This is a summary covering all the slides taught in IFRS and Group Accounting by Gysemberg Sebastiaan and Kegels Bert. It helps in having a overview of all the IFRS and IAS covered in class which will be useful for exam preparation.
IFRS Standards and Their Application
Contents
IFRS Standards and Their Application.........................................................................1
Slide Deck 1:............................................................................................................... 1
OVERALL.................................................................................................................. 1
SLIDE BY SLIDE........................................................................................................ 6
Slide Deck 2:............................................................................................................. 10
Slide deck 3:............................................................................................................. 23
Slide deck 4:............................................................................................................. 29
Slide Deck 1:
OVERALL
IFRS 10: Consolidated Financial Statements
Control Principle:
An investor controls an investee if it has power over the investee, exposure or
rights to variable returns from its involvement with the investee, and the
ability to use its power to affect those returns.
Key Elements of Control:
Power: Rights that give the investor the current ability to direct relevant
activities.
Exposure to Variable Returns: The investor must have some interest in
the investee that gives it the potential to benefit from the investee’s success.
Linkage between Power and Returns: The ability to use power to
influence the returns.
Example:
Company A holds a majority (60%) of the voting rights in Company B. Thus,
Company A controls Company B and must consolidate Company B's financial
statements with its own.
IFRS 11: Joint Arrangements
Types of Joint Arrangements:
, Joint Operation: Each party recognizes its assets, liabilities, revenues, and
expenses, including its share of those held or incurred jointly.
Joint Venture: Each party recognizes its interest using the equity method,
showing its share of the net assets and the profit or loss.
Example:
Companies A and B enter into a joint arrangement to build a power plant.
They have joint control and rights to the assets and obligations for the
liabilities. Each company will recognize its share of the assets, liabilities,
revenues, and expenses related to the joint operation.
IAS 28: Investments in Associates and Joint Ventures
Significant Influence:
Holding 20-50% of voting power usually indicates significant influence,
allowing the investor to participate in the financial and operating policy
decisions of the investee but not control or jointly control them.
Equity Method:
The investment is initially recorded at cost.
The carrying amount is increased or decreased to recognize the investor's
share of the profit or loss and other comprehensive income of the investee.
Example:
Company A owns 30% of Company B. Company A will report its share of
Company B's profits or losses in its own financial statements using the equity
method.
IFRS 3: Business Combinations
Core Principle:
The acquirer recognizes the acquiree’s identifiable assets, liabilities, and any
non-controlling interest at their acquisition-date fair values.
Steps in a Business Combination:
1. Identify the Acquirer: Determine which entity is the acquirer.
2. Determine the Acquisition Date: The date the acquirer obtains control of
the acquiree.
3. Recognize and Measure Identifiable Assets, Liabilities, and Non-
controlling Interest: At fair value.
4. Recognize and Measure Goodwill or a Gain from a Bargain Purchase:
Goodwill is recognized if the acquisition cost exceeds the net identifiable
assets' fair value; a gain is recognized if the opposite occurs.
,Example:
Company A acquires Company B for $1.2 million when the fair value of
Company B's identifiable net assets is $1 million. The $200,000 difference is
recognized as goodwill.
Preparation for Consolidation
Consistent Valuation Rules:
Ensure all group entities apply consistent accounting policies and valuation
methods.
Translation of Foreign Currency Statements:
Translate the financial statements of foreign subsidiaries into the parent’s
reporting currency.
Reconciliation of Intercompany Balances:
Eliminate intercompany transactions and balances to avoid double counting.
Example:
If Company A sells goods to its subsidiary, Company B, both the sale and
purchase must be eliminated in the consolidated financial statements.
Examples and Explanations
Statement of Financial Position
Assets:
Classified as current or non-current based on their liquidity.
Current Assets: Expected to be realized, consumed, or sold within the
entity's normal operating cycle or within twelve months.
Non-Current Assets: All other assets.
Example:
Non-Current Asset: A building held for long-term use.
Current Asset: Inventory expected to be sold within the next year.
Liabilities:
Classified as current or non-current based on their due date.
Current Liabilities: Due within twelve months.
Non-Current Liabilities: Due after twelve months.
Example:
Non-Current Liability: A long-term loan maturing in five years.
, Current Liability: Accounts payable due within the next month.
Statement of Comprehensive Income
Profit or Loss Section:
Includes revenues, finance costs, share of profit or loss of associates and joint
ventures, and tax expense.
Other Comprehensive Income:
Items not recognized in profit or loss, such as revaluation surplus and
translation differences on foreign operations.
Example:
Revenue: Sales of goods.
Other Comprehensive Income: Foreign currency translation differences.
Statement of Changes in Equity
Components:
1. Total comprehensive income for the period.
2. Effects of retrospective application or restatement.
3. Share of profit or loss of associates and joint ventures.
4. Reconciliation of opening and closing balances for each component of equity.
Example:
A company reports changes in retained earnings, share capital, and reserves.
Statement of Cash Flows
Classification of Cash Flows:
Operating Activities: Cash flows from the primary revenue-generating
activities.
Investing Activities: Cash flows from the acquisition and disposal of long-
term assets.
Financing Activities: Cash flows from transactions with the entity's owners
and borrowings.
Example:
Operating Activity: Cash received from customers.
Investing Activity: Purchase of a new machine.
Financing Activity: Issuance of new shares.
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