Complete Latest - Complete Latest IAS 1 Presentation of Financial...

Summary ACCA Financial Reporting Complete Latest 2023/2024 IAS 1 Presentation of Financial Statements - Correct Answer States that a complete set

of financial statements comprises:

• A statement of financial position
• A statement of profit or loss

and other comprehensive income

• A statement of changes in equity
• A statement of cash flows
• Accounting policies and explanatory notes

Property, plant, and equipment (IAS 16) - Correct Answer Tangible assets held by an entity for more than one accounting period for use in the production or supply of goods or services, for rental to others, or for administrative purposes Property, plant and equipment: Recognition - Correct Answer Recognised as an asset

when:

• it is probable that future economic benefits associated with the asset will flow to the

entity; and

• the cost of the asset can be measured reliably (IAS 16, para 7).

Property, plant and equipment: Initial measurement - Correct Answer - All costs

involved in bringing the asset into working condition

• Initial cost capital costs such as the cost of site preparation, delivery costs, installation

costs, borrowing costs

• Dismantling costs - the present

value of these costs should be capitalised

• Expense items, such as fuel,

training and warranty costs, should be written off as incurred

Present Value: Discounting fraction - Correct Answer 1/(1 + r)^n

i.e. Present value = Cost x 1/(1+r)^n r = Rate or Interest rate n = Number of years Depreciation - Correct Answer Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life (IAS 16, para 6).Depreciable amount is the cost of an asset, or other amount substituted for cost, less its residual value (IAS 16, para 6) 1 / 3

Methods:

• Straight line
• Reducing balance
• Machine hours

Revaluation of non-current assets - Correct Answer IAS 16 treatments:

- The cost model: valued at cost less accumulated depreciation

- The revaluation model: carried at a revalued amount less any

subsequent accumulated depreciation

Journal (assuming revalued amount is greater than original cost):

Dr Non-current assets cost/valuation (revalued amount - cost) Dr Accumulated depreciation (eliminate accumulated balance) Cr Other Comprehensive Income (revaluation surplus) Depreciation of revalued assets - Correct Answer - Depreciation must be charged, based on valuation less residual value, over the remaining useful life of the asset

• The whole charge must go to the statement of profit or

loss for the year

• An annual reserves transfer

may be made, from revaluation surplus to retained earnings, for the additional depreciation charged on the revalued amount compared to cost. This transfer would be shown on the SOCIE

Journals:

Dr Statement of profit or loss - depreciation charge Cr Accumulated depreciation

And:

Dr Revaluation surplus (depreciation on valuation - depreciation on original cost) Cr Retained earnings Disposal of revalued assets - Correct Answer Account for disposal as normal Transfer the balance on revaluation surplus to retained earnings Government grants (IAS 20) - Correct Answer Governments often provide money or incentives to companies to export their goods or to promote local employment

Government grants could be:

• Revenue grants, e.g. contribution towards payroll costs
• Capital grants, e.g. contribution towards purchase of non-current assets 2 / 3

Government grants: Revenue grants - Correct Answer - Presented as a credit in the statement of profit or loss, or

• Deducted from the related expense

Government grants: Capital grants - Correct Answer Either:

• Net off the cost of the asset, or
• Defer the grant and release over the asset's life

Borrowing costs (IAS 23) - Correct Answer Borrowing costs must be capitalised as part of the cost of an asset if that asset is a qualifying asset (one which 'necessarily takes a substantial period of time to get ready for its intended use or sale') Capitalisation of borrowing costs should commence when all of the following conditions

are met:

• expenditure for the asset is being incurred
• borrowing costs are being incurred
• activities that are necessary to

prepare the asset for its intended use or sale are in progress

Borrowing costs: Interest rates - Correct Answer Borrowing costs which may be

capitalised are those actually incurred, less any investment income on the temporary investment of the borrowings during the capitalisation period Where funds for the project are taken from general borrowings the weighted average cost of general borrowings is taken Investment Property (IAS 40) - Correct Answer Investment property is land or a building 'held to earn rentals or for capital appreciation or both', rather than for use by the entity or for sale in the ordinary course of business Investment properties should initially be measured at cost.

IAS 40 then gives a choice for subsequent measurement between the following:

• Cost model
• Fair value model

Once the model is chosen it must be used for all investment properties Intangible assets (IAS 38) - Correct Answer An identifiable non-monetary asset without physical substance (IAS 38, para 8)

Examples:

• Licences and quotas
• Intellectual property, e.g. patents and copyrights
• Brand names
• Trademarks
• / 3