IAS 41 and Financial Instruments

IFRS Glimpse (IG) Overview

• IG assists in gaining a high-level understanding of the IASB Conceptual Framework, International Accounting Standards (IASs), and International Financial Reporting Standards (IFRSs)
• IG excludes SIC and IFRIC interpretations
• It offers summaries in flowcharts and decision trees for IFRS recognition and measurement, as issued by the IASB
• IG includes all IASs and IFRSs in effect as of June 2020

IASB Conceptual Framework

• Status and Purpose: Functions as bedrock of IFRS, assists IASB in standard setting, outlines theoretical principles, and does not override IFRS requirements
• Objective of General-Purpose Financial Reporting: Aims to provide useful financial information to existing and potential investors, lenders, and creditors about the reporting entity
• Users of Financial Information: Primary users, other users
• Qualitative Characteristics of Useful Financial Information:
  • Fundamental: Relevance, faithful representation
  • Enhancing: Comparability, verifiability, timeliness, understandability
• Financial Statements and Reporting Entities: Reporting entities, Financial Statements
• Underlying Assumption: Going concern
• Elements of Financial Statements: Assets, liabilities, equity, income, expenses, unit of account
• Recognition and Derecognition Criteria
• Measurement Basis
  • Financial capital maintenance
  • Physical capital maintenance
• Capital and Capital Maintenance

IAS 1 Presentation of Financial Statements

• Overall Considerations: Fair presentation, structure & contents, compliance & departure, materiality & aggregation, going concern, accrual basis, offsetting, comparative information, reporting frequency, consistency
• It requires a statement of compliance with IFRS and disclosure of significant accounting policies
• Components of Financial Statements: Includes Statement of FP, statement of profit or loss and other comprehensive income, statement of cash flows, statement of changes in equity, notes
  • Structure and content: distinction between current and non-current items
  • Expenses can be categorized by function or by nature

IAS 2 Inventories

• Scope: Applies to all inventories, with some exceptions for financial instruments, biological assets, and certain producers and brokers
• Measurement: Measured at the lower of cost and net realizable value (NRV)
  • NRV is estimated selling price less estimated costs of completion and costs to make the sale
  • Replacement cost acceptable to estimate NRV for material and supplies inventory
• Cost of Inventory: Includes cost of purchase, conversion,and other costs to bring the inventory to its present location and condition
• Cost Formulas: For interchangeable items: FIFO or weighted average; for non-interchangeable items: specific identification
• Exclusions: Abnormal waste, warehouse costs (unless necessary for production), administrative expenses, selling expenses, interest charges
• Disclosures:
  • Accounting policies for measuring inventories
  • Total carrying amount of inventories and carrying amount in classifications
  • Carrying amount of inventories carried at fair value less costs to sell
  • Amount of inventories recognized as an expense during the period
  • Circumstances or events that led to the reversal of a write-down of inventories to net realizable value
  • Amount of any write-down of inventories recognized as an expense during the period
  • Carrying amount of inventories pledged as security for liabilities

IAS 7 Statement of Cashflows

• Operating Activities: Relate to the statement of profit or loss, showing cash generated from operations using either the direct or indirect method
• Investing Activities: Involve non-current assets and current investments not part of cash equivalents
• Financing Activities: Relate to owner's equity, non-current liabilities, and short-term borrowings
• Cash and Cash Equivalents: Include unrestricted cash, short-term, highly liquid investments readily convertible to known amounts of cash, less bank overdrafts
  • Original maturity of three months or less
• Received or paid interest and dividends are disclosed separately and classified consistently as operating, investing, or financing activities based on nature
• Disclosures:
  • The amount of cash flows arising from the operating, investing, and financing activities of each reportable segment -The amount of significant cash and cash equivalent balances that are not available for use by the group with commentary
  • The amount of undrawn borrowing facilities with restrictions
• Split finance lease instalments to interest (=operating), capital (= financing)

IAS 8 Accounting policies, Change in Accounting Estimates and Errors

• Accounting Policies
  • If a change in accounting policy results from a new standard or interpretation, apply any transitional provisions or retrospectively if none exist
  • Retrospective application: adjust opening equity for the earliest prior period and present comparative amounts
• Change in Estimates
  • Apply changes prospectively, affecting current and future periods
  • Disclose nature and amount of the affect in current period affecting
• Errors
  • Correct material prior period errors retrospectively by restating prior periods
  • Disclose nature of error, corrections to line items and EPS

IAS 10 Events After the reporting Period

• Adjusting Events: Provide additional evidence about conditions existing at the end of the reporting period
• Non-Adjusting Events: Indicate conditions arising after the reporting date
• Presentation and Disclosure: Disclose the date when financial statements were authorized for issue and the parties involved
• Updated Disclosure: Update disclosures based on additional information received after the reporting period
• When non-adjusting events are of such significance a disclosure should be made of the nature of the event and quantitative and qualitative impact of the estimate

IAS 12 Income Taxes

• Recognize current tax liability for unpaid taxes and an asset for excess payments
• Temporary difference: Difference between the carrying amount of an asset/liability and its tax base.
• Deferred Tax Liabilities:
  • Recognize liabilities for all taxable temporary difference, extent it arises from:
  • Initial recognition of GW or asset/liability that does not affect accounting or tax profit and the transaction is not a business combination
• Deferred Tax Assets
  • Recognize for deductible temporary differences, unused tax losses, and unused tax credits to the extent that taxable profit will be available, except business combinations and initial asset/liability recognition without accounting/tax profit
    • When it is probable the temporary difference will reverse in the foreseeable future and available tax profit to be utilized, Recognize for deductible temporary differences arising from investments in subsidiaries and associates
• Measure deferred tax assets and liabilities at expected tax rates
• Measurement is based on rates expected when assets are realized or liabilities settled

IAS 16 Property, Plant and Equipment

• The cost consists of purchase price plus import duties and taxes; any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in a manner intended by management; and the initial estimate of the costs of dismantling and removing the item and restoring the site
• Cost
• Recognise probable that economic benefits will flow to entity, and, cost can be measured reliably
• Measurement
  • Initial record at cost; Subsequent cost in case it can be measured and has an additional economic benefits flow to the entity.
• Model
  • Cost Model
    • Cost Less Accumulated depreciation Less Impairment
    • Revaluation Model
      • The asset is carried at a revalued amount, being its fair value at the date of the revaluation, less subsequent depreciation, provided that fair value can be measured reliably.
• Disclosures
  • Disclosure include measurement bases used for determining the gross carrying amount; Depreciation methods used; Useful lives or the depreciation rates used; Gross carrying amount and the accumulated depreciation at the beginning and end of the period; A reconciliation of the carrying amount

IAS 19 Employee Benefits

• Scope: Applies to all employees' benefits except IFRS 2 shared-based payment
• Short term Employee Benefits. Includes normal wages and salaries, compensated absences, profit sharing and bonuses, and such non-monetary fringe benefits as health insurance, housing subsidies and employer-provided vehicles
• Defined Contribution Plan: Entity pay fixed contribution into fund & doesn't have obligation to pay further contrib. if fund doesn't hold sufficient asset
• Defined Benefit Plan (DBP):IAS 19 prohibits delayed recognition of actuarial gain/losses & past service cost, with actual net defined benefit asset/liability in Statement of Financial Position

IAS 20 Accounting for Government Grants and Disclosures of Government Assistance

• Government grants is assistance from government in form of resources from government; In return to past / future compliance with certain conditions to operating activities of the entity.
• Scope
  • All those with No applies to:Government assistance that is provided for an entity in the form of benefits that are available in determining taxable income or are determined or limited to the basis of income tax liability; Government participation in the ownership of an entity; Government grants covered by IAS 41.
• Types of Grants
  • Grants related to Income
    • Presentation
      • Presented separaterly as Other Income or Deduction from related expenses
    • Recognition
      • There is a reasonable assurance that the Entity will comply to all conditions attached to the grants; & The grant will be received.
    • The grant is recognized as income over the period necessary to match it with the related costs, for which it is intended for compensation
  • Grants related to Assets
    • Presentation
      • As deferred income or Deduction from the assets
    • Recognition
      • The entity has an irrevocable right to receive all assistance payments.

IAS 21 The Effects of Changes in Foreign Exchange Rates

• It identifies monetary versus non-monetary items
• Defines Foreign operation is an entity that is a subsidiary, associate, joint arrangement or branch of a reporting entity, the activities of which are based in a country orcurrency other than those of the reporting entity
• Transaction into presentation currency. Assets & Liabilities at closing exchange rate, Income & Expenses at exchange rate on transaction date or average rate.

IAS 23 Borrowing Costs

• Specifies that costs related to a qualifying asset are part of the asset's cost
• Requires the capitalization of borrowing costs that are directly attributable to the acquisition, construction, or production of a qualifying asset
• Specific Borrowing
  • Borrowing cost eligible to be capitalized is actual borrowingcost incurred on specific borrowing; Less: income on temporary investment (if any) of the excess borrowing not yet used.
  • General Borrowing
    • Borrowing cost eligible to be capitalized is determined by applying weighted average rate on general (overall) borrowings. Note:Amount of borrowing costcapitalized cannot exceed in theperiod on amount of borrowingcost incurred.
• Capitalisation commencement, suspension and cessation

IAS 24 Related Party Disclosures

• Related Party is an entity that has has control or influence over the others
• Disclosures require that if a transaction has occurred, then one must know Relationship, transaction items, guarantees etc.
• In general the nature of all related party relationships, the name of the ultimate controlling entity is the ultimate disclosures.
• Key management personnel. the total amount of compensation. for their short-term benefits, post-employment benefits. transactions, outstanding balances.

IAS 26 Accounting & Reporting by Retirement Benefits Plan

• IAS 26 regards a RBP as a separate entity, distinct from the employer of the plan's participants.
• It Includes. Defined Benefits Plans &Defined Contribution Plans
• Main Contents includes a statement that shows:a. The net assets available for benefits; b. The actuarial present value of promisedretirement benefits, distinguishingc.between vested and non-vested benefits;

IAS 27 Separate Financial Statements

• Under IAS 27 Separate Financial Statements the Scope : A parent entity may sometimes elect or be required to issueseparate financial statements. It must identify

  • all Investments in Subsidiaries, JV & Associates as Normal Investment , Investment is Held for Sale

• How to measure Dividend Income from Investment in Subsidiaries, JV and Associates -Fact that separate financialstatements have been issued, and the exemption under which they wereissued.

IAS 28 Investments in Associates and Joint Ventures

• Details entities with joint control or influence over an investee
• Requires that at the investor records initial investments at cost and must know how to measure Equity’s.

IAS 29 Financial Reporting in Hyperinflationary Economics

• Is the restatements of financial statements related to countries that functional currency is hyperinflationary
• The restatements are of Financial Statements– Hyperinflationary economies
• How can Historical Cost Financial Statements is measured :SOCI andSOFP How can Current Cost Financial Statements Is measured: SOCI and SOFP

IAS 32 Financial Instruments: Presentation

• This standard relates to all type of Financial Intstruments except: Those interest. insubsidiaries,associates & JVs, Obligation under employee benefit plans.Includes Financial Assets and Financial Liabilities
• Is required that One must Distinguish Equity Instrument and Financial Liability and know the base definitions.

IFRS 3 Business Combination

• Specifies when transaction or event in which acquirer obtains control over business
• Aquirer has some basic duties that need Disclosure and following the right aAcquisition Method - how is this preformed
• Business combination achieved in stages and with out without transfer of consideration. ==End of Document==