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  3. University Of Pretoria (UP)
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  5. Business Accounting (BAC200)

Summary

BAC200: Summary of Semester 1

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  • Course
  • Business Accounting (BAC200)
  • Institution
  • University Of Pretoria (UP)
  • Book
  • INTRODUCTION TO IFRS 8TH EDITION

This document contains a summary from work done from the Introduction to IFRS 8th edition textbook by Koppeschaar et al as well as lecture notes and examples. It encompasses Learning Area 1 - 10

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Document information

  • No
  • La 1 -10: chapter 1, 2, 10, 3, 8, 7, 13, 15, 16, 5
  • January 27, 2022
  • 74
  • 2021/2022
  • Summary

Subjects

  • bac200
  • bac
  • business accounting
  • financial sciences
  • 2nd year
  • second year
  • bcom accounting
  • accounting
  • bcom
  • bcom financial sciences 2nd year

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  • University of Pretoria (UP)
  • Business Accounting (BAC200)
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BAC200 – Business Accounting


Contents
LA 1: Chapter 1: Conceptual Framework for Financial Reporting ..................... 2
LA 2: Chapter 2: Presentation of financial statements – IAS 1............................. 7
LA 3: Chapter 10: Revenue from contracts with customers – IFRS 15 ............... 14
LA 4: Chapter 3: Inventories – IAS 2 ...................................................................... 20
LA 5: Chapter 8: Property, plant and equipment ............................................... 32
LA 6: Income Taxes (IAS 12) .................................................................................. 41
LA 7: Impairment of Assets (IAS 36) ...................................................................... 52
LA 8: Intangible Assets (IAS 38) ............................................................................. 59
LA 9: Investment Property (IAS 40) ........................................................................ 65
LA 10: Changes in accounting estimates and errors (IAS 8) ............................. 69




1

,LA 1: Chapter 1: Conceptual Framework for Financial Reporting

1. OBJECTIVE OF GENERAL PURPOSE FINANCIAL REPORTING
General  Report that provides financial information about
purpose  Economic resources
financial  Claims against entity
report  Changes in economic resources
 Useful in making decisions about
 Buying/ selling/ holding equity/ debt instruments
 Providing/ settling loans/ other forms of credit
 Exercising vote on management’s actions
 Expectations about returns are based on
 Assessment of amount/ timing/ uncertainty
 Assessment of management’s stewardship

Primary users
 Existing/ potential investors/ lenders/ other creditors
 GPFR not intended for management/ regulators
 IASB objective: meet needs of max number of users
 GPFR used to estimate value of reporting entity
Objective  Provide financial information about the reporting entity
 In making decisions relating to providing resources to entity
Accrual  Depicts effects of transactions on economic resources
accounting  in the periods in which those occur
 Even if cash receipts/ payments occur in a different period


2. QUALITATIVE CHARACTERISTICS OF USEFUL FINANCIAL
INFORMATION
Fundamental Relevance
characteristics  Information that is useful
 Has ability to make difference in decisions
 Helps evaluate past/ present/ future events
 Confirms/ corrects past evaluations
 Has predictive/ confirmatory value
 Materiality: entity-specified aspect based on nature/
magnitude of items to which information relates
Faithful representation
 Provides information about substance of an economic
phenomena/ its economic reality

Characteristics
1. Completeness
 Includes all information a user would need
 To be able to understand economic events/ transactions
 Include all necessary descriptions/ explanations

2. Neutrality
 Without bias

2

,  Not slanted/ weighted/ emphasized/ manipulated
 To increase probability that information will be received
favourably/ unfavourably

3. Free from error
 Process followed to provide reported information has been
selected/ applied without errors
Enhancing Comparability
characteristics  Not uniformity
 Consistency helps achieve goal of comparability
 Disclosure of accounting policies assists readers to
compare policies of different entities
 Statements can be analysed to evaluate performance
Verifiability
 Enables users to confirms information represents events/
transactions it purports to present
 When different knowledgeable/ independent observers
reach consensus on faithful representation
 Direct – counting cash/ indirect – confirmation of inputs
used in calculation of closing balance of inventory
Timeliness
 Can influence decision of users
 Older information is less useful – except when used for
assessing trends
Understandability
 Understandable to average user who has reasonable
knowledge of business
 Information shouldn’t be excluded because it may be too
complex


3. FINANCIAL STATEMENTS AND REPORTING ENTITY
Objective Provide financial information about
 Entity’s assets/ liabilities/ equity/ income/ expenses
Reporting  Assets/ liabilities/ equity existed at end of reporting period
period  Income/ expenses for the period
 Information occurring after reporting period is provided if
necessary to meet objective
 Comparative information provided at least one preceding
reporting period
Perspective  Events viewed from perspective of reporting entity
 Important for non-controlling interests in a group
Going  Assumption that entity will continue operation for
concern foreseeable future – no intention/ need to enter liquidation
assumption
The reporting  Required/ chooses to prepare financial statements
entity  Single/ portion of/ more than one entity
 Not necessarily legal entity
Unconsolidated statements
 Reporting entity is parent company alone

3

, Consolidated statements
 Reporting entity comprises of parent and subsidiary

Combined statements
 2+ entities that are not all linked by parent-subsidiary
relationship

Boundary is driven by information needs – to achieve this
 Boundary doesn’t include arbitrary/ incomplete info
 Economic activities within boundary includes neutral info
 Explanation is provided as to how boundary was
determined


4. ELEMENTS OF FINANCIAL STATEMENTS
Asset Definition
 Present economic resource controlled by the entity as a
result of past events
 Economic resource: right that has potential to produce
economic benefits
Rights
 Economic resource is seen as set of rights
 Rights that correspond (and don’t) to obligation of another
party
 Established by contract/ legislation
 Each right could be a separate asset
 Right to use/ sell/ pledge an object
Potential to produce economic benefits
 Necessary for right to already exist
 Value is derived from present potential to produce future
economic benefits
Control
 Links a right to an entity
 Encompasses a power/ benefits element
 Entity mist direct how resource is used/ obtain benefit
 Ability to prevent other party from directing use of
economic resource
As a result of past events
 Event that happened that lead entity to obtain control of
economic resource
Recognition criteria
Relevant information
 Recognition may not provide relevant info if
 The probability of an inflow of economic benefits is low

Faithful representation
 May be affected by level of measurement uncertainty
Liability Definition


4

,  Present obligation of entity to transfer an economic
resource as a result of past events
 Obligation is a duty/ responsibility that an entity has no
practical ability to avoid
Obligation
 Established by contract/ legislation
 Legally enforceable by party to who they are owed
 Arise from customary practices/ published policies/ specific
statements
To transfer an economic resource
 Necessary that obligation exists and
 Would require entity to transfer an economic resource

 E.g. obligations to pay cash
 Deliver goods/ provide services
As a result of past events
Only if:
 Entity has already obtained economic benefits
 Entity will have to transfer an economic resource
Recognition criteria
Relevant information
 Recognition may not provide relevant information if
 Probability of outflow of economic benefits is low

Faithful representation
 May be affected by level of measurement uncertainty
Equity = Assets - liabilities
Income and Income Definition
Expenses  Increase in assets/ decrease in liabilities
 That result in increases in equity
 Except contributions from owners

Expenses Definition
 Decreases in assets/ increase in liabilities
 That result in decreases in equity
 Except distributions to owners
Recognition
Relevance
 Probability of inflow/ outflow of economic benefits is low
Faithful representation
 Affected by level of measurement uncertainty


5. DERECOGNITION
Definition  Removal of all/ part of a recognized asset/ liability from
entity’s statement of financial position
 Asset: When entity lost all control/ part of recognized asset
 Liability: When entity no longer has present obligation for
all/ part of recognized liability


5

,Represents  Control approach: Any assets/ liabilities retained after the
transaction/ event that led to derecognition
 Risks-and-rewards approach: The change in entity’s assets/
liabilities as a result of transactions


6. PRESENTATION AND DISCLOSURE
Classification Assets and liabilities
Offsetting
 Where entity recognizes/ measures an asset/ liability as
separate units
 But groups them into single net amount in statement of
financial position
Equity
 Classify components separately if they are subject to
particular legal/ regulatory requirements
Income and expenses
 Included in statement of profit/ loss or in other
comprehensive income
Aggregation  Adding together of assets/ liabilities/ equity that have
shared characteristics




6

,LA 2: Chapter 2: Presentation of financial statements – IAS 1

1. OBJECTIVE AND COMPONENTS OF FINANCIAL STATEMENTS
Objective Provide information about:
 Financial position
 Financial performance
 Cash flows of entity
That is useful to users when making economic decisions
Comprises of 1. Statement of financial position
2. Statement of profit/ loss and other comprehensive income
3. Statement of changes in equity
4. Statement of cash flows
5. Notes to financial statements
6. Comparative info from preceding period
7. Earliest statement of financial position
Financial  Main factors that influence performance
overview  Entity’s policy regarding maintenance/ enhancement of
includes performance
 Dividends policy
 Sources of funding
 Gearing/ risk management policy
 Strength/ resources of entity
 Changes in environment – reaction and effect


2. GENERAL FEATURES
Fair Faithful representation:
presentation  Characteristic of financial report
and  that will reassure users
compliance  they can rely on information contained therein
with IFRSs  to faithfully represent economic circumstances/ events
 they purport/ are expected to represent

Must be appropriately measured/ recognized in accordance with
relevant standards
Non-compliance:
When departure is necessary, the following is considered:
 why objective of financial statements is not achieved
 way entity’s circumstances differ from others

When departure is permitted, following must be disclosed:
 management has concluded that financial statements
fairly present entity’s financial position/ financial
performance/ cash flows
 financial statements comply with all other applicable
Standards and Interpretations
 Standard/ Interpretation from which entity has departed
 Reason why treatment would be misleading
 Treatment adopted


7

,  Financial impact of departure
When departure is prohibited but conflicts with objectives,
following must be disclosed:
 Title of Standard/ Interpretation
 Nature of requirement
 Reason management has concluded compliance is
misleading and in conflict with objectives
 Adjustments to each item in financial statements necessary
to achieve fair presentation
Going  Assumed that entity will continue to exist in foreseeable
concern future
 Takes information for at least 12 months from end of
reporting period into consideration
 Existence of material uncertainties about possibilities of
going concern problem should be disclosed
 Effects valuation of assets/ liabilities
 Following should be disclosed:
 Existence of material uncertainties about possibilities of
going concern problem should be disclosed
 Existence of material uncertainties
 Liquidation valuation method
 Provision for liquidation expenses
 Reason why entity is no longer a going concern
Accrual basis  Elements of financial statements are recognized when they
meet recognition/ definitions criteria
 Transactions are accounted for when they occur – not
when cash is received/ paid
Materiality Each material class should be presented separately (reference to
and size and nature)
aggregation
Offsetting Entity shall not offset assets/ liabilities/ income/ expenses unless
requires/ permitted by IFRS
Frequency  Financial statements should be published at least annually
and reporting  If not, the following should be provided:
 Reason
 Fact that amounts in various components are not
comparable
Comparative Entity shall present as a minimum:
information  2 of all financial statements
 Related notes
 Additional comparative information

Must present 3rd statement of financial position in following
circumstances:
 Retrospective application of a change in accounting
policy
 Retrospective restatement of items in statements
 Reclassification of items in statements
 The above has material effect on financial statements



8

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