acca1 dipac framework_presentation_revenue_change in acc policies_ income tax

TO BE SCANNED IN STILL .......................................................................................................................................................................................................... 7 (A ........................................................................................................................................................................................................................................................ 8 (C)TERMS: ..............................................................................................................................................................................................................................................................8 (D) TRICKS: ............................................................................................................................................................................................................................................................8PARTNERSHIPS:.....................................................................................................................................................................................................................................................................8 COMPANIES. .............................................................................................................................................................................................................................................................................9

(E) EXAM TIPS: .....................................................................................................................................................................................................................................................9general ..............................................................................................................................................................................................................................................................................................9 partnerships ...................................................................................................................................................................................................................................................................................9 Statement of changes in equity and share transactions: ..........................................................................................................................................................................................9

EFFECTIVE INTEREST RATE METHOD............................................................................................................................................................................... 10 1 CONCEPTUAL FRAMEWORK .............................................................................................................................................................................................. 12 WHAT IS A FRAMEWORK / conceptual framework: ..................................................................................................................................................................... 12 1-The SCOPE of the framework: ............................................................................................................................................................................................................. 12 PURPOSE AND STATUS OF THE FRAMEWORK ............................................................................................................................................................................... 12A) PURPOSE OF THE FRAMEWORK .................................................................................................................................................................................................................... 12 B) STATUS OF THE FRAMEWORK ....................................................................................................................................................................................................................... 13

USERS OF FINANCIAL STATEMENTS : THE SPECIFIC INFORMATION NEEDS OF EQUITY INVESTORS AND THE GENERAL INFORMATION NEEDS OF OTHER USERS , specify the users and their need for information . .................................................................................... 13 DEFINE THE OBJECTIVE OF FINANCIAL STATEMENTS .............................................................................................................................................................. 13 THE QUALITATIVE CHARACTERISTICS OF FINANCIAL STATEMENTS: define and discuss, and apply them to fair presentation and measurement issues to enhance the decision-usefulness of financial reporting................................................................................................................. 14The 2 FUNDAMENTAL QUALITATIVE CHARACTERISTICS: are ....................................................................................................................................................................... 14 1. 2. RELEVANCE .............................................................................................................................................................................................................................................................. 14 FAITHFUL REPRESENTATION......................................................................................................................................................................................................................... 15 2.1.1. 2.1.2. 2.1.3. COMPLETE .................................................................................................................................................................................................................................................... 15 NEUTRAL ....................................................................................................................................................................................................................................................... 15 FREE FROM ERROR .................................................................................................................................................................................................................................. 15

The 4 ENHANCING QUALITATIVE CHARATERISTICS : are ................................................................................................................................................................................. 15 1.1. COMPARABILITY .............................................................................................................................................................................................................................................. 15 1.2. VERIFIABILITY :................................................................................................................................................................................................................................................ 15 1.2.1. MEANS it is necessary to disclose underlying assumptions & methods of compiling info & other factors that support the info, so users can verify it themselves. ..................................................................................................................................................................................................................................... 15 1.2.2. Means different knowledgable & independent observers could reach consensus on the same issue. .................................................................. 15 1.3. TIMELINESS : ..................................................................................................................................................................................................................................................... 15 1.3.1. In time to influencetheusers decisionsnot 10 years later......................................................................................................................................................... 15 1.4. UNDERSTANDABILITY .................................................................................................................................................................................................................................. 15 1.5. THIS ONE HAS BEEN SCRAPPED AS FROM 2012 : no more prudent or complete RELIABILITY...................................................................... 16

THE UNDERLYING ASSUMPTION OF FINANCIAL STATEMENTS. ........................................................................................................................................ 16 The 5 ELEMENTS OF FINANCIAL STATEMENTS ............................................................................................................................................................................ 16 RECOGNITION CRITERIA OF ALL ALL ALL ALL ALL ELEMENTS OF FINANCIAL STATEMENTS ................................................................................ 18 MEASUREMENT BASES TO MEASURE THE ELEMENTS : THE FOUR DIFFERENT TYPES. ............................................................................................ 19 CONCEPTS OF CAPITAL AND CAPITAL MAINTENANCE .............................................................................................................................................................. 19LEGAL BACKING FOR COMPLIANCE. .............................................................................................................................................................................................................................. 20 DESCRIBE THE PROCESSES INVOLVED IN DRAFTING AND SETTING STANDARDS OF GENERALLY ACCEPTED ACCOUNTING PRACTICE. ........... 20

1 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax.

MATCHING CONCEPT ............................................................................................................................................................................................................................................................. 20

.QUESTIONS GIVEN BY SAICA ABOUT FRAMEWORK 2011 . ...................................................................................................................................... 22 The South African Institute of Chartered Accountants includes the following study objectives, for external financial reporting, that students must learn in their curriculum: ............................................................................................................................................................................................ 22 KEY QUESTIONS TO BE ABLE TO ANSWER : as per SAICA, and UNISA key questions for this chapter: .............................................................. 22 THE IASB FRAMEWORK GENERAL POINTS, ARRRANGED ACCORDING TO QUESTIONS THAT ARE REQUIRED TO BE ABLE TO BE ANSWERED , GIVEN NEARLY VERTABIM BY SAICA AND UNISA, FOR STUDENTS TO BE ABLE TO ANSWER(syllabus key points): .......... 231-BACKGROUND : Explain the (a) need for and the (b) application of a 1-conceptual framework and 2-standards for financial reporting. .......... 23

WHAT IS A FRAMEWORK / conceptual framework: ..................................................................................................................................................................... 23 1-The SCOPE of the framework: ............................................................................................................................................................................................................. 24 PURPOSE AND STATUS OF THE FRAMEWORK ............................................................................................................................................................................... 24A) PURPOSE OF THE FRAMEWORK .................................................................................................................................................................................................................... 24 B) STATUS OF THE FRAMEWORK ....................................................................................................................................................................................................................... 24

USERS OF FINANCIAL STATEMENTS : THE SPECIFIC INFORMATION NEEDS OF EQUITY INVESTORS AND THE GENERAL INFORMATION NEEDS OF OTHER USERS , specify the users and their need for information . .................................................................................... 24 DEFINE THE OBJECTIVE OF FINANCIAL STATEMENTS .............................................................................................................................................................. 25 THE QUALITATIVE CHARACTERISTICS OF FINANCIAL STATEMENTS: define and discuss, and apply them to fair presentation and measurement issues to enhance the decision-usefulness of financial reporting................................................................................................................. 25The 2 FUNDAMENTAL QUALITATIVE CHARACTERISTICS: are ....................................................................................................................................................................... 26 3. 4. RELEVANCE .............................................................................................................................................................................................................................................................. 26 FAITHFUL REPRESENTATION......................................................................................................................................................................................................................... 26 4.1.1. 4.1.2. 4.1.3. COMPLETE .................................................................................................................................................................................................................................................... 26 NEUTRAL ....................................................................................................................................................................................................................................................... 26 FREE FROM ERROR .................................................................................................................................................................................................................................. 27

The 4 ENHANCING QUALITATIVE CHARATERISTICS : are ................................................................................................................................................................................. 27 1.6. COMPARABILITY .............................................................................................................................................................................................................................................. 27 1.7. VERIFIABILITY :................................................................................................................................................................................................................................................ 27 1.7.1. MEANS it is necessary to disclose underlying assumptions & methods of compiling info & other factors that support the info, so users can verify it themselves. ..................................................................................................................................................................................................................................... 27 1.7.2. Means different knowledgable & independent observers could reach consensus on the same issue. .................................................................. 27 1.8. TIMELINESS : ..................................................................................................................................................................................................................................................... 27 1.8.1. In time to influencetheusers decisionsnot 10 years later......................................................................................................................................................... 27 1.9. UNDERSTANDABILITY .................................................................................................................................................................................................................................. 27 1.10. THIS ONE HAS BEEN SCRAPPED AS FROM 2012 : no more prudent or complete RELIABILITY...................................................................... 27

THE UNDERLYING ASSUMPTION OF FINANCIAL STATEMENTS. ........................................................................................................................................ 28 The 5 ELEMENTS OF FINANCIAL STATEMENTS ............................................................................................................................................................................ 28RECOGNITION CRITERIA OF ALL ALL ALL ALL ALL ELEMENTS OF FINANCIAL STATEMENTS ..................................................................................................... 30 MEASUREMENT BASES TO MEASURE THE ELEMENTS : THE FOUR DIFFERENT TYPES. .................................................................................................................. 30 CONCEPTS OF CAPITAL AND CAPITAL MAINTENANCE ....................................................................................................................................................................................... 31 CURRENT OR NON-CURRENT DISTINCTION ,ASSETS & LIABILITES............................................................................................................................................................. 32 LEGAL BACKING FOR COMPLIANCE. .............................................................................................................................................................................................................................. 33 KNOW OF, UNDERSTAND AND EXPLAIN THE MEANING OF FAIR PRESENTATION. ............................................................................................................................ 33 DESCRIBE THE PROCESSES INVOLVED IN DRAFTING AND SETTING STANDARDS OF GENERALLY ACCEPTED ACCOUNTING PRACTICE. ........... 33 MATCHING CONCEPT ............................................................................................................................................................................................................................................................. 33 DEFINITION OF ACCOUNTING&BOOKKEEPING: ..................................................................................................................................................................................................... 33

The Application of statements of GAAP ............................................................................................................................................................................................... 34 UNIVERSAL ACCOUNTING DENOMINATOR The common unit of measurement in Acc. is money. ............................................................................. 34


The Components of Fin stats( some dof addition from old 2010 framework now removed in 2012 framwork )s ........................................................... 34

2..PRESENTATION : IAS1 ..................................................................................................................................................................................................... 36 1) Background SCOPE AND OBJECTIVES OF FIN. STATS. ............................................................................................................................................................ 36 2)General Features for the Presentation of Fin Stats. ................................................................................................................................................................... 36FAIR PRESENTATION AND COMPLIANCE WITH IFRSs : ..................................................................................................................................................................................... 36 GOING CONCERN : for 12 mnths from fin. Stat. date : or....................................................................................................................................................................................... 37 ACCRUAL BASIS: ....................................................................................................................................................................................................................................................................... 37 MATERIALITY AND AGGREGATION : ............................................................................................................................................................................................................................ 37 OFFSETTING ............................................................................................................................................................................................................................................................................... 37 FREQUENCY OF REPORTING : ........................................................................................................................................................................................................................................... 37 COMPARATIVE INFORMATION:........................................................................................................................................................................................................................................ 38 CONSISTENCY OF PRESENTATION: ................................................................................................................................................................................................................................ 38

5)Jse Listing Requirements: ..................................................................................................................................................................................................................... 38CURRENT OR NON-CURRENT DISTINCTION ,ASSETS & LIABILITES............................................................................................................................................................. 39

ACTUAL FINANCIAL STATEMENTS : STRUCTURE AND CONTENT OF FINANCIAL STATEMENTS ........................................................................................................... 40 GENERAL ACCOUNTING POLICY IN THE NOTES: ........................................................................................................................................................................... 40Generally accepted accounting practice ........................................................................................................................................................................................................................ 40 Accounting Policy ..................................................................................................................................................................................................................................................................... 40

Profit before tax note : ............................................................................................................................................................................................................................... 41 1) IDENTIFICATION OF FINANCIAL STATEMENTS:...................................................................................................................................................................... 41 ) COMPONENTS OF FIN STATS............................................................................................................................................................................................................... 42 SFP ..................................................................................................................................................................................................................................................................... 43GENERAL RULES ....................................................................................................................................................................................................................................................................... 43 CURRENT OR NON-CURRENT DISTINCTION ,ASSETS & LIABILITES............................................................................................................................................................. 43 IAS 1.54 AT A MINIMUM TO BE SHOWN ON FACE OF SFP ................................................................................................................................................................................. 43 EQUITY........................................................................................................................................................................................................................................................................................... 44 SFP COMPREHENSIVE SAMPLE : ...................................................................................................................................................................................................................................... 44 SFP NOTES TO THE FINANCIAL STATEMENTS : further sub-classification of SFP info. required in the notes OR on face of SFP........................... 46 NOTES TO SFP : 100% COMPREHENSIVE EXAMPLE ................................................................................................................................................................................. 47

SCI ...................................................................................................................................................................................................................................................................... 52COST OF SALES .......................................................................................................................................................................................................................................................................... 52 DIRECTORS REMUNERATION: .......................................................................................................................................................................................................................................... 53 Pensions ........................................................................................................................................................................................................................................................................................ 54 Compensation In respect of loss of office ..................................................................................................................................................................................................................... 54 Details of directors service contracts ............................................................................................................................................................................................................................ 54 SCI: AT A MINIMUM ITEMS TO BE PRESENTED ON FACE OF SCI................................................................................................................................................................... 55 SCI COMPREHENSIVE SAMPLE in NATURE and FUNCTIONS formats :. ........................................................................................................................................... 56 ONE STATEMENT FORMAT : SCI in FUNCTION of EXPENSES (note not income) FORMAT : .................................................................... 57 NATURE Format :STATEMENT OF COMPREHENSIVE INCOME ..................................................................................................................................................... 59 SCI : NOTES TO THE FINANCIAL STATEMENTS .......................................................................................................................................................................................... 59

STATEMENT OF CHANGES IN EQUITY : COMPREHENSIVE EXAMPLE: ................................................................................................................................... 63


STATEMENT OF CHANGES IN EQUITY. .............................................................................................................................................................................................. 63AS PER IAS 1 : ............................................................................................................................................................................................................................................................................. 63 PER IAS 1 : THE NOTES ................................................................................................................................................................................................................................................... 64 OWN NOTES:............................................................................................................................................................................................................................................................................... 64

3..REVENUE : IAS 18 (AC111) ; SIC31(AC431); ED204; CIRCULAR09/06; IFRIC12(AC445); IFRIC13(AC446); IFRIC 15 (AC448) 67 EXAM QUESTIONS GUIDE: ....................................................................................................................................................................................................................... 67 OBJECTIVE ...................................................................................................................................................................................................................................................... 67 scope.................................................................................................................................................................................................................................................................. 67 Recent important changes ....................................................................................................................................................................................................................... 68 definition: ........................................................................................................................................................................................................................................................ 68 MEASUREMENT AND RECOGNITION REQUIREMENTS OF REVENUE: per IAS18 ............................................................................................................ 68 1- measurement of revenue: .................................................................................................................................................................................................................... 69SUMMARY : SETTLEMENT DISCOUNT METHOD: .................................................................................................................................................................................................... 69 SUMMARY : EXTENDED PAYMENT TERMS METHOD : ......................................................................................................................................................................................... 70 5.4. 2. R ................................................................................................................................................................................................................................................................................ 71

CREDIT TERMS GRANTED / TIME VALUE OF MONEY / DEFERRED PAYMENT: ......................................................................................................................... 74 DISCOUNT RATE USED is EITHER : .......................................................................................................................................................................................................................... 75 NB : CALCULATING THE INTEREST PORTION using time value of money formula !NB! ............................................................................................................... 75 JOURNALISATION method ............................................................................................................................................................................................................................................ 76

2- Recognition of revenuE ........................................................................................................................................................................................................................ 78 NOTES : ............................................................................................................................................................................................................................................................ 78 The Basic REQUIREMENTS FOR RECOGNITION for all Revenue , no matter what type: is ............................................................................................ 79 (2) SALE OF GOODS: 6 POINTS FOR BOTH ........................................................................................................................................................................................ 791. 3. REVENUE SHALL BE RECOGNISED WHEN THE FOLLOWING CONDITIONS MUST BE SATISFIED : ..................................................................... 79 REQUIREMENT OF RELIABLE MEASUREMENT :............................................................................................................................................................................. 80

(3) RENDERING OF SERVICES:ias 18.20-28 ...................................................................................................................................................................................... 81REQUIREMENTS FOR RECOGNITION: ......................................................................................................................................................................................................... 81 1) THE PROBABILITY REQUIREMENT .............................................................................................................................................................................................................. 81 2) REQUIREMENT OF RELIABLE MEASUREMENT: .................................................................................................................................................................................... 82

INTEREST ,ROYALTIES & DIVIDENDS................................................................................................................................................................................................. 83REQUIREMENTS FOR RECOGNITION: ........................................................................................................................................................................................................................... 83 1) THE PROBABILITY REQUIREMENT .................................................................................................................................................................................................................... 83 2) REQUIREMENT OF RELIABLE MEASUREMENT ............................................................................................................................................................................................ 83 When these requirements are met then the following then applies : ....................................................................................................................................................... 83 1 - Transaction for SALE OF GOODS AND RENDERING OF SERVICES AT SAME TIME .......................................................................................................................... 85

2 - CUSTOMER LOYALTY PROGRAMS (IFRIC 13) ............................................................................................................................................................................ 86 3 - SERVICE CONCESSION ARRANGEMENTS (IFRIC 12 AC445) ............................................................................................................................................ 90 4 - AGREEMENTS FOR THE CONSTRUCTION OF REAL ESTATE: IFRIC 15 ........................................................................................................................... 91 5 - EXCHANGE TRANSACTIONS : ........................................................................................................................................................................................................... 92


5.1 EXCHANGE TRANSACTIONS involving ADVERTISING SERVICES (SIC 31/AC431)...................................................................................................................... 93

7-DISCLOSURES ............................................................................................................................................................................................................................................ 94PER IAS 18 VERTABIM: ......................................................................................................................................................................................................................................................... 94 NOTES ON EXACT DISCLOSURES FOR REVENUE: ................................................................................................................................................................................................... 94

INCOME TAXES IAS 12 , SIC 21, SIC 25 , AC501 , AC502 & CIRCULAR 1/2006 ..................................................................................................... 97 SPECIAL OWN NOTES .......................................................................................................................................................................................................................................... 97 BACKGROUND ......................................................................................................................................................................................................................................................... 99 CURRENT TAX ................................................................................................................................................................................................................................................... 99 Disclosure of Current Tax in Financial Statements ......................................................................................................................................................................100 Penalties & Interest ...................................................................................................................................................................................................................................100 GOV. GRANT : If SARS Grants Extended Payment Terms Specially To A Specific Company. .....................................................................................100 Current Income Tax on Companies:....................................................................................................................................................................................................100 Capital Gains on Companies ..................................................................................................................................................................................................................101 WITHHOLDING TAX on Companies: ...................................................................................................................................................................................................101 DEFERRED TAX:............................................................................................................................................................................................................................................. 101 INTRO: ............................................................................................................................................................................................................................................................101 STEPS OF DOING DEFERRED TAX: .....................................................................................................................................................................................................102PERMANENT DIFFERENCES ............................................................................................................................................................................................................................................ 103

STEP 1 : CALCULATING TEMPORARY DIFFERENCES .................................................................................................................................................................103HOW TAX BASE WORKS .................................................................................................................................................................................................................................................. 103 HOW TEMPORARY DIFFERENCE WORKS: .............................................................................................................................................................................................................. 104 HOW THE DEFERRED TAX WORKS: ............................................................................................................................................................................................................................ 104 EXAMPLES OF EXPENSES caused: BASES (THERE IS NO EXPENSE TAX BASE, THEY ARE ODD CASES THAT FALL IN THE OTHER 3) .......... 110 EXAMPLES OF INCOME caused : TAX BASES (THERE IS NO EXPENSE TAX BASE, THEY ARE ODD CASES THAT FALL IN THE OTHER 3) ..... 111 TAX BASE OF AN ASSET ..................................................................................................................................................................................................................................................... 111 6 SPECIAL CASES OF ASSETS: ................................................................................................................................................................................................................................... 111 EXAMPLES OF ASSET TAX BASES: .......................................................................................................................................................................................................................... 112 TAX BASE OF LIABILITIES. ............................................................................................................................................................................................................................................... 125 TAX BASE OF REVENUE RECEIVED IN ADVANCE ................................................................................................................................................................................................. 130

STEP 2 : CHECK FOR EXEMPTIONS FROM RECOGNITION OF DEFERRED TAX for certain temp .differences .....................................................134 STEP 3 :CONSIDER LIMITATIONS FOR DEFERRED TAX ASSET FOR DEDUCTABLE TEMPORARY DIFFERENCES AND UNUSED TAX LOSSES OR CREDITS .................................................................................................................................................................................................................................1383.1). UNUSED TAX CREDITS AND UNUSED TAX LOSSES. .................................................................................................................................................................................. 139 3.2). RE- ASSEMENT EACH YEAR : at each reporting date, the following musty be re-assesed ................................................................................................... 140

STEP 4 : APPROPRIATE TAX RATES & LAWS .................................................................................................................................................................................1401 of 2 :Enacted or Substantively Enacted Tax Laws and Tax Rates .............................................................................................................................................................. 140 2 of 2 : EXPECTED MANNER OF RECOVERY: ........................................................................................................................................................................................................... 142

STEP 5: RECOGNITION OF THE DEFERRED TAX INCOME OR EXPENDITURE .................................................................................................................1431). TRANSACTION RECOGNISED OUTSIDE PROFIT & LOSS ............................................................................................................................................................................ 143


2). BUSINESS COMBINATION .......................................................................................................................................................................................................................................... 144 3). CHANGES IN DEFERRED TAX BALANCES WITHOUT CHANGES IN TEMPORARY DIFFERENCES: ........................................................................................ 144

SPECIFIC ISSUES ............................................................................................................................................................................................................................................ 1441]. CHANGES IN THE TAX STATUS OF AN ENTERPRISE or SHAREHOLDERS ............................................................................................................................. 144 2]. CHANGES IN CARRYING AMOUNTS OF INVESTMENTS IN ASSOSIATES &SUBSIDIARIES &BRANCHES &JOINT VENTURES ................................. 144 3]. DEFERRED TAX ON FINANCE LEASES ................................................................................................................................................................................................................. 145 4].WITHFOLDING TAX ON DIVIDENDS ...................................................................................................................................................................................................................... 146

FINANCIAL STATEMENT PREPARATION: ......................................................................................................................................................................................... 146 Rules 1: ias 1 REQUIREMENTS ............................................................................................................................................................................................................146 Rules 2: IAS 12 REQUIREMENTS : ......................................................................................................................................................................................................146 1). OFFSETTING..........................................................................................................................................................................................................................................146 2). Disclosure : IAS 12 REQUIREMENTS : PRESENTATION & DISCLOSURE ....................................................................................................................147 3). Discosure : IAS 12 REQUIREMENTS : THE TAX RECONCILLIATION or TAX RATE RECONCILLIATION ........................................................148 4). DISCLOSURE : ......................................................................................................................................................................................................................................151ACCOUNTING POLICIES: .................................................................................................................................................................................................................................................... 151 INCOME TAX EXPENSE NOTE : ( REFERENCE TO Income Tax Expense line item number in P&L Statement Only) ...................................................... 151 DEFERRED TAX NOTE : (REFERENCE TO Deferred Tax Balance line item number in SFP Statement Only) ...................................................... 154 Circular 1/2006 Special DISCLOSURES IN RELATION TO DEFERRED TAX: ............................................................................................................................................ 155 TAX IMPLICATIONS of CAPITALISTAION OF BORROWINGS: ......................................................................................................................................................................... 156

INCOME STATEMENT METHOD (for interest sakes)...................................................................................................................................................................156 IAS 8 CHANGE IN ACCOUNTING ESTIMATE/ERRORS ................................................................................................................................................. 158 SCOPE: ................................................................................................................................................................................................................................................................ 158 DEFINITIONS: ................................................................................................................................................................................................................................................. 158 HOW MANY YEARS BACK DO YOU DO RESTATEMENTS? (ERRORS+ ACCOUNTING POLICIES +ESTIMATES) ..................................................................... 159 IMPORTANT: (FOR ERRORS+ ACCOUNTING POLICIES +ESTIMATES).................................................................................................................................................... 159 SECTION 1 : ACCOUNTING POLICIES ................................................................................................................................................................................................... 160 APPLYING ACCOUNTING POLICIES: ...................................................................................................................................................................................................160 WHEN TO CHANGE ACCOUNTING POLICIES .................................................................................................................................................................................160 METHOD OF CHANGING ACCOUNTING POLICIES ........................................................................................................................................................................161 DISCLOSURE ................................................................................................................................................................................................................................................162 CHANGING ACCOUNTING POLICY ON INVENTORY VALUATION ...........................................................................................................................................163Deferred Tax & Temporary differences ...................................................................................................................................................................................................................... 163 General : ..................................................................................................................................................................................................................................................................................... 164

SECTION 2 : CHANGES IN ACCOUNTING ESTIMATES: .................................................................................................................................................................. 166 DISCLOSURE FOR ESTIMATES: ............................................................................................................................................................................................................166 METHOD OF DOING DEPRECIATION CHANGE . ..........................................................................................................................................................................166 ERRORS.............................................................................................................................................................................................................................................................. 167 DISCLOSURE FOR ERRORS: ( see example 1 in volume 2 IFRS application guidance) ..................................................................................................168 correcting a error of not capitalising some interest payments to an asset . .....................................................................................................................168


To be scanned in still 1. Government grants :grants related to income section : see example of complex salaries on page 328 gaap text. SCAN it in ! 2.


(A

(C)TERMS: 1) REDEEM : -1-to redeem or pay creditors / or -2- redeem a bond which is collect the payment. 2) DISTRIBUTE : TO DISTRIBUTE profit /loss between the partners in a business etc. 3) PECUNIARY (INTEREST) : asset/monetary/patrimonial/ type of interest in a matter: owes him money , or it is his car ,etc. 4) REMUNERATION ?: salary / wages for work(?salary or payment to contractor or if you buy something? 5) CONSIDERATION ?: like a payment ???? 6) RE-IMBURSEMENT: pay you back, eg: for returned goods. 7) AMORTISE :??? 8) SoFP Statement of Financial position 9) SoCI- Statement of Comprehensive Income 10) 11) Allocated : you allocate to an account, not put, eg allocate excess of the par value of shares to the share premium account. 12) Nominal amount : if shares are issued at a premium, then the premium is called the share premium and the other part is called the nominal part ie the actual share face value. 13) That will be in order , Regards xyz , instead of cool bra, cheers 14) The 3 Business Areas of an enterprise: (this is the common term for the 3 cash flow statement headings ) a) Operating activities b) Investment activities c) Finance Activities. 15) Subsidiary Ledger: the creditors&debtors ledgers etc. or other ledgers which are subsidiary to the Main General Ledger. 16) SHARES ARE CONSIDERED OUTSTANDING : WHAT DOES this phrase mean. 17) RANK :The date from which shares RANK : means the date from which they are included in the calculations for dividends or pref.dividedns etc ie effective date from which shares count. (D) TRICKS: PARTNERSHIPS: 1. If new members contribution toward goodwill is indicated , allways work out the total goodwill befor new member from this amount , even if goodwill is stated in the balance sheet( it could be a trick quetion where ther should be a revaluation before new admittal , but you only see it from this new member indication. METHOD: Then total goodwill must be 15/15 of 3/15 (if 3/15 is new members ratio) etc etc and this 15/15 MUST be in the books and already distributed before the new member is admitted. 2. Bal sheet changes : only on date of new members or fin year end .8 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax.

3. Write out Goodwill + General reserve Current accounts of partners before new/old members ALLWAYS. 4. Profit sharing allways changes partners capital account ratios. 5. If liquidation expenses are dated april ,do not take of this month already when you do the liquidation schedule , only do next month as dated!!!! 6. For Gradual liquidation: you apportion final Deficit in Liquidation account, NOT in Distribution Account! COMPANIES. 1. IF shares are issued at a discount ,A separate DISCOUNT ON ISSUE OF SHARES expense ACCOUNT is used for all discount,but shares are issued at old/ par value into Share Account, so normally, as if no discount.(plus court allow,+1 year since first issue,+special resolution specify discount rate etc)

(E) EXAM TIPS: general NOTE:IF INVENTORIES CURRENT on stock take do not match the amount in the "inventory account"(calculated amount) it is called a "deficit on inventory account" and is put as expense in the income statement ie goods stolen/lost etc.!

partnerships 1. Check for boxing/splitting of Property, Plant ,Equip into Property separate+ Plant separate+ Equip 2. Check which category loans to/or from PARTNERS are in balance sheet to deduce if to or from, AND ask lecturer which it is in case he did mean differently even if it is in the correct category of Bal Sheet for what you thought it was(to or from) 3. Check for accumulated depreciation before you do revaluations on the n-c assets.! 4. Statement of changes in equity and share transactions: Note:Rem: in exam watch out for the pref. shares given at date of current balance sheet, but the other shares at date of last balance sheet.So all this years share transactions on Pref. shares are to be subtracted from value given on balance sheet to get opening balance for this year on your Statement of changes in Equity.


EFFECTIVE INTEREST RATE METHOD1. The effective interest rate : method is simply using PV and FV to work out the interest ratefrom a transaction, if given PV and FV then you must find the interest rate that disclouts PV to FV. 2. Compounding : The trick with effective interest rate comes in with COMPOUNDING, compunding is the reason the effective interest rate is not simply PV-FV /PV or similar. The reason is that in month 1 you will pay interest on the principle ONLY. In month 2 you pay interest on the principle + month 1 s interest added to it,and so on. 3. Calculator : a. PV/ FV : Be very careful when entering FV and PV. (see example 2 below)If the sale is for 120 000 with 20 000 mnthly payments over 6 mnths, and you put FV or PV as 120 000, then you will get it WRONG(all the amortisation from AMORT willbe wrong, as well as principle/interest etc) . i. SOLUTION : Put TRUE Cash Flow as your PV or FV: so if someone owes you 10 000 and only pays full amount in 12 months, put 0 as PV(no cash flow yet), and 10000 as FV( 10000 flows in in 12mnths time). b. INTEREST RATE : REM if you use N= months , then you must divide the yearly interest rate by 12 to get monthly I/Y. c. PAYMENTS: rem :allways put true cash flow as PV or FV or PMNT. So if someone owes you 120 , and will pay it off over 12 mnths as 10 per mnth, then PV = ZERO, and FV = ZERO , ONLY PMNT is a cash flow = 10 . If you also say FV =120 PV and PV = 0 or something similar, you will get a complete wrong answer. d.



1 CONCEPTUAL FRAMEWORK WHAT IS A FRAMEWORK / CONCEPTUAL FRAMEWORK: A GENERAL FRAME OF REFERENCE FOR A SPECIFIC AREA OF ENQUIRY. SET OF acc. Principles which serve as basis for evaluate current practices & develop new acc. practices. Part of normative theory of accounting- ie: based on what info people need , Not want. Accounting is a means of communication. The old IASB called the IASC only issued the FPPFS The framework for the preparation and presentation of financial statements, in 1989., this has been and is still being replaced by the newconceptual framework, where only 2chapters out of the 4 are properly finished already. It does not have the same authority as IFRS (& ISAs I think) , if there is conflict IFRs prevails. Trend is toward developing Principles based frameworks , not rules based- it is more difficult to bypass a principle than a rule.(for every circumstance) APPLICATION of framework :Just say : what is a framework , and the purpose of it : ie to provide a basis / frame of reference on which the IAS s are built , defining qualitative + assumptions + definitions of elements etc so people can use it to understand what is in the IASs and other statements and users understand fin stats. 1-THE SCOPE OF THE FRAMEWORK: 1. The SCOPE is:(per 2012 new framework) 1.1. OBJECTIVE of fin reporting : ie namely defining it as defined below. 1.2. ELEMENTS : definition + recognition + measurement (ie assets, liabilites, income, expense, revenue definition) 1.3. QUALITATIVE CHARACTERISTICS 1.4. CAPITAL & CAPITAL MAINTENANCE 2. APPLICABLE TO GENERAL PURPOSE FINANCIAL STATEMENTS OF ALL COMMERCIAL, STATE, reporting entities in order to satisfy the needs of FROM 2012ONLY INVESTORS,LENDERS AND CREDITORS , NOBODY ELSE !!!! , and not for THE PUBLIC OR FOR REGULATORS, or directors/management etc who have other sources of info available, Also not for tax or prospectuses. although these other parties may also , use this info.

PURPOSE AND STATUS OF THE FRAMEWORK A) PURPOSE OF THE FRAMEWORK The purpose of the Framework is to: (a) assist the Board of IASC in the development of future International Accounting Standards and in its review of existing International Accounting Standards; (b) assist the Board of IASC in promoting harmonisation of regulations, accounting standards and procedures relating to the presentation of financial statements by providing a basis for reducing the number of alternative accounting treatments permitted by International Accounting Standards; (c) assist national standard-setting bodies in developing national standards; (d) assist preparers of financial statements in applying International Accounting Standards and in dealing with topics that have yet to form the subject of an International Accounting Standard; (e) assist auditors in forming an opinion as to whether financial statements conform with International Accounting Standards;12 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax.

(f) assist users of financial statements in interpreting the information contained in financial statements prepared in conformity with International Accounting Standards; and (g) provide those who are interested in the work of IASC with information about its approach to the formulation of International Accounting Standards. B) STATUS OF THE FRAMEWORK 1. The Status of the framework is that : a. It is not an IFRS and thus does not DEFINE any standards for any measurement or disclosure issue. Nothing in it overrides any IFRS (vertabim per IAS1 itself) b. If there is a dispute between the framework and an IAS, then the IAS is the one that must be followed.

USERS OF FINANCIAL STATEMENTS : THE SPECIFIC INFORMATION NEEDS OF EQUITY INVESTORS AND THE GENERAL INFORMATION NEEDS OF OTHER USERS , SPECIFY THE USERS AND THEIR NEED FOR INFORMATION . Most important users = 1-Providers of finance eg banks 2- Equity investors, namely shareholders. 3-creditors (b) GENERAL INFO NEEDS OF OTHER USERS The framework mentions that if the fin stats provide sufficiently for needs of equity investors, that it should be good enough for all other users as well. (a) EQUITY INVESTORS. : Ability of the entity to pay 1-Dividends & 2-Buy, Hold or Sell : 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 buy, hold or sell. Shareholders are also interested in information which enables them to assess the ability of the entity to pay dividends. (b) Lenders. Paid when due. (c) Suppliers and other trade creditors.: Paid when due (d) Customers. continuance of an entity , some are quite dependent on entity. (e) Governments and their agencies. regulate the activities of entities, determine taxation statistics allocation of resources. (f) Public. Local economy , people they employ , and their patronage of local suppliers (g) Employees. Stability and profitability remuneration, retirement benefits and employment opportunities. DEFINE THE OBJECTIVE OF FINANCIAL STATEMENTS 1. Conceptual Framework : OB 1 : The Objective of the Fin Stats is: (NB changed from last year 2010/ 2011, this is vertabim from NEW CHANGED 2011/2012 VERSION OF FRAMEWORK itself) 1.1. To provide financial info about the reporting entity 1.2. That is useful to a existing and potential investors, lenders, and other creditors 1.3. in making decisions about providing resources to the entity. 1.4. These decisions involve buying, selling or holding equity and debt instruments, and providing or settling loans and other forms of credit. 2. Although IFRS states users should not rely only on Fin stats for making economic decision because it is past info- not present or future info- the trend today is toward IFRS stating that more future & non- financial info is disclosed in Fin Stats.Also users must study, company and political outlooks and economic conditions separately as well, not just rely on Fin Stats.


3. This Appears in Qualitative Characteristics under Understanding: And furthermore ,it should contain info that is 1- understandable to those with a reasonable understanding of business and a willingness to study the info. with the necessary diligence 2- on how management performed its stewardship function 3-useful to directors & mngmnt in making decisions that affect the owners of the company.

THE QUALITATIVE CHARACTERISTICS OF FINANCIAL STATEMENTS: define and discuss, and apply them to fair presentation and measurement issues to enhance the decision-usefulness of financial reporting. 1. Constraints on relevant and reliable information 1.1. Timeliness 1.2. Balance between benefit and cost : Cost vs Benefits : where the cost exceeds the benefits, the info will not (could not) be reported even though it may meet all the characteristics of usefull information. 1.3. Balance between qualitative characteristics 1.3.1. Interaction between the qualitative characteristics : 1.3.1.1. para. 32 of Framework states : information may be relevant but so unreliable in nature or representation that its recognition may be potentially misleading.(eg not showing a disputed claim in balance sheet as a provision,only in the the notes) 1.3.1.2. There is also the tradeoff problem between relevance and reliability concering historical VS fair value amounts to be shown in Fin Stats. Historical is seen as more reliable while fair value is seen as more relevant. 1.3.1.3.It is sometimes also necessary to report on a transaction before all aspects of it are known : reliability vs fair presentation as a whole. You should report it, or at least achieve a balancing act. . The 2 FUNDAMENTAL QUALITATIVE CHARACTERISTICS: are These are the main 2 to use to determine if info is to be included or not. The others only enhance these 2 later on, and are skipped when actually choosing what major economic data to include or exclude from the fin stats.-see Cons.Framework QC18. 1. RELEVANCE . 1.1. Definition : Affect Decisions : Relevant info. is useful and can therefore affect the economic decision making of users. 1.2. Materiality : is the one characteristic of relevance. 1.2.1. Definition : following 3 points are to be considered in assessing the materiality of an item. 1.2.1.1.1- Omission Or 2- Misstatement affect Decisions : Material is considered to be material if its omission or misstatement could affect users decisions made regarding the Financial Statements. 1.2.1.2.In terms of Nature or Magnitude or Both : 1.2.1.3.Entity Specific aspect , in terms of Fin Stats as a whole : The materiality of an item is to be assessed in terms of the Financial Statements as a whole., and depends on individual entity, so IFRS cannot give specific numerical guidelines for all entities. 1.2.2. Increase usefulness : The disclosure of material items increases the usefulness of the Financial Statements 1.2.3. Materiality refers to individual items, not groups of items. 1.2.4. Two or more similar and material items may not be offset against each other , with the net result that they become a non-material item.14 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax.

1.3. Constraints on relevant and reliable information 1.3.1. Timeliness 1.3.2. Balance between benefit and cost 1.3.3. Balance between qualitative characteristics 2. FAITHFUL REPRESENTATION : 2.1. Must have following 3 to be perfectly Faithful, but seldom if ever achievableper QC11 of Conceptual Framework 2.1.1. COMPLETE : to be complete it must incl. all info necessary for user to understand, namely : to incl. 1-NUMBERS(eg: value of asset) & 2-DESCRIPTIONS (eg type of asset) & 3-EXPLANATIONS (eg: process used to estimate numbers) 2.1.2. NEUTRAL : without BIAS : not slanted, weighted, emphasized, de-emphasised, to incr probability info will be received favourably or unfavourably. DOES NOT mean with no purpose or influence on behavior. cause it must still be relevant. 2.1.3. FREE FROM ERROR .: does NOT mean perfectly free from error, BUT descr.& process used must be accurate eg an estimation: disclose that it is an estimate + process must be accurateeven if it is proved a bit wrong later by actual figures it was still FREE FROM ERROR. The 4 ENHANCING QUALITATIVE CHARATERISTICS : are These Enhancing Characteristics can help choose which of 2 ways to choose if both are equally relevant & faithfully represented. Per IFRS 1.1. COMPARABILITY . 1.1.1. Definition :The accounting treatment should be the same for : 1.1.1.1.The same items over time 1.1.1.2.Same items in the same period and 1.1.1.3.Similar items of different but similar companies over time and in the same period. 1.1.2. Main reason is to assist users to compare Fin stats. of different companies, and also compare different periods in one entity. 1.1.3. It is not however desirable to pursue comparability at all costs, where a new Acc. Standard is introduced or when the application of a more appropriate accounting policy becomes necessary,the current accounting policy should be changed. 1.2. VERIFIABILITY : 1.2.1. MEANS it is necessary to disclose underlying assumptions & methods of compiling info & other factors that support the info, so users can verify it themselves. 1.2.2. Means different knowledgable & independent observers could reach consensus on the same issue. 1.3. TIMELINESS : 1.3.1.In time to influencetheusers decisionsnot 10 years later. 1.4. UNDERSTANDABILITY . 1.4.1.Definition : Understandable to the average user who has a reasonable knowledge of business and a willingness to study the info. with the necessary diligence, but this does not mean any info. should be excluded because it may be too complex for readers to understand- they may at times have to consult as part of their diligence..15 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax.

1.4.2.Clearly and Concisely makes it understandable.

1.5. THIS ONE HAS BEEN SCRAPPED AS FROM 2012 : no more prudent or complete RELIABILITY . 1.5.1. Definition : Info is reliable when it does not contain material errors and is free from bias. 1.5.2. Refers less to -absolute accuracy and more to : info. a user can trust. 1.5.3. There are 5 components of reliability: 1.5.3.1.Substance rather than Legal Form of events. *Eg where the formalities of a sale have been completed at reporting date it will be shown in the books even if legal title has not yet passed to buyer. OR conversely legalities have taken place but seller still substantially enjoys benefits of ownership- sale is not recognized. 1.5.3.2.Prudent (in instances of uncertainty) : *where uncertainty exists, the outcome selected will result in the least favourable outcome being reflected eg: 1-if recovery of a debt is doubtful it should be recorded as a bad debt. (can be changed later) , also 2- assets should not be overstated nor liabilities understated. *prudence is a function of uncertainty and in any other circumstances its use is unwarranted and contrary to reliability concept. 1.5.3.3.Complete *Complete within the bounds of materiality and cost. *Material omissions can render info. false and misleading- tantamount to providing misleading info.

THE UNDERLYING ASSUMPTION OF FINANCIAL STATEMENTS. 4. There is only 1 underlying assumption of Fin Stats I think, not 2: (or are there 2 or 1 or 8 as in ias1 presentation, the 8 General Features of a finn stats- ie is Accrual Basis a underlying assumption or not?) 4.1. GOING CONCERN BASIS: Intentions + Need : Definition : It is assumed that the entity has neither the Intention nor the Need to liquidate or curtail its operations materially,or else Fin Stats may need to be prepared on another basis. 4.2. Note: Should this assumption not be valid then values should be recorded at their liquidation values and provision made for liquidation costs. 4.3. ACCRUAL BASIS: Definition : Transactions are recorded when they occour, not only when cash actually changes hands., in the fin stats. of the accounting Period to which they apply. THE 5 ELEMENTS OF FINANCIAL STATEMENTS 1. There are 5 elements. The decision as to which element something falls under depends on the rule : Substance Over Form .(mentioned in framework in theses definitions section )eg: finance leases ; although they are legally construed as leases, their substance is such that they are capitalized and treated as assets and liabilities acquired from borrowing proceeds. 2. They fall in 2 groups: Financial Position : Assets + Liabilities + Equity , and Financial Performance : Income + Expenses : 3. FINANCIAL POSITION : Assets + Liabilities + Equity

3.1. ASSETS:16 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax.

3.1.1. Definition : An Asset of an Entity is : 3.1.1.1.A resource 3.1.1.2.Controlled by the entity 3.1.1.3.as a result of past events. 3.1.1.4.And from which future economic benefi s are expected to flow to the entity 3.1.2. CONTROL MEANS 3.1.2.1. Can be due to various things eg does not have to be legally owned eg lease, mostly due to legal ownership , or can be eg. a secret (even unpatented) formula or process.-even if control benefits associated with a leased asset = control. 3.1.2.2.Ability to control future economic benefits from it to extent that it may obtain them. 3.1.2.3.Ability to restrict access to it by others 3.1.2.3.1.Restrict access part normally comes from legal righ : eg legal duty employees maintain confidentiality, restraint of trade contract, copyrights. 3.1.2.4.Legal enforcability of a right is not a necessary condition for control. 3.1.2.5. Also , Does not have to have legal ownership, eg a lease 3.1.3.Future economic benefits : 3.1.3.1. Probability of assessed by REASONABLE +SUPPORATBLE assumptions by mngmnt based on best estimate of economic conditions to exist over useful lifetime of asset, based on evidence at initial recognition, giving greater weight to external evidence.from old 2011 framework before revision of it. May still be in basis for conclusions 3.1.3.2.Can be to lower costs of a production method, as much as to cause a cash flow in. 3.1.4. They may be (vertabim as per framework): Used singly or in combination with other assets in the production of goods or services to be sold by the entity. Exchanged for other assets Used to settle a liability Distributed to owners of the entity

3.2. LIABILITIES: 3.2.1. Definition : A liability of an entity is: 3.2.1.1.A present obligation of the entity 3.2.1.2.Arising from past events 3.2.1.3.The settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits. 3.2.2. The sacrifice of resources with economic benefits can take place in a number of ways, for instance through ( per eg in framework) 3.2.2.1.The payment of cash 3.2.2.2.Transfer of other assets 3.2.2.3.Provision of services 3.2.2.4.Replacement of one obligation with another 3.2.2.5.Conversion of an obligation into equity. 3.2.3. If company decides as a matter of policy to fix products evn after warranty has expired (as good business practices) this IS RECORDED as a LIABILITY as well. 3.2.4. If a liability must be paid or else penalty or economic consequence happens, that helps make it be seen as a liability.17 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax.

3.2.5. Framework says :normally an obligation only arises when an asset is delivered or an irrevocable agreement has been entered into : a distinction should be made between present obligation and future commitment a decision/commitment to purchase is not a liability. Also , an estimate of a provision could qualify as a liability( maintenance contract etc) 3.3. EQUITY; 3.3.1.Definition: The residual interest in the assets of the entity after deducting all its liabilities. 3.3.2.It is not the market value of its shares ever at all. 4. FINANCIAL PERFORMANCE : Income + Expenses : 4.1. INCOME: 4.1.1. Definition :Income is described as 4.1.1.1.Increases in economic benefits during the accounting period 4.1.1.2.In the form of inflows or enhancements of assets or decreases of liabilities 4.1.1.3.That result in increases in equity other than those relating to contribution from equity participants. 4.1.2. Note: unrealized gains eg from revaluation of marketable securities(shares) or fixed property like buildings, is also income but the approach to their inclusion whether directly in equity in OCI or in SCI ,depends on the approach adpted towards capital maintenance by the entity.Gains are usually disclosed separately to facilitate making of economic decisions. 4.2. EXPENSES: 4.2.1. Definition : expenses are defined as 4.2.1.1.Decreases in economic benefits during the accounting period, 4.2.1.2.In the form of outflows or depletion of assets or incurrance of liabilities 4.2.1.3.That result in decreases in equity other than those relating to distributions to equity participants. 4.2.2. Note: some expenses which could also be unrealised like unrealized losses due to foreign exchange rate changes where you borrowed in a foreign currency.Also, losses eg: due to fire or theft, are usually disclosed separately in the income stat in order to facilitate the making of economic decisions.They are often reported net of related income.( related income&expenses offset in one figure) RECOGNITION CRITERIA OF ALL ALL ALL ALL ALL ELEMENTS OF FINANCIAL STATEMENTS 1. In order to be recognised as an element of the balance sheet or income stat, an item must: 2. FIRST meet the definition of one of the elements of financial statements : either assets/liabilities/equities/expenses/ or income. 3. SECONDLY satisfy the following 2 criteria for recognition : 3.1. PROBABILITY OF FUTURE ECONOMIC BENEFIT: it should be probable that future benefits associated with the item will flow to or from the entity. 3.1.1. Para. 85 of the framework to be based on evidence available at date of fin stats. eg debtor= probable asset but not completely probable so there must be a probable liability = bad debt provision 3.2. RELIABILITY OF MEASUREMENT: the item must have a cost or value that can be measured reliably . 3.2.1. Reasonable estimation : is allowed .But if an item cannot be reasonable estimated it should not be disclosed in the SCI but in the notes instead eg: if one cannot possibly manage to estimate the amount of a legal claim which will probably be won.( the eg is from framework) 3.2.2. Recognition of elements of fin stats : (some notes)


3.2.2.1.Recognition of Assets : eg if it is not probable that economic benefits will flow in following economic periods then item should not be recorded as an asset , but the amount paid to get it was then an expense instead. 3.2.2.2.Liabilities : 3.2.2.3.Income : 3.2.2.4.Expenses : basicly when a liability is created without recognition of any asset (in return) eg warranty liability arises. ASSETS: Recognition: When it is probable that economic benefits will flow to the entity and the cost/value can be measured reliably. LIABILITIES: Recognition: When it is probable that an outflow of resources embodying economic benefits will result from the settlement of a present obligation and the amount can be measured reliably. EQUITY: INCOME: Recognition: When an increase in future economic benefits related to an increase in an asset or decrease of a liability has arisen that can be measured reliably EXPENSES: Recognition: When a decrease in future economic benefits related to a decrease in an asset or increase of a liability has arisen that can be measured reliably. MEASUREMENT BASES TO MEASURE THE ELEMENTS : THE FOUR DIFFERENT TYPES. 1.1.1. The following measurement bases are identified in Para.100 of Framework.:( cash always means cash or cash equivalents) 1.1.1.1.HISTORICAL COST: assets: at amount paid/value exchanged for it / liabilities : valued at the amount of proceeds received in exchange for the obligation(????? What about if you overpaid - SOME HIGH PRICE SHOP, BUT CANNOT RETURN IT & owe this now ??) or in some circumstances eg income taxes at amounts of cash /cash equivalents expected to be paid to satisfy the liability in the normal course of business. 1.1.1.2.CURRENT COST : assets: cash that would have to be paid if same or equivalent asset were acquired currently. Liabilities : Undiscounted cash that would be required to settle it currently. 1.1.1.3.REALISABLE VALUE (SETTLEMENT VALUE) ; liabilities :undiscounted cash payable in normal course of business. Assets : at an orderly disposal. Basicly the amount for which an asset can be exchanged between willing parties in an arms length transaction (not NRV but RV) 3.2.2.5.PRESENT VALUE : assets carried at present discounted values of net cash inflows that item is expected to generate in normal course of business Liabilities are carried at the present discounted value of future net cash outflows that are expected to be required to settle the liabilities in the normal course of business. (framework para 100) 3.2.3. Notes present value is often used for bonds, where all future cash flows from the bond (interest) is used to discount it to present value. Or if you use historical cost but get something for free (donation), then it should be included at current cost, not historical value., securities at market value realisable val;ue, pension liabilities at Present Value. 3.2.4. Fair Value : Definition : by the IFRS as: the amount for which an asset can be exchanged between willing parties in an arms length transaction this is the same definition as for realisable value above. 3.2.5. There are some common questions : often asked which framework currently fails to address : what level of aggregation or disaggregation should be applied during measurement process, also how to choose between different bases, also addressing subsequent measurement regarding revaluations & impairment & depreciation.also could recognition & derecognition criteria differ in certain circumstances. CONCEPTS OF CAPITAL AND CAPITAL MAINTENANCE19 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax.

5. Two different concepts of capital are identified in the framework: 5.1. FINANCIAL CONCEPT: 5.1.1.CAPITAL IS EQUAL TO THE NET ASSETS OF A COMPANY: in money amount value of. 5.1.2.Used by most companies. 5.1.3. In terms of this, capital is maintained if net assets at the beginning of the period is equal to net assets at end of period, after excluding any distributions to or contributions from owners of the equity 5.1.4.. So profit = an increase in money amount of assets , excl. owners contributions/withdrawal. 5.1.5..Measurement: There are 2 methods of measuring the value: 5.1.5.1.Incl. inflation :Nominal Monetary Units : ie: inflation 5.1.5.2.Excl. inflation :Units of constant Purchasing Power : any inflation is deducted as capital maintenance adjustments that form part of equity,not profits

5.2. PHYSICAL CONCEPT: 5.2.1. CAPITAL IS EQUAL TO THE PRODUCTION CAPACITY OF A COMPANY eg: number of units produced per day. 5.2.2. This means profit is only made if physical production capacity at end of period is more than at the beginning of period, excl. any owners equity transactions to do with this 5.2.3. Current cost basis measurement : Measurement MUST take place on a current cost basis But for finance basis measurement can take place on any basis.. Any changes in the price of assets or liabilities are not included in the calculation and are accounted for as capital maintenance adjustments against equity- like a fair value devaluation done in OCI as a Revaluation 6. The choice between the 2 is based on needs of users, framework gives scant further guidance on this. In SA most users choose Financial., but if main consideration of users is maintaining production capacity, Physical is used. 7. These concepts are a point of departure for measuring profits and related to the capital an entity strives to maintain.

LEGAL BACKING FOR COMPLIANCE. Companies act 2007 says all fin stats sho

acca1 dipac framework_presentation_revenue_change in acc policies_ income tax

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