Financial Accounting - financial reporting

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  • Created by: charlie
  • Created on: 13-01-17 16:36
ISAB framework designed to:
(1) provide coherent frame in development and review (2) reduce the need for debate (3) help analyse issues not covered by IAS
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5 qualitative characteristics of financial statements:
(1) materiality (threshold) (2) relevance (3) Reliable (4) Comparable (5) Understandable
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Relevance
info has ability to influence decisions (predictive value/ confirmatory value)
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Reliability
info thats complete and faithful representation (neutral/ free from material error/ prudence)
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Comparability
similarities and differences can be discerned and evaluated (consistency/ disclosure)
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Understandability
significance of information can be perceived (users abilities/ aggregation and classification)
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Materiality
ability to influence economics decisions of user (threshold that may impair other info given)
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Asset
rights/ access to future economic benefits controlled by entity as result of past transactions
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Liabilities IAS37
present obligation of entity arising from past events, settlement of which is expected to result in outflow from entity of resources embodying economic benefits
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gains/ losses
increase/ decrease in ownership interest not resulting from contributions/ distributions from/ to owners
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contribution/ distribution from/ to owners
increases/ decreases in ownership interest resulting from transfers from/ to owners in their capacity as owners
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initial recognition if...
(1) sufficient evidence exists about addition and (2) can be measured at monetary amount with sufficient reliability
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subsequent re-measurement
cost model (NBV) or revaluation model (FV- accum dep/impairment losses)
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de-recognition if...
(1) sufficient evidence exists about elimination or (2) criteria for recognition no longer met
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Leases IAS17 definition (ending Dec 2018)
an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time
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Finance lease IAS17 defintion
lease that transfers substantially all the risks and rewards incidental to ownership of an asset. Title may or may not eventually be transferred.
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Finance lease features
primary (3-5 years) and secondary period (peppercorn rent -low)/ non cancel unless large £/ sold for bargain price at end/ primary rental cover cost/ lessee responsible for maintenance/ highly specialised/ most of economic life/ reasonably 'certain'
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Operating lease IAS17 definition
lease other than a finance lease
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Operating lease features
'likely' not 'certain'/ not substantially all risks and rewards transferred/ less than full economic life/ expected residual value/ payments don't cover full cost/ sometimes other service agreements/ lessor responsible for maintenance
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Hire purchase contract
contract for hire of asset, containing provision which gives hirer option to acquire legal title to asset upon fulfilment of certain contract conditions
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Accounting for operating leases: Lessee (Dr Lease expense/ Cr Bank)
no asset/ straight line expense/ disclosure in notes (1 yr 2-5yrs >5yrs)
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Accounting for operating leases: Lessor
NCA depreciated of useful economic life/ recognise rental payments on straight-line basis (even if not paid on this)
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Accounting for finance leases: Lessee (Dr lease interest exp/ Dr lease liab/ Cr bank)
as asset and as obligation to pay future rental payments/ record at FV/ payments apportion between finance charge (actuarial)+ reduction of outstanding obligation/ notes disclosure
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Accounting for finance leases: Lessor
gross investment in lease (min payment + residual value)/ net investment (gross investment less gross earnings)/ net cash investment (funds invested by lessor)/ amount due as TR (at net investment)/ allocate total gross earnings to reporting periods
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actuarial method to calculate finance charge
FV of equipment = PV of first lease payment + CF annuity (periods)
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Leases IFRS 16 (Jan 2019) Lessee required to recognise...
(1) assets and liab with term more than 12 months unless underlying is of low value (under that just expense) and (2) depreciation of lease assets separately from interest on lease liab in income statement
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Leases IFRS 16 measurement...
(1) measured at PV of lease payments (discounted using IR implicit or lessees borrowing rate) and (2) optional lease payments included only if lessee 'reasonably certain' to extend beyond non cancellable period
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Provision IAS37 definition and measurement
Liability of uncertain timing or amount/ 'probable' >50% likelihood of transfer/ liab provision and disclosure of provision in notes
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Contingent Liability IAS37 definition
(1) possible obligation from past events, who's existence confirmed by occurrence of uncertain future event not in entities control or (2) present obligation from past events not recognised as settling transfer not probable/ not reliably measured
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Contingent Liability IAS37 measurement
Possible (no liab recognised/ disclosure of contingent liab in notes) remote (no liab recognised/ no disclosure in notes)
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Liability IAS37 legal obligation derived from:
(1) contract (2) legislation (3) other operational law
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Liability IAS37 constructive obligation derived from:
(1) pattern of practice/ published policies/ indicated statement to other parties and (2) as result entity created expectation
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Contingent asset IAS37 definition
asset arising from past events and existence confirmed by uncertain future events outside of entities control
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Contingent asset IAS37 measurement
Virtually certain (no longer contingent/ becomes asset) Probable (no asset recognised/ disclosure of contingent asset in notes) Not probable (no asset recognised/ no disclosure in notes)
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Onerous contract
unavoidable costs of meeting its obligations exceed its expected benefits (value= PV min rental payments - economic benefits)
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PPE IAS16 (tangible asset/ physical substance) recognition
(1) probable future economic benefits (2) cost of inter measured reliably
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PPE IAS16: initial measurement at cost compromising of...
(1) purchase price (import duties/taxes/ after rebates) and (2) costs directly attributable to location and condition for use and (3) initial cost estimates of restoring/ dismantling at PV
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PPE IAS16: subsequent costs
(1) day to day servicing (expense) (2) replacement costs (expense or 2 separate assets) (3) major inspection or refit (assets with any remaining costs of previous derecognised)
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Accounting for gov grants IAS20
(1) reduce cost of asset (bad when comparing) or (2) create deferred credit in SOFP amortised overtime, releasing credits in SOCI (Dr Cash Cr gov liability)
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IAS20 Forgiveable loan treated as grant if...
'reasonable assurance' that entity meets term
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IAS20 non monetary grants
measure at fair value
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Fair value
amount at which asset could be sold for to knowledgable willing parties in an armslength transaction
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IAS 23 Borrowing costs for asset to qualify...
(1) asset takes substantial amount of time to get ready for intended use/ sale and (2) borrowing costs must be directly attributable
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IAS 23 general borrowing costs use capitalisation rate:
weighted avg cost of general borrowings/ commence when expenditures + borrowing costs occur/ activities to bring to use in progress/ suspended during interruption (expense)/ ceased when substantially all activities complete
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Depreciation purpose
spread the cost (less any scrap value) of an asset over its useful economic life to match the depreciation expense against the benefits which it generates
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Straight line deprecation
charge equal in each year = (original cost - scrap value)/useful economic life
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Reducing balance depreciation
equal annual percentage charged= 1 - useful economic life√(scrap value/original cost)
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Sum of digits method
simplified variation of reducing balance = (total number of years/sum of years)(original cost - scrap value)
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Physical usage method
apportions net cost in accordance with physical usage of the asset = (number of units used in period/total physical number of units available)(original cost - scrap value)
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Subsequent remeasurement: cost model
item of PPE measured at cost less any accumulated depreciation and any accumulated impairment losses
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Subsequent remeasurement: revaluation model
where FV can be reliably measured ( FV = FV date revaluation - accumulated depreciation and impairment losses)/ regularly revalued set cost to FV and accumulated depreciation = 0
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IAS38 Intangible asset definition
identifiable non-monetary asset without physical substance
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IAS38 Intangible asset key aspects
(1) identifiability (separately be sold) (2) control (not training expenses/ customer lists/ market share) (3) future economic benefits (expected to flow in) (4) reliable measurability (market/ income/ cost approaches)
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If asset carrying amount increases...
credit to equity as 'revaluation surplus'/ recognise in P/L to extent that it reverses revaluation decrease of same asset in P/L
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If asset carrying amount decreases...
decrease recognised in P/L/ decrease debited to equity as 'revaluation surplus' to extent of any credit balance existing
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IAS38 Internally generated intangible assets costs split...
(1) research phase (expensed) (2) development phase (asset if application of knowledge to design before commercially produced)
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IAS38 Internally generated intangible development phase:
asset only if all true: (1)technically feasible of completing (2) intention to complete for use/sale (3) ability to use/sell (4) how will generate probable future economic benefits (5) availably of resources (6) ability to reliably measure cost
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IAS38 doesn't allow recognition of...
research/ internally generated brands/ mastheads/ publishing titles/ customer lists (COMPLETENESS, component of reliability lacking) and COMPARABILITY compromised (asymmetric treatment of internal and external intangibles)
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IAS36 Impairment of assets definition
something has gone wrong and asset isn't shown at what its truly worth in the accounts. falls below depreciated historic costs.
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IAS36 Impairment occurs when...
persistent operating losses/ fall in MV/ damage or obsolescence/ competition or regulation/ significant reorganisation/ loss of key employees/ increase in market ROR
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Cash generating unit (CGU) definition
smallest identifiable group of assets that generates cash inflows that are largely independent of cash inflows from other assets
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IAS36 CGU impairment loss
recognised only if recoverable amount less than NBV
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IAS36 Reversal of impairment losses in assets
(1) Goodwill impairment reversal not allowed (practical reasons) (2) Other assets reversal required (not above what NBV would have been)
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IAS 38 Intangible assets treatment
Initially measured as all directly attributable costs (same as tangible)/ amortised same way as tangibles except scrap value =0 unless active market/ commitment to buy/ subsequent remeasurement using cost or revaluation (if active market exists)
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IAS36 Impairment measurement
(LOWER OF) Carrying amount and recoverable amount (HIGHER OF) value in use (NPV future cash flows) and Net realisable value (NRV selling price-costst to get to that point)
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IAS36 Impairment recognised in...
P/L loss and an impairment loss of a revalued asset shall be treated as revaluation decrease
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IAS36 CGU impairment measurement in order...
(1) reduce NBV of goodwill allocated to CGU (2) Reduce assets in CGU with high sell value (not reduced below highest of a) FV-costs to sell b) NPV c) 0) (3) reduce other assets in CGU pro rata
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5 qualitative characteristics of financial statements:

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(1) materiality (threshold) (2) relevance (3) Reliable (4) Comparable (5) Understandable

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Card 4

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Reliability

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Card 5

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Comparability

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