ifrs pauline gowie

7/31/2019 IFRS Pauline Gowie

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IFRS

IAS 1 Introduction framework

IAS 2 Inventories

IFRS 5 Assets held for sales & discontinued operations

IAS 7 Cash flow statement

IAS 12 Financial instruments

IAS 16 Tangible assets

IAS 17 Leases

IAS 18 Revenue

IAS 27 IAS 28 IAS31 IFRS 3 Consolidation and business combinations


IAS 36 Impairment

IAS 37 Provisions

IAS 38 Intangible assets


IAS 40 Investment property


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TABLE DES MATIERES

INTRODUCTION

1. IASB ....................................................................................................................................... 4

2. IFRS inEurope ...................................................................................................................... 43. IFRS in Belgium ................................................................................................................... 4

4. Refresh of accounting concepts ........................................................................................... 5

4.1. The balance sheet ............................................................................................................ 5

4.2. The income statement ( = P&L statement) ...................................................................... 5

5. Presentation of Financial Statements (FS) ......................................................................... 6

5.1. Objective & Scope........................................................................................................... 6

5.2. Components of a complete set of FS ............................................................................... 7

5.3. Overall (= global) considerations .................................................................................... 7

5.4. Structure & Content......................................................................................................... 7

5.4.1. Balance Sheet ........................................................................................................... 7

5.4.2. Income statement ...................................................................................................... 85.5. IAS 1 revised 2007 .......................................................................................................... 8

CHAPITRE 1 : FIXED ASSETS

1. IAS 16 Property, plant & equipment (PP&E) ............................................................ 9

1.1. Definitions ....................................................................................................................... 9

1.2. Recognition ................................................................................................................... 11

1.2.1. Component accounting (= production immobilise) .......................................... 11

1.2.2. Repair & maintenance ............................................................................................ 11

1.3. Measurement at recognition .......................................................................................... 11

1.4. Measurement after recognition (= booking) .................................................................. 12

2. IAS 38 Intangible Assets (i.e. brand, goodwill, licenses) .......................................... 13

2.1. Definitions ..................................................................................................................... 13

2.2. Recognition & measurement ......................................................................................... 14

2.3. Recognition of an expense ............................................................................................ 14

2.4. Measurement (2 options) ............................................................................................... 14

2.5. Useful Life ..................................................................................................................... 14

2.6. Residual Value .............................................................................................................. 15

2.7. Amortisation method (usually straight-line) ................................................................. 15

3. IAS 17 Leases ............................................................................................................... 15

3.1. Classification of leases .................................................................................................. 15

3.1.2. Impact of the classification (situation of the lessee) .............................................. 153.1.2. Classification factors .............................................................................................. 16

3.3. Accounting by lessees ................................................................................................... 173.4. Sale & leaseback transactions (cf exo du cours) ........................................................... 18

4. IAS 40 Investment property ........................................................................................... 18

4.1. Definitions ..................................................................................................................... 18

4.2. Investment property ....................................................................................................... 18

4.3. Recognition ................................................................................................................... 18

4.4. Measurement at recognition .......................................................................................... 19

4.5. Measurement after recognition ...................................................................................... 19

CHAPITRE 2 : PROVISIONS1. Provisions, Contingent Liabilities and Contingent Assets .............................................. 20


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1.1. Definitions ..................................................................................................................... 20

1.1.1. Provision ................................................................................................................. 201.1.2. Liability .................................................................................................................. 20

1.1.3. Constructive obligation .......................................................................................... 201.1.4. Contingent liability ................................................................................................. 20

1.1.5. Contingent asset ..................................................................................................... 201.2. Provision or a contingent liability ? .............................................................................. 21

1.3. Recognition ................................................................................................................... 211.3.1. Contingent liability ................................................................................................. 21

1.3.2. Contingent assets .................................................................................................... 21

1.4. Measurement principles ................................................................................................ 21

CHAPITRE 3 : IMPAIRMENT OF ASSETS

1. IAS 36 Impairment of assets .......................................................................................... 22

1.1. Definitions ..................................................................................................................... 22

1.2. Identifying that an asset may be impaired ..................................................................... 22

1.3. Fair value less costs to sell ............................................................................................ 231.3.1. Fair Value ............................................................................................................... 23

1.3.2. Net Selling Price (NSP) .......................................................................................... 23

1.3.3. Costs of disposal ..................................................................................................... 23

1.4. Value in use ................................................................................................................... 23

1.4.1. Value in use ............................................................................................................ 231.4.2. Steps to take ........................................................................................................... 23

1.5. Cash flow projections .................................................................................................... 231.5.1. Estimates of future cash flows include ................................................................... 24

1.5.2. Estimates of future cash flows exclude .................................................................. 241.5.3. Future cash flows ................................................................................................... 24

1.6. Special cases .................................................................................................................. 241.7. Cash-generating units .................................................................................................... 25

1.8. Reversal of an impairment loss ..................................................................................... 25

2. IFRS 5 assets held for sales & discontinued operation ................................................ 25

2.1. Definition ...................................................................................................................... 26

2.1.1. Discounted operation .............................................................................................. 26

2.1.2. Disposal group ........................................................................................................ 26

2.1.3. Firm purchase commitment .................................................................................... 26

2.1.4. Held for sale criteria .......................................................................................... 26

CHAPITRE 4 : CASH FLOW STATEMENTS1. IAS 7 Cash Flow statements ........................................................................................... 27

1.1. Definition ...................................................................................................................... 27

1.2. Classification of cashflows ............................................................................................ 27

1.3. Reporting cash flow from operating activities .............................................................. 281.3.1. Indirect method....................................................................................................... 28

1.3.2. Direct method ......................................................................................................... 28

CHAPITRE 5 : CONSOLIDATED F/S & BUSINESS COMBINATIONS

1. IAS 27 Consolidated & Separate Financial Statements .............................................. 30

1.1. Definition ...................................................................................................................... 30

1.1.1. Control .................................................................................................................... 301.1.2. Consolidated financial statements .......................................................................... 31


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1.1.3. Minority interest ..................................................................................................... 31

1.2. Consolidation procedures .............................................................................................. 312. IAS 31 Interests in joint venture .................................................................................... 31

2.1. Definitions ..................................................................................................................... 312.1.1. Joint Venture (JV) .................................................................................................. 31

2.1.2. Venturer .................................................................................................................. 312.1.3. Investor in a JV....................................................................................................... 32

2.1.4. Joint control ............................................................................................................ 322.2. Equity method ............................................................................................................... 32

2.3. Proportionate consolidation ........................................................................................... 32

3. IAS 28 Investments in associates .................................................................................... 32

3.1. Definitions ..................................................................................................................... 32

4. IFRS 3 Business Combinations ...................................................................................... 33

4.1. Goodwill computation ................................................................................................... 33

4.1.1. Positive goodwill .................................................................................................... 33

4.1.2. Negative goodwill .................................................................................................. 34

CHAPITRE 6 : OVERVIEW OF FINANCIAL INSTRUMENTS & INCOME TAXES

1. IAS 32 IAS 39 IFRS 7 Financial Instruments ......................................................... 35

1.1. Definition ...................................................................................................................... 35

1.2. Classification of financial assets ................................................................................... 35

1.2.1. At fair value through profit or loss ......................................................................... 351.2.2. Available for sale FA ............................................................................................. 35

1.2.3. Loans & receivables ............................................................................................... 351.2.4. Held-to-maturity investments ................................................................................. 36

1.3. Classification of financial liabilities .............................................................................. 361.4. Treasury shares .............................................................................................................. 36

1.5. Initial measurement of financial instruments ................................................................ 361.6. Subsequent (= par aprs) measurement ......................................................................... 36

1.7. Amortized cost (exo !!) ................................................................................................. 37

2. Overview of income taxes .................................................................................................. 37

2.1. Definitions ..................................................................................................................... 37

2.2. Temporary differences .................................................................................................. 38

2.3. Tax base ......................................................................................................................... 38

2.3.1. Tax base of an asset ................................................................................................ 38

2.3.2. The tax base of a liability ....................................................................................... 38

2.4. Recognition of deferred tax liabilities (DTL) ................................................................ 38

2.5. Recognition of deferred tax assets (DTA) ..................................................................... 39

CHAPITRE 7 : INVENTORY & REVENUE

1. IAS 18 Revenue ................................................................................................................ 40

1.1. Definition ...................................................................................................................... 401.2. Sale of goods - Recognition .......................................................................................... 40

1.3. Rendering of services - recognition............................................................................... 41

2. IAS 2 Inventories ............................................................................................................. 41

2.1. Definition ...................................................................................................................... 41

2.2. Cost of inventories ........................................................................................................ 41

2.3. Measurement of cost ..................................................................................................... 41


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International Financial Reporting Standards

INTRODUCTION

To which companies are IFRS applicable ??

Components of IFRS F/S ??

Structure of B/S (current/non current) & I/S (expenses analysed by function or nature) ??

1. IASB

= international accounting standards board (= ceux qui font IFRS)

- develop a single set of high quality standards

- promote the use and rigorous applications of those standards

- work actively with national standards

IAS => IFRS : only for listed companies

But there are transactions for which there is no IFRS standard.

2. IFRS inEurope

ATTENTION !!

All EU listed companies on a regulated market have to prepare their consolidated financial statements

in accordance with IFRS as from 2005 at the latest. There is a possibility to extend the obligation or to

permit the application of IRS to :

- non listed companies for consolidated FS => ok in Belgium

- individual FS => not in Belgium

> Ex. a Belgian listed company on a stock exchange. There are 2 rules:

1) Belgian rules for annual accounts => published according local rules

2) IFRS rules for consolidated accounts => for all the subsidiaries of the same group in which

parent has > 50% of shares

3. IFRS in Belgium

For statutory accounts : IAS/IFRS not permitted

For consolidated accounts :

1) before 2005 : IFRS permitted public and non-public entities

2) after 2005 : IFRS mandatory for public entities and permitted for non-public entities


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4. Refresh of accounting concepts

4.1. The balance sheet

= a frozen picture at one point in time (often end of the year)

Assets = resources needed top operate the business

shareholders Equity (FP) + Liabilities (Dettes + Provisions) = sources of financing of assets

The fundamental balance sheet equation is : A = L + E =>E = A L

Asset

= a resource controlled by the entity as a result of past events, from which future economic benefits

are expected to flow.

Liability

= a present obligation of the entity arising from past events ; settlement of which is expected to result

in an outflow of resources embodying economic benefits.

Equity

= the residual interest in the assets of the enterprise, after deducting all its liabilities (= net worth = net

assets).

The right financial balance depends on an adequate balance of financing = the optimal financing

structure (of the assets) by a mix of equity, short term and long term debts).

There are 6 key aggregates :

Non-current assets Equity

Current assets Long term debts

Cash Short term debts

There isnt too high dependence on loans because you need cash all the time to pay back.

Conclusion for daily accounting

Asset + = debit - = credit

Liabilities or Equity + = credit - = debit

4.2. The income statement ( = P&L statement)

= the summary schedule of the flows of transactions increasing(a) and decreasing(b) the equity over a

period of time (the accounting period).

(a) Other than capital increases or revaluations of assets

(b) Other than distribution of equity to the shareholders


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Income

= increases in economic benefits during the accounting period, in the form of inflows (or

enhancements) of assets or decreases of liabilities, that result in increases in equity other than those

relating to contributions from equity participants (i.e.: loan, increasing of K, )

Expenses

= decreases in economic benefits during the accounting period, in the form of outflows (or depletions)

of assets or incurrence of liabilities, that result in decreases in equity other than those relating to

distributions to equity participants

The matching principle

= rattachement des charges et produits aux exercices correspondants

= the income elements have to be matched with the related expenses (needed to generate the income

elements) within the same accounting period

=> attraction principles with the generating event cost associated with transaction should be

recorded in same book year (i.e. : register expense only when sale is done)

=> True and fair view of the net result of the period

Conclusion for daily accounting

Income + = credit - = debit

Expense + = debit - = credit

net profit = increase of equity between the 2 balance sheets

an income directly increases equity => increasing of sources of financing assets (or to liability)

Summary of Relationship between B/S and P/L

At all times, between assets, liabilities, income and charges, DEBIT = CREDIT

Net result = Income Expenses

E = A L

E = (A L) = Net Result = Income Expenses => A+ Exp. = L + Inc. Mathematical equation summarizing the double entry accounting system

5. Presentation of Financial Statements (FS)

5.1. Objective & Scope

- presentation of a financial statements

- in order to ensure comparability

- for all general purpose financial statements prepared under IFRS


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5.2. Components of a complete set of FS

1) Balance sheet

2) Income statement

3) Statement of changes in equity showing (all movements by nature of equity)

All changes in equity during 1 year (from 01/01 to 31/12)

Changes in equity other that those with equity holders

4) Cash flow statement (IAS 7) (= transaction with cash impact)

5) Notes comprising (clarify the info of B/S and P/L)

Accounting policies

Explanatory notes

5.3. Overall (= global) considerations

1) Fair presentation = disclose compliance with IFRS (true and fair view)

2) Going concern (continuit) = no intention to liquidate or to cease trading

3) Accrual basis = transactions and events are recognised when they occur, and in the periods to which

they relate (taking into account income & expenses when earned and incurred

regardless of when cash is actually received or distributed)

4) Consistency (coherence) = presentation and classification be retained (maintenue)

5.4. Structure & Content

5.4.1. Balance Sheet

Current vs. non-current distinction required => liquidity presentation if more relevant and reliable

-

current : based on the nature of operation, concept of operating cycle realised in the normal course of operating cycle, held for trading purposes, realised / settled

within 12 months of the B/S date ; or cash / cash equivalent is not restricted in use for at

least 12 months

- non current : life of more than 1 yearRemarks : 1) post-balance sheet events (refinancing, correction of defaults) do not affect the

classification of current

2) provisions appear 2 times : in current liabilities and non current liabilities


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5.4.2. Income statement

Content : revenue (CA), finance costs, tax expenses,

Expenses are analysed on basis of :

1) nature : revenue, other income, employee benefits expenses, depreciation expenses,

2) function : revenue, cost of sales, gross profit, administrative expenses,

5.5. IAS 1 revised 2007

Main changes, applicable on 01/01/09 :

1) All non-owner changes in equity to be presented in a statement of comprehensive income

2) Owner changes in equity to be presented in the notes

3) Income and expenses to be presented in :

one statement (statement of comprehensive income)

two statements (income statement and statement of comprehensive income)

4) Wording

Balance sheet Statement of financial position

Income statement Statement of comprehensive income

Cash flow statement Statement of cash flows


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1. FIXED ASSETS

= not intended for sale, used to manufacture, display, warehouse (entreposer) the products

> Ex. lands, buildings, machinery, equipment, furniture, automobiles & trucks

Tangible assets (IAS 16)

Definitions

Notion of useful life, depreciable amount and residual value

Recognition conditions and application of component accounting (including for major inspections)

Components of the cost

Measurement principles, including treatment of dismantling obligation

Intangible assets (IAS 38)

Definitions

Notion of finite/indefinite useful life, depreciable amount and residual value

Recognition conditions

Components of the cost

Measurement principles (depreciation/impairment test)

Internally generated assets

Leases (IAS 17)

Definitions (operating /finance lease)

Impact of the classification

Classification factors

Computation of future minimum lease payments

Initial recognition

Sale & lease back transactions

1. IAS 16 Property, plant & equipment (PP&E)

1.1. Definitions

Property, plant and equipment (PP&E)

They are tangible assets (used for main activities) that are held for use in the production or supply of

goods or services, for rental to others, or for administrative purposes; and are expected to be used

during more than one period.


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Cost

The amount of cash (i.e. salary) or cash equivalents (i.e. costs of production) paid and the fair value of

the other consideration given to acquire an asset at the time of its acquisition or construction (also

workers that you pat to build the plant and suppliers that you pay for different parts).

Depreciation

The systematic allocation of the depreciable amount of an asset over its useful life.

Useful life

The period over which an asset is expected to be available for use by an entity; or the number of

production or similar units expected to be obtained from the asset by an entity.

Depreciable amount

The cost of an asset, or other amount substituted for cost, less its residual value.

Residual value of an asset

Estimated amount that an entity would currently obtain from the disposal of the asset, after deducting

the estimated costs of disposal (quand on revend PP&E), if the asset were already of the age and in the

condition expected at the end of its useful life.

> Ex. cost of asset = 1.000 and useful life = 20 years => depreciate 40 each year

after 10 years : residual value = 600 = 1.000 (10 x 40)

Fair value

The amount for which an asset could be exchanged between knowledgeable, willing parties in an

arms length transaction.

Impairment loss (= reduction de valeur)

The amount by which the carrying amount of an asset exceeds its recoverable amount (= net present

value of future cash flows).

Carrying amount ( Valeur Nette Comptable)

The amount at which an asset is recognised after deducting any accumulated depreciation and

accumulated impairment losses.

Recoverable amount

The higher of an assets net selling price and its value in use.


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1.2. Recognition

The cost of an item of PP&E shall be recognised as an asset if, and only if :

1) It is probable that future economic benefits associated with the item will flow to the entity

2) The cost of the item can be measured reliably

Same recognition principle for :

1) Costs incurred initially to acquire or construct an item of PPE

2) Costs incurred subsequently to add to, replace part of, or service an item

1.2.1. Component accounting (= production immobilise)

1) Allocation of the amount initially recognised in respect of an item of PPE to its significant parts

2) Separate depreciation of significant parts with different useful life and/or depreciation method

> Ex. building : un ascenseur et le gros uvre nont pas la mme dure de vie

dprciation diffrente

3) Recognition of the cost to replace a significant part and de-recognition of the replaced part

4) Approach also applicable to major inspections (see later)

=> include cost of stopping the PP&E for the inspection spread over the years

1.2.2. Repair & maintenance

There is a distinction between (+ see cases) :Cost of day-to-day servicing

costs of labour, consumables and eventually small parts expensed as incurred

Cost of major inspection

does not include the cost to replace significant parts identified

is treated as a separate significant part whose cost (services, small parts, labour ) is deducted

from the remainder of the item of PPE (i.e. part with the longest useful life) so they are not

recorded in addition to the costs of the assets

1.3. Measurement at recognition

1) PP&E initially measured at cost (enregistrer le cot)

2) Elements of cost

1. Purchase price, import duties and purchase taxes, less trade discounts & rebates

2. Directly attributable costs of bringing asset to the location and condition necessary for it to

be capable of operating in the manner intended by management

3. Initial estimate of the costs of dismantling (dmontage) and removing the item and restoring

the site on which it is located


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Examples of directly attributable costs

* Costs of employee benefits arising directly from the construction or acquisition of the item of PPE

* Costs of site preparation

* Initial delivery and handling costs

* Installation and assembly costs

* Testing costs (after deducting the proceeds from the testing phase)

* Professional fees

Examples of costs excluded of directly attributable costs

* Costs of opening a new facility (quipement, installation)

* Costs of introducing a new product / service (incl. costs of advertising and promotional activities)

* Costs of conducting business in new location or with a class of new customer (incl. costs of trainer)

* Administration and other general overheads (frais gnraux)

* Costs incurred while an item capable of operating in the manner intended by management has yet to be

brought into use or is operated at less than full capacity

* Initial operating losses, such as those incurred while demand for the items output builds up

* Costs of relocating or reorganising part or all of an entitys operations

3) Measurement of costs

- The cash price equivalent at the recognition date

- If payment is deferred beyond normal (1 month is normal, 1 year is not !!) credit terms

Recognition as interest over the period of the difference between the cash price equivalent

and the total payment (book present value & interests separately)

Remark : amortization is only for intangibles / depreciation : PP&E

1.4. Measurement after recognition (= booking)

We use the first model or the other :

1) Cost model : cost less accumulated depreciation & impairment losses

2) Revaluation model : re-valued amount, being the fair value less accumulated depreciation &

impairment losses, only if fair value can be measured reliably

revaluations should be made with sufficient regularity

revaluation should be made for the entire class of PPE (eval. the market value)

Increase = credited directly to equity (revaluation surplus)

Decrease = recognised in P&L

3) Depreciation : each significant part depreciated separately i.e. : 1/5 x (100 10 (res. value))

If same useful life and depreciation method => grouped in determining the deprec. charge


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Separate depreciation of the remainder of the item (i.e. parts of the item that are individually not significant)

Depreciation charge = expense (unless included in another asset)

Depreciable amount : cost (or substitute) residual value

Allocated on a systematic basis over the useful life of the item

Residual value & useful life reviewed at least at each closing

Residual value (if > carrying amount : depreciation charge is zero)

Remark : Depreciation begins when the asset is available for use (i.e. capable of operating in the

manner intended by management) and does not cease when the asset becomes idle or is

retired from active use and held for disposal. This method reflects the pattern in which the

assets future economic benefits are expected to be consumed (straight-line method).

2. IAS 38 Intangible Assets (i.e. brand, goodwill, licenses)

Attention !! Value depends on the transaction :

- internally generated not recognised on B/S

- acquired recognised on B/S

i.e. : in B/S of Coca, you wont find the brand because of internally generated asset, but if Pepsi buys

Coca, they can put the coca brand in B/S because they acquired it.

2.1. Definitions

Intangible asset : identifiable non-monetary asset and no physical substance (i.e. software)

Research

Original and planned investigation undertaken with the prospect of gaining new scientific or technical

knowledge and understanding

DevelopmentApplication of research findings or other knowledge to a plan or design for the production of new or

substantially improved materials, devices, products, processes, systems or services before the start of

commercial production or use.

capitalisation of development costs when recognition criteria are met and other criteria too

An asset is identifiable when it :

- is separable, i.e. capable of being separated or divided from the entity and sold, transferred, licensed,

rented or exchanged, either individually

- or together with a related contract, asset or liability


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- or arises from contractual or other legal rights, regardless of whether thoserights are transferable or

separable from the entity or from other rights and obligations

An asset meets the control criterion when it has the power :

- to obtain the future economic benefits flowing from the underlying resource

- to restrict the access of others to those benefits

2.2. Recognition & measurement

An asset meeting the definition of an intangible asset should be recognised when :

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

- cost of asset can be measured reliably

Initial measurement at cost (price you pay) :

1) Separate cost acquisition

2) Acquisition in a business combination (fair value)

3) Exchanges of assets

4) Internally generated goodwill (price paid value asset that we pay in transaction)

5) Internally generated intangible assets

Remark : Internally generated intangibles may never be recognised in B/S

>< acquired intangible : - separately acquired as an asset

- acquired in context of combination/fusion of businesses

2.3. Recognition of an expense

= training & advertising costs, relocated costs

If definition and recognition criteria are not met => expense

2.4. Measurement (2 options)

1) cost model cost acc. amortization & impairment losses

2) revaluation model revaluated amount acc. amortization & impairment losses

fair value should be determined by reference to an active market

2.5. Useful Life

Indefinite Useful Life : no amortization but annual test of impairment (book impairment loss if

lower expectation of CF)

Finite Useful Life : allocation of the depreciable amount on a systematic basis over the UL

Review at the end of each financial year-end : is the value of the asset in the book still justified ?


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2.6. Residual Value

Assumed to be zero, unless commitment by a third party to purchase or active market and residual

value can be determined by reference to that market. It is probable that such a market will exist at the

end of the useful life.

review at the end of each financial year-end

change in accounting estimate accounted for prospectively

2.7. Amortisation method (usually straight-line)

The method shall reflect the pattern in which the assets economic benefits are expected to be

consumed.

consistent and permanent application from one year to another

amortization charge recognised in P/L

amortization begins when the asset is available for use (i.e. : pharma company : lot of R&D)

3. IAS 17 Leases

= Agreement whereby the lessor conveys to the lessee in return for a payment or series of payments

the right to use an asset for an agreed period of time

There is 2 types of leases :

1) Finance lease : transfers substantially all the risks and rewards incidental to ownership of an asset.

Title may or may not eventually be transferred (record asset in B/S).

2) Operating lease : other than a finance lease ( rent, record in I/S)

3.1. Classification of leases

3.1.2. Impact of the classification (situation of the lessee)

On the balance sheet

Operating lease : no item recognized

Finance lease : asset and corresponding liability recognized

On the income statement

Operating lease : entire rent recognized as an operating expense

Finance lease : - rent split btw a finance expense and the reduction of the lease liability

- asset depreciated over its useful life (in principle) operating expense


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Remark : Useful Life => contract duration => use the duration of the contract

You always take the shortest between UL & contract duration

Period of depreciation UL (= period of lease) even if UL > lease period

After lease period, asset will be gone (no right to use it & no depreciation anymore)

3.1.2. Classification factors

Classification is based on the extent to which risks and rewards incidental to ownership of a leased

asset lie with the lessor or the lessee.

=> finance lease if substantially all risks and rewards are transferred to the lessee

Classification depends on the substance of the transaction rather than the legal form of the contract.

Situation for financial lease (if 1 condition met financial lease)

1. The lease transfers ownership of the asset at the end of the lease term.

2. The lessee has the option to purchase the asset at price that is expected to be sufficiently lower than

the fair value when the option becomes exercisable for it to be reasonably certain, at inception (=

origin) of the lease, that the option will be exercised.

3. Lease term is for the major part ( 75%) of the economic life of the asset even if title is not

transferred.

4. At inception (signature of the contract) of the lease, the present value of the minimum lease

payments amounts to at least substantially all of the fair value of the leased asset ( 90%).

5. The leased assets are of a such specialised nature that only the lessee can use them without major

modifications.

Lessee can cancel lease but lessors losses associated with the cancellation are supported by lessee

fluctuation of fair value supported by lessee

lessee has ability to continue lease for 2nd

period at rent < market rent

Remark : economic life = period over which an asset is expected to be economically usable by one or

more users.

Minimum lease payments : payments over term that lessee is (or can) be required to make.


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Excluding

- contingent rent = portion if the lease payments that is not fixed in amount but is based on the future

amount of a factor that changes

- costs for services and taxes to be paid by and reimbursed to the lesson

Including

- interest rate implicit in the lease (taux dactualisation)

- lessees incremental borrowing rate

Classification is determined at the inception of the lease (i.e. date of the lease agreement)

recognition at the commencement of the lease (i.e. start of right to use).

If changes in the provisions of the lease result in a different classification, the modified agreement is

considered as a new lease.

Changes in estimates (e.g. estimate of the economic life or residual value) or changes in circumstances

(e.g. default by the lessee) do not alter the classification.

A lease might be classified differently for the lessee and the lessor.

3.3. Accounting by lessees

1) Finance lease

- Recognise both an asset and a liability

- Amount recognised is the lower of :

Fair value of the leased asset

Present value of the minimum lease payments

The asset should be depreciate using a policy consistent with that for owned assets over the shorter

of the lease term and its UL

Lease payments : reduction of liability + finance charge (periodic rate)

2) Operating leases

- Lease payments are expensed

- Straight line basis over the lease term

unless another systematic basis is more representative of the time pattern of the

users benefits


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3.4. Sale & leaseback transactions (cf exo du cours)

- Sale of an asset by the vendor and leasing of the same asset back to the vendor

- Classification criteria: same as those for leases

financial lease : amortize any excess of sale proceeds over the carrying amount over LT

operating lease : * at ou below fair value => recognize gain or loss

* above fair value => amortize excess over fair value (period of using asset)

4. IAS 40 Investment property

4.1. Definitions

An investment property is property, held to earn rentals or for capital appreciation or both, rather than

for use or sale in the ordinary course of business (IAS 40).

An owner-occupied property is a property held for use in the production or supply of goods or services

or for administrative purposes (IAS 16 not 40).

4.2. Investment property

4.3. Recognition

An investment property should be recognised as an asset when :

- future economic benefits to flow from the asset are probable

- cost can be measured reliably

Same criteria are applicable to initial costs and subsequent costs relevant to investment property.


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4.4. Measurement at recognition

An investment property should be initially measured at its cost

- Cost components :

* Purchase price

* Directly attributable expenditure

- Costs not included

* Start-up costs (unless necessary to bring the property to the condition necessary to

be capable of operating as intended by management)

* Operating losses incurred before the investment property achieves the planned level

of occupancy

* Abnormal amounts of wasted material, labour or other resources incurred in

constructing or developing the property

An enterprise should choose between :

1) Fair value model

2) Cost model

=> fair value should always be determined, either for measurement or disclosure

4.5. Measurement after recognition

Fair value model

- Investment properties are measured at their fair value at each closing

- Applicable to all investment properties (no cherry picking)

- Change in fair value is recorded in the income statement

- Determination of fair value :

Price at which the property could be exchanged between knowledgeable, willing parties in an

arms length transaction

Reflection of market conditions at the balance sheet date

Without any deduction for : 1 transaction costs it may incur on sale or other disposal

2 future cap. expenditure that will improve or enhance the property

Active market current market price No active market recent prices of similar properties,

Cost model

= cost acc. depreciation & impairment losses (same treatment as IAS 16)


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2. PROVISIONS

Provisions (IAS 37)

Definitions (provisions / contingent assets / liabilities)

Conditions required to recognise a provision

ATTENTION !! no provision set up for a risk to be covered (future event)

1. Provisions, Contingent Liabilities and Contingent Assets

1.1. Definitions

1.1.1. Provision= liability of uncertain timing or amount

1.1.2. Liability

= present obligation as a result of past events

= settlement of which is expected to result in an outflow of resources

1.1.3. Constructive obligation

= an obligation that derives from an entitys actions where :

by an established pattern of past practice, published policies or a sufficiently specific current

statement, the entity has indicated to other parties that it will accept certain responsibilities

as a result, the entity has created a valid expectation on the part of those other parties that it will

discharge those responsibilities

1.1.4. Contingent liability

= possible obligation depending on the occurrence/non-occurrence of uncertain future events

= present obligation but no probable outflow of economic benefits or amount cant be reliably

measured

1.1.5. Contingent asset

= possible asset that arises from past events and whose existence will be confirmed only by the

occurrence or non-occurrence of one or more uncertain future events not wholly within the control

of the entity


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1.2. Provision or a contingent liability ?

1.3. Recognition

Recognise a provision if, and only if :

1) present obligation (legal or constructive)

2) as a result of past event (obligating event)

3) probable (more likely than not) transfer of economic benefits

4) reliable estimate can be made

An obligating event is an event that :

1) creates a legal (by law or contract) or constructive obligation

2) results in an enterprise having no realistic alternative but to settle the obligation

1.3.1. Contingent liability

- An enterprise should not recognise a contingent liability

- Disclosure is required unless a cash outflow is remote

1.3.2. Contingent assets

= a possible asset depending on the occurrence/non-occurrence of uncertain future events

Do not recognise contingent assets : disclosure is required if a cash inflow is probable

1.4. Measurement principles

- Best estimate = amount recognized as a provision = best estimate of the expenditure required to settle

the present obligation at the B/S date.

- Discounted value = present value of the expenditures expected

- Future events

Review and adjust provisions at each B/S date : if outflow no longer probable, need to reverse

provision ( should be used only for expenditures for which the provision was originally recognised).


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3. IMPAIRMENT OF ASSETS (= rduction de valeur)

Impairment (IAS 36)

When do we have to perform an impairment test?

Assets in the scope of IAS 36

Recoverable amount/value in use/fair value less costs to sell

Computation of impairment losses

Reversal of impairment losses

Every year : is the value I have on my books justified by the economic value ? Should I record an

impairment loss with a specific asset ?

1. IAS 36 Impairment of assets

Covered by IAS 36 Fixed assets : tangible, intangible, goodwill (not invetories, fin. assets, )

1.1. Definitions

An asset is impaired when the carrying amount of an asset exceeds its recoverable amount :

1) Carrying amount

the amount at which an asset is recognised in the balance sheet after deducting any

accumulated depreciation (amortisation) and accumulated impairment losses

thereon

2) Recoverable amount

the higher of an assets fair value less costs to sell and its value in use

1.2. Identifying that an asset may be impaired

At each balance sheet date, a review should be performed to assess whether there is any indication that

an asset may be impaired : external & internal indicators

If there is an indication that an asset may be impaired : perform an impairment test

Irrespective of whether there is any indication of impairment, an entity shall also test annually for

impairment :

1) Intangible assets with an indefinite useful life

2) Intangible assets not yet available for use (in construction, production)

3) Goodwill (price paid value asset that we pay in transaction)


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External sources : market value & changes in event (economical, legal, technological, )

Internal sources : obsolescence or physical damage, changes in the use (disposal, restructuring, )

lower economic performance than expected

An indication that an asset may be impaired may indicate that the assets useful life, depreciation

method or residual value may need to be reviewed and adjusted.

1.3. Fair value less costs to sell

1.3.1. Fair Value

The amount obtainable from the sale of an asset in an arms length transaction between

knowledgeable, willing parties less the costs of disposal

1.3.2. Net Selling Price (NSP)

If active market NSP = market price less costs of disposal

If no active market NSP = best estimate of the assets selling price (based on recent transactions in

the sector) less costs of disposal

1.3.3. Costs of disposal

Direct incremental costs only (eg. legal costs, stamp duty taxes, costs of removing the asset, )

1.4. Value in use

1.4.1. Value in use

The present value of :

estimated future cash flows expected to arise from the continuing use of an asset

and from its disposal at the end of its useful life

1.4.2. Steps to take

a) Estimate the future CF from continuing use and ultimate disposal

b) Apply appropriate discount rate (taux dactualisation)

1.5. Cash flow projections

Cash flow projections should be based :

- on best estimate of economic conditions over the remaining useful life of the asset


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reasonable and supportable assumptions

greater weight to external evidence

- on the most recent financial budgets / forecasts < 5 years...

- after 5 years (period covered by budgets), CF projection should be extrapolated using a steady or

declining growth rate (growing rate allowed if justified)

1.5.1. Estimates of future cash flows include

- projections of cash inflows and outflows from the continuing use of the asset

- net cash flows to be received (or to be paid) for the disposal of the asset

- allocation of overheads attributable to the asset in the outflows projections

- effects of inflation

1.5.2. Estimates of future cash flows exclude

- cash flows from financing activities

- income tax receipts or payments

- outflows related to obligations that have already been recognised as liabilities

- inflows generated by other assets, if those inflows are largely independent from those generated by

the asset

1.5.3. Future cash flows

- should be estimated for the asset in its current condition

- exclude outflows from :

future restructuring to which an enterprise is not yet committed

future capital expenditure that will improve or enhance the asset

The discount rate should be : pre-tax rate => that reflects current market assumptions

> Ex. Carrying amount = 105 FV costs to sell = 110 15 = 95

Sales prices = 110 (= FV) Value in use = 55/1,1 + 60,5/1,1 = 100

Cost of disposal = 15 (= costs to sell) Recoverable amount = 100

Discount rate = 10% Impairment loss = 5

Future Cash-flows = 55, 60.5

1.6. Special cases

If net selling price or value in use > carrying amount : no need to determine the other amount

If net selling price cannot be determined : recoverable amount = value in use

Assets to be disposed of recoverable amount = net selling price


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An impairment loss should be recognised when recoverable amount < carrying amount

impairment loss recognition = expense

1.7. Cash-generating units

= small identifiable group of assets that includes the asset that generates cash inflows from continuing

use that are largely independent of cash inflows from other assets or groups of assets.

- Recoverable amount should be determined for the individual asset

- If not possible to determine the recoverable amount for the individual asset determine recoverable

amount for the assets cash-generating unit (CGU)

1.8. Reversal of an impairment loss

Same approach as for the identification of impaired assets :

- assess at each balance sheet date whether there is an indication that an impairment loss may have

decreased (same indicators)

- if so, calculate recoverable amount

An impairment loss should be reversed if, and only if, there has been a change in the estimates used to

calculate the recoverable amount since the last impairment loss was recognised

no reversal recognised for

the unwinding of the discount only

minor change in the discount rate

Increase carrying amount due to reversal should be less than depreciated historical cast.

Adjust depreciation for future periods

2. IFRS 5 assets held for sales & discontinued operation

Assets held for sales & discontinued operations (IFRS 5)

Definitions

Implication on presentation on B/S & P/L


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2.1. Definition

2.1.1. Discounted operation

= component of an entity that has been disposed of or classified as held for sale

represents a separate major line of business or geographical area

or part of simple coordinated plan to dispose of a separate major line of business or geographical

area of operations

or is a subsidiary acquired exclusively, with a view to resale

(= activity that you intend to stop ; obligation of restatement for the previous year also

measure the impact of the activity on P/L

Ex. company with 3 activities : disposal of 1 so comparison not easy between 2 B/S)

2.1.2. Disposal group

A group of assets to be disposed of, by sale or otherwise, together as a group in a single transaction,

and liabilities directly associated with those assets that will be transferred in the transaction (all assets

dedicated to the activity).

2.1.3. Firm purchase commitment

An agreement with an unrelated party, that is an obligation on both parties and usually legally

enforceable, that :

- specifies all significant terms, including the price and timing of the transaction

- includes such a big penalty to exit the contract that youll stick to it

An entity shall classify a non-current asset (or disposal group) as held for sale if its carrying amount

will be recovered principally through a sale transaction rather than through continuing use.

2.1.4. Held for sale criteria

Available for immediate sale in present condition and the sale is highly probable management is

committed to a plan to sell.

ATTENTION !! no depreciation of assets held for sale + measured at the lower of carrying amount &

fair value costs to sell, possible impairment loss.


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4. CASH FLOW STATEMENTS

Cash flow statement (IAS 7)

Cash flow types

Preparation of a simple CF statement

1. IAS 7 Cash Flow statements

difference between cash position of company at beginning and cash position at the end of the year.

What have been sources of cash ? How was the money been spent ?

Profit Cash flow

1.1. Definition

Cash

- cash on hand

- demand deposits

Cash equivalents

- short term, highly liquid investments (Presumption: less than 3 months)

- readily convertible to known amounts

- insignificant risk of change in value

1.2. Classification of cashflows

Operating activities : principal revenue-producing activities

Cash receipts from sale of goods / rendering services


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Investing activities : acquisition / disposal of long-term assets and other investments

Payments to acquire PPE, intangibles; equity or debt instruments of other entities and

interests in joint ventures

Financing activities : changes in size / composition of equity and borrowings

Cash proceeds from issuing shares / equity instruments

1.3. Reporting cash flow from operating activities

1.3.1. Indirect method

Ex. depreciation

Example

1.3.2. Direct method

- Each major class of gross cash receipts and gross cash payments disclosed separately

- Use entitys accounting records

- Adjust sales and cost of sales for :

changes in working capital


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non-cash items

items under investing or financing activity

Example


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5. CONSOLIDATED F/S & BUSINESS COMBINATIONS

Consolidated F/S & Business Combiantions

Definitions

Consolidation methods

Calculation of goodwill

1. IAS 27 Consolidated & Separate Financial Statements

A parent should present consolidated financial statements of all subsidiaries. Attention !! In Belgium

gap, you can exclude some subsidiaries from consolidation if other company has a very different

activity but not allocated under IFRS.

1.1. Definition

1.1.1. Control

= Power to govern the financial and operating policies of an entity so as to obtain benefits from its

activities

Presumed when the parent owns more than 50% of the voting power, unless it can be clearly

demonstrated that such ownership does not constitute control

If


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1.1.2. Consolidated financial statements

The financial statements of a group presented as those of a single economic entity

1.1.3. Minority interest

This is that part of the profit or loss and net asset of a subsidiary attributable to equity interests that are

not owned, directly or indirectly through subsidiaries, by the parent

A group is a parent and all its subsidiaries.

A parent is an entity that has one or more subsidiaries.

A subsidiary is an entity, including an unincorporated entity such as a partnership, which is controlled

by another entity (known as the parent).

1.2. Consolidation procedures

1) Line-by-line basis : A + B pour toutes les lignes B/S et I/S (pour 100% des montants)

2) Elimination (to avoid double accounting)

parent's investment and portion of equity

intragroup balances, transactions & resulting unrealised profits should be eliminated in full

3) Use of uniform accounting policies : adjust if policies are not uniform (no exemption)

4) Minority interests

Presented within equity separately from the parent shareholders equity

Presented separately the profit or loss of the group

2. IAS 31 Interests in joint venture

2.1. Definitions

2.1.1. Joint Venture (JV)

A contractual arrangement whereby two or more parties undertake an economic activity that is subject

to joint control.

2.1.2. Venturer

A party to a JV and has joint control over that JV.


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2.1.3. Investor in a JV

A party to a JV and does not have joint control over that JV.

2.1.4. Joint control

The contractually agreed sharing of control over an economic activity, and exists only when the

strategic financial and operating decisions relating to the activity require the unanimous consent of the

parties sharing control (the venturers) (tout le monde a le mme poids de dcsision par consensus).

2.2. Equity method

- fair value adjustments & goodwill

- adjustments to uniform accounting policy

- proportionate eliminations

2.3. Proportionate consolidation

(exemple : A + 75% de B pour tous les postes)

- include share (pro rata % investment held) of assets, liabilities, income & expenses

- line-by-line basis

- adjustments to uniform accounting policy

- proportionate eliminations

- no minority interest !!

3. IAS 28 Investments in associates

3.1. Definitions

You exercise a significant influence :

- Power to participate in the financial & operating policy decisions of the investee but is not

control (or joint control) over those policies

- Presumption: direct or indirect ownership of 20% or more of the voting power of the investee

Exception: if clearly demonstrated that significant influence is not obtained

The existence of significant influence is usually evidenced by one of the following ways :

Representation on the board of directors

Participation in policy making processes (including decisions about dividends)


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Material transactions between the investor and investee

Interchange of management personnel

Provision of essential technical information

Equity method

( financial assets => B shares : 75% of shares K B, retained earnings : 75% + income from associate

: 75% profit B)

1) Balance sheet :

initially recorded at cost

adjusted thereafter for the post acquisition change in the investor's share of net assets

2) Income statement :

investor's share of the results of operations

4. IFRS 3 Business Combinations

= the bringing together of separate entities or businesses into 1 reporting entity

Cost of the combination = Fair value + Cost directly attributable + Adjustment

allocation at the date of acquisition recognition on the consolidated B/S

4.1. Goodwill computation

4.1.1. Positive goodwill

When a company buys another one


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- Recognise as an asset at acquisition date

- Do not amortise

- Test for impairment at least annually according to IAS 36, even if no indicator of value

portion of a price that you cant allocate to any asset => 1 +1 = 3 car la fusion de deux grandes

entreprises donnent des bnfices plus que x 2 !!

4.1.2. Negative goodwill

- Reassess the identification and the measurement of the acquirees identifiable assets, liabilities andcontingent liabilities and reassess the measurement of the cost

Any remaining excess (= negative goodwill) is recognised in profit and loss immediately

=> recognised in P/L => accounting entry => assets, liabilities & goodwill


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6. OVERVIEW OF FINANCIAL INSTRUMENTS & INCOME TAXES

Financial instruments (IAS 32 39)

Definitions

Classification in approriate categories

Measurement (FV / amortised cost)

Computation of amortised cost

1. IAS 32 IAS 39 IFRS 7 Financial Instruments

1.1. Definition

A financial asset is any asset that is : cash, an equity instrument of another entity, a contractual right, => not just derivates (options, )

1.2. Classification of financial assets

Every financial asset must be classified into a category :

1.2.1. At fair value through profit or loss

1) Financial assets that are designated on initial recognition as one to be measured at FV with FV

changes in profit or loss (Designation as FVTPL)

2) Financial assets that should be classified as held for trading (HFT) = that youve purchased to sell

and make gain. A financial asset is held for trading if :

it is acquired principally for the purpose of sale in the near term

if it is part of a portfolio of identified financial instruments that are managed together and for

which there is evidence of a recent actual pattern of short-term profit-taking

if it is a derivative (except for a derivative that is a designated and effective hedging

instrument)

1.2.2. Available for sale FA

Residual category, measured at FV through equity.

1.2.3. Loans & receivables

Non derivative financial assets, with fixed or determinable payments that are not quoted in an active

market.


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1.2.4. Held-to-maturity investments

depends on initial inetention = keep till maturity

HTM are financial instruments with :

1)

fixed or determinable payments & fixed maturity2) that an entity has the positive intention and ability to hold to maturity

(bond ok but share not ok)

1.3. Classification of financial liabilities

1) financial liabilities at fair value through P/L

2) other financial liabilities

Reclassifications in and out of this category are prohibited

1.4. Treasury shares

(actions propres recorded in deduction of capital)

Where an entity reacquires its own shares, these shares (=treasury shares) are deducted from equity.

No gain or loss is recognised in the income statement on the purchase, sale, issue or cancellation of an

entitys own equity instruments.

Where an entity holds its own shares on behalf of others, this represents an agency relationship and as

a result the shares are not included in the balance sheet of the entity.

1.5. Initial measurement of financial instruments

FV + transaction costs

=> directly attributable to the acquisition, issue of disposal of financial instruments

1.6. Subsequent (= par aprs) measurement

Financial assets

1) At FVTPL and derivatives (except hedging) :

Measured at FV

Changes in fair value are recognised in profit or loss


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2) Held-to-maturity investments and loans and receivables :

Amortised cost using the effective interest method

3) Available-for-sale financial assets :

Measured at FV Changes in FV directly in equity, except for :

Interest, calculated using the effective interest method

Impairment losses

Foreign exchange gains and losses on monetary financial assets

Financial liabilities

They are measured at amortised cost using the effective interest method, with these exceptions :

At FVTPL (including derivatives)

Arising on the transfer of a financial asset

Hedged items

1.7. Amortized cost (exo !!)

Amount at which the financial asset or liability is measured at initial recognition

- Principal payments

+ (or -) the cumulative amortization using the effective interest method of any difference

- any reduction for impairment or uncollectability

The effective interest rate = rate that exactly discounts estimated future cash payments

(trouver le taux dactualisation des futurs cash-flows = montant le plus proche possible de linitial)

All financial asset (exception : FVTPL) should be reviewed for impairment.

2. Overview of income taxes

Tax expense (tax income) = current tax expense (income) + deferred tax expense (income)

2.1. Definitions

Deferred tax liabilities : the amounts of income taxes payable in future periods in respect of taxable

temporary difference.

Deferred tax assets : the amounts of income taxes recoverable in future periods in respect of

deductible temporary difference & carry forward of unused losses and tax credits.


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2.2. Temporary differences

sources : adjustments associated with the 1st

time adoption of IFRS

They are differences between the carrying amount of an asset or liability in the balance sheet and its

tax base. Temporary differences may be either :

1) 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

2) 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.

2.3. Tax base

The tax base of an asset or liability is the amount attributed to that asset or liability for tax purposes.

2.3.1. Tax base of an asset

It 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.

2.3.2. The tax base of a liability

It represents 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.

2.4. Recognition of deferred tax liabilities (DTL)

A DTL should be recognised for all taxable temporary differences unless the deferred tax liability

arises from :

- The initial recognition of goodwill

- The initial recognition of an asset or liability in a transaction which :

is not a business combination

at the time of the transaction, affects neither accounting profit nor taxable profit/loss


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2.5. Recognition of deferred tax assets (DTA)

A DTA should be recognised for all deductible temporary to the extent that it is probable (more likely

than not) that taxable profit will be available against which the deductible temporary difference can

be utilised unless the DTA arises from :

- The initial recognition of an asset or liability in a transaction which :

is not a business combination

at the time of the transaction, affects neither accounting profit nor taxable profit/loss


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7. REVENUE & INVENTORY

Inventories (IAS 2)

Definitions

Components of cost

Measurement (lower of cost or net realisable value)

Revenue (IAS 18)

Definitions

Application of the definition on examples

1. IAS 18 Revenue

1.1. Definition

Gross inflow of economic benefits arising in the ordinary course of activities resulting in increases in

equity but not contributions from shareholders.

recognition of revenue from sale of goods, rendering of services, interest, royalties and dividends

Revenue should be measured at the fair value.

1.2. Sale of goods - Recognition

- Significant risks and rewards of ownership transferred

- Managerial involvement and control ceased

- Revenue can be measured reliably

- It is probable that economic benefits will flow to the enterprise

- Costs can be measured reliably

In most cases, the transfer of risks and rewards of ownership coincides with the transfer of the legal

title or the passing of possession to the buyer.

In other cases, the transfer of risks and rewards of ownership occurs at a different time.

Example : when the goods are shipped subject to installation and the installation is a significant

part of the contract which has not yet been completed by the enterprise; and when the buyer has

the right to rescind the purchase for a reason specified in the sales contract and the enterprise isuncertain about the probability of return.


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If insignificant risks retained => revenue recognised

Example : a seller may retain the legal title to the goods solely to protect the collectability of the

amount due.

1.3. Rendering of services - recognition

If the outcome can be estimated reliably, in example :

- revenue can be measured reliably

- probable economic benefits

- stage of completion & costs incurred and costs to complete can be measured reliably

=> revenue recognised based on stage of completion (achvement).

=> under this method, recognition of revenue in the accounting periods (where services are rendered)

2. IAS 2 Inventories

2.1. Definition

Inventories are 3 types of assets :

- held for sale in the ordinary course of business

- in the process of production

- raw materials or supplies to be consumed in the production process or in the rendering of services

2.2. Cost of inventories

- cost of purchases : purchase price, import duties, non-recoverable taxes, transport,

- cost of conversion : costs directly related to units of production, direct materials, direct labour,

systematic allocation of :

fixed production overheads

variable production overheads

2.3. Measurement of cost

- Cost formulas : FIFO or Weighted Average (ATTENTION !! LIFO prohibited !!)

- Consistency : use same cost formula for inventories of similar nature and use

Valued at the lower of cost or net realisable value (NRV)

ifrs pauline gowie

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