Accounting Standards Flashcards

Vocabulary flashcards from lecture notes on accounting standards

Non-Cash Transactions

Transactions that do not involve actual cash inflows or outflows.

Accounting for Selling Machinery in Cash Flow Statement

Reporting the full cash received from the sale as a cash inflow from investing activities and Adjusting the operating profit by deducting the profit on sale to arrive at cash flows from operating activities.

Financing Activity

An accounting activity related to the company's equity, such as buying back its own shares, which reduces the company's equity and is a form of financing.

Revaluation Method (IAS 16)

A method where the asset's value is updated to its fair value each year.

Net Book Value (NBV)

The net book value of an asset after deducting accumulated depreciation.

Revaluation Reserve

A special reserve in equity used to record gains from the revaluation of assets.

Changes in Accounting Estimates

Changes are applied prospectively, affecting the current and future periods, not prior ones.

Recoverable Amount

The higher of fair value less costs to sell or value in use.

Impairment Loss

An expense recognized when an asset's carrying amount (book value) is higher than its recoverable amount.

Capitalizing Borrowing Costs

Costs related to borrowing funds for the construction of an asset that can be added to the asset's cost under specific conditions.

Qualifying Asset

An asset that takes a substantial time to get ready for its intended use or sale.

Defined Benefit Plan

A plan where an employer promises specific benefits to employees upon retirement, based on factors like salary and years of service.

Interest Cost (Employee Benefits)

An expense reflecting the increase in the present value of future benefits due to the passage of time.

Actuarial Gains/Losses

Gains or losses resulting from changes in actuarial assumptions used to estimate the present value of retirement benefits.

Service Cost

The cost recognized when an employer changes the terms of a defined benefit plan, such as increasing the benefit formula.

Termination Benefits

Benefits provided to employees upon termination of their employment.

Cash-Generating Unit (CGU)

A group of assets that generates cash inflows largely independent of the cash inflows from other assets or groups of assets.

Recoverable amount

The value it can generate

Impairment Charge

An accounting write-down of the value of an asset when its carrying amount exceeds its recoverable amount.

Impairment Reversal

Restoring the value of an asset after an impairment loss has been recognized, up to the original book value before impairment.

Unwinding of Discount

The increase in value in use due to the passage of time, which brings future cash flows closer, increasing their present value.

Website Development Costs

Costs of advertising and promotion are generally not capitalized

Research Project Capitalization

The company must demonstrate its intention and available resources to complete the project, and how it will generate future economic benefits

Exclusive License Acquisition

Separately acquired intangible assets are recognized at cost, which includes the purchase price and directly attributable costs

Development Costs Capitalization

Development costs can only be capitalized from the point in time when all the capitalization criteria are met

Revaluation Model for Unrecognized Licenses

The revaluation model can only be applied to intangible assets if they are initially recognized and an active market exists for them

Change in Useful Life (Intangible Asset)

Changes in the useful life of intangible assets are applied prospectively

Amortization of Product Distribution Rights

Amortization begins when the intangible asset is available for its intended use

100% Acquisition (Full Goodwill Implicit)

All identifiable assets and liabilities of the acquired entity are remeasured at fair value at the acquisition date

Goodwill

The excess of the consideration paid over the fair value of the net identifiable assets acquired

80% Acquisition (Partial Goodwill)

Non-controlling interests are measured at its proportionate share of the acquired entity's identifiable net assets at fair value

80% Acquisition (Full Goodwill)

Non-controlling interests are measured at fair value

Acquiring Remaining NCI

Transactions where the parent acquires additional shares from non-controlling interests are treated as equity transactions

True/False Statements: Meet the Definition

A group of assets and liabilities to be disposed of together as a single transaction

True/False Statements: Measurement Requirements

Disposal groups are measured at the lower of carrying amount and fair value less costs to sell

Impairment on CGUs (Before and After HFS Classification)

Assets are tested for impairment before being classified as held for sale, and then again at the date of classification

Impairment Loss Allocation in a Disposal Group

Impairment loss for a disposal group is allocated first to goodwill, then pro-rata to other non-current assets within IFRS 5's measurement scope

SPPI Test

An acronym that represents the test for 'solely payments of principal and interest,' crucial for classifying debt instruments. It determines whether interest includes only consideration for the time value of money and credit risk.

Business Model Assessment

Used in assessing financial assets in IFRS 9, determined at a level reflecting how groups of assets are managed to achieve business objectives, allowing aggregation into portfolios.

"Hold to Collect and Sell" Business Model

A business model where an entity manages financial assets both to collect contractual cash flows and expects to sell them, often used for funding capital expenditures.

FVPL Designation for HTC/HTCS

A fair value option allows designation of financial assets as FVPL even if they meet HTC/HTCS business models to address accounting mismatches.

Provision Matrix Calculation

Calculates expected credit loss on trade receivables, considering historical default rates, current conditions, and forward-looking information to reflect aging receivables.

Basic Consolidation (100% Subsidiary) and Goodwill Calculation

Guiding how to consolidate financial statements by adding all line items and eliminating the parent's investment against the subsidiary's equity at the acquisition date, recognizing excess consideration as goodwill.

Fair Value Hierarchy

Refers to the valuation hierarchy within IFRS 13 for fair value measurement that prioritizes observable market prices over unobservable inputs for valuing assets and liabilities.

Fair value

Identfied as the price received to sell an asset, reflecting the price in the principal or most advantageous market.

Contract Modification, Illustrative Example: Allocate Remaining Consideration

Occurs when distinct goods are added to a contract with a price not reflecting standalone selling price. The remaining obligations are treated as a combined new contract, and remaining consideration is allocated across them.

Material Rights, Illustrative Example: Loyalty Points

A future benefit offered to a customer that they would not receive without entering the contract. A portion of the transaction price allocates to this right and is recognized as revenue when exercised or expired.

Variable Considerations, Illustrative Example: Coupons

Items such as such as discounts, rebates, penalties, are included in the transaction price if probable that revenue reversal will not occur. The amount can be estimnated using the expected value method.

Co-Advertising, Illustrative Example: Distinct Service vs. Revenue Reduction

Payments to customers are accounted for as an expense if the customer provides a distinct service at fair value. Otherwise, they are treated as a reduction of revenue.

Allocating Transaction Price (Additional Cash Incentive), Illustrative Example: Rebates

This requires that a sales rebate to the customer requires that is allocated to satisfied performance obligations to both satisfied and unsatisfied performance obligations.

Right to Payment, Illustrative Example: Property Developer Revenue

Requires that revenue is not recognized over time for the sale of an apartment if the seller can not be compensated for cash above the 10% that is for lost project

Costs to Obtain a Contract, Illustrative Example: Sales Commission

Requires that comissions are ecognized as an asset and amortized it as revenue is recognized

Lease Term

Requires seperation of the lease payment for different categories such as: lease component vs CAM

Opening Balance Sheet Question: First IFRS Financial Statements Definition

Specifies whether annual financial statements formally declare compliance with IFRSs, marking the adoption date.