IFRS CONCEPTS AND APPLICATION
IFRS2.1
The date of transition is the beginning of the earliest period for which full
comparative IFRS information is provided. The date of reporting is the
closing balance sheet date for the first IFRS financial statements.
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IFRS2.2
When countries accept IFRS for use as accepted accounting policies,
companies need guidance to ensure that their first IFRS financial statements
contain high-quality information. Specifically, IFRS 1 requires that information
in a company’s first IFRS statements (1) be transparent, (2) provide a suitable
starting point, and (3) have a cost that does not exceed the benefits.
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IFRS2.3
A company follows these steps:
1. Identify the timing of its first IFRS statements.
2. Prepare an opening balance sheet at the date of transition to IFRS.
3. Select accounting principles that comply with IFRS, and apply these
principles retrospectively.
4. Make extensive disclosures to explain the transition to IFRS.
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IFRS2.4
The date of the opening balance sheet is January 1, 2025. The IFRS financial
statements will include years ended December 31, 2026 and 2025.
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,IFRS2.5
(a) Assets
53 The future economic benefit embodied in an asset is the potential
to contribute, directly or indirectly, to the flow of cash and cash
equivalents to the entity. The potential may be a productive one
that is part of the operating activities of the entity. It may also take
the form of convertibility into cash or cash equivalents or a
capability to reduce cash outflows, such as when an alternative
manufacturing process lowers the costs of production.
54 An entity usually employs its assets to produce goods or services
capable of satisfying the wants or needs of customers; because
these goods or services can satisfy these wants or needs,
customers are prepared to pay for them and hence contribute to
the cash flow of the entity. Cash itself renders a service to the
entity because of its command over other resources.
55 The future economic benefits embodied in an asset may flow to
the entity in a number of ways. For example, an asset may be:
a. used singly or in combination with other assets in the
production of goods or services to be sold by the entity;
b. exchanged for other assets;
c. used to settle a liability; or
d. distributed to the owners of the entity.
(b) Liabilities
60 An essential characteristic of a liability is that the entity has a
present obligation. An obligation is a duty or responsibility to act
or perform in a certain way. Obligations may be legally enforce-
able as a consequence of a binding contract or statutory require-
ment. This is normally the case, for example, with amounts
payable for goods and services received. Obligations also arise,
however, from normal business practice, custom and a desire to
maintain good business relations or act in an equitable manner.
If, for example, an entity decides as a matter of policy to rectify
faults in its products even when these become apparent after the
warranty period has expired, the amounts that are expected to be
expended in respect of goods already sold are liabilities.
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,IFRS2.5 (Continued)
61 A distinction needs to be drawn between a present obligation and
a future commitment. A decision by the management of an entity
to acquire assets in the future does not, of itself, give rise to a
present obligation. An obligation normally arises only when the
asset is delivered or the entity enters into an irrevocable
agreement to acquire the asset. In the latter case, the irrevocable
nature of the agreement means that the economic consequences
of failing to honour the obligation, for example, because of the
existence of a substantial penalty, leave the entity with little, if
any, discretion to avoid the outflow of resources to another party.
62 The settlement of a present obligation usually involves the entity
giving up resources embodying economic benefits in order to
satisfy the claim of the other party. Settlement of a present
obligation may occur in a number of ways, for example, by:
a. payment of cash;
b. transfer of other assets;
c. provision of services;
d. replacement of that obligation with another obligation; or
e. conversion of the obligation to equity.
(c) Accrual basis
22 In order to meet their objectives, financial statements are
prepared on the accrual basis of accounting. Under this basis, the
effects of transactions and other events are recognised when
they occur (and not as cash or its equivalent is received or paid)
and they are recorded in the accounting records and reported in
the financial statements of the periods to which they relate.
Financial statements prepared on the accrual basis inform users
not only of past transactions involving the payment and receipt
of cash but also of obligations to pay cash in the future and of
resources that represent cash to be received in the future. Hence,
they provide the type of information about past transactions and
other events that is most useful to users in making economic
decisions.
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Communication
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, IFRS2.6
(a) March 28, 2020 total assets: £10,183.90 million.
March 30, 2019 total assets: £8,851.00 million.
(b) March 28, 2020 cash and cash equivalents: £248.4 million.
(c) 2020 selling and administrative expense: £3,036.4 million.
2019 selling and administrative expense: £3,134.9 million.
(d) 2020 revenue: £10,181.9 million.
2019 revenue: £10,377.3 million.
(e) An adjusting entry for deferrals is necessary when the receipt/disburse-
ment precedes the recognition in the financial statements. Accounts
such as property, plant and equipment (leading to depreciation),
intangible assets (leading to amotisation), and retirement benefit assets
would require deferral adjusting entries.
An adjusting entry for an accrual is necessary when recognition in the
financial statements precedes the cash receipt/disbursement, such as
interest or taxes payable. Other adjusting entries probably made by
M&S include finance income and finance costs and bank and other
interest receivables and interest payables.
(f) 2020 Depreciation (£503.8) and amortization (£164.8) expense: £668.6
million
2019 Depreciation (£605.3) and amortization (£184.4) expense: £789.7
million
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IFRS2.1
The date of transition is the beginning of the earliest period for which full
comparative IFRS information is provided. The date of reporting is the
closing balance sheet date for the first IFRS financial statements.
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IFRS2.2
When countries accept IFRS for use as accepted accounting policies,
companies need guidance to ensure that their first IFRS financial statements
contain high-quality information. Specifically, IFRS 1 requires that information
in a company’s first IFRS statements (1) be transparent, (2) provide a suitable
starting point, and (3) have a cost that does not exceed the benefits.
LO: 9, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Diversity, Communication, AICPA BB: Global, AICPA FC: Reporting, AICPA PC: Communication
IFRS2.3
A company follows these steps:
1. Identify the timing of its first IFRS statements.
2. Prepare an opening balance sheet at the date of transition to IFRS.
3. Select accounting principles that comply with IFRS, and apply these
principles retrospectively.
4. Make extensive disclosures to explain the transition to IFRS.
LO: 9, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Diversity, Communication, AICPA BB: Global, AICPA FC: Reporting, AICPA PC: Communication
IFRS2.4
The date of the opening balance sheet is January 1, 2025. The IFRS financial
statements will include years ended December 31, 2026 and 2025.
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Copyright © 2022 WILEY Kieso, Intermediate Accounting, 18/e, Solutions Manual (For Instructor Use Only) 2-1
,IFRS2.5
(a) Assets
53 The future economic benefit embodied in an asset is the potential
to contribute, directly or indirectly, to the flow of cash and cash
equivalents to the entity. The potential may be a productive one
that is part of the operating activities of the entity. It may also take
the form of convertibility into cash or cash equivalents or a
capability to reduce cash outflows, such as when an alternative
manufacturing process lowers the costs of production.
54 An entity usually employs its assets to produce goods or services
capable of satisfying the wants or needs of customers; because
these goods or services can satisfy these wants or needs,
customers are prepared to pay for them and hence contribute to
the cash flow of the entity. Cash itself renders a service to the
entity because of its command over other resources.
55 The future economic benefits embodied in an asset may flow to
the entity in a number of ways. For example, an asset may be:
a. used singly or in combination with other assets in the
production of goods or services to be sold by the entity;
b. exchanged for other assets;
c. used to settle a liability; or
d. distributed to the owners of the entity.
(b) Liabilities
60 An essential characteristic of a liability is that the entity has a
present obligation. An obligation is a duty or responsibility to act
or perform in a certain way. Obligations may be legally enforce-
able as a consequence of a binding contract or statutory require-
ment. This is normally the case, for example, with amounts
payable for goods and services received. Obligations also arise,
however, from normal business practice, custom and a desire to
maintain good business relations or act in an equitable manner.
If, for example, an entity decides as a matter of policy to rectify
faults in its products even when these become apparent after the
warranty period has expired, the amounts that are expected to be
expended in respect of goods already sold are liabilities.
2-2 Copyright © 2022 WILEY Kieso, Intermediate Accounting, 18/e, Solutions Manual (For Instructor Use Only)
,IFRS2.5 (Continued)
61 A distinction needs to be drawn between a present obligation and
a future commitment. A decision by the management of an entity
to acquire assets in the future does not, of itself, give rise to a
present obligation. An obligation normally arises only when the
asset is delivered or the entity enters into an irrevocable
agreement to acquire the asset. In the latter case, the irrevocable
nature of the agreement means that the economic consequences
of failing to honour the obligation, for example, because of the
existence of a substantial penalty, leave the entity with little, if
any, discretion to avoid the outflow of resources to another party.
62 The settlement of a present obligation usually involves the entity
giving up resources embodying economic benefits in order to
satisfy the claim of the other party. Settlement of a present
obligation may occur in a number of ways, for example, by:
a. payment of cash;
b. transfer of other assets;
c. provision of services;
d. replacement of that obligation with another obligation; or
e. conversion of the obligation to equity.
(c) Accrual basis
22 In order to meet their objectives, financial statements are
prepared on the accrual basis of accounting. Under this basis, the
effects of transactions and other events are recognised when
they occur (and not as cash or its equivalent is received or paid)
and they are recorded in the accounting records and reported in
the financial statements of the periods to which they relate.
Financial statements prepared on the accrual basis inform users
not only of past transactions involving the payment and receipt
of cash but also of obligations to pay cash in the future and of
resources that represent cash to be received in the future. Hence,
they provide the type of information about past transactions and
other events that is most useful to users in making economic
decisions.
LO: 9, Bloom: K, Difficulty: Simple, Time: 10-15, AACSB: Diversity, Communication, Technology, AICPA BB: Global, AICPA FC: Reporting, AICPA PC:
Communication
Copyright © 2022 WILEY Kieso, Intermediate Accounting, 18/e, Solutions Manual (For Instructor Use Only) 2-3
, IFRS2.6
(a) March 28, 2020 total assets: £10,183.90 million.
March 30, 2019 total assets: £8,851.00 million.
(b) March 28, 2020 cash and cash equivalents: £248.4 million.
(c) 2020 selling and administrative expense: £3,036.4 million.
2019 selling and administrative expense: £3,134.9 million.
(d) 2020 revenue: £10,181.9 million.
2019 revenue: £10,377.3 million.
(e) An adjusting entry for deferrals is necessary when the receipt/disburse-
ment precedes the recognition in the financial statements. Accounts
such as property, plant and equipment (leading to depreciation),
intangible assets (leading to amotisation), and retirement benefit assets
would require deferral adjusting entries.
An adjusting entry for an accrual is necessary when recognition in the
financial statements precedes the cash receipt/disbursement, such as
interest or taxes payable. Other adjusting entries probably made by
M&S include finance income and finance costs and bank and other
interest receivables and interest payables.
(f) 2020 Depreciation (£503.8) and amortization (£164.8) expense: £668.6
million
2019 Depreciation (£605.3) and amortization (£184.4) expense: £789.7
million
LO: 9, Bloom: K, Difficulty: Simple, Time: 10-15, AACSB: Diversity, Communication, Technology, AICPA BB: Global, AICPA FC: Reporting, AICPA PC:
Communication
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