contents 3 Shareholders equity: share capital and reserves 78 1 The IASB: history, current structure and processes 2

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1 Contents v contents Foreword xi Preface xiii About the authors xv Acknowledgements xvii PART 1 Framework 1 1 The IASB: history, current structure and processes National accounting standards Globalisation of capital markets Calls for the harmonisation of accounting standards Formation and achievements of the IASC ( ) Restructuring of the IASC into the IASB Who uses IFRSs? IASB activities to date Recent trends in International Financial Reporting Standards First-time adoption of IFRSs International Accounting Standards for the public sector International Auditing Standards Summary 34 Discussion questions 35 Appendices 36 2 The conceptual Framework of the IASB Introduction Purpose and status of the Framework General purpose financial statements Users and their information needs Responsibility for financial statements The objective of financial statements Underlying assumptions Qualitative characteristics of financial statements The elements of financial statements Recognition of the elements of financial statements Measurement of the elements of financial statements Summary 71 Discussion question 72 Problems 72 PART 2 Elements 77 3 Shareholders equity: share capital and reserves Shareholders equity Types of companies Key features of the corporate structure Contributed equity: issue of share capital Contributed equity: subsequent movements in share capital Share capital: subsequent decreases in share capital Reserves Disclosure Summary 107 Discussion questions 108 Exercises 109 Problems Provisions, contingent liabilities and contingent assets Introduction to IAS Definition of a provision Distinguishing provisions from other liabilities Definition of a contingent liability Distinguishing a contingent liability from a provision The recognition criteria for provisions Putting it all together a useful decision tree Measurement of provisions Application of the definitions, recognition and measurement rules Contingent assets Disclosure Summary 140 Discussion questions 141 Exercises 142 Problems 144

2 vi Contents 5 Financial instruments Introduction to IAS 32 and IAS IAS 32 Financial Instruments: Disclosure and Presentation IAS 39 Financial Instruments: Recognition and Measurement Summary 189 Discussion questions 191 Exercises 191 Problems 193 Appendix Income taxes The nature of income tax Differences between accounting profit and taxable profit Accounting for income taxes Calculation of current tax Recognition of current tax Payment of tax Tax losses Calculation of deferred tax Recognition of deferred tax liabilities and deferred tax assets Change of tax rates Amended prior year tax figures Presentation in the financial statements Disclosures Summary 234 Discussion questions 235 Exercises 235 Problems Inventories The nature of inventories Initial recognition of inventory Determination of cost Accounting for inventory End-of-period accounting Assigning costs to inventory Net realisable value Recognition as an expense Disclosure Summary 272 Discussion questions 273 Exercises 273 Problems Property, plant and equipment The nature of property, plant and equipment Initial recognition of property, plant and equipment Initial measurement of property, plant and equipment Measurement subsequent to initial recognition The cost model The revaluation model Choosing between the cost model and the revaluation model Derecognition Disclosure Summary 320 Discussion questions 321 Exercises 322 Problems Intangible assets Introduction The nature of intangible assets Recognition and initial measurement Measurement subsequent to initial recognition Retirements and disposals Disclosure Innovative measures of intangibles Summary 368 Discussion questions 369 Problems Business combinations The nature of a business combination Accounting for a business combination basic principles 380

3 Contents vii 10.3 Accounting in the records of the acquirer Accounting in the records of the acquiree Subsequent adjustments to the initial accounting for a business combination Disclosure business combinations Business combination (Phase II) considerations Non-current assets held for sale and discontinued operations Summary 423 Discussion questions 425 Exercises 426 Problems Impairment of assets Introduction to IAS When to undertake an impairment test Impairment test for an individual asset Cash-generating units excluding goodwill Cash-generating units and goodwill Reversal of an impairment loss Disclosure Summary 474 Discussion questions 475 Exercises 477 Problems Leases Leases What is a lease? Classification of leases Applying the classification guidance Substance over form: incentives to misclassify leases Accounting for finance leases by lessees Accounting for finance leases by lessors Accounting for operating leases Accounting for sale and leaseback transactions Likely future developments Summary 520 Discussion questions 521 Exercises 521 Problems 524 Appendix 528 PART 3 Disclosure Principles of disclosure IAS 1, IAS 8 and IAS Introduction to IAS 1, IAS 8 and IAS IAS 1 Presentation of Financial Statements IAS 8 Accounting Policies, Changes in Accounting Estimates, and Errors IAS 10 Events After the Balance Sheet Date Summary 549 Discussion questions 550 Exercises 550 Problems Presentation of financial statements Presentation of financial statements Scope Balance sheet Income statement Statement of changes in equity Cash flow statement Notes Summary 575 Discussion questions 576 Exercises 576 Problems Cash flow statements Introduction to IAS Scope of IAS Objectives of a cash flow statement 590

4 viii Contents 15.4 Defining cash and cash equivalents Classifying cash flow activities Format of cash flow statements Preparing a cash flow statement Other disclosures Comprehensive example Extracts from financial reports Summary 616 Discussion questions 617 Exercises 617 Problems 620 PART 4 Economic entities Controlled entities the consolidation method Introduction Forms of controlled entities Applying the consolidation method Control as the criterion for consolidation Presentation of consolidated financial statements Parent entities and identification of an acquirer reverse acquisitions Concepts of consolidation Format of consolidated financial statements Summary 659 Discussion questions Consolidated financial statements: wholly owned subsidiaries The consolidation process Consolidation worksheets The acquisition analysis Worksheet entries at the acquisition date Worksheet entries subsequent to the acquisition date Comprehensive example Revaluations in the records of the subsidiary at acquisition date Disclosure Reverse acquisitions Summary 705 Discussion questions 706 Exercises 706 Problems Consolidated financial statements: intragroup transactions Introduction Rationale for adjusting for intragroup transactions Transfers of inventory Transfers of non-current assets Comprehensive example: intragroup transfers of assets Intragroup services Intragroup dividends from post-acquisition equity Intragroup borrowings Summary 756 Discussion questions 757 Exercises 757 Problems Consolidated financial statements: minority interest Introduction Effects of an MI on the consolidation process Calculating the MI share of equity MI share of recorded equity of the subsidiary Adjusting for the effects of intragroup transactions Excess on acquisition Summary 806 Discussion questions 807 Exercises 807 Problems 813

5 Contents ix 20 Consolidated financial statements: indirect ownership interests Introduction Direct and indirect minority interest (MI) Sequential acquisitions Non-sequential acquisitions Reciprocal ownership Summary 866 Discussion questions 867 Exercises 867 Problems Consolidated financial statements: foreign subsidiaries Translation of foreign subsidiary s statements Functional and presentation currencies The rationale underlying the functional currency choice Identifying the functional currency Translation into the functional currency Changing the functional currency Translation into the presentation currency Consolidating foreign subsidiaries where local currency is the functional currency Consolidating foreign subsidiaries where functional currency is that of the parent entity Net investment in a foreign operation Disclosure Summary 918 Discussion questions 919 Exercises 920 Problems Accounting for investments in associates Accounting for equity investments in other entities Identifying associates Application consolidated or separate financial statements Application of the equity method of accounting Disclosure Comprehensive example Summary 969 Discussion questions 970 Exercises 970 Problems Interests in joint ventures Investments in other entities The nature of a joint venture Accounting for jointly controlled operations under IAS Accounting for jointly controlled assets under IAS Accounting by an unincorporated joint venture that is sharing output Accounting by a venturer in an unincorporated joint venture that is sharing output Accounting by a venturer in a jointly controlled entity that is sharing profit Equity method versus proportionate consolidation Disclosures required by IAS Summary 1024 Discussion questions 1025 Exercises 1025 Problems Segment reporting IAS Introduction to IAS Scope 1042

6 x Contents 24.3 Objectives of financial reporting by segments Business and geographical segments Primary and secondary segment reporting formats Identifying an entity s reportable segments Segment accounting policies Disclosures Summary 1070 Discussion qestions 1071 Exercises 1071 Problems 1073 Useful terms 1077 Index 1085

Diploma in IFRS. Units with Learning Outcomes and Assessment Criteria

Diploma in IFRS. Units with Learning Outcomes and Assessment Criteria Diploma in IFRS Units with Learning Outcomes and Assessment Criteria Unit 1-IASB and regulatory framework Understand the need and role of the regulatory system Describe the impact of globalization Describe