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BAC300 Semester 1 Summary
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Summary of syllabus of 1st semester of Business Accounting 300 from Gripping GAAP, Introduction to IFRS and Introduction to Consolidations
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FAC3764 Assessment 6 18 July 2023
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BAC300 Summary of semester 2
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Business Accounting (BAC300): Semester 1Contents
LA 1: Chapter 2: The Conceptual Framework for financial reporting ............................ 4
1. Introduction ................................................................................................................. 4
2. General-purpose financial reporting ......................................................................... 4
3. GP financial statements ............................................................................................. 4
4. Qualitative characteristics/ constraints ..................................................................... 5
5. Elements of financial statements ............................................................................... 5
6. Recognition/ Derecognition ...................................................................................... 6
7. Measurement .............................................................................................................. 7
8. Presentation/ Disclosure ............................................................................................. 7
LA 2: IFRS for SMEs ............................................................................................................... 8
1. Background ................................................................................................................. 8
2. Allocation of companies ............................................................................................ 8
3. Scope ........................................................................................................................... 8
4. APPLICATION ............................................................................................................... 9
LA 3: Standards of Generally Recognised Accounting Practice ................................. 10
1. Development of GRAP standards ........................................................................... 10
2. Setting of GRAPs ........................................................................................................ 10
3. Process for approval of GRAPs ................................................................................ 10
4. Presentation of financial statements ....................................................................... 11
5. GRAP reporting framework ...................................................................................... 12
LA 4: Presentation of Financial Statements (IAS 1) ......................................................... 14
1. Introduction ............................................................................................................... 14
2. general features ........................................................................................................ 14
3. Structure/ Content of financial statements ............................................................ 14
4. Example ..................................................................................................................... 15
........................................................................................................................................ 17
LA 5: Chapter 7: Property, plant and equipment (IAS 16)(Part 1) ................................ 20
1. Recognition ............................................................................................................... 20
2. Initial measurement................................................................................................... 21
LA 5: Chapter 8: PPE (Revaluation model) ..................................................................... 25
1. introduction ............................................................................................................... 25
2. Subsequent measurement ....................................................................................... 25
LA 6: Chapter 5: Income Taxes (IAS 12) .......................................................................... 28
1
, 1. recognition of income tax ........................................................................................ 28
2. measurement of income tax ................................................................................... 28
3. payment of income tax ............................................................................................ 29
4. Deferred tax............................................................................................................... 29
5. Tax Bases .................................................................................................................... 31
6. Temporary differences .............................................................................................. 31
7. Recognition/ measurement ..................................................................................... 32
8. Deferred tax note ...................................................................................................... 34
9. Example ..................................................................................................................... 34
LA 7: Chapter 9: Intangible Assets (IAS 38) ..................................................................... 36
1. Recognition ............................................................................................................... 36
2. initial Measurement ................................................................................................... 36
3. Web Site Costs (SIC 32) ............................................................................................. 37
4. Subsequent Measurement ....................................................................................... 37
5. Derecognition............................................................................................................ 38
6. Deferred Tax .............................................................................................................. 38
7. Disclosure ................................................................................................................... 38
LA 8: Chapter 26: Accounting policies/ estimates/ errors (IAS 8) ................................. 40
1. Accounting policies .................................................................................................. 40
2. Changes in accounting policy ................................................................................ 40
3. Correction of Errors .................................................................................................... 41
4. Change in accounting estimate ............................................................................. 42
5. Example ..................................................................................................................... 43
LA 9: Impairment of Assets (IAS 36).................................................................................. 46
1. INTRODUCTION .......................................................................................................... 46
2. Indicator review ........................................................................................................ 46
2. Recoverable amount ............................................................................................... 46
3. Recognition/ measurement ..................................................................................... 47
4. Reversal of impairment loss ...................................................................................... 48
5. Deferred tax............................................................................................................... 48
6. Disclosure ................................................................................................................... 48
7. IFRS for SME’s .............................................................................................................. 49
8. GRAP .......................................................................................................................... 49
LA 10: Investment property (IAS 40) ................................................................................ 50
1. Classification .............................................................................................................. 50
2. Recognition ............................................................................................................... 50
3. Measurement ............................................................................................................ 50
2
, 4. Transfers ...................................................................................................................... 51
5. Derecognition............................................................................................................ 52
6. Deferred tax............................................................................................................... 52
7. Disclosure ................................................................................................................... 53
8. IFRS for SME’s .............................................................................................................. 53
9. GRAP .......................................................................................................................... 53
10. Example ................................................................................................................... 53
LA 11: Non-current assets held for sale (IFRS 5) .............................................................. 56
1. introduction ............................................................................................................... 56
2. measurement ............................................................................................................ 56
3. impairment ................................................................................................................ 57
4. Deferred tax............................................................................................................... 57
5. presentation/ disclosure ........................................................................................... 58
LA 12: Chapter 16: Leases: lessee accounting (IFRS 16) ................................................ 60
1. Introduction ............................................................................................................... 60
2. identifying whether we have a lease ...................................................................... 60
3. Separating lease components ................................................................................ 60
4. recognition exemptions ............................................................................................ 60
5. Recognition/ measurement – simplified approach ............................................... 61
6. Lease payments ........................................................................................................ 61
7. Discount rate ............................................................................................................. 61
8. Initial Measurement................................................................................................... 61
9. Subsequent measurement ....................................................................................... 62
10. Tax consequences .................................................................................................. 63
11. Presentation/ disclosure .......................................................................................... 63
3
,LA 1: Chapter 2: The Conceptual Framework for financial reporting
1. INTRODUCTION
Purpose Helps
→ International Standards Board to develop Standards
→ Preparers of FS to develop consistent accounting policies
→ All others to understand/ interpret Standard
Framework → Provides guidance to preparers of financial reports regarding:
definition − which events should be accounted for
− how these events should be measured/ communicated
→ Not a standard - cannot override other IAS/ IFRS
2. GENERAL-PURPOSE FINANCIAL REPORTING
Objective → to give useful information to 3 primary users
− Investors/ lenders/ creditors
→ useful in making decisions relating to providing resources
− equity/ debt instruments
− loans/ credit
− management actions
Reports → user’s potential returns based on assessment of
− prospect of future net cash inflows
− management stewardship
→ to make assessment - need info about
− economic resources/ claims/ changes
− managements efficiency/ effectiveness
Resources/ → Resources/ claims
claims/ − Gives info about financial position (liquidity/ solvency)
changes − Interested in Nature/ Amounts
→ Changes in resources/ claims
− financial performance (income/ expenses)
− Presented using accrual basis + cash flows
Limitations → only provides financial info
→ not designed for all users/ all decisions
→ only provides historic info
3. GP FINANCIAL STATEMENTS
Objective → Provide useful financial info on
− Assets/ liabilities/ equity/ income/ expenses
→ Form of GP financial reports
Reporting → Single/ part of/ group of entities
entity → Going concern assumption
Reporting → Annual/ interim reporting
period → Need to clearly define
4
, 4. QUALITATIVE CHARACTERISTICS/ CONSTRAINTS
Purpose → Increase usefulness of info
Fundamental → Relevance
− Makes difference in decisions of users
− Materiality: what info would be relevant = entity specific
− Predictive value: can use as input for own predictions
− Confirmatory value: feedback on previous predictions
→ Faithful representation
− Complete: all info user needs to understand
− Neutral: free from bias +
Prudence: exercise caution in uncertain conditions
− Free from error: method isn’t applied incorrectly
Enhancing → Comparability
− Consistency helps enable comparisons across
− multiple entities/ multiple periods
− Transactions of similar nature should be recognised
→ Verifiability
− Independently assessed by knowledgeable observers
− Direct/ indirect verification
→ Timeliness: Available to decision-makers in time
→ Understandability: Communicating clear/ concise
Cost → Decide if benefit justifies cost
constraint
5. ELEMENTS OF FINANCIAL STATEMENTS
Asset Present economic resource
→ Economic resource:
− right that has potential to produce economic benefits
→ Right
− Not a physical object
− Obligation of another: right to receive cash
− Don’t correspond to obligation of another
− Established by contract/ legislation
→ Potential to produce economic benefits
− Doesn’t need to be certain/ likely
− E.g. produce cash inflows by using it to produce goods
Controlled by the entity
→ Present ability to direct the use of economic resource
→ Obtain benefits that flow from resource
→ Prevent others from directing use/ obtaining benefits
→ Ability to enforce legal rights
As result of past event
→ Occurred on/ before reporting date
Asset Present Economic Controlled Past event
Resource through
Inventory Right to sell Legal ownership Purchase
Trade Receivable Right to collect amount Legal contract of Delivering of goods
owed sale
5
,Cash in savings Right to receive cash from Legal contract Depositing of cash
account bank with bank with bank
Land/ Equipment/ Right to direct use Legal ownership Purchase
investment Property
Investment in shares Right to hold/ sell shares Legal ownership Purchase
Liability Present obligation
→ Obligation exists if entity has
− Duty/ responsibility that it has
− No practical ability of avoiding
→ Legal obligation
− Party can legally enforce entity’s duty
→ Constructive obligation
− Act consistent with own practices/ policies
→ Conditional obligation
− Duty is conditional on own future actions
Must have potential to require transfer of economic resource
→ Doesn’t have to be certain/ probable
→ E.g. obligation to transfer cash/ deliver inventory
Must arise as result of past event
→ Entity must have obtained economic benefit/ taken action
Liability Present Obligation Potential to result in Past event
Trade Payables Pay supplier Transfer cash Purchase Inventory
Provision for legal cost Pay lawyer Transfer cash Engaging in services
Bank overdraft Pay the bank Transfer cash Using overdraft facility
Equity → = Assets – Liabilities
→ Represents net assets + issued share capital + reserves
→ Equity claim
− Claim on residual interest
− Based on share issue transaction
Income → Arises from increase in equity
− Increases in assets/ decreases in liabilities
→ Other than contributions form holders of equity claims
Expense → Arise from decreases in equity
− Decreases in assets/ increases in liabilities
→ Don’t result from distributions to holders of equity claims
6. RECOGNITION/ DERECOGNITION
Criteria Relevance
→ Existence uncertainty
→ Outcome uncertainty – probability of inflow is low
→ Both may result in info being irrelevant
Faithful representation
6
, → Measurement uncertainty – amount must be estimated
→ Too high – not faithful representation
No → Don’t meet recognition criteria
recognition → May cause recognition inconsistency
→ Disclosed in notes – if useful
Derecognition → Removal from statement of financial position
→ When entity loses control of asset
→ When entity no longer has present obligation for liability
7. MEASUREMENT
Historical → Transaction costs + reductions to reflect consumption
cost → Reflects min economic benefits entity expects to recover/
transfer out
Current Fair value
value → Price that would be received to sell/ transfer
Value in use
→ Present value of cash flows
→ Used to test for impairment
Current cost
→ Cost of equivalent asset at measurement date
Factors → Relevance
→ Faithful representation
→ Comparability
→ Verifiability
→ Timeliness
→ Initial + Subsequent measurement
8. PRESENTATION/ DISCLOSURE
Process → Definition/ Recognition Criteria met: Present + disclose
separately if considered useful
→ Definition/ Recognition Criteria not met and useful: Disclose
→ Definition/ Recognition Criteria not met and not useful:
Ignore
Principles → Entity must focus of objectives rather than rules
→ Group similar items/ separate dissimilar items
→ Aggregate info that it isn’t obscured by unnecessary detail
7
, LA 2: IFRS for SMEs
1. BACKGROUND
Full → Costly - requires
compliance − investment in financial reporting system
difficult − skilled human resources
because → Users have less interest in some info in general purpose FS
2. ALLOCATION OF COMPANIES
Companies Distinguishes between
Act 1973 → Private company – restricted right to transfer shares/ prohibited
to offer anything to public
→ Public company – can be listed on stock exchange
Companies Distinguishes between
Act 2008 → Non-profit companies
→ Profit companies
− State-owned company
− Private company – MOI prohibits sale of security to public
− Personal liability company – stated by MOI
− Public company
Corporate Retained
law → Public + private company classifications
amendment
act of 2006 Further classified companies as
→ Widely held companies - public
→ Limited interest companies - private
3. SCOPE
SME definition → Small and Medium sized entities
→ Don’t have public accountability
→ Publish general purpose FS for external users
− Owners not involved in management
− Existing/ potential creditors
− Credit rating agencies
Public Entity has it if
accountability → Debt/ equity instruments are traded in public market
− Or in process of issuing
→ Or Holds assets in fiduciary capacity (on behalf of)
− For a broad group of outsiders
− As one of primary businesses
− Not incidental (e.g. estate agent/ school)
− E.g. banks/ insurance entities/ securities brokers
Disclosure XYZ (PTY) LTD
NOTES FOR THE YEAR ENDED
2. Basis of preparation and accounting policies
These financial statements have been prepared in accordance
with the Financial Reporting Standard (IFRS) for Small and
Medium-sized Entities
8
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