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BAC300 Summary of semester 2
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Complete summary of syllabus for BAC300 semester 2 from Gripping GAAP, Introduction to IFRS and Introduction to Consolidations
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FAC3764 Assessment 6 18 July 2023
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Exam (elaborations) FAC3764 (FAC3764) Gripping GAAP
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BAC300 Semester 1 Summary
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Business Accounting 300 (BAC300): Semester 2Contents
LA 13: Chapter 17: Lessors .................................................................................................. 3
1. INTRODUCTION ............................................................................................................ 3
2. finance leases ............................................................................................................. 3
LA 14: Financial Instruments ............................................................................................... 7
1. INtroduction ................................................................................................................. 7
2. Financial Assets – Classification.................................................................................. 7
3. Financial Assets – Measurement ................................................................................ 8
4. financial liabilities – measurement ........................................................................... 11
6. compound financial instruments ............................................................................. 11
7. preference shares ..................................................................................................... 13
LA 15: Group Statements: Intragroup Transactions ....................................................... 15
1. Revision ...................................................................................................................... 15
2. Elimination of general intragroup transactions/ Balances..................................... 15
3. Unrealised profit in inventories – sub sells to parent................................................ 16
5. Unrealised profit in PPE – Non-depreciable ............................................................ 17
6. Unrealised profit in PPE – depreciable – original cost and acc depreciation given
........................................................................................................................................ 17
7. Unrealised profit in PPE – depreciable – Profit/ retained Earnings given .............. 18
8. Investment at fair value ............................................................................................ 18
9. presentation/ disclosure ........................................................................................... 19
LA 15: Group Statements: Value adjustments ................................................................ 20
1. revaluation of non-depreciable PPE ....................................................................... 20
2. revaluation of depreciable PPE ............................................................................... 21
3. revaluation of inventory at acquisition .................................................................... 23
4. Dividends ................................................................................................................... 23
LA 15: Group Statements: Interim Acquisitions ............................................................... 24
1. Allocate subsidiary profit .......................................................................................... 24
2. Recognition ............................................................................................................... 24
LA 15: Group Statements: Complex Groups .................................................................. 25
1. Horizontal group ........................................................................................................ 25
2. Vertical group............................................................................................................ 25
3. presentation/ disclosure ........................................................................................... 26
,LA 16: Associates .............................................................................................................. 27
1. Introduction ............................................................................................................... 27
2. Accounting treatment .............................................................................................. 27
LA 17: Foreign Currency Transactions ............................................................................. 29
1. Introduction ............................................................................................................... 29
2. Monetary vs Non-monetary ..................................................................................... 29
3. How exchange rates are quoted ............................................................................ 29
4. Dates .......................................................................................................................... 29
5. Initial recognition ....................................................................................................... 29
6. Subsequent measuremenT: Monetary .................................................................... 30
7. Presentation and functional currencies .................................................................. 30
,LA 13: Chapter 17: Lessors
1. INTRODUCTION
Dual model → Finance lease
approach → Operating lease
Finance → Lessor transfers substantially all risks/ rewards
lease → Incidental to ownership of underlying asset
Recognition 1. Derecognise asset @ CA
2. Recognise receivable at amount equal to net investment
Gross = Lease payments receivable + Unguaranteed residual value
investment accruing to lessor + Residual value guarantee
= Net investment + Unearned finance income
Net = Gross investment in lease discounted at implicit interest rate
investment = gross investment – unearned finance income
Lease → Fixed payments payable
payments → - lease incentives receivable
→ + variable lease payments that depend on index/ rate
→ + residual value guarantees
→ + exercise price of purchase option (reasonably certain)
→ + penalty paid for terminating lease (reasonably certain)
2. FINANCE LEASES
Initial Gross investment in lease (SFP) X
recognition Unearned finance income (SFP) X
Asset (SFP) (Fair value) X
Profit on sale of asset (P/L) (Fair value – X
carrying amount)
Example → 5 annual lease payments: R20 000
→ Fair value: R95 000. Carrying amount: R90 000
→ Residual value guarantee: R25000. R15 000 guaranteed
Gross investment in lease (SFP)(20 000 x 5 + 125000
10000)
Unearned finance income (SFP) (balancing) 30000
Asset (SFP) 90000
Profit on sale of asset (P/L) (95000 – 90000) 5000
Subsequent 1. Interest rate implicit
measurement PV: Fair value
N: instalments
Pmt: -lease payments
FV: -(RVG + URV)
2. Amortization table
Instalment Interest Capital Balance
Net invest
Payment Net x implicit Instal - interest Balance - cap
rate
, 3. Journals
Bank (SFP) X
Gross investment in finance lease (SFP) X
Unearned finance income (SFP) X
Finance income (SPLOCI) X
Example 1. Interest rate
PV: 95000
N: 5
Pmt: -20000
FV: -25000
I = 8.66%
2. Amortization table
Instalment Interest Capital Balance
(8.66%)
01/01/19 95000
31/12/19 20000 8223 11777 83223
125000 (GI=) 30000 (UFI+) 95000 (NI)
3. Journals
31/12/19
Bank (SFP) 20000
Gross investment in finance lease (SFP) 20000
Unearned finance income (SFP) 8223
Finance income (P/L) 8223
Re- → reduction in unguaranteed residual value – no change in
measurement residual value guarantee
of net → changes to rates underlying variable lease payments
investment → periods before remeasurement: recognize full difference in
year of remeasurement
→ periods after remeasurement: finance income recognized ito
new table
→ no impact on balance of net investment
→ URV GI ILL UFI
1. Determine original balances
2. Revise implicit rate and draw up new amortization table
3. Work out UFI difference between new and old table
Unearned finance income (SFP) X
Finance income (P/L) X
Gross investment in lease (SFP) X
Example → 01/01/20: Residual value is now R20000
1. Original balance:
Installment Interest Capital Balance
95000
20000 8223 11777 83223
125000 30000 95000
, 2. IIL
PV: -95000
N: 5
Pmt: 20000
FV: (15000+5000)
I = 7.45%
Installment Interest Capital Balance
95000
20000 7074 12926 82074
120000 25000 95000
3. Difference
Unearned financed income (SFP) (balancing) 3851
Finance income (SPLOCI) (8223 – 7074) 1149
Gross investment in lease (SFP) (125000–120000) 5000
3. TRANSACTION TAXES
Tax → Lessor is assumed owner
consequences → Qualifies for wear/ tear, not depreciation = deferred tax
→ Taxed on full lease instalments received excl VAT if financed
→ VAT portion excl = total VAT x lease payment/ total lease
payments
S23A limitation → Limitation on wear/ tear deduction lessor can claim
→ Lesser of
− Wear/ tear deduction
− Total taxable lease income
→ Difference (w/t – lease income) carried over to next year
VAT - financed → Lessor pays VAT over to SARS immediately
→ Lease payments include VAT
→ Split in deferred tax calculation
→ Finance income doesn’t attract VAT – only capital
VAT – not → Lessor pays VAT over to SARS immediately
financed → Lease payments exclude VAT
→ Don’t have to exclude VAT in current tax calculation
Journal Gross Investment X
Asset (SFP) (Fair value x 100/115) X
VAT Control (Fair value x 15/115) X
Initial recognition
VAT Control X
Bank X
Pay VAT to SARS
Bank X
Gross investment in finance lease X
VAT Control (Selling price x 15/115) X
Sold at end of lease term
Deferred tax - CA TB TD DT 28%
financed Investment Balance per amort table
- Capital Balance - VAT -
, - VAT X = Total – portion received X
Machinery - X
Sec23A - X
Deferred tax – CA TB TD DT 28%
not financed Investment Balance per amort table
Machinery - X
Sec23A - X
4. PRESENTATION/ DISCLOSURE
SFP Non-current assets X
Investment in finance lease X
Current assets X
Finance lease debtor X
SPLOCI Profit/ loss on sale X
Variable lease income X
Finance income X
Disclosure 2. Net investment in finance lease
211 Reconciliation of net investment in finance leases
Opening balance of net investment in finance lease X
New finance leases entered into during the year X
Repayment of capital balances during the year (X)
Reduction in unguaranteed residual values recognised X
Closing balance of net investment in finance lease X
2. Net investment in finance lease
212 Maturity analysis of net investment in finance lease
Undiscounted lease payments to be received at reporting
date
Year 1 X
Year 2 X
Year 3 X
Year 4 X
Year 5 X
After year 5 X
Total undiscounted lease payments (Total GI – UGRV) X
Unearned finance income relating to lease payments X
receivable (balance of UFI)
Discounted UGRV X
Net investment in finance lease (Closing balance of 211) X
, LA 14: Financial Instruments
1. INTRODUCTION
Standards →IAS 32: classification
→IFRS 9: recognition/ measurement
→IFRS 7: disclosure
Financial →Contract that gives rise to
instrument − Financial asset of one entity
− Financial liability/ equity instrument of another
Financial 1. Cash
asset 2. Contractual right to receive cash/ another FA
3. Contractual right to exchange FA/ FL potentially favourable
4. Equity instrument of another entity
Examples
→ Bank deposit/ petty cash
→ Debtors
→ Loans receivable
→ Investment in shares
→ Not: physical assets like gold coins/ prepayments
Financial 1. Contractual obligation to deliver cash
liabilities 2. Obligation to exchange FA/ FL potentially unfavourable
Examples
→ Creditors
→ Loans payable
→ Not: liabilities arising from statutory requirements
Equity → Contract that evidences residual interest in assets
instrument → after deducting all liabilities
→ e.g. ordinary shares/ share options
Derivative → value changes in response to changes in interest/ security price
→ requires no/ little net investment
→ settled at future date
→ e.g. futures/ option/ swap contracts/ forward rate agreements
Transaction → Incremental
costs → Brokerage/ negotiation fees
→ Exclude: premiums/ discounts/ financing/ internal admin cost
2. FINANCIAL ASSETS – CLASSIFICATION
Business Model Held to collect Held to collect Other Any 1 -3
+ sell
Cash flows Solely payments of principal + interest Not SPPI
Classification Amortised cost Fair value Fair value Fair value
through OCI through P/L through P/L
Debt = mandatory Equity =
designated
, Designated → An equity instrument
as FVOCI if → Not held for trading
→ Classified as such upon initial recognition
Designated → Reduce/ eliminates inconsistent recognition/ measurement
as FVTPL if → Must take place on initial recognition
→ Is irrevocable
3. FINANCIAL ASSETS – MEASUREMENT
Initial Fair value + transaction costs Fair value
Subsequent Amortised cost FVOCI - debt FVOCI - equity FVTPL
SFP Amortised cost Fair value excl Fair value excl Fair value
- balance tx cost tx costs
P/L Interest using Interest using Dividends FV changes +
effective effective dividends
interest rate interest rate
FV changes FV changes
OCI No entry Derec: reclass to Derec: directly No entry
P/L to RE
Amortised → Purchased bond for R1 814 269 Apr 2012. Transaction cost: R5 000
cost → Market rate: 14%. Coupon rate: 10%
→ Future value: R2 000 000
→ Maturity: Mar 2015
PV: 1 819 269. PMT: (2mil x 10%). FV: (2mil). N: 2015 – 2012. I = 13,885
Instalment Interest Capital Balance
1 819 269
200 000 252 605 52 605 1 871 817
200 000 259 906 59 906 1 931 777
200 000 268 223 68 223 2 000 000
Initial measurement
Bond (SFP) 1 819 269
Bank (SFP) 1 819 269
Subsequent measurement
Y1 Bank (SFP) 200 000
Bond (SFP) 52 605
Interest income (P/L) 252 605
Y2 Bank (SFP) 200 000
Bond (SFP) 59 909
Interest income (P/L) 259 909
Y3 Bank (SFP) 200 000
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