GRIPPING IFRS GRADED QUESTIONS-COMPLETE BOOK, 31 CHAPTERS IN COMBINED FORM. IF ANYONE HAVE UNIQUE STUDY MATERIAL FOR CA/ACCA STUDENTS PLEASE SEND US @ [email protected] THOSE MATERIAL WILL BE UPLOADED OVER HERE BY NAME OF THE SENDER. Emmanuel Manda on ACCA MOCKS-F5,F6,F7. PwC's Manual of accounting (IFRS volumes 1 & 2 and the IFRS supplement ) provide practical guidance on the IFRSs issued by the. Gripping-IFRS VOL1-Complete ( EDITION).pdf - Ebook download as PDF File .pdf), Text File .txt) or read book online.

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Gripping IFRS Complete - Ebook download as PDF File .pdf), Text File .txt) or read book online. IFRS. Gripping, Gripping IFRS , Rs, Net Rs Javid, Consolidated Financial Statement (Edition ), Rs, Net Rs ACCA ( Bpp), SBR. Download GRIPPING IFRS GRADED QUESTIONS & SOLUTIONS for IFRS, not it has launched new book not only to understand but to have grip on the IFRS.

The foremost qualification for IASB membership is technical expertise. This requires: selecting and applying appropriate accounting policies presenting information in a manner that provides relevant, reliable, comparable and understandable information providing additional disclosures where the requirements in IFRSs are insufficient to meet users needs. IAS 1, para 17 Inappropriate accounting treatments are not rectified either by disclosure of accounting policies used or by notes or explanatory material. Faithful representation forms part of the discussion of reliable information qualitative characteristic of useful information as addressed in the framework. IAS 1 p13 states that fair presentation requires faithful representation of transactions and elements as defined in the framework. As a result, IAS 1, p13, therefore requires a user to incorporate the principles set out in the framework although it is not an IFRS as well as the definitions of the elements, so as to achieve fair presentation. Reliability; and Relevance; Understandability Since entities are allowed to use a variety of measurement models to report their financial information, understandability is impaired. For example, IAS 16 Property, plant and equipment allows the cost model or the revaluation model to be used for different classes of assets: users may not understand how different classes of property, plant and equipment can be measured using different measurement models. Comparability Comparability amongst similar entities is impaired by permitting choice between measurement models and further detracts from their understandability. For example, two similar entities may choose different models i. Reliability With regard to IAS 16 Property, plant and equipment , for example, the cost model may be argued to be more reliable than the revaluation model.

On the other hand, it is unlikely to provide relevant values for the statement of financial position as the depreciated cost is unlikely to have any relevance to its true value. Relevance The fair value and revaluation models are more likely to produce relevant values, but may be criticized as being unreliable in the absence of active markets.

The fair value and revaluation models aid comparability as similar assets with differing historical costs could be reported as the same value in the statement of financial position. It may, however, be noted that fair value accounting can also detract from comparability in extremely volatile markets. Conclusion: It can be seen that it is difficult to successfully meet all four qualitative characteristics. The providers of risk capital and their advisers are concerned with the risk inherent in, and return provided by, their investments.

They need information to help them determine whether they should download, hold or sell.

Shareholders are also interested in information which enables them to assess the ability of the entity to pay dividends. Employees and their representative groups are interested in information about the stability and profitability of their employers.

They are also interested in information which enables them to assess the ability of the entity to provide remuneration, retirement benefits and employment opportunities. Lenders are interested in information that enables them to determine whether their loans, and the interest attaching to them, will be paid when due. Suppliers and other trade creditors. Suppliers and other creditors are interested in information that enables them to determine whether amounts owing to them will be paid when due.

Trade creditors are likely to be interested in an entity over a shorter period than lenders unless they are dependent upon the continuation of the entity as a major customer. Customers have an interest in information about the continuance of an entity, especially when they have a long-term involvement with, or are dependent on, the entity.

ICAP (Pakistan)

Governments and their agencies. Governments and their agencies are interested in the allocation of resources and, therefore, the activities of entities. They also require information in order to regulate the activities of entities, determine taxation policies and as the basis for national income and similar statistics.

Entities affect members of the public in a variety of ways. For example, entities may make a substantial contribution to the local economy in many ways including the number of people they employ and their patronage of local suppliers. Financial statements may assist the public by providing information about the trends and recent developments in the prosperity of the entity and the range of its activities.

As investors are providers of risk capital to the entity, the provision of financial statements that meet their needs will also meet most of the needs of other users that financial statements can satisfy.

Measurement: The measurement on initial recognition is the invoice price i. As the machines life is used up in the manufacturing process, so the remaining future economic benefits expected 15 Chapter 1 Gripping IFRS The Pillars of Accounting through its future use will decrease. Since this decrease in the assets value occurs with no simultaneous increase in assets or decrease in liabilities, the equity of the business will be decreased.

The amount by which the assets value is reduced is therefore recognised as an expense. A gym receives a lumpsum payment of C4 from a new member for the download of a 4year membership. Required: Briefly discuss whether the lumpsum received should be recognised as income or a liability.

The definitions of both income and liability should be discussed ignore recognition criteria. Solution to example 2: an inflow income or liability?

Liability definition: The entity has an obligation to provide the member with gym facilities over the next 4 years The past event is the entitys receipt of the C4 The obligation will result in an outflow of cash, for items such as salaries for the gym instructors, electricity and rental of the gym facilities. Since all aspects of the liability definition are met, the receipt represents a liability.

Income definition: The initial lumpsum represents an increase in cash an increase in assets There is, however, an increase in liabilities since the club is now expected to provide the member with gym facilities for the next 4 years which effectively means that the gym has an equal and opposite obligation an increase in its liabilities.

Since there is no increase in equity the receipt does not represent income yet. Conclusion: At the time of the receipt, the lumpsum is recognised as a liability and journalised as follows: Bank A Income received in advance L Gym fees received as a lumpsum in advance Debit 4 Credit 4 PS. Had you not been asked to only discuss the initial lumpsum received, you could then have given the following discussion as well: As time progresses, the gym will discharge its obligation thus reducing the liability.

The amount by which the liability reduces is then released to income since it meets the definition of income: 16 Chapter 1 Gripping IFRS The Pillars of Accounting For example, after each year of providing gym facilities there is an inflow of economic benefits through the decrease in the liability: the obligation to provide 4 years of gym facilities, drops to 3 years, then 2 years, 1 more year and finally the obligation is reduced to zero.

In this way, the receipt is recognised as income on a systematic basis over the 4 years during which the the entity will incur the cost of providing these services i. In each of the 4 years during which the gym provides facilities to the member, the following journal will be processed after processing 4 of these journals, there will be no balance on the liability account and the entire C4 received will have been recognised as income.

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Debit 1 Credit 1 Income received in advance L Membership fees I Portion of the lumpsum recognised as income Example 3: staff costs an asset? Companies often maintain that their staff members constitute their biggest asset. However, the line-item people is never seen under assets in the statement of financial position. Required: Explain why staff members are not recognised as assets in the statement of financial position.

Solution to example 3: staff costs an asset? In order for staff to appear in the statement of financial position as an asset, both the following need to be satisfied: the definition of an asset; and the recognition criteria. First consider whether a staff member meets the definition of an asset. Is the staff member a resource? In fact, employees are generally referred to as human resources.

Is he controlled by the entity? Whether or not the staff member is controlled by the entity is highly questionable: it is considered that, despite the existence of an employment contract, there would always be insufficient control due to the very nature of humans. Is the staff member a result of a past event? The signing of the employment contract could be argued to be the past event.

Are future economic benefits expected to flow to the entity as a result of the staff member? It can be assumed that the entity would only employ persons who are expected to produce future economic benefits for the company. It is probable that future economic benefits will flow to the entity otherwise the entity would not employ the staff. How would one value one staff member over another? Perhaps one could calculate the present value of their future salaries, but there are two reasons why this is unacceptable.

Consider the following: Can you reliably measure the cost of a staff member? If one were to use future expected salaries and other related costs, consider the number of variables that would need to be estimated: the period that the staff member will remain in the employ of the entity, the inflation rate over the expected employment period, the fluctuation of the currency, the future performance of the staff 17 Gripping IFRS The Pillars of Accounting member and related promotions and bonuses.

You will surely then agree that a reliable measure of their cost is really not possible. Since it is evident that we cannot reliably measure the cost of a staff member, can one reliably measure their value in another way? The value of a staff member to an entity refers to the value that he or she will bring to the entity in the future.

It goes without saying that there would be absolutely no way of assessing this value reliably! Staff members may therefore not be recognised as assets in the statement of financial position for two main reasons: there is insufficient control over humans; and it is not possible to reliably measure their cost or value.

IAS 1: Presentation of financial statements: an overview 5. The main reasons given by the IASB for revising IAS 1 included: an intention to aggregate financial information on the basis of shared characteristics, thus: changes in equity that are due to transactions with owners in their capacity as owners are included in the statement of changes in equity; whereas changes in equity that are not due to transactions with owners in their capacity as owners are included in the statement of comprehensive income; convergence with the USAs FASB Statement No.

It therefore is not designed to meet the needs of non-profit entities. It is also not designed to meet the needs of condensed interim financial statements, although five of the eight general features in IAS 1 should be applied to interim financial statements: fair presentation and compliance with IFRSs going concern accrual basis of accounting materiality and aggregation offsetting.

If an entity does not have such equity, the presentation of owners interests would need to be adapted. Financial statements are designed to be a structured representation of an entitys financial position, financial performance and cash flows that is useful to a wide range of users in making economic decisions; and showing the results of managements stewardship of the resources entrusted to it.

Impracticable: Applying a requirement is impracticable when the entity cannot apply it after making every reasonable effort to do so.

Materiality of omissions and misstatements of items: Omissions and misstatements are material if they could individually or collectively influence the economic decisions that users make on the basis of the financial statements.

Materiality depends on the size and nature of the omission or misstatement judged in the surrounding circumstances. The size or nature of the item, or a combination of both, could be the determining factor. Notes: provide narrative descriptions or disaggregations of items presented in the other financial statements e. Profit or loss: is the total of income less expenses, excluding the components of other comprehensive income.

Other comprehensive income: Comprises items of income and expense including reclassification adjustments That are either not required or not permitted to be recognised in profit or loss. The components of other comprehensive income include: 19 Gripping IFRS The Pillars of Accounting a Changes in revaluation surplus IAS 16 Property, plant and equipment and IAS 38 Intangible assets ; b Actuarial gains and losses on defined benefit plans being those recognised in accordance with paragraph 93A of IAS 19 Employee Benefits ; c Gains and losses arising from translating the financial statements of a foreign operation IAS 21 The effects of changes in foreign exchange rates ; d Gains and losses on remeasuring available-for-sale financial assets IAS 39 Financial instruments: recognition and measurement ; e The effective portion of gains and losses on hedging instruments in a cash flow hedge IAS 39 Financial instruments: recognition and measurement.

Total comprehensive income: Is the change in equity during a period resulting from transactions and other events, other than those changes resulting from transactions with owners in their capacity as owners.

In addition to the requirements of the legal statute of the country, IAS 1 Presentation of Financial Statements requires that where companies do comply with international financial reporting standards and the interpretations thereof in their entirety , disclosure of this fact must be made in their financial statements. By implication, those companies that do not comply, may not make such a declaration. It is obviously beneficial to be able to make such a declaration since it lends credibility to the financial statements, makes them understandable to foreigners and thus encourages investment.

The Pillars This section and the entire chapter relates to what I call the pillars of accounting, a very important area, without which the top floor of your knowledge cannot be built. The foundations of this building were built in prior years of accounting study. If you feel that there may be cracks in your foundation, right now is the time to fix them by revising your work from prior years.

Please read this chapter very carefully because every other chapter in this book will assume a thorough understanding thereof. It sets out the: objective of financial statements, that is to say, the information that each component of a set of financial statement should offer; underlying assumptions inherent in a set of financial statements; qualitative characteristics that the financial statements should have; elements in the financial statements assets, liabilities, equity, income and expenses ; recognition criteria that need to be met before the element may be recognised in the financial statements; measurement bases that may be used when measuring the elements; and concepts of capital and capital maintenance.

IFRSs are designed to be used by profit-orientated entities commercial, industrial and business entities in either the public or private sector when preparing general purpose financial statements i. IAS 1 has as its main objective comparability and with this in mind, sets out: the purpose of financial statements; the general features of a set of financial statements; the structure and minimum content of the five main components of financial statements: the statement of financial position as at the end of the period ; the statement of comprehensive income for the period ; the statement of changes in equity for the period ; the statement of cash flows for the period ; and the notes to the financial statements; other presentation issues, such as how to differentiate between items that are considered current and those that are considered non-current necessary when drawing up the statement of financial position.

The Framework 4. It is important to note that users are not limited to shareholders and governments, but include, amongst others, employees, lenders, suppliers, competitors, customers and the general public. The four main qualities that a set of financial statements should have are listed as follows: understandability relevance reliability comparability.

Although one must try to achieve these qualitative characteristics, the Framework itself admits to the difficulty in trying to achieve a balance of characteristics. For example: to ensure that the information contained in a set of financial statements is relevant, one must ensure that it is published quickly.

This emphasis on speed may, however, affect the reliability of the reports. This balancing act is the fifth attribute listed to in the Framework, and is referred to as constraints on relevant and reliable information. If the four principal qualitative characteristics and the Standards are complied with, one should achieve fair presentation, which is the sixth and final attribute listed in the Framework. The predictive and confirmatory role of the financial statements is therefore very important to 9 Chapter 1 Gripping IFRS The Pillars of Accounting consider when presenting financial statements.

By way of example, unusual items should be displayed separately because these, by nature, are not expected to recur frequently; materiality of the items: Consider the materiality of the size of the item or the potential error in user-judgement if it were omitted or misstated; nature: For example, reporting a new segment may be relevant to users even if profits are not material.

Materiality is a term that you will encounter very often in your accounting studies and is thus important for you to understand. The Framework explains that you should consider something an amount or some other information to be material: if the economic decisions of the users could be influenced if it were misstated or omitted.

Materiality is considered to be a threshold or cut-off point to help in determining what would be useful to users and is therefore not a primary qualitative characteristic. For example, all revenue types above a certain amount may be considered to be material to an entity and thus the entity would disclose each revenue type separately. Sometimes events or transactions can be so difficult to measure that the entity chooses not to include them in the financial statements. The most common example of this is the internal goodwill that the entity is probably creating but which it cannot recognise due to the inability to clearly identify it and the inability to measure it reliably.

A typical example here is a lease agreement the legal document. The term lease that is used in the legal document suggests that you are borrowing an asset in exchange for payments rental over a period of time.

Many of these so-called lease agreements result in the lessee the person borrowing the asset keeping the asset at the end of the rental period. This means that the lease agreement is actually, in substance, not a lease but an agreement to download the lessee was actually downloading the asset and not renting the asset.

This lease is referred to as a finance lease, but as accountants, we will recognise the transaction as a download and not as a pure lease. Bias is the selection or presentation of information in such a way that you achieve a pre-determined result or outcome in order to influence the decisions of users. The idea behind prudence is to: avoid overstating assets and income, and avoid understating liabilities and expenses, but without : creating hidden reserves and excessive provisions, or deliberately understating assets and income, or overstating liabilities and expenses for reasons of bias.

This is because omission of information could be misleading and result in information that is therefore unreliable and not relevant. Immaterial items may be excluded if too costly to include. As a result of requiring comparability, users need to be provided with information for the comparative year and should be provided with the accounting policies used by the entity and any changes that may have been made to the accounting policies used in a previous year.

These constraints are essentially time and money: timeliness: the financial statements need to be issued soon after year-end to be relevant, but this race against time leads to reduced reliability; and cost versus benefit: to create financial statements that are perfect in terms of their relevance and reliability can lead to undue effort, with the result that this benefit is outweighed by the enormous cost to the entity; and a balance among the qualitative characteristics.

Chapter19 foreigncurrencytransactions

Bearing in mind that only fresh information is relevant, the financial statements of a business are not relevant to a user in who is trying to decide whether or not to invest in that business. The problem is, in the rush to produce relevant and timely financial statements, there is a greater risk that they now contain errors and omissions and are thus unreliable. This balancing act is compounded by the constraint of cost. Money is obviously a constraint in all profit organisations whose basic idea is that the benefit to the business should outweigh the cost.

To produce financial statements obviously costs the business money, but this cost increases the faster one tries to produce them due to costs such as overtime and the better one tries to do them more time and better accountants cost more money. Businesses often 11 Chapter 1 Gripping IFRS The Pillars of Accounting find this a difficult pill to swallow because, on the face of it, it is the business that incurs these costs and yet it is the user who benefits.

It should be remembered, however, that the benefits are often hidden. If the user or bank is suitably impressed by your financial statements, the business may benefit by more investment, higher share prices, lower interest rates on bank loans and more business partners, ventures and opportunities.

Once recorded, the element will be included in the journals, trial balance and then in the financial statements. An item may only be recognised when it: meets the relevant definitions i. Assets or liabilities must meet the recognition criteria in full must be measured reliably and the flow of benefits must be probable. Income or expenses need not meet the recognition criteria in full: they only need to be measured reliably.

It is important to read the definition of income and expense again and grasp how these two elements may only be recognised when there is a change in the carrying amount of an asset or liability. This means that for an item of income or expense to be recognised, the definition of asset or liability would first need to be met.

To do this, we need an amount. The term measurement refers to the process of deciding or calculating the amount to use in this journal entry. There are a number of different methods that may be used to measure the amounts of the individual elements recognised in the financial statements, some of which are listed below: The historical cost method - measures an asset at the actual amount paid for it at the time of the acquisition; and - measures the liability at the amount of cash or other asset received as a loan or at the actual amount to be paid to settle the obligation in the normal course of business.

The present value method - measures an asset at the present value of the future cash inflows i. The realisable value method - measures an asset at the cash amount for which it can be currently sold in an orderly disposal; and - measures liabilities at the actual amount of cash undiscounted that would be required to settle the liability during the normal course of business.

The current cost method - measures an asset at the amount that would currently have to be paid if a similar asset were to be acquired today; and - measures liabilities at the actual amount of cash undiscounted that would be required to settle the liability today. There are a variety of combinations of the above methods, many of which are largely dictated by the relevant standard.

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