Selected issues of financial accounting and reporting in Poland
Piotr Luty
Agenda:
1. Accounting principles
2. Elements of financial statements (balance sheet)
3. Recognition of elements in financial statements
4. Methods of measurements
5. Measurements at the balance sheet date
6. Current/non-current distinction
7. Intangible assets
8. Tangible fixed assets
9. Current assets
10. Liabilities
11. Provisions
12. Equity
13. Balance sheet (Appendix to the Accounting Act)
Sources:
1. The Accounting Act
2. International Financial Reporting Standards (International Accounting Standards)
The following information about financial accounting and reporting in Poland are prepared on
the basis of the Accounting Act and IFRS (IAS). In the following text, there are direct quotations
from the Accounting Act and IFRS (IAS).
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ACCOUNTING PRINCIPLES
An entity’s accounting shall include:

The adopted accounting principles (policies)

Keeping, based on the accounting documents, the books of accounts which record the
entries of the event in chronological and systematic manner

A periodic determination or verification, through a stocktaking, of actual balances of assets,
liabilities and equity

Measurement of assets, liabilities and equity, and determination of the financial result

Preparation of financial statements

Gathering and storing accounting documents and other documentation required by the Act

Having financial statements audited and published in cases required by the Act.
In matters not regulated by the Accounting Act, while adopting their accounting principles, entities
may apply national accounting standards issued by the Accounting Standards Committee. If there
is no applicable national accounting standards, entities may apply IFRS (IAS).
1.1. TRUE AND FAIR VIEW
1.1.1. THE ACCOUNTING ACT
Entities are required to apply the adopted accounting principles (policies), truly and fairly
presenting their financial position and financial result.
1.1.2. IFRS (IAS 1)
15 Financial statements shall present fairly the financial position, financial performance and
cash flows of an entity. Fair presentation requires the faithful representation of the effects of
transactions, other events and conditions in accordance with the definitions and recognition
criteria for assets, liabilities, income and expenses set out in the Framework.
1.2. ACCRUAL BASIS
1.2.1. THE ACCOUNTING ACT
All income earned by the entity and all related costs which refer to a given financial year must
be recognised in the entity’s books of account, irrespective of the date of their payment.
1.2.2. IFRS
27 An entity shall prepare its financial statements, except for cash flow information, using the
accrual basis of accounting.
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28 When the accrual basis of accounting is used, an entity recognises items as assets, liabilities,
equity, income and expenses (the elements of financial statements) when they satisfy the
definitions and recognition criteria for those elements in the Framework.
1.3. MATCHING REVENUE AND COSTS
1.3.1. THE ACCOUNTING ACT
In order to ensure the matching of the income and related costs, assets or liabilities and equity
of given reporting period shall include costs or income, which relate to the future periods as
well as costs relating to this reporting period, which have not been incurred yet.
1.3.2. IFRS
19 Revenue and expenses that relate to the same transaction or other event are recognised
simultaneously; this process is commonly referred to as the matching of revenues and expenses.
Expenses, including warranties and other costs to be incurred after the shipment of the goods
can normally be measured reliably when the other conditions for the recognition of revenue have
been satisfied. However, revenue cannot be recognised when the expenses cannot be measured
reliably; in such circumstances, any consideration already received for the sale of the goods is
recognized as a liability.
1.4. P RUDENCE
1.4.1. THE ACCOUNTING ACT
Individual items of assets, liabilities and equity shall be measured at actual prices (costs) paid
(incurred) for their acquisition (manufacture) taking into account the prudence principle. In
particular, in financial statements (income statement) should be recognised irrespective of their
amounts, the following:

Decreases in the useful or commercial value of an item of assets, including depreciation
or amortization charges

Only absolutely certain other operating income and extraordinary gains

All other operating costs and extraordinary losses incurred

Provisions for any risk identified, impending losses.
1.4.2.
IFRS
It is a general assumption that assets are not overestimated and liabilities are not underestimated.
1.5. GOING CONCERN
1.5.1. THE ACCOUNTING ACT
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When applying accounting principles ( policy) it is assumed that the entity will continue in the
foreseeable future, substantially no decrease in activity in, without putting it into liquidation or
bankruptcy, unless it is inconsistent with the facts or law. In determining the entity's ability to
continue its operations , managements takes into account all the information available at the date
of the financial statements for the foreseeable future , covering a period of not shorter than one
year from the balance sheet date .
1.5.2. IFRS (IAS)
When preparing financial statements, management shall make an assessment of an entity’s
ability to continue as a going concern. An entity shall prepare financial statements on a going
concern basis unless management either intends to liquidate the entity or to cease trading, or has
no realistic alternative but to do so.
In assessing whether the going concern assumption is appropriate, management takes into
account all available information about the future, which is at least, but is not limited to, twelve
months from the end of the reporting period. The degree of consideration depends on the facts
in each case. When an entity has a history of profitable operations and ready access to financial
resources, the entity may reach a conclusion that the going concern basis of accounting is
appropriate without detailed analysis.
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2. ELEMENTS OF FINANCIAL STATEMENTS (BALANCE SHEET )
Balance sheet presents financial position of an entity. The elements directly related to the
measurement of financial position in the balance sheet are: assets, liabilities and equity.
Elements of balance sheet are defined as follows:

an asset is a resource controlled by the entity as a result of past transactions and from which
future economic benefits are expected to flow to the entity.

a liability is a present obligation of the entity arising from past events. A settlement of
liabilities results in an outflow from the entity of resources embodying economic benefits.

equity is the residual interest in assets of the entity after deducting all its liabilities.
2.1. ASSETS
[Conceptual Framework, 4.8] The future economic benefits embodied in an asset is the potential to
contribute, directly or indirectly, to the flow of cash and cash equivalents to the entity. The potential
may be productive one that is part of the operating activities of the entity. It may also take a form of
convertibility into cash or cash equivalents or a capability to reduce cash outflows.
[Conceptual Framework, 4.10] The future economic benefits embodied in an assets may flow to the
entity in number of ways. For example, an assets may be:

Used singly or in combination with other assets in the production of goods or services to be
sold by entity

Exchanged for other assets

Used to settle liabilities

Distributed to the owner of the entity
[Conceptual Framework, 4.11] Many assets have a physical form. However physical form is not
essential to the existence of an asset; hence patents and copyrights, for example, are assets if future
economic benefits are expected to flow from them to the entity and if they are controlled by the
entity.
[Conceptual Framework, 4.12] Many assets, for example, receivables and property, are associated
with legal rights, including the right of ownership. In determining the existence of an asset, the right
of ownership is not essential; thus, for eample, property held on a lease is an asset if the entity
controls the benefits which are expected to flow from the property.
[Conceptual Framework, 4.13] The assets of an entity result from past transaction or other past
events. Entities normally obtain assets by purchasing or producing them, but other transactions may
generate assets. Transaction or events expected to occur in the future do not in themselves give rise
to assets; hence, for example, an intention to purchase inventory does not, of itself, meet the
definition of an asset.
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2.2. LIABILITIES
[Conceptual Framework, 4.15] An essential characteristic of liability is that the entity has a present
obligation. This is normally the case, for example, with amounts payable for goods and services
received. Obligation also arise, however, from normal business practice, custom and a desire to
maintain good business relations or act in an equitable manner. If, for example, an entity decides as
a matter of policy to rectify faults in its products even when these become apparent after the warranty
period has expired, the amounts that are expected to be expended in respect of goods already sold
are liabilities.
[Conceptual Framework, 4.16] A distinction needs to be drawn between a present obligation and a
future commitment. A decision by the management of an entity to acquire assets in the future does
not, of itself, give rise to a present obligation. An obligation normally arises only when the assets is
delivered or the entity enters into an irrevocable agreement to acquire the asset.
[Conceptual Framework, 4.17] The settlement of a present obligation usually involves the entity
giving up resources embodied economic benefits in order to satisfy the claim of the other party.
Settlement of a present obligation may occur in number of ways, for example, by:

Payment in cash

Transfer of another assets

Provisions of services

Replacement of that obligation with another obligation, or

Conversion of the obligation to equity
[Conceptual Framework, 4.18] Liabilities result from past transactions or other past events. Thus,
for example, the acquisition of goods and the use of services give rise to trade payables (unless paid
for in advance or on delivery) and receipt of a bank loan results in an obligation to repay the loan.
[Conceptual Framework, 4.19]Some liabilities can be measured only by using a substantial degree
of estimation. Some entities describe these liabilities as provisions. In some countries, such
provisions are not regarded as liabilities because the concept of a liability is defined narrowly, so as
to include only amounts that can be established without the need to make estimates.
2.3. EQUITY
[Conceptual Framework, 4.20] Although equity is defined as a residual, it may be sub-classified in
the balance sheet. For example, in corporate entity, funds contributed by shareholders, retained
earnings.
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3. RECOGNITION OF ELEMENTS IN FINANCIAL STATEMENTS
[Conceptual Framework, 4.37] Recognition is the process of incorporating in the balance sheet or
income statement an item that meets the definition of an element and satisfies the criteria for
recognition.
[Conceptual Framework, 4.38] An item that meets the definition of the element should be recognised
if:

It is probable that any future economic benefit associated with the item will flow to or from
the entity and

The item has a cost or value that can be measured with reliability.
THE PROBABILITY OF FUTURE ECONOMIC BENEFITS
[Conceptual Framework, 4.40] The concept of probability is used in the recognition criteria to refer
the degree of uncertainty that the future economic benefits associated with the item will flow to or
from the entity.
RELIABILITY OF MEASUREMENTS
[Conceptual Framework, 4.41] The second criterion for the recognition of an item is that it possesses
a cost or value that can be measured with reliability. In many cases cost or value must be estimated;
the use of reasonable estimates is an essential part of the preparation of financial statements.
3.1. ASSETS RECOGNITION
[Conceptual Framework, 4.44]An asset is recognised in the balance sheet when it is probable that
the future economic benefits will flow to the entity and the asset has a cost or value that can be
measured reliably.
3.2. LIABILITIES RECOGNITION
[Conceptual Framework, 4.46] A liability is recognised in balance sheet when it is probable that an
outflow of resources embodying economic benefits will result from the settlement of a present
obligation and the amount at which the settlement will take place can be measured reliably. In
practice, obligations under contracts that are equally proportionately unperformed (for example
liabilities for inventory ordered but not received) are generally recognised as liabilities in financial
statements.
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4. METHODS OF MEASUREMENTS
[Conceptual Framework, 4.54]Measurement is the process of determining the monetary amounts at
which the elements of financial statements are to be recognised and carried in the balance sheet and
income statement.
4.1. HISTORICAL COST
Assets are recorded at the amount of cash or cash equivalents paid or the fair value of the
consideration given to acquire them at the time of their acquisition. Liabilities are recorded at the
amount of proceeds received in exchange of the obligation or in some circumstances at the amounts
of cash or cash equivalents expected to be paid to satisfy the liability i the normal course of business.
4.2. CURRENT COST
Assets are carried at the amount of cash or cash equivalents that would have to be paid if the same
or an equivalent asset was acquired currently. Liabilities are carried at the undiscounted amount of
cash or cash equivalents that would be required to settle the obligation currently.
4.3. REALISABLE (SETTLEMENT ) VALUE
Assets are carried at the amount of cash or cash equivalents that could currently be obtained by
selling the assets in an orderly disposal. Liabilities are carried at their settlement value; that is, the
undiscounted amounts of cash equivalents expected to be paid to satisfy the liabilities in the normal
course of business.
4.4. P RESENT VALUE
Assets are carried at the present discounted value of the future net cash inflows that the item is
expected to generate in the normal course of business. Liabilities are carried at the present
discounted value of the future net cash outflows that are expected to be required to settle the
liabilities in the normal course of business.
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5. MEASUREMENTS AT THE BALANCE SHEET DATE
5.1. THE COST OF ACQUISITION
5.1.1. THE ACCOUNTING ACT
The cost of acquisition is a purchase price of an asset, including an amount due to seller,
excluding recoverable value added tax and excise duty, plus (in case of import) relevant taxes
and duties, plus costs directly attributable to the purchase and bringing an assets to trade,
including expenses relating to transport, loading and unloading, storage, bringing an assets to
trade, less any rebates, discounts or similar items and recovered amounts.
5.1.2. IFRS (IAS2)
The costs of purchase of inventories comprise the purchase price, import duties and other taxes
(other than those subsequently recoverable by the entity from the taxing authorities), and
transport, handling and other costs directly attributable to the acquisition of finished goods,
materials and services. Trade discounts, rebates and other similar items are deducted in
determining the costs of purchase.
5.2. THE COST OF MANUFACTURE
5.2.1. THE ACCOUNTING ACT
The cost of manufacture of a finished product is comprised of costs directly attributable to a
given finished product as well as a justified portion of costs indirectly attributable to
manufacture of the product. Cost of direct materials used include cost of direct materials used,
costs of obtaining and processing materials directly attributable to the manufacture, and other
costs incurred in bringing a finished product to its condition and location as at the measurement
date. A justified portion of indirect costs, relevant to the period of manufacture of finished
product, includes variable indirect production costs and this portion of fixed , indirect
production costs which represent the level of these costs at the normal utilization of production
capacity.
The cost of manufacture of a finished product does not include the following costs:

Which result from underutilization of production capacity and production losses

Administrative expenses which are not related to bringing a finished product to its
condition and location as at the measurement date

Cost of storing finished goods and semi-finished goods, unless such costs are required
during production process

Selling costs of finished goods
These costs are recognised in the financial result of reporting period in which they were incurred.
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5.2.2. IFRS (IAS)
The costs of conversion of inventories include costs directly related to the units of production,
such as direct labour. They also include a systematic allocation of fixed and variable production
overheads that are incurred in converting materials into finished goods. Fixed production
overheads are those indirect costs of production that remain relatively constant regardless of the
volume of production, such as depreciation and maintenance of factory buildings and
equipment, and the cost of factory management and administration. Variable production
overheads are those indirect costs of production that vary directly, or nearly directly, with the
volume of production, such as indirect materials and indirect labour.
The allocation of fixed production overheads to the costs of conversion is based on the normal
capacity of the production facilities. Normal capacity is the production expected to be achieved
on average over a number of periods or seasons under normal circumstances, taking into account
the loss of capacity resulting from planned maintenance. The actual level of production may be
used if it approximates normal capacity. The amount of fixed overhead allocated to each unit of
production is not increased as a consequence of low production or idle plant. Unallocated
overheads are recognised as an expense in the period in which they are incurred. In periods of
abnormally high production, the amount of fixed overhead allocated to each unit of production
is decreased so that inventories are not measured above cost. Variable production overheads are
allocated to each unit of production on the basis of the actual use of the production facilities.
Other costs are included in the cost of inventories only to the extent that they are incurred in
bringing the inventories to their present location and condition. For example, it may be
appropriate to include non-production overheads or the costs of designing products for specific
customers in the cost of inventories.
Examples of costs excluded from the cost of inventories and recognised as expenses in the
period in which they are incurred are:
(a) abnormal amounts of wasted materials, labour or other production costs;
(b) storage costs, unless those costs are necessary in the production process before a further
production stage;
(c) administrative overheads that do not contribute to bringing inventories to their present
location and condition; and
(d) selling costs.
5.3. NETT SELLING PRICE
5.3.1. THE ACCOUNTING ACT
The net selling price of an asset is its estimated selling price as at the balance sheet date, net of
value added taxes and excise duty less any rebates, discounts and similar items, and the cost
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related to prepare such asset for sale and making the sale. If it is not possible to determine the
net selling price of a given asset, its fair value as at balance sheet date should be determined in
a different manner.
5.3.2. IFRS (IAS 2)
Net realisable value is the estimated selling price in the ordinary course of business less the
estimated costs of completion and the estimated costs necessary to make the sale.
5.4. THE FAIR VALUE
5.4.1. THE ACCOUNTING ACT
The fair value is an amount for which a given asset could be exchanged, and liability settled in
transaction between willing, well-informed and non-related parties. The fair value of financial
instruments traded on an active market is their market price, less transaction costs, if they are
significant.
5.4.2. IFRS (IAS 2)
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date.
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6. CURRENT/NON-CURRENT DISTINCTION
6.1. THE ACCOUNTING ACT
Whenever The Accounting Act refers to non-current assets, it means the entity’s assets which are
not classified as current assets.
Whenever The Accounting Act refers to current assets, it means this part of the entity’s assets which:

In case of tangible assets - are held for sale or consumption within 12 months from the
balance sheet date or in the course of a normal operating cycle characteristic to a given type
of operation, if such a cycle lasts longer than 12 months

In the case of financial assets - are payable and mature or held for sale within 12 months
from the balance sheet date or the date of their issue or acquisition, or if they are monetary
assets.

In the case of short-term receivables - comprise all trade receivables and the whole or a
part of other receivables not classified to financial assets that mature within 12 months from
balance sheet date

In the case of prepaid, accrued and differed items – are settled over a period no longer than
12 months from the balance sheet date.
Whenever The Accounting Act refers to short-term liabilities, it means all trade payables as well as
the whole or a part of other liabilities which mature within 12 months from the balance sheet date.
6.2. IFRS (IAS)
An entity shall classify an asset as current when:
(a) it expects to realise the asset, or intends to sell or consume it, in its normal operating cycle;
(b) it holds the asset primarily for the purpose of trading;
(c) it expects to realise the asset within twelve months after the reporting period; or
(d) the asset is cash or a cash equivalent (as defined in IAS 7) unless the asset is restricted from
being exchanged or used to settle a liability for at least twelve months after the reporting period.
An entity shall classify all other assets as non-current.
An entity shall classify a liability as current when:
(a) it expects to settle the liability in its normal operating cycle;
(b) it holds the liability primarily for the purpose of trading;
(c) the liability is due to be settled within twelve months after the reporting period; or
(d) it does not have an unconditional right to defer settlement of the liability for at least twelve
months after the reporting period (see paragraph 73). Terms of a liability that could, at the option of
the counterparty, result in its settlement by the issue of equity instruments do not affect its
classification.
An entity shall classify all other liabilities as non-current.
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The operating cycle of an entity is the time between the acquisition of assets for processing and their
realisation in cash or cash equivalents. When the entity's normal operating cycle is not clearly
identifiable, it is assumed to be 12 months. Current assets include assets (such as inventories and trade
receivables) that are sold, consumed or realised as part of the normal operating cycle even when they
are not expected to be realised within 12 months after the reporting period. Current assets also include
assets held primarily for the purpose of trading (examples include some financial assets classified as
held for trading in accordance with IAS 39) and the current portion of non-current financial assets.
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7. INTANGIBLE ASSETS
The Accounting Act
Whenever The Accounting Act refers to intangible assets, it means property rights acquired by an entity,
classified as non-current assets, suitable for business use, with expected economical useful lives
exceeding one year, which are intended to be used by the entity, in particular:

Copyrights and similar rights, licences, concessions

Rights to inventions, patents, trademarks, designs and decorative patterns

Know-how
Acquired goodwill and costs of completed development projects shall also be classified as intangible
assets.
IFRS (IAS)
Entities frequently expend resources, or incur liabilities, on the acquisition, development, maintenance
or enhancement of intangible resources such as scientific or technical knowledge, design and
implementation of new processes or systems, licences, intellectual property, market knowledge and
trademarks (including brand names and publishing titles). Common examples of items encompassed by
these broad headings are computer software, patents, copyrights, motion picture films, customer lists,
mortgage servicing rights, fishing licences, import quotas, franchises, customer or supplier relationships,
customer loyalty, market share and marketing rights.
Not all the items described in paragraph 9 meet the definition of an intangible asset, i.e. identifiability,
control over a resource and existence of future economic benefits. If an item within the scope of this
standard does not meet the definition of an intangible asset, expenditure to acquire it or generate it
internally is recognised as an expense when it is incurred. However, if the item is acquired in a business
combination, it forms part of the goodwill recognised at the acquisition date.
Identifiability
The definition of an intangible asset requires an intangible asset to be identifiable to distinguish it from
goodwill. Goodwill recognised in a business combination is an asset representing the future economic
benefits arising from other assets acquired in a business combination that are not individually identified
and separately recognised. The future economic benefits may result from synergy between the
identifiable assets acquired or from assets that, individually, do not qualify for recognition in the
financial statements.
An asset is identifiable if it either:
(a) is separable, ie is capable of being separated or divided from the entity and sold, transferred, licensed,
rented or exchanged, either individually or together with a related contract, identifiable asset or liability,
regardless of whether the entity intends to do so; or
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(b) arises from contractual or other legal rights, regardless of whether those rights are transferable or
separable from the entity or from other rights and obligations.
Control
An entity controls an asset if the entity has the power to obtain the future economic benefits flowing
from the underlying resource and to restrict the access of others to those benefits. The capacity of an
entity to control the future economic benefits from an intangible asset would normally stem from legal
rights that are enforceable in a court of law. In the absence of legal rights, it is more difficult to
demonstrate control. However, legal enforceability of a right is not a necessary condition for control
because an entity may be able to control the future economic benefits in some other way.
An entity may have a team of skilled staff and may be able to identify incremental staff skills leading to
future economic benefits from training. The entity may also expect that the staff will continue to make
their skills available to the entity. However, an entity usually has insufficient control over the expected
future economic benefits arising from a team of skilled staff and from training for these items to meet
the definition of an intangible asset. For a similar reason, specific management or technical talent is
unlikely to meet the definition of an intangible asset, unless it is protected by legal rights to use it and
to obtain the future economic benefits expected from it, and it also meets the other parts of the definition.
7.1. INTERNALLY GENERATED INTANGIBLE ASSETS
7.1.1. DEFINITION
The Accounting Act
There is no definition of development projects and research projects.
IFRS (IAS)
It is sometimes difficult to assess whether an internally generated intangible asset qualifies for
recognition because of problems in:
(a) identifying whether and when there is an identifiable asset that will generate expected future
economic benefits; and
(b) determining the cost of the asset reliably
To assess whether an internally generated intangible asset meets the criteria for recognition, an
entity classifies the generation of the asset into:
(a) a research phase; and
(b) a development phase.
Although the terms ‘research’ and ‘development’ are defined, the terms ‘research phase’ and
‘development phase’ have a broader meaning for the purpose of this standard.
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Research phase
No intangible asset arising from research (or from the research phase of an internal project) shall
be recognised. Expenditure on research (or on the research phase of an internal project) shall be
recognised as an expense when it is incurred.
55 In the research phase of an internal project, an entity cannot demonstrate that an intangible
asset exists that will generate probable future economic benefits. Therefore, this expenditure is
recognised as an expense when it is incurred.
56 Examples of research activities are:
(a) activities aimed at obtaining new knowledge;
(b) the search for, evaluation and final selection of, applications of research findings or other
knowledge;
(c) the search for alternatives for materials, devices, products, processes, systems or services;
and
(d) the formulation, design, evaluation and final selection of possible alternatives for new or
improved materials, devices, products, processes, systems or services.
Development phase
An intangible asset arising from development (or from the development phase of an internal
project) shall be recognised if, and only if, an entity can demonstrate all of the following:
(a) the technical feasibility of completing the intangible asset so that it will be available for use
or sale;
(b) its intention to complete the intangible asset and use or sell it;
(c) its ability to use or sell the intangible asset;
(d) how the intangible asset will generate probable future economic benefits. Among other
things, the entity can demonstrate the existence of a market for the output of the intangible asset
or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset;
(e) the availability of adequate technical, financial and other resources to complete the
development and to use or sell the intangible asset;
(f) its ability to measure reliably the expenditure attributable to the intangible asset during its
development.
Examples of development activities are:
(a) the design, construction and testing of pre-production or pre-use prototypes and models;
(b) the design of tools, jigs, moulds and dies involving new technology;
(c) the design, construction and operation of a pilot plant that is not of a scale economically
feasible for commercial production; and
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(d) the design, construction and testing of a chosen alternative for new or improved materials,
devices, products, processes, systems or services.
7.1.2. MEASUREMENTS
The Accounting Act
An intangible asset shall be measured initially at cost.
The initial cost is decreased by deprecation charges which reflect the impairment of the
intangible asset caused by usage or passage of time.
The initial cost can not be increased by cost of improvement being modernization, expansion,
reconstruction.
IFRS (IAS)
An intangible asset shall be measured initially at cost.
The cost of an internally generated intangible asset for the purpose of paragraph 24 is the sum
of expenditure incurred from the date when the intangible asset first meets the recognition
criteria in paragraphs 21, 22 and 57. Paragraph 71 prohibits reinstatement of expenditure
previously recognised as an expense.
The cost of an internally generated intangible asset comprises all directly attributable costs
necessary to create, produce, and prepare the asset to be capable of operating in the manner
intended by management. Examples of directly attributable costs are:
(a) costs of materials and services used or consumed in generating the intangible asset;
(b) costs of employee benefits (as defined in IAS 19) arising from the generation of the
intangible asset;
(c) fees to register a legal right; and
(d) amortisation of patents and licences that are used to generate the intangible asset.
IAS 23 specifies criteria for the recognition of interest as an element of the cost of an internally
generated intangible asset.
The following are not components of the cost of an internally generated intangible asset:
(a) selling, administrative and other general overhead expenditure unless this expenditure can
be directly attributed to preparing the asset for use;
(b) identified inefficiencies and initial operating losses incurred before the asset achieves
planned performance; and
(c) expenditure on training staff to operate the asset.
7.1.3. RECOGNITION
The Accounting Act
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Costs of a completed development projects, carried out by an entity for its own needs and
incurred before the commencement of production or implementation of a technology, are
recognised as intangible assets if:

A given product or production technology is clearly defined, and related development
cost are reliably measured

The technological usefulness of a product or technology has been determined and
properly documented, and on this basis an entity has decided to manufacture these
products or implement the technology

It is expected that development costs will be covered with the revenue from the sales of
these products or implementation of the technology.
Development costs shall be amortized over a period no longer than 5 years.
IFRS (IAS)
The recognition of an item as an intangible asset requires an entity to demonstrate that the item
meets:
(a) the definition of an intangible asset; and
(b) the recognition criteria
An intangible asset shall be recognised if, and only if:
(a) it is probable that the expected future economic benefits that are attributable to the asset will
flow to the entity; and
(b) the cost of the asset can be measured reliably.
The nature of intangible assets is such that, in many cases, there are no additions to such an asset
or replacements of part of it. Accordingly, most subsequent expenditures are likely to maintain
the expected future economic benefits embodied in an existing intangible asset rather than meet
the definition of an intangible asset and the recognition criteria in this standard. In addition, it is
often difficult to attribute subsequent expenditure directly to a particular intangible asset rather
than to the business as a whole.
7.2. GOODWILL
7.2.1. DEFINITIONS
The Accounting Act
A surplus of the acquisition cost over the fair value of the acquiree’s net assets shall be presented
as goodwill in the assets of the company to which the assets were transferred.
IFRS (IAS)
18
An asset representing the future economic benefits arising from other assets acquired In a
business combination that are not individually identified and separately recognised.
7.2.2. MEASUREMENTS
The Accounting Act
An entity writes down a goodwill for a period not longer than 5 years. In justified cases, the
head of the unit can extend this period to 20 years .
IFRS (IAS)
Goodwill arising in a business combination is measured as the excess of (a) over (b) below:
(a) the aggregate of:
(i) the consideration transferred measured in accordance with IFRS 3, which generally
requires acquisition-date fair value;
(ii) the amount of any non-controlling interest in the acquiree recognised in accordance
with IFRS 3; and
(iii) in a business combination achieved in stages, the acquisition-date fair value of the
acquirer's previously held equity interest in the acquiree.
(b) the net of the acquisition-date amounts of the identifiable assets acquired and liabilities
assumed measured in accordance with IFRS 3.
7.2.3. RECOGNITION
The Accounting Act
The recognition of an item as an intangible asset requires an entity to demonstrate that the item
meets:
(a) the definition of an intangible asset; and
(b) the recognition criteria
An intangible asset shall be recognised if, and only if:
(a) it is probable that the expected future economic benefits that are attributable to the asset will
flow to the entity; and
(b) the value of the asset can be measured reliably.
IFRS (IAS)
The recognition of an item as an intangible asset requires an entity to demonstrate that the item
meets:
(a) the definition of an intangible asset; and
(b) the recognition criteria
19
An intangible asset shall be recognised if, and only if:
(a) it is probable that the expected future economic benefits that are attributable to the asset will
flow to the entity; and
(b) the value of the asset can be measured reliably.
7.3. OTHER INTANGIBLE ASSETS
7.3.1. DEFINITIONS
The Accounting Act
Whenever The Accounting Act refers to intangible assets, it means property rights acquired by
an entity, classified as non-current assets, suitable for business use, with expected economical
useful lives exceeding one year, which are intended to be used by the entity, in particular:

Copyrights and similar rights, licences, concessions

Rights to inventions, patents, trademarks, designs and decorative patterns

Know-how
IFRS (IAS)
Entities frequently expend resources, or incur liabilities, on the acquisition, development,
maintenance or enhancement of intangible resources such as scientific or technical knowledge,
design and implementation of new processes or systems, licences, intellectual property, market
knowledge and trademarks (including brand names and publishing titles)
7.3.2. MEASUREMENTS
The Accounting Act
An intangible asset shall be measured initially at cost.
The initial cost is decreased by deprecation charges which reflect the impairment of the
intangible asset caused by usage or passage of time.
The initial cost can not be increased by cost of improvement being modernization, expansion,
reconstruction.
Amortisation shall begin when the asset is available for use, i.e. when it is in the location and
condition necessary for it to be capable of operating in the manner intended by management.
Depreciation shall cease when accumulated depreciation equals the initial cost or the item is
classified as held for sale.
To determine a depreciation period and an annual depreciation rate, the economic useful life of
the item is taken into account.
7.3.3. RECOGNITION
20
The Accounting Act
The recognition of an item as an intangible asset requires an entity to demonstrate that the item
meets:
(a) the definition of an intangible asset; and
(b) the recognition criteria
An intangible asset shall be recognised if, and only if:
(a) it is probable that the expected future economic benefits that are attributable to the asset will
flow to the entity; and
(b) the value of the asset can be measured reliably.
21
8. TANGIBLE FIXED ASSETS
8.1. P ROPERTY, PLANT AND EQUIPMENT
8.1.1. DEFINITIONS
Whenever The Accounting Act refers to property, plant and equipment, it means tangible noncurrent assets and their equivalents, with expected useful lives exceeding one year, that are
complete, usable, and intended for the entity’s own use. They include in particular:

Real property, including land, rights to perpetual usufruct of land, structures and
buildings, as well as premises to which an entity has a separate title of ownership, cooperative title of ownership to an apartment and co-operative title of ownership to a
business premises

Machinery, equipment, vehicles and other items

Leasehold improvements

Livestocks
The items of property, plant and equipment used under a rent, lease or similar agreement are
recognised as non-current assets of one party to the agreement (the lessee) if the agreement
meets at least one of the following conditions:

It transfers the title of ownership to the assets to the lessee after the end of the term of
the agreement

It provides the lessee with the option to purchase the assets after the end of the term of
the agreement for a price which is lower than the market price as at the purchase date

The term of the agreement covers the major part of the expected economic useful life
of the asset or property right, but may not be less than three quarters of that period. The
title of ownership may be transferred to the lessee after the end of the term of the
agreement

The total lease payments, net of the related discount, determined as at the agreement
date and due over the term of the agreement, exceed 90% of the market price of the
leases asset as at that date.

It includes the lessor’s commitment to conclude with the lessee a subsequent lease
agreement for granting the use of the same asset in exchange for payment, or to extend
the existing agreement under more favourable conditions than those specified in the
existing agreement

Provides for an option to terminate the agreement, provided that any related costs and
losses incurred by the lessor are covered by the lessee

The leased asset is tailored to the individual needs of the lessee. The leased asset may
be used only by the lessee, without making significant modifications to it.
22
8.1.2. MEASUREMENTS
The Accounting Act
The property, plant and equipment are measured at their costs.
The initial cost represented by cost of acquisition or manufacture of an item of property, plant
and equipment is increased by costs of improvement being
restructuring, expansion,
modernisation or reconstruction which result in an asset’s usefulness after the improvement
being higher than the usefulness at the time when it was commissioned. The usefulness is
measured in terms of a useful life, productivity, quality of products manufactured with the use
of an item of property, plant and equipment, operating expenses or other criteria.
The initial cost of property, plant and equipment, except for land other than an open pit, is
decreased by depreciation charges which reflect the impairment of the property, plant and
equipment caused by usage or the passage of time.
An item of property, plant and equipment is depreciated by systematic, scheduled allocation of
its initial cost over a specific depreciation period. Depreciation shall start no earlier than an asset
has been commissioned for use, and depreciation shall end no later than when accumulated
depreciation equals the initial cost of the item of property, plant and equipment with taking into
account the expected net selling price of the remains of the item.
While determining a depreciation period and an annual depreciation rate, the economic useful
life of a given item of property, plant and equipment is taken into account. An economic useful
life depends on the following:

The number of shifts during which an item of property, plant and equipment is used

The pace of technological and economic progress

The productivity of an item of property, plant and equipment, measured with the number
of work hours or number of finished goods produced, or on the basis of another suitable
measure

Legal or other limitation of the time for which an item of property, plant and equipment
may be used

The expected net selling price of property, plant and equipment – residual value
In the event of change of production technology, withdrawal from use or other reasons which
gave rise to a permanent impairment of such an item of property, plant and equipment – a writedown is recognised as other operating cost.
In the case of property, plant and equipment with law unit initial cost, depreciation may be
recognised in a simplified way, by making summary depreciation charges for aggregated groups
23
of property, plant and equipment which are similar intype and application, or by recognising the
cost of such assets as a one-off cost.
In circumstations justified by the necessary long-term preparation, the cost of manufacture or
acquisition may be increased by the cost of servicing liabilities and by related foreign exchange
differences, less related revenues.
IFRS (IAS)
An item of property, plant and equipment that qualifies for recognition as an asset shall be
measured at its cost.
The cost of an item of property, plant and equipment comprises:
(a) its purchase price, including import duties and non-refundable purchase taxes, after
deducting trade discounts and rebates;
(b) any costs directly attributable to bringing the asset to the location and condition necessary
for it to be capable of operating in the manner intended by management;
(c) the initial estimate of the costs of dismantling and removing the item and restoring the site
on which it is located, the obligation for which an entity incurs either when the item is acquired
or as a consequence of having used the item during a particular period for purposes other than
to produce inventories during that period.
Examples of directly attributable costs are:
(a) costs of employee benefits (as defined in IAS 19 Employee benefits) arising directly from
the construction or acquisition of the item of property, plant and equipment;
(b) costs of site preparation;
(c) initial delivery and handling costs;
(d) installation and assembly costs;
(e) costs of testing whether the asset is functioning properly, after deducting the net proceeds
from selling any items produced while bringing the asset to that location and condition (such as
samples produced when testing equipment); and
(f) professional fees.
Examples of costs that are not costs of an item of property, plant and equipment are:
(a) costs of opening a new facility;
(b) costs of introducing a new product or service (including costs of advertising and promotional
activities);
(c) costs of conducting business in a new location or with a new class of customer (including
costs of staff training); and
24
(d) administration and other general overhead costs.
The depreciable amount of an asset shall be allocated on a systematic basis over its useful life.
The depreciable amount of an asset is determined after deducting its residual value. In practice,
the residual value of an asset is often insignificant and therefore immaterial in the calculation of
the depreciable amount.
The future economic benefits embodied in an asset are consumed by an entity principally
through its use. However, other factors, such as technical or commercial obsolescence and wear
and tear while an asset remains idle, often result in the diminution of the economic benefits that
might have been obtained from the asset. Consequently, all the following factors are considered
in determining the useful life of an asset:
(a) expected usage of the asset. Usage is assessed by reference to the asset's expected capacity
or physical output;
(b) expected physical wear and tear, which depends on operational factors such as the number
of shifts for which the asset is to be used and the repair and maintenance programme, and the
care and maintenance of the asset while idle;
(c) technical or commercial obsolescence arising from changes or improvements in production,
or from a change in the market demand for the product or service output of the asset;
(d) legal or similar limits on the use of the asset, such as the expiry dates of related leases.
8.1.3. RECOGNITION
The cost of an item of property, plant and equipment shall be recognised as an asset if, and only
if:
(a) it is probable that future economic benefits associated with the item will flow to the entity;
and
(b) the cost of the item can be measured reliably
(c) the item of property, plant and equipment i complete and for operating use.
8.2. F IXED ASSETS UNDER CONSTRUCTION
8.2.1. DEFINITIONS
Whenever The Accounting Act refers to fixed assets under construction it means tangible noncurrent assets and their equivalents which are not complete and can not be used by the entity
yet. If the process of construction tangible assets is finished and they expected useful lives
exceed one year, and they are complete, usable, and intended for the entity’s own use, costs of
construction is recognised as tangible assets – property, plant or equipment.
8.2.2. MEASUREMENTS
25
The cost of an item of property, plant and equipment under construction comprises:
(a) its purchase price, including import duties and non-refundable purchase taxes, after
deducting trade discounts and rebates;
(b) any costs directly attributable to bringing the asset to the location and condition necessary
for it to be capable of operating in the manner intended by management;
(c) the initial estimate of the costs of dismantling and removing the item and restoring the site
on which it is located, the obligation for which an entity incurs either when the item is acquired
or as a consequence of having used the item during a particular period for purposes other than
to produce inventories during that period.
8.2.3. RECOGNITION
The cost of an item of property, plant and equipment under construction shall be recognised as
an asset if, and only if:
(a) it is probable that future economic benefits associated with the item (when the asset is
complete) will flow to the entity; and
(b) the cost of the item can be measured reliably
8.3. LONG-TERM INVESTMENTS
8.3.1. DEFINITIONS
Whenever The Accounting Act refers to investments, it means assets acquired in order to derive
economic benefits resulting from an increase in the value of these assets, generation of income
in the form of interests, dividends (participation in profits) or other rewards, including rewards
from a commercial transaction, in particular financial assets and those real property and
intangible assets which are not used by the entity but which have been acquired to derive such
benefits.
Long-term investments are those investments, which are not classified as short-term
investments. The entity does not intend to sell or consume investments within 12 months from
the balance sheet date and in the case of financial assets, they are not payable within 12 months
from the balance sheet date.
8.3.2. MEASUREMENTS
The initial value of investments comprises its purchase price.
Real estate and intangible assets classified as investments are measured at least as at balance
sheet date according to the rules applicable to fixed assets and intangible assets in Art. 31
(improvements increase the value of investment, depreciation decreases the value of
investments ), Art. 32 paragraph . 1-5 (depreciation of tangible assets) and Art. 33 paragraph .
26
1 (measurement of intangible assets) or according to the market price or otherwise determined
fair value.
Shares in other entities and other investments (except investments in real estate and intangible
assets) classified as non-current assets - at the purchase price less permanent impairment losses
or at fair value or adjusted purchase price.
If the asset has been defined maturity, the value of the purchase price can be overestimated to
the value in the market price , and the difference from the revaluation accounted for in
accordance with Art. 35 paragraph . 4.
The effects of revaluation of investments classified as non-current to their market prices are
credited to the revaluation reserve in equity. A decrease in the value, which offsets a surplus for
the same investment previously credited to the revaluation reserve in equity is debited to the
revaluation reserve in equity. In other cases a decrease in the value of investments are recognized
as financial costs. An increase of valuation of investment directly related to a previous decrease
which was recognized as financial costs, is recognized as financial income to the extent in which
it offsets the previous recognized financial income.
8.3.3. RECOGNITION
The recognition of an item as an long-term investment requires an entity to demonstrate that the
item meets:
(a) the definition of an investment; and
(b) the recognition criteria
An investment shall be recognised if, and only if:
(a) it is probable that the expected future economic benefits that are attributable to the asset will
flow to the entity; and
(b) the value of the asset can be measured reliably.
8.4. DIFFERED INCOME TAX (ASSETS AND LIABILITIES)
The mail objective of differed income tax (recognized in assets and liabilities) is to prescribe
accounting treatment for income tax.
In general, The Accounting Act has adopted regulations from IFRS (IAS).
8.4.1. DEFINITIONS
Accounting profit is profit or loss for a period before deducting tax expense.
Taxable profit (tax loss) is the profit (loss) for a period, determined in accordance with the rules
established by the taxation authorities, upon which income taxes are payable (recoverable).
27
Tax expense (tax income) is the aggregate amount included in the determination of profit or loss
for the period in respect of current tax and deferred tax.
Current tax is the amount of income taxes payable (recoverable) in respect of the taxable profit
(tax loss) for a period.
Deferred tax liabilities are the amounts of income taxes payable in future periods in respect of
taxable temporary differences.
Deferred tax assets are the amounts of income taxes recoverable in future periods in respect of:
(a) deductible temporary differences;
(b) the carryforward of unused tax losses; and
(c) the carryforward of unused tax credits.
Temporary differences are differences between the carrying amount of an asset or liability in
the statement of financial position and its tax base. Temporary differences may be either:
(a) taxable temporary differences, which are temporary differences that will result in taxable
amounts in determining taxable profit (tax loss) of future periods when the carrying amount of
the asset or liability is recovered or settled; or
(b) deductible temporary differences, which are temporary differences that will result in
amounts that are deductible in determining taxable profit (tax loss) of future periods when the
carrying amount of the asset or liability is recovered or settled.
The tax base of an asset or liability is the amount attributed to that asset or liability for tax
purposes.
Tax expense (tax income) comprises current tax expense (current tax income) and deferred tax
expense (deferred tax income).
The tax base of an asset is the amount that will be deductible for tax purposes against any taxable
economic benefits that will flow to an entity when it recovers the carrying amount of the asset.
If those economic benefits will not be taxable, the tax base of the asset is equal to its carrying
amount.
The tax base of a liability is its carrying amount, less any amount that will be deductible for tax
purposes in respect of that liability in future periods. In the case of revenue which is received in
advance, the tax base of the resulting liability is its carrying amount, less any amount of the
revenue that will not be taxable in future periods.
8.4.2. MEASUREMENTS
28
Current tax liabilities (assets) for the current and prior periods shall be measured at the amount
expected to be paid to (recovered from) the taxation authorities, using the tax rates (and tax
laws) that have been enacted or substantively enacted by the end of the reporting period.
Deferred tax assets and liabilities shall be measured at the tax rates that are expected to apply to
the period when the asset is realised or the liability is settled, based on tax rates (and tax laws)
that have been enacted or substantively enacted by the end of the reporting period.
8.4.3. RECOGNITION
It is inherent in the recognition of an asset that its carrying amount will be recovered in the
form of economic benefits that flow to the entity in future periods. When the carrying amount
of the asset exceeds its tax base, the amount of taxable economic benefits will exceed the
amount that will be allowed as a deduction for tax purposes. This difference is a taxable
temporary difference and the obligation to pay the resulting income taxes in future periods is a
deferred tax liability. As the entity recovers the carrying amount of the asset, the taxable
temporary difference will reverse and the entity will have taxable profit. This makes it probable
that economic benefits will flow from the entity in the form of tax payments. Therefore, it
requires the recognition of all deferred tax liabilities.
29
9. CURRENT ASSETS
10. INVENTORIES
10.1.
DEFINITIONS
The Accounting Act
Whenever The Accounting Act refers to tangible current assets, it means materials acquired for
the entity’s own use, finished goods (products and services) manufactured or processed by an
entity which are ready for sale or work in progress, semi-finished goods and goods acquired for
resale in an unprocessed form.
IFRS (IAS)
Inventories are assets:
(a) held for sale in the ordinary course of business;
(b) in the process of production for such sale; or
(c) in the form of materials or supplies to be consumed in the production process or in the
rendering of services.
10.2.
MEASUREMENTS
Inventories shall be measured at the lower of cost and net realisable value.
Net realisable value is the estimated selling price in the ordinary course of business less the
estimated costs of completion and the estimated costs necessary to make the sale.
The cost of inventories shall comprise all costs of purchase, costs of conversion and other costs
incurred in bringing the inventories to their present location and condition.
The costs of purchase of inventories comprise the purchase price, import duties and other taxes
(other than those subsequently recoverable by the entity from the taxing authorities), and
transport, handling and other costs directly attributable to the acquisition of finished goods,
materials and services. Trade discounts, rebates and other similar items are deducted in
determining the costs of purchase.
The costs of conversion of inventories include costs directly related to the units of production,
such as direct labour. They also include a systematic allocation of fixed and variable production
overheads that are incurred in converting materials into finished goods. Fixed production
overheads are those indirect costs of production that remain relatively constant regardless of the
volume of production, such as depreciation and maintenance of factory buildings and
equipment, and the cost of factory management and administration. Variable production
overheads are those indirect costs of production that vary directly, or nearly directly, with the
volume of production, such as indirect materials and indirect labour.
30
The allocation of fixed production overheads to the costs of conversion is based on the normal
capacity of the production facilities. Normal capacity is the production expected to be achieved
on average over a number of periods or seasons under normal circumstances, taking into account
the loss of capacity resulting from planned maintenance. The actual level of production may be
used if it approximates normal capacity. The amount of fixed overhead allocated to each unit of
production is not increased as a consequence of low production or idle plant. Unallocated
overheads are recognised as an expense in the period in which they are incurred. In periods of
abnormally high production, the amount of fixed overhead allocated to each unit of production
is decreased so that inventories are not measured above cost. Variable production overheads are
allocated to each unit of production on the basis of the actual use of the production facilities.
A production process may result in more than one product being produced simultaneously. This
is the case, for example, when joint products are produced or when there is a main product and
a by-product. When the costs of conversion of each product are not separately identifiable, they
are allocated between the products on a rational and consistent basis. The allocation may be
based, for example, on the relative sales value of each product either at the stage in the
production process when the products become separately identifiable, or at the completion of
production.
Other costs are included in the cost of inventories only to the extent that they are incurred in
bringing the inventories to their present location and condition. For example, it may be
appropriate to include non-production overheads or the costs of designing products for specific
customers in the cost of inventories.
Examples of costs excluded from the cost of inventories and recognised as expenses in the
period in which they are incurred are:
(a) abnormal amounts of wasted materials, labour or other production costs;
(b) storage costs, unless those costs are necessary in the production process before a further
production stage;
(c) administrative overheads that do not contribute to bringing inventories to their present
location and condition; and
(d) selling costs.
In long-term process of production or long-term assets preparation for resale cost of purchase
or conversion may be increases by borrowing costs, related foreign exchange differences, less
related revenue.
According the Accounting Act if borrowing costs are included in purchase price, inventories
are recognized in purchase price (interests included in purchase price are not recognized as
financial costs).
31
On the contrast in IFRS (IAS) regulations an entity may purchase inventories on deferred
settlement terms. When the arrangement effectively contains a financing element, that element,
for example a difference between the purchase price for normal credit terms and the amount
paid, is recognised as interest expense over the period of the financing.
The Accounting Act allows to apply simplifications in measurements of inventories. Entities
may measure:

Materials and goods for resale – at purchase price (without costs incurred in bringing
the inventories to their present location and condition)

Work in progress – at costs directly related to the units of production (without
overheads), costs of materials used only, it may be not measured at all.
The simplification may not distort financial position and financial result of the entity.
Tangible current assets may be recognized in the books of accounts as at their acquisition or
manufacture date at the register price adopted in accounting records, taking into account the
differences between these prices and the actual cost of their acquisition or purchase.
The cost of inventories that are interchangeable shall be assign by using:

Weighted average cost formula,

FIFO – the first in, first out,

LIFO – the last in, first out,

Specific identification of their individual cost.
The IFRS (IAS) does not allow to use LIFO cost formula.
10.3.
RECOGNITION
Inventories are recognized in balance sheet at the lower of cost and net realisable value.
When inventories are sold, the carrying amount of those inventories shall be recognised as an
expense in the period in which the related revenue is recognised. The amount of any writedown of inventories to net realisable value and all losses of inventories shall be recognised as
an expense in the period the write-down or loss occurs.
32
11. RECEIVABLES
11.1.
DEFINITIONS
Whenever The Accounting Act refers to short term receivables, comprise all trade receivables
and the whole or a part of other receivables not classified to financial assets that mature within
12 months from the balance sheet date.
11.2.
MEASUREMENTS
Receivables and loans are measured in the amount due, with taking into account the prudence
principle.
Receivables and loans classified as financial assets , may be valued at amortized cost, and if the
company intends to sell them within a period of three months, according to market value or fair
value otherwise specified.
The amortised cost of a financial asset or financial liability is the amount at which the financial
asset or financial liability is measured at initial recognition minus principal repayments, plus or
minus the cumulative amortisation using the effective interest method of any difference between
that initial amount and the maturity amount, and minus any reduction (directly or through the
use of an allowance account) for impairment or uncollectability.
The effective interest method is a method of calculating the amortised cost of a financial asset
or a financial liability (or group of financial assets or financial liabilities) and of allocating the
interest income or interest expense over the relevant period. The effective interest rate is the rate
that exactly discounts estimated future cash payments or receipts through the expected life of
the financial instrument or, when appropriate, a shorter period to the net carrying amount of the
financial asset or financial liability. When calculating the effective interest rate, an entity shall
estimate cash flows considering all contractual terms of the financial instrument (for example,
prepayment, call and similar options) but shall not consider future credit losses. The calculation
includes all fees and points paid or received between parties to the contract that are an integral
part of the effective interest rate, transaction costs, and all other premiums or discounts. There
is a presumption that the cash flows and the expected life of a group of similar financial
instruments can be estimated reliably. However, in those rare cases when it is not possible to
estimate reliably the cash flows or the expected life of a financial instrument (or group of
financial instruments), the entity shall use the contractual cash flows over the full contractual
term of the financial instrument (or group of financial instruments).
Amortized cost in case of measurement of financial assets is only a right and not an obligation.
Receivables valuated in foreign currency at the balance sheet date are measured by average
exchange rate announced for a given currency by the National Bank of Poland.
33
The value of receivables is written down depending on the probability of their collection, i.e.:

Amounts due from debtors which declared bankrupt – up to the amount not guaranteed
or secured in another manner

Amounts due from debtors for which filing for bankruptcy was dismissed if the debtors
assets are not sufficient to cover the cost of bankruptcy proceedings – in full

Receivables disputed by debtors as well as overdue receivables, where debtor’s
financial position that collection of due amount is unlikely - up to the amount not
guaranteed or secured in another manner
11.3.
RECOGNITION
The recognition of an item as a receivable requires an entity to demonstrate that the item meets:
(a) the definition of an asset; and
(b) the recognition criteria
A receivables shall be recognized if, and only if:
(a) it is probable that the expected future economic benefits that are attributable to the asset will
flow to the entity; and
(b) the value of the asset can be measured reliably.
34
12. SHORT-TERM INVESTMENTS
12.1.
DEFINITION
Whenever The Accounting Act refers to investments, it means assets acquired in order to derive
economic benefits resulting from an increase in the value of these assets, generation of income
in the form of interests, dividends (participation in profits) or other rewards, including rewards
from a commercial transaction, in particular financial assets and those real property and
intangible assets which are not used by the entity but which have been acquired to derive such
benefits.
Whenever The Accounting Act refers to financial assets it means monetary assets, equity
instruments issued by other entities, as well as contractual right to receive monetary assets or to
exchange financial instruments with another entity under favourable conditions.
Whenever The Accounting Act refers to monetary assets, it means assets in the form of domestic
currency, foreign currencies and foreign exchange instruments. Monetary assets also include
other financial assets, in particular accrued interests on financial assets.
In the case of financial assets, they are payable and mature or are held for sale within 12 months
from the balance sheet date or the date of their issue or acquisition.
12.2.
MEASUREMENTS
At least at balance sheet date short-term investments shall be measured at market price (value)
or at the lower of cost of acquisition and market price (value). In the case of short-term
investments for which there is no active market, they are measured at their fair value determined
in another manner.
An active market means a market in which transactions for the asset or liability take place with
sufficient frequency and volume to provide pricing information on an ongoing basis.
Denominated in foreign currency transactions are recorded in the books of account as at the date
of their execution at the following exchange rates :
1 ) actually applied on the date, resulting from the nature of the transaction - in case of sale or
purchase of currencies and payment of receivables and payables;
2) the average announced for a given currency by the National Bank of Poland on the day
preceding the day - in the case of payment of receivables or liabilities if it is not justified to
apply the exchange rate referred to in paragraph 1 , as well as for other operations .
Foreign exchange differences related to current assets and liabilities denominated in foreign
currencies arising on the date of their valuation and on the payment of receivables and payables
in foreign currencies, as well as the sale of foreign currencies , are recognized as income or
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financial costs , and where appropriate - to the cost of production products or goods acquisition
price , as well as the cost of fixed assets, fixed assets under construction or intangible assets.
Acquired or incurred financial assets and other investments are recognized in the book of
accounts at the acquisition date , at cost or purchase price, if the costs of execution and
settlement of the transaction are not material.
The effects of the increase or decrease in the value of short-term investments valued at market
price value are included in revenues or financial costs. If the entity applies short-term
investments valuation principles other than market price, the results of decrease in their value
are recognized as financial cost in full, whereas the results of the increase in their value are
recognized as financial income in amount which is not higher than the differences which were
previously recognized as financial costs.
12.3.
RECOGNITION
The recognition of an item as a short-term investments requires an entity to demonstrate that the
item meets:
(a) the definition of an asset; and
(b) the recognition criteria
An short-term investment shall be recognized if, and only if:
(a) it is probable that the expected future economic benefits that are attributable to the asset will
flow to the entity; and
(b) the value of the asset can be measured reliably.
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13. LIABILITIES
13.1.
DEFINITION
Whenever The Accounting Act refers to liabilities, it means an entity’s obligation arising from
the past events to provide goods or services of a reliably estimated value, and which will involve
the use of existing or future assets of the equity.
Short-term liabilities are all trade payables as well as the whole or a part of other liabilities
which mature within 12 months from the balance sheet date.
Whenever The Accounting Act refers to financial liabilities, it means an obligation of an entity
to deliver financial assets or to exchange financial instruments with another entity under
unfavourable conditions.
13.2.
MEASUREMENTS
Liabilities (e.g. trade liabilities) are measured in the amount payable.
Financial liabilities (received loans) may be valued at amortized cost, and if the company intends
to sell them within a period of three months, according to market value or otherwise determined
fair value.
The amortised cost of a financial asset or financial liability is the amount at which the financial
asset or financial liability is measured at initial recognition minus principal repayments, plus or
minus the cumulative amortisation using the effective interest method of any difference between
that initial amount and the maturity amount, and minus any reduction (directly or through the
use of an allowance account) for impairment or uncollectability.
The effective interest method is a method of calculating the amortised cost of a financial asset
or a financial liability (or group of financial assets or financial liabilities) and of allocating the
interest income or interest expense over the relevant period. The effective interest rate is the rate
that exactly discounts estimated future cash payments or receipts through the expected life of
the financial instrument or, when appropriate, a shorter period to the net carrying amount of the
financial asset or financial liability. When calculating the effective interest rate, an entity shall
estimate cash flows considering all contractual terms of the financial instrument (for example,
prepayment, call and similar options) but shall not consider future credit losses. The calculation
includes all fees and points paid or received between parties to the contract that are an integral
part of the effective interest rate, transaction costs, and all other premiums or discounts. There
is a presumption that the cash flows and the expected life of a group of similar financial
instruments can be estimated reliably. However, in those rare cases when it is not possible to
estimate reliably the cash flows or the expected life of a financial instrument (or group of
financial instruments), the entity shall use the contractual cash flows over the full contractual
term of the financial instrument (or group of financial instruments).
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Amortized cost in case of measurement of financial liabilities is only a right and not an
obligation.
Liabilities valuated in foreign currency at the balance sheet date are measured by average
exchange rate announced for a given currency by the National Bank of Poland.
13.3.
RECOGNITION
The recognition of an item as a liabilities requires an entity to demonstrate that the item meets:
(a) the definition of liabilities; and
(b) the recognition criteria
A liability is recognised in balance sheet when it is probable that an outflow of resources
embodying economic benefits will result from the settlement of a present obligation and the
amount at which the settlement will take place can be measured reliably. In practice, obligations
under contracts that are equally proportionately unperformed (for example liabilities for
inventory ordered but not received) are generally recognised as liabilities in financial statements.
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14. P ROVISIONS
14.1.
DEFINITION
A provision is a liability of uncertain timing or amount.
A liability is a present obligation of the entity arising from past events, the settlement of which
is expected to result in an outflow from the entity of resources embodying economic benefits.
Provisions can be distinguished from other liabilities such as trade payables and accruals
because there is uncertainty about the timing or amount of the future expenditure required in
settlement.
An obligating event is an event that creates a legal or constructive obligation that results in an
entity having no realistic alternative to settling that obligation.
A legal obligation is an obligation that derives from:
(a) a contract (through its explicit or implicit terms);
(b) legislation; or
(c) other operation of law.
14.2.
MEASUREMENTS
The amount recognised as a provision shall be the best estimate of the expenditure required to
settle the present obligation at the end of the reporting period.
14.3.
RECOGNITION
A provision shall be recognised when:
(a) an entity has a present obligation (legal or constructive) as a result of a past event;
(b) it is probable that an outflow of resources embodying economic benefits will be required to
settle the obligation; and
(c) a reliable estimate can be made of the amount of the obligation.
If these conditions are not met, no provision shall be recognised.
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15. EQUITY
15.1.
DEFINITION
Whenever The Accounting Act refers to net assets, it means the assets less liabilities, equal in
their amount to the entity’s equity.
15.2.
RECOGNITION
Equity is recognised in the books of accounts by its type and in accordance with applicable
regulations.
The share capital of companies is recognised at the amount stated in the deed or articles of
association and registered in the court register.
16. BALANCE SHEET
A balance sheet shall present balances of assets, liabilities and equity as at the last day of current
and prior financial years.
A balance sheet should include information within the scope specified in Appendix 1 to the
Accounting Act - for entities other than banks or insurer.
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Appendix 1
Bilans
Aktywa
A. Aktywa trwałe
I. Wartości niematerialne i prawne
1. Koszty zakończonych prac rozwojowych
2. Wartość firmy
3. Inne wartości niematerialne i prawne
4. Zaliczki na wartości niematerialne i prawne
II. Rzeczowe aktywa trwałe
1. Środki trwałe
a) grunty (w tym prawo użytkowania wieczystego gruntu)
b) budynki, lokale i obiekty inżynierii lądowej i wodnej
c) urządzenia techniczne i maszyny
d) środki transportu
e) inne środki trwałe
2. Środki trwałe w budowie
3. Zaliczki na środki trwałe w budowie
III. Należności długoterminowe
1. Od jednostek powiązanych
2. Od pozostałych jednostek
IV. Inwestycje długoterminowe
1. Nieruchomości
2. Wartości niematerialne i prawne
3. Długoterminowe aktywa finansowe
a) w jednostkach powiązanych
- udziały lub akcje
- inne papiery wartościowe
- udzielone pożyczki
- inne długoterminowe aktywa finansowe
b) w pozostałych jednostkach
- udziały lub akcje
- inne papiery wartościowe
- udzielone pożyczki
- inne długoterminowe aktywa finansowe
4. Inne inwestycje długoterminowe
V. Długoterminowe rozliczenia międzyokresowe
1. Aktywa z tytułu odroczonego podatku dochodowego
2. Inne rozliczenia międzyokresowe
B. Aktywa obrotowe
I. Zapasy
1. Materiały
2. Półprodukty i produkty w toku
3. Produkty gotowe
4. Towary
5. Zaliczki na dostawy
II. Należności krótkoterminowe
1. Należności od jednostek powiązanych
a) z tytułu dostaw i usług, o okresie spłaty:
- do 12 miesięcy
- powyżej 12 miesięcy
b) inne
2. Należności od pozostałych jednostek
a) z tytułu dostaw i usług, o okresie spłaty:
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- do 12 miesięcy
- powyżej 12 miesięcy
b) z tytułu podatków, dotacji, ceł, ubezpieczeń społecznych i zdrowotnych oraz innych
świadczeń
c) inne
d) dochodzone na drodze sądowej
III. Inwestycje krótkoterminowe
1. Krótkoterminowe aktywa finansowe
a) w jednostkach powiązanych
- udziały lub akcje
- inne papiery wartościowe
- udzielone pożyczki
- inne krótkoterminowe aktywa finansowe
b) w pozostałych jednostkach
- udziały lub akcje
- inne papiery wartościowe
- udzielone pożyczki
- inne krótkoterminowe aktywa finansowe
c) środki pieniężne i inne aktywa pieniężne
- środki pieniężne w kasie i na rachunkach
- inne środki pieniężne
- inne aktywa pieniężne
2. Inne inwestycje krótkoterminowe
IV. Krótkoterminowe rozliczenia międzyokresowe
Aktywa razem
Pasywa
A. Kapitał (fundusz) własny
I. Kapitał (fundusz) podstawowy
II. Należne wpłaty na kapitał podstawowy (wielkość ujemna)
III. Udziały (akcje) własne (wielkość ujemna)
IV. Kapitał (fundusz) zapasowy
V. Kapitał (fundusz) z aktualizacji wyceny
VI. Pozostałe kapitały (fundusze) rezerwowe
VII. Zysk (strata) z lat ubiegłych
VIII. Zysk (strata) netto
IX. Odpisy z zysku netto w ciągu roku obrotowego (wielkość ujemna)
B. Zobowiązania i rezerwy na zobowiązania
I. Rezerwy na zobowiązania
1. Rezerwa z tytułu odroczonego podatku dochodowego
2. Rezerwa na świadczenia emerytalne i podobne
- długoterminowa
- krótkoterminowa
3. Pozostałe rezerwy
- długoterminowe
- krótkoterminowe
II. Zobowiązania długoterminowe
1. Wobec jednostek powiązanych
2. Wobec pozostałych jednostek
a) kredyty i pożyczki
b) z tytułu emisji dłużnych papierów wartościowych
c) inne zobowiązania finansowe
d) inne
III. Zobowiązania krótkoterminowe
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1. Wobec jednostek powiązanych
a) z tytułu dostaw i usług, o okresie wymagalności:
- do 12 miesięcy
- powyżej 12 miesięcy
b) inne
2. Wobec pozostałych jednostek
a) kredyty i pożyczki
b) z tytułu emisji dłużnych papierów wartościowych
c) inne zobowiązania finansowe
d) z tytułu dostaw i usług, o okresie wymagalności:
- do 12 miesięcy
- powyżej 12 miesięcy
e) zaliczki otrzymane na dostawy
f) zobowiązania wekslowe
g) z tytułu podatków, ceł, ubezpieczeń i innych świadczeń
h) z tytułu wynagrodzeń
i) inne
3. Fundusze specjalne
IV. Rozliczenia międzyokresowe
1. Ujemna wartość firmy
2. Inne rozliczenia międzyokresowe
- długoterminowe
- krótkoterminowe
Pasywa razem
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