Drafting Financial Statements (Accounting Practice, Industry and Commerce)

8/14/2019 Drafting Financial Statements (Accounting Practice, Industry and Commerce)

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Unit 11, Week 5 Iwi Ugiagbe-Green

Drafting Financial Statements (Accounting Practice,Industry and Commerce)

Statement of Financial position revisited

IAS16 valuation of non-current assets IAS 36 Impairment (Recoverable value)

IAS 40 investment properties


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Drafting Financial Statements (AccountingPractice, Industry and Commerce)

Basic accounting concept only assetsowned with a monetary value areincluded in Statement of Financial

Position Total assets (non current + current

assets) Total liabilities = Capital

If a business has liabilities, the capitalin the business must be less than theassets


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Drafting Financial Statements (AccountingPractice, Industry and Commerce)

Financial position based on monetaryassets and liabilities at the end of theperiod

Position at the end of the year

True and Fair test based on probableeconomic transfer and reasonableness

of asset measurement


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Accounting standards prescribe the treatment of recognisingassets and liabilities (and costs and revenues)

IAS Plus: IAS 16, Property, Plant and Equipment

Standard covers property, plant and equipment Depreciation (consumption of economic benefit) Impairment losses (losses on revaluation)

Measurement based on when it is PROBABLE that there is atransfer of future economic benefit

The asset can be measured reliably
http://www.iasplus.com/standard/ias16.htmhttp://www.iasplus.com/standard/ias16.htm


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IAS 16 Asset is valued at cost costincludes the cost of the asset and alsoall costs incurred to bring the asset to

its working condition and location foruse.

If the asset is in exchange for another

asset, the asset is valued at FAIR value


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Cost = asset is carried at cost accumulateddepreciation and impairment

Revaluation = The asset is carried at a revaluedamount, being its fair value at the date ofrevaluation less subsequent depreciation andimpairment, provided that fair value can bemeasured reliably. [IAS 16.31]

IAS 36 - Assets should not be carried at more

than the recoverable amount (less costs to selland value in use)


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IAS 16 allows the revaluation of property, plant andequipment but does not require it. However, allassets in the class of asset needs to be revalued.

The carrying value of the asset should not bematerially different to FAIR value at the balance sheetdate.

Revaluation gains are transferred to the revaluationreserve and recognised in the Statement of

recognised income and expense until the carryingamount reaches depreciated historical cost. Anyadditional cost should be charged to the incomestatement.


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IAS 40 investment property

http://www.iasplus.com/standard/ias40.htm

Property and/or land and buildings or part of abuilding held by an OWNER or a lesee under afinance lease (IAS 17) to earn rentals or capitalappreciation or both
http://www.iasplus.com/standard/ias40.htmhttp://www.iasplus.com/standard/ias40.htm


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Investment property is measured at COST (which includestransaction costs)

FAIR value (arms length basis)

Recent prices on less active markets with adjustments toreflect changes in economic conditions, and discounted cashflow projections based on reliable estimates of future cashflows


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Drafting Financial Statements (Accounting Practice, Industry and Commerce)

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