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Summary CPA Australia Financial Reporting (FR) INDEX
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DETAILED, COMPREHENSIVE, WORD-FOR-WORD Index from the CPA Australia Financial Reporting textbook
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Term Page Module Definitions/DescriptionJoint arrangement
- An arrangement of which two or more parties have joint control
- The entity essentially acquires a share of the individual accounts of the joint
operation
- Allow sharing of risks related to capital investment and other project risks
Two essential characteristics of a joint arrangement:
1. Parties to the arrangement must be bound by a contratual agreement in relation
to the terms on which the parties participate in the activities of the arrangement
2. The contractual agreement gives rise to two or more parties having joint control
of the arrangement
Initial recognition
- Recognsing in the investor's financial statements the investor's share of the
individual accounts of the joint operation
Joint arrangement 221, 299 5
Examples:
- Mining industry
- Real estate industry
Benefits:
- Allows 'sharing of load' with a view to sharing the output
Limitations:
- Potential withdrawal of one party after the agreement is signed
- May be difficult to manage due to uncertainty in decision-making
Classification of joint arrangements:
- Joint control
- Joint venture
Classification of joint arrangements
- Joint control
- Joint venture
Assessment of rights and obligations that arise from the entity's involvement in
the arrangement
- To capture the economic substance of the arrangement
Joint arrangement
300 5 - Helps to ensure consistency in accounting
(Classification)
- Enhanced comparability of financial statements
Professional judgement required to consider:
- The legal form of the arrangement
- The terms agreed in the contractual agreement
- Other facts and circumstances when relevant
Joint control
- Arises when decisions relating to the relevant activities of the arrangement require
the unanimous consent of the parties who share control
Weaker than parent-subsidiary relationships
- Unanimous consent
- Makes joint control weaker than the control that may establish a parent-subsidiary
Joint control 299 5
relationship
Stronger relationship than associates
- Parties in a joint arrangement control (albeit jointly) decisions made in relation to the
joint arrangement
- Investors in associates only participate in decision in relaion to the investee
Joint operation
- When the parties that have joint control rights to the assets of, and obligations
for the liabilities of, the arrangement
Joint operation 300 5 Accounting treatment:
- Joint operator to recognise individually its share of the assets, liabilities,
resources, and expenses that arise from its interest in the joint operation
- These items will be acounted for in accordance with the relevant IFRSs
,Term Page Module Definitions/Description
Joint venture
- When the parties have joint rights to the net assets of the arrangement
Joint venture 300 5 Accounting treatment:
- Joint venturer to recognise its interest in the net assets of the arrangement as an
investment to be accounted for using the equity method
,Term Page Module Definitions/Description
Lease Liability
Lease Liability 39 1 A financial obligation that arises when a company enters into a lease agreement to
use a specific asset, such as real estate, equipment, or vehicles, over a period of tim
IFRS 16 Leases
- To provide the principles for ‘recognition, measurement, presentation and
Leases 5, 37, 38 1
disclosure of leases’ in a manner that faithfully represents the effect of leases on
an entity’s financial position, finanical performance and cash flows (IFRS 16, p1)
Parties to a lease contract
Lessee:
Leases
38 1 The entity that obtains the right to use the asset
(Parties to)
Lessor:
The entity that provides the right to use the asset
Legislation
- Part 2M.3 (Financial Reporting) of the Corporations Act requires an entity that is a
disclosing entity, public company, large proprietary company or registered scheme to
prepare an annual financial report
Legislation 7 1
- The financial report must comply with Australian Accounting Standards when
they are applicable
- The financial reporting obligations of other types of entities are included in other
federal or statebased legislation
Lenders
4 1
Lenders - A primary user of financial statements
Lessee
Lessee 38 1
The entity that obtains the right to use the asset
Lessee Recognition Exemptions
Short-term leases
- Less than 12 months
- Can only be applied to a class of underlying assets, not on the basis of the terms
of each lease contract
Low-value leases
- Based on the value of the underlying asset when it is new
Lessee - Cannot be applied to subleases
40 1
(Recognition Exemptions) - The lessee can benefit from the use of the underlying asset on its own or
together with other resources that are readily available to the lessee
- The underlying asset is not highly dependent on/highly interrelated with, other
assets
Examples:
- Tablets and personal computers
- Telephones
- Small items of office furniture
- US$5,000 or less (IASB)
Lessee (Recognition Criteria - Lease Liability)
Initial Measurement
Future lease payments include:
1. Fixed payments less any lease incentives receivable
2. Variable lease payments
3. Amounts expected to be payable by the lessee under residual value guarantees
4. Exercise price of a purchase option
- If the lessee is reasonably certain to exercise that option
5. Penalty payments for terminating the lease
Lessee
(Lease Liability) 39 1 Subsequent Measurement
(Measurement) Lease liability is measured by:
1. Increase in carrying amount
-To reflect interest in lease liability
2. Reducition the carrying amount
- To reflect the lease payments made
3. Remeasurement of carrying amount
- To reflect any:
a) Reassessment
b) Lease modifications
c) Revised in-substance fixed lease payments
Right-of-use asset
Lessee
39 1 The asset specified in the lease contract that the lessee has the right to use during
(Right-to-use Asset)
the lease term
, Term Page Module Definitions/Description
Lessee (Recognition Criteria - Right of use Asset)
Initial Measurement
Cost of Right-to-Use Asset comprises of:
1. Amount of initial measurement of the lease liability
2. Any lease payments made on/before the commencement date, less any lease
incentives received
3. Any initial direct costs incurred by the lessee
4. An estimate of costs to be incurred by the lessee in:
- Dismantling/removing the underlying asset
- Restoring the site on which it is located
- Restoring the underlying asset to the condition required by the terms of the lease
Lessee Subsequent Measurement
(Right-to-use Asset) 39 1 Cost Model
(Measurement) 1. Carrying amount of Right-to-Use Asset
= Cost - Accumulated depreciation - Accumulated impairment loss
2. Remeasurement adjusments
- Adjustments for any remeasurements of the lease liability
Fair Value Model
1. Applied if lessee applies the fair value model per IAS 40 Investment Property to its
investment property
Revaluation Model
1. Applied if the lessee applies the revaluation model per IAS 16 Property, Plant and
Equipment to a class of property, plant and equipment to which the right-of-use asset
relates
Refer to page 39 (Table 1.8)
Lessor
Lessor 38 1
The entity that provides the right to use the asset
Determination of existence
Professional judgement
- Requires entities to use professional judgement when determining if a lease exists
- Must be used in considering whether or not a lessee is ‘reasonably certain’ to
exercise specific options that will impact the lease term and the measurement
criteria
Example:
Lease term
= Non-cancelleable period + Periods covered by an option to extend the lease if the
lessee is reasonably certain to exercise that option and to terminate the lease if the
lessee is reasonably certain not to exercise that option
(IFRS 16, p18)
If a lease exists
- Determine the impact it will have on the financial reporting of the entity
Lessor
38 1
(Determination of existence) Assessment of each contract
- Assessed at its commencement
- To determine if it contains a lease
A contract contains a lease if it
- Conveys the right to control the use of an identified asset for a period of time in
exchange for consideration (IFRS 16, p9)
Period of time
- Commonly greater than 12 months
- Can also be expressed as ‘amount of use’
- Eg, amount of units produced by the underlying asset
Reassessment of the existence of a lease
- The existence of a lease must be reassessed each time there is a change to the
terms and conditions of the contract (IFRS 16, p9-11)
Finance Lease
Lessor - A classification of a lease by the lessor
42 1
(Finance Lease) - A lease that transfers substantially all the risks and rewards incidental to
ownership of an underlying asset
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