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SBR – GRAND REVISION BY TG
Conceptual Framework
- Bible of accountancy
- Underlying principles of accounting standards
- IFRS
QUALITY OF F/S
PRIMARY – Relevant(Material) + Faithful representation (CNF
+ Substance over form- sale and leaseback)
SECONDARY – Comparable, timely, understandable,
verifiable.
Definitions of element of f/s
ASSET = economic resource – control due to a past event
INCOME= Increase in asset, decrease in liab and increase in
equity
EXPENSE= Decrease in asset, increase in liab, decrease in
equity.
IFRS 2 – Expense dr and EQUITY CR
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LIAB= present obligation due to past event which will lead to
outflow of economic resources.
Derecognition criteria
- Risks and rewards are being transferred
- Profit/ loss on disposal
- Retained asset – don’t derecognize
- Sale and leaseback
Dispute bw IFRS and CF
- Standard wins
- Because some standards for example IAS 37 are still not
revised as per the revisions in CF.
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IAS 16 VS IAS 38 VS IAS 40
PPE
Ia
IP
- NCA that is
- Non
- Idle property
used in the
monetary
- Rentals from
process of
asset
3rd parties
manufacturing,
- - no physical
- Capital
administrative,
substance
appreciation
owner, rent.
- Reliable
measure
- Identifiable –
sell it
separately /
legal/
contractual
right
Initial – Cost
PP + DAC + PV of dc
+Irrecoverable taxes
Subsequent – COST COST/ REV
- COST/ FV
/ REV
Amortisation
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Cost = Asset is taken at Carrying amount
CA = COST – acc depn – impnt
REV Model
- Gain – OCI
- Loss – first taken out of the rev surplus ( related to the
asset) and remaining loss – SPL
- When the asset is taken to it’s FV !
- At regular intervals – whenever the difference between
the carrying amt and the Revalued amount is significant
- No cherry picking – whole class of asset should be
revalued.
- Do u depreciate? Yes = RA/ Remaining life of the asset .
FAIR VALUE – IP
- Take the asset to it’s FV at each Rep date
- Take the FVM via SPL
- Stop depreciation
AMORTISATION OF INTANGIBLE ASSETS
1. Definite life
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- Any IA who’s life is determinable is amortised over it’s
life on straight line basis
2. Indefinite Life
- No amortization , Annual Impairment Review.
How is the IAS 16 different from IP in terms of given on
rent?
IAS 16 – if the property is owner occupied then it is IAS 16. Eg
in a house one room is given on rent and rest of the house is
owner occupied- PG
However, let us take an example where there is 10 floor
building and the first floor is owner occupied the second floor
is given on rent to a subsidiary how to treat it?
The first floor in Group accounts and in parent’s individual
a/cs IS IAS 16
The second floor however is given to sub thus in individual
a/c s of the parent is -> IP because in individual accounts the
sub is a 3 rd party.
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In Group account the 2/10 is IAS 16 because it is used by the
sub which actually is part of the GROUP.
IAS 36
Impairment of assets
Reduction in value asset.
Indicator – internal/ external
Internal -> loss of key employees, Loss of production capacity
External -> Flood, natural disaster, theft, recession, inflation,
loss of demand
Look for indicator of impnt at each reporting date.
IMPAIRMENT REVIEW
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Take lower of carrying amount and recoverable amt.
RA = higher of VIU and FV-cts
VIU – present value of future cash flows
FV-CTS
Rate -> growth – reducing/ zero
Record the asset at lower of CA and RA
➔
➔
Loss – 1. From related rev surplus
2. SPL
CGU – smallest group of identifiable asset which are capable
of generating independent cash flows together.
How to allocate impnt to a CGU
1. Damaged asset
2. Goodwill – corporate asset
3. Pro rate the remaining impnt to the NCA on pro rata
basis
Current assets are never impaired because Inventory is
already lower of cost and NRV. Cash never gets impaired.
Receivable impnt is undertaken in IFRS 9.
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IFRS 5 – NCA HFS and Discontinued operation
If the following criteria is met then only any asset or
operation is considered as HFS.
Comittment to sell
Active plan to sell – Located the buyer, reasonable prices
Present condition – no repair
Sale is probable – Against CF
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One year
No change to plan
Accounting treatment – Record the asset HFS at lower of CA
and FV – CTS – impairing – losses are taken to SPL.
Classify it as Current asset
STOP DEPN – don’t use the asset.
WHAT IS DISCONTINUED OPERATION?
- Separate major line of business – geography/ nature
- Subsidary which was purchased with a view of reselling
– no consolidation line by line , separately disclose it as
Do
ACCOUNTING TREATEMENT
➔
ASSETS treatmednt is same as NCA hfs
➔
One thing extra, disclosure, separately present the
results of DO in SFP nad SPL – one line item.
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IFRS 15 – Revenue from contracts with customers
Revenue = proceeds from selling the products/ services in
normal course of business
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5 step
1. Identify the contract
- Approved by both parties
- Rights and obligations have been identified
- Payment terms are settled
- Commercial substance
- Probable receipt of the payment
2. Separate performance obligations
- Distinct or not
- Independent – ZED TECH
3. Determination of TP
- Variable consideration – is recorded upto the extent it is
probable that there will be no significant reversal once
the uncertainity is resolved. – probability weigh /
expected value
- Non cash consideration – barter – 1. FV of service/ good
received 2. Fv of services/ goods provided.
- Significant fc- if payment is received afdter 1 year –
today record the revenue at PV and then unwind the
interest
- JE – Receivable dr Revenue cr – PV
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- Subsequent – Receivable dr Finance income cr.
- Consideration payable to customer – cash paid to
customer – discount.
4. ALLOCATION OF TP to the PO
= on the basis of standalone selling prices
5. REVENUE RECOGNITION
OTP/ ATP
Anything which is not otp is atp
Revenue is recorded whent the control passes
Indicators of control is passed=
- Physical possession
- Ownership has transferred
- Payment received
- Bill/ invoice raised.
3 condition if any met then the control is transferred OTP –
1. Customer simultaneously receives and consumes the
benefit.
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2. Enhancing or creating an asset which is controlled by the
customer. – construction – BOB THE BUILDER / Right to
payment.
3. Enhancing/ creating an asset which is controlled by the
entity but has no alternate use to the entity, Customised.
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SALE AND REPURCHASE
-
If a forward/ call option is there then it is not a sale because
the control has not been transferred as the seller hast to
buybavck or can call back for the asset anytime he wants.
If the RP> SP -> Loan taken – secured
If the RP< SP -> Lease
PUT OPTION – it is the option to give back the asset to the
original seller.
Now if the seller has an obligation to take it back under the
contract-> NOT A SALE ( same rules as above)
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But if the seller does not have an obligation to buy back
then it is a sale.
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IFRS 16
- Off balance sheet leases? Previously the old standard
gave the lessee an option to bifurcate bw operating
lease and financial lease so in that case many lessess
being the lazy lad / biased opted for operating lease and
di not record ROU and LL and were just recording the
rent as an expense whenever it was due.
- However, this lead to some leases which off b/s because
many leases were of financial nature but still no ROU an
LL was recorded.
LEASE?
- Right to substantially use the leased asset and direct
it’s use.
- Obligation to pay
Initial accounting treatment
= ROU / ll
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LL -> Pv of future lease payment / df – interest rate implicit
in the lease
ROU = LL+ any payment received on or before the
commencement of lease
SUBSEQUENT
ROU – depreciated – life – shorter of – life of asset/ life of
lease
IAS 16/IAS 40 – DEPENDENT UPON USE OF THE LEASED ASSET
LL -> UOI
LESSOR ACCOUNTING
- Operating / Financial Lease
- FL – substantial period of time
- Life of the asset is 10 years u rented it for 11 years
- The PV of Lease payments is more or less same as the
FV of the asset.
Accounting treatment
Financial lease - Derecognise the asset and record a
receivable of an amount equivalent to LL
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Operating lease – Rental income in SPL whenever it is
accrued.
SALE AND LEASEBACK
Transfer is a sale
SELLER – LESSEE
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- Derecognize
the asset
- Record a
receivable
- Rou = PV/FV
X CA
- Lease liab
- Profit / loss
on disposal
Transfer is not a
sale
- Treated as a
loan because
proceeds
were
received
- RENT that is
paid is
treated as
Interest on
loan
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Buyer – lessor
- Recognise
the asset
- Payable
- Lessor
- Not
derecognize
the asset
- Financial
asset – given
a loan
- Rent recvd
will be
treated as
finance
income.
WHEN THE TRANSFER qualifies as a sale as per IFRS 15 then
the 2 situations arises
1. Transfer above fv = Financial liab
2. Transfer is below FV = Prepaid asset.
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IAS 37/ IAS 10
Provisions, Contingent Liab and Contingent assets
Provision = Present obligation + probable outflow of
economic benefit + reliable measure
= contractual / legal/ constructive -> website
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1. Restructuring
- unavoidable
- At earlier of two dates – 1. Formally planned and
announced – Valid expecatation amongst the effected
party 2. Actually occurred.
- SPL dr and Provision Cr
- Provision is not recorded on ongoing activity –
relocation, retraining
2. Onerous Contract
Loss making contract
Provision is recorded at lower of cost of termination of
the contract and the cost of continuing the contract.
3. ENVIRONMENTAL provision – Constructive
- Cost of reversing the damage to the environment.
CONTINGENT LIAB
- Possible obligation less probable
- Disclose them in f/s and not record
- DANGER item in Consolidation – on DOA the CL of sub
is recorded at FV in W2
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Contingent asset
= DISCLOSED – probable
= Recorded – virtually certain – 95%
IAS 10 subsequent event
ADJUSTING
- If there was an evidence of this event at rep date
- Eg. – Inventory’s sold at a lower price
- Going concern assumption
NON ADJUSTING
- If there was no evidence at the rep date
- Fire, theft, purchased an NCA, redundancy was
announced
- Disclose if material
- If non adj event impacts gc then it becomes adj
BREAK – 5- 7MINS
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IAS 12
1. Current tax – PBT – overprovision/ underprovision
2. Deferred tax
Temporaray difference due to different accounting and
taxation laws.
IF THE TB> CA , then the company will pay more tax
today but lesser tax tomorrow. – DTA
If the TB<CA, then the company will pay less tax today
and more tax tomorrow, this creates DTL.
Temporary difference x tax rate
UNUSED TAX LOSSES
The unused tax losses means that the loss generated by
an entity might be carried fwd if allowed in the given tax
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jurisdiction to get a tax relief in future by deduction the
losses from the profit before paying tax.
IAS 12 states that this gives rise to DTA but it is only
recognized if there is a solid evidence that the future
profits are available against which the losses will be
adjusted.
SOLID EVIDENCE= trusted/ 3rd party – customer
contracts, market research report
FORECASTS and budgets are not to be trusted.
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IFRS 9
Financial instrument = any contract which gives rise to a
financial asset in the books of one company and a financial
liability in the books of another company.
FA = Contractual right to receive cash or another FA
FL = contractual obligation which leads to payment of cash
or fa.
If the a FL is settled in entity’s own Equity instruments and
the number of equity instrument to be issued is fixedEQUITY
VARIABLE – FINANCIAL LIAB
Initial = FV +/- TC unless the Instrument is kept under FVTPL
in subsequent treatment
FINANCIAL ASSET
- Debt instrument
1. AMC = CCF test is met + TM
2. FVOCI = CCF test is met + IDK
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3. FVPL = when the CCF test is not met or when CCF is
met but the intention is + ST
Two testsa. CCF test = the principal and interest payment shall be
received primarily only in cash.
b. Business model = if the intention is to keep the debt
instrument
- Till maturity
- Idk situation
- Short term
➔
In AMC the interest taken is effective ROI
EQUITY INSTRUMENT
1. FVPL – by default
2. FVOCI – must not be held for trading AND an irrevocable
choice for this method was made upon designation.
IMPAIRMENT OF FINANCIAL ASSET
➔
Only the debt instruments that too which are kept
under AMC and FVOCI ARE IMPAIRED.
➔
Loss allowance
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1. CREDIT RISK = risk of non repayment
2. Credit loss = Difference between the contracted and
the expected amount to be received.
3. Loss allowance= when credit loss is taken to it’s PV
and is probab weighted = loss allowance
1. 12 month expected = WHEN the credit risk has not
increased significantly since inception.
2. Lifetime expected loss allowance = when the credit has
risk has increased significantly since inception.
➔
For receivables always LIFE TIME EXPECTED loss
allowance is created.
CREDIT IMPAIRMENT vs Loss allowance
> The prospective interest on debt is calculated on the net
amount
> In Loss allowance the prospective int income is
calculated at Gross amount.
JE TO RECORD LOSS ALLOWANCE – SPL DR LA CR
If and originally credit impaired asset was purchased
= Interest income is calculated by using credit
impairment adjusted rate CIAR.
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IMPAIRMENT OF DEBT INSTRUMENTS KEPT UNDER
FVOCI
➔
The debt asset is already taken to it’s FV at each
reporting date with the gain or loss being reported to
SOCI.
➔
So if a such an asset is impaired then the FV loss
has been taken to OCI
➔
Now , Ifrs 9 states that the asset must never be
taken to an amount lower than it’s FV. Therefore the fv
loss which went via OCI has already within it the
component of Loss allowance.
➔
So if there was an asset of $100 who’s FV at RD was
$ 50 so the loss of 50 went to OCI. If in question it is
written that on the same asset a loss allowance of $30 is
required then it is assumed that the initial 50 loss has 30
within it, the 30 is not an extra loss.
➔
Thus out of 50 loss 30 will go via SPL as loss
allowance and the remaining 20 shall go via OCI as FVm.
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DERIVATIVES
1. The value is dependent on an underlying item
2. It is settled at a future date
3. Has zero / less initial value
Whether a non financial asset/ liab be considered as a
derivative? = only if it is settled net in cash
ACCOUNTING -> FVPL
HEDGING
The hedging rules only apply if the hedge is documented and
the hedge effectiveness criteria is met.
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1. There is an inverse economic relationship bw the
Hedging instrument and the hedged item.
2. The credit risk should not dominate the fv of the
hedged item.
3. The hedge ratio should be effective.
CASH FLOW HEDGE
- The item and instrument both are taken to their FV at
the RD with a gain or loss – OCI
- Ineffective – if gain on instrument> item -> SPL = elder/
younger sibling
FV HEDGE
- The hedged item and instrument both are taken to FV
and the FVM goes to SPL
- Unless, the item is an equity – FVOCI.
FINANCIAL LIABILITIES
➔
AMC – by default
➔
FVPL – HFT or to avoid an accounting mismatch- Co.
A bought an Ip by taking a loan
➔
If the FVm is due to the credit risk – OCI
CONVERTIBLE DEBENTURE
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Split – FL + Equity
FL = Pv of future cash flows
- Interest rate = similar bonds without conversion options
EXECUTORY CONTRACT
= ‘ delivery – own use’ - > not a derivative so it is out of the
scope of IFRS 9
➔
Which will be settled at a future date.
GROUP ACCOUNTS
WHAT IS THE DEFINITION CONTROL?
- POWER OVER THE INVESTEE
- Right over variable returns
- Ability to effect those returns
What are the situation where control might exist even if the
50% VR is not there?
- Appoint majority BOD
- Contracts signed with some investors – vote on their
behalf
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- Potential voting rights
- Rest of the investors – small and scattered
RULES OF CONSOLIDATION
= add up everything at 100% as if u own everything
= Eliminate intra grp transaction/ balances
= Show upto the extent the you don’t ow sub = NCI
GSFP
W1 Group structure
W2 – FV of net assets of sub
DOA
REP DATE
Share capital/
share
premium
RE/REV
SURPLUS
FVA
Additional
dep
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-
Rep date –
DOA
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Purp – when
subsidiary is
the seller
- Internally generated brand of sub which was not
recorded in individual accounts is actually recorded here
- Contingent liab of sub which was just disclosed is
recorded in W2 on acquisition
W3 – GOODWILL
FV of consideration{ cash, deferred, comtimgent, SFS}
NCI: FV -> full goodwill/ Cost -> PARTIAL
- FV of net assets of sub at doa – W2
= GOODWILL ON DOA
- Impnt
= Goodwill at reporting date
SBR -> total notional goodwill -> gross it up and then
compare the RA of CGU with CA of CGU
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Proportionate g/s- Impnt is just allocated to Parent and not
NCI
Full goodwill = Parent and NCI in their proportion .
W4 NCI
W3
+ Nci’s share in post acquisition profits
- Nci’s share in g/w impnt – full
- Dividends paid
= NCI at rep date
W5 GRE
Parent ‘ RE
P% in sub post acquisition Profits w2
- UOI
- PURP – p is seller
- g/w impnt – P %
- Provision
+ Gain on bargain purchase – negative g/w
= GRE
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INTRA group transactions in GSFP
1. Parent is seller
GRE dr Inventory Cr
PURP -> markup- cost / margin – sp
2. Subsidary is seller
W2 dr
Inventory cr
OR NCI DR Gre cr Inventory CR
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GSPL
1. All revenue and expenses of the subsidiary are
recorded as per the time apportionment
2. How to deal with the Intra group transactions in
GSPL?
- Remove the intra group sale from group revenue
- Remove intra group sale from COGS
- Add the PURP in COGS
3. NCI share of Group profit should be calculated as a
separate WN by taking the profit of sub as a base.
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IAS 28
= associate – significant influence – power to participate
20-50%
GSFP = cost of investment in associate
GSPL = share of profit in associate
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CHANGE IN GROUP STRUCTURE
SITUATIONS
1. No control to control
- G/W on acquisition = FV of previously held interest
- Same as IFRS 3
2. Control to Control - ACQUISITTION
- NCi reduces
- NCI dr Bank cr OCE b/f
- % AGE decrease in NCI
- Nci at DD is kept as base and then unitary method is
applied to calculate % age decrease in NCI for above JE
3. Control – Control – DISPOSAL
- NCI increase
- Bank DR NCI Cr OCE – B/F
4. Control – No control
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- STOP CONSOLIDATION
- P/L on disposal
- Group P/L
- Proceeds receiveds
+ FV of retained interest
+ FV of NCI at DD
- Goodwill of sub at DD
- FV of net assets of Sub at DD
= GROUP PROFIT OR LOSS {
/
}
GROUP FOREIGN EXCHANGE
Individual accounts IAS 21 = Monetary / non monetary
➔
Monetary will be converted at rep date using the
Closing rate.
➔
Exchange difference = SPL
GROUP ACCOUNTS
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If the P functional currency = S ‘s FC
The above rule applies
IF P’s fc =/= S fc
= RETRANSLATE the f/s of sub at each reporting to the
functional currency of the parent.
= All assets and Liab- Closing rate
= All income and expenses – Average rate
RETRANSLATION RESERVE = OCI
Is reclassified into SPL when the sub is sold.
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GROUP SCF
Operating / investing/ financing activity
➔
Acquire a sub = net proceeds are taken as cash
outflow in investing activity
➔
Dispose a sub = net proceeds are taken as cash
inflow in investing activity.
➔
Working capital
➔
Acquisition – the opening balance of CA/CL does
not have the results of acquired sub but the closing
balance has it so to make it like for like in opening
balance CA/CL of acquired sub are added to calculate
actual cash movement. – ADJUST THE OPENING
BALANCE
➔
Closing – opening = Movement
 C- (o+ sub)
 C-o- SUB = Movement – sub
 WHEN SUB IS ACQUIRED THE MOVEMENT reduces i.e
from the positive or negative movement we neefd to
deduct the results of sub
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DISPOSAL -> THE results of the sub disposed are not
there in closing balance but are there in opening
balance therefore the opening balance must be
adjusted for like for likre comparison.
➔
➔
➔
C-O= M
C-(O-SUB)
C-O+SUB = M+ sub
Therefore when the sub is disposed the movement of WC
increases.
= Dividends -> if paid to NCI
= received from associate
SPOTIFY PODCAST -> IFRS WITH TG
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IAS 19 – EMPLOYEE BENEFITS
DEFINED BENEFIT PENSION SCHEME
Defecit – net pension obligation
-Contributions
+ Service – past + current
+ net interest
Benefits paid out = no impact
Remeasurement component OCI never reclassified B/F
Actuarial valuation = xxx
Asset ceiling – RC
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➔
Surplus is recorded only upto the extent of refunds
or future reductions in contribution
PASC = after 2019 , the interest rates should revised /
assumption – sc
IFRS 2 – SBP
1. Equity settled
-JE – Expense dr Equity cr
= No of employees x no Share option x FV of SO at grant date
x 1/3
2. Cash settled
= Only diff is that SAR’s FV is taken at each Reporting
date and not at grant date.
➔
When cash liab is settled it is paid at intrinsic value
➔
And the diff in the IV cash paid vs closing liab at FV
goes to SPL
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VESTING CONDITION
1. Market = defactored into FV of SO / SAR – valuers
2. Non market – do impact the number of employees in
above formula.
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