessee is not the legal owner tapi ada right until
obtain substantially all of economic benefit and has right to direct
purchase
not the price of the transaction that gave rise to the asset or liability. Current value measurement bases use of asset. SOO , Lessee DR: right use of asset (NCA) ( will
have different characteristics. depreciat normal mcm owned asset ). CR lease liability.

Example 2: Sale with a buyback (repurchase) agreement

Fair value Fair value for example reflects a Price_____that would be
received or paid for selling an asset or _______________ a
An entity sold a property which has a carrying amount of $50m a
IFRS Paid to
liability from the perspective of Market a
________ participants. Exit minus sale price of $60m when the market value was $75m and will
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reflects conditions at the measurement date and not the price of buyback after 6 months.
the transaction that gave rise to the asset or liability. Whenever u sell the asset it should be derecognised CA 50, SOLD FOR
Perspective akan how??? . kita akan remove from PPE/NCA 60 = so gain on
Present bias if dry org But NOW sale/disposal 10
Value in use@assets value
Assets: the ___________ of future cash flows bear which are Should we derecognise (remove property from PPE/
NCA??) DR cash 60
based on entity-specific assumptions, that entity exit minus CR PPE 50
Fulfilment expects to derive from the continuing use of an asset 2. If normal sale ( without repurchase ) THEN YES - CR P/L gain 10.
DERECOGNISE. ( cth mcm imagine aku dual kereta cat
value@liabilities and from it’s ultimate disposal hang lepastu aku bgtau dlm 5 tahun aku nak belt batik )( If financing
Ridiculous ) but it happens>>? ( it is financing arrangement
IAS 36. arrangement kebab company needs money ). DR cash 60
impair Liabilities: the present value of future cash flows, that Loan/cl 60 (based
on SOFP )
ment entity expects to be obliged to transfer as it fulfils a
Legally mcm lsale but
liability substance over form
actually financing
arrangement
Current costs Reflects the current amount that would be:
Plus
Asset: cost
_____ to acquire an equivalent asset _______ entry Plus
transaction costs
cost
Liabilities: _______ to take on an equivalent liabilities
less
_________ transaction costs

Prepare financial statement guna mix approach maksudnya,

ada guna fair value ada guna value in use.. Sebelum ni 99.9%
guna historical cost.
 ACCA Strategic Business Reporting Mary Margaret Francis ACMA, CGMA, BA(Hons)

IAS 1 Presentation of Financial Statements, aims to provide on the overall presentation of

financial statements as well as minimum items that should be found on the face of these
financial statements

Components of financial statements:

➢ A complete set of financial statements (FSs) includes the following, the ones you would
see in an annual report:

➢ a statement of financial position (balance sheet)

➢ a statement of profit or loss and other comprehensive income (presented as a single or

separate statement)

➢ a statement of changes in equity for the period

➢ a statement of cash flows for the period

➢ disclosure notes

➢ comparative information prescribed by the standard.

So, why do we need to prepare these FSs? It is meant to help the stakeholders also known as
users with useful information about the financial position, financial performance and cash flows
of an entity, which helps them make economic decisions

Information about the financial position is derived from the statement of financial position and
financial performance as to whether the entity reported a profit or loss is gauged from the
statement of profit or loss and other comprehensive income.

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 ACCA Strategic Business Reporting Mary Margaret Francis ACMA, CGMA, BA(Hons)

Let’s take a look at the requirement of IAS 1. The following are the general features of financial
statements,

Fair presentation and compliance with IFRSs

The financial statements must "present fairly" the financial position, financial performance and
cash flows of an entity. (faithful representation of the effects of transactions-in accordance with
the definitions and recognition criteria for assets, liabilities, income and expenses set out in
the Framework. Otherwise, you can’t claim compliance.

Going concern

IAS 1 states that entity should prepare the financial statements with the underlying
(basic) assumption that the entity is on a going concern and will continue in
operation for the foreseeable future. Meaning, no intention of liquidation. So, assets
are usually measured at cost unless entity is allowed to measure at fair value under the relevant
IFRS.

So, what if the entity is no longer on a going concern???

Towards the end of the reporting period of an entity, the accountant will have to assess whether
the continuity of the business is affected by events before, at or after reporting period, as to
whether going concern is still appropriate. Natural disaster and even the pandemic has
undeniably had an impact on the financial reporting

But how do we go about preparing the financial statements if the entity is no longer on a going
concern. It is not addressed in IAS 1 but left to the relevant accounting standards.

Sometime during the pandemic, ACCA SBR examining team has published an article which
suggests that “If going concern is at issue consider preparation of financial statement on net
realizable basis/net settlement value”

Alternatively, entity can resort to “break-up basis” of accounting for preparation of its financial
statements when it is not expected to continue as a going concern. Well, It is not defined in IFRS,
but it is allowed in some jurisdictions.

So when you are applying 'break-up' basis of accounting the objective of the financial
statement is no longer to show the financial performance as in the going concern basis.

And in doing so, you need to assess:

➢ Whether the company has sufficient assets to cover its liabilities, and

➢ If after all liabilities are settled, there will be some surplus or something left to distribute to
shareholders.

Nevertheless, the financial statement in fact will be still look the same, except for the values of
assets and liabilities.
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 ACCA Strategic Business Reporting Mary Margaret Francis ACMA, CGMA, BA(Hons)

Further readings:

Source: https://www.accaglobal.com/ie/en/student/exam-support-
resources/professional-exams-study-resources/strategic-business-
reporting/technical-articles/pandemic.html

Accrual basis of accounting:

IAS 1 requires that an entity prepare its financial statements using the accrual basis of
accounting, except for cash flow information. Accrual accounting follows the matching
principal, when revenues are earned and expenses should be recorded in the in the period in
which they are incurred.

Depreciation is an example of this, where items of PPE (and Investment property under the
cost model) reduces each year, mainly due to wear and tear.

Consistency of presentation:

The consistency principle states that, once you adopt an accounting principle or
method, continue to follow it consistently in future accounting periods.
The presentation and classification of items in the financial statements shall be retained from one
period to the next unless a change is justified either by a change in circumstances in providing a
more relevant and reliable financial information or a requirement of a new/ revised IFRS..

Materiality and aggregation

New definition: Information is material if ____________, ______________or ______________ it could

reasonably be expected to influence decisions that the primary users of general purpose
financial statements make on the basis of those financial statements, which provide financial
information about a specific reporting entity. (This was mentioned in the framework topic too
😊)

Each material class of similar items must be presented separately in the financial statements.
Dissimilar items may be aggregated only if they are individually immaterial.

However, information should not be obscured(hidden) by aggregating or by providing

immaterial information.

Offsetting: Assets and liabilities, and income and expenses, should not be offset unless required
or permitted by an IFRS.

Comparative information: IAS 1 requires that comparative information to be disclosed in respect

of the previous period for all amounts reported in the financial statements, both on the face of
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the financial statements and in the notes, unless another Standard requires otherwise.
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 ACCA Strategic Business Reporting Mary Margaret Francis ACMA, CGMA, BA(Hons)

Reporting period

There is a presumption that financial statements will be prepared at least annually. If the annual
reporting period changes and financial statements are prepared for a different period, the
entity must disclose the reason for the change and state that amounts are not entirely
comparable.

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 ACCA Strategic Business Reporting Mary Margaret Francis ACMA, CGMA, BA(Hons)

Statement of financial position (balance sheet)

Current and non-current classification

There is misconception that current assets are always realised within 12months. But that’s not
true, it depends on the nature of the business. For instance, an aviation company may take two
or more years in selling of its planes. So, do we classify the planes as part of non current asset?
Not at all. It is still part of current assets because it is part of the entity’s normal operating cycle.

IAS 1 states that current assets are assets that are:

➢ expected to be realised (either by sale or consumption) in the entity's normal operating

cycle

➢ held primarily(mainly) for the purpose of trading

➢ expected to be realised within 12 months after the reporting period

➢ cash and cash equivalents (without restriction, otherwise it will not qualify as cash and
cash equivalent).

All other assets are considered as non-current, examples include property plant and equipment,
intangible assets, investment properties, etc.

Then again, some of these non-current assets could be reclassified as current assets. Hmmm,
when would that be possible? When entity decides to sell of an office building for instance and
for some reason the sale is delayed, then it would no longer be classified as part of non current
asset..
Assets
Non-current assets
Property, plant and equipment

Current assets
Inventory
Trade receivables
Bank
Non-current assets held for sale
Total Assets

Whereas, IAS 1 states that current liabilities are those:

➢ expected to be settled within the entity's normal operating cycle

➢ held for purpose of trading

➢ due to be settled within 12 months

Other liabilities are considered as non-current.

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 ACCA Strategic Business Reporting Mary Margaret Francis ACMA, CGMA, BA(Hons)

What if entity does not have an unconditional right to defer settlement for at least 12 months
after the reporting period :

For example, long term loans covenants are generally linked to maintain a certain profit, gearing
or liquidity level. In that case, the bank would demand for immediate repayment if the loan
covenants have been breached.

IAS 1 adds on that when entity does not have an unconditional right to defer settlement beyond
12 months, then it is current liability (settlement by the issue of equity instruments does not
impact classification).

So in summary, should the Current / non current liability?

If entity does have the right to defer, then the liability is non-current.

If entity does not have an unconditional right to defer, then the liability is current.

Non Current liabilities

Loan

Current liabilities
Loan

Non current: When a long-term debt is expected to be refinanced under an existing loan facility,
and the entity has the discretion to do so (even if the liability would otherwise be due within 12
months). Then it is classified as non-current liability.

Well, it can be quite confusing, but you must remember one thing, IAS 1 refers to
unconditional right and not conditional right, and that would help you with the correct
classification.

On the other hand, if a liability has become payable on demand because an entity has
breached a long-term loan agreement on or before the reporting date. Then it is classified as
current liability, even if lender has agreed, after the reporting date and before the financial
statement authorisation date, not to demand payment as a consequence of the breach. This is
because, it is treated as non-adjusting event as per IAS 10 Events after reporting date. So, all you
need to do is provide disclosure.

However, if the lender agreed by the reporting date to provide a period of grace ending at least
12 months after the end of the reporting period(no demand of immediate repayment by
lender. So, there is no need for a change in classification of the loan from non-current to current.

EXAM TIPS

Why would it be so important in getting the presentation right? As the impact of

presenting the loan as current instead of non-current can be huge, as all liquidity ratios
would be affected, and it can lead to wrong decision making by the users of financial
6

statements. Look out for this in SBR exam

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 ACCA Strategic Business Reporting Mary Margaret Francis ACMA, CGMA, BA(Hons)

Format: IAS 1 does not prescribe the format of the statement of financial position. Assets can be
presented current then non-current, or vice versa, and liabilities and equity can be presented
current then non-current then equity, or vice versa.

Do, take a look at the format as its relevant for your exam as you are expected to know how to
prepare one.

Parent, Consolidate Statement of Financial Position as at 31 Dec 2009 ($’000)

ASSETS
Non current assets
Property, plant and equipment
Investment property
Goodwill
Other intangible asset (e.g. brand, trademark)
With regard to
Other Financial Asset (External investment) minimum
Equity accounted for Investment (Inv Associate/Joint venture) content, the
items in blue font
Biological assets shall
Deferred tax assets be presented in
statement of
Finance lease receivables** financial position

Current Assets
Inventory
Trade and other Receivables
Finance lease receivables**
Other Financial Asset
Current tax assets
Prepayments
Cash and Bank
NCA classified as held for sale
TOTAL ASSETS
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 ACCA Strategic Business Reporting Mary Margaret Francis ACMA, CGMA, BA(Hons)

Equity and liabilities

Ordinary Share capital (only P)
Share Premium (only P)
Non redeemable Preference share
Equity portion of convertible bond
Retained earnings(including translation reserve of Foreign Sub) (W)
Other components of equity
Amt recognized directly in equity relating to assets classified as held for sale
EQUITY attributable to owners of Parent
Non controlling Interest (W)
With regard to a
Non Current Liabilities
minimum
content, the
Def tax liability
items in blue font
Debenture
shall
Convertible (liability portion)
be presented in
Long term borrowings
statement of
Long term provisions
financial position
Deferred income (e.g govt grant)
Finance lease obligations**
Provision for environmental cleanup (including unwinding)
Redeemable Preference Shares

Current liabilities
Trade and other payables
Deferred consideration / contingent consideration
Current tax liabilities
Short term provisions
Short term borrowings
Deferred revenue (current portion)
Finance lease obligations (current portion)
Accruals
Other financial liabilities
Liabilities directly associated with assets classified as held for sale###
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 ACCA Strategic Business Reporting Mary Margaret Francis ACMA, CGMA, BA(Hons)

The statement of profit or loss and other comprehensive income comprises of two section:
Profit or loss: here, all items of income and expenses must be recognized.
The entity might choose to classify expenses recognized in profit or loss for the period by
their nature or by their function
Other comprehensive income: items recognized directly to equity or reserves, such as
revaluation surplus, gains or losses in fair value of financial assets, etc.

Statement of profit or loss and comprehensive Income for the year ended......
$’000
Revenue IAS 1 requires disclosure of certain
Cost of sales items separately, either in the statement of
comprehensive income, or in the notes.
Gross profit
Distribution costs These (unusual or non-recurring) items are as follows:
Administrative expenses write-downs of inventories and property, plant and
Operating expenses equipment, their reversals, restructuring of activities
and reversals of related provisions, disposals of
Gain or loss arising from derecognition of financial asset at AC
property, plant and equipment, disposals of
gain or loss in FV of investment property/ Financial Asset at FVTPL
investments, discontinuing operations, litigation
Gain or loss on disposal of Sub(P lose control) settlements and other reversals of provisions
Cash flow hedge: ineffective portion
FV hedge: both g/l on hedged item and hedging instrument But these items cannot be labelled as “extraordinary
items”
Finance cost
Share of profit or loss of associates and joint ventures
Profit before tax
Tax
Profit for the year
With regards to
OTHER comprehensive income: items than can be reclassified to p & L minimum
Exchange differences on translating foreign operations
content, the
statement of profit
Cash flow hedges(effective portion)
or loss and
Increase in FV of debt instruments comprehensive
Deferred tax income must
OTHER comprehensive income: items than CANNOT be reclassified to p & L contain the items
Gain or loss in FV of equity investment at FV thru OCI in blue font:
Gain on revaluation of PPE / Intangible asset
Actuarial (losses)/gains on defined benefit pension plans
Share of the other comprehensive income of associates and joint
ventures accounted for using equity method
Deferred tax
TOTAL COMPREHENSIVE INCOME (profit for the year + OCI)

NOTE: Profit Attributable to :

Owners of parent (balancing)

Profit or loss for the period, as
NCI (W) well as total comprehensive
income shall be both presented
in allocation:

NOTE : Total comprehensive income attributable to:

• attributable to non-
controlling interests and
Owners of parent (balancing) • attributable to owners of
the parent.
NCI (W)
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 ACCA Strategic Business Reporting Mary Margaret Francis ACMA, CGMA, BA(Hons)

Statement of changes in equity: A sample.. At minimum, the statement of changes in equity must contain the following items:

The effect of retrospective

application or restatement for
each component of equity
(if applicable)

Total comprehensive income for the

period, showing separately amounts
attributable to owners of the parent and
to non-controlling interests

The reconciliation between the carrying amount at the beginning and the end Also, IAS 1 prescribes to present
of the period for each component of equity. amount of dividends recognized as
Here, the following changes shall be disclosed separately: distributions and the related amount
➢ those resulting from profit or loss per share on the face of the statement
➢ resulting from other comprehensive income of changes in equity or in the notes.
➢ resulting from transactions with owners (contributions, distributions
and changes in ownership)
 ACCA Strategic Business Reporting Mary Margaret Francis ACMA, CGMA, BA(Hons)

Notes to the financial statements

➢ present information about the basis of preparation of the financial statements and the
specific accounting policies used

➢ disclose any information required by IFRSs that is not presented elsewhere in the
financial statements and

➢ provide additional information that is not presented elsewhere in the financial

statements but is relevant to an understanding of any of them

➢ Notes are presented in a systematic manner and cross-referenced from the face of
the financial statements to the relevant note.

➢ a statement of compliance with IFRSs

* Disclosure Initiative (Amendments to IAS 1), effective 1 January 2016, clarifies this order just
to be an example of how notes can be ordered and adds additional examples of possible
ways of ordering the notes to clarify that understandability and comparability should be
considered when determining the order of the notes.

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 The minute you read the comp info . Then u dah boleh
identify biz model ordinary cost of biz. Mcm kata dia
bukak farm. IAS 2 Inventories
Inventories enclude:
Inventories include:
Held for sale in the ordinary 1. Financial instruments (IFRS 9)
1. Assets ………………………………………………………………….
2. Biological assets related to agricultural activity
course of business (finished goods); Measurement
& agricultural produce at the point of harvest
2. Assets in the production process for sale in the
(IAS 41)
ordinary course of business (work in process);
………………………..
lower of
3. Materials & supplies that are consumed in (SP-cost to complete
production (raw materials). and cost to sell)
In balance sheet Net Realisable Value:
Inv akan recognise at cost.
Selling price
cost And ( OR) NRV ▪ The …………………………………………….. in
Cost should include:
(Dr sopl CR
the …………………………….course
ordinary of business,
1. Costs of purchase – including taxes, transports & From cost to NRV( SEBAB NRV LOWER INVENTORY
less the estimated cost
• Any write-down: recognised
handling, net of trade discounts received; completion
of ……………………………. & the estimated costs
as ………………………… in the period
expenses
2. Costs of conversion – including fixed & variable Sale
necessary to make the ……………….
manufacturing overheads; and
• Any reversal: recognized as ……………….
3. Other costs incurred in bringing the inventories to in the stt of p/l in the period
SOFP: INV
Last time inventory outdated. Tapi tiba2 boleh $100-20 = 80
their present location & condition. guna untuk product lain P / l expenses (20)
CFS:
In what situation NRV < Cost?
• IAS 23 identifies some limited circumstances where Example: COST $100, NRV $80 is
LOWER…item is outdated/obsolete, ➢ Increase in cost / decrease in selling price
borrowing costs can be included in cost of inventories
that meet the definition of a qualifying asset. damaged.. ➢ Inventory is no longer in best physical
SOFP
condition
Cost of inventories should NOT include: INVENTORY $ 100 -20 = 80 ➢ Finished inventory is now technically
1. Abnormal waste P/L EXPENSES (20) obsolete / out of fashion
CFS: adjust under OA ( operating activity) :
2. Storage costs changes in WC (working capital ) item ➢ A strategic management decision to sell
3. Administrative overheads unrelated to production
goods at less than cost
4. Selling costs A yr later, entity found a new market-can
5. Foreign exchange differences arising directly on the
➢ Errors made in purchasing / production.
recent acquisition of inventories invoiced in a foreign
be sold for $110.
currency. SOFP

6. Interest costs when inventories are purchased with INVENTORY 80 + 30 OR ADD BACK 20? . this is
DOUBLE ENTRY increase decrease
not revaluing but reversing the impairment
deferred settlement terms.
But cannot increase the carrying amount beyond
cost. ASSET : dr bal + -

LIABILITIES : cr bal CR
The increased carrying amt inv uuntuk reversal
Cost determination: tkleh beyond its original cost.
CAPITAL : cr bal
DR

1. Actual cost (for identifiable items)

DR INVENTORY 20 INCOME : cr bal
2. FIFO
CR SOPL : INCOME
3. Weighted average cost EXPENSES : DR exp
+
-
4. Standard cost
5. Retail method: sales value less appropriate gross
margin
6. Replacement cost: used where an active market
exists
7. LIFO: NO LONGER recognised as acceptable
 Tangible assets ja recognised in ppe.

IAS 16 use
• Tangible assets that are held by an enterprise for ....... in the
Terms:
1.) Residual value: Net amount which the entity expects to obtain for an asset at
PPE rental
production or supply of goods or services, for .......... to others, or for the end of its useful life after deducting the expected cost of disposal.
administrative or maintenance purposes; and
2.) Fair value: Amount for which an asset could be exchanged between
• are expected to be used during more than 1 reporting period.
knowledgeable, willing parties in an arm's length transaction.
Measurement
3.) Carrying value: The amount at which an asset is recognised in the SOFP after
Depreciate if expected to use more than 1 deducting any accumulated dep & impairment losses.
Subsequently Reporting period.
Initially
Exchanges of Assets
AT COST: Measured at the FV of the asset received, which is equivalent to the FV of the asset given up adjusted by
• Includes all costs necessary to get cost
......... MODEL revaluation
...................... MODEL the amount of any cash or cash equivalents transferred.
the asset ready for its intended use.
By independent professional
The asset is carried at cost • only if FV can be reliably measured valuer
• If payment is deferred, interest
less accumulated • The asset is carried at revalued amount which is the Cash-free exchange transaction Company A exchanged machine A with machine B from Company B.
is recognised.
depreciation and impairment FV at the date of revaluation less subsequent dep & Machine A’s carrying amount at the date of the exchange was CU 10,000 thousand, and its fair value
Costs that are excluded:
• Feasibility study costs Comprise of: impairment was CU 15,000 thousand.
• Start-up costs (unless necessary 1.) Purchase price, including import • Any accumulated dep at the revaluation date is
for working condition of the asset) duties, non-refundable purchase eliminated or restated proportionately: Assumption A - Transaction with commercial substance
• Initial operating losses before taxes
planned operating levels 2.) Initial estimate of the cost of
• Abnormal wasted materials, labour dismantling & removing the item &
or other resources restoring the site on which it is 2 ways to record gain in revaluation
• Interest or other costs after PPE located (IAS 37) 1.) Netting approach
is available for use even if not yet in 3.) Any cost directly attributable to 2.) Gross up approach - The accumulated dep is restated proportionately with the change in the asset's
Assumption B - Transaction without commercial substance
use in business bringing the asset to the location & gross carrying amount.
• Staff training (IAS38) condition necessary for it to be Most companies favor the "gross up" approach, as it helps to assess the relative age of the asset, & to
• Cost of relocating certain capable of operating in the manner estimate the timing & amount needed for asset replacement.
equipment in the plant to allow intended by management.
installation of the new equipment
• General admin costs not directly
attributable to the acquisition,
construction or commissioning of the
asset Example 1: let’s say entity acquired a land for $100,000.
End of Y1: revalued to $80,000, so the decrease in value of $20,000 is recognized as an expense in profit or loss

Increase in value: So, DR Sopl 20k IMAGINE SOFP: PPE = 100 -20 = 80
 credited to other ........................
CR PPE 20K
.....................................and in equity End of Y2: revalued to $130,000, so there is an increase in value of $50,000. Of this, $20,000 epresents the reversal of a revaluation decrease of the same
under the heading "revaluation land previously recognised as an expense in y1, in which case it should be recognised as income in p/l. The excess gain of $30,000 is credited to other
surplus".
comprehensive income

 unless it represents the reversal PPE 50 Imagine SOFP:

So, DR CR SOPL 20 PPE 80 +50 = 130
of a revaluation decrease of the
Cr OCI 30 ( WHERE the extra profit Equity
same asset previously recognised as
goes
Example 2: let’s say) entity acquired a land for $100,000. RE + 20
an expense, in which case it should Other reserves + 30
be recognised as ......................... End of Y1: revalued to $120,000, so there is a gain in revaluation of $20,000 which will be credited to other comprehensive income and recognized as revaluation
surplus/reserve under equity in SOFP SOFP
Decrease in value: PPE = 100 + 20
should be recognised as an ................. to PPE 20 OTHER RESERVE + 20
So, DR
the extent that it exceeds any amount CR OCI 20
previously credited to the revaluation
surplus relating to the same asset. Then, at the end of Y2, the land is revalued to $70,000. In which case, there is decrease in value of $50,000. So, $20,000 loss is take to OCI up to the
be recognised in ............to
OCI the extent of amount previously credit to revaluation surplus and the excess loss of $30,000 should be recognised as an expense in p/l ..let me reiterate, you can only offset
any credit balance existing in the
revaluation surplus relating to the same
the loss to OCI if it relates to the same asset
asset.
DR OCI 20 PPE = 120 -50 = 70
So, DR
DR SOPL 30 ( EXCESS LOSS) RE = -30
CR PPE 50 OTHER RESERVE = 20-20 =ZERO.

To DR back oct must be dr back to the same asset other asset

cannot..
Subsequent Expenditure IAS 16
• Should only be recognised as an aseet when the PPE
expenditure improves the condition of the asset beyond Derecognition (Retirements & Disposal) - realisation of
its originally assessed standard of performance. revaluation
• Asset should be removerd from the SoFP on disposal or when it
• All other subsequent expenditure: recognised as an Example: Decommisioning costs is withdrawn from use & no future economic benefits are expected
expense in the perios in which it is incurred. Cost of oil platform $100m, Useful life 20 yrs, Discount factor 10% and estimated Cost to cleanup in 20yrs is $20m from its disposal.
• The gain or loss on disposal: should be recognised in the SoCI.
• The revaluation surplus included in equity should be tranferred
Solution:
directly to retained earnings when the surplus is realised.
Examples:
1.) Modification of an item of plant to extend its useful life, Oil platform: cost of $100m
including an increase in its capacity; Estimated costs of decommissioning $20m in 20yrs time. Discount rate 10%
2.) Upgrading machine parts to achieve a substantial DEPRECIATION:
improvement in the quality of output;
-capitalise PV = 20/1.1^20yrs = 3m DR PPE 103 CR cash 100 CR prov 3 • the systematic allocation of the depreciable amount of an asset
3.) Adoption of new product processes enabling a substantial over its useful life
reduction in previously assessed operating costs; and IMAGINE Journal entry: • Depreciable Amount is the cost of an asset, or other amount
upgrading of a component of the asset that has been treated substituted for cost in the financial statements, less its residual
separately for dep purposes such as hotel furniture and Depreciate PPE= 103/20 yrs = 5.15 per annum DR TO : P/ value.
fixtures as well as fittings. E.g engine in an aircraft. L • Dep method reflects the pattern in which the asset's future
economic benefits
• The residual value & the useful life & dep method should be
Replacement of parts of PPE: SOFP NCA AT cost Y1 Y2 Y20 reviewed at least each financial year-end
 Spare parts (small) & servicing equipment are usually NCL: Prov End of Y1 • Dep should be charged to the SOCI
Less acc dep 103 103 103
treated as inventory (materiality) & recognised in the (5.15) (10.3) • Dep begins when the asset is available for use & continues until
(103) the asset is derecognised, even if it is idle.
Income Statement as and when consumed.
 Major spare parts & standby equipment are treated as
PPE when they are expected to be used over more than 1 NCL: PROV 3 + 0.3 3.3+0.33 ??? End of Y2
period. P&L: finance costs: unwinding of discount 0.3 = 3.63 20
Double 0.33
 Recognise in the CA of an item of PPE the cost of Entry
replacing part of such an item when that cost is incurred Utk DR P/L :Finance C. CR Prov 3m * 10% (3.33*10%) Every time bt decommissioning kena
if the recognition criteria are met. unwinding Take into accoiiunt time value of money.
What if there is change in the estimated cost of decommisioning or a change in the discount rate? What is PV is the discounted value
 The CA of those parts that are replaced is
derecognised. Recoverability of the Carrying Amount:
 IAS 36 requires impairment testing &, if necessary, recognition for
What if estimated cost is now 30m end of
PPE. An item of PPE shall not be carried at more than recoverable
Y10?
amount. Recoverableamount is the higher of an asset's fair value less
costs to sell and its value in use.
Major inspection/major overhaul cost:
 Its cost is recognised in the CA of the item of PPE if the recognition criteria are satisfied. PV OF $30 = 30/1.1 ^ 10 YRS = 11.6. DR PPE CR PROV ….  Any claim for compensation from third parties for impairment (IAS
37) is included in P&L when the claim becomes receivable.

 Any remaining CA of the cost of the previous inspection (as distinct from physical parts) As such CA ( carry amount ) would be revised as well as depreciation.
is ............................. Dep is based on = remaining CA at the end of Y10 adjusted for
increase in decom divided by remaining 10 yrs useful life
 If an amount representing the major overhaul or inspection component of the original cost of
the asset was ........................... identified on initial recognition & was separately ...................... componentization
Significant parts/components are required to be depreciated over
their estimated useful life.
Costs of replacing components are required to be capitalized
Example 4: A company buys an aircraft for $9,000,000. Under civil aviation rules, the aircraft
requires a major inspection every three years at a cost of $200,000. Three years after the
purchase of the aircraft it undergoes its first major inspection. The costs in relation to the
inspection amounted to $220,000. Day to Day Servicing:
Solution: The original cost of inspection will be derecognised and the new inspection costs  recognised in P&L as incurred
 E.g. primarily the costs of labour and consumables, and may include the cost
will be recognised in the carrying amount of the asset. Therefore, the new inspection costs
of small parts.
are accounted for as an asset addition and the original inspection costs as an asset disposal.  The purpose of these expenditures is often described as for the 'repairs and
maintenance' of the item of PPE.
 IAS 20 Government Grant
Income
Grants relating to ……………….
LET’S SAY CO: receive grant of 100k for job Dr cash
creation R DEF INCOME 100
Part of the job has been created equivalent to Government Grants
$60k . DR DEF INCOME 60
Based on accruals concept
Are assistance by government in the form of transfers of resources to an enterprise in return for
CR SOPL : INCOME
past or future compliance with certain conditions relating to the operating activities of the
enterprise.

Imagine To address the challenges posed by climate-related risks, governments around the world are
As deferred SofP Deduct from introducing various measures to help companies reduce carbon emissions. These measures
include programmes financing the move to new, greener technologies.
income: other LIABILITY:
DEF related DR CASH
CR SOPL : Government assistance that meets the definition of a government grant is accounted for under
the specific requirements of IAS 20 Accounting for Government Grants and Disclosure of
income expenses
INCOME EXPENSES
(100-60)=4 Government Assistance.
0 attached to the grant were not met and
After a year the conditions If a company receives government assistance, then it determines how to account for that
asked for repayment of $ 50k. assistance by asking the following questions.

If it becomes repayable, treated as a • Does the assistance meet the definition of a government grant? Asset
Grants related to ……………………
change in ………………
acctg ……………….
Estimate (IAS 8) • When should the grant be recognised?
• As deferred income: By deducting the
( so adjust prospectively from the yr of How should the grant be measured and presented in the financial statements?
change);
Dr def income 40 Dr SOPL :expense 10
Source:https://home.kpmg/xx/en/home/insights/2022/01/climatechange-ias20-government-assistance.html DR Cash grant from the
➢
CR cash 50
Repayment should be applied first against any CR Deferred Income asset’s carrying
Released to p/l as income
related unamortized deferred credit (remaining Government grants, including non-monetary grants at fair value, should not
If long term asset release
amount
balance in deferred income a/c). assurance
be recognised until there is reasonable …………………… (Prudence) that:
And amortised by
by useful life
DR Cash
➢ And any excess should be dealt with as an • the enterprise will comply with the ………………..
Condition. attaching to them; and DR Deferred Income
expense. • the grants will be received. CR p/l CR Asset

p/l extract Results in

Example 1: of a grant relating to a depreciable asset
An enterprise receives a grant of $100 million to purchase a refinery. The refinery would cost $200 million. The secondary condition attached to the Income: amortization of reduced …………….
grant is that the enterprise should hire labor for the next five years. The refinery is to be depreciated using the straight-line method over a period of govt grant charge
10 years. Refinery: DR PPE 200m CR cash 200m Expense: depreciation
Grant : Dr cash 100m Cr deferred income nd
100 2 approach: deduct from assets value
p/l extract
And release over useful life of 10 yrs REFINERY DR PPE 200 CR cash
1st approach : as deferred income DR def income Cr p/l income 10 Grant : Dr cash 100 CR PPE 100.
P&L extract
y1 y2 P&L extract Y1 Y2 SOFP extract Expense: depreciation
NCA:
(20) (20) (10+20)
Expenses -depreciation 200/10yrs
Income: amortisation of GG ( 100/10
+10 +10 Depreciation Cost
YRS)
(100/10 yrs ) (10) (10) Less: Accumulated Dep SOFP extract
Net effect on P&L
(-10) NCA:
(-10)
NCL: Deferred Income Cost
SOFP Extract Cost
200 200 CL: Deferred Income Less: Accumulated Dep
SOFP Extract
Non current assets Cost (20) (40)

If grant becomes repayable

So , NCA: Cost (200 - 100 ( ambit grant
CA
180 160
told 100 ) 100
100
Treated as a change in …………………………
Acctg estimate
……………………….

Non current liability:DI(GG) 80 70 Less: Accumulated depreciation How u treat the repayment
( 10) ((20) Depends on how u initially recognise If grant was deducted from carrying
The grant • The repayment should
value of asset then. be
Current Liability:DI(GG) 10 10 treated as increasing the
90 80
If you have treated as deferred carrying amt of the asset
10 DAH TRANSAFER 90 80 What if the gov wants a full repayment of $ 100m at the end of y2
income. The approach to
repayment is different DR Asset CR Cash
MASUK P/L
DR Deferred income Cumulativ
• …………………….
e dep which would
So, net impact on SOFP : same as the 2nd approach. DR p/l
have been charged had the
CR Cash
What if the govt wants a full repayment of $100m at the end of Y2 ? Then on y2
100+100= 200 grant not been received should
DR p/l or charge : expense
Dr def income 80 SO REVISED CA AFTER REPAYMENT = 200 -40 160 be charged as an exp (DR Asset
Dr sopl: the excess of 20 Cr p/l income/ No additional dep
CR cash 100 CR p/l)
If grant was treated as def income So cum dep for 2yrs = 100 *
Then the repayment journal entry 2/10
As follows.
 Assets that take substantial amount of time. Cost of debt financing. kalau cost of share = dividend. Notional interest , why notional ? Unreal.

• IAS 23 does not provide specific guidance. Normally, if takes >1 year to get ready. Mgmt must also consider the nature of
the asset & be consistent with criterias set & disclosethem.
• Borrowing Costs include interest on bank overdrafts & IAS 23 Borrowing Costs
borrowings, amortisation of discounts or premiums on Only when borrowing cost relates to qualifying • That could be PPE & investment property during the construction period, intangible assets during the development period,
borrowings, finance charges on finance leases & exchange Asset baru capitalised. Kena bagi specific. Which asset? or "made-to-order" inventories.
Borrowing Costs directly attributable to the acquisition,
differences on foreign currency borrowings where they Qualifying asset
construction or production of a ..................... ................are • Inventories that are routinely manufactured or are produced on a repetitive basis over a short period of time are obviously
are regarded as an adjustment to interest costs. capitalised as part of the cost of that asset, but only when it not qualifying assets.
is probable that these costs will result in future economic • However, inventories that require a substantial period of time to bring to a saleable condition can be regarded as
• Also, amortisation of ancillary costs incurred in benefits to the entity, & the costs can be measured qualifying assets for the purposes of this Standard.
connection with the arrangement or borrowings. reliably.
(Ancillary costs: interest & other costs that an entity * All other borrowing costs that do not satisfy the
2 types of assets that would otherwise be qualifying assets are excluded from the scope of IAS 23:
incurs in connection with the borrowing of funds.) Expensed when  qualifying assets measured at FV,such as biological assets accounted for under IAS 41 Agriculture (not examinable)
conditions for capitalisation are .......................
incurred.  inventories that are manufactured, or otherwise produced, in largequantities on a repetitve basis & that take a substantial
periodto get readyfor sale (e.g. maturing whisky)

Substantial Substantial amt of tiem boleh hadi 6 bulan ,12 bulan

Qualifying asset: an asset that takes a ________________ period of time to get ready for its intended use It depends on the nature of the asset.
The Standard applies:
• does not deal with the imputed or actual cost of equity Example: A socially responsible multinational corporation (MNC) decided to construct a tunnel that will link two sides of the village that were separated by
•including preferred capital not classified as equity. a natural disaster years ago. The tunnel would take two years to build and the total capital outlay needed for the construction would be not less than $20
(Dividend paid to non redeemable PS is treated as million. To allow itself a margin of safety, the MNC borrowed $22 million from three sources and used the extra $2 million for its working capital purposes.
attribution to equity shareholders - IAS 32/39; Financing was arranged in this way:
Dividend paid to redeemable PS is treated as interest Bank term loans: $5 million at 7% per annum
cost/finance cost) Institutional borrowings: $7 million at 8% per annum
Corporate bonds: $10 million at 9% per annum
Capitalisation of In the first phase of the construction of the tunnel, there were idle funds of $10 million, which the MNC invested for a period of six months. Income from
Funds borrowed specifically, borrowing costs this investment was $500,000.
The actual costs incurred
less any income earned on the Weighted average cap rate = ( 5m * 7 %) + ( 7m * 8% ) + ( 10m * 9 % ). = 8.23 %
temporary investment of such
General borrowings
borrowings. (during the
construction period)
If borrowings & funding
are organised centrally
 Borrowing costs capitalised in Borrowing cost to be capitalised in the 1st year = 20m * 8.23% * 2 yrs
=. $3.3 m ( DR PPE 3.3 )
a period cannot exceed the a
borrowing costs incurred ___________________ So, the $500,000 is treated as investment income in sopl.

capitalisation rate may be

applied

Investment income was earned on general borrowings?

• IAS 23 does not provide specific guidance unlike the interest income earned for specific borrowing on QA
• The funds invested temporarily cannot be considered to be those from general borrowings rather than other sources (equity & cash generated from operation)
• It cannot therefore be deducted from the borrowing cost to be capitalised.

Suspension = stop temporarily./

Suspension of Capitalisation: Cessation of Capitalisation:
Commencement of Capitalisation: incurred • During .............................
Construction periods in which active development is interrupted unless that period • when ...................................
Substantially all the activities necessary to preparetheasset
* When expenditures for the asset are being ..............., is a necessary part of the process for the production of the asset. for its intended use or sale are complete.
borrowing costs are being incurred; and activities •If all that is left are minor modifications, such as decoration or routine
necessary to prepare the asset for its intended use or • If common - do not suspend, administrative work, then the asset is considered to be substantially
sale are in progress (3 conditions must be met) • But if common - yes, suspend complete.
Un Not
• However, capitalisation of borrowing costs should ..... be suspended when there is only a •In some instances, such as a business park or extensive development,
temporary delay that is caused by certain expected & anticipated reasons, such as while an parts may become ready for use in stages. In such cases, capitalisation
asset is getting ready for its intended use. ceases on those parts that are ready for use.

When u finish building baru start depreciating the asset.

 IAS 38 Intangible
Identifiable Asset An intangible asset should
An ............................... non- be measured initially at
monetary asset without cost.
physical substance.
SUBSEQUENT MEASUREMENT

3 Critical attributes: (criteria) Revaluatio

1.) Identifiability: ...........................
n
Cost Model
a.) is ...............................
seperable from the entity and Model
sold, tranferred, licenced or rented either
Carried at its cost less any
individually or combined. Carried at a revalued amount being its FV at the
accumulated amortisation and any
date of the revaluation less any subsequent
accumulated impairment losses.
b.) arises from contractual or other legal accumulated amortisation and any subsequent
rights. accumulated impairment losses,
active
(If __________ MARKET exists!) (Very rare )
Cost of a separately acquired intangible asset comprises:
2.) Control: • its purchase price,including import duties & non-refundable purchase taxes, after deducting trade discounts & rebates; and
- If the entity has the power to obtain the • Any directly attributable cost of preparing the asset for its intended use.
future economic benefits flowing from the
asset and to restrict the access of others to An Active Market is a market where all the Costs that may be included:Only those costs that have been incurred after the date that the capitalisation criteria were first met can
those benefits. following conditions exists: be included.
• The items traded within the market are
Homogenous ( unique )
- This can stem from legal rights. In the ........................ The cost comprises all directly attributable costs necessaryto create,produce, & prepare the asset to be capable of operating in the
absence of legal rights, it is more difficult to • Willing buyers and sellers can normally be manner intended by management. E.g.:
demonstrate control. found at any time, and • Costs of materials & services used or consumed
• Prices are available to the public • Costs of employee benefits arising from the generation of the intangible asset (Employment costs arising directly from bringing the
- However, legal enforcement is not a asset to its working condition)
necessary condition for control because an • Professionalfees arising directly from bringing the asset to its working condition
emtity may be able to control the future • Costs of testing whether the asset is functioning properly
Such active markets are expected to be
economic benefits in some other way. • Other direct costs such as fees to register a legal right
uncommon for intangible assets.
E.g.: Production quotas, fishing licences, taxi • Amortisation of patents & licences that are used to generate the intangible asset
3.) Future Economic Benefits: • Borrowing costs, if capitalised under IAS 23
licences.
- Future economic benefit may include The following items must be charged to expense when incurred:
revenue from the sale of products, services or Conditions to apply Revaluation Model: start-up, pre-opening, & pre-operating costs, training cost, advertising & promotional cost, including mail order catalogues,
processes, but also includes cost savings or • FV should be determined by relocation costs,training costs, brand ambassador costs
other benefits from use of an asset. Active
reference to an ....................... market Initial Recognition: Computer Software
- Use of intellectual property can reduce
Purchased: capitalise (IAS 38)
operating costs rather than produce revenue. • Revaluations should be made with Operating system for hardware: include in hardware costs (IAS 16)
sufficient regularity such that the Internally developed (whether for use or sale): charge to expense until technilogical feasibility, probable future benefits, intent &
carrying amount does not differ
ability to use or sell the software, resources to complete the sotware, & ability to measure cost.
materially from that which would be
Amortisation: over useful life, based on pattern of benefits (SL is the default).
determined using FV at the B/S date.
Recognition:
1.) It is probable that the future economic
• If an intangible asset is revalued, all
benefit that are attributed to the asset will TREATMENT:
the other assets in its class should also
flow to the enterprise; and  Revaluation increases are recognised in ......... & accumulated in equity.
be revalued. Revaluations are carried
out regularly.  Revaluation decreases are charged first against the revaluation surplus in equity related to the specific asset, and any excess
2.) the cost of the asset can be measured
against profit or loss.
reliably.
 When the revalued asset is disposed of, the revaluation surplus remains in equity & is not reclassified to P&L.
 IAS 38 Intangible
R&D
Asset Subsequent Expenditure:
Normally expensed, unless...

Amortisation
 It is probable that this expenditure will enable RESEARCH PHASE DEVELOPMENT PHASE
the asset to generate future economic benefits
in excess of its originally assessed standard of
performance & the expenditure can be Development is the application
Research is original & planned
Useful life is Useful life is measured & attributed to the asset reliably.
investigation undertaken with of research findings or other
finite
................. ...................
indefinite
(can't the prospect of gaining new knowledge to a plan or design
 Normally, subsequent expenditure on an
(limited) be determined) Canot be amortised. intangible asset after its purchase or scientific or techinical for the production of new or
completion is recognised as an expense. Only knowledge & understanding substantially improved
Amortised - SL Method Annually
Checked for ........................... rarely are the asset recognition criteria met. materials, devices, products,
IMPAIRMENT (IAS 36) processes, systems or services
prior to the commencement of
•No intangible asset arising
 The amortisation method should reflect the pattern  Intangible assets with indefinite useful life are commercial production or use
Amortised Review of useful life & amortisation from research shall be
of benefits. not .............................. but are tested for impairment method: at least at each financial year-end recognised.
on an annual basis. & revised if expectations are different from BCZ its difficult to assess future economic
 If the pattern cannot be determined reliably, benefit during R phase
amortise by the straight line method. previous estimates. • Expenditure on research
 If recoverable amount < carrying amount, an
shall be recognised as an •Capitalise if criterias met
 The amortisation charge is recognised in P&L unless impairment loss is recognised. The entity also Retirements & Disposals: Expense
................. when it is incurred
another IFRS requires that it be included in the cost of considers whether the intangible continues to have IA should be derecognised
another asset. an indefinite life. Gains or losses recognised in p/l
annually Criterias for capitalisation: Development expenditure
technical
1.) The .......................... feasibility of completing the intangible asset so that
 The amortisation period should be reviewed at least  Its useful life should be reviewed each reporting
annually. it will be available for use or sale
period to determine whether events & circumstances
continue to support an indefinite useful life Complete
 The asset should also be assessed for impairment in 2.) Its intention to ......................... the intangible asset and use or sell it
assessment for that asset. If they do not, the
accordance with IAS 36.
change in the useful life assessment for as a change Reinstatement: The standard also
Estimat 3.) Its ability to use or sell the intangible asset
in an accounting .............................
e prohibits an entity from
subsequently reinstating as an Future economic
4.) How the intangible asset will generate probable ............... .......................
Recognition of an Expense: intangible asset, at a later date, an benefits. Among other things, the enterprise should demonstrate the
Recognition of an Expense:
IAS 38 also expressly requires the following to be expenditure that was originally existence of a market for the output of the intangible asset or the
Expenditure on an intangible item shall be recognised
expensed: charged to expense. (if criterias intangible asset itself or, if it is to be used internally, the usefulness of the
as an expense when it is incurred unless:
• Internally generated goodwill for capitalisation was not met in intangible asset
 it forms part of the cost of an intangible asset •start up costs (unless it is necessary for working the previous years.
that meets the recognition criteria or condition) 5.) The availability of adequate technical, financial & other resources to
(EXPENDITURE previously
• costs of conducting business in a new location or with expensed should not be reversed & complete the development & to use or sell the intangible asset
 the item is acquired in a business combination & a new class of customer (including costs of staff training)
capitalised)
cannot be recognised as an intangible asset. If this • administration & other general overhead costs 6.) Its ability to measure the expenditure attributable to the intangible
is the case, this expenditure (included in the cost of • costs of introducing a new product or service asset during its development reliably.
the business combination) shall form part of the (advertising & promotional costs)
•relocation& reorganisation costs

Internally generated
Business Combination Internally generated
Initial Recognition: in process R&D
acquiredin a Business Combination  Goodwill: the difference between the cost of the intangible assets (except
• Is recognised as an asset at cost, even acquisition and the FV of the net assets acquired. g/w, brand, trademark,
Internally generated
 There is a presumption that the FV (& if a component is research mastheads, publishing titles)
therefore the cost) of an intangible asset goodwill, brand,
acquired in a business combination can be Internally Purchased trademark, mastheads,
• Subsequent expenditure on that Goodwill Can  Recognised/ Capitalised
measured reliably. Generated publishing titles)
project is accounted for as any other recognised
if 3 critieras are met
research & development cost (expensed  And amortised (except
 An expenditure (included in the cost of
except to the extent that the purchased goodwill which is
acquisition) on an intangible item that does Capitalised & checked for
expenditure satisfies the criteria in IAS No  No recognition
not meet both the definition of and
Recognition
Annual
_______impairment checked for annual
38 for recognising such expenditure as
recognition criteria for an intangible asset ___amortisation impairment)
should form part of the amount attributed to an intangible asset). No
the goodwill recognised at the aCQ date.

Goodwill = coNSIDERATION by parent + NCI less the fv of the

net asset of subsidiary ( internal generated goodwill)
If ppe = cost or revaluation model ( can Rental from 3rd party If investment are significant = ppe if innvesment
depreciate ). insignificant = then investment property
If inv property = cost or fair value model ( bleh
depreciate )
Investment Property - property [land or a building - or put of rather than for @ IAS 16 PPE
It is probable that future economic benefits
a building - or both (by the owner or by the lessee under a i) use in the production or supply of goods/services or Recognition: when and
will flow to the entity; and the cost of the
finance lease)] held to earn ______
rental or for _______
Capital for adminstrative purposes or only when
investment property can be measured reliably.
appreciation or both (ii) sale in the ordinary course of business
@ ias 2 inventory

Where the services provided are more significant (such Insignificant ancilliary services (for instance, Includes property under construction
as in the case of an owner-managed hotel), the property or development for future use as an IASB Framework@asset: A
the building owner supplies security & _______ economic resource
should be classified as __________________ (IAS maintenance services to the lessee), then investment property. Such property
16). previously fell within the scope of _________ by the entity as a
the enterprise may treat the property as result of past event
_____.
iAS 40 Investment property IAS 16.

Example of Investment property: Initial measurement:

• land held for long-term capital appreciation, not for short-term sale.  IP is initially measured at cost, including transaction costs.
• land held for a currently ____________
Undetermined future use.
When payment for investment property is deferred, then it must
• a building owned and leased out under short term leases. be discounted to its present value in order to set the cash price
• a building that is vacant but is held to be leased out under short term leases. equivalent.
• Property that is being constructed or developed for future use as investment  Again, the principles for determining cost are similar to those
property. contained in IAS 16, in particular for replacement & subsequent
expenditure
Such cost should not include start-up costs. abnormal waste, or
initial operating losses incurred before the IP achieves the planned
IAS 40 does not apply to owner-occupied property, or property held for sale in the ordinary course of business. level of occupancy. Abnormal waste of material, labour or other
resources incurred at construction
Buildings whichare leased out to persons who are under contract to the company (property occupied by employees is not an ____ whether or not the employees
pay rent at market rates) and thus IAS ??

(Owner-occupied property is property held (by the owner or by the lessee under a finance lease) for use in the production or supply of goods or services or for
administrative purposes.)
Here parent leased out property to
sub
Car rental or any other assets other than property, are clearly not land or buildings and therefore cannot fall within the scope of IAS 40….again IAS ??? applies
Property leased to parent or subsidiary
Real estate companies
Property companies regularly buys pieces of land, either to sell, or for development as apartments, homes or offices. Then, such properties are classified as
_______________’ under ________________________ because these companies sells the property in the ordinary course of business (relates to its nature of
business).

Separate book Consolidated FS

of Parent owner
: treat as ______
Investment properties
SPLIT @ __________
@IAS 40 occupied
• Mixed-used property (partly used by the • If the portions cannot be sold or :can use FV property @IAS
owner & partly held for rental or •If the portions can be sold or leased out separately, the property is
Treated as PPE. model 16
appreciation) leased out ___________, ___________ ____________
split
• must be _____ with components accounted
seperately
• only if the owner-occupied portion is :either cost or
•Therefore the part that is
for separately rented out is __________ insignificant. Then Investment property. revaluation
Partial own
Treated as
investment
___________. property model
NO SPLIT
use
 CHANGE IN USE : - allowed - adjusted prospectively as a change in accounting estimate.

IAS 40 Investment Property

Commencement of owner-occupation •Transfer from investment property to owner-
Property A that was previously rented out to third occupied property
party is now occupied by Q Ltd during the year. The •At FV at the date of change in USE
property had originally cost Q Ltd $2 million. The fair
value was $2.8 million at 31 December 20X4 and $2.7 SoFP. ( DR PPE 2.7 CR IP 2.7 ).
Subsequent Measurement million at the date when owner occupation took place IP = 2.7-2.7
PPE = 2.7
The fv of 2.7 is now the
new cost of PPE at the
SOFP
IP = 2 + 0.8 ( P/L ) = 2.8 - 0.1 ( P/ L ) date of change.
= 2.7

IAS 16 IAS 40
FAIR VALUE MODEL Commencement of development with a view to sale •Transfer from IP to inventories
Whichever model • IP is carried at FV
still kena depreciate •Any issues with FV-refer Property B is a tract of land that was classified as investment •At FV at the date of change in USE: FV
COST property. The land had a cost of R8 million and a fair value of $9.6
COST REVALUATION to IFRS 13 FV becomes the cost of the inventory
MODEL million at 31 December 20X4. In January 20X5, Q Ltd began to
MODEL
MODEL • Revalued amount • Cost less measurements •DR Inventory CR IP 9.6
develop the land with a view to sub-dividing it into 40 plots and
• Cost less less subsequent accumulated •NO __________
Depreciation 9.6
accumulated dep depreciation selling it. At the end of the year no plots had been sold but $4
•Any gain/loss in FV:
depreciation •Dep is charged million development expenditure had been incurred.
on revalued Still depreciate ________
SOPL
amount •NO RR account
•gain in
revaluation is SOFP + 1 = 3.6
credited to End of owner-occupation PPE = 3.8 -1.2 = 2.6
_____ •Transfer from owner-occupied property@PPE to IP
OCI On 30 September 20X5, Q Ltd rented out
property C to tenants, in terms of an •at fair value at the date of change in use
operating lease, for a 3 year period. At •PPE to IP (FV) IAS 16 (from cost to FV) should be applied up to the
that date the statement of financial date of reclassification.
position reflected the asset (as owner-
•Any difference arising between the CA under IAS 16 at that date:
occupied) with a cost of $3.8 million and
accumulated depreciation of $1.2 dealt with as a revaluation surplus under IAS 16. 3.6-2.6 = 1M
million. The fair value at 30 September •DR CR OCI /RR 1
20X5 was $3.6 million. PPE 1

Example: Investment property, cost 100,000 useful life 10 years. The following fair value THEN RECLASSIFY FROM PPE TO IP AT FV OF $3.6 : DR IP CR PPE 3.6.

End of year 1 $150,000 and End of year 2 $130,000 @ COST

What if the entity applies cost model? Commencement of a •Transfer from inventories to IP @ FV
operating lease to another •At FV at the date of change in USE
party (initilly intention to •Difference betweent he FV at the date of transfer & it previous
sell, then decided to rent carrying amount: in profit or loss.
Fair value model? out) •DR PPE CR OCI

•Transfer from property in the course of construction/development to

End of construction or IP
development •Cost model @IAS 40 to FV model@IAS 40
•diff between FV and CA: recog in p/l

• The chosen measurement model is applied to • Change from one model to the other is permitted
all of the entity's investment properties. if it will result in a more appropriate presentation Disclosures: The amounts recignised in the income statement for
(highly unlikely for change from FV to cost model) Disposals:Derecognised
 on disposal or • Rental income from investment property
• If an entity uses the FV model but, when a
•A property interest held by a lessee under an when the IP is permanently withdrawn from use at the time •Direct operating exp that generated rental income
particular property is acquired, there is clear
operating lease can qualify as IP provided that the that no benefit is expected from future use or disposal. •Direct operating exp that did not generated rental income
evidence that the entity will not be able to Any gain or loss: p/l = the difference between the net
lessee uses the FV model of IAS 40. In this case, •Cumulative change in FV recognised in the income statement on sale of
determine FV on a continuing basis, the cost disposal proceeds & the CA
the lessee accounts for the lease as if it were a
model is used for that property - & it must Compensation from 3rd parties is recognised when it investment property from a pool of assets in which the cost model is
finance lease.
continue to be used until disposal of the becomes receivable. used to a pool in which the FV model is used.
property.
 CANNOT APPLY TO IAS 41
Carrying amount is cost - depreciation
BECAUSE THE COW HAS NO Carrying
amount.
If no

IAS 36 ensures that assets are carried at

no more than their recoverable amount IAS 36 Impairment of assets
Definitions
Carrying amount : the amount at which an #Binding sale agreement
asset is recognised in the balance sheet after #Market price in an active market.
deducting accumulated depreciation and Example 1:
accumulated impairment losses CA= 100
How to account for FVLCOD =120
Fair value: the price that would be received impairment? VIU = 90 Costs of disposal: Incremental costs
to sell an asset or paid to transfer a liability in attributable to the disposal of an
an orderly transaction between market asset
participants at the measurement date(IFRS
13) Recog Imp if Recoverable amount is
___________ of
Value in use: present value of the future
CA ......................
cash flows expected to be derived from an Example 2: ______________: future cashflow @continuing use of the
CA= 100 asset and from its disposal
If cost model: imp
charged to _______ FVLCOD =120
Look out for triggers: -ve indicators
VIU = 90
INTERNAL INDICATORS
*Evidence of obsolescence or physical If revaluation model: imp
damage *Discontinuance, disposal or charged/offset to OCI Forecasted Cf
restructuring plans Discount rate@pre tax rate and reflects risk and _____
with any excess charged
*Declining asset performance. to ______ *reasonable and ________________assumptions ________of money
* assess the diff between _______ and ________ CF ( not reflect risk for which future cash flows have been
EXTERNAL INDICATORS adjusted)
ANNUAL IMPAIRMENT X should not be beyond _______
*Significant decline in market value TESTS
*Changes in technological, market, #ntangible assets with an X should not include ____ and __________ activities
economic or legal environment ___________ useful life If n/a: apply surrogate rate
X future ______________to which the entity is not
*Changes in interest rates #Intangible assets not yet committedand expenditures to improve or enhance must be used that reflects the time value of money
available for use the asset’s performance shd not be anticipated over the assets life as well as country risk, currency
*Low market capitalisation
risk, price risk and CF risk

IAS 36 applies to all assets except: Cash flows

? Incremental borrowing rate
xx inventories (see IAS 2) #From continuing use and disposal
xx deferred tax assets (see IAS 12) #Based on asset in its ________ condition Other mkt borrowing rate
xx assets arising from employee benefits (see IAS 19)
xx financial assets (see IFRS 9)
xx investment property carried at fair value (see IAS 40) Example 3: A market capitalisation below book equity will not necessarily lead to an equivalent impairment loss.
xx agricultural assets carried at fair value (see IAS 41)
xx non-current assets held for sale (see IFRS 5)

Therefore, IAS 36 applies to (among other assets): = NO OF SHARES * mkt price

land , buildings , machinery and equipment , investment
property carried at cost , intangible assets , goodwill,
investments in subsidiaries, associates, and joint ventures
carried at cost , assets carried at revalued amounts under IAS SOFP
Total assets 100
16 and IAS 38 Book value = 70 < mkt cap of 80 on 31 dec
Equity 70
Book value = 70 < mkt cap of 69 on 31 Mar 08
Total liabilities.
30. When mkt cap < book value of ent asset
- indication of impairment

Mkt price is low …

 1 route - significant loss
The impairment loss is allocated to reduce the carrying amount of the
assets of the unit (group of units) in the following order: Example 4: A bus company provides services under contract
Cash Generating Unit: # If it is not possible to determine the RA with a municipality that requires minimum service on each
reduce
for the individual asset then determine recoverable amount for - First, _________ the carrying amount of any damaged asset of five separate routes. Assets devoted to each route and
the asset’s CGU. the cash flows from each route can be identified separately.
goodwill One of the routes operates at a significant loss.
-followed by __________ allocated to the cash generating unit
Smallest Group
# ___________ identifiable ______ of assets -that generates Solution:
cash inflows from continuing use, and -that are largely -Then, any excess of impairment by reducing the carrying amounts of
Each route meets the def of a CGU … capable of
independant of the cash inflows from other assets or groups of the other/remaining assets of the unit on a _________basis.
Annual generating cash inflow independently.
assets. - the CA of an asset shd not be reduced below the highest of
-Its fair value less cost of disposal
However, the loss making route cannot be discontinued as
# Goodwill that has been acquired in a business combination -it's value in use the contract requires entity to serve min of 5 routes thus,
shpuld be allocated to the CGU. -Zero the whole bus company is considered as a single CGU.

Example 6: The calculation refers to an impairment

Example 5: A company operates a mine in a country where legislation requires that the owner must
loss suffered by subsidiary Zen at December 31, 20X4:
restore the site on completion of its mining operations. The cost of restoration includes the replacement Goodwill Net asset Total
of the overburden, which must be removed before mining operations commence. A provision for the costs CV, 31 Dec x4
There has been a favorable change in the estimates of
to replace the overburden was recognised as soon as the overburden was removed. The amount provided
the recoverable amount of Zen's net assets since the Impairment
was recognised as part of the cost of the mine and is being depreciated over the mine's useful life. The
impairment loss was recognized. The recoverable Recoverable amt
carrying amount of the provision for restoration costs is $500, a which is equal to the present value of the
amount is now $800 million at December 31, 20X5.
restoration costs.
The net assets' carrying value would have been $720
million at December 31, 20X5. Assets are depreciated
The entity is testing the mine for impairment. The cash-generating unit for the mine is the mine as a
at 20% reducing balance.
whole. The entity has received various offers to buy the mine at a price of around $800. This price reflects 31dec x5 Goodwill Net asset Total
the fact that the buyer will assume the obligation to restore the overburden. Disposal costs for the mine CV after imp
are negligible. The value in use of the mine is approximately $1,200, excluding restoration costs. The Reversal
Required : Show the accounting treatment for the
carrying amount of the mine is $1,000. Carrying amt
reversal of the impairment loss as of December 31,
Solution:
20X5

The increased carrying amount due to reversal should

not be more than what the depreciated historical cost

Individual asset: the ________ CA should

not be more than _____________ historical REVERSAL OF IMPAIRMENT:When and only when, there
costs If cost model: increase the CA and is a change to the estimates on which the impairment
Reversal of recgonise as ________in p/l was recognised initially.
impairment
1.There is a changed basis for RA (from FV to VIU or vice
versa)
Any +ve indicators CGU: reversal of impairment on
If Rev model: increase as revaluation 2. There is a significant change in the amount and/or
_________is not allowed timing of the cash flow
_________/surplus: OCI

*No _____________ for unwinding of

discount
 -No depreciation for agriculture produce.

Grow to biological transformation. FV- refer defat active market.

Only apply IAS 41. Only asset that u measured at initially at fair value.

-use for production for supply and services ( PPE ).

Estimate , economic life of animal -depreciate ( ni untuk animal ppe

IAS 41 Agriculture bukan untuk biological asset ).
Initially, measured at cost FV Measurement
DR BA 100m CR Cash
IAS 41 applies to living plants and IAS 41 sets out the accounting for agricultural activity and immediately remeasure
animals which are acquired @FV-refer to active market
-for the purpose of harvesting the Change in Fv: p/l.
agricultural produce Agricultural activity is the management by an entity of the
-for the purpose and sales biological transformation of biological assets
- For the purpose of creating additional After harvest,
[breeding] BA Acquired BA Until the point of classified as ...
Agricultural produce- the harvested product of the biological asset Harvest
into agricultural produce (harvested product) agricultural Inventory @ iAS 2
This standard shall be applied to account produce.
Measured at FV
for the following when they relate to less point of sale
Biological asset- a `..... Living plant and animals. BIOLOGICAL TRANSFORMATION
agricultural activity: cost Fair value is the new
(a) biological assets excluding bearer (that cause qualitative or quantitative changes in cost (deemed cost ).
plants; a biological asset)
BA@measured at FVLCS Fair value less point Any change in FV recog in P&L, comprises of :
(b) agricultural produce at the point of of • Active market :characteristics. Measured at FV less
harvest; and • -item is homogenous : Physical growth
Sale cost. point of sale cost, at the
• -price is available to public : changes in mkt price ( lgi tua ha haiwan point of harvest
(c) Government grants • - willing buyer and seller. lg tinge mkt value ).
:newborn DR BA CR p/l: gain in fv. plants
If active market is not available.
1. Which of the following is not dealt with by IAS 41? Fv is determined based on DCF Death of animal/
(discounted cash flow method) Degeneration of plants.
Bearer plant* transferred IAS 16 PPE
(a) The accounting for biological assets. Sebab tgk on future. Non bearing. Bearing plants
(b) The initial measurement of agricultural produce harvested from the entity’s biological assets. A living plant that: (cost – dep) ( pokok ada
buah )
-is used in the production or supply of agricultural produce
(c) The processing of agricultural produce after harvesting. DR P/L loss
(d) The accounting treatment of government grants received in respect of biological assets Cr BA -is expected to bear produce for more than one period, and
-has a remote likelihood of being sold as agricultural Still within IAS 16
produce, except for incidental scrap sales. Ias 41 PPE
2.Where the fair value of the biological asset cannot be determined reliably, the biological asset should be -DEPRECIATE
measured at In the event that tkleh jugak Discounted Ni macam pokok .
(a) Cost. cash flow reliably . The least popular . Bawling ,halia
Q: What kinds of plants fall within the definition of bearer plant?cabot habeh
- sekali
(b) Cost less accumulated depreciation. Guna cost - acc dep
A: To fall within the scope of the amendment, the plants must meet
(c) Cost less accumulated depreciation and accumulated impairment losses. all three criteria of the definition;
(d) Net realizable value. Contoh mcm
buah anggur -
Examples : fruit trees, oil palms, nut trees, grape vines, tea bushes, ada useful life
3. A gain or loss arising on the initial recognition of a biological asset and from a change in the fair value less rubber trees and sugar canes. anti dh umol
estimated point-of-sale costs of a biological asset should be included in 60 tkleh dah
(a) The stt of profit or loss. Annual crops, such as grain and many market vegetables are not so kena
(b) A separate revaluation reserve. bearer plants depreciate.
(d) A capital reserve within equity.

4.When agricultural produce is harvested, the harvest should be accounted for by using IAS 2, Inventories, or
another applicable International Accounting Standard. For the purposes of that Standard, cost at the date of
An unconditional government grant related to a biological asset
harvest is deemed to be
measured at its fair value less costs to sell shall be recognised in profit
(a) Its fair value less estimated point-of-sale costs at point of harvest.
Recognition: An entity shall recognise a biological asset or agricultural or loss when, and only when, the government grant becomes
(b) The historical cost of the harvest.
produce when, and only when: receivable.
(c) The historical cost less accumulated impairment losses.
(a).the entity controls the asset as a result of past events;
(d) Market value If a government grant related to a biological asset measured at its fair
(b) it is probable inflow of future economic benefits the fair value or
(c) cost of the asset can be measured reliably value less costs to sell is conditional, including when a government
5. Land that is related to agricultural activity is valued grant requires an entity not to engage in specified agricultural
(a) At fair value. activity, an entity shall recognise the government grant in profit or
(b) In accordance with IAS 16, Property, Plant, and Equipment, or IAS 40, Investment Property. loss when, and only when, the conditions attaching to the
government grant are met.
(source:Wiley IFRS: Practical Implementation Guide and Workbook)
 Retrospectively - go
backwards.
A Change in accounting estimate is an
Accounting policies: IAS 8 Accounting policies,
adjustment of the carrying amount of an
The specific principles, bases, conventions, rules & changes in accounting
practices applied by an entity in preparing & asset, liability, or related expense,
estimates and errors resulting from reassessing the expected
presenting financial statements.
Prior period Errors 6-7 yrs ago pun boleh jade prior year future benefits & obligations associated
error.
Consistent in applying accounting policies • Are omissions from, & misstatements in, an with that asset or liability.
entity’s financial statements for one or more
prior periods arising from a failure to use,
An entity is permitted to change an • Or misuse of, reliable information that was
accounting policy only if the change: available & could reasonably be expected to CHANGES IN ACCOUNTING ESTIMATE
• Is required by a standard or have been obtained & taken into account in
interpretation; or preparing those statements.
• Results in the financial statements • Such errors result from mathematical • Bad debts/provision for doubtful debts
providing reliable & more relevant mistakes, mistakes in applying accounting • Inventory obsolescence (IAS 2)
information policies, oversights or misinterpretations of • The fair value of financial asset or
facts, and fraud. financial liabilities (IFRS 9)
Apply Retrospectively (from the earliest • The useful life of, or expected pattern of
reported) consumption of the future economic
• Adjust opening balance of reserve (RE
benefits embodied in, depreciable assets
b/f) ERRORS
(IAS 16); and
• Restate comparatives
• Warranty obligations (IAS 37)
• Repayment of govt grant
Hierarchy for selection of accounting policies: Mathematical mistakes, mistakes in
• IASB standards & interpretations applying accounting policies, oversights or
• In the absence of a directly applicable IFRS, misinterpretations of facts, fraud
Apply Prospectively
look to the requirements in IFRSs dealing
• The period of the change, if the change
with similar & related issues;
affects that period only; or
• And the definitions, recognition criteria & Apply Retrospectively
• The period of the change & future
IN
SOCIE.
measurement concept of assets, liabilities, • Adjust opening balance of reserve
periods, if the change affects both
income & expenses in the Framework and • Restate comparatives
• Management may also consider the most Read notes Salam financial statement ute find out how teruk the restated.
recent pronouncements of other
standardsetting bodies that use a similar
conceptual framework to develop accounting
standards;
• Other accounting literature, & accepeted
industry practices.
 Adjusting Events IAS 10 Events after the reporting period Non Adjusting Events

• Adjust the financial statements • DO NOT adjust the financial statement

Are those events, whether favorable or unfavorable,
• No disclosures • But provide disclosures if material event
that occur between:

• Those that provide further evidence of • Those that are indicative of conditions
conditions that existed at the balance End of the reporting period The date on which the financial statements are
that arose subsequent to the balance
authorised for issue (1st march 2021) by
sheet date. e..g 31 Dec 2020 sheet date.
BOD, unless the entity needs approval from
• They require changes in amounts to be shareholder
• Consequently, they do not result in
included in financial statements, because changes in amounts in financial
financial statements should reflect all statements. But rather should be
available evidence as to conditions disclosed by note, if material.
existing at the balance sheet date.
Examples: Adjusting Events
1. Obligations: The settlement after the balance sheet date of a Examples: NON Adjusting Events
court case that confirms that the entity had a present
Examples: Adjusting Events
obligation at the payment after the balance sheet date. The 1. Mergers & acquisitions
4. Non Current Assets: the subsequent determination determination of an incentive or bonus payment after the 2. Reconstruction & proposed reconstructions
of the purchase price or the proceeds of sale of balance sheet date when an entity has a constructive obligation 3. Issue of shares & loan notes
assets purchased or sold before the year end. at the balance sheet date. (adjusting event if criteria for 4. Purchases & sales of non current assets &
5. Property: a valuation which provides evidence of a provision are met in IAS37) investments
permanent diminution in value. 2. A deterioration in the financial position (recurring losses) & 5. Losses of fixed assets or inventories as a result
6. Investment: The receipt of a copy of the financial operating results (working capital deficiencies) of an entity that of fire or flood
statements or other information in respect of an has a bearing on the entity’s continuance (going concern is 6. Opening new trading activities or extending
unlisted company which provides evidence of a affected) existing trading activities
permanent diminution in the value of the long term 3. Discoveries: The discoveries of errors or frauds which show 7. Closing a significant part of the trading activities
investment. that the financial statements were incorrect. if this was not anticipated at the year-end
7. Inventories & WIP:
8. (temporary) decline in the value of property &
• The receipt of proceeds of sales after the
balance sheet date or other evidence concerning investments held as non-current assets, if it can
Going Concern Issues Arising After Balance Sheet Date
the NRV (if it is lower) of inventories. be demonstrated that the decline occurred after
• The receipt of evidence that the previous • An entity shall not prepare its financial statements on a going the year end.
estimate of accrued profit on a long-term concern basis IF management determines after balance sheet 9. Changes in rates of foreign exchange
construction contract was materially inaccurate. date either that it intends to liquidate the entity or to cease 10. Government action, such as natioanlisation
8. Receivables: The recognition of amounts owing by trading, or that it has no realistic alternative but to do so. 11. Strikes & other labor disputes
customers, or the insolvency of a customer. (write 12. Augmentation of pension benefits
off the irrecoverable amt as bed debts)
9. Taxation: The receipt of information regarding rates Proposed Dividends
of taxation (only change the current tax estimation,
• IAS 10 prevents proposed equity dividends being recognised as
NOT deferred tax)
liabilities unless they are declared before the balance sheet
10. Claims: Amounts received or receivable in respect of
date. (very rare) Declared :that the dividend is appropriately
insurance claims, which were in the course of
authorised, & is no longer at the discretion of the enterprise.
negotiation at the balance sheet date.
 Liabilities of uncertain amount. Contingent Contingent asset .. possible asset
Provision: A liability of uncertain timing or amount. IAS 37 Provisions, Contingent Liabilities & liability are only Initial measurement: ( reimbursement from 3rd party .eg 3 rd
possible party mcm insurance.)
Contingent Assets obligations. The amount recognised as a provision is the best
Provision … Present estimate of the settlement amount at the end of the
obligation.
Is recognised if and only if … all 3
reporting period. Unless it’s virtually certainn that the
compensation will be received. Then it
Conditions of recognition: DR SOPL. CR PROV for NOT Examples of Prov: is no longer contingent
restructuring. Entity can recognised the amount
• Prov for doubtful debts (based on prudence concept) If a receivable
1. A present obligation (legal or constructive) has arisen
• Prov for depreciation (based on matching concept) ➢ Provisions for one-off events (restructuring,
as a result of a past event (the obligating event),
• Prov for income tax (IAS 12) environmental clean-up, settlement of a lawsuit) are
2. Payment is probable (‘more likely than not-more than
• Prov for employee benefit (IAS 19) measured at the most likely amount.
50%), and
• Prov for stock obsolence (IAS 2) ➢ Provisions for large populations of events
3. The amount can be estimated reliably.
If 1 and 2 dah ada tapi 3 tkdk. Disclosed as contingent liability.
• Future operating losses – prov is not recognised (warranties, customer refunds) are measured at a
Palau aku recognise kita kena bt debit and credit. Sbbtu kita bt disclose probability-weighted expected value.
sahaja since contingent liability is just possible obligation.
➢ Both measurements are at discounted present value
• For a provision to qualify for recognition it is essential Examples of Prov: using a pre-tax discount rate.
that it is not only a present obligation of the reporting • Prov for warranty / refund ➢ Provisions are reviewed at the end of each
entity, but also it should be probable that an outflow of • Prov for legal claim & damages reporting period to adjust for changes in estimate.
resources embodying benefits used to settle the • Prov for restructuring
obligation. • Prov for onerous contract ➢ In reaching its best estimate, the enterprise should
• Prov for cleanup cost / restoration / decommissioning cost / take into account the risks & uncertainties that
Obligating event: Present obligation , either due to a legal obligation. decontamination cost surround the underlying events. Expected cash
➢ An event that creates a legal or constructive obligation outflows should be discounted to their present
that results in an enterprise having no realistic alternative Warranties: values, where the effect of the time value of
to settling that obligation (an obligating event is a past ➢ It is argued to be a genuine provisions based on past money is material.
even which has led to a present obligation) experience if it is probable.. ➢ Present value: where the effect of the time value
➢ Legal obligation: an obligation that derives from: ➢ That is more likely than not, that some claims will emerge. of money is material, the amount of a provision
▪ A contract (through its explicit or implicit ➢ Provisions must be estimated on the basis of the class as a should be the present value of the expenditures
terms); whole & not on individual claim expected to be required to settle the obligation.
▪ Legislation; or ➢ There is a clear obligation (present) in this case. ➢ Discount rate: should be pre-tax rate that reflects
▪ Other operation of law current market assessments of the time value of
➢ Constructive obligation: an obligation that derives from an money & the risks specific to the liability. The
➢ Provisions are utilised only for original purposes.
enterprise’s actions where: Not because of legal , but your own discount rates should reflect risks for which future
➢ Planned future expenditure, even where authorised by the
▪
company.
By an established pattern of past practice, cash flow estimates have been adjusted.
bouard of directos or equivalent governing body, is
published policies or a sufficiently specific
excluded from recognition, as are accruals for sel-insured
current statement, the enterprise has indicated
losses, general uncertainties, & other events that have not Remeasurement of provisions:
to other parties that it will accept certain
yet taken place.
responsibilities; and • Review & adjust provisions at each balance sheet
▪ As a result, the enterprise has created a valid date
expectation on the past of those other parties What is the Debit Entry? • If an outflow no longer probable, provision is
that it will discharge those responsibilities. reversed.
➢ When a provision (liability) is recognised, the debit entry
for a provision is not always an expense.
➢ Sometimes the provision may form part of the cost of
Reimbursement the asset. Examples : obligation for environmental Contingent Liability: A possible obligation depending on
cleanup when a new mine is opened or an offshore oil rig whether some uncertain future event occurs, or a present
• If some or all of the expenditure required to settle a obligation but payment is not probable or the amount
provision is expected to be reimbursed by another party, is installed.
cannot be measured reliably.
the reimbursement should be recognised as a separate
asset, and not as a reduction of the required provision,
▪ Or a suffieciently reliable estimate of the amount of a
Contingent Asset: A possible asset that arises from past present obligation cannot be made (this is rare).
when and only when:
events, and whose existence will be confirmed only by the ▪ A possible obligation (a contingent liability) is
• It is virtually certain that reimbursement will be received
occurrence or non-occurrence of one or more uncertain disclosed but not accrued. However, disclosure is not
if the entity settles the obligation. The amount recognised
future events not wholly within the control of the required if payment is remote.
should not exceed the amount of the provision.
enterprise.
 e.g redunandcy cost , lease termination, legal and constellation fees

Hotel industry, refurbish every IAS 37 Provisions, Contingent Liabilities & Cannot include retraining cost.
Future repair / refurbishment year , hotel sofa curtain, bod akan Contingent Assets ➢ A restructuring provision should include only the direct
approve the budget.
expenditure arising from the restructuring, which are
➢ They are not recognised / provided for, as there is no
those that are both:
present obligation, because there is no past event. Restructurings
Restructuring cost.
▪ Necessarily entailed by the restructuring and
➢ The nature of the business could change, or the asset
➢ A restructuring is a program that is planned & controlled ▪ Not associated with the ongoing activities of the
could be disposed before the repair/ refurbishment. enterprise
Strictly not
by management, & materially changes either:
Even if major repairs: Mcm complex asset (shipping Cannot recognised • The scope of a business undertaken by an enterprise ➢ Following costs are excluded: (1) costs of retaining or
industry ,airplane. ). as contingent
liability or relocating continuing staff (2) marketing (3)
➢ Should not be provided for. investment in new systems & distribution networks
• The manner in which that business is conducted
➢ Can be argued that it is a mere intention to carry out
➢ A restructuring is: sale or termination of a line of
the repairs, therefore it is not an obligation
business, closure of business locations, changes in
➢ And entity may sell off the asset anytime or the management structure, fundamental reorganisation of A constructive obligation to restructure arises only
nature & usage may change. company when an enterprise has a detailed formal plan for
➢ Exception rule: aircraft, ship.. if the major overhaul ➢ A constructive obligation to restructure arises only when
costs are treated as a separate component, meaning the restructring identifying at least:
an enterprise has a detailed formal plan. Must be approved by

each parts are depreciated separately. Then, the

the. Board.
• The business or part of a business concerned;
➢ And it must be communicated to all affected parties
major overhaul costs can be argued to be replacement especially the employees, not just the public- • The principal locations affected
cost & therefore is provided for.
If separate component
Masuk ppe depreciate announcement should be made nor a mere decision made by • The location, function & approximate number of
IAS 16.
the BOD. Must be made before reporting period. employees will be compensated for terminating
➢ An entity which publicly announces, before the end of the their services
Recoverability of the carrying amount reporting period, its plan to shut down a division in • The expenditure that will be undertaken; and
accordance with a board decision and a detailed formal • When the plan will be implemented: and has
▪ IAS 36 requires impairment testing and, if
plan, would need to recognise a provision for the best
necessary, recognition for property, plant & raised a valid expectation in those affected
estimate of the costs of clsing down the division. In such a
equipment. An item of PPE shall not be carried at that it will carry out the restructuring by
case the recognition criteria are met as follows:
more than recoverable amount. Recoverable amount • A present obligation has resulted from a past starting to implement that plan or announcing
is the higher of an asset’s fair value less costs to obligating event (public announcement of the decision its main features to those affected by it.
sell and its value in use. to the public at large)
▪ Any claim for compensation from third parties for • Since it creates a valid expectation that the division
will be shut down & an outflow of resources Examples of restructuring:
impairment is included in profit or loss when the
embodying economic benefits in settlement is • Sale of operation: accrue provision only after a binding
claim becomes receivable.
probable. sale agreement. If the binding sale agreement is after
➢ On the other hand, if the entity had not publicly balance sheet date, disclose but do not accrue.
announced its plans to shut down the division before the • Closure or reorganisation: accrue only after a detailed
Onerous Contract: end of the reporting period, or did not start implementing formal plan is adopted & announced publicly. A board
➢ An onerous contract is a contract in which the its plan before the end of the reporting period, no decision is not enough.
provision would need to be made since the board decision • Future operating losses: provision should not be
unavailable costs of meeting the obligations under
aline would not give rise to a constructive obligation at the recognised for future operating loss, even in a
the contract exceed the economic benefits
end of the reporting period (since no valid expectation has restructuring
expected to be received under it. The present in fact been raised in those affected by the restructuring • Restructuring provision on acquisition: accrue provision
obligation under the contract should be that the entity will start to implement that plan). only if there is an obligation at acquisition date.
recognised & measured as a provision (IAS 11). ➢ When a reporting entity commences implementation of a
➢ An onerous contract is an agreement that an restructuring plan, or announces its main features to those The only time kita
entity cannot get out of legally even though it has affected, only afer the end of the reporting period, Environmental and similar provisions: talk debit p/l.
signed another parallel agreement under which it disclosure is required by the provisions of IAS 10. ➢ E.g. cost of decommissioning or cleaning up cost
Applying the materiality logic common in financial incurred by an oil and gas company
is able to undertake the same activities at a
reporting, such disclosure would only be mandatory if the ➢ It should be provided for at its present value
better price. As it is locked into the existing
restructuring is material & if nondisclosure could
agreement, it would need to incur costs under (included in the cost of the asset)
reasonably be expected to influence the economic
both contracts but derive economic benefits from ➢ And depreciated over the useful life of the oil
decisions made by users on the basis of the financial
only one of them. statements. plant. Capitalised as part of ppe.
 before classification as held for sale, meausre the asset as per applicable acctg std ..
e.g IAS 16PPE, IAS 38, IAS 40 IP and IAS 36 Impairment)

IFRS 5 NCA held for sale and

EXCEPTION to the 1yr rule:
Discontinued operations
An asset (or disposal group) can still be classified as held for sale provided that the delay must
The core principle is that a non-current assets is deemed to be held for In order to make this judgment, the asset must meet two strict conditions: have been caused by events or circumstances beyond the entity's control and there must be
sale if its carrying value is expected to be recovered through 1. It ____________for ______________sale in its present condition at the date sufficient evidence that the entity is still committed to sell the asset or disposal group.
_______________ it rather than using it. classification to “held for sale” is made (this means the asset cannot be in use); and Otherwise the entity must cease to classify the asset as held for sale.
2. The sale must be ___________ probable.
An exception to the one-year rule shall therefore apply in the following situations:
Making this judgment has (a) at the date an entity commits itself to a plan to sell a non-current asset (or disposal group)
two important accounting it reasonably expects that others (i.e.: government) will impose conditions on the transfer of
implications: the asset (or disposal group), and:
(i) actions necessary to respond to those conditions cannot be initiated until after a firm
1. It is carried within purchase commitment is obtained, and
current assets in the (ii) a firm purchase commitment is highly probable within one year.
statement of financial According to IFRS 5, a sale is considered to be highly probable when all
the following are met: (b) an entity obtains a firm purchase commitment and, as a result, a buyer or others
position; and Determined
1. Management are ______________to the plan to sell the asset; unexpectedly impose conditions on the transfer of a non-current asset (or disposal group),
active programme to locate a buyer and complete the plan
2. An __________ and:
2. It is not ____________
from the date of must have been initiated; (i) timely actions necessary to respond to the conditions have been taken, and
reclassification. market (ii) a favourable resolution of the delaying factors is expected.
3. The asset must be actively marketed at a _____________ price;
4. It is expected that the sale will qualify for recognition as a completed (c) circumstances arise that were previously considered unlikely (i.e.: changes in market
sale within one year from the date of classification; and condition), and:
What if there was a revaluation 5. It is unlikely that significant changes will be made to the plan, or that (i) the entity took action necessary to respond to the change in circumstances, (ii) the
Measured at surplus of $30? the asset will be withdrawn from sale. criteria are met
LOWER of

Carrying Changes of plan to sale

amount FVLCS If an entity has classified an asset (or disposal group) as held for sale, but if the criteria of held for sale are no longer met (for example, because the
Any subsequent increase in fv allowed sale has not taken place within one year), the entity shall cease to classify the asset (or disposal group) as held for sale. The non-current asset that is
To the extent that it does _____ ______ _______ no longer classified as held for sale is measured at the __________ of:
**Any impairment: P/l ________________________impairment loss that has been (a) Its carrying amount before it was classified as held for sale, adjusted for any depreciation that would have been charged had the asset not been
recognised either in accordance with this IFRS or previously in held for sale
*Even if the asset was accordance with IAS 36 Impairment of Assets. (b) Its _______________ amount at the date of the decision to sell
previously revalued

EXAMPLE 1 This example is based upon implementation guidance provided with IFRS5. Consider each of the following situations: (source:
International Financial Reporting, Alan Melville)
(a) Company A is committed to a plan to sell its headquarters building and has initiated a an active programme to find a buyer and complete the
plan. The building is being marketed at a reasonable price and a completed sale is expected within 12 months. It is unlikely that this plan will
change significantly. The company will not actually vacate the building until a buyer is found but then the time taken to vacate the building will
not exceed what is regarded as usual and customary for such buildings.

(b) Company B is also committed to a plan to sell its headquarters building and is in precisely the same situation as Company A except that it will
not vacate the building and transfer it to a buyer until a new headquarters building has been constructed.

(c) Company C is committed to a plan to sell a factory and has initiated actions to find a buyer. However, there is currently a backlog of
uncompleted orders and the company does not intend to transfer the factory to a buyer until it has dealt with this backlog.

(d) Company D is also committed to a plan to sell a factory and is in precisely the same situation as Company C except that the backlog of orders
will be transferred to the buyer of the building along with the building itself. Therefore the existence of this backlog will not delay the sale.

(e) Company E is committed to a plan to sell a disposal group. All of the criteria which must normally be met in order for a disposal group to be
classified as held for sale are satisfied except that the sale is not expected to take place within one year. It is highly probable that a buyer will be
found within that time but the sale will then require Government approval. The approval process is a lengthy one and cannot begin until a buyer
has been found. Therefore completion of the sale is unlikely to occur within 12 months. In each case, determine whether or not the asset or
disposal group in question should be classified as held for sale.
 Discontinued Operations
A discontinued operation is a component of an entity that either has
DISPOSAL GROUP
been disposed of, or is classified as held for sale, and
The order of allocation of
An entity shall disclose: a _______amount in the statement of
business
separate ________line of ____________ impairment losses under IFRS
(a) represents a _________ or profit or loss & other comprehensive income comprising the total
geographical 5 is therefore:
__________________ area of operations, of:
• First, to reduce the carrying
➢ the post-tax profit or loss of discontinued operations, and amount of any
(b) is part of a single coordinated plan to dispose of a separate major
__________allocated to the
line of business or geographical area of operations or ➢ the post-tax gain or loss recognised on the measurement to
disposal group;
fair value less costs to sell or on the disposal of the assets or • Then, to the other non-
(c) is a subsidiary acquired exclusively with a view to resale. disposal group(s) constituting the discontinued operation current assets subjected to
Component of an entity is a part of the overall business which can be IFRS 5 measurement rules
clearly distinguished (separate out) operationally and for financial (scoped-in noncurrent assets)
reporting purposes. in the disposal group,
___________ on the basis of
an analysis of the single amount in the carrying amount of each
Example 2 : (source: International Financial Reporting, Alan (a) into: of those assets.
Melville):
➢ the revenue, expenses and pre-tax profit or loss of
A company discontinued an operation during the year to 31 March
discontinued operations;
2010 and sold the corresponding disposal group. The revenue and
➢ the related income tax expense as required by IAS 12;
expenses of the discontinued operation for the year to 31 March
2010 were as follows:
$000 ➢ the gain or loss recognised on the measurement to fair value
Revenue 432 less costs to sell or on the disposal of the assets or disposal
Expenses 295 group(s) constituting the discontinued operation; and
Pre-tax profit 137
Tax expense 41 ➢ the related income tax expense as required by IAS 12.

The fair value of the disposal group when it was initially classified as The analysis may be presented in the notes or in the statement of
held for sale was in excess of its carrying amount, so there was no profit or loss. If it is presented in the statement of profit of loss it
impairment loss at that time shall be presented in a section identified as relating to
discontinued operations, i.e. separately from continuing
operations.

the net cash flows attributable to the operating, investing

and financing activities of discontinued operations. These
disclosures may be presented either in the notes or in the
financial statements.

An entity shall re-present the disclosures for prior periods

presented in the financial statements so that the disclosures
relate to all operations that have been discontinued by the
end of the reporting period for the latest period presented.

is shown as one single line item ....

Ias 16 ppe - revaluation model FAIR VALUE HAS TO BE FAIRLY DETERMINED Conceptual framework ( exam kena )
Ias 40 investment property = fair value model KALAU IAS 2 Bgtau kat bank boleh bayaq 80 mil saga
FORCED TO SELL loan so ut paid to transfer a liability.
U find existence liabilities in SOFP. BASED ON PERSPECTIVE OF
Market IFRS 13 FAIR VALUE MEASUREMENTENTITY Reasons:
It is based on the perspective of …………… participants 1) TO reduce complexity and improve consistency VALUE -IN USE KIT
rather than just the entity itself, so fair value is not affected ASTILL GUNA ASSET
IFRS 13 does not apply to IFRS2, IAS 17, IAS 2,36@VIU, BUT apply to IFRS5 2) to enhance the disclosures TU
by an entity’s intentions towards the asset, liability or 3) to increase convergence with US GAAP FAIR VALUE - KITA
FV of asset and liability -refers to EXIT PRICE. SELL
equity item that is being fair valued
Entity intention are irrelevant IFRS 13 defines fair value as “The price that would be received to ………. NAK JUAL ASSET TU
Transfer
an asset or paid to ………… Orderly transaction (not a forced
a liability in an …………………………………… Characteristics: FV measurement should incorporate the
sale )
between market participants at the …………………………….
Measurement date.” asset or liability’s specific characteristics if market
Market participants seek to maximise the fair value of an participants consider these characteristics when pricing the
Buyers and sellers
asset or minimise the fair value of a liability in a transaction asset or liability. Could include
to sell the asset or to transfer the liability in the principal (or
• condition, location and
most advantageous) market for the asset or liability.
FV is a market based measurement, rather than an entity Market participants are buyers and sellers in the principal (or most • restrictions, if any, on sale or use as of the measurement
advantageous) market for the asset or liability date.
specific measurement

An orderly transaction is a transaction that assumes exposure to the

The principal market is the market with CHARACTERISTICS OF BUYER AND SELLER market for a period before the measurement date to allow for
Independent
the greatest volume and level of activity for 1. ……………………t – the transaction counterparties are not related parties marketing activities that are usual and customary for transactions
Knowledgeable
2. …………………………… – transaction counterparties have a reasonable involving such assets or liabilities; it is not a forced transaction. E.g. a
the asset or liability.
understanding forced liquidation or distress sale
Able
3. …………….to transact in the asset or liability
4.Willing
………… to transact in the asset or liability – counterparties are motivated
( not forced) Bond from company
Advan ( in the absence of principal market )
but not forced or otherwise compelled to transact FV VALUATION TECHNIQUES FV HIERARCHY Unadjusted
tageou Marke marketprice
LEVEL 1: unadjusted quoted price
The most …………………………………
s market is the market 1……………..approach
t
of identical assets/liabilities
that maximises the amount that would be received to If there is quoted price: The FV of Financial liability, non-financial 2.Income approachDCFAPPROACH LEVEL 2: observableIninput(other
absence of level 1 tsk lvl
sell the asset or minimises the amount that would be liability and entity’s own equity instruments are measured from the 3.Cost approach (Not historical cost) than level 1) 2)
(current replacement cost) Adjusted mkt price of
paid to transfer the liability, after taking into account perspective of a market participant holding the identical instrument as When multiple valuation LEVEL 3: unobservablesimilar
inputassets /liabilities
Both transaction an asset used, mgmt evaluates the based on entity’s own data
……………………………. costs and transport costs -not based on mkt data (only entity own data)
results and selects the point - internal data
If NO quoted price: can use PV technique, incorporating risk and the within any indicated range -Level is given the highest priority
profit margin that a market participant would require to undertake that is most representative of -Maximise observable input and
The price used to measure the FV of an A/L is not adjusted for the activity
Fv in the circumstances
minimise unobservable input
transaction costs.Bcos it is not a characteristic of the A/L and
are, instead, characteristics of a transaction. Valuation techniques used to measure fair value shall maximise the
use of relevant observable inputs and minimise the use of FV of liability reflects the effect of non-performance risk, which is the risk that an entity will not fulfil the
But if location is a characteristic of an asset, then the price is obligation. When using a present value technique, the entity could estimate the future cash outflows
adjusted for the costs that would be incurred to transport the unobservable inputs. Inputs should be consistent with the
that market participants would expect to incur in fulfilling the obligation, including any compensation for
asset to that market characteristics of an item being measured that market participants
risk and the profit margin that a market participant would require to undertake the activity. Steps.
would take into account in a transaction for the item. When there is (1) Estimate the future cash flows that the entity would expect to incur in fulfilling the obligation.
Except inventory ). no quoted price available, an adjustment to a valuation technique may (2) Exclude the cash flows that other market participants would not incur.
be needed to reflect the characteristics of an item being measured. (3) Include the cash flows that other market participants would incur but that the entity would not
For non financial assets (e.g PPE, intangible, IP) consider
Highest incur.
the ………………..and best use of the asset by the market Examples of markets in which inputs might be observable include (4) Estimate the compensation that a market participant would require to assume the obligation. This
participant’s ability to generate economic benefits by foreign exchange markets, dealer markets, brokered markets and, compensation incorporates a profit margin at a rate consistent with undertaking the activity, a risk that
using/selling to another market participants who will use much less often, principal-to-principal markets the actual cash outflows might differ from estimated cash outflows (including credit risk), an assumption
of inflation, and a risk-free rate of interest.
the asset its highest and best use
A market approach@market prices-identical or comparable (similar) is often used to value tangible assets that are not specialised bcos such assets have a variety
HIGHEST AND BEST USE refers to the use of a non-
of uses. The market approach uses prices and other relevant information generated by market transactions involving identical or similar assets and liabilities.
financial asset by market participants that would maximise Valuation techniques based on market approach often use market multiples derived for certain variables. For example, businesses are often valued based on their
the value of the asset or the group of assets and liabilities revenue or EBITDA multiples. Matrix pricing is another example given by IFRS 13, where fair value of certain financial instruments (usually bonds) is measured by
with which the asset would be used (is NOT influence by interpolating values for similar instruments (e.g. similar credit rating of the issuer, maturity etc.) arranged in a matrix format. Market approach is usually used for
individual entity’s decision) (and it is based on either on a the measurement of:
stand-alone basis or in combination
Physically
with other A/L. • cash generating units and businesses (by reference to quoted prices or transactions in the same industry and based on revenue/EBITDA/other
Factors to be considered: …………………. possible, legally multiples),
Permissible,financially
possible, …………………. feasible, maximises value • properties (by reference to transactions for similar properties).
• Market multiple: PE ratio
Cost approach Income approach@discounted future CF method: The income approach converts future amounts (e.g.
The cost approach, often referred to as a current replacement cost, aims to reflect cash flows or income and expenses) to a single discounted amount taking into account, inter alia, risk and
the amount that would be currently required to replace the service capacity of an uncertainty. When the income approach is used, the fair value measurement reflects current market
expectations about those future amounts. Examples of valuations techniques consistent with income
asset adjusted for obsolescence (e.g. physical deterioration, technological or
approach given by IFRS 13 include present value techniques, option pricing models and the multi-period
economic obsolescence). This valuation technique assumes that a market
excess earnings method.
participant would not pay more for an asset than the amount for which it could
obtain the service capacity of that asset elsewhere.
PRESENT VALUE TECHNIQUES@DEBT SECURITIES WITH LITTLE TRADING
Cost approach is usually used for measurement of:
ACTIVITES, UNLISTED EQUITY SHARES
• tangible assets that are developed internally or
IFRS 13 focuses on discount rate adjustment technique and expected cash flow technique, but this does
• assets that are used in combination with other assets and liabilities not limit the use of other techniques. In general, present value techniques discount estimated future cash
flows to a present amount using an appropriate discount rate.
Example: Current replacement cost of specialised equipment
On 1 January 20X1, Entity A acquired a specialised piece of equipment for $1 Discount rate adjustment technique and expected cash flow technique covered by IFRS 13 differ in how
million. On 31 December 20X4, Entity A was acquired by Entity X and Entity X must they adjust for risk and in the type of cash flows they use.
recognise this equipment at fair value under IFRS 3 requirements. The equipment
was heavily tailored for the needs of Entity A and there is no identical or even very Present value techniques are usually used for measurement of:
similar equipment available ‘off the shelf’. In order to overcome this obstacle, Entity • cash generating units and businesses (based on estimated revenue and expenses),
X obtains price lists of pieces of equipment similar to that held by Entity A at 1 • financial assets/liabilities when quoted prices are not available for identical or similar items
January 20X1 and 31 December 20X4 and determines that they have risen by 20% (based on contractual and/or estimated cash flows),
during that period. Entity X determines that this is the reasonable approximation of • investment properties (based estimated rental revenue and operating expenses).
an increase in price that would have to be paid to obtain the tailored equipment held
by Entity A. DISCOUNT RATE ADJUSTMENT TECHNIQUE
The discount rate adjustment technique uses a single set of cash flows from the range of possible
estimated amounts, whether contractual/ promised or most likely cash flows. These cash flows are then
Therefore, the replacement cost of a new piece of identical equipment is determined
discounted using an observed or estimated market rate of return (WACC is used most often). All the risk is
to be $1.2 million. This however is not equal to the fair value as at 31 December therefore reflected in the discount rate. Discount rate adjustment technique is used much more often than
20X4, as it has to adjusted to take obsolescence into account. Field experts working the expected present value technique covered below.
at Entity A determined that the equipment should be valued at 70% of the new
equivalent. Therefore, the fair value is determined to be $0.84 million ($1.2 m x
70%). EXPECTED PRESENT VALUE TECHNIQUE
Expected present value technique is built on an expected value that is widely used is statistics. It starts
Depreciated replacement cost (DRC) method: considers how much it would cost with a number of possible future cash flows with assigned probabilities that make up a single amount
to replace an asset of equivalent utility taking into account physical, functional and being the probability-weighted average.
economic obsolescence; it estimates the replacement cost of the required capacity
rather than the actual asset. E.g factory plant and equipment

Multi-period excess earnings method is acknowledged by IFRS 13 as a method to measure the fair value of an intangible asset. It is because that valuation technique specifically takes into account
the contribution of any complementary assets and the associated liabilities in the group in which such an intangible asset would be used. Some indirect references to this method are also made in
basis for conclusions to IFRS 3, where it is described as a valuation technique where ‘a contributory asset charge is required to isolate the cash flows generated by the intangible asset being valued
from the contribution to those cash flows made by other assets.

The contributory asset charges are described as hypothetical ‘rental’ charges for the use of those other contributing assets’. Multi-period excess earnings method is usually used for measurement of
intangible assets that are not readily obtainable by other entities (e.g. customer base).