Financial
2020
Accounting
278
by: Alexandra Shtein
,Table of Contents
PERVASIVE STANDARDS ..................................................................................................................................................... 2
CONCEPTUAL FRAMEWORK ............................................................................................................................................... 2
IAS 1- PRESENTATION OF FINANCIAL STATEMENTS .................................................................................................. 5
IAS 7 - STATEMENT OF CASH FLOWS.............................................................................................................................. 14
IAS 10 - EVENTS AFTER THE REPORTING DATE ......................................................................................................... 17
IAS 12 - INCOME TAXES ..................................................................................................................................................... 19
IAS 8 & IAS 37 - CHANGE IN ESTIMATES W.R.T PROVISIONS .................................................................................... 23
IFRS 15 - REVENUE FROM CONTRACTS WITH CUSTOMERS ....................................................................................... 0
IAS 16 - PROPERTY, PLANT & EQUIPMENT................................................................................................................... 19
IAS 36 - IMPAIRMENT OF ASSETS ................................................................................................................................... 24
IAS 38 - INTANGIBLE ASSETS .......................................................................................................................................... 35
IAS 2- INVENTORIES ........................................................................................................................................................... 54
IAS 8- CORRECTION OF PRIOR PERIOD ERRORS ......................................................................................................... 95
GROUP STATEMENTS ....................................................................................................................................................... 101
1
,PERVASIVE STANDARDS
CONCEPTUAL FRAMEWORK
• Objective of general-purpose financial statements
to provide financial information about the entity to primary users (existing / potential investors/ creditors/
lenders) to make decisions (regarding equity, loans / voting rights) about the company
• General Purpose Financial Reports
provide information about the financial position:
1) economic resources (assets) & claims (liabilities against the reporting entity
2) effects of transactions & events that change reporting entity’s economic resources and claims
(PROFIT & LOSS)
• ACCRUAL ACCOUNTING
- depicts the effects of transactions, other events & circumstances on economic resources and claims
in the periods in which those effects occur, even if the resulting cash receipts / payments occur in a
different period
• Elements of financial statements
ASSET - a present economic resource controlled by the entity as a result of past events. An economic
resource is a right that has the potential to produce economic benefits
LIABILITY - a present obligation of the entity to transfer an economic resource as a result of past events
EQUITY - the residual interest in the assets of the entity after deducting all of its liabilities
INCOME - increases in assets or decreases in liabilities that results in increases in equity, other than those
relating to contributions from holders of equity claims
EXPENSES - decreases in assets or increases in liabilities that results in decreases in equity, other than those
relating to contributions from holders of equity claims
• RECOGNITION & DERECOGNITION
- asset / liability is only recognised if the recognition of that asset or liability and resulting income,
expenses or changes in equity provides users with information that is USEFUL
relevant & faithful representation
2
, • QUALITATIVE CHARACTERISTICS OF USEFUL FINANCIAL INFORMATION
fundamental enhancing
relevance faithful representation comparability timeliness verifiability understandability
predictive value completeness
confirming value neutrality
free from material error
example:
Examples from the note prepared by the financial manager: FAITHFUL REPRESENTATION
Complete depiction:
- The note is not complete and is missing the South African income tax rate on
companies of 28%. This is a requirement in terms of IAS 12 par (c)(i).[OR The
currency is not disclosed].
Neutrality:
- The note is not neutral because the directors wish to accentuate the note and
manipulate users of financial information.
Free from error:
- The note is not free from error and shows the income tax expense through
other comprehensive income instead of through profit and loss. [OR the note
is free from error as it is mathematically accurate].
Comparability:
- Even though the information might be comparable with other entities, it is
not comparable with a prior period because no comparative information is
disclosed.
Verifiability:
- The under provision will be directly verifiable with SARS. Different
knowledgeable and independent observers would reach consensus eg. The
auditors would get to the same conclusion as the manager.
Timeliness:
3
, - Information must be available to decision-makers in time to be capable of
influencing their decisions. If the financial statements are completed by
middle September, this will provide useful financial information for decision-
making since financials will be available within 3 months after year-end.
• MEASUREMENT
1. HISTORICAL COST
provides information about A/L/I/E using information derived from the price of the transaction / any
other event that gave rise to them
- no changes in values (other than A/L impairment)
2. CURRENT VALUE
provides monetary information about A/L/I/E using information updated to reflect conditions at the
measurement date
- reflects changes since previous measurement date
- Fair value / Value in Use / Current value
• DISCOUNTING
applies i.r.t IFRS 15:
- only discount if the transaction has a significant financing element
indicators: difference between cash and deferred price
credit terms exceed the norm
no other business reasons for extended payment
- less than 12 months – only discount if told that there is a significant financing
component
• CONCEPTS OF CAPITAL & CAPITAL MAINTENANCE
financial concept of capital (most entities use)
- capital = net assets / equity
- profit is only earned if net assets @ end of period exceed net assets @ beginning
physical concept of capital
- capital = production capacity / operation caoability
- profit is only earned if physical productive capacity @ end of period exceeds physical productive capacity @
beginning
4
2020
Accounting
278
by: Alexandra Shtein
,Table of Contents
PERVASIVE STANDARDS ..................................................................................................................................................... 2
CONCEPTUAL FRAMEWORK ............................................................................................................................................... 2
IAS 1- PRESENTATION OF FINANCIAL STATEMENTS .................................................................................................. 5
IAS 7 - STATEMENT OF CASH FLOWS.............................................................................................................................. 14
IAS 10 - EVENTS AFTER THE REPORTING DATE ......................................................................................................... 17
IAS 12 - INCOME TAXES ..................................................................................................................................................... 19
IAS 8 & IAS 37 - CHANGE IN ESTIMATES W.R.T PROVISIONS .................................................................................... 23
IFRS 15 - REVENUE FROM CONTRACTS WITH CUSTOMERS ....................................................................................... 0
IAS 16 - PROPERTY, PLANT & EQUIPMENT................................................................................................................... 19
IAS 36 - IMPAIRMENT OF ASSETS ................................................................................................................................... 24
IAS 38 - INTANGIBLE ASSETS .......................................................................................................................................... 35
IAS 2- INVENTORIES ........................................................................................................................................................... 54
IAS 8- CORRECTION OF PRIOR PERIOD ERRORS ......................................................................................................... 95
GROUP STATEMENTS ....................................................................................................................................................... 101
1
,PERVASIVE STANDARDS
CONCEPTUAL FRAMEWORK
• Objective of general-purpose financial statements
to provide financial information about the entity to primary users (existing / potential investors/ creditors/
lenders) to make decisions (regarding equity, loans / voting rights) about the company
• General Purpose Financial Reports
provide information about the financial position:
1) economic resources (assets) & claims (liabilities against the reporting entity
2) effects of transactions & events that change reporting entity’s economic resources and claims
(PROFIT & LOSS)
• ACCRUAL ACCOUNTING
- depicts the effects of transactions, other events & circumstances on economic resources and claims
in the periods in which those effects occur, even if the resulting cash receipts / payments occur in a
different period
• Elements of financial statements
ASSET - a present economic resource controlled by the entity as a result of past events. An economic
resource is a right that has the potential to produce economic benefits
LIABILITY - a present obligation of the entity to transfer an economic resource as a result of past events
EQUITY - the residual interest in the assets of the entity after deducting all of its liabilities
INCOME - increases in assets or decreases in liabilities that results in increases in equity, other than those
relating to contributions from holders of equity claims
EXPENSES - decreases in assets or increases in liabilities that results in decreases in equity, other than those
relating to contributions from holders of equity claims
• RECOGNITION & DERECOGNITION
- asset / liability is only recognised if the recognition of that asset or liability and resulting income,
expenses or changes in equity provides users with information that is USEFUL
relevant & faithful representation
2
, • QUALITATIVE CHARACTERISTICS OF USEFUL FINANCIAL INFORMATION
fundamental enhancing
relevance faithful representation comparability timeliness verifiability understandability
predictive value completeness
confirming value neutrality
free from material error
example:
Examples from the note prepared by the financial manager: FAITHFUL REPRESENTATION
Complete depiction:
- The note is not complete and is missing the South African income tax rate on
companies of 28%. This is a requirement in terms of IAS 12 par (c)(i).[OR The
currency is not disclosed].
Neutrality:
- The note is not neutral because the directors wish to accentuate the note and
manipulate users of financial information.
Free from error:
- The note is not free from error and shows the income tax expense through
other comprehensive income instead of through profit and loss. [OR the note
is free from error as it is mathematically accurate].
Comparability:
- Even though the information might be comparable with other entities, it is
not comparable with a prior period because no comparative information is
disclosed.
Verifiability:
- The under provision will be directly verifiable with SARS. Different
knowledgeable and independent observers would reach consensus eg. The
auditors would get to the same conclusion as the manager.
Timeliness:
3
, - Information must be available to decision-makers in time to be capable of
influencing their decisions. If the financial statements are completed by
middle September, this will provide useful financial information for decision-
making since financials will be available within 3 months after year-end.
• MEASUREMENT
1. HISTORICAL COST
provides information about A/L/I/E using information derived from the price of the transaction / any
other event that gave rise to them
- no changes in values (other than A/L impairment)
2. CURRENT VALUE
provides monetary information about A/L/I/E using information updated to reflect conditions at the
measurement date
- reflects changes since previous measurement date
- Fair value / Value in Use / Current value
• DISCOUNTING
applies i.r.t IFRS 15:
- only discount if the transaction has a significant financing element
indicators: difference between cash and deferred price
credit terms exceed the norm
no other business reasons for extended payment
- less than 12 months – only discount if told that there is a significant financing
component
• CONCEPTS OF CAPITAL & CAPITAL MAINTENANCE
financial concept of capital (most entities use)
- capital = net assets / equity
- profit is only earned if net assets @ end of period exceed net assets @ beginning
physical concept of capital
- capital = production capacity / operation caoability
- profit is only earned if physical productive capacity @ end of period exceeds physical productive capacity @
beginning
4
