Unit 02 : Accounting Standards
IAS or international Accounting standards are rules or guidelinesused toprepare
financialstatementsin a consistent andcomparable manneracrosscountries Theywereoriginall
formulated
bytheIASC
InternationalAccountingStandardscommittee butaretodayhandledby
IASB InternationalAccounting standardsBoard thatinuesupdatedstandardscalledIFRS or
internationalF inancialReporting
standards.Accounting
standardscoveredunderthischapter are
IncomeTanes
PropertyPlant Equipment
GovernmentGrants
Borrowingcost
of
impairment Assets
Provisions contingentassets liabilities
intangibleassets
investmentproperty
Agriculture
AS12 IncomeTanes
There are twoelementsto incometax anentitymustdealwith
TaxDeferred
BotharesubtractedfromPBTtocomputePAT
TaxTax
CurrentTax
currenttax is the amountpayable totaxauthorities in relation to tradingactivitiesforh
tanCurrent
expensesoulDr
ToTaxpayable sore
currentperiod Itisoftenbasedon estimates thefinalamountisdeterminedwhenfls are
Tan
liabilityTan authorised
payable Dr actualamt estimate reducestaxliability
To fornextperiod
Bankxxx
actualamt estimate taxliabilityinnextperiod
increases
computation
ofcurrent
xxx
taxPBDT
cstandep xxx
t book
dep rate
xxx x tan
taxablep rofit
current
, DeferredTax
Deferred tax is an accountingmeasure usedto match the tan effectsoftransactions
nodeferred tanisrecognisedon
initialrecognitionof totheiraccountingeffect This is duetodifferent taxrules in jurisdictions andthe
goodwill
asset
orl iability
combination
duringbusiness IFRS Therearetwotypesofdifferences thatmayarise
differencesTemporary
Permanent
differences
basically timingdifferenceswhere items are permanentlyexcluded
periodscertain
itemsareconsideredbutin different fromcomputingtaxableprofits
eg entertainment allowance
suchdifferencesare ignored
assetdeferred
deferred
tax
taxliability
disclosedinsofPNCLor L
DeferredTax Amountsthat
liability arisesduetotanable temporary differences
aretaxed
butinthefuture.CVofliabilities TaxBase
CVofassets Tax
BaseDeferred
Tax dueto
asset arises deductible temporary differencesAmountsdeductible in
thefuture CVofliabilities TaxBase
BaseCVTax
ofassets
AS16 PropertyPlant Equipment
Tangibleassets used in production supply of goods services
forrentalto
thatare expected to beusedformorethan
others or
foradministrativepurposes
oneperiod
InitialRecognition Thecostqan itemofPPEshallberecognisedas anassetonly if i
thatc an'tbecapitalised
Items
aim
general overneads
isprobable thatfuture economic benefitsassociatedwiththeitemflowtotheentityandif
costs
operating afteranitisready
for
me
of
costopening
new
thecostcanbemeasuredreliably Thecost anitemofPPE is thecashprice equivalent a
facilityPurchase
q
the recognitiondate Thecostcomprises
Price trade
d iscount irrecoverable 8
tax purchaseprice
, directlyattributablecoststobringtheassettothelocation until it is readyforits
intendeduse
Asset Dr constructive or contractual obligation to restore dismantlethesitewhereassetis
ToProvisionford ismantling
when located Theentitymustestimatethiscosttodismantlewhichwillbeincurredattheen
incurredProvision
fordismantling Dr
To
oftheassetsusefullife
Bankcarrying Subsequent Measurement theentitymaychoosebetween twomodels
value Book
valuecarrying
CostModel CVofasset Cost Accumulated
Dep Impairment loss
ifany
value Marketvalue RevaluationModel CVofasset Cost Revaluation Accumulated
Dep
Impairmentloss ifany
Accounting
forRevaluations UndertheRevaluation model the CVofthe assetshoo
reflectthe
fairmarketvalue Whenoneassetof a class is carried atrevaluationmode
Tooil theotherassetsshouldalsobeunderthesamemethod Revaluation should be done
on
torevaluation withsufficientregularity
surplusDr.rvRevaluation CASE01 when an asset is upwardly revalued
valueDr.Asset
CASE02 when an asset is downwardly revalued diminuition is firstadjusted
sameasset notother rest is charged t
surplus
Dr against revaluation surplusof
ToAssetDr
sope
SOPLasexpense
Accounting fordepreciation it is thesystematicallocation ofthecostofthe
assetoveritsestimateuseful life
Remember
toaccount depreciation
whenrevaluinganitemfor cost estimatedresidual
of StraightlineMethod depreciation
Ppe.useful
Revaluation
surplus
retained
earnings
lifecsoreor
depreciationTo
or.carrying value cost accumulated
reserveWhen an assetisupwardlyor downwardly revalued
Soolder
general prospective depreciation changes
Newcv difference in depreciation
maybe touseful
from
transferred revaluationsurplus to retainedearnings
lifeuseful
lifeoffset depreciation resulting in lessprofits
Componentisation largeandcomplexassets generally madeof a number of
smallcomponents suchthateach hasdifferent useful lifes depreciates at different
ratesthen eachpartisdepreciatedseparately capitalised
FairMVisthevalue whichanassetcanbesold or liabilitysettledin an orderlytransaction b w
knowledgeableparticipants on measurementdate
, SOPL
To off.DrCVofreplacedcomponent is written
Whenoneofthecomponentsis replaced
Assetcost ofnew component is capitalised
Newcomponent isdepreciated overnewlife
of may require replacement at regularinterva
Overhaul parts s omeitems PPE
of
revenue
earningcapacity capitalise
Cost overhaulincreases the revenue earning capacity should becapitalised or
maintainsrevenueearning
capacity charge to of
itsusefullifeor whennextoverhaul isdue
Anyadditional expenditure incurred in futuredueto statutory requirements can also
capitalised depreciated over remainingusefullife theasset or useful
sortvDr
of lifeofadditio
asset
Disposal ofAsset carryingvalue is derecognised andanygain orloss charged to
SOPL When a revaluedasset issold balance on the credit revaluation surplus
Dr.cash
soricians of
ToAsset
maybetransferredto
Retained
Tosoreprofit Earnings
IAS23 BorrowingCost
3Borrowing costs are interestandothercosts that an entityincurs in connection with the
qualifyingassetisanasset
Asubstantial thatt akes
borrowing offunds Theyare directly attributable to acquisition construction or
a
itsintended
period time
of
useofsale
tobereadyfor production
of a qualifyingasset andmust be capitalised as a part
ofthecostof th
on maybe asset
circumstances
depending following
assets inventories
qualifying
manufacturingp lants
power
assets
intangible
facilities
generation
Borrowingcostsinclude
investment
properties
bearer
plants interestexpense computed
using effective interestmethod as in IFRS9
interest in respectoflease liabilities recognised in accordance with IFRS 16
exchange differences arising fromforeign currency borrowings to the extentth
are regarded as adjustment to interest costs
Borrowingcostseligible forcapitalisation c ostl essinvestine
capitaliseactualb orrowing
funds borrowed specifically forqualifying asset income
avg borrowingcosts olsduringtheperiodmultiplied b
weighted of
fundsborrowed
generallyweighted
expenditure on qualifyingasset
Commencement avgborrowing rate
all the
capitalisation should commence when conditions are
meBorrowingsSpecific
Borrowings
asset.General
loanistakentospecificallyfinance
Borrowingsconstruction
ofassetisfinancedt hrough
construction
ofan entitygeneralborrowings
IAS or international Accounting standards are rules or guidelinesused toprepare
financialstatementsin a consistent andcomparable manneracrosscountries Theywereoriginall
formulated
bytheIASC
InternationalAccountingStandardscommittee butaretodayhandledby
IASB InternationalAccounting standardsBoard thatinuesupdatedstandardscalledIFRS or
internationalF inancialReporting
standards.Accounting
standardscoveredunderthischapter are
IncomeTanes
PropertyPlant Equipment
GovernmentGrants
Borrowingcost
of
impairment Assets
Provisions contingentassets liabilities
intangibleassets
investmentproperty
Agriculture
AS12 IncomeTanes
There are twoelementsto incometax anentitymustdealwith
TaxDeferred
BotharesubtractedfromPBTtocomputePAT
TaxTax
CurrentTax
currenttax is the amountpayable totaxauthorities in relation to tradingactivitiesforh
tanCurrent
expensesoulDr
ToTaxpayable sore
currentperiod Itisoftenbasedon estimates thefinalamountisdeterminedwhenfls are
Tan
liabilityTan authorised
payable Dr actualamt estimate reducestaxliability
To fornextperiod
Bankxxx
actualamt estimate taxliabilityinnextperiod
increases
computation
ofcurrent
xxx
taxPBDT
cstandep xxx
t book
dep rate
xxx x tan
taxablep rofit
current
, DeferredTax
Deferred tax is an accountingmeasure usedto match the tan effectsoftransactions
nodeferred tanisrecognisedon
initialrecognitionof totheiraccountingeffect This is duetodifferent taxrules in jurisdictions andthe
goodwill
asset
orl iability
combination
duringbusiness IFRS Therearetwotypesofdifferences thatmayarise
differencesTemporary
Permanent
differences
basically timingdifferenceswhere items are permanentlyexcluded
periodscertain
itemsareconsideredbutin different fromcomputingtaxableprofits
eg entertainment allowance
suchdifferencesare ignored
assetdeferred
deferred
tax
taxliability
disclosedinsofPNCLor L
DeferredTax Amountsthat
liability arisesduetotanable temporary differences
aretaxed
butinthefuture.CVofliabilities TaxBase
CVofassets Tax
BaseDeferred
Tax dueto
asset arises deductible temporary differencesAmountsdeductible in
thefuture CVofliabilities TaxBase
BaseCVTax
ofassets
AS16 PropertyPlant Equipment
Tangibleassets used in production supply of goods services
forrentalto
thatare expected to beusedformorethan
others or
foradministrativepurposes
oneperiod
InitialRecognition Thecostqan itemofPPEshallberecognisedas anassetonly if i
thatc an'tbecapitalised
Items
aim
general overneads
isprobable thatfuture economic benefitsassociatedwiththeitemflowtotheentityandif
costs
operating afteranitisready
for
me
of
costopening
new
thecostcanbemeasuredreliably Thecost anitemofPPE is thecashprice equivalent a
facilityPurchase
q
the recognitiondate Thecostcomprises
Price trade
d iscount irrecoverable 8
tax purchaseprice
, directlyattributablecoststobringtheassettothelocation until it is readyforits
intendeduse
Asset Dr constructive or contractual obligation to restore dismantlethesitewhereassetis
ToProvisionford ismantling
when located Theentitymustestimatethiscosttodismantlewhichwillbeincurredattheen
incurredProvision
fordismantling Dr
To
oftheassetsusefullife
Bankcarrying Subsequent Measurement theentitymaychoosebetween twomodels
value Book
valuecarrying
CostModel CVofasset Cost Accumulated
Dep Impairment loss
ifany
value Marketvalue RevaluationModel CVofasset Cost Revaluation Accumulated
Dep
Impairmentloss ifany
Accounting
forRevaluations UndertheRevaluation model the CVofthe assetshoo
reflectthe
fairmarketvalue Whenoneassetof a class is carried atrevaluationmode
Tooil theotherassetsshouldalsobeunderthesamemethod Revaluation should be done
on
torevaluation withsufficientregularity
surplusDr.rvRevaluation CASE01 when an asset is upwardly revalued
valueDr.Asset
CASE02 when an asset is downwardly revalued diminuition is firstadjusted
sameasset notother rest is charged t
surplus
Dr against revaluation surplusof
ToAssetDr
sope
SOPLasexpense
Accounting fordepreciation it is thesystematicallocation ofthecostofthe
assetoveritsestimateuseful life
Remember
toaccount depreciation
whenrevaluinganitemfor cost estimatedresidual
of StraightlineMethod depreciation
Ppe.useful
Revaluation
surplus
retained
earnings
lifecsoreor
depreciationTo
or.carrying value cost accumulated
reserveWhen an assetisupwardlyor downwardly revalued
Soolder
general prospective depreciation changes
Newcv difference in depreciation
maybe touseful
from
transferred revaluationsurplus to retainedearnings
lifeuseful
lifeoffset depreciation resulting in lessprofits
Componentisation largeandcomplexassets generally madeof a number of
smallcomponents suchthateach hasdifferent useful lifes depreciates at different
ratesthen eachpartisdepreciatedseparately capitalised
FairMVisthevalue whichanassetcanbesold or liabilitysettledin an orderlytransaction b w
knowledgeableparticipants on measurementdate
, SOPL
To off.DrCVofreplacedcomponent is written
Whenoneofthecomponentsis replaced
Assetcost ofnew component is capitalised
Newcomponent isdepreciated overnewlife
of may require replacement at regularinterva
Overhaul parts s omeitems PPE
of
revenue
earningcapacity capitalise
Cost overhaulincreases the revenue earning capacity should becapitalised or
maintainsrevenueearning
capacity charge to of
itsusefullifeor whennextoverhaul isdue
Anyadditional expenditure incurred in futuredueto statutory requirements can also
capitalised depreciated over remainingusefullife theasset or useful
sortvDr
of lifeofadditio
asset
Disposal ofAsset carryingvalue is derecognised andanygain orloss charged to
SOPL When a revaluedasset issold balance on the credit revaluation surplus
Dr.cash
soricians of
ToAsset
maybetransferredto
Retained
Tosoreprofit Earnings
IAS23 BorrowingCost
3Borrowing costs are interestandothercosts that an entityincurs in connection with the
qualifyingassetisanasset
Asubstantial thatt akes
borrowing offunds Theyare directly attributable to acquisition construction or
a
itsintended
period time
of
useofsale
tobereadyfor production
of a qualifyingasset andmust be capitalised as a part
ofthecostof th
on maybe asset
circumstances
depending following
assets inventories
qualifying
manufacturingp lants
power
assets
intangible
facilities
generation
Borrowingcostsinclude
investment
properties
bearer
plants interestexpense computed
using effective interestmethod as in IFRS9
interest in respectoflease liabilities recognised in accordance with IFRS 16
exchange differences arising fromforeign currency borrowings to the extentth
are regarded as adjustment to interest costs
Borrowingcostseligible forcapitalisation c ostl essinvestine
capitaliseactualb orrowing
funds borrowed specifically forqualifying asset income
avg borrowingcosts olsduringtheperiodmultiplied b
weighted of
fundsborrowed
generallyweighted
expenditure on qualifyingasset
Commencement avgborrowing rate
all the
capitalisation should commence when conditions are
meBorrowingsSpecific
Borrowings
asset.General
loanistakentospecificallyfinance
Borrowingsconstruction
ofassetisfinancedt hrough
construction
ofan entitygeneralborrowings
