CertIFR Course

Association of Chartered
Certified Accountant

Differences

Result To Be Familiar with IFRS

Exam Time Online – Any Time
Exam Type 25 MCQs
Duration 1 Hour
Pass Mark 50%
Exam Fees 140 GBP for Non-Member
 CertIFR Course

The origins of the International Accounting Standards Board (IASB®, 'the Board')

The structure of the IFRS Foundation

International Accounting Standards (IAS® Standards), and International Financial Reporting

Standards (IFRS® Standards) that are currently in issue

The purpose of financial statements – The Conceptual Framework for Financial Reporting.
 CertIFR Course

A brief summary of the adoption of International Financial Reporting Standards (IFRS® Standards) in
different jurisdictions

The growth of the International Accounting Standards Board (IASB®, 'the Board') and IFRS
Standards

IFRS Standards and small and medium-sized entities.

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IAS 1 Presentation of Financial Statements

IFRS 15 Revenue from Contracts with Customers

IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.

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IAS 16 Property plant and equipment

IAS 38 Intangible assets
IAS 40 Investment Property
IAS 36 Impairment of Assets
IAS 23 Borrowing Costs
IAS 20 Accounting for government grants and disclosure of government assistance
IAS 02 Inventories
IFRS 16 Leases
IFRS 05 Non-current assets held for sale and discontinued operations
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IFRS 13 Fair Value Measurement

IAS 32 Financial Instruments - Presentation
IFRS 09 Financial Instruments - Recognition and measurement
IFRS 07 Financial Instruments - Disclosure
IAS 37 Provisions, contingent liabilities and contingent assets
IAS 10 Events after the reporting period
IAS 19 Employee Benefits
IAS 12 Income Taxes
IFRS 02 Shared-based payment
IAS 41 Agriculture
IFRS 06 Exploration for and evaluation of mineral resources
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IFRS 10 Consolidated financial statements

IAS 27 Separate financial statements
IFRS 03 Business combinations
IAS 28 Investments in Associates and joint ventures
IFRS 11 Joint Arrangements
IFRS 12 Disclosure of interests in other entities
IAS 21 The effects of changes in foreign exchange rates
IAS 29 Financial reporting in hyperinflationary economies
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IAS 07 Statement of cash flows

IFRS 08 Operating segments

IAS 24 Related party disclosures

IAS 33 Earnings per share

IAS 34 Interim financial reporting

IFRS 01 First-time adoption of International Financial Reporting Standards

IFRS 04 Insurance contracts

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Principal differences between IFRS and UK GAAP

Principal differences between IFRS and US GAAP

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Convergence of IFRS with US GAAP

Convergence of IFRS with UK GAAP

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Formation of the IASB

The International Accounting Standards Committee (IASC) was founded in 1973 after
a conference in Sydney in 1972.
The IASC was formed through an agreement made by the professional accountancy
bodies from Australia, Canada, France, Germany, Japan, Mexico, the Netherlands, the
United Kingdom with Ireland, and the United States of America (9 Countries).
From 1973 to 2001 the number of accountancy bodies with membership of the IASC
increased to over 140. These accountancy bodies represented over 100 countries,
including China, represented by the Chinese accountancy body from 1997
Accounting standards were set by a part-time, volunteer IASC Board that had 13
country members and up to 3 additional organisational members. Each member was
generally represented by two "representatives" and one "technical advisor".
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Formation of the IASB

The IASC concluded in 1997 that, to continue to perform its role effectively, there
must be convergence between national accounting standards and global accounting
standards.
The IASC saw, therefore, a need to change its structure. A new constitution took
effect from 1 July 2000 under which was established a requirement for full
constitutional review every five years.
At this point a new standards-setting body was formed, named the International
Accounting Standards Board (IASB, 'the Board').
On 1 April 2001, the IASB took over from the IASC the responsibility for setting
International Accounting Standards.
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Structure of the IFRS Foundation

The IASB sits under the wider
parent body the ‘IFRS Foundation’
and is supported by a number of
other groups and advisory panels.
Since its creation in 2000, there
have been three constitutional
reviews. The latest was completed
in January 2013.
The key elements of the resulting
structure, operational now, are
illustrated in this diagram
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IFRS Foundations sub-committees

The IFRS Foundation Trustees oversee the operating procedures of its sub-committees
The IASB
The IFRS Interpretations Committee
The IFRS Advisory Council
The IFRS Foundation also has fundraising responsibilities.
There are 22 Trustees:
Six from North America One from Africa
Six from Europe One from South America
Six from the Asia/Oceania region Two from any area, subject to maintaining
overall geographical balance.
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IFRS Foundations sub-committees

The Trustees act by simple majority vote (50%) except for amendments to the
Constitution, which require a 75% majority.
The Monitoring Board was created to provide a link between the Trustees of the IFRS
Foundation and public authorities.

It participates in, and approves, the appointment of trustees of the IFRS Foundation.

It also provides advice to and meets at least annually with the Trustees.

The principal responsibilities of the IASB are to develop and issue International
Financial Reporting Standards and Exposure Drafts, and approve Interpretations
developed by the IFRS Interpretations Committee
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IFRS Foundations sub-committees

There are currently 14 full-time members of the Board, comprising independent
experts with an appropriate mix of recent practical experience and a broad
geographical diversity.

Per the constitution the Board should ideally comprise 16 members drawn as follows
(although it is recognised that this may not be possible at all times):.

Four from North America One from Africa

Four from Europe One from South America
Four from the Asia/Oceania region Two from any area, subject to maintaining
overall geographical balance.
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IFRS Foundations sub-committees

The Board has full discretion over developing and pursuing its technical agenda.

Publication of a Standard, Exposure Draft, or final Interpretation requires approval

by the Board.

The IASB normally forms Working Groups or other types of specialist advisory groups
to give advice on major projects.

The Board is required to consult the Trustees and IFRS Advisory Council on major
projects, agenda decisions and work priorities.
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IFRS Foundations sub-committees

The IFRS Advisory Council (‘Advisory Council’) provides a forum for organisations and
individuals with an interest in international financial reporting with the objective of:

Advising the Board on priorities in the Board’s work

Informing the Board of the views of the organisations and individuals.
Giving other advice to the Board or to the Trustees

Under the constitution of the IFRS Foundation, the Advisory Council should have a
minimum of 30 members from diverse geographical and professional backgrounds.
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IFRS Foundations sub-committees

The IFRS Interpretations Committee ('Interpretations Committee') was known as the
International Financial Reporting Interpretations Committee (or IFRIC) until 2010.
The Interpretations Committee has 14 members, appointed by the Trustees
Its responsibilities are to:
Interpret the application of International Financial Reporting Standards (IFRS
Standards) and provide timely guidance on financial reporting issues not
specifically addressed in IFRS Standards or IAS Standards
Publish draft Interpretations for public comment and consider comments made
within a reasonable period before finalising an Interpretation.
Approval of draft or final Interpretations requires that not more than four voting
members vote against the draft or final Interpretation.
 CertIFR Course

Accounting standards
International Accounting Standards (IAS Standards) were issued by the IASC from
1973 to 2000.
The IASB replaced the IASC in 2001.
Since then, the IASB has amended some IAS Standards, has proposed to amend other
IAS Standards, has proposed to replace some IAS Standards with new International
Financial Reporting Standards (IFRS Standards), and has adopted or proposed certain
new IFRS Standards on topics for which there was no previous IAS Standard.

Through committees, both the IASC and the IASB have also issued Interpretations of
Standards.
CertIFR Course
 CertIFR Course

Accounting standards
You will note that a number of standards seem to be missing,
e.g. IAS Standards 3, 4, 5, and 6.
This is because they have been replaced by later standards, e.g. IAS 3 (which related
to consolidated financial statements) was replaced by the much more detailed
standards IAS 27, 28 and (more recently) IFRS 10, 11 and 12.
Individual standards are examined in more detail in later modules.
The standards are frequently changed in order to improve and remove options and
establish more detailed rules in certain areas. Sometimes standards are amended
retaining the same standard number where the scope of the standard has remained
broadly the same.
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The Conceptual Framework for Financial Reporting

A major item in the list of publications is (“the Conceptual Framework”) This
establishes the purpose of financial statements and the major principles lying behind
their preparation.
The framework suggests that the main purpose of financial statements is to give
information to users (particularly investors and creditors) so that they can make
financial decisions.
that the purpose of financial statements is little to do with taxation or management
accounting.
The context is that companies and users are presumed to be living in an international
world so national laws including tax laws have to be ignored when international
standards are being drafted.
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The Conceptual Framework for Financial Reporting

The framework has a number of purposes, including:

To assist the Board itself when preparing IFRS Standards

To assist national standard -setters when preparing national standards

To assist preparers of financial statements to apply IFRS Standards and deal with
topics that are not the subject of an IFRS Standard

To assist auditors to form an opinion on the financial statements

To assist users to understand financial statements.
 CertIFR Course

The Conceptual Framework for Financial Reporting

The Conceptual Framework suggests that in order for financial information to be
useful, it must possess certain qualitative characteristics.

Fundamental characteristics Enhancing characteristics

Relevance Comparability
Faithful representation Verifiability
Timeliness

Understandability
 CertIFR Course

The Conceptual Framework for Financial Reporting

One of the key components of the framework is the definition of the five main
elements of financial statements.
In the statement of financial position, three elements can be found:

An asset is a resource controlled by the entity as a result of past events and

from which future economic benefits are expected to flow to the entity
liability is a present obligation of the entity arising from past events, the
settlement of which is expected to result in an outflow from the entity of
resources embodying economic benefits
Equity is the residual interest in the assets of the entity after deducting all its
liabilities
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The Conceptual Framework for Financial Reporting

When determining whether an item meets the definition of an asset, liability or

equity, attention should be given to the commercial substance of the item and not
simply its legal form.

The framework stresses the definitions of asset and liability such that the definitions
of income and expense are secondary

For Example :
an expense is defined as an increase in a liability or a decrease in an asset.
 CertIFR Course

The Conceptual Framework for Financial Reporting

The following hierarchy, in decreasing authority of guidance within IFRS Standards, is

followed in developing and applying an accounting policy where no IFRS Standard
specifically deals with a transaction:

The requirements and guidance in the International Financial Reporting

Standards and IFRIC® Interpretations dealing with similar and related issues
The Conceptual Framework

The most recent pronouncements from other standard setting bodies that use a
similar conceptual framework to develop accounting standards,
 CertIFR Course

Frequently asked questions

Are International Financial Reporting Standards recognised in all financial capital

markets in the world?

International Financial Reporting Standards (IFRS Standards) have achieved

recognition universally as a highly influential set of accounting standards. The IASB
says that 119 countries require the use of IFRS Standards by some companies and a
further 14 allow their use. However IFRS Standards have not been adopted in the
United States of America .
 CertIFR Course

Frequently asked questions

What are accounting standards and what is the difference between IAS Standards and
IFRS Standards?
Accounting standards are authoritative statements of how particular types of
transactions and other events should be reflected in financial statements.
Accordingly, compliance with accounting standards will normally be necessary for the
fair presentation of financial statements..
Standards issued by the International Accounting Standards Board (IASB, 'the Board')
are designated International Financial Reporting Standards (IFRS Standards).
Standards originally issued by the Board of the International Accounting Standards
Committee (1973-2001) continue to be designated International Accounting
Standards (IAS Standards). Both have the same status
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Frequently asked questions

How does the IASB decide what subjects to add to its agenda?

Board members, members of the IFRS Advisory Council, national standard-setters,

securities regulators, other organisations and individuals and the IASB staff are
encouraged to submit suggestions for new topics that might be dealt with in the
IASB's standards.
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Frequently asked questions

Are the IASB’s standards always in line with the Conceptual Framework?

Not exactly. The Conceptual Framework was written after some of the standards.
Also, sometimes, practical or political necessity forces the Board to stray from the
framework.
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quick quiz
1 - What is the role of the IFRS Interpretations Committee?

A : To Promote generally the acceptability of international accounting standards

(IAS standards) and international financial reporting standards (IFRS standards)
and to enhance the credibility
B : To advise the IASB board on technical issues in specific projects
C : To consider, on a timely basis, accounting issues that are likely to receive
divergent on unacceptable treatment in the absence of authoritative guidance
D : To work generally for the improvement and harmonisation of regulations,
accounting standards and procedures relating to the presentation of financial
statements
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quick quiz
2 - Which of the following is not one of the four enhancing qualitative characteristics?

A : Understandability

B : Materiality

C : Comparability

D : Timeliness
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quick quiz
3 - The definition of an asset includes which of the following terms?
1. Control 2. Future economic benefits
3. Ownership 4. Past transaction.

A : All of the above

B : 1, 2, and 4
C : 2, 3, and 4

D : 1, 2, and 3
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quick quiz
4 - Faithful representation means that financial information represents the substance
of transactions rather than their legal form. Which of the following demonstrates a
situation where the accounting treatment differs from the legal form of the
transaction to ensure faithful representation?

A : An Asset is depreciated on the straight-line basis

B : The cost of a patent are capitalized
C : An Asset is leased and capitalized by the entity that uses the asset

D : An Allowance is made for doubtful debts

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quick quiz
5 - The Monitoring Board is responsible for:

A : Approving IFRS Standards before publication

B : Deciding on a work plan for the IASB
C : Providing a link between the IFRS Foundation and public authorities

D : All of the above

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Where have IFRS Standards been adopted?

In many countries, stock exchange listing requirements or national securities
legislation permit (or sometimes require) foreign companies that issue securities in
those countries to prepare their consolidated financial statements using IFRS
Standards.
Europe
Since 1 January 2005, all publicly listed companies in the European Union have
been required to prepare their financial statements in conformity with IFRS
Standards.
Australasia
In Australasia both Australia and New Zealand have adopted national standards
that are IFRS Standards-equivalents.
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Where have IFRS Standards been adopted?

Africa

African countries are split between those that require the use of IFRS Standards,
those that permit their use and those that prohibit their use.

Countries that require the use IFRS Standards include South Africa, Ghana and
Kenya.
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Where have IFRS Standards been adopted?

Asia
Hong Kong, and Malaysia have issued national standards that are identical to
IFRS Standards.
Singapore FRSs are converged with IFRS Standards with some minor exceptions.
Korea has translated IFRS Standards word for word to become Korean GAAP.
India allows IFRS Standards to be used in consolidated financial statements and
has developed Ind-AS which are similar to IFRS Standards.
In China IFRS Standards may not be applied, however Chinese Accounting
Standards are substantially converged and it is intended that remaining
differences will be eliminated over time.
Differences between Japanese GAAP and IFRS Standards have been reduced.
 CertIFR Course

Where have IFRS Standards been adopted?

South America

Several South American economies require the use of IFRS Standards for
domestic listed companies. These include Brazil, Chile, Mexico and Ecuador.

Other countries, such as Argentina, require some listed companies to prepare

financial statements in accordance with IFRS Standards.

Bolivia and Paraguay allow but do not require the use of IFRS Standards for
domestic listed companies.
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Where have IFRS Standards been adopted?

North America

Canada adopted IFRS Standards in full as Canadian FRSs with effect from 2011.

In the USA, domestic listed companies are not permitted to use IFRS Standards.

Although the US standard-setter FASB has recently worked on a number of

projects with the IASB and has publicly stated its commitment to IFRS Standards,
it is unlikely that the Securities and Exchange Commission will allow domestic
listed companies to use IFRS.
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Growth of the IASB and IFRS Standards: a roadmap

Here is a brief list of the major developments that have marked the life of the IASB:
1973 : the IASC was founded by accountancy bodies from nine countries.
70-80 : The codifying of best practice, including many national options.
1989 : Publication of the first version of the Conceptual Framework.
1990 : Gradual adoption of IAS® Standards as national standards.
1993 : Ten revised standards, in force in 1995.
1994 : Adoption of IAS Standards by a number of continental companies for
consolidated statements.
1998 : Laws to permit use of IAS Standards in France, Germany and Italy and the
IASC passes last major core standard (IAS 39, financial instruments).
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Growth of the IASB and IFRS Standards: a roadmap

1999 : IASC restructured, resulting in current IASB.
2000 : International Organisation of Securities Commissions (IOSCO) recommends
use of IAS Standards to its members.
2001 : European Commission presents legislation to require use of IASC Standards
for all listed companies no later than 2005.
Trustees bring new structure into effect - 1 April 2001 - and "IASB" assumes
responsibility for designated International Financial reporting Standards (IFRS
Standards).
2002 : The IASB meets (FASB). They conclude the Norwalk Agreement, to commit
the boards to work together to remove differences between IFRS Standards
and US GAAP.
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Growth of the IASB and IFRS Standards: a roadmap

2004 : By issuing four IFRS Standards, two revised IAS Standards and an amendment
to the financial instruments standard by the end of March, the IASB complete
its “stable platform” for use by companies adopting its standards from
January 2005.
2005 : All member states of the EU required to use IFRS.
South Africa adopts IFRS Standards for all listed entities.
In Australia IFRS Standards required for all private sector reporting and as the
basis for public sector reporting.
2006 : IASB and FASB agree roadmap for convergence between IFRS Standards and
US GAAP.
China adopts accounting standards substantially in line with IFRS Standards.
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Growth of the IASB and IFRS Standards: a roadmap

2007 : IFRS Standards permitted for foreign issuers in the US.
2010 : In Brazil IFRS Standards required for consolidated financial statements of
banks and listed companies.
Japan allows use of IFRS Standards for a number of international companies.
2011 : Republic of Korea adopt IFRS Standards.
In Canada required for all listed entities and permitted for private sector
entities including not-for-profit organisations.
2012 : IFRS Standards adopted by Russia, Mexico and Argentina.
2016 : It is now considered unlikely that IFRS Standards will be adopted by the US
SEC..
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IFRS for Small and Medium-sized Entities (IFRS for SMEs)

Because full IFRS Standards were designed to meet the needs of investors in
public companies, they are very detailed and fairly burdensome to implement for
smaller companies.
In July 2009 the IASB published an International Financial Reporting Standard
(IFRS Standard) designed for use by small and medium-sized entities (SMEs)..
This Standard is designed for non-publicly accountable entities, meaning it
cannot be applied by listed comp
Other non-eligible companies include banks, insurance companies and securities
brokers/dealers.
SMEs are estimated to represent more than 95 per cent of all companies.
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IFRS for Small and Medium-sized Entities (IFRS for SMEs)

The IFRS for SMEs Standard is reviewed periodically, with amendments made to
address issues arising in the Standard itself and reflect changes in IFRS
Standards.

The IFRS for SMEs Standard is available for any jurisdiction to adopt, whether or
not it has adopted full IFRS Standards.

The only restriction is that it may not be used by public entities or financial
institutions.

As at June 2015, 73 jurisdictions required or permitted use the IFRS for SMEs
Standard to be applied by eligible companies.
 CertIFR Course

Frequently asked questions

1. Which national standards are closest to the IASB's?

Several countries have adopted IFRS Standards to be their own national standards,
without any modification. These countries include South Korea, Australia and Hong
Kong.
 CertIFR Course

Frequently asked questions

2. Is it necessary to adhere to all requirements of IFRS Standards for financial

statements to state compliance?

Yes, in order to claim compliance with IFRS Standards, all the requirements of the
IFRS Standards must be met. There are no exceptions. Use of local GAAP and IFRS
Standards together is not allowed..
 CertIFR Course

quick quiz
1 - Which of the following countries prohibits the use of IFRS Standards by domestic
listed companies?

A : Brazil
B : Russia
C : Australia

D : China
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quick quiz
2 - Which of the following type(s) of entity is (are) eligible to use the IFRS for SMEs
Standard?
1. An unlisted bank
2. A listed company that meets size thresholds for a small entity
3. An unlisted company of any size.

A : 2 Only
B : 3 Only
C : 1 and 3
D : 2 and 3
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quick quiz
3 - What is the Norwalk Agreement?

A : An agreement made between EU Countries to require domestic listed entities

to apply IFRS standards by 2005.
B : The agreement made by the IASB to adopt all IAS Standards issued by its
predecessor, the IASC.

C : An agreement made between IASB and FASB to work together to remove

differences between IFRS standards and US GAAP.

D : An agreement between IOSCO and the IASB to promote use of IFRS standards
to all companies listed on an international stock exchange.
 CertIFR Course

quick quiz
4 - Which of the following statements is true?

A : The IFRS for SMEs may only be adopted by jurisdictions that have no national
standards.
B : The IFRS for SMEs was developed by the IASB based on a number of existing
national standards for SMEs.

C : The IFRS for SMEs may be adopted by any jurisdiction, regardless of whether it
has adopted full IFRS standards .

D : The IFRS for SMEs allows the same accounting options as full IFRS standards but
reduces level of required disclosures significantly.
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Module 3 Contents

IAS 1 Presentation of financial statements

IFRS 15 Revenue from contracts with customers

IAS 8 Accounting policies, changes in accounting estimates, and errors

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IAS 1 : Presentation of financial statements

The objective of general purpose financial statements

to provide information about the financial position, financial performance, and cash
flows of an entity that is useful to a wide range of users in making economic
decisions.

To meet that objective, financial statements provide information about an entity's

Assets. Income and expenses, including gains and losses
Liabilities. Contributions by and distributions to owners.
Equity. Cash flows.
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IAS 1 : Presentation of financial statements

A complete set of financial statements should include:

A statement of financial position at the end of the period.

A statement of profit or loss and other comprehensive income for the period.
A statement of changes in equity for the period.

A statement of cash flows for the period.

Notes.
Comparative information.
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IAS 1 : Presentation of financial statements

Entities are not required to use the titles listed above in their financial statements (for
example, they may instead use 'old' titles such as balance sheet and income
statement), but all existing Standards and Interpretations reflect the terminology
referred to above.
 CertIFR Course

IAS 1 : Presentation of financial statements

General features of financial statements:
Fair presentation.
financial statements should present fairly the financial position, performance, and
cash flows of an entity.
Going concern.
Financial statements should be prepared on a going concern basis.
Accrual basis.
Financial statements, other than cash flow, should be prepared on the accrual basis.

Materiality and aggregation.

Each material class of similar items should be presented separately. Line items that
are not material individually should be aggregated with other line items..
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IAS 1 : Presentation of financial statements

General features of financial statements:
Offsetting.
Assets and liabilities and income and expenses should not be offset unless this is
required or permitted by another IFRS Standard.
Frequency of reporting.
A complete set of financial statements should be prepared at least annually.
Comparative information.
Comparative information should be presented for the preceding period for all
amounts reported in the current year financial statements.
Consistency of presentation.
Consistent presentation should be retained unless a change is required by an IFRS
Standard or another presentation would be more appropriate..
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IAS 1 : Presentation of financial statements

Statement of financial position (SOFP)
Certain line items MUST be presented in the statement of financial position. They are:
property, plant and equipment. assets held for sale.
investment property. trade and other payables.
intangible assets. provisions.
financial assets. financial liabilities.
equity accounted investments. current tax amounts.
biological assets. deferred tax amounts.
inventories. liabilities held for sale.
trade and other receivables. non-controlling interests.
cash and cash equivalents. issued capital and reserves.
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IAS 1 : Presentation of financial statements

Statement of financial position (SOFP)
It is necessary to present assets and liabilities on the basis of the distinction between
current items and non-current items
Current items are those:
Expected to be realised/settled in an entity's normal operating cycle. or
Held primarily for the purpose of trading, or
Expected to be realised/due to be settled within 12 months, or
In the case of an asset is unrestricted cash or cash equivalent, or
In the case of a liability has no unconditional right to defer settlement for at
least 12 months.
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IAS 1 : Presentation of financial statements

Statement of financial position (SOFP)
Additional information should be disclosed either in the statement of financial
position or in the notes, for example:

Classes of property, plant and equipment.

Classifications of inventory
Types of provision
Details of classes of share capital
A description of reserves within equity.
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IAS 1 : Presentation of financial statements

Statement of profit or loss and other comprehensive income (SPLOCI)
The statement of profit or loss and other comprehensive income may be presented as
one single statement or two separate statements
Minimum disclosure requirements in the profit or loss are as follows:
Revenue. Impairment losses.
Finance costs. Tax expense.
Gains / losses on derecognition of financial assets measured at amortised cost.
Share of profit or loss of associates/joint ventures
Gains/losses on reclassification of financial assets.
Single amount for discontinued operations.
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IAS 1 : Presentation of financial statements

Statement of profit or loss and other comprehensive income (SPLOCI)

Items in OCI are split between those that :

can be reclassified to profit or loss .

cannot be reclassified to profit or loss .

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IAS 1 : Presentation of financial statements

Statement of profit or loss and other comprehensive income (SPLOCI)
Expenses in profit or loss may be analysed using either the 'nature of expense' or the
'function of expense' method. Examples of each are as follows:
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IAS 1 : Presentation of financial statements

Statement of changes in equity (SOCIE)
The Statement of changes in equity must include:
total comprehensive income for the period .
for each component of equity the effects of changes in accounting policies and
corrections of errors recognised in accordance with IAS 8
for each component of equity, a reconciliation between the carrying amount at
the beginning and end of the period resulting from
profit or loss
other comprehensive income.
transactions with owners in their capacity as owners. (shares and dividends )
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IAS 1 : Presentation of financial statements

Notes to the financial statements

These should:
present information about the basis of preparation and accounting policies.

disclose information required by IFRS Standards that is not disclosed elsewhere.

provide other relevant information not presented elsewhere.

 CertIFR Course

quick quiz
1 - Which of the following is not required disclosure under IAS 1?

A : Number of employees
B : Assets held for sale
C : Provision

D : Intangible assets
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quick quiz
2 - Under IAS 1, how often should financial statements be prepared?

A : At least annually
B : No more than annually
C : As often as the company requires

D : Monthly
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quick quiz
3 – When is offsetting permitted under IAS 1?

A : Always
B : Never
C : When required or permitted under an IFRS

D : When approved by the board of directors

 CertIFR Course

quick quiz
4 – Which of the following is not required in the financial statements under IAS 1?

A : Name of the entity

B : Whether accounts cover a single entity or a group
C : Chairman’s commentary on performance

D : The accounting period

E : Presentation currency
 CertIFR Course

quick quiz
5 – Which of the following is not a component of a statement of financial position?

A : Non-current assets
B : Inventories
C : Cost of goods sold

D : Retained earning
E : Deferred tax
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IFRS 15
Revenue from contracts with customers

The objective of IFRS 15 is to establish principles in relation to the nature,

amount, timing and uncertainty of revenue and cash flows arising from a
contract with a customer

IFRS 15 replaces IAS 11 Construction Contracts and IAS 18 Revenue

It was effective in 2018.

Note that early adoption is permitted

 CertIFR Course

IFRS 15
Revenue from contracts with customers

IFRS 15 applies a five step model for recognising and measuring revenue: (COPAR)

1 - Identify the Contract with the customer

2 - Identify the separate performance Obligations in the contract.
3 - Determine the contract Price.

4 - Allocate the transaction price to the performance obligations in the contract.

5 - Recognise revenue when (or as) the entity satisfies a performance obligation.
 CertIFR Course

IFRS 15
Step 1: Identify the contract with the customer

The following conditions must be satisfied for IFRS 15 to apply:

1 - The contract must be approved by all parties.

2 - The rights for the goods and services to be transferred can be identified.
3 - Payment terms can be identified.

4 - The contract has commercial substance.

5 - Collection of in relation to the exchange of goods and services is probable.
 CertIFR Course

IFRS 15
Step 2: Identify the performance obligations in the contract

At the contract’s inception, the entity should assess the goods and services
promised to the customer, and identify as a performance obligation each promise to
transfer either::

A good or service that is distinct.

A series of distinct goods or services that are substantially the same.

 CertIFR Course

IFRS 15
Step 3 : Determine the transaction price

The transaction price is the amount that the entity expects to be entitled in
exchange for the transfer of goods and services.

In determining the transaction price, the entity should consider the contract
terms and past customary business practices.

It should adjust the transaction price for the effects of the time value of money
if the timing of payments provides the customer or the seller with a financing
benefit.
 CertIFR Course

IFRS 15
Step 3 : Determine the transaction price
In certain circumstances, the consideration may not be fixed and may vary
(known as variable consideration).
This may be due to the use of discounts, refunds, credits, concessions, incentives,
bonuses, penalties etc. .
Variable consideration also arises if there is contingent consideration.
Variable consideration is included in the transaction price only to the extent
that it is highly probable that its inclusion will not result in a significant revenue
reversal in the future when any uncertainty has been subsequently resolved.
 CertIFR Course

IFRS 15
Step 4 : Allocate the transaction price to the performance obligations
Where a contract has multiple performance obligations, an entity will allocate the
transaction price to the performance obligations in the contract by reference to
their relative standalone selling prices.
If a standalone price is not available it should be estimated using methods such as:

Adjusted market assessment (i.e. estimating the price that the customer would
be willing to pay in the market in which it operated).
Expected cost plus a margin.
Residual approach (i.e. taking the total transaction price less the sum of the
standalone selling prices of other promises in the contract).
 CertIFR Course

IFRS 15
Step 4 : Allocate the transaction price to the performance obligations

Any overall discount compared to the aggregate of standalone selling prices is

allocated between performance obligations on a relative standalone selling
price basis.

In certain circumstances, it may be appropriate to allocate the discount to some

but not all of the performance obligations.
 CertIFR Course

IFRS 15
Step 5 : Recognise revenue when (or as) the entity satisfies a performance obligation

Revenue is recognised as control is passed, either:

Over time, or

At a single point in time.

 CertIFR Course

IFRS 15
Control
Control is the ability to direct the use of and obtain substantially all the remaining
benefits of an asset.
This includes preventing others from directing the use of and obtaining the benefits
of the asset.
The benefits are the potential cash flows, directly or indirectly, including:
Using the asset to produce goods or services.
Using the asset to enhance the value of other assets.
Selling/exchanging the asset.
Pledging the asset as security for a loan.
Holding the asset.
 CertIFR Course

IFRS 15
Control
Control passes over time.

A performance obligation is satisfied over time if one of the following is met:

The Customer simultaneously receives and consumes all the benefits provided
by the entity as the entity performs.
The Entity's performance creates or enhances as asset that the customer
controls as the asset is created.
The Entity's performance does not create an asset with an alternative use to the
entity and the entity has an enforceable right to payment for performance
completed to date.
 CertIFR Course

IFRS 15
Control
Control passes at single point in time.

Where control is passed at a single point in time, factors considered in determining

that time include:
Entity has a present right to payment for the asset.
Customer has legal title to asset.
Entity has transferred physical possession of the asset.
Customer has significant risks and rewards related to ownership of the asset.
Customer has accepted the asset.
 CertIFR Course

IFRS 15
Contract costs
Costs of obtaining a contract

Incremental costs that are incurred when obtaining a contract are

treated as an asset if the entity expects to recover the costs.
These costs are limited to the costs that the entity would not have
incurred if the contract had not been successfully obtained.
Incremental costs can be expensed if the associated amortisation
period would be 12 months or less.
 CertIFR Course

IFRS 15
Contract costs
Costs of fulfilling a contract
Costs to fulfil a contract are only capitalised as an asset if all of the
following are satisfied:

Costs directly relate to the contract.

Costs generate/enhance resources of the entity that will be used in
satisfying performance obligations in the future.
Costs are expected to be recovered.
 CertIFR Course

IFRS 15
Contract costs
Costs of fulfilling a contract

These costs include direct labour, direct materials and the allocation of
overheads that related directly to the contract.

Capitalised costs are amortised on a systematic basis consistent with

the pattern of transfer of goods to which the asset relates.
 CertIFR Course

IFRS 15
Presentation of contracts with customers

Presentation in financial statements

Contracts with customers are presented in the statement of financial

position as either a contract asset, a receivable or a contract liability,
depending on the relationship between the entity's performance and
the customer's payment.
 CertIFR Course

IFRS 15
Presentation of contracts with customers
A contract asset arises where the entity has transferred a good or
service to the customer and its right to consideration is conditional on
something other than the passage of time.
A receivable is recognised when an entity's right to consideration is
unconditional because only the passage of time is required before
payment of the consideration is due.
A contract liability arises where a customer has paid consideration to
an entity (or is due to) prior to the transfer of the related goods or
services.
 CertIFR Course

IFRS 15
Example
Lingard Co sells a cable TV system to Monica under the following terms on 1 January
20X5:
- Monica has to pay a monthly fee of $80 for 12 months.
- Monica receives a cable TV set top box and access to all the TV channels.
- The contract does not contain any other conditions and, once signed, the receipt
of the consideration is unconditional.
- Lingard Co sells the set top box by itself for $250 and charges monthly access to
the TV service without the set top box for $65 a month.
- What amount of revenue should Lingard Co recognise in the year ended 31 March
20X5?
CertIFR Course

IFRS 15
CertIFR Course

IFRS 15
CertIFR Course

IFRS 15
 CertIFR Course

quick quiz
1 - AB Co has recently entered into a contract with a customer to provide a licence to
use a standard software package. After considering other available service providers,
the customer has also engaged AB Co (as part of the same contract) to install the
software on the customer's computers and provide technical support for three years.
How many performance obligations are there in the contract?

A: 1 C: 3
B: 2 D: 4
 CertIFR Course

quick quiz
2 - CD Co has contracted to build a property for a customer for an agreed fee of
$10million. If the construction is completed by a certain date, a bonus of $2million
becomes payable by the customer to CD Co. There is a 75% chance of the construction
being completed by the specified date. What is the transaction price?

A : 8 Millions $ C : 10 Millions $
B : 11.5 Millions $ D : 12 Millions $
 CertIFR Course

quick quiz
3 – EF Co Provides a wireless router and 12 month’s superfast broadband package to
customer for 220$ payable in advance. A customer buying the router separately
would pay $30 and A customer buying the broadband package separately would pay
$20 per month.
How much of the transaction price is allocated to performance obligation to provide
the router?
A : $24.44 C : $220
B : $30 D : $270
Total price if separately = 30+(20×12) = $270
router price if package = 30/270×220 = $24.44
 CertIFR Course

quick quiz
4 – Does the Job Co, a software company, has an accounting year end of 31 December.
It makes a sale for $500,000 on 30 June 20X4, to a customer, Brady. This amount
includes $470,000 for software and $30,000 for support services for the two years
commencing 1 July 20X4. How much revenue should Does the Job Co recognise in the
statement of profit or loss in the year ended 31 December 20X4?

A : $500,000
B : $485,000
C : $477,500
D : $470,000
 CertIFR Course

IAS 08
Accounting Policies, Changes in Accounting Estimates and Errors

Definitions
Accounting policies are specific principles, bases, conventions, rules
and practices applied by an entity in preparing financial statement.
change in accounting estimate is an adjustment of the carrying
amount of an asset or a liability, from reassessing the expected future
benefits and obligations associated with, assets and liabilities.
Prior period errors are omissions from, and misstatements in, the
entity’s financial statements for one or more prior periods arising
from a failure to use, or misuse of, reliable information.
 CertIFR Course

IAS 08
Accounting Policies, Changes in Accounting Estimates and Errors

Selection of accounting policies

Accounting policies should be determined by applying the relevant
IFRS Standard or Interpretation.
In the absence of a Standard or an Interpretation, management must
use its judgement in developing and applying an accounting policy
that results in information that is relevant and reliable.
Management may also consider the other standard-setting bodies
that use a similar conceptual framework.
 CertIFR Course

IAS 08
Accounting Policies, Changes in Accounting Estimates and Errors

Changes in accounting policy

An entity should select and apply its accounting policies consistently
for similar transactions, other events and conditions.
Changes in accounting policies are rare and should only be made if
they.
Are required by a Standard or interpretation.
Result in the financial statements providing reliable and more
relevant information.
 CertIFR Course

IAS 08
Accounting Policies, Changes in Accounting Estimates and Errors

Changes in accounting policy

A change in accounting policy must be accounted for retrospectively.

This requires restatement of comparative amounts and a prior period
adjustment in respect of the cumulative effect of the change as at the
start of the earliest comparative period.
The change in accounting policy must also be disclosed.
 CertIFR Course

IAS 08
Accounting Policies, Changes in Accounting Estimates and Errors

Changes in accounting estimate

Accounting estimates include methods of depreciation, residual

values and amounts of provisions.
Where an estimate is changed, the change is accounted for
prospectively by including its effect in the period of the change (and
future periods, if relevant).
Changes in accounting estimates must also be disclosed.
 CertIFR Course

IAS 08
Accounting Policies, Changes in Accounting Estimates and Errors

Errors

The general principle in IAS 8 is that an entity must correct all

material prior period errors retrospectively in the first set of financial
statements authorised for issue after their discovery.
This is achieved by restating the comparative amounts for the prior
period(s) presented in which the error occurred.
Details of errors should also be disclosed.
 CertIFR Course

IAS 08
Accounting Policies, Changes in Accounting Estimates and Errors

Policy Estimate Errors

Retrospectively Prospectively Retrospectively

Disclosure Required Disclosure Required Disclosure Required
2 Conditions No Conditions No Conditions
 CertIFR Course

IAS 08
Accounting Policies, Changes in Accounting Estimates and Errors

Notes

When it is impracticable to determine the period-specific effects of

changing an accounting policy on comparative information, the entity
shall apply the new accounting policy to the carrying amounts as at
the beginning of the earliest period for which retrospective
application is practicable, which may be the current period.

This limitation should be fully disclosed.

 CertIFR Course

quick quiz
1 – Which of the following is not an example of an accounting estimates ?

A : Bad Debts
B : Inventory obsolescence
C : Warranty obligations
D : Fair value of a financial asset
E : Purchase price of a fixed asset
 CertIFR Course

quick quiz
2 – When a change in accounting policy takes place, comparative information should
be restated unless?

A : Management agree not to

B : It is impracticable to do so
C : More than five periods have to be restated
D : It would be difficult to do so
 CertIFR Course

quick quiz
3 – Accounting policies across various reporting periods may vary depending on the
needs of the reporting entity.

A : True.

B : False.
 CertIFR Course

quick quiz
4 – An increase in bad debt provisions is a change in accounting estimate.

A : True.

B : False.
 CertIFR Course

quick quiz
5 – When a change in accounting policy is applied retrospectively then the change
shall be . .

A : Noted in the income statement of the current reporting period.

B : Adjusted in equity.
C : Noted in income statement of the previous reporting period.
D : Disclosed in the notes to the financial statements without making adjustments
in financial statements.
 CertIFR Course

Property plant and Intangible assets Investment property

equipment

Accounting for government

Impairment of Borrowing costs grants and disclosure of
assets government assistance

Non-current assets held

Inventories Leases for sale and
discontinued operations
 CertIFR Course
IAS 16 Property plant and equipment - PPE

Asset is a resource controlled by the entity as a

result of past events and from which future
economic benefits are expected to flow to the entity

PPE is : tangible items that:

A- Held for use or supply, rental, or other purposes
B- Expected to be used during more than one period
 CertIFR Course

IAS 16
Property plant and equipment - PPE
Recognition

IAS 16 recognition criteria are the same as those of the Conceptual

Framework for Financial Reporting. Therefore PPE is recognised if:

It is probable that future economic benefits associated with the item

will flow to the entity, and
The item's cost can be measured reliably.
 CertIFR Course

IAS 16
Property plant and equipment - PPE
Measurements
PPE is initially recognised at its cost, which includes all those costs of
bringing it to its present condition and location including:

Capitalisation of subsequent expenditure should occur when it is

probable that the asset will produce future benefits in excess of the
originally assessed standard of performance.
 CertIFR Course

IAS 16
Property plant and equipment - PPE
Measurements

After initial measurement, an entity may choose which measurement

model to apply to PPE:
 CertIFR Course

IAS 16
Property plant and equipment - PPE
Revaluation model
Where revaluation model is applied there are some requirements
The model must be applied to all assets within the same class.
Revaluations must be carried out with sufficient regularity to ensure
that the carrying amount at each reporting date is not materially
different from fair value at that date.
Fair value is defined by IFRS 13 as the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date.
 CertIFR Course

IAS 16
Property plant and equipment - PPE
Accounting for a revaluation
The fair value may increase or decrease; the accounting entries depend upon
whether the fair value has previously increased or decreased

An increase in fair value is usually recognised in other comprehensive income-OCI

A decrease in fair value is usually recognised in profit or loss

In subsequent revaluation should take consider the previous revaluation effects

Amounts recognised in other comprehensive income in respect of revaluations are
accumulated in the revaluation reserve (revaluation surplus) in equity.
 CertIFR Course

IAS 16
Property plant and equipment - PPE
Example
 CertIFR Course

IAS 16
Property plant and equipment - PPE
Depreciation
All assets other than land must be depreciated.
The depreciable amount of an asset should be recognised as an expense
(depreciated) over its useful life beginning when it is available for use.
The depreciable amount of an asset is cost less residual value expected at the end
of the asset's useful life.
The depreciation method should reflect the expected pattern of the consumption
of the economic benefits of an asset by an entity.
Methods may include straight line and reducing balance methods.
 CertIFR Course

IAS 16
Property plant and equipment - PPE
Depreciation

Residual value, useful life and depreciation methods are all accounting estimates
that should be reviewed at each year end.

Any changes in accounting estimates are applied prospectively in line with IAS 8.

A revalued asset is depreciated by spreading its fair value over its remaining
useful life.
 CertIFR Course

IAS 16
Property plant and equipment - PPE
Disposal

The gain or loss on the disposal of an asset is calculated as the difference between
the proceeds and the carrying amount.

Since the latter could be based on either cost or revaluation, the gain on sale
would be lower if an asset had been revalued upwards.

When a revalued asset is disposed of, any revaluation surplus in respect of that
asset is considered to be realised and may be transferred to retained earnings.
This is a reserves transfer and is disclosed in the statement of changes in equity.
 CertIFR Course

quick quiz
1 – What is the net amount an entity expects to obtain for an asset at the end of its
useful life?

A : Residual value
B : Depreciated value
C : Present value
D : Fair value
 CertIFR Course

quick quiz
2 – A company purchase land with an office building. The building has a useful life 20
years. How should the land be depreciated?

A : Depreciate over 20 years

B : Depreciate over useful life of the land
C : Don’t depreciate the land
D : None of these
 CertIFR Course

quick quiz
3 – When an asset is sold or disposed of, where is the gain or loss recognized?

A : Asset disposal account

B : Profit and loss
C : Revaluation reserve
D : Depreciation
 CertIFR Course

quick quiz
4 – When an item of PPE is revalued, what should be revalued?

A : A selection of assets decided by management

B : The whole class of assets to which it belongs
C : The individual asset
D : A selection of assets picked at random
 CertIFR Course

quick quiz
5 – A company bought some land for $15m in 20X0, revalued it at various dates up to
$23m in 20X7, and sold it for $21m in 20X7, but did not receive any cash until 20X8.
Ignoring tax, the gain/loss recorded in 20X7 should be:

A : Zero
B : gain of $6m
C : A loss of $2m
D : A gain of $21m
 CertIFR Course
IAS 38
Intangible assets
Definition

An intangible asset is :
( an identifiable non-monetary asset without physical substance )
In order to be considered for recognition as an intangible asset, an item must be:
Identifiable The item must either be capable of being sold as a single item or
must arise from contractual rights

Non-monetary The item must not be cash or an asset to be settled in a fixed

amount of cash

An Asset The item must be controlled by the entity as a result of past events
and result in probable future economic benefits
 CertIFR Course
IAS 38
Intangible assets
Notes
Internally generated goodwill is not identifiable and cannot be recognised as an
intangible asset
A receivable is monetary and cannot be recognised as an intangible asset
Staff members are not controlled by an entity (an asset) and so cannot be
recognised as an intangible asset and nor can the costs of training them.
Recognition
It is probable that future economic benefits associated with the item will flow
to the entity and
The item's cost can be measured reliably.
 CertIFR Course
IAS 38
Intangible assets
Notes
It is usually more difficult for intangible assets to meet these criteria than
tangible assets.
Generally the cost of most internally generated intangibles cannot be
distinguished from the cost of developing a business as a whole.
Certain items are therefore not recognised. IAS 38 prohibits the recognition of
internally generated:

Brands Publishing titles

Mastheads Customer lists

 CertIFR Course
IAS 38
Intangible assets
Development expenditure

As a result of the difficulties of

applying the basic recognition
criteria to internally generated
assets,
IAS38 provides additional criteria
to be applied to research and
development expenditure.
 CertIFR Course
IAS 38
Intangible assets
Measurement
Initial Measurement
Intangible assets are initially measured at cost.
In the case of development costs this is costs incurred after the six recognition
criteria are all met until the asset is ready for use

Subsequent Measurement
In common with IAS 16, IAS 38 includes both a cost and revaluation model.
The revaluation model can, however only be applied to assets for which fair
value can be measured by reference to an active market.
 CertIFR Course
IAS 38
Intangible assets
Amortisation
Amortisation (depreciation) depends on the useful life of an intangible asset

a finite useful life Indefinite useful life

The cost less residual value of the The asset is not amortised
intangible asset is amortised over its
useful life Its useful life should be reviewed each
reporting period
The asset should also be assessed for
impairment in accordance with IAS36. The asset should also be assessed for
impairment in accordance with IAS36.
 CertIFR Course

quick quiz
1 – When does amortization of an intangible asset commence?

A : When the asset is substantially complete

B : When the asset is available for use
C : When management determine
D : At the start of the accounting period
 CertIFR Course

quick quiz
2 – Where is the amortization of an intangible asset recognized?

A : Profit or loss
B : Equity
C : Statement of financial position
D : Statement of cash flows
 CertIFR Course

quick quiz
3 – If an intangible asset is revalued upwards, the increase in value should be
credited…

A : To the income statement under (other income)

B : To the income statement under (Revaluation of asset)
C : To the statement of financial position under (Revaluation surplus)
D : To Equity under (Revaluation surplus)
 CertIFR Course

quick quiz
4 – Which of the following is not an example of an intangible asset?

A : Cash in bank
B : Customer lists
C : Trademarks
D : Software patent
 CertIFR Course

quick quiz
5 – An entity is permitted to use the revaluation model for initial recognition of an
intangible asset.

A : True

B : False
 CertIFR Course
IAS 40
Investment property
Definition Investment property is property held to earn rentals or capital gain,
rather than being owner occupied or held for sale in the ordinary
course of business

Includes

Land held for long term capital appreciation.

Land held for an undetermined use.
A building leased out under operating lease.
A vacant building that is held to be leased out under operating lease.
Property that is being developed for use as investment preperty.
 CertIFR Course
IAS 40
Investment property

Recognition

IAS 40 recognition criteria are the same as those of IAS 16 and the Conceptual
Framework.
It is probable that future economic benefits associated with the item will flow
to the entity and
The item's cost can be measured reliably.
 CertIFR Course
IAS 40
Investment property
Measurement

Investing in properties is a way for a company to utilise surplus cash and therefore
the accounting treatment applicable to other properties is not necessarily relevant.

IAS 40 allows a choice of applying measurement models

 CertIFR Course
IAS 40
Investment property

Notes

If the fair value model is applied, individual properties whose fair value cannot
be reliably measured should be measured at cost.

Entities that apply the cost model must disclose the fair value of investment
properties in the notes to the financial statements.
 CertIFR Course
IAS 40
Investment property
Transfers

When a property is transferred from investment property under the fair value
model to owner occupied property or inventory, the property's deemed cost is
its fair value at the date of its change of use.

When an owner occupied property is transferred to investment property

measured at fair value, it should be revalued in line with IAS 16 immediately
prior to transfer.

When inventory is transferred to investment property measured at fair value,

the difference between its carrying amount and fair value is recognised in
profit or loss.
 CertIFR Course

quick quiz
1 – Which of the following terms does this statement define: “property held to earn
rentals or capital gain, rather than being owner occupied or held for sale in the
ordinary course of business”?

A : Intangible asset
B : Inventory
C : Investment property
D : Property held for sale
 CertIFR Course

quick quiz
2 – Which of the following does not define investment property?

A : Property held for earn rentals

B : Property held for capital appreciation
C : Property used in the production or supply of goods or services
D : A and C
 CertIFR Course

quick quiz
3 – An investment property shall be measured initially at its __________.

A : Cost
B : Fair Value
C : Deemed Cost
D : Value in use
 CertIFR Course

quick quiz
4 – IAS 40 recognition criteria are the same as those of IAS 16 and the Conceptual
Framework.

A : True

C : False
 CertIFR Course

quick quiz
5 – IAS 40 allows a choice of applying measurement models.

A : Cost Model or Revaluation Model

B : Cost model or Fair Value Model
C : Fair Value Model or Revaluation Model
D : Fair value model Only
 CertIFR Course
IAS 36
Impairment of Assets

An asset should not be measured in the financial statements at an amount in

excess of its value to the reporting entity, whether this is net sales value or value
achieved through continued use.

Definition

When the carrying amount of an asset in the financial statements is greater than its
value to the business (its recoverable amount), then the asset is impaired and
should be written down. The reduction in carrying amount is an impairment loss.
 CertIFR Course
IAS 36
Impairment of Assets
Scope
Despite the name of the Standard, Impairment of Assets, IAS 36 is not relevant to all
assets. It does not apply to the following (largely because the individual Standards
deal with relevant impairment themselves):
Inventories (IAS 2) Pension assets (IAS 19)
Receivables (IFRS 15) Financial assets (IFRS 9)
Deferred tax assets (IAS 12) Biological assets (IAS 41)

Investment property measured at fair value (IAS 40)

Assets within the scope of IFRS 4
Non-current assets held for sale (IFRS 5)
 CertIFR Course
IAS 36
Impairment of Assets

How often to test for

impairment
 CertIFR Course
IAS 36
Impairment of Assets
Testing for impairment
By comparing
If The carrying amount The recoverable amount

the higher of

Fair Value less Costs to sell

Value in use
 CertIFR Course
IAS 36
Impairment of Assets
Accounting for impairment

An impairment exists if carrying amount exceeds recoverable amount; the loss is

the difference between these amounts and it is usually recognised immediately in
profit or loss.

An exception to this rule exists if there is a revaluation surplus related to the

impaired asset. In this case the loss is first recognised in OCI (and debited to the
revaluation surplus) and any excess recognised in profit or loss.
 CertIFR Course
IAS 36
Impairment of Assets
 CertIFR Course
IAS 36
Impairment of Assets
Cash generating units (CGU)

For many assets it is impossible to measure specific cash flows relating to them.
Therefore, it becomes necessary to perform impairment testing for the smallest
group of assets for which independent cash flows can be measured. This group of
assets is called a cash-generating unit (CGU)..

The carrying amount of the CGU is compared with its recoverable amount. Any
impairment loss is allocated:
To any goodwill in the CGU
To other assets of the CGU (that are within the scope of IAS 36)
 CertIFR Course
IAS 36
Impairment of Assets
 CertIFR Course
IAS 36
Impairment of Assets
Cash generating units (CGU)

Although not specifically mentioned in IAS 36, it is normal practice to reduce the
carrying amount of any damaged or obsolete asset before pro-rating the remaining
loss across remaining assets.

The carrying amount of an individual asset should not be reduced "below the
highest of:
Its fair value less costs of disposal
Its value in use, and
Zero
 CertIFR Course

quick quiz
1 – An asset is said to be impaired if . .

A : Its recoverable amount exceeds its carrying amount

B : Its carrying amount exceeds its recoverable amount
C : Its carrying amount is less than its market value
D : Its carrying amount exceeds its net discounted cash inflows
 CertIFR Course

quick quiz
2 – Goodwill and intangible assets with indefinite useful lives must be tested for
impairment at least every five years .

A : True

B : False
 CertIFR Course

quick quiz
3 – If the fair value less costs to sell for an asset cannot be determined, then
recoverable amount is its . .

A : Fair value
B : Market value
C : Replacement value
D : Value in use
 CertIFR Course

quick quiz
4 – When should the reversal of an impairment loss be recognised ?

A : Never
B : Immediately
C : When approved by the board of directors
D : None of these
 CertIFR Course

quick quiz
5 – Under IAS 36, what is the recoverable amount of an asset?

A : The lower of its cost and net realizable value

B : The higher of fair value less costs to sell and value in use
C : The lower of net present value and cost
D : The higher of net present value and cost
 CertIFR Course
IAS 23
Borrowing Cost
Eligible borrowing costs associated with the acquisition, construction or
production of a qualifying asset are capitalised as part of the cost of that asset.
Borrowing costs eligible for capitalisation are those that would have been avoided
if expenditure on the qualifying asset had not been incurred.
Include
Simple interest.
Interest calculated using the effective interest method (IFRS 9)
Finance charges on finance leases
Exchange differences to the extent they are an adjustment to interest costs on
foreign currency loans.
 CertIFR Course
IAS 23
Borrowing Cost
Qualifying assets

These are assets that necessarily take a substantial period of time to get ready for
intended use or sale.

They may Include

property, plant and equipment.

intangible assets.

investment properties and inventories.

 CertIFR Course
IAS 23
Borrowing Cost
Capitalisation period
Commences when Expenditure on the asset has commenced, and
Borrowing costs are being incurred, and
Activities to prepare the asset for intended use are in progress (including
activities before physical construction begins e.g. planning)

Ceases when Substantially all of the activities necessary to prepare the asset for
intended use or sale are complete.

suspended when Active development of the asset is suspended for an extended period.

Borrowing costs that are not capitalised are recognised in profit or loss as incurred.
 CertIFR Course
IAS 23
Borrowing Cost

Calculation of capitalised borrowing costs

The calculation depends on whether

Funds are borrowed specifically for the development of a qualifying asset

OR

drawn down from a pool of general borrowings.

 CertIFR Course
IAS 23
Borrowing Cost
Specific borrowings

Where a business borrows specifically to fund a project, the borrowing costs that
may be capitalised will be those actually incurred less investment income from the
temporary investment of the funds.

General borrowings

Where an entity funds an asset using general borrowings, the borrowing costs that
are capitalised are calculated by applying the weighted average cost of borrowing
to the expenditure on that specific asset.
CertIFR Course
IAS 23
Borrowing Cost
 CertIFR Course

quick quiz
1 – How shall an entity recognize borrowing costs that are directly attributable a
qualifying asset?

A : As an Equity
B : As an Asset
C : As an Expense
D : As a Liability
 CertIFR Course

quick quiz
2 – A qualifying asset is an asset that necessarily takes _________ to get ready for its
intended use or sale.

A : A substantial period of time

B : At least 6 months
C : At least 12 months
D : No more than 12 months
 CertIFR Course

quick quiz
3 – Which of the following cannot be a qualifying asset ?.

A : Power generation facilities

B : Manufacturing plants
C : Financial assets
D : Investment properties
 CertIFR Course

quick quiz
4 – Assets that are ready for their intended use or sale when acquired are not
qualifying asset.

A : True

B : False
 CertIFR Course

quick quiz
5 – Investment income generated from loans taken in order to finance a qualifying
asset should be:

A : Added to cost of asset

B : Added to borrowing cost
C : Deducted from borrowing cost
D : None of the above
 CertIFR Course
IAS 20
Accounting for Government Grants and
Disclosure of Government Assistance

The objective of IAS 20 is to prescribe the accounting for, and disclosure of,
government grants and other forms of government assistance.

Types of grant

Capital Contribute to the acquisition of an asset

Revenue Grant for other purposes e.g. to employ additional staff

 CertIFR Course
IAS 20

Recognition

only recognised in the financial statements if there is "reasonable assurance that:

The entity will comply with...[grant conditions]

The grant will be received

A grant is recognised as income in profit or loss in the period in which the

expenditure to which is contributes is recognised:
Capital recognised over the useful life of the asset.
Revenue recognised when the costs of complying with the grant are recognised.
 CertIFR Course
IAS 20
Presentation
 CertIFR Course
IAS 20

Government assistance

Significant government assistance is disclosed as a note in the financial statements.

 CertIFR Course

quick quiz

1 – A grant is only recognised in the financial statements if there is "reasonable

assurance that:

A : The entity will comply with...[grant conditions]

B : The grant will be received".
C : Both A and B
D : None of the above
 CertIFR Course

quick quiz
2 – In accordance with IAS 20 Accounting for government grants and disclosure of
government assistance, how are grants related to assets recognized?

A : In the statement of profit or loss for the period they are due to be received.
B : In the statement of financial position as deferred income.
C : In the statement of financial position as a deduction from the carrying
amount of the relevant asset.
D : In the statement of financial position as deferred income OR as deduction
from the carrying amount of the relevant asset.
 CertIFR Course

quick quiz
3 – in a revenue grants, If related costs have already been recognised, grant income is
recognised when receivable

A : True

B : False
 CertIFR Course

quick quiz
4 – where the government assistance should be appear in financial statements?

A : Income statement as profit or loss

B : As a differed revenues
C : Deduction from assets
D : Just as a disclosure in financial statement
 CertIFR Course

quick quiz
5 – Receipt of a grant provides of itself conclusive evidence that the conditions
attaching to the grant have been or will be fulfilled.

A : True

B : False
 CertIFR Course
IAS 02
Inventories
Definition

Inventories are assets:

held for sale in the ordinary course of business

in the process of production for such sale

in the form of materials or supplies to be consumed in the production process

or in the rendering of services.
 CertIFR Course
IAS 02
Inventories
Objective

prescribe the accounting treatment for inventories.

provides guidance for determining the cost of inventories and for subsequently
recognising an expense, including any write-down to net realisable value.

provides guidance on the cost formulas that are used to assign costs to
inventories.
 CertIFR Course
IAS 02
Inventories
Measurement

Closing inventory is measured on a line-by-line basis at the lower of:

 CertIFR Course
IAS 02
Inventories
Cost Includes:
Costs of purchase (including import duties, taxes, transport, and handling costs)
net of trade discounts received
Costs of conversion (including a systematic allocation of :
- fixed manufacturing overheads based on normal production capacity
- variable manufacturing overheads based on actual production capacity)
Other costs incurred in bringing the inventories to their present location and
condition.
Excludes: - Abnormal waste - Selling costs
- storage costs - Administrative overheads
 CertIFR Course
IAS 02
Inventories
Determining cost

Specific identification of cost is the appropriate treatment for items that are
segregated for a specific project

IAS 2 allows a choice of formulae to determine cost where the specific cost is
not obvious.

FIFO or weighted average are the permitted treatments.

LIFO is not permitted under IAS 2.

 CertIFR Course
IAS 02
Inventories

Notes

The same cost formula should be used for all inventories with similar
characteristics.

For groups of inventories that have different characteristics, different cost

formulas may be justified.
 CertIFR Course
IAS 02
Inventories

Net realisable value (NRV)

Net realisable value is the estimated selling price in the ordinary course of
business less the estimated costs of completion and sale.

Inventories are written down to NRV item by item.

Raw materials held for use in the production of inventories are not written down
below cost if the finished goods into which they will be incorporated are expected
to be sold at or above cost.
 CertIFR Course
IAS 02
Inventories

Recognition of an expense

The carrying amount of inventories is recognised as an expense when those

inventories are sold.

Any write-down to NRV is recognised as an expense in the period in which the

write-down occurs.
 CertIFR Course

quick quiz
1 – Which of the following cost model is not permitted under IAS 2 ?

A : First in, First out ( FIFO ).

B : Last in, First out ( LIFO ).
C : Weighted average.
D : Actual cost.
 CertIFR Course

quick quiz
2 – Under IAS 2, fixed production overheads should be allocated to items of inventory
on the basis of ------- production capacity.

A : Actual.
B : Normal.
C : Abnormal.
D : Estimated
 CertIFR Course

quick quiz
3 – Which of the following costs are not included while computing the cost of
purchase?

A : Purchase price.
B : Recoverable taxes.
C : Import duties.
D : Shipping costs
 CertIFR Course

quick quiz
4 – Inventory should be measured at the lower of cost and ---------------

A : Fair value.
B : Market value.
C : Net realisable value.
D : Present value.
 CertIFR Course

quick quiz
5 – Which of the following is not permitted as a cost of inventory?

A : Non-recoverable taxes.
B : Shipping.
C : Fixed manufacturing overhead.
D : Storage costs.
 CertIFR Course

Leases

IFRS 16 was issued in January 2016. It adopts a single accounting model for all
leases by lessees, whilst requiring lessors to classify leases as either operating or
finance in nature.
All leases, other than those to which simplified accounting applies (see below) are
accounted for in the same way.

A lessee can recognise lease payments on a straight line basis over the lease term if:
The lease term is 12 months or less
The underlying asset is of a low value.
 CertIFR Course

Leases

At the start of the lease, the lessee recognises:

lease liability
Representing the obligation to make lease payments, and

Right of use
Representing the right to use the asset that has been leased.
 CertIFR Course

Leases
lease liability
initially measured
at the present value of future lease payments, discounted at the rate implicit in
the lease.
Subsequently measured
Increases due to interest at a constant rate on the outstanding obligation
Decreases to reflect payments made
Remeasured to reflect changes to lease payments or lease modifications that
do not result in a separate lease.
 CertIFR Course

Leases
Right of use
initially measured
The right of use asset is initially measured at cost:

Cost includes:
Initial measurement of lease liability
Lease payments made prior to commencement date
Initial direct costs of the lessee
Lease incentive received
Estimated dismantling costs
 CertIFR Course

Leases
Right of use

Subsequently measured
The asset is subsequently measured at cost less accumulated depreciation and
impairment losses
Unless:
The underlying asset is property, plant or equipment that belongs to a class of
assets measured using the IAS 16 revaluation model and the lessee elects to
apply the revaluation model to the right of use assets relating to that class

The underlying asset is an investment property and the lessee adopts the fair
value model.
 CertIFR Course

Leases
Notes

The election to use simplified accounting is made on a lease-by-lease basis for

low value assets and by class of underlying asset for short-term leases.

The depreciation term is the shorter of the useful life of the underlying leased
asset and lease term.

If ownership of the leased asset is transferred at the end of the term, the
depreciation term is always useful life.
 CertIFR Course

Leases
Example
 CertIFR Course

Leases

Lease liability - initial measurement

 CertIFR Course

Leases

Right of use asset - initial measurement

 CertIFR Course

Leases
Lease liability - subsequent measurement
 CertIFR Course

Leases
Asset - subsequent measurement
 CertIFR Course
IFRS 16
Leases
Lessor accounting
Leases are classified as either :
Operating Lease

Finance Lease

A finance lease transfers substantially all of the risks and rewards incidental to
ownership of the underlying asset to the lessee. Other leases are operating leases.

Note: that there is no numerical indicator of a finance lease; a lease term for the
major part of useful life or minimum lease payments substantially equal to fair
value indicate a finance lease, but these terms are not quantified.
 CertIFR Course
IFRS 16
Leases

IFRS 16 states that the following situations (individually or together) would

normally indicate a finance lease:
Transfer of ownership of the asset by the end of the lease term.
The lessee has the option to purchase the asset at end of the lease term and pricing
means this is reasonably certain to be exercised
The lease term is for the major part of the asset's useful life.
At the start of the lease the present value of minimum lease payments is substantially
all of the fair value of the asset.
The asset is so specialised that only the lessee can use it without major modification.
 CertIFR Course
IFRS 16
Leases

Operating Lease

A lessor retains an asset leased under an operating lease in its statement of

financial position.

Lease income is recognised as income on a straight line basis (or another

systematic basis if more appropriate) over the lease term.
 CertIFR Course
IFRS 16
Leases

Finance Lease

Although the lessor owns an asset leased out under a finance lease, the
statement of financial position shows a receivable rather than the leased asset.

Lessors recognise finance income as a constant return on the net investment in

the lease.
 CertIFR Course
IFRS 16
Leases

Sale and leaseback transactions

Companies may sell assets and then lease them back in order to realise cash.

Revenue from Contracts with Customers (IFRS15) should be applied to

determine whether a sale has taken place.
 CertIFR Course
IFRS 16
Leases
If transfer is a sale:
The seller retains a proportion of the carrying amount of the transferred asset, being an
amount equal to the right of use retained. The remainder of the carrying amount of the
transferred asset is derecognised and gives rise to a gain or loss on disposal..
The buyer accounts for the purchase of the asset by applying relevant Standards (e.g. IAS 16 for
property, plant or equipment) and applies IFRS 16 lessor guidance in respect of the leaseback.
If transfer proceeds are not equal to the fair value of the transferred asset, or lease payments
are not at market rate:
 CertIFR Course
IFRS 16
Leases

If transfer is not a sale:

The seller continues to recognise the asset. Proceeds received are recognised as a
finance liability (IFRS 9)

The buyer does not recognise a lease asset, but does recognise a financial asset (IFRS 9).
 CertIFR Course

quick quiz
1 – Which of the following situations would normally lead to a lease being classified
as a finance ?

A : The lease term is not for the major part of the asset’s economic life
B : The lessee has the option to purchase the asset at a price which makes it
reasonably certain that this option will be exercised.

C : At the inception of the lease, the present value of the minimum lease
payments doesn’t amount to substantially all of the fair value.
D : The lease does not transfer ownership of the leased asset to the lessee by
the end of the lease term.
 CertIFR Course

quick quiz
2 – if the right of use assets relate to a class of property, plant and equipment to
which the lessee applies the revaluation model in IAS 16, a lessee may elect to apply
the revaluation model to all of the right of use assets that relate to that class of PPE.

A : True.

B : False.
 CertIFR Course

quick quiz
3 – a lease of land which does not transfer legal title to the lessee by the end of the
lease term cannot be a finance lease .

A : True.

B : False.
 CertIFR Course

quick quiz
4 – In relation to operating leases, which of the following statement is not true?

A : The leased item is not shown as an asset in the lessor’s financial statements.
B : The lessee has not taken on the risks and rewards incidental to ownership.

C : The leased item is not shown as an asset in the lessee’s financial statements.

D : The lease payments are recognized as an expense in the lessee’s financial

statements.
 CertIFR Course

quick quiz
5 – What are two components of a leaseback?

A : A lease and a sublease.

B : A lease and an assumption.

C : A lease and an assignment.

D : A sale and a lease.

 CertIFR Course
IFRS 5
Non-current Assets Held for Sale
and Discontinued Operations

Non-current Assets Held for Sale (HFS)

A non-current asset is classified as HFS if:

Management is committed to a plan to sell

The asset is available for immediate sale in its present condition, and its sale
must be highly probable.
 CertIFR Course
IFRS 5

Non-current Assets Held for Sale (HFS)

To be highly probable:
Management must be committed to a disposal plan
An active programme to locate a buyer is initiated
The asset is being marketed for sale at a price reasonable in relation to its fair value
The sale is highly probable, within 12 months of classification as held for sale
It is unlikely that significant changes will be made to the disposal plan
Actions required to complete the disposal plan indicate that it is unlikely that the plan
will be significantly changed or withdrawn
 CertIFR Course
IFRS 5
Measurement
Immediately before transfer to the HFS category, a non-current asset must be
measured in accordance with applicable IFRS Standards.
On transfer to HFS, a non-current asset is measured at the lower of carrying amount
and fair value less costs to sell.
Any resulting impairment loss is recognised in profit or loss.
Depreciation ceases on classification as HFS.
At subsequent reporting dates an asset HFS is re-measured to the lower of carrying
amount and fair value less costs to sell.

Presentation
Non-current assets HFS are presented separately from other assets.
 CertIFR Course
IFRS 5

Disposal groups HFS

A disposal group is a group of assets, possibly with some associated liabilities,

which an entity intends to dispose of in a single transaction.
A disposal group is classified as HFS if it meets the same criteria as those for an asset
HFS.
A disposal group acquired exclusively with a view to subsequent disposal is classified
as HFS if the sale is expected to take place within 12 months of acquisition and the
other conditions are met within 3 months of the acquisition.
The assets and liabilities of a disposal group are re-measured in accordance with IFRS
Standards before classification as HFS; on classification they are measured at the lower
of carrying amount and fair value less costs to sell
 CertIFR Course
IFRS 5

Disposal groups HFS

Impairment losses are recognised in accordance with IAS 36.

Depreciation is not charged on the assets of a disposal group HFS.

Assets and liabilities of a disposal group HFS are presented separately from other
assets and liabilities in the statement of financial position.

They are not offset. Assets classified as held for sale, and the assets and liabilities
included within a disposal group classified as held for sale, must be presented
separately on the face of the statement of financial position.
 CertIFR Course
IFRS 5

Discontinued operations

A discontinued operation is a component of an entity that either has been disposed of or

is classified as HFS and:

Represents a separate major line of business or geographical area of operations

Is part of a single co-ordinated plan to dispose of a separate major line of business or

geographical area of operations

Is a subsidiary acquired exclusively with a view to resale

 CertIFR Course
IFRS 5

Disclosure of discontinued operations

The main requirement is that in the statement of profit or loss and other comprehensive
income the result for the discontinued operation, combined with any gain or loss on
disposal, or on re-measurement of assets HFS, should be disclosed separately from the
results of continuing operations.
 CertIFR Course

Exam Simulation
01- In accordance with IAS 20 ‘Government grants and assistance‘, grants related to
assets are recorded:

A : In the statement of profit or loss for the period they are due to be received
B : In the statement of financial position as deferred income

C : In the statement of financial position as a deduction from the carrying

amount of the relevant asset

D : In the statement of financial position as deferred income OR as a deduction

from the carrying amount of the relevant asset
 CertIFR Course

Exam Simulation
02- Thunder limited had inventory with a cost of $10,000 at the end of the financial period, 31
Dec 2013. it estimated the net realisable value of this inventory was $9,000 at 31 Dec 2013.
one weak later, the inventory was sold for $7,000.
- If their financial statements were finalised on 14 Feb 2014, what value should be assigned to
this inventory?

A : $10,000
B : $9,000
C : $7,000
D : None of the above
 CertIFR Course

Exam Simulation
03- The estimated selling price in the ordinary course of business less estimated cost
of completion and estimated cost of sale is called?

A : Market value.
B : Fair value.

C : Current value.

D : Net realisable value.

 CertIFR Course

Exam Simulation
04- What is the amount an asset is recognised at in the SOFP less any accumulated
depreciation or impairment losses?

A : Carrying amount .
B : Residual Value.

C : Impairment amount.

D : Fair Value.
 CertIFR Course

Exam Simulation
05- Which of the following is not a component of cost of an asset?

A : Purchase price.
B : Import duties.

C : Refundable sales tax.

D : Estimate of compulsory future dismantling costs.

 CertIFR Course

Exam Simulation
06- IAS 36 impairment of assets requires that an asset is not carried at more than its
recoverable amount , which of the following best describes recoverable amount ?
A : The higher of the present value of all future cash flows associated with the
assets for the rest of its useful life and fair value .
B : The higher of the fair value less disposal costs and the present value of cash
flows expected to be generated by the assets over a maximum of 5 years.
C : The higher of the present value of all future cash flows associated with the
assets for the remainder of its useful life less selling costs .

D : The higher of the fair value and the present value of cash flows expected to
be generated by the assets over a maximum of 5 years.
 CertIFR Course

Exam Simulation
07- Which of the following is allowed as a cost of inventory?

A : Abnormal waste.
B : Storage cost.

C : Variable manufacturing overhead.

D : Selling cost.
 CertIFR Course

Exam Simulation
08- How should an asset be initially recognised in the financial statements?

A : Measure at market value.

B : Measure at cost.

C : Measure at net realisable value.

D : Measure at fair value.

 CertIFR Course

Exam Simulation
09- Sandy Co enters into a lease agreement on 1 July 20X2. The lease term is 5 years. Annual rental
payments in advance are $2,500. On 1 July 20X2, the four future payments discounted at the implicit
rate in the lease give a present value of $8,200. The acquired asset has a fair value of $10,100. To
incentivise Sandy to enter into the lease, the lessor has agreed to pay Sandy Co a $500 contribution
towards the $900 costs of setting up the lease. At what amount is the right of use asset initially
measured?

A : $ 10,200.

B: $ 11,600.

C: $ 10,700.

D : $ 11,100.
 CertIFR Course

Exam Simulation
10- During 20X5, Project Co constructed a new head office building costing $2m. It took 6 months to
complete and the work was funded from existing loan finance, with the full $2m drawn down at the
start of the project:
• $1m loan at an interest rate of 6%
• $1.5m loan at an interest rate of 4%
• $0.5m loan at an interest rate of 5%
In accordance with IAS 23, what amount of borrowing costs are capitalised in 20X5?
A : $ 48,333.

B: Nil.

C: $ 42,500.
D : $ 96,667.
 CertIFR Course

Exam Simulation
11- Zone Co, a company specialising in the provision of sports equipment, purchased a property, which
the management decided to rent out for two years to Partition Co by way of an operating lease for
$5,000 per calendar month. Which of the following is true?

A : The property should be capitalised as property, plant and equipment and depreciated over
an appropriate useful life.

B: A lease receivable should be recognised in accordance with IFRS 16

C: The property should be classified as an investment property and measured using either the
cost or the fair value model.

D: Zone Co should not record the purchase of the property as the company will not occupy or
use it.
 CertIFR Course

Exam Simulation
12- Which of the following conditions is not required for an asset to be classified as held for sale under
IFRS 5?

A : Management is committed to a plan to sell.

B: Asset has not been re-valued.

C: The selling price must be in line with current fair value.

D: Sale is highly probable.

 CertIFR Course

Exam Simulation
13- Festival Co values its inventory using the average cost method. At the beginning of January it held
110 units of inventory which cost $5 each. The following inventory movements took place during
January: 3 January Sold 95 units for $6 each 12 January Purchased 100 units for $5.50 each 15 January
Purchased 50 units for $5.75 each 20 January Sold 80 units for $6 each At what amount should
inventory be included in Festival Co's statement of financial position at 31 January?

A : $442.42

B: $453.90

C: $480.00

D: $470.08
 CertIFR Course

Exam Simulation
14- Which one of the following does not meet the definition of investment property included within
IAS 40?

A : Land currently held for an undetermined use.

B: A building owned by and leased out under an operating lease.

C: A building that is vacant but is held to be leased out.

D: Accommodation that is rented to staff members.

 CertIFR Course

Exam Simulation
15- Which of the following statements is correct?

A : IAS 16 ‘Property, plant & Equipment’ forbids the capitalization of any subsequent expenditure on
an asset.
B: A building owned by and leased out under an operating lease.

C: IAS 20 ‘Accounting for Government Grants and Disclosure of government assistance’ allows
grants related to assets to be presented in the statement of financial position as deferred income
or as a deduction from the cost of the related assets.
D: IAS 17 ‘leases’ introduces a 90% numerical threshold to provide guidance on the substantial
transfer of risks and rewards in respect of finance leases.
 CertIFR Course

Exam Simulation
16- Gain Co acquired a property in 20X0 for a cost of $10 million. Gain Co revalues all of its property
annually in accordance with IAS 16 Property, Plant & Equipment. On 15 December 20X1 Gain Co
entered into a binding sale agreement and title to the property passed to Gloss Co for $25 million cash.
The consideration is payable in March 20X2. The carrying amount of the property at 15 December 20X1
was £22 million. In accordance with IAS 16, what profit should be reported in profit or loss for Gain Co
for the years ending 31 December 20X1 and 31 December 20X2 in respect of the disposal?

A : 20X1 = Nil, 20X2 = $3 million

B: 20X1 = $3 million, 20X2 = $12 million

C: 20X1 = $3 million, 20X2 = $Nil

D: 20X1 = $15 million, 20X2 = $Nil

 CertIFR Course

Exam Simulation

17- Which of the following criteria does not have to be met in order for an operation to be classified as
discontinued under IFRS 5?

A : The operation represents a separate line of business or geographical area

B: The operation is part of a single plan to dispose of a separate major line of business or
geographical area

C: The operation is a subsidiary acquired exclusively with a view to resale

D: The operation is expected to be sold within six months of the year end
 CertIFR Course

Exam Simulation

18- Bubble Co leased a machine from Balloon Co for 5 years commencing on 1 January 20X1. Bubble Co
is required to make annual payments of $500, however as an incentive, Balloon Co has provided an
initial six month rent free period. Balloon Co classifies the lease as an operating lease. What lease
income should Balloon Co recognize in the year ended 31 December 20X1?

A : $500

B: $450

C: $250

D: $600
 CertIFR Course

Exam Simulation

19- impairment of an asset, as determined by IAS 36 'impairment of assets', will have taken place in
which of the following circumstances:

A : Recoverable amount is higher than existing carrying amount.

B: Recoverable amount is lower than existing carrying amount.

C: Value in use is higher than net realizable value.

D: Value in use is lower than net realizable value.

 CertIFR Course

Exam Simulation

20- Provence Co, a multi-national organisation, wishes to follow a policy of revaluation of certain non-
current assets. Which of the following assets could it revalue in accordance with IAS 16?

A : Ignoring any other assets within the same class, an individual asset that in management's
opinion has a fair value that is materially different from its carrying amount

B: All assets within a single country on a country by country basis

C: All assets which have not been revalued within the past 5 years

D: All assets within a single broad class such as land and buildings
 CertIFR Course

Exam Simulation

21- Risotto Co. purchased a quantity of inventory, incurring the following total costs:
Based cost 230,000 $ - Irrecoverable sales tax 46,000 $ - Shipping 22,000 $
Storage 15,000 $ - Administration costs 9,000 $ - Total cost 322,000
What amount should Risotto Co include in the statement of financial position for the batch of
inventory?

A : $307,000

B: $322,000

C: $298,000
D: $276,000
 CertIFR Course

Exam Simulation

22- In accordance with IAS 20 Accounting for Government Grants and Disclosure of Government
Assistance, how are grants related to assets recognised?

A : In the statement of financial position as deferred income OR as a deduction from the carrying
amount of the relevant asset.
B: In the statement of financial position as deferred income.

C: In the statement of financial position as a deduction from the carrying amount of the relevant
asset.
D: In the statement of profit or loss for the period they are due to be received.
 CertIFR Course

Exam Simulation
23- Enterprise Co has incurred the following expenditure prior to the commercial production of a new
product.
Marketing campaign € 30,000
Royalty payment to product inventor € 15.000
Staff training in production techniques € 10.500
In accordance with [AS 38 Intangible Assets and assuming that the recognition criteria are met pnor to
incurring the listed expenditure, what amount can Enterprise Co recognise as an intangible asset for
development expenditure?
A : Nil
B: € 15,000
C: € 25,500
D: € 55,500
 CertIFR Course

Exam Simulation
24- in 20x5 leasy co sell and leases back a manufacturing assets by way of a lease > the transfer does
not qualify as sale in accordance with IFRS 15 , the sale proceeds were in excess of fair value and
exceeded carrying amount of the assets , which of the following statement is true ?

A : The sale proceeds are recognized as a financial liability.

B: The excess of sale proceeds over fair value are recognized as a financial liability

C: A right of use assets is recognized

D: The assets is derecognized and a gain or loss on disposal arises

 CertIFR Course

Exam Simulation

25- which of the following statement is correct ?

A : Internally developed brands must be capitalized at cost

B: All intangible assets are deemed to have an indefinite useful life

C: intangible assets may be depreciated on a reducing balance basis

D: intangible assets may not be revalued upwards

 CertIFR Course

Answers

Q 01 D Q 06 C Q 11 C Q 16 C Q 21 C
Q 02 C Q 07 C Q 12 B Q 17 D Q 22 A
Q 03 D Q 08 B Q 13 D Q 18 B Q 23 B
Q 04 A Q 09 D Q 14 D Q 19 B Q 24 B
Q 05 C Q 10 A Q 15 C Q 20 D Q 25 C
 CertIFR Course
IFRS 13
Fair Value Measurement
IFRS 13 establishes a single source of guidance for the fair value measurement of assets
and liabilities when this is required by other IFRS. It was issued in 2011 and became
effective in 2013..
Scope of IFRS 13

IFRS 13 does not prescribe when fair value should be used, only how to determine it when
required by another Standard..

Exception :
Share-based payments (IFRS 2)
Leases falling within the scope of IFRS 16
Measurements that are similar to, but are not, fair value e.g. NRV (IAS 2).
 CertIFR Course
IFRS 13
Fair Value Measurement

Definition of fair value

"Fair value is the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date."

Measurement approach

The asset or liability to be measured

highest and best use
The principal market
An appropriate valuation technique to use
 CertIFR Course
IFRS 13
Fair Value Measurement

1 - Asset or liability

The characteristics of the asset or liability being measured should be considered when
determining fair value if these would be relevant to buyers and sellers in the market.
 CertIFR Course
IFRS 13
Fair Value Measurement
2 - Highest and best use

The fair value of a non-financial asset is determined based on highest and best use from
the point of view of market participants, even if the reporting entity intends a different
use. The highest and best use must be physically possible, legally permissible and
financially feasible.
 CertIFR Course
IFRS 13
Fair Value Measurement

3 - Principal or most advantageous market

The principal market is that with the most volume of activity for the asset or liability.

The most advantageous market is that which maximises the amount that would be
received to sell an asset (or paid to settle a liability) after taking into account transaction
and transport costs.

Fair value is determined based on the principal market; where there is no principal
market, it is based on the most advantageous market.
 CertIFR Course
IFRS 13
Fair Value Measurement
 CertIFR Course
IFRS 13
Fair Value Measurement

4 - Valuation technique

IFRS 13 discusses three valuation approaches:

Market approach (Level1)- uses prices and other relevant information generated by
market transactions involving identical or similar assets or liabilities
Cost approach (Level2)- uses current replacement cost
Income approach (Level3)- uses discounted future cash flows or income and expenses.

Any one, or where appropriate a combination, of these valuation techniques should be

selected and consistently applied.
 CertIFR Course
IFRS 13
Fair Value Measurement
In order to use a valuation technique, 'inputs' are required. For example, an income
approach requires cash flow estimations and appropriate discount rates.

Inputs used to measure fair value are divided into three categories:

-The Standard required entities to use Level 1 when the relevant information is available,
-Where such information is not available then Level 2 inputs should be used,
-Level 3 should only be used as a last resort.
 CertIFR Course
IFRS 13
Fair Value Measurement

Disclosure

Detailed disclosure requirements are prescribed by the Standard, for the most part
following the fair value hierarchy described. The disclosures are both qualitative and
quantitative.
 CertIFR Course
Financial Instrument
IAS 32 – IFRS 7 – IFRS 9
Definitions

Financial instrument: any contract that gives rise to a financial asset in one entity
and a financial liability or equity instrument of another entity

Debentures are a financial instrument as the issuing company has a liability and
the investing entity has a financial asset
 CertIFR Course
Financial Instrument
IAS 32 – IFRS 7 – IFRS 9
Definitions

Financial asset - cash, an equity instrument of another entity (i.e. an investment)

or a contractual right to receive cash (e.g. trade receivables).

Financial liability - a contractual obligation to deliver cash or another financial

asset to another entity (e.g. trade payables).

Equity - any contract that evidences a residual interest in the assets of an entity
after deducting all of its liabilities.
 CertIFR Course
Financial Instrument
IAS 32 – IFRS 7 – IFRS 9
Notes

investments in subsidiaries, associates and joint ventures and employee benefit

obligations are excluded from the scope of IAS 32 and IFRS 7.

Financial instruments may be : Primary instruments or Derivative instruments.

Primary instruments : (e.g. receivable or payable, loans, equity investments)

Derivative instruments. : A derivative financial instrument derives its value from

the price or rate of an underlying item e.g. forward contracts.
 CertIFR Course
Financial Instrument : IAS 32

IAS 32 : Presentation

Presentation of Financial Instruments establishes the principles for classifying

financial instruments into financial assets, financial liabilities and equity.

Equity or Liability ?
Financial instruments used to raise funds must be classified as either equity or
liability.
Determining whether an instrument is equity or a liability is not always straightforward
and IAS 32 requires that the substance of the contractual arrangement is considered. The
critical feature of a liability is an obligation to deliver cash or another financial instrument.
 CertIFR Course
Financial Instrument : IAS 32

Classification of shares

If an entity has issued preference shares that are redeemable on a specified

date then the shares must be treated as a liability
If an entity has issued ordinary shares, it has no contractual obligation to pay a
dividend and so the shares are equity
If an entity has issued irredeemable preference shares these may be equity (if
there is no contractual obligation to deliver cash) or may be a liability (if there
is a contractual obligation to deliver cash).

Obligation = Liability No Obligation = Equity

 CertIFR Course
Financial Instrument : IAS 32

Convertible instruments

Most convertible loan stock and convertible preference shares are classified as
compound instruments and so are 'split accounted‘.
The instrument is split into a liability and an equity component at initial
recognition and each is accounted for separately.

The liability component is measured at the present value of the cash flows
associated with a similar liability with no conversion rights attached. The
difference between this figure and the value of the compound instrument as a
whole is the value of the equity part.
 CertIFR Course
Financial Instrument : IAS 32
 CertIFR Course
Financial Instrument : IAS 32
 CertIFR Course
Financial Instrument : IAS 32

Notes

Any instrument recognised as debt should have a return recognised as a

finance cost, even if it is legally called a dividend.

Offsetting of financial assets against financial liabilities is only allowed when

there is a legally enforceable right of set off which the entity intends to use.
 CertIFR Course
Financial Instrument : IFRS 7

IFRS 7 : Disclosures

An entity must group its financial instruments into classes of similar instruments and,
when disclosures are required, make disclosures by class.

The two main categories of disclosures required by IFRS 7 are:

Information about the significance of financial instruments

Information about the nature and extent of risks arising from financial instruments
 CertIFR Course

Financial Instrument : IFRS 9

IFRS 9 deals with:

- The recognition and measurement of financial assets and liabilities,
- The impairment of financial assets and hedging.

Recognition

"An entity shall recognise a financial asset or financial liability when the entity
becomes a party to the contractual provisions of the instrument."

Note that this recognition rule differs from that seen in the Conceptual Framework
for Financial Reporting and several other Standards.
 CertIFR Course

Financial Instrument : IFRS 9

Business model For Trading Held for sale Held to maturity

For Example Shares Shares Bonds

Fair value Fair value

Initially Fair value Only + +
Transaction costs Transaction costs

Subsequent FVTPL FVTOCI Amortized Cost

 CertIFR Course

Financial Instrument : IFRS 9

Measurement of financial asset

Initially

All financial assets are initially measured at fair value plus transaction costs with
the exception of 'financial assets at fair value through profit or loss', which are
measured at fair value only (no transaction costs).
 CertIFR Course

Financial Instrument : IFRS 9

Subsequent
Amortised cost : if the below conditions are met
The asset is held within a business model for which the objective is to collect contractual cash
flows
The contractual terms of the asset give rise to cash flows on specific dates that are payments of
principal and interest.
Fair value through other comprehensive income (FVTOCI) : if
The asset is held within a business model for which the objective is to collect contractual cash
flows and sell financial assets
The contractual terms of the asset give rise to cash flows on specific dates that are payments of
principal and interest.
Fair value through profit or loss (FVTPL) for Investments in equity instruments
 CertIFR Course

Financial Instrument : IFRS 9

Notes

Investments in equity instruments must be measured at FVTPL as they do not

result in cash flows on specific dates

Investments in debt instruments may be measured at amortised cost or FVTOCI

or FVTPL depending on the circumstances

Derivatives are measured at FVTPL.

 CertIFR Course

Financial Instrument : IFRS 9

Gains and losses

Interest and dividend revenue on all financial assets is recognised in profit or loss.
Impairment losses on all financial assets are recognised in profit or loss.
Other gains or losses on re-measurement to fair value are recognised as follows:
 CertIFR Course

Financial Instrument : IFRS 9

Measurement of financial Liability

Initially
Financial liabilities are initially measured at fair value plus transaction costs with
the exception of those held for trading or designated 'at fair value through profit
or loss', which are held at fair value only (no transaction costs).

Subsequent
(FVTPL) for liabilities held for trading or those designated at FVTPL

Amortised cost : for All other financial liabilities

 CertIFR Course

Financial Instrument : IFRS 9

Impairment of Financial Assets

IFRS 9 uses an expected loss approach to the impairment of financial assets.

This approach results in impairments (called credit losses by IFRS 9) being
recognised before indicators of impairment exist.

Expected Credit Losses = ECL

The general approach to credit losses is as follows:

At initial recognition, 12 month expected credit losses are recognised.

Beyond this (Subsequent) , a 3 stage approach is taken:
 CertIFR Course

Financial Instrument : IFRS 9

Stage 1
If credit risk has not increased significantly since initial recognition, recognise 12
month expected credit losses.

Stage 2
If credit risk (the risk of default) has increased significantly since initial recognition,
recognise lifetime expected credit losses, and calculate interest on gross asset.

Stage 3
If there is evidence of impairment at the reporting date, recognise lifetime
expected credit losses, and calculate interest on asset net of impairment.
 CertIFR Course

Financial Instrument : IFRS 9

 CertIFR Course

Financial Instrument : IFRS 9

 CertIFR Course

Financial Instrument : IFRS 9

Note

Credit losses are recognised in profit or loss and, depending on the asset, may be
net off against the carrying amount of the asset in the statement of financial
position or recognised as a separate credit balance.
 CertIFR Course

Financial Instrument : IFRS 9

 CertIFR Course

Financial Instrument : IFRS 9

 CertIFR Course

Financial Instrument : IFRS 9

Hedge Accounting
For example, if an entity has committed to pay an amount of foreign currency in
six months, it might enter into a forward contract to buy the currency at a future
date at a pre-determined exchange rate. Thus it avoids the risk of the foreign
currency rising in value before the date of payment.

There are three types of hedge:

A fair value hedge (hedges changes in the value of a recognised asset or liability)
A cash flow hedge (hedges exposure to variability in future cash flows)
A net investment hedge (hedges exposure to changes in the value of a foreign operation).
 CertIFR Course

Financial Instrument : IFRS 9

Hedge Accounting

Hedge accounting is only allowed when certain conditions are met:

The hedging relationship consists only of eligible hedged items and eligible hedging
instruments as defined by IFRS 9

At the inception of the hedge there is formal documentation of the relationship

Hedge effectiveness criteria are met.

 CertIFR Course

Provisions, contingent liabilities and contingent assets: IAS 37

IAS 37 deals with accounting for uncertainty.

Key Definitions
Provision : A liability of uncertain timing or amount.
Liability : Present obligation as a result of past events, for which Settlement is expected
to result in an outflow of resources (payment).

Contingent liability : A possible obligation depending on whether some uncertain future

event occurs, or A present obligation that is not probable or cannot be measured reliably.
Contingent asset : A possible asset that arises from past events, and Whose existence
will be confirmed only by the occurrence or non-occurrence of one or more uncertain
future events not wholly within the control of the entity.
 CertIFR Course

Provisions, contingent liabilities and contingent assets: IAS 37

Provisions - recognition

A provision can only be recognised when three criteria are met:

There is a present obligation as a result of a past event

It will result in a probable outflow of economic benefits

A reliable estimate can be made of the obligation.
 CertIFR Course

Provisions, contingent liabilities and contingent assets: IAS 37

Provisions - recognition

A present obligation can be either legal or constructive. A legal obligation arises from legal
contracts, statute or other operation of the law. A constructive obligation arises when an
entity has created an expectation in others that it will meet certain responsibilities

A probable outflow of benefits is defined as 'more likely than not'. This is taken to mean
more than a 50% probability

IAS 37 clarifies how a provision should be measured. Except in rare cases, an estimate of
an obligation that is sufficiently reliable can be made.

A provision is recognised as a current or non-current liability and the corresponding debit

is usually recognised in profit or loss.
 CertIFR Course

Provisions, contingent liabilities and contingent assets: IAS 37

 CertIFR Course

Provisions, contingent liabilities and contingent assets: IAS 37

Provisions - measurement

A provision must be measured at the best estimate of expenditure expected to

settle the obligation at the reporting date.

In the case of a single obligation, the best estimate may be the single most likely
outcome or it may be higher or lower, depending on other possible outcomes

In the case of a large population of items, expected values are used.

A provision should be discounted where the effect of this is material. The discount
rate should be a pre-tax rate reflecting market assessments of the time value of
money and risks specific to the liability.
 CertIFR Course

Provisions, contingent liabilities and contingent assets: IAS 37

Changes in and the use of provisions

If a provision is increased or decreased due to a change in estimated outflow of

economic benefits, the corresponding debit or credit entry is usually made to
profit or loss.

A provision may only be used for the purpose that it was set up.
 CertIFR Course

Provisions, contingent liabilities and contingent assets: IAS 37

 CertIFR Course

Provisions, contingent liabilities and contingent assets: IAS 37

Reimbursements

Expenditure to settle a provision may be recoverable from a third party.

In this case the reimbursement is recognised as an asset only if it is virtually

certain that it will be received if the obligation is settled.
 CertIFR Course

Provisions, contingent liabilities and contingent assets: IAS 37

Notes
A provision may not be made for a future operating loss
A provision should be made for the costs of an onerous contract (a contract in which the
unavoidable costs of fulfilling the contract exceed any revenue expected from it)
A provision is made for restructuring only if there is a constructive obligation to restructure at the
reporting date (e.g. there is a formal plan that has been announced to employees). In this case only
the direct costs of restructuring are provided for
A provision is made in respect of standard warranties (purchased extended warranties are not
within the scope of IAS 37)
Where an entity that acquires or sets up operations in a certain location is required to
decommission its operations or restore the location at the end of the operations' useful lives, the
costs of decommissioning should be provided for. In this case the debit entry on the setting up of
the provision is recognised as part of the cost of the associated asset in accordance with IAS 16.
 CertIFR Course

Provisions, contingent liabilities and contingent assets: IAS 37

 CertIFR Course

Provisions, contingent liabilities and contingent assets: IAS 37

 CertIFR Course

Provisions, contingent liabilities and contingent assets: IAS 37

Contingent Liabilities

A contingent liability is defined in two different ways:

Possible obligations
Existing obligations at the reporting date which are not recognised as liabilities
either because they will probably not lead to an outflow or are not able to be
measured reliably.

Contingent liabilities are not recognised but are disclosed where they are material
in size and the probability of payment is greater than remote.
 CertIFR Course

Provisions, contingent liabilities and contingent assets: IAS 37

Contingent Assets

A contingent asset is defined as

A possible asset that arises from past events.

Whose existence will be confirmed only by the occurrence or non-occurrence
of one or more uncertain future events not wholly within the control of the
entity.

Contingent assets are disclosed if they are considered probable and otherwise they
are not represented in the financial statements.
 CertIFR Course

Events After the Reporting Period: IAS 10

IAS 10 requires that in some cases the financial statements are adjusted for events
occurring after the reporting date but before they are authorised for issue. This
provides users with relevant information in a timely fashion.

Opening Ending Authorised

The Reporting Period After the

Reporting Period
 CertIFR Course

Events After the Reporting Period: IAS 10

The Standard deals with two types of event that occur after the reporting date:
 CertIFR Course

Events After the Reporting Period: IAS 10

IAS 10 provides examples of adjusting and non-adjusting events:

Adjusting

The settlement of a court case that confirms a present obligation at the reporting date

The receipt of information that confirms an asset was impaired at the reporting date

The determination of cost of an asset purchased before the reporting date (or
proceeds of an asset sold before the reporting date)

The discovery of fraud or errors meaning the financial statements are incorrect.
 CertIFR Course

Events After the Reporting Period: IAS 10

Non-adjusting
Acquisition or disposal of subsidiaries
Announcement of plan to close a division
Purchases or disposals of assets
Destruction of property by fire or flood or similar
Announcing or starting a restructuring
An issue of shares
Changes in tax rates
Commencement of litigation
Entering into commitments or issuing guarantees
 CertIFR Course

Events After the Reporting Period: IAS 10

Notes

If dividends on ordinary shares are declared, after the reporting date then these
are non-adjusting and should not be recognised as liabilities. They should however
be disclosed.

If an event after the reporting period results in an entity no longer being a going
concern, then the accounts should be prepared on the break up basis.
This of course does not apply if only part of the entity is not a going concern.
The reporting unit is the whole of the entity and the status of going concern should be
assessed for that whole reporting entity.
 CertIFR Course

Events After the Reporting Period: IAS 10

Opening Ending Authorised

The Reporting Period After the

Reporting Period

Existed at the reporting date Arose after the reporting date

Adjust Disclose Nature and
+ financial effects if
Disclose information material
 CertIFR Course

Employee Benefits: IAS 19

The Basic Principle of IAS 19: The cost of providing employee benefits should be
recognised in the period in which the benefit is earned by the employee, rather
than when it is paid or payable.

This Standard applies to all employee benefits except those to which IFRS 2 "Share
Based Payment" applies.

It deals with:
Short-term employee benefits
Post-employment benefits (pensions)
Other long-term benefits
Termination benefits.
 CertIFR Course

Employee Benefits: IAS 19

Short-term employee benefits

Include bonuses, sick pay, holiday pay and maternity leave, and are recognised:

As an expense when the employee provides benefit, and

As a liability to the extent they are unpaid.

IAS 19 deals specifically with short-term paid absences and for bonus plans. In
each case the Standard requires an entity to establish whether there is a liability at
the reporting date and to account for any liability. Only accumulating paid
absences (those that can be carried forward such as holiday pay) are recognised as
a liability.
 CertIFR Course

Employee Benefits: IAS 19

Long term employee benefits

Other long-term benefits are recognised in the same way as post-employee

benefits however all amounts are recognised in profit or loss, including re-
measurements.

Termination benefits

Termination benefits are recognised as a liability and expense at the earlier of:
When the entity can no longer withdraw from the offer of termination benefits
When the entity recognises costs for restructuring in line with IAS 37.
 CertIFR Course

Employee Benefits: IAS 19

Post-employment benefits (Pensions)

 CertIFR Course

Employee Benefits: IAS 19

Post-employment benefits (Pensions)

In a defined contribution plan, the employee's pension depends upon how well
the pension plan investments have performed.

In a defined benefit plan, the employer is advised what contributions are required
in order that the plan has sufficient assets to meet the guaranteed amount of
pension.

In a country with special forms of employee benefit systems such as multi-

employer plans and government plans, these are accounted for on the basis of
their legal and institutional arrangements.
 CertIFR Course

Employee Benefits: IAS 19

Defined contribution plans

The accounting for defined contribution plans is relatively straightforward:

contributions are recognised as an expense in the period in which they are
payable. An accrual or prepayment may result.

Defined benefit plans

The accounting treatment of defined contribution plans is not suitable for defined
benefit plans as a result of the variability of contributions.
 CertIFR Course

Employee Benefits: IAS 19

Defined benefit plans

Instead, a net defined benefit pension asset or liability is recognised in the

statement of financial position. This is calculated as the difference between:

The fair value of the pension plan assets at the reporting date, and
The present value of the defined benefit obligation at the reporting date.

IAS 19 includes guidance on how to establish the present value of the obligation
using the projected unit credit method. This method is also used to determine
current service cost i.e. the increase in the pension obligation as a result of an
additional year's employee service.
 CertIFR Course

Employee Benefits: IAS 19

 CertIFR Course

Employee Benefits: IAS 19

Defined benefit plans

Net interest is calculated on the value of the assets and obligation at the start of
the year by reference to interest rates on high quality corporate bonds.

Re-measurements are the difference between calculated plan assets and defined
benefit obligation having taken account of contributions, pensions paid, current
service cost and interest, and the actual year end value of each.
Re-measurements represent:
The difference between the actual and expected return on plan assets, and
The effect of changes in actuarial assumptions in the case of the obligation.
These are never reclassified to profit or loss.
 CertIFR Course

Employee Benefits: IAS 19

Defined benefit plans

Actuarial assumptions are those assumptions that must be made in order to

estimate the value of the defined benefit obligation. They include salary increase,
mortality rates and retirement age.

Re-measurements of the defined benefit obligation may be referred to as actuarial

gains and losses.

Past service costs may occur in some years, for example if plan benefits are
increased. These are recognised in profit or loss immediately.
 CertIFR Course

Income Taxes: IAS 12

IAS 12 deals mainly with deferred tax.

It requires that deferred tax is recognised for temporary differences.

Deferred tax is an accounting adjustment to take account of the future tax impact
of an asset or liability currently recognised in the statement of financial position.

Calculation of deferred tax

The IAS 12 approach to calculating deferred tax is as follows:

 CertIFR Course

Income Taxes: IAS 12

 CertIFR Course

Income Taxes: IAS 12

Tax base
is the amount that is attributed to an asset or liability for tax purposes:
In the case of an asset, the amount that will be deductible for tax purposes in
the future e.g. the tax written down value of a non-current asset
In the case of a liability, usually the carrying amount less any amount that will
be deductible for tax purposes in the future.
Tax rate
is that which is expected to apply when the carrying amount of the item is
recovered. Normally this is a current rate although if new tax laws have been
enacted it may be future rates.
 CertIFR Course

Income Taxes: IAS 12

Taxable temporary differences

arise where the carrying amount of an item exceeds its tax base. In other words
more tax relief has already been given than the carrying amount in the statement
of financial position would suggest. Therefore future tax will be higher than might
be expected.

Deductible temporary differences

arise where the carrying amount of an item is less than its tax base. In other words
less tax relief has already been given than the carrying amount in the statement of
financial position would suggest. Therefore future tax will be lower than might be
expected.
 CertIFR Course

Income Taxes: IAS 12

 CertIFR Course

Income Taxes: IAS 12

Accounting for deferred tax

The corresponding entry when recognising a deferred tax asset or liability is

usually profit or loss.

For the previous Example :

 CertIFR Course

Income Taxes: IAS 12

Accounting for deferred tax

If, however, deferred tax relates to an underlying item that is recognised in OCI or
directly in equity, then the deferred tax impact is also recognised in OCI or equity.
For example:
The deferred tax impact of a revaluation is recognised in OCI
The deferred tax impact of prior period error is recognised in equity.

From year to year, only the change in the deferred tax amount is recognised. For
example if a deferred tax liability is $120,000 one year and $155,000 the next, a tax
charge of $35,000 is recognised in profit or loss.
 CertIFR Course

Income Taxes: IAS 12

Accounting for deferred tax

An entity should calculate the deferred tax impact of all relevant items in its
statement of financial position and, providing that the tax arises in a single
jurisdiction, and there is a right of set off, present a net deferred tax asset or
liability.

A deferred tax asset is only recognised to the extent that it is probable that future
taxable profits will be available to utilise the benefit.
 CertIFR Course

Income Taxes: IAS 12

Additional points
Tax losses carried forward result in a deferred tax asset to the extent that profits are available
against which the losses can be offset

Deferred tax liabilities should be recognised for all temporary differences, except those relating to
non-deductible goodwill and the initial recognition of certain assets and liabilities in transactions
that affect neither accounting profit nor taxable profit

There are also special rules for investments in subsidiaries, associates and joint ventures. They
amount to saying that temporary differences that are unlikely to reverse where the investor is in
control of that process (for example, by being able to stop the payment of dividends) need not be
accounted for

Deferred tax amounts should not be discounted.

 CertIFR Course

Share-Based Payment: IFRS 2

IFRS 2 deals with transactions in which an entity received goods or services in

return for its own equity instruments or an amount of cash based on the value of
its equity instruments.
The basic principle of IFRS 2 is that an entity should recognise an expense related
to goods or services received when they are received, even if payment is at a
future date and made in equity instruments.
Types of share-based payment
An equity settled share-based payment
A cash settled share based payment
Share-based payments with a choice of cash or equity instruments
 CertIFR Course

Share-Based Payment: IFRS 2

Equity-settled share based payments

is a transaction in which a company grants equity instruments to another party in

exchange for goods and services.

The most common example of such a transaction is where employees receive

share options in exchange for services rendered

These are recognised by:

 CertIFR Course

Share-Based Payment: IFRS 2

How the transaction is measured? and when it is recognised ?.

If the transaction is with an employee, it is measured by reference to the fair
value of the equity instruments granted at the grant date.
If the transaction is with a third party, it is measured at the fair value of goods
or services received.
If the transaction relates to goods or services already received (i.e. the equity
instruments vest immediately), the transaction is recognised in full on the grant
date.
If the transaction requires the counterparty to meet specified conditions over a
future period (vesting period), then the transaction is recognised over that
period.
 CertIFR Course

Share-Based Payment: IFRS 2

 CertIFR Course

Share-Based Payment: IFRS 2

The measurement of equity-settled share-based payments must take into account

the number of instruments expected to vest (become an entitlement).

• In the above example, suppose that one director left unexpectedly during the
second year.
• In that case the accounting entry in year one would remain the same (an
expense of $900 credited to equity).
• In year 2, however, the expense would be adjusted to take account of the fact
that only 2 directors' share options would vest:
• Total expense $1,200 (2 directors x 200 x $3)
• Year 2 expense therefore $300 ($1,200 - $900)
 CertIFR Course

Share-Based Payment: IFRS 2

Cash-settled share-based payments

is where another party (again usually an employee) receives a cash payment the
amount of which depends on the share price of the company.

These are recognised by:

The fair value of the liability is re-measured at each reporting date as the amount
of cash expected to be paid.
 CertIFR Course

Share-Based Payment: IFRS 2

 CertIFR Course

Share-Based Payment: IFRS 2

Share-based payments with a choice of settlement

Where the counterparty has the choice of settlement, the entity is deemed to have
granted a compound instrument and a separate equity and liability component are
recognized

Where the entity has the choice of settlement, the whole transaction is treated as
either equity-settled or cash-settled depending on whether the entity has an
obligation to settle in cash.
 CertIFR Course

Agriculture: IAS 41

IAS 41 provides guidance on accounting for biological assets and agricultural

produce.

Biological assets

"A biological asset is a living plant or animal".

Note

Bearer plants (a plant that bears produce for more than one period such as a tea
bush) are biological assets, however are not within the scope of IAS 41. Instead IAS
16 Property, Plant and Equipment applies to these.
 CertIFR Course

Agriculture: IAS 41

Agricultural produce

Agricultural produce is the harvested produce of biological assets at the point of

harvest(thereafter it becomes inventory).

Accounting treatment

Biological assets and agricultural produce are measured at each reporting date at
their fair values less costs to sell.

If fair value cannot be reliably determined, then measure at cost.

Gains and losses arising on initial recognition of biological assets and
agricultural produce are recognised in profit or loss.
 CertIFR Course

Exploration for and Evaluation of Mineral

Resources: IFRS 6
IFRS 6 imposes few requirements on companies that are engaged in exploration for
and evaluation of mineral resources.

IFRS 6 requires entities to develop a policy for the extent to which such
expenditure should be capitalised and to disclose that policy clearly in the financial
statements. It does not, however, specify the capitalisation policy.
Impairment
The Standard also requires entities recognising exploration and evaluation assets
to perform an impairment test on those assets when facts and circumstances
suggest that the carrying amount of the assets may exceed their recoverable
amount.
 CertIFR Course

Exploration for and Evaluation of Mineral

Resources: IFRS 6
Disclosure

IFRS 6 requires disclosure of "information that identifies and explains the amounts
recognised in its financial statements arising from the exploration for and
evaluation of mineral resources"

This should include:

"Its accounting policies for exploration and evaluation expenditures including
the recognition of exploration and evaluation assets
The amounts of assets, liabilities, income and expense and operating and
investing cash flows arising from [those assets]".
 CertIFR Course

Exam Simulation
01- Ginger Co.'s financial year end is 30 June. Its financial statements were approved and issued on 15
August. The following occurred:

1 : On 10 July, inventory was sold for less than its year end carrying amount due to flood
damage. The flood occurred on 29 June.
2 : On 31 July, a Court case was settled for a lower value than the amount provided for in the
year end financial statements.
3 : On 20 August, a major share issue was made
Which of these material events should be adjusted for in the financial statements for the year
ended 30 June?

A : 1 and 2 only C : 2 and 3 only

B : 1, 2 and 3 D : 1 and 3 only
 CertIFR Course

Exam Simulation
02- Y Co. has issued 100 shares to its directors for services rendered during the year ended 31
Dec 20X5. The value of the shares at the grant date 30th Nov 20X5 was $ 5 per share. At 31st
Dec, 20X5, the shares were valued at $ 6 per share. The accounting entry for the issue of the
shares would be:

A : Charge expense of $ 500, and increase accumulated reserves by $ 500

B : Charge expense of $ 600, and increase accumulated reserves by $ 600
C : Charge expense of $ 500, and increase equity by $ 500
D : Charge expense of $ 600, and increase equity by $ 600
 CertIFR Course

Exam Simulation
03- Which of the following shall IAS 41 be applied to?

A : Bearer plants related to agricultural activity.

B : Agricultural produce at the point of harvest

C : Land related to agricultural activity

D : All of the above

 CertIFR Course

Exam Simulation
04- If an entity receives information after the reporting period about conditions that
existed at the end of the reporting period, it --------------- that relate to those
conditions, in the light of the new information.

A : Shall update disclosures

B : Shall not update disclosures

C : Shall not update financial statements

D : Shall update financial statements, but leave disclosures unchanged

 CertIFR Course

Exam Simulation
05- An equity instrument is any contract that evidences a residual interest in the
assets of an entity after deducting all of its liabilities.

A : True.
B : False.
 CertIFR Course

Exam Simulation
06- Produce growing on bearer plants is ---------------- .

A : A biological asset.

B : An inventory.

C : A raw material.

D : An expense
 CertIFR Course

Exam Simulation
07- Contracts, and thus financial instruments, must be in writing.

A : True.

B : False.
 CertIFR Course

Exam Simulation
08- An entity needs to update the disclosures in its financial statements to reflect
information received after the reporting period, only if the information affects the
amounts that it recognizes in its financial statements.

A : True.

B : False.
 CertIFR Course

Exam Simulation
09- Dodo Co is preparing its financial statements to 31 December 20X3. The accounts are due to be
finalised on 31 March 20X4.
Which of the following should not be adjusted in the financial statements?
A : On 1st February Dode co. receives written confirmation that a customer, looney Bin Co. has
gone into liquidation. At the year end the balance due from looney Bin Co was material.
B: On 27th march torrential rain causes one of three warehouses to flood, damaging some of
the inventory held there. Dode co continues to trade successfully although at reduced level.
C: Dode co. manufactures a specialist component for the computer hardware industry. It costs
$3.35 to produce and would normally sell for $5.20. At the year end this component is held
in inventory at cost. However, due to the launch of an updated product, this component is
only selling for $2.90
D: On 15th march a legal case against Dode Co arising prior to 31 Dec 20X3 is settled for
$300,000. In the draft financial statements a provision is included for substantially more.
 CertIFR Course

Exam Simulation
10- The management team at Super Safe Co try to be as prudent as possible when preparing the
annual financial statements. Under IAS 37
which of the following should they provide in the financial statements:
A : The overall operating loss they expect the company to record in the following financial year.

B: Costs associated with the restructuring of their sales and marketing division. Plans have been
drafted by the board but not yet announced.

C: The loss they are anticipating on a non-cancellable contract they have in place to buy rubber
matting at $15 per metre. The contract runs until the end of next year and they are currently
able to sell the matting for $12 per metre.
D: All of the above.
 CertIFR Course

Exam Simulation
11- A company purchased an item of plant for $270,000 on 1 January 20X0. The plant is depreciated in
the financial statements on a straight-line basis over 5 years. For tax purposes the plant has a life of 3
years and benefits from allowances on a straight-line basis. What is the deferred tax balance in respect
of the plant on 31st December 20X1?
The applicable rate of corporate income tax is 30%.

A : Liability of $10,800

B: Asset of $10,800

C: Liability of $21,600

D: Asset of $21,600
 CertIFR Course

Exam Simulation
12- IC Co manufactures fridge freezers and with each one sold offers a free guarantee. In one year the
company expects to sell 30,000 fridge freezers. Of these management expect 1% to be returned under
the guarantee requiring major repair work costing on average $300. Management also expect 5% to be
returned requiring minor repairs costing on average $100.
How should the company treat this guarantee policy in their financial statements?
A : Recognize a provision of $240,000 on the statement of financial position and disclose details
in the notes.
B: Disclose details of the guarantee policy in the notes to the financial statements.
C: Disclose details of the guarantee policy in the notes, including an estimate on the likely cost
to the company of fulfilling the guarantee..
D: No disclosure of the guarantee policy is required.
 CertIFR Course

Exam Simulation
13- IAS 10 requires entities to disclose information about any non-adjusting event after the reporting
period.

A : True.

B: False.
 CertIFR Course

Exam Simulation
14- The following material events occurred after the reporting date but before the financial statements
were authorized for issue. According to IAS 10 Events after the Reporting Period, which of these would
be classed as an adjusting event?

A : The disposal of a subsidiary

B: Change of foreign exchange rates

C: Destruction of inventory in a warehouse fire but not affecting the going concern status

D: Bankruptcy of a customer with a balance outstanding at the year end

 CertIFR Course

Exam Simulation
15- According to IAS 37 Provisions, Contingent Liabilities and Contingent Assets, which of the following
should be provided for in the financial statements?

A : Material contingent gains

B: Future operating losses

C: Costs of an expected future restructuring of a company

D: Onerous contracts
 CertIFR Course

Exam Simulation
16- X Co has issued share options to its directors for services rendered in the year to 31
December 20X5. Which of the following standards is relevant to this transaction?

A : IFRS 2 Share-Based Payment

B: IFRS 3 Business Combinations

C: IFRS 9 Financial Instruments

D: IAS 27 Separate Financial Statements

 CertIFR Course

Exam Simulation

17- According to lFRS l2 income Taxes, where the tax base of an asset exceeds its carrying amount in
the statement of financial position. what term describes the difference?

A : A taxable temporary difference.

B: A deferred tax asset.

C: A deductible temporary difference.

D: A deferred tax liability.

 CertIFR Course

Exam Simulation

18- Under IAS 19 Employee Benefits, which of the following statements is true in relation to accounting
for pension schemes?

A : Remeasurements of a defined benefit scheme should be recognised immediately in profit or loss

B: Remeasurements of a defined benefit scheme should be defined and spread over the average
remaining working life of employees using the corridor approach

C: Employer contributions to a defined contribution scheme are recognised as an expense in profit

or loss

D: Employer contributions to a defined contribution scheme increase the fair value of the pension
asset in the statement of financial position.
 CertIFR Course

Exam Simulation

19- IFRS 9 Financial Instruments allows the use of hedge accounting if certain criteria are met. Which of
the following is NOT one of these criteria?

A : The hedging relationship consists of only eligible hedging instruments and hedged items

B: At the beginning of the hedge there is formal designation of the hedge relationship and the
entity's risk management objective

C: The hedge meets certain criteria that make it effective

D: All of the above

 CertIFR Course

Exam Simulation

20- in accordance with !AS 41 agriculture , which of the following statement is correct ?

A : A fruit tree is initially measured at cost

B: Daily cattle are initially measured at fair value

C: Stores of harvested tea are within the scope of IAS 41

D: A gain in re-measurement of sheep to fair value is reported in OCI

 CertIFR Course

Exam Simulation

21- Under IAS 19 Employee benefits, which of the following statements is true in relation to accounting
for defined benefit pension schemes?

A : Actuarial gains and losses arising should be recognised immediately in other comprehensive
income

B: Actuarial gains and losses arising may be recognised immediately, or deferred and spread over
the average remaining working life of employees using the corridor approach

C: Where a net pension asset arises, this may be recognised in full.

D: Past service costs which are caused, for example, if the benefits in the plan are increased, should
be recognised immediately if they are already vested, but otherwise over the average period
until the benefits become vested
 CertIFR Course

Exam Simulation

22- Change in fair value of investments between the end of the reporting period and the date when
the financial statements are authorized for issue is an example of ------------ event.

A : Adjusting

B: Non-Adjusting

C: Favourable

D: Unfavourable
 CertIFR Course

Exam Simulation

23- Government grants not relating to biological assets is covered under

A : IAS 20

B: IAS 41

C: IFRS 41

D: IAS 16
 CertIFR Course

Exam Simulation
24- Offsetting of financial assets against financial liabilities is not allowed under IAS 32

A : True.

B: False.
 CertIFR Course

Exam Simulation

25- which of the following is an example of derivative financial instrument?

A : Financial options

B: Futures and forwards

C: Interest rate swaps and currency swaps

D: All of the above

 CertIFR Course

Answers

Q 01 A Q 06 A Q 11 C Q 16 A Q 21 D
Q 02 C Q 07 B Q 12 A Q 17 C Q 22 B
Q 03 B Q 08 B Q 13 B Q 18 C Q 23 A
Q 04 A Q 09 B Q 14 D Q 19 D Q 24 B
Q 05 A Q 10 C Q 15 D Q 20 B Q 25 D
 CertIFR Course

Consolidated Financial Statements: IFRS 10

Definition of a subsidiary
A subsidiary is defined as an entity controlled by another entity.

Control
An investor controls an investee if it has ALL the following:

Power over the investee

Exposure, or rights, to variable returns from its involvement with the investee
The ability to use its power over the investee to affect the amount of the
investor's returns."
 CertIFR Course

Consolidated Financial Statements: IFRS 10

Notes
An entity could have power over the investee without holding a majority of the
voting rights.
Returns could be either positive or negative and could include dividends,
change in the value of the investment, management or service fees etc.
Non-controlling interests (NCI)
Non-controlling interests are the "equity in a subsidiary not attributable, directly
or indirectly, to a parent."

For example, if a parent owns 60% of a subsidiary, then the non-controlling

interest percentage is 40%.
 CertIFR Course

Consolidated Financial Statements: IFRS 10

Principles of consolidation
A parent prepares consolidated financial statements applying uniform accounting policies
throughout.

A parent should start to consolidate from the date control is obtained and cease when
control is lost.
There is just one exemption available to this under IFRS 5. Consolidation is not required where
temporary control is acquired because the subsidiary is held exclusively with a view to its
subsequent disposal in the near future.

A partial disposal of an interest in a subsidiary in which the parent retains control, does
not result in a gain or loss but an increase or decrease in equity. Purchase of some or all of
the non-controlling interest is treated as a treasury share-type transaction and accounted
for in equity.
 CertIFR Course

Consolidated Financial Statements: IFRS 10

Principles of consolidation

Once an investment ceases to fall within the definition of a subsidiary, the parent
company should derecognise the assets and liabilities of the subsidiary, derecognise the
carrying amount of any non controlling interest and recognise the consideration received.

A parent is exempted from the preparation of consolidated accounts if it is itself a wholly

or partially owned subsidiary and the ultimate or any intermediate parent company
produces consolidated financial statements that comply with IFRS.

Any difference between the reporting date of the parent and the reporting date of a
subsidiary should not exceed three months.
 CertIFR Course

Consolidated Financial Statements: IFRS 10

Mechanics of Consolidation (IFRS 10)
To consolidate the financial statements, should do the following :
items of assets, liabilities, income, expenses and cash flows are combined
The parent's investment in the subsidiary is also eliminated against the
subsidiary's equity when it was acquired
The Different recognized as goodwill
Intragroup transactions are eliminated
 CertIFR Course

Consolidated Financial Statements: IFRS 10

Parent $ M Sub $ M Adjust 1 Adjust 2 Consolidated
Non-Current assets 100 50 150
Investment in S Co 14 (14) 0
Goodwill 2 2
Current assets 21 10 31
Total assets 135 60 (12) 0 183
Share capital 15 6 (6) 15
Retained earnings 60 30 (10) (5) 75
Non controlling interest 4 5 9
Liabilities 60 24 84
Total Liab & Equity 135 60 (12) 0 183
 CertIFR Course

Consolidated Financial Statements: IFRS 10

 CertIFR Course

Consolidated Financial Statements: IFRS 10

 CertIFR Course

Consolidated Financial Statements: IFRS 10

49
 CertIFR Course

Consolidated Financial Statements: IFRS 10

 CertIFR Course

Separate Financial Statements: IAS 27

IAS 27 prescribes the accounting treatment of investments in individual financial

statements of the investor.

In the separate financial statements of the investor, investments in subsidiaries,

associates and joint ventures are accounted for either:

At cost, or
In accordance with IFRS 9, or
Using equity accounting.
 CertIFR Course

Business Combinations: IFRS 3

IFRS 3 requires that the acquisition method is applied to business combinations. It

specifies the measurement of acquired assets and liabilities including goodwill.

A business combination is a transaction or other event in which an acquirer

obtains control of one or more businesses

Acquisition method

All business combinations within the scope of IFRS 3 must be accounted for using
the acquisition method.
 CertIFR Course

Business Combinations: IFRS 3

This requires:
Identification of the acquirer
Determination of the acquisition date being the date on which the acquirer
obtains control of the business.
This is often, but not always, the date on which the acquirer transfers
consideration
Recognition and measurement of the identifiable assets acquired and liabilities
assumed and any non-controlling interest in the acquiree

Recognition and measurement of goodwill or a gain from a bargain purchase

(negative goodwill).
 CertIFR Course

Business Combinations: IFRS 3

Goodwill

Goodwill is measured as:

Consideration transferred ×××

Non-controlling interest ×××
Fair value of identifiable net assets of acquire (×××)

Goodwill/bargain purchase ××/(××)

 CertIFR Course

Business Combinations: IFRS 3

Consideration is measured at fair value. This includes contingent consideration.

• It does not include acquisition costs, which must be recognised in profit or loss.

The non-controlling interest may be measured at either:

- Fair value on the acquisition date, or
- As a proportion of the fair value of net assets on the acquisition date
This choice is available on a transaction-by-transaction basis.

The identifiable assets acquired and the liabilities assumed should be measured at
their fair values.
In general the identifiable assets acquired and liabilities assumed must meet the
definition of assets and liabilities per the Conceptual Framework.
 CertIFR Course

Business Combinations: IFRS 3

There are limited exceptions to the general recognition and measurement principles
above, which lead to some items being recognised when normally they wouldn't be, or
being recognised at an amount other than acquisition date fair value:

Intangible assets of the acquiree are recognised if they are identifiable. The other IAS 38
criteria need not be met, resulting in the recognition of intangibles on consolidation that
are not otherwise recognised

Contingent liabilities are recognised even if it is not probable that there will be an outflow
of economic resources (contrary to the guidance given in IAS 37)

The relevant Standard is applied to measure and recognise deferred tax (IAS12), employee
benefits (IAS19), share-based payments (IFRS2) and assets held for sale (IFRS5)
 CertIFR Course

Business Combinations: IFRS 3

Full and partial goodwill

As the non-controlling interest (NCI) can be measured in one of two ways, it

follows that the resulting goodwill is one of two possible values:

Where the NCI is measured at fair value the resulting goodwill is 'full goodwill'
i.e. it is the goodwill of the acquiree attributable to the parent and the NCI

Where the NCI is measured as a proportion of net assets, the resulting goodwill
is 'partial goodwill' i.e. it is the goodwill of the acquiree attributable to the
parent only.
 CertIFR Course

Business Combinations: IFRS 3

Accounting for goodwill or a bargain purchase

Goodwill is not amortised but must be tested for impairment annually in

accordance with IAS 36 Impairment of Assets. An impairment loss on goodwill is
not permitted to be reversed at a subsequent date.

Negative goodwill (a bargain purchase) must be recognised immediately in the

statement of profit or loss as a gain. Before concluding that negative goodwill has
arisen, however, IFRS 3 requires that the acquirer re-assess the situation to ensure
the accuracy of the negative goodwill.
 CertIFR Course

Investments in Associates and Joint

Ventures: IAS 28
IAS 28 defines an associate and prescribes the equity accounting method for associates
and joint ventures.

Definition of associate
The Standard defines an associate "as an entity over which the investor has significant
influence".

This could include the power to participate in policy-making process, representation on

the Board of directors, or interchange of management personnel or provision of essential
technical information.
This is presumed to exist where the investor owns 20% or more of the voting power in
the investee.
 CertIFR Course

Investments in Associates and Joint

Ventures: IAS 28
Equity method
Associates and joint ventures are to be included in consolidated financial statements using
the equity method.

Records
initially recorded at cost
subsequently adjusted to reflect the investor's share of the net retained post
acquisition profit or loss of the associate.
The investment in an associate or joint venture is tested for impairment when there are
indications of impairment.
 CertIFR Course

Investments in Associates and Joint

Ventures: IAS 28
Equity method

In the statement of profit or loss and other comprehensive income, share of profit after
tax and share of other comprehensive income of an associate or joint venture are
recognised.

Unrealised profits and losses should be eliminated to the extent of the investor's interest
in the associate.
 CertIFR Course

Joint Arrangements: IFRS 11

IFRS 11 defines a joint arrangement, classifies joint arrangements as joint ventures

and joint operations and prescribes the accounting treatment for each.

Definitions
A joint arrangement is "an arrangement of which two or more parties have joint
control."
Joint control is "the contractually agreed sharing of control of an arrangement
which exists only when decisions about the relevant activities require the
unanimous consent of the parties sharing control"
If either of these Conditions is absent, there is no joint control and IFRS 11 does
not apply.
 CertIFR Course

Joint Arrangements: IFRS 11

 CertIFR Course

Joint Arrangements: IFRS 11

 CertIFR Course

Joint Arrangements: IFRS 11

Forms of joint arrangement

Joint arrangements are either joint ventures or joint operations.
Joint arrangements that are not structured through a separate entity are always
joint operations.
 CertIFR Course

Joint Arrangements: IFRS 11

Accounting treatment

IFRS 11 requires interests in joint ventures to be equity accounted in

accordance with IAS 28

Joint operators recognise their share of assets, liabilities, revenues and

expenses in accordance with applicable IFRS Standards.
 CertIFR Course

Disclosure of Interests in Other Entities:

IFRS 12
IFRS 12 contains disclosure requirements in respect of subsidiaries, associates and
joint ventures.
An entity should disclose information that helps the users of its financial
statements to evaluate the nature of, and risks associated with, its interests in
other entities.
In order to achieve this objective the disclosure requirements introduced by IFRS
12 are extensive.
However the entity must also make any additional disclosures necessary to meet
the overall objective if those required by IFRS 12 and other Standards are not
sufficient.
 CertIFR Course

Disclosure of Interests in Other Entities:

IFRS 12

An entity should disclose the significant judgements and assumptions it has made
in determining whether it :

Controls, or
joint control, or
significant influence, over an entity

also in determining the type of joint arrangement where applicable.

 CertIFR Course

Disclosure of Interests in Other Entities:

IFRS 12

The Standard outlines detailed disclosure provisions in relation to investments in

each of :

subsidiaries
associates
joint arrangements
unconsolidated
 CertIFR Course

The Effects of Changes in Foreign

Exchange Rates: IAS 21

IAS 21 prescribes how to record foreign currency transactions in individual

financial statements and how the financial statements of a foreign operation
should be translated into a presentation currency for consolidation purposes.
 CertIFR Course

The Effects of Changes in Foreign

Exchange Rates: IAS 21
Currency definitions

IAS 21 refers to two types of currency:

Functional currency.

The currency of "the primary economic environment in which the entity operates."
- The Standard contains guidance on how to determine this currency.
- It is the currency that influences sales prices of goods and costs of inputs.

Presentation currency.

The "currency in which financial statements are presented."

 CertIFR Course

The Effects of Changes in Foreign

Exchange Rates: IAS 21

Foreign currency transactions

Transactions involving foreign currencies are recorded at the rate of exchange

ruling on the date of the transaction.

If exchange rates do not fluctuate significantly then an average rate may also be
used.
 CertIFR Course

The Effects of Changes in Foreign

Exchange Rates: IAS 21
At a subsequent reporting date:

Non-monetary items that are measured under the cost model should continue to be recorded at
that exchange rate;

Non-monetary items that are measured under the fair value model should be recorded at the
exchange rate prevailing at the date of the latest revaluation to fair value;

Monetary items resulting from past transactions should be translated at the closing rate and the
resulting gains and losses recognised in profit or loss immediately
The settlement of a foreign monetary item (e.g. the payment of a supplier) is recorded at the
prevailing exchange rate on the date of settlement. Any exchange gain or loss is recognised in profit
or loss.
 CertIFR Course

The Effects of Changes in Foreign

Exchange Rates: IAS 21
Foreign operations
A foreign operation is a subsidiary, associate, joint venture, or branch whose activities are based in
a country other than that of the reporting entity.

The results of a foreign operation must be translated for the purposes of preparing consolidated
financial statements. The method is as follows:

Assets and liabilities are translated at the closing rate

Pre acquisition reserves are translated at the exchange rate on the date of acquisition
Income and expenses are translated at the spot rate on the date of the transaction
Exchange differences are recognised in OCI
Goodwill is also translated at the closing rate and any exchange difference recognised in OCI.
 CertIFR Course

The Effects of Changes in Foreign

Exchange Rates: IAS 21

Monetary items forming part of the net investment in a foreign operation

Where a reporting entity has, for example, made a loan to one of its foreign
subsidiaries and settlement is not likely in the future,
this forms part of the net investment in the foreign operation.

* Exchange differences that arise on the retranslation of the loan (using the closing
rate) in the reporting entity's separate accounts are recognised in profit or loss;
* in the consolidated accounts, they are however recognised in OCI and
reclassified to profit or loss on the disposal of the foreign operation.
 CertIFR Course

Financial Reporting in Hyperinflationary

Economies: IAS 29
IAS 29 prescribes the method to restate the financial statements of an entity
operating in a hyperinflationary economy.
This Standard should be applied by any entity that reports in the currency of a
hyperinflationary economy.
Hyperinflation is not specifically defined, but an indication would be where
there is a cumulative inflation rate of one hundred percent.
over three years.
For most countries this would not apply at present. However, groups might have a
subsidiary in such a country, which is why this Standard has been included here in
this module on group accounting.
 CertIFR Course

Financial Reporting in Hyperinflationary

Economies: IAS 29
Restatement
IAS 29 requires the financial statements of a hyperinflationary enterprise to be
restated into current measuring units.
If the entity is using historical cost financial statements, this suggests that the
application of a general price index to non-monetary items is required.

Even those entities using current cost accounting would need to re-express certain
numbers using a measuring unit current at the reporting date.

A gain or loss on the net monetary position should be included in profit or loss and
disclosed separately.
 CertIFR Course

Statement of Cash Flows: IAS 7

A statement of cash flows is a primary statement required by IAS 1. IAS 7 provides

the format of a statement of cash flows and guidance on classifying cash flows for
presentation purposes.

The statement of cash flows explains the movement in cash and cash equivalents
from the start to the end of a period.
The total net cash flow should therefore reconcile to this amount.

Cash equivalents are somewhat vaguely defined as "short-term highly liquid

investments that are readily convertible to known amounts of cash, and...[carry]
an insignificant risk of changes in value.“ ( Bonds for example )
 CertIFR Course

Statement of Cash Flows: IAS 7

Classification of cash flows
 CertIFR Course

Statement of Cash Flows: IAS 7

Interest and dividend payments and receipts must be disclosed separately.

Interest and dividend receipts may be classified as operating or investing cash flows

Interest and dividend payments may be classified as an operating or a financing cash flow.

In the case of capitalised interest, they form part of the cost of an asset and so are investing cash
flows.

Cash generated from operations

Cash flows from operating activities include cash generated by operations i.e. from
conducting business. These include sales receipts, purchases and overheads.
 CertIFR Course

Statement of Cash Flows: IAS 7

These cash flows can be calculated either:

Directly, by observing cash receipts and payments, or

Indirectly, by adjusting profit for non-cash items and the effect of accrual
accounting.

Regardless of the method used, the answer will be the same.

The following is an example of the indirect method of calculating Cash flows from
Operating Activities:
 CertIFR Course

Statement of Cash Flows: IAS 7

 CertIFR Course

Statement of Cash Flows: IAS 7

Additional points

Actual or average exchange rates should be used for cash flows from a foreign
subsidiary.

Non-cash transactions should not be included in the statement of cash flows,

but should be disclosed in the notes.

A disclosure note should show changes during the year in liabilities arising from
financing activities (e.g. bank loans). Changes may include cash transactions
and non-cash movements such as exchange differences.
 CertIFR Course

Operating Segments: IFRS 8

IFRS 8 is mandatory for listed entities. It defines an operating segment, states

criteria to apply to determine whether an operating segment is reportable and
states required disclosures for reportable operating segments.

The disclosure of operating segment information means that an entity's business

can be better understood; for example the different risks it faces and its returns
from different parts of its operations.
 CertIFR Course

Operating Segments: IFRS 8

Applicability

IFRS 8 is mandatory for companies whose debt or equity instruments are traded in
a public market or companies in the process of issuing securities in a public
market.

The Standard is only applicable in the consolidated financial statements in those

cases where parent and consolidated statements are in the same financial report.
 CertIFR Course

Operating Segments: IFRS 8

 CertIFR Course

Operating Segments: IFRS 8

Operating segments

"An operating segment is a component of an entity:

That engages in business activities from which it may earn revenues and incur
expenses
Whose operating results are regularly reviewed by the chief operating decision
maker (CODM) of an entity in order to make decisions
For which discrete financial information is available".

IFRS 8 clarifies that the CODM may be a function rather than an individual. It may
for example be the Board of Directors.
 CertIFR Course

Operating Segments: IFRS 8

Aggregation

Operating segments with similar economic characteristics may be aggregated for

the purpose of applying the Standard.
Reportable operating segments

An operating segment is reportable if it has a segment total of 10% of more of:

 CertIFR Course

Operating Segments: IFRS 8

Notes

The total external revenue of all reportable operating segments must represent at
least 75% of the entity's external revenue.

If this is not the case, additional segments that do not meet the '10% test' must be
designated as reportable.
 CertIFR Course

Operating Segments: IFRS 8

Disclosure
 CertIFR Course

Operating Segments: IFRS 8

Disclosure
 CertIFR Course

Related Party Disclosures: IAS 24

IAS 24 defines related parties and prescribes the required disclosures. It provides
information to allow investors to assess the stewardship of the directors.

Definitions are key to IAS 24; especially the definition of a related party.

A party that is related to a reporting entity may be an individual or another

reporting entity:
 CertIFR Course

Related Party Disclosures: IAS 24

Individuals

A person who has control or joint control over the reporting entity

A person who has significant influence over the reporting entity

A member of key management personnel of the reporting entity or its parent

A close member of family of any person mentioned above

 CertIFR Course

Related Party Disclosures: IAS 24

Note that the definitions of key management personnel and close family members
are not definitive:

Key management personnel includes, but is not restricted to, directors

Close family members include, but are not restricted to, spouses, domestic
partners and dependants.

Therefore judgement must be applied when determining whether an individual is

related to a reporting entity.
 CertIFR Course

Related Party Disclosures: IAS 24

Reporting entities
Members of the same group
Associates or joint ventures and their parents (or companies within the same group as their
parent)
Two joint ventures of the same third party
An associate and a joint venture of the same parent entity
A reporting entity and the post-employment benefit plan for its employees
An entity that is controlled or jointly controlled by an individual and an entity that is a related
party of the same individual
An entity that is controlled or jointly controlled by an individual and another entity that the
same individual has significant influence over or is key management personnel of
An entity and an entity that provides it with key management personnel services.
 CertIFR Course

Related Party Disclosures: IAS 24

Despite this extensive definition, IAS 24 is clear that substance prevails and therefore
although a relationship may not meet the stated definition, it may be a related party
relationship.
The following are not related parties:
Two entities simply because they have a director in common
Two joint venturers simply because they share control of a joint venture
Providers of finance, trade unions, public utilities and government departments that do not
control, jointly control or significantly influence an entity
Customers and suppliers with whom an entity transacts a significant volume of business.

Related party transactions are transfers of resources, services, obligations between

related parties, regardless of whether a price is charged.
 CertIFR Course

Related Party Disclosures: IAS 24

Disclosure
The disclosure requirements of the Standard relate to three areas:
 CertIFR Course

Related Party Disclosures: IAS 24

Notes

Note that related party transactions and outstanding balances with other entities
in a group are to be disclosed in an entity's financial statements. However, no
intragroup transactions and balances are disclosed in the consolidated financial
statements as they are eliminated.

Also note that substantiation is required if an entity discloses that related party
transactions were made on an arm's length basis.
 CertIFR Course

Related Party Disclosures: IAS 24

Government related

The IAS 24 disclosure requirements do not apply to transactions between a

reporting entity and:

A government that has control, joint control or significant influence over the
entity and

Another entity that is related to the reporting entity because the same
government controls, jointly controls or significantly influences both.
 CertIFR Course

Earnings per Share: IAS 33

IAS 33 is mandatory for entities with publicly traded securities. Other companies
that choose to present EPS must also apply IAS 33.

Basic earnings per share (EPS)

 CertIFR Course

Earnings per Share: IAS 33

The profit attributable to ordinary shareholders is profit after tax:

Attributable to the owners of the parent and After deducting preference share
dividends that are not included within finance costs
(i.e. irredeemable preference shares).

The weighted average number of ordinary shares is calculated by:

Pro-rating the number of shares outstanding where there have been share
issues in the period.
Adjusting any shares in issue before a bonus issue by a bonus fraction
Adjusting any shares in issue before a rights issue by a bonus fraction.
 CertIFR Course

Earnings per Share: IAS 33

The bonus fraction for a bonus issue is:

The bonus fraction for a rights issue is:

The Theoretical ex-rights price (TERP) is calculated as:

 CertIFR Course

Earnings per Share: IAS 33

 CertIFR Course

Earnings per Share: IAS 33

Diluted earnings per share

 CertIFR Course

Earnings per Share: IAS 33

Potential ordinary shares are dilutive when their conversion would decrease net
profit per share.

Potential ordinary shares include options, convertible instruments (e.g. loan stock
or preference shares) and contingently issuable shares.

Where there are a number of groups of potential ordinary shares in issue, the
effects of these are added into the DEPS calculation one by one, starting with most
dilutive. Diluted EPS is the lowest EPS calculated at any stage.
 CertIFR Course

Earnings per Share: IAS 33

 CertIFR Course

Earnings per Share: IAS 33

 CertIFR Course

Interim Financial Reporting: IAS 34

IAS 34 does not mandate the preparation of interim financial reports, but it does
prescribe minimum content and recognition and measurement principles for those
entities that do prepare them.

Publicly traded entities are encouraged to:

Provide interim reports at least at the end of the first half of each financial
year, and
Make these reports available not more than 60 days after the end of the
interim period.
 CertIFR Course

Interim Financial Reporting: IAS 34

Content of an interim report

IAS 34 requires that an interim report contains, as a minimum, condensed

versions of all four primary statements,

selected explanatory notes and earnings per share.

An entity may alternatively choose to prepare full financial statements in

accordance with IAS 1 as its interim report.

Comparative figures for previous interim periods and previous full years are
required.
 CertIFR Course

Interim Financial Reporting: IAS 34

Recognition and measurement

The same accounting policies are required in the interim reporting as for annual
reporting, although changes in accounting policy might be made at the interim
stage rather than waiting for a year end.

The frequency with which interim reporting is carried out must not be allowed to
affect the annual result.

For interim reporting, the use of year end practices with respect to whether items
should be anticipated or deferred is required. That is, interim reports should
largely be seen as periods in their own right
 CertIFR Course

Interim Financial Reporting: IAS 34

Disclosure

Notes to the financial statements must include disclosure of significant events and
transactions since the end of the last full period.
 CertIFR Course

First-time Adoption of IFRS: IFRS 1

IFRS 1 sets out the procedures that must be followed when a company applies IFRS
Standards for the first time.
Opening statement of financial position
An IFRS statement of financial position should be prepared at the date of transition to IFRS
Standards.

The date of transition is the beginning of the earliest period for which full comparative information
is prepared. Therefore if IFRS Standards are first adopted in the financial statements for the year
ended 31 December 20X5, the date of transition is 1 January 20X4. The same accounting policies
should apply in the opening IFRS statement of financial position and throughout all periods
presented in the first IFRS financial statements. They should comply with IFRS Standards effective
at the end of the first IFRS reporting period (in the example above, on 31 December 20X5).
 CertIFR Course

First-time Adoption of IFRS: IFRS 1

Recognition

The reporting entity should eliminate previous GAAP assets and liabilities from the
opening statement of financial position if they do not qualify for recognition under
IFRS Standards.

The company should recognise all assets and liabilities that are required to be
recognised by IFRS Standards even if they were not recognised under previous
GAAP.
 CertIFR Course

First-time Adoption of IFRS: IFRS 1

Measurement

The company should apply IFRS Standards in measuring all recognised assets
and liabilities.

Any adjustments should be recognised directly in retained earnings or equity at

the date of transition to IFRS Standards.

In preparing IFRS estimates retrospectively, the company must use the

transactions and assumptions that had been used to determine previous GAAP
estimates in periods before the date of transition to IFRS Standards, provided
that those transactions and assumptions are consistent with IFRS Standards.
 CertIFR Course

First-time Adoption of IFRS: IFRS 1

Presentation

The company should reclassify previous GAAP opening statement of financial

position items into the appropriate classification according to IFRS Standards.

For example, IAS 10 does not permit classifying dividends declared or proposed
after the reporting date as a liability at that date. If a company had done so in
its opening statement of financial position, then the dividends would need to
be reclassified as retained earnings.
 CertIFR Course

First-time Adoption of IFRS: IFRS 1

Disclosure

A first-time adopter should make an explicit and unreserved statement that its
general purpose financial statements comply with IFRSs for the first time.
 CertIFR Course

First-time Adoption of IFRS: IFRS 1

Exceptions and exemptions
There are some important exceptions to the general restatement and measurement principles set
out above.

The following items must not be adjusted retrospectively on adoption of IFRSs:

DE recognition of financial instruments
Hedge accounting
Non-controlling interests
Government loans.

Other optional exemptions are available in respect of several areas of accounting, including
business combinations, share-based payment transactions, leases, foreign exchange differences,
borrowing costs and compound financial instruments.
 CertIFR Course

Principal differences between IFRS

Standards and UK GAAP
UK GAAP and FRS 102

Financial Reporting Standard 102 The Financial Reporting Standard Applicable in

the UK and the Republic of Ireland (FRS 102), replaced the individual Standards of
UK GAAP on 1 January 2015 (more details in Module 9).
The aim was to reduce the quantity and complexity of rules that existed under UK
GAAP
FRS 102 simplifies the principles of IFRS Standards for recognising and measuring
assets, liabilities, income and expenses. Often, only basic accounting treatments
are required, the number of accounting options offered (in comparison to IFRS
Standards) is reduced and fewer disclosures are required.
 CertIFR Course

Principal differences between IFRS

Standards and UK GAAP
Principal differences between IFRS Standards and UK GAAP
 CertIFR Course

Principal differences between IFRS

Standards and UK GAAP
 CertIFR Course

Principal differences between IFRS

Standards and UK GAAP
 CertIFR Course

Principal differences between IFRS

Standards and UK GAAP
 CertIFR Course

Principal differences between IFRS

Standards and UK GAAP
 CertIFR Course

Principal differences between IFRS

Standards and UK GAAP
No noticeable differences between FRS 102 and :

IAS 7 - Cash flow statements. IAS 37 - Provisions and contingencies.

IAS 19 - Retirement benefits. IAS 10 - Events after the reporting period.
IAS 21 - Foreign currency. IAS 28 - Investment in associates.
IAS 16 - Property, plant and equipment. IAS 11 - Investments in joint ventures.
IAS 36 - Impairment of non-financial assets. IAS 24 - Related party transactions.
IAS 2 - Inventories.
 CertIFR Course

Principal differences between IFRS

Standards and UK GAAP

FRS 102 does not address all of the topics covered by IFRS Standards; for example,
the following topics are omitted from FRS 102:

Earnings per share

Segmental reporting
Interim financial reporting
Classification of non-current assets held for sale
 CertIFR Course

Old
Material

New
Syllabus
 CertIFR Course

Convergence of IFRS Standards with US GAAP

The FASB and the future for US financial reporting

“In September 2009 the G20 leaders stated 'We call on our international
accounting bodies to redouble their efforts to achieve a single set of high quality,
global accounting standards within the context of their independent standard
setting process, and complete their convergence project by June 2011.'”
 CertIFR Course

Convergence of IFRS Standards with US GAAP

The FASB and the future for US financial reporting

After their joint meeting in September 2002, the US Financial Accounting Standards Board (FASB)
and the International Accounting Standards Board (IASB) issued the Norwalk Agreement

In 2006 FASB and the IASB produced a joint memorandum of understanding (MoU)

This work was identified as a priority by the G20 leaders in September 2009.

Under the original agreement the aim was to achieve full convergence i.e. a set of common
Standards, by June 2011.
 CertIFR Course

Convergence of IFRS Standards with US GAAP

The FASB and the future for US financial reporting

This project was largely completed on time, although the joint standards on revenue recognition
were not finalised until 2014 and a collaboration to develop new Standards for leasing was not
completed until 2016.

A long-awaited SEC report released in July 2012 contained no recommendation on the adoption
of IFRS Standards for US public companies, although at this time it was suggested that the next
logical step would be a recommendation on IFRS Standards.

In 2015, the SEC's chief accountant said that he was unlikely to recommend that the SEC make
IFRS Standards mandatory

Therefore, despite several years of co-operation between FASB and the IASB, it currently seems
unlikely that US companies will adopt IFRS Standards.
 CertIFR Course

Convergence of IFRS Standards with UK GAAP

The FRC and UK financial reporting

The current financial reporting model in the UK is that listed companies (in
accordance with EU regulations) prepare accounts under IFRS Standards, whilst
other companies choose to apply either UK GAAP or IFRS Standards.

The UK Financial Reporting Council (FRC) is committed to eliminating differences

between UK accounting Standards and IFRS Standards. In August 2009, it
announced a draft policy for implementation of the IFRS for SMEs® Standard in
place of the existing UK GAAP.
 CertIFR Course

Convergence of IFRS Standards with UK GAAP

The FRC and UK financial reporting

In response to public consultation the FRC modified its approach and in late
2012/early 2013 the FRS for Small Entities (FRSSE) was updated and three new
Standards were published:

FRS 100 Application of Financial Reporting Requirements

FRS 101 Reduced Disclosure Framework

FRS 102 The Financial Reporting Standard applicable in the UK and Republic of
Ireland
 CertIFR Course

Convergence of IFRS Standards with UK GAAP

The FRC and UK financial reporting

These new Standards took effect for accounting periods beginning on or after 1
January 2015.The FRC issued three further Standards which form part of new UK
GAAP in 2014/2015:

FRS 103 Insurance Contracts

FRS 104 Interim Financial Reporting

FRS 105 The FRS applicable to the Micro-entities Regime