Tag: ICAI

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 23 Borrowing Costs Overview

IAS 23 prescribes the accounting treatment for borrowing costs.

Borrowing costs are interests and other cost that an entity incurs in connection with borrowing of fund.

• Borrowing cost includes:
  Interest expense.
• Finance charges in respect of IFRS-16/IAS-17 Leases.
• Exchange difference from foreign currency borrowing.

Tackle IAS 23 in TWO simple steps

1. Identifying the Qualifying asset.
2. Accounting for the Borrowing costs from funds used for Qualifying asset.

Step 1: Identifying the Qualifying asset

Qualifying Asset

• A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale.

Example of Qualifying Assets

Substantial period of time to get ready.

IAS 23 borrowing costs examples:

• Inventories.
• Manufacturing Plants.
• Power generation facilities.
• Intangible Assets.
• Investment.

Example of non-Qualifying Assets

Short period of time to get ready.

• Financial assets and inventories manufactured or otherwise produced over a short period of time.
• Asset that are ready for their intended use/sale when acquired.

Borrowing cost directly attributable of acquisition, construction or production of Qualifying asset are capitalized as part of cost, when probable that they will results in future benefit.

Step 2: Accounting for the Borrowing costs from funds used for Qualifying asset

Funds used for Qualifying Assets



Specific Borrowing

Specific Borrowing may be invested temporarily, which arises interest income.

Cost to be Capitalized?

• The actual Borrowing costs are to be capitalized incurred on that borrowing during the period (less) any investment income on temporary investment of those borrowing.

General Borrowing

Cost to be Capitalized?

When general borrowings are used the amount of borrowing costs eligible for capitalization is obtained by applying a capitalization rate to the expenditure of that asset.

Capitalization rate= Total interest (divide-by Total loan)

• When the carrying amount of qualifying asset exceeds its recoverable amount, the carrying valve is written down to recoverable amount.

Period of Capitalization



Commencement of Capitalization

The commencement date for capitalization is the date when entity first meets ALL of the following conditions:

• It incurs expenditure for the asset.
• It incurs Borrowing costs.
• Activities necessary to prepare the asset have started.

Expenditure on a qualifying asset include only:

• cash payments.
• transfer of other asset.
• interest-bearing liabilities.

Suspension of Capitalization

An entity shall suspend capitalization:

• During extended period in which it suspends active development of a qualifying asset.
• holding partially completed assets.

An entity shall not suspend capitalization:

• when a temporary delay is necessary.
• entity carries out substantial technical and administrative work.

Cessation of Capitalization

• Capitalization of borrowing cost should cease when the asset is substantially complete, even though routine administrative work might still continue.
• when an entity completes the construction of a qualifying asset in parts, the entity will cease capitalization when it completes substantially all activities, even construction continues on the other parts.

IAS 23 pdf

The above IAS 23 summary is the most simplified version. Moreover, Click here to Download ifrs 23 borrowing costs 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 37 Provisions Contingent Liabilities and Contingent Assets Overview

IAS 37 full text Outlines the accounting for: (IAS 37 definition)

• Provisions
• • is a liability with uncertain timing or amount.
  • the entity has a present obligation.
  • probable ( >50% ) outflow of resources.
  • with a reliable estimate.
• Contingent Liabilities
  • i.e that does not meet the above criteria ( anyone or all ).
• Contingent Assets
• • i.e the receipt of which is not yet confirmed.

Accounting for Provisions

Provisions

Recognition

A provision shall be recognize in financial statements when ALL of the following are met:

Present Obligation:

• The present obligation must have been arise from a past event.
• An entity shall determine whether a present obligation exists at the end of the reporting period by taking account all available evidence:

• • opinion of experts
  • evidence provided by IAS-10.

Probable Outflow:

• i.e the probability of greater than 50% of outflow of resources or other events (provided they are not future costs).

Reliable Estimate:

• This would be a extreme rare case where no reliable estimate can be made.

Measurement

At what Amount?

Best Estimate:

• The amount recognize shall be the best estimate of expenditure require to settle or transfer it to a third party.
• The estimate and financial effect are determine by:

• • judgment of management
  • similar transactions occurred
  • independent experts
  • Ias-10.

Risks and Uncertainties:

• Risk adjustments may INCREASE the amount at which a liability is measured.
• Risk and uncertainties surrounding the amount of expenditure are DISCLOSED.

Present Value:

• The amount of provision shall be the present value of the expenditure, where the effect of time value of money is material.

Future Events:

• Future events may affect the amount require to settle the obligation (say a change in technology), an entity might include expected cost increase/decrease associated.

Gains from Expected Disposal:

• gains shall not be taken into account in measuring a provision, even if it is closely associated to a provision.

Reimbursements:

• reimbursements (like Insurance contracts, indemnity clauses or suppliers warranties) are treated as separate asset (not netted off against provision) when receipt is virtually certain ( >90% ).

Changes in Provision:

• each provision must be reviewed at the end of each reporting period.
• this might result in de-recognition of a provision that no longer meets the criteria.
• where discounting is used, the carrying amount of a provision increases in each period to reflect the passage of time. this is recognize as a borrowing cost.

Use of Provision

• A provision shall be used only for expenditure for which it was originally recognized.
• If the provision is more than the amount needed to settle the liability, the balance is released as a credit back through Income statement.
• If the provision is insufficient an extra expense is recognized.

IAS 37 Contingent Liabilities

Contingent Liabilities

Contingent liability is one that exist at the reporting date but cannot be recognized because it fails to meet recognition criteria (anyone or all)

Contingent Liabilities is either;



Possible obligation

• A possible obligation that arises from Past events.
• It has yet to be confirmed whether the entity has a present obligation that could lead to an outflow of resources.

Present obligation

• A present obligation that fails to meets the other two recognition criteria for provision recognition i.e.:

• • It is not probable that an out flow of resources will occur.
  • Reliable estimate of amount cannot be made.

• A contingent liability is disclosed
• A Joint liability is disclosed as a contingent liability to the extent met by the other party a provision for the part of obligation for which outflow is probable.

IAS 37 Contingent Assets

• A contingent asset is a possible asset that arises from past event. As its existence is yet to be confirmed.
• Contingent assets usually arise from unplanned or other unexpected event that give rise to the possibility of an inflow of economic benefits.
• An entity shall not recognize a contingent asset, since this may result in recognition of income that might never be realized.
• However, when the realization is virtually certain then its recognition is appropriate.
• If an inflow is probable (50%) an entity discloses contingent asset.

IAS 37 pdf with IAS 37 provisions examples

The above IAS 37 summary is the most simplified version. Moreover, Click here to Download IAS 37 pdf

External Resources

• Accounting Standard
• FASAB
• IFRS
• GAAP