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IAS Standards

IAS 2 Inventories       

IAS 7 Statements of cash flows

IAS 7 Statement of cash flows  – Revisited

IAS 8 Accounting policies, changes in accounting estimates, and errors

IAS 10 Events after the reporting period       

IAS 12 Income taxes 

IAS 16 Property, plant and equipment          

IAS 17 Leases

IAS 19 Employee benefits     

IAS 20 Accounting for government grants and disclosure of government assistance          

IAS 21 The effects of changes in foreign exchange rates     

IAS 23 Borrowing costs        

IAS 24 Related party disclosures

IAS 27 Consolidated and separate financial statements        

IAS 28 Investments in associates and joint ventures 

IAS 32 Financial instruments: presentation  

IAS 33 Earnings per share

IAS 33 Earnings per share – Revisited          

IAS 36 Impairment of assets 

IAS 37 Provisions, contingent liabilities and contingent assets        

IAS 38 Intangible assets

IAS 40 Investment property

IFRS Standards

IFRS 3 Business combinations    

IFRS 5 Non-current assets held for sale and discontinued operations    

IFRS 7 Financial instruments: disclosures          

IFRS 8 Operating segments         

IFRS 9 Financial instruments      

IFRS 10 Consolidated financial statements        

IFRS 11 Joint arrangements         

IFRS 12 Disclosure of interests in other entities 

IFRS 13 Fair value measurement 

IFRS 15 Revenues from contracts with customers          

IFRS 16 Leases

IAS 17 VS IFRS 16 Lease – Differences

Ratio Analysis

IFRS 15 Overview

IFRS 15 Revenue from contracts with customers is the end product of a major joint project between the IASB and the US Financial Accounting Standards Board and replaces IAS 18, IAS 11, IFRIC 13, IFRIC 15, IFRIC 18 and SIC 31. IFRS 15 summary:

IFRS 15 will have an impact on all entities that enter into contracts with customers. IFRS 15 guidance above:

• Establishes a new control-based revenue recognition model
• Changes the basis for deciding whether revenue is recognized at a point in time or over time
• Provides new and more detailed guidance in specific topics; and
• Expands and improves disclosures about revenue.

IFRS 15 Revenue from contracts with customers introduces ‘five (5) step model’ for IFRS revenue recognition.

1. Identify the contact(s) with the customer
2. Identify the separate performance obligations
3. Determine the transaction price
4. Allocate the transaction price
5. Recognize revenue when or as an entity satisfies performance obligations

The above steps are necessary for IFRS revenue recognition criteria.

Definitions

Revenue – is income arising in the course of an entity’s ordinary activities.

Contract – is an agreement between two or more parties that creates enforceable rights and obligations.

Customer – is a party that has contracted with an entity to obtain goods or services that are an output of the entity’s ordinary activities.

THE FIVE STEPS MODEL

Step 1 – Identify the contract(s) with customer

The contract with a customer may be written, oral or implied by an entity’s customary business practices. The general contract identification rules are:

1. 1. 1. The parties have approved the contract
      2. The entity can identify each party’s rights (goods and cash)

• • • The entity can identify the payment terms (e.g. on 30 days credit)

1. 1. 1. Its is probable the entity will collect the consideration.

Step 2 – Identify the separate performance obligation in the contract

Performance obligation – is a promise in a contract with a customer to transfer to the customer either:

1. 1. 1. A good or service
      2. A series of distinct goods or services

Performance obligations are normally specified in the contract but could also include:

1. 1. 1. Promises implied by an entity’s customary business practices
      2. Published policies or specific statements that create a valid customer expectation that goods or services will be transferred under the contract.

Step 3 – Determine the transaction price

An entity must consider the terms of the contract and its customary practices in determining the transaction price. An entity must consider the effect of all the following factors when determining the transaction price:

1. 1. 1. Variable consideration – The transaction price will be adjusted for performance bonus, discounts, incentives or penalties
      2. Time value of money – Transaction price is adjusted for the effects of time value of money if the contract includes a significant financing component

• • • Non-cash consideration – An entity shall measure the non-cash consideration at fair value (e.g. shares)

1. 1. 1. Consideration payable to customer – Includes cash amount that an entity pays to customer. It will be treated as reduction of the transaction price.

The transaction price is not adjusted for effects of the customer’s credit risk (e.g. bad debts).

Step 4 – Allocate the transaction price to the performance obligations

Stand-alone selling price – is the price at which an entity would sell a promised good or service separately to a customer.

Following are the three (3) methods for estimating the stand-alone selling price:

1. 1. 1. Market assessment approach
      2. Expected cost plus margin approach

• • • Residual approach

The entity allocates a contract’s transaction price (see step – 3) to each separate performance obligation (see step – 2) on a relative stand-alone selling price basis at contract inception.

The difference between the stand-alone price and allocated price is the inherent ‘discount amount’.

Step 5 – Recognize revenue when or as an entity satisfies performance obligations

After the allocation at step – 4 the question arises as to when and how the revenue is recognized and recorded.

Revenue is recognized when the promised goods or services are transferred to a customer.

Recording revenue at a point in time or over time?

• • • A performance obligation may be satisfied at a point in time (typically for transfer of goods); or
    • A performance obligation may be satisfied over time (typically for services).

Recording revenue over time

When goods or services are transferred continuously, a revenue recognition method that best depicts the entity’s performance should be applied. There are two methods for measuring revenue over time:

1. 1. 1. Output methods
      2. Input methods

Output method

Outputs are the goods or services finished and transferred to the customer. This method records revenue by measuring value to customer of good or services:

1. 1. 1. 1. Surveys of work performed
         2. Units produced as percentage of total units to be produced

• • • • Units delivered as a percentage of total units to be delivered

1. 1. 1. 1. Contract milestones achieved.

Input methods

1. 1. 1. 1. Cost incurred as a percentage of total cost to be incurred
         2. Labour hours used as a percentage of total labour hours to be used

• • • • Machine hours used as a percentage of total machine hours to be used.

IFRS 15 PDF

IFRS 15 standard with IFRS 15 rules is available in PDF version. Click to Download new IFRS Revenue recognition standard.

External Resources

• Accounting Standard
• FASAB
• IFRS
• GAAP

IAS Standards

IAS 2 Inventories       

IAS 7 Statements of cash flows

IAS 7 Statement of cash flows  – Revisited

IAS 8 Accounting policies, changes in accounting estimates, and errors

IAS 10 Events after the reporting period       

IAS 12 Income taxes 

IAS 16 Property, plant and equipment          

IAS 17 Leases

IAS 19 Employee benefits     

IAS 20 Accounting for government grants and disclosure of government assistance          

IAS 21 The effects of changes in foreign exchange rates     

IAS 23 Borrowing costs        

IAS 24 Related party disclosures

IAS 27 Consolidated and separate financial statements        

IAS 28 Investments in associates and joint ventures 

IAS 32 Financial instruments: presentation  

IAS 33 Earnings per share

IAS 33 Earnings per share – Revisited          

IAS 36 Impairment of assets 

IAS 37 Provisions, contingent liabilities and contingent assets        

IAS 38 Intangible assets

IAS 40 Investment property

IFRS Standards

IFRS 3 Business combinations    

IFRS 5 Non-current assets held for sale and discontinued operations    

IFRS 7 Financial instruments: disclosures          

IFRS 8 Operating segments         

IFRS 9 Financial instruments      

IFRS 10 Consolidated financial statements        

IFRS 11 Joint arrangements         

IFRS 12 Disclosure of interests in other entities 

IFRS 13 Fair value measurement 

IFRS 15 Revenues from contracts with customers          

IFRS 16 Leases

IAS 17 VS IFRS 16 Lease – Differences

Ratio Analysis

IFRS 5 Full Text Overview

• A company might hold an asset at the year end that it has the intension of selling.
• IFRS 5 Non-current assets held for sale and Discontinued operations contains rules which impact the measurement and presentation of such assets i.e. IFRS 5 sets out requirements that specify the accounting treatment for assets held for sale, and the presentation and disclosure of discontinued operations.
• IFRS 5 identifies three classes of item that might be described as held for sale:
  1. Non- current assets (Individual assets)
  2. Disposal groups (group of Non-current assets)
  3. Discontinued operations

Definitions

Disposal group – A group of assets to be disposed of in a single transaction, and any liabilities directly associated wit those assets will be transferred in the transaction.

• Some disposal groups might fall into the definition of a discontinued operation.
• A disposal group may be a group of cash-generating unit, single cash-generating unit, or part of cash-generating unit.

Held for sale

Non-current Assets and Disposal groups

IFRS 5 Criteria

The following conditions must apply at the reporting date for an asset (or disposal group) to be classified as held for sale:

1. It must be available for immediate sale
2. The sale must be highly probable i.e.;
   1. Management must be committed
   2. An active program to locate a buyer
   3. The sale must be actively marketed at a price reasonable in relation to its current fair value

3. The sale must be expected to be completed within one (1) year from the date of classification as held for sale.

• If the criteria are met after the reporting date but before the authorization of the financial statements the asset must not be classified as held for sale as at the reporting date (i.e. non-adjusting event);
• However, entity is required to make certain disclosures

Sale expected in over 1-year period

• Circumstances might extend the period to complete the sale beyond a year. This does not preclude an asset from being classified as held for sale as long as;
  • Delay is caused by events or circumstances beyond the entity’s control; and
  • There is sufficient evidence that the entity remains committed to its plan to sell the asset.
• Costs to sell that are to be paid after one year should be discounted with the unwinding of the discount recognized subsequently as finance cost in Profit/Loss.

Non-current assets (or disposal groups) to be abandoned

• Non-current assets (or disposal groups) to be abandoned include non-current assets (or disposal groups) that are to be;
  • Used to the end of their economic life; or
  • Closed rather then sold.
• Such assets must not be classified as held for sale.

Assets classified as non-current as per IAS 1 cannot be reclassified as current assets, until they meet the criteria to be classified as held for sale.

Measurement: Non-current Assets and Disposal groups Held for Sale

• Assets held for sale and disposal groups should be measured at the lower of;
  • Carrying amount
  • Fair value less cost to sell
• If the value of the ‘held for sale’ asset is adjusted from carrying amount to fair value less costs to sell, any impairment should be recognized as a loss in the profit/loss unless the asset to which it relates is carried at a previously recognized Revaluation Surplus. In this case the loss is taken to other comprehensive income to the extent that it is covered by the previously recognized surplus on that Any amount not covered is recognized in profit/loss.
• A non-current asset must not be depreciated (or amortized) while it is classified as ‘held for sale’.
• If the carrying amount is less than the fair value less cost to sell there is no impairment. In this case there is NO adjustment to the carrying amount of the asset. A gain is NOT recognized on reclassification as held for sale (A gain on disposal will be included in P/L when the disposal actually occurs).
• The measurement requirements of IFRS 5 apply to all recognized non-current assets and disposal groups except for;
  • Deferred tax assets
  • Assets arising from employee benefits
  • Financial assets (IFRS 9)
  • Investment Property (IAS 40)

Provided, a non-current asset that is scoped out of IFRS 5 for measurement purposes may fall within the classification and presentation rules: Such a non-current asset might be part of a disposal group. In this case the measurement rules of IFRS 5 apply to the disposal group as a whole but not to the scoped-out assets.

Subsequent Re-measurement

Subsequent remeasurement of non-current asset or disposal group might lead to:

• A further impairment loss, which must be recognized; or
• A gain – which is recognized but only to the extent that is covered by a previously recognized impairment loss.

Changes to plan of sale

• If an asset (or disposal group) has been classified as held for sale, but the criteria are no longer met, it must be removed from this classification.
• Such an asset is measured at the lower of;
  • The amount at which it would have been carried if it had never been classified as held for sale (i.e. its carrying amount before it was classified as held for sale as adjusted for any depreciation, amortization or revaluation that would have been recognized if it had not been so classified); and
  • Its recoverable amount at the date of the subsequent decision not to sell.
• Any necessary adjustment to the carrying amount is recognized in income from continuing operations.

Discontinued Operations

• A discounted operation is a disposal group that satisfies extra criteria.
• Discontinued operation – A component of an entity that either has been disposed of or it is classified as held for sale and;
  1. Represents a separate major line o business or geographical area of operations.
  2. Is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations; or
  3. Is a subsidiary acquired exclusively with a view to resale.

• Component – A component of an entity comprises operations and cash flows that can be clearly distinguished, from the rest of the entity.
• If an entity disposes of an individual non-current asset, or plans to dispose of an individual asset in the immediate future, this is not classified as a discontinued operation (unless) the asset meets the definition of a ‘Component’ of an entity.
• An operation cannot be classified as discontinued in Statement of financial position if criteria for classifying it as discontinued are met after the end of the reporting period (i.e. non-adjusting).

IFRS 5 Non-current assets held for sale and Discontinued operations Disclosure Requirements

Non-current Assets and Disposal groups

Statement of financial position

• Non-current assets classified as held for sale are presented separately from other assets.
• The assets and liabilities of a disposal group classified as held for sale are presented separately from other assets and liabilities. These assets and liabilities must not be off-set and present as a single amount.
• Comparative are not restated to reflect the classification in SOFP for the latest period.
• Any gain or loss on the remeasurement of a non-current asset (or disposal group) classified as held for sale that does not meet the definition of a discontinued operation is included in profit/loss from ‘Continuing operation’.
• Changes to plan for sale:
  • Disclose the fact
  • A description of facts and circumstances and its effect.

Discontinued Operations IFRS

Statement of Comprehensive Income

• A single-amount on the face of P/L comprising the total of:
  • The post-tax profit/loss of discontinued operation
  • Gain/loss on its assets

Statement of Cash Flow

• The ‘net’ cash flows attributable to the operating, investing and financing activities of discontinued operations.

Notes to the Financial Statements

• The analysis of that single-amount:
  • Revenue, expenses, pre-tax profit/loss of discontinued operation
  • Tax expense
  • Asset gain/loss
• Comparatives must be restated for these disclosures

Statement of Financial Position

• Asset/liabilities must be disclosed separately from other assets/liabilities.

IFRS 5 PDF

IFRS 5 summary with disclosure examples pdf is available. Click to Download.

External Resources

• Accounting Standard
• FASAB
• IFRS
• GAAP

IAS Standards

IAS 2 Inventories       

IAS 7 Statements of cash flows

IAS 7 Statement of cash flows  – Revisited

IAS 8 Accounting policies, changes in accounting estimates, and errors

IAS 10 Events after the reporting period       

IAS 12 Income taxes 

IAS 16 Property, plant and equipment          

IAS 17 Leases

IAS 19 Employee benefits     

IAS 20 Accounting for government grants and disclosure of government assistance          

IAS 21 The effects of changes in foreign exchange rates     

IAS 23 Borrowing costs        

IAS 24 Related party disclosures

IAS 27 Consolidated and separate financial statements        

IAS 28 Investments in associates and joint ventures 

IAS 32 Financial instruments: presentation  

IAS 33 Earnings per share

IAS 33 Earnings per share – Revisited          

IAS 36 Impairment of assets 

IAS 37 Provisions, contingent liabilities and contingent assets        

IAS 38 Intangible assets

IAS 40 Investment property

IFRS Standards

IFRS 3 Business combinations    

IFRS 5 Non-current assets held for sale and discontinued operations    

IFRS 7 Financial instruments: disclosures          

IFRS 8 Operating segments         

IFRS 9 Financial instruments      

IFRS 10 Consolidated financial statements        

IFRS 11 Joint arrangements         

IFRS 12 Disclosure of interests in other entities 

IFRS 13 Fair value measurement 

IFRS 15 Revenues from contracts with customers          

IFRS 16 Leases

IAS 17 VS IFRS 16 Lease – Differences

Ratio Analysis

IAS 40 Investment Property Overview

IAS 40 Investment Property, defines and sets out rules on accounting for Investment Property. In summary Investment Property differs from other property, which is used in the production or supply of goods or for administrative proposes or held for sale in ordinary course of business.

The Investment Property could be held by:

• The owner; or
• The lessee under a finance or an operating lease.

Definition

Investment Property – An Investment Property is property (land or a building, part of a building or both) held to earn rentals or for capital appreciation or both.

Practical Examples of IAS 40 Investment Property

The following are examples of investment property:

1. Land held for long-term capital appreciation rather than for short-term sale in the ordinary course of business.
2. Land held for a currently undetermined future use.
3. A building owned by the entity (or a Right-of-use asset relating to a building held by the entity) and leaded out under one or more operating leases.
4. A building that is vacant but is held to be leased out under one or more operating leases.
5. Property that is being constructed or developed for future use as investment property.

Not Investment Property

The following are examples of items that are NOT investment property:

1. Property intended for sale in ordinary course of business
2. Property being leased to another entity under a finance lease.
3. Biological assets related to agricultural activity
4. Mineral rights and mineral reserve such as oil, natural gas and similar non-regenerative resources.

Accounting treatment of Investment Property

The recognition criteria for investment property are the same as for property, plant and equipment under IAS 16. An owned investment property should be recognized as an asset only when:

• It is probable that future economic benefits associated with the property will flow to the entity, and
• The cost of the property can be measured reliably.

Measurement at recognition

Owned investment property should be measured initially at cost plus any directly attributable expenditure (e.g. legal fees, property transfer taxes and other transaction costs) incurred to acquire the property.

The cost of an investment property is NOT increased by:

• Start-up costs
• Operating losses incurred before the investment property achieves the planned level of occupancy; or
• Abnormal waste incurred in constructing or developing the property.

Subsequent Measurement

After initial recognition an entity may choose as its accounting policy:

1. The fair value model; or
2. The cost model.

The chosen policy must be applied to all the investment property of the entity. Once a policy has been chosen it cannot be changed unless the change will result in a more appropriate presentation. IAS 40 states that a change from the fair value model to the cost model is unlikely to result in a more appropriate presentation.

Fair value model for Investment Property

Under the fair value model, the entity should:

1. Revalue all its investment property to ‘fair value’ at the end of each financial year; and
2. Recognize any resulting gain/loss in profit or loss for the period.
3. The property would not be depreciated.

This is different to the revaluation model of IAS 16, where gains are reported as other comprehensive income and accumulated as a Revaluation Surplus.

Cost model for Investment Property

The cost model follows the provisions of IAS 16. The property is measured at cost less accumulated depreciation and less impairment loss if any.

Why investment properties are treated differently from other properties

• An investment property is held primarily because it is expected to increase in value. It generates economic benefits for the entity because it will eventually be sold at a profit.
• The most relevant information about an investment property is its fair value (the amount for which it could be sold). Depreciation is largely irrelevant. Therefore, it is appropriate to remeasure an investment property to fair value each year and to recognize gains and losses in profit or loss for the period.

IAS 40 Investment Property Disclosure requirements

The following disclosures are required by IAS 40 Investment Property:

Disclosure requirements applicable to both the fair value model and the cost model

1. Whether the fair value model or the cost model is used
2. The methods and assumptions applied in arriving at fair values
3. Amount recognized as income or expense in the statement of profit or loss for:
   1. Rental income from investment property
   2. Operating expenses in relation to investment property
4. Details of any restrictions on the ability to realize investment property or any restrictions on the remittance of income or disposal proceeds
5. The existence of any contractual obligation to purchase, construct or develop investment property or for repairs, maintenance or enhancements.

Disclosure requirements applicable to the fair value model only

There must be a reconciliation, in a note to the financial statements, between opening and closing values for investment property, showing:

1. 1. Additions during the year
   2. Assets classified as held for sale in accordance with IFRS 5
   3. Net gains or losses from fair value adjustments
   4. Acquisitions through business combinations

Disclosure requirements applicable to the cost model only

1. The depreciation methods used
2. The useful lives or depreciation rates used
3. Gross carrying amounts and accumulated depreciation at the beginning and end of the period
4. A reconciliation between opening and closing values

When the cost model is used, the fair value of investment property should also be disclosed (if it can be measured reliably).

IAS 40 PDF

IAS 40 investment property pdf, click here to Download the Investment Property IAS 40 pdf

External Resources

• Accounting Standard
• FASAB
• IFRS
• GAAP

IAS Standards

IAS 2 Inventories       

IAS 7 Statements of cash flows

IAS 7 Statement of cash flows  – Revisited

IAS 8 Accounting policies, changes in accounting estimates, and errors

IAS 10 Events after the reporting period       

IAS 12 Income taxes 

IAS 16 Property, plant and equipment          

IAS 17 Leases

IAS 19 Employee benefits     

IAS 20 Accounting for government grants and disclosure of government assistance          

IAS 21 The effects of changes in foreign exchange rates     

IAS 23 Borrowing costs        

IAS 24 Related party disclosures

IAS 27 Consolidated and separate financial statements        

IAS 28 Investments in associates and joint ventures 

IAS 32 Financial instruments: presentation  

IAS 33 Earnings per share

IAS 33 Earnings per share – Revisited          

IAS 36 Impairment of assets 

IAS 37 Provisions, contingent liabilities and contingent assets        

IAS 38 Intangible assets

IAS 40 Investment property

IFRS Standards

IFRS 3 Business combinations    

IFRS 5 Non-current assets held for sale and discontinued operations    

IFRS 7 Financial instruments: disclosures          

IFRS 8 Operating segments         

IFRS 9 Financial instruments      

IFRS 10 Consolidated financial statements        

IFRS 11 Joint arrangements         

IFRS 12 Disclosure of interests in other entities 

IFRS 13 Fair value measurement 

IFRS 15 Revenues from contracts with customers          

IFRS 16 Leases

IAS 17 VS IFRS 16 Lease – Differences

Ratio Analysis

IAS 24 full text Overview

The objective of IAS 24 Related Party Disclosures is to ensure that an entity’s financial statement contain sufficient disclosures, that the entity’s financial position or profit/loss may have been affected by;

1. Existence of related parties;
2. Transactions and outstanding balance with related parties.

So, what are Related party relationships and Related party transactions?

Related Party Relationship (IAS 24 Related Party Definition)

A related party is person or entity that is related to the entity preparing its financial statements (the reporting entity),

Person (as Related party)

A person or a close member of that person’s family is related to a reporting entity, if that person;

1. Has control or Joint control over the reporting entity.
2. Has significant influence over the reporting entity; or
3. Is a member of the key management personnel of the reporting entity or of a parent of the reporting entity.

Entity (as Related party)

An entity is related to a reporting entity if any of the following conditions applies:

1. The entity and the reporting entity are members of the same group.
2. One entity is an associate or Joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member)
3. Both entities are joint ventires of the same 3^rd
4. One entity is a joint venture of a third and the other entity is an associate of the 3^rd
5. The entity is a post-employment benefit plan for the benefit of employees of either;
   1. The reporting entity; or
   2. An entity related to the Reporting entity.

• If the reporting entity is itself such a plan, the sponsoring employees are also related the Reporting entity.

6. The entity is controlled or jointly controlled by a Person
7. A person (who has control or Joint control over the reporting entity), has significant influence over the entity or is a member of the key management personnel of the entity or Parent of the entity.
8. The entity or any member of a group of which it is a part provides key management personnel services to Reporting entity or parent of Reporting entity.

*In considering each possible related party relationship, the entity must look to the substance of the arrangement, and not merely its legal form.

*TWO entities have same individual on their board of directors would not meet condition for a related party, a related party relationship would nevertheless exist if influence can be shown.

Related party Exemptions

Examples of entities that are usually NOT related parties are: (the substance of the relationship should always be considered in each case)

1. Two venturers that simply share joint control over a joint venture
2. Providers of finance
3. Trade unions
4. Public utilities
5. Government departments and agencies
6. Customers, suppliers, franchisors, distributors or other agents with whom the entity transacts a significant volume of business.

Related Party Transactions

A related party transaction is a transfer of resources, services or obligations between a reporting entity and a related party, regardless of whether a price is charged.

Examples of Related party Transactions (IAS 24 illustrative examples)

Following are some of the examples of Related party transactions:

1. Purchases and sales of goods
2. Purchases or sales of Property and other assets
3. Rendering or receiving of services
4. Leases
5. Transfer of Research and Development cost
6. Finance arrangements (Loans or contribution to entity)
7. Provision of guarantees
8. Settlement of liabilities on behalf of the entity or by the entity on behalf of another party.

IAS 24 Disclosure Requirements

IAS 24 Related Party Disclosures requires the following disclosures:

1. Name if the parent company or the ultimate parent (if any)
2. The nature of related party relationship
3. The amount of transaction (if any)
4. In respect of outstanding balances;
   • The amount
   • Their terms and conditions
   • Any guarantees given or received
   • Any provision for doubtful/Irrecoverable debts.
5. The expense recognized in the period in respect of irrecoverable debts due from related parties.

The above disclosures should be given separately for:

1. The parent
2. Entities with joint control or significant influence over entity
3. Subsidiaries
4. Associates
5. Joint ventures in which the entity is a venturer
6. Key management personnel of entity or parent
7. Other related parties.

Additional Disclosures

Compensation to key management personnel in total, and for each of the following categories;

1. Short term employee benefits
2. Post-employment benefits
3. Other long-term benefits
4. Termination benefits
5. Share-based payments

IAS 24 PDF

The IAS 24 Related Party summary with disclosures pdf is available to download. Click here to Download the IAS 24 summary pdf

External Resources

• Accounting Standard
• FASAB
• IFRS
• GAAP

IAS Standards

IAS 2 Inventories       

IAS 7 Statements of cash flows

IAS 7 Statement of cash flows  – Revisited

IAS 8 Accounting policies, changes in accounting estimates, and errors

IAS 10 Events after the reporting period       

IAS 12 Income taxes 

IAS 16 Property, plant and equipment          

IAS 17 Leases

IAS 19 Employee benefits     

IAS 20 Accounting for government grants and disclosure of government assistance          

IAS 21 The effects of changes in foreign exchange rates     

IAS 23 Borrowing costs        

IAS 24 Related party disclosures

IAS 27 Consolidated and separate financial statements        

IAS 28 Investments in associates and joint ventures 

IAS 32 Financial instruments: presentation  

IAS 33 Earnings per share

IAS 33 Earnings per share – Revisited          

IAS 36 Impairment of assets 

IAS 37 Provisions, contingent liabilities and contingent assets        

IAS 38 Intangible assets

IAS 40 Investment property

IFRS Standards

IFRS 3 Business combinations    

IFRS 5 Non-current assets held for sale and discontinued operations    

IFRS 7 Financial instruments: disclosures          

IFRS 8 Operating segments         

IFRS 9 Financial instruments      

IFRS 10 Consolidated financial statements        

IFRS 11 Joint arrangements         

IFRS 12 Disclosure of interests in other entities 

IFRS 13 Fair value measurement 

IFRS 15 Revenues from contracts with customers          

IFRS 16 Leases

IAS 17 VS IFRS 16 Lease – Differences

Ratio Analysis

IAS 20 Overview

In many countries the government provides grants to industry. The most common form of such grants is cash from local or national government, other examples may include subsidies, premium etc. They may receive other types of assistance which may be in many forms. The IAS 20 government grants IFRS with summary is as follows:

Definitions

Government grants – Assistance by government in the form of transfer of resources to an entity in return for past or future compliance with certain conditions relating to the operating activities of the entity. They exclude those forms of government assistance which cannot reasonably have a value placed upon them and transactions with government which cannot be distinguished from the normal trading transactions of the entity.

Government assistance – Action by government designed to provide an economic benefit specific to an entity or range of entities qualifying under certain criteria.

Grants related to assets – Government grants whose primary condition is that an entity qualifying for them should purchase, construct or otherwise acquire non-current assets. Subsidiary conditions may also be attached restricting the type or location of the assets or the periods during which they are to be acquired or held.

Grants related to Income – Government grants other than those related to assets.

Forgivable Loans – Loans for which the lender undertakes to waive repayment under certain prescribed conditions.

Government grants

Recognition of Government grants

An entity should NOT recognize government grants (including non-monetary grants at fair value), until it has reasonable assurance that:

1. The entity will comply with any conditions attached to the grant
2. The entity will actually receive the grant

It makes no difference in the treatment of the grant whether it is received in cash or given as a reduction in a liability to government.

Any related contingency should be recognized under IAS 37, once the grant has been recognized.

Accounting treatment of Government grants

Grants related to Income

For grants related to income, IAS 20 Government grants states that an ‘income approach’ should be used, and the grant should be taken to income over the periods necessary to match the grant with the costs that the grant is intended to compensate. IAS 20 allows two methods of doing this:

• Method – 1 Include the grant for the period as ‘other income’ for inclusion in profit or loss for the period; or
• Method – 2 Deduct the grant for the period from ‘related expense’

Grants related to Assets

For grants related to assets, IAS 20 allows two methods of doing this:

• Method – 1 Deduct the grant from the cost of the related asset. The asset is included in the statement of financial position at cost minus the grant. Depreciate the net amount over the useful life of the asset.
• Method – 2 Treat the grant as ‘Deferred Income’ and recognize it as income on a systematic basis over the useful life of the asset.

Repayment of Government grants

If a grant must be repaid it should be accounted for as a revision of an accounting estimate in accordance with IAS 8.

1. Repayment of a grant related to Income – apply first against any unamortized deferred income set up in respect of the grant, any excess should be recognized as an expense.
2. Repayment of a grant related to an asset – increase the carrying amount of the asset or reduce the deferred income balance by the amount repayable. The cumulative additional depreciation that would have been recognized to date in the absence of the grant should be immediately recognized as an expense.

Government Assistance

• Some forms of government assistance cannot reasonably have a value placed on them, for example free technical or marketing advice, provision of guarantees.
• There are transactions with government which cannot be distinguished from the entity’s normal trading transaction, for example government procurement policy resulting in a portion of the entity’s sales.

Therefore, Disclosure of such assistance may be necessary because of its significance. Its nature, extent and duration should be disclosed. Loans at low or zero interest rates are a form of government assistance.

IAS 20 Government grants and disclosure of Government Assistance Disclosure Requirements

Disclosure is required of the following.

1. Accounting policy – adopted, including method of presentation
2. Nature and extent – of government grants recognized and other forms of assistance received

• Unfulfilled conditions and other contingencies – attached to recognized government assistance.

IAS 20 PDF

IAS Government grants with examples is available in PDF version. Moreover, click here to DOWNLOAD IAS 20 accounting for government grants and disclosure of government assistance PDF

External Resources

• Accounting Standard
• FASAB
• IFRS
• GAAP

IAS Standards

IAS 2 Inventories       

IAS 7 Statements of cash flows

IAS 7 Statement of cash flows  – Revisited

IAS 8 Accounting policies, changes in accounting estimates, and errors

IAS 10 Events after the reporting period       

IAS 12 Income taxes 

IAS 16 Property, plant and equipment          

IAS 17 Leases

IAS 19 Employee benefits     

IAS 20 Accounting for government grants and disclosure of government assistance          

IAS 21 The effects of changes in foreign exchange rates     

IAS 23 Borrowing costs        

IAS 24 Related party disclosures

IAS 27 Consolidated and separate financial statements        

IAS 28 Investments in associates and joint ventures 

IAS 32 Financial instruments: presentation  

IAS 33 Earnings per share

IAS 33 Earnings per share – Revisited          

IAS 36 Impairment of assets 

IAS 37 Provisions, contingent liabilities and contingent assets        

IAS 38 Intangible assets

IAS 40 Investment property

IFRS Standards

IFRS 3 Business combinations    

IFRS 5 Non-current assets held for sale and discontinued operations    

IFRS 7 Financial instruments: disclosures          

IFRS 8 Operating segments         

IFRS 9 Financial instruments      

IFRS 10 Consolidated financial statements        

IFRS 11 Joint arrangements         

IFRS 12 Disclosure of interests in other entities 

IFRS 13 Fair value measurement 

IFRS 15 Revenues from contracts with customers          

IFRS 16 Leases

IAS 17 VS IFRS 16 Lease – Differences

Ratio Analysis

IAS 16 Overview

The objective of IAS 16 property plant and equipment (PPE) is to prescribe the accounting treatment for property, plant and equipment. The principal issue is the timing of recognition of assets, the determination of their carrying amounts, and the depreciation charges to be recognized in relation to them. The following is the IAS 16 summary

IAS 16 Property, Plant and Equipment

IAS 16 Recognition criteria

Items of property, plant and equipment should be recognized as assets when:

• It is probable that the future economic benefits associated with the asset will flow to the enterprise.
• The cost of the asset can be measured reliably.

Initial Measurement

Assets recognized under IAS 16 Property, Plant and Equipment must be initially recognized at cost. Cost includes all costs necessary to bring the asset to working condition for its intended use. This would include not only its original purchase price but also costs of site preparation, delivery and handling, installation, related professional fees and estimated cost of dismantling and removing the asset and restoring the site it the payment for an item of Property, Plant and Equipment is deferred, interest at a market rate must be recognized or imputed.

Elements of cost (IAS 16 directly attributable costs examples)

The cost of an item of property, plant and equipment consists of:

1. Its purchase price less trade discount plus any import taxes; plus
2. The directly attributable costs of bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. These directly attributable costs must include:
   1. Employee costs arising directly from the installation or construction of the asset
   2. The cost of site preparation
   3. Delivery costs
   4. Installation and assembly costs
   5. Testing costs to assess whether the asset is function properly (net of any sales proceeds of items produced during the testing phase).
   6. Professional fees

• When the entity has an obligation to dismantle and remove the asset at end of its life, its initial cost should also include an estimate of the costs of dismantling and removing the asset and restoring the site where it is located.

Subsequent expenditure IAS 16 on Asset

Expenditure relating to non-current assets, after their initial acquisition, should be treated as expense unless it meets the criteria for recognizing an asset. In practice, this means that expenditure is capitalized if it improves the asset (for example, by enhancing its performance or extending its useful life).

Measurement Subsequent to Initial Recognition

IAS 16 Property, Plant and Equipment permits TWO accounting models:

1. Cost Model – The asset is carried at cost less accumulated depreciation and impairment.
2. Revaluation Model – The asset is carried at a revalued amount, being its fair value at the date of revaluation less subsequent depreciation, provided that fair value can be measured reliably.

The Revaluation Model

Under the revaluation model, revaluations should be carried out regularly, so that the carrying amount of an asset does not differ materially from its fair value at the balance sheet date.

If an item is revalued, the entire class of assets to which that asset belongs should be revalued.

Revalued assets are depreciated in the way as under the cost model.

• If a revaluation results in an increase in value, it should be credited to entity under the heading “Revaluation Surplus” unless it represents the reversal of a revaluation decrease of the same asset previously recognized as an expense, in which case it should be recognized as income.
• A decrease arising as a result of a revaluation should be recognized as an expense to the extent that it exceeds any amount previously credited to the revaluation surplus relating to the same asset.
• When a revalued asset is disposed-off, any revaluation surplus may be transferred directly to retained earnings.

Depreciation (Cost and Revaluation Models)

IFRS property plant and equipment

For all depreciable assets:

• The depreciable amount (cost less depreciation, impairment and residual value) should be allocated on a systematic basis over the asset’s useful life. The residual value and the useful life of an asset should be reviewed at least at each financial year-end and, if expectations differ from previous estimates, any change is accounted for prospectively as a change in estimate under IAS 8.
• The depreciation method used should reflect the pattern in which the asset’s economic benefits are consumed by the enterprise. The depreciation method should be reviewed at least annually and, if the pattern of consumption of benefits has changed, the depreciation method should be changed prospectively as a change in estimate under IAS 8.

Depreciation should be charged to the income statement, unless it is included in the carrying amount of another asset. Depreciation begins when the asset is available for use and continues until the asset is derecognized, even if it is idle.

Derecognition (Retirement and Disposal) of An Asset

An asset should be removed from the balance sheet on disposal or when it is withdrawn from use and no future economic benefits are expected from its disposal. The gain or loss on disposal is the difference between the proceeds and the carrying amount and should be recognized in the income statement.

IAS 16 PDf

The International accounting standards 16 pdf is available to download. Moreover, click here to Download IAS 16 summary pdf

External Resources

• Accounting Standard
• FASAB
• IFRS
• GAAP