IFRS In 1 Day

End Your IFRS Struggles In Just 1 Day!

Silvia of IFRSbox.com
Table of Contents

The Starting Line ________________________________________________________________ 4

Is IFRS Good? Should I Care about It? _______________________________________________ 7
Examine Skeleton of IFRS________________________________________________________ 10
IFRS Financial Statements________________________________________________________ 13
The Accountant’s Biggest Nightmare ________________________________________________ 18
Making IFRS Financial Statements for the First Time?__________________________________ 22
How to Deal with Property, Plant and Equipment ______________________________________ 26
Capitalize or Not to Capitalize?____________________________________________________ 31
How to Calculate Impairment Loss__________________________________________________36
Inventories_____________________________________________________________________ 41
When to Recognize Revenue?_____________________________________________________ 45
Construction Contracts___________________________________________________________ 49
Borrowing Costs________________________________________________________________ 54
Leases = Off-Balance Sheet Item?__________________________________________________ 58
How to Make Consolidated Financial Statements______________________________________ 63
Less than 50% Share? ____________________________________________________________ 67
Understanding Foreign Currencies__________________________________________________ 72
What Does the Stock Exchange Want to Know? _______________________________________ 76
How to Correct or Change the Things_______________________________________________ 80
Financial Instruments: Clarifying the Confusion _______________________________________ 83
Facing a Lawsuit? _______________________________________________________________ 88
IFRS + Tax Rules = IFRS Deferred Tax ______________________________________________ 92
Offering Employee Benefits?______________________________________________________ 96
Let’s Go a Little Deeper_________________________________________________________ 101

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The Starting Line

IFRS has become one of the biggest challenges in the current financial and
accounting world. One day, every single company will have to apply IFRS
because the whole world is moving towards global standards.

Learning it is quite demanding - complete standards with accompanying

documents are more than 3,000 pages long and, moreover, they are written
in a language that is quite difficult to read and understand.

Don’t let this discourage you! The key of learning IFRS is making baby
steps and practicing. I hope this e-book and accompanying materials will help
you to get started.

Are you ready? So let’s dive in together!

What is IFRS?
IFRS stands for International Financial Reporting Standards issued by non-
profit body IASB (International Accounting Standards Board). Simply said, it is
a set of standards and principles for the preparation and presentation of the
financial statements, especially for publicly traded companies.

Until several years ago, every country used its own principles for financial
reporting – for example, Canada used Canadian GAAP, USA used US GAAP,
etc. and no international principles existed.

However, due to the ever-globalizing world, it was necessary to ensure

comparability of financial results between companies from various countries.
That’s probably the main reason why IFRS emerged.

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Currently, IFRS is an alternative set of accounting principles to national
accounting rules in many countries and companies based in these countries
may select to report under national GAAP or IFRS.

What countries adopted IFRS?

In the present time, more than 120 countries adopted IFRS. Still, some
countries do not permit application to IFRS: for example, Vietnam, Thailand,
Cuba…and USA, of course.

What does it mean? It means that a company based in USA that wants to trade
its shares publicly outside USA must report under both US GAAP and IFRS.
You can imagine how time consuming and costly it might be!

However, IFRS shall be adopted worldwide by 2015 – at least, this was the
aim according to some financial authorities. With this regard, you might have
heard about IFRS adoption and IFRS convergence…

Difference between IFRS adoption and IFRS convergence

Although IFRS has already become THE need of the hour, confusion still
prevails over the difference between IFRS adoption and IFRS convergence. So
let’s clarify:

IFRS adoption: a country adopting IFRS is implementing IFRS into its

legislation in exact form as issued by IASB. Most of the countries adopted IFRS,
rather than converged.

IFRS convergence: a country converging to IFRS cooperates with IASB to

mutually develop compatible accounting and financial reporting standards (so,
no 100% mere adoption occurs). A typical example of IFRS convergence is USA,
where IASB and FASB (US GAAP setting body) work together.

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Main differences between US GAAP and IFRS
The biggest difference is that US GAAP is rule-based and IFRS is
principle-based. So, while US GAAP contains more precise rules and
industry-specific guidelines, IFRS contains principles where the substance of
the transaction overrides its form.

These 2 sets of standards are written in a very different way, thus it is

impossible to list all the differences. But to bring the biggest ones:

•IFRS does not allow LIFO inventory costing, while US GAAP does allow that.

•IFRS classifies some financial assets differently than US GAAP.

•IFRS has one-step testing for impairment of assets, while US GAAP uses a 2-

step approach.
•IFRS allows capitalization of development expenses when some criteria are

met, but US GAAP typically does not allow that.

•There are big differences in revenue recognition.

If you would like to read more details about IFRS and US GAAP differences,
please refer to my article here.

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Is IFRS Good? Should I Care about It?

I am sure that after reading the title you wonder – what strange questions…
IFRS is here and we must deal with it!

But let’s clarify a few things about it – can we see something valuable behind
IFRS?

Is IFRS good for anything?

Many companies see IFRS as an additional burden to other reporting
obligations. But is it so?

The main IFRS benefit is compatibility and comparability of the financial

statements among various different countries.

Even within 1 multinational corporation the benefit is obvious – if every branch

in every country reports under the same set of rules, then there are no
additional costs attached to preparation of consolidated financial statements.

Although the adoption of IFRS might initially trigger some costs, future cost
savings will be much higher due to less work involved in the accounting and
financial reporting.

Then, reporting under IFRS might ease the access to international capital –
whether to international loan financing or entering into international stock
exchange.

Further benefits are: easier cross-border acquisitions, easier implementation of

integrated IT systems, easier global education and training, etc.

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Will there be more accounting fraud under IFRS?
Some opponents of IFRS say that because IFRS do not contain precise rules
(just principles), there will be more room to involve in “creative accounting”
practices, chaos and accounting scandals.

However, let me remind you the following US GAAP accounting scandals:

Enron, Tyco, Worldcom, K-mart, and many others. Therefore, not even rules-
based US GAAP can prevent all accounting frauds.

On the other hand, many proponents of IFRS say that exact principles make
IFRS more rigorous, as it is more difficult to justify evasion of a principle than
evasion of a rigid rule.

Will IFRS affect my company?

It depends on what your company does and how big it is.

IFRS will affect mostly the following businesses:

•publicly traded companies (need to submit IFRS financial statements to stock

exchange)

•multinationals with many foreign branches who need to consolidate the

financial statements
•other companies who wish to access international financing (need to submit

IFRS financial statements to international banks or financing institutions)

However, most of the businesses are small- or medium-sized enterprises with

less than 300 employees. It is very likely that IFRS has no impact on them (at
least not on their daily activities).

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What does IFRS look like?
IFRS consists of the following components:

•The Conceptual Framework for the Financial Reporting

The Framework states the basic principles for the financial reporting in line
with IFRS. It is not a standard itself; rather it represents a solid base for
further standards.

•International Accounting Standards (IAS) and International

Financial Reporting Standards (IFRS)

These standards prescribe rules or accounting treatments for various

individual items or elements of financial statements. IASs are the standards
issued before 2001 and IFRSs are the standards issued after.

•Standing Interpretations Committee (SIC) and Interpretations

originated from the International Financial Reporting
Interpretations Committee (IFRIC)

SICs and IFRICs are interpretations that supplement IAS / IFRS standards
and deal with more specific issues than those covered by IFRS or IAS. SIC
were issued before 2001 and IFRIC were issued after 2001.

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Examine Skeleton of IFRS

Now that you are familiar with the background of IFRS, it is time to start
learning its most important principles.

We will begin with the Conceptual Framework for the Financial

Reporting that forms IFRS’s skeleton.

What is the Conceptual Framework about?

The Framework describes the elementary principles for presentation and
preparation of financial statements in line with IFRS and therefore, it is a
“must-read” document.

Currently, the Framework is under construction, because some of its chapters

are still empty and in progress.

Among other things, the Framework states the objective of the financial
reporting, describes characteristics of the financial information and explains
the elements of the financial statements, their recognition and measurement.

What is the objective of the financial reporting?

The objective of the general purpose financial reporting is to provide
information about reporting an entity’s economic resources and claims together
with their changes.

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Many different users would need this information, for example, investors,
lenders, creditors and many other parties.

All this information shall be presented as shown in the following table:

What to report Where to report

Economic resources and claims (ER&C)
Changes in ER&C resulting from financial
performance
Changes in cash flows
Changes in ER&C NOT resulting from
financial performance
Statement of financial position
Statement of profit or loss and other
comprehensive income
Statement of cash flows
Statement of changes in equity

You will learn more about these statements in the later chapters and also, you
will be able to download free samples of these statements.

What qualities shall IFRS financial information have?

Financial information shall have fundamental qualitative characteristics
(relevance and faithful representation) and also enhancing qualitative
characteristics (comparability, verifiability, timeliness and understandability).

What is a going concern?

A going concern is an underlying assumption of the financial statements. It
means that an entity will continue to operate for the foreseeable future (usually
12 months after the reporting date).

What are the elements of the financial statements?

The financial statements have 5 elements: assets, liabilities, equity (this is a
residual calculated as assets – liabilities), income (both revenue and gains) and
expenses.

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 Related to
Financial Position Financial Performance
(statement of financial position and (income statement
cash flow statement) and cash flow statement)
Assets Income (revenue and gains)
Expenses (from ordinary activities and
Liabilities
losses)
Equity (residual; =assets – liabilities)

These elements shall be recognized in the financial statements when the 2

criteria are fulfilled:

•it is probable that any future economic benefit associated with the item will

flow to or from the entity; and

•the item's cost or value can be measured with reliability.

There are several ways used to measure the items in the financial statements,
such as historical cost, current cost, net realizable value or present value. The
most common one is historical cost, but also other bases are used in
combination.

Concepts of capital and capital maintenance

The IFRS Framework discusses 2 concepts of capital and capital maintenance:
financial and physical.

Based on selected concept of capital, an entity determines basis of

measurement and accounting model used in preparation of the financial
statements.

Would you like to know more about the Framework? Then please watch the
video here.

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IFRS Financial Statements

You are just about to learn what IFRS financial statements shall contain and
what they should look like.

And you will also learn where the balance sheet went…

This is all set in the standard IAS 1 about presentation of the financial
statements.

What has to be included in IFRS financial statements?

A complete set of financial statements in line with IFRS consists of 5 parts:

•statement of the financial position

•statement of comprehensive income

•statement of changes in equity

•statement of cash flows

•notes with a summary of accounting policies and explanatory information.

In fact, if you want to label your financial statements as compliant with IFRS,
you must include all 5 parts in there.

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We will closely look to each part, but before we do so, let’s examine the features
of financial statements.

What features shall IFRS financial statements have?

IFRS financial statements shall present fairly the financial position, financial
performance and cash flows of the reporting entity (company). Also, they must
contain the statement that they are compliant with IFRS in the notes.

IFRS financial statements must be prepared on a going concern basis.

Accrual basis of accounting must be applied in all parts except for statement of
cash flows (which is on a cash basis).

Important features of IFRS financial statements are materiality and aggregation

of immaterial amounts, possibility of offsetting assets and liabilities, sufficient
frequency of the reporting, presentation of comparative information from
previous period and overall consistency of the reporting.

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What information shall IFRS financial statements
contain?
First of all, all 5 parts of IFRS financial statements must be properly
identified.

It means that every part must contain the name of the reporting entity, the
information, whether the financial statements are of an individual or of a group,
the date of the reporting and period covered, the presentation currency and the
level of rounding (thousands, millions…).

Then, the level and amount of information varies in the individual parts. So let’s
examine it part by part.

The statement of the financial position

Don’t let the title fool you – this was previously called “the balance sheet.” So,
the balance sheet went to history :) and instead, the statement of financial
position emerged. However, you can still keep the old title if you want.

Here, you present assets, liabilities and equity of the company.

In doing so, you shall always present current assets separately from non-
current assets and current liabilities separately from non-current liabilities.
Current basically means realizable within 12 months after the reporting date.

IAS 1 does not prescribe the exact format for the statement of financial position.
Instead, it is up to the reporting entity to draw the appropriate format based on
the content.

However, IAS 1 prescribes the line items that MUST be included in the
statement of financial position as a minimum. Just download samples of IFRS
financial statements coming with this e-book and see for yourself.

Also, if you study for the exams or you just need to gain basic understanding
how the balance sheet works, please watch our case study #1 that teaches you to
make basic journal entries and the balance sheet in line with IAS 1. You can also

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download the excel file with the example featured in the video and sample
financial statements.

The statement of profit or loss and other comprehensive

income
Previously, a company had to prepare only the income statement, or the profit
or loss. After a significant change of IAS 1, the income statement was expanded
to statement of profit or loss and other comprehensive income.

As its title says, this report contains in fact 2 statements:

•profit or loss statement: that’s where a company reports its expenses and

income; and

•statement of other comprehensive income: that’s where a company reports all

items directly recognized as reserves, such as fair value adjustments,

revaluations, etc.

Now watch out when preparing a group or consolidated statement of

comprehensive income. Profit or loss for the period, as well as total
comprehensive income shall both be presented in allocation attributable to
non-controlling interests and attributable to owners of the parent.

New requirements of IAS 1 also say that we must present the items of other
comprehensive income grouped into those that, in accordance with other
IFRSs:

•will not be reclassified subsequently to profit or loss; and

•will be reclassified subsequently to profit or loss when specific conditions are

met.

IAS 1 prescribes the line items that MUST be included in the statement of other
comprehensive income as a minimum. Please download the samples coming
with this e-book – it’s all there :)

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The statement of changes in equity
The statement of changes in equity basically contains reconciliation between
the carrying amount of each equity component at the beginning and at the end
of the reporting period.

Also, total comprehensive income for the period, showing separately amounts
attributable to owners of the parent and to non-controlling interests, and the
effect of retrospective application or restatement for each component of equity
(if applicable) shall be disclosed.

Again, a sample statement of changes in equity is in the downloadable file

coming with this e-book.

The statement of cash flows

Separate standard, IAS 7 sets the requirements for the statement of cash flows.
We will look at it in the next chapter.

Notes to the financial statements

The notes are a document that contains descriptive information about the
numbers presented in the financial statements. Normally you would include
information about accounting policies applied, statement of compliance with
IFRS and supporting information for the numbers.

You can download a sample of the statement of financial position, statement of

profit or loss and other comprehensive income and the statement of changes in
equity with the case study #1. Also, watch our summary of IAS 1 here.

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The Accountant’s Biggest Nightmare

Many accountants find the statement of cash flows their personal nightmare.
Why?

It is probably the most difficult statement to prepare.

It is the only statement prepared on a cash basis, not on an accrual basis.

Accounting records must be adjusted to exclude non-cash items which might be
quite demanding.

But then…why prepare it?

What is a cash flow statement for?

A statement of cash flows shows its readers where the cash of the company was
generated and how it was spent.

For example, 2 companies might show the same increase in cash over the year.

However, 1 company might have generated cash in operating activities (by

making profits) and show just a small spending.

The other one might have generated cash in investing activities (by sale of
property) and show deficits in its operating part. Which one would you invest
in? :)

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What is cash?
In fact, a cash flow statement deals with movements in cash and cash
equivalents.

Cash comprises cash on hand (petty cash, bank accounts) and demand
deposits.

Cash equivalents comprise short-term, highly liquid investments that are

readily convertible to known amounts of cash and which are subject to
insignificant changes in value. For example, treasury bills that expire within 3
months represent cash equivalents.

How do IFRS categorize cash movements?

Standard IAS 7 Statement of cash flows splits cash movements into the
following categories:

•Cash flow from operating activities

•Cash flow from investing activities

•Cash flow from financing activities

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Let’s examine all three categories.

Cash flows from operating activities

Cash flows from operating activities come from the main revenue producing
activities and therefore the amount of cash flows arising from operating
activities is a very important indicator of a company’s liquidity, ability to repay
loans, ability to invest into a company’s development, etc.

Items reported here are: cash flows received from customers, cash flows paid to
suppliers and employees, payments or refunds of income tax, etc.

Cash flows from investing activities

Cash flows from investing activities show amounts of cash invested into
acquisition of non-current assets or investments (not held for trading) or
proceeds from their sale.

Items reported here are: cash paid to acquire property, plant and equipment,
cash receipts from sale of property, plant and equipment, payments to acquire /
receipts from sale of shares of another company (but not with trading purpose),
etc.

Cash flows from financing activities

Cash flows from financing activities show how the company raised cash for its
operations or investments and potentially repaid the cash raised to the
providers of cash (whether shareholders or financing institutions).

Items reported here are: include receipts or repayments of loans or other debts,
contributions to share capital from shareholders and its redemptions,
repayment of finance lease liability, etc.

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Note: IAS 7 says that dividends paid to shareholders can be reported either
under operating activities, or under financing activities. The same applies to
interest.

What is a direct or indirect method? What is the

difference?
IAS 7 allows you to prepare the first part of a cash flow statement – cash flows
from operating activities – using direct or indirect method.

Under direct method, you disclose major classes of gross cash receipts and
gross cash payments. For example, gross receipts from sale of goods and
rendering services, gross payments to suppliers, etc.

Under indirect method, no major classes of gross cash receipts are disclosed.
Instead, profit or loss is taken as a basis and then is adjusted by non-cash items
(such as depreciation), changes in working capital and other items.

In general, indirect method is a bit easier to apply, as it comes directly from the
accounting records, but direct method shows more relevant and
understandable information.

What does the statement of cash flows look like?

You can download a pdf file with examples of statement of cash flows according
to IAS 7 here.

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Making IFRS Financial Statements for
the First Time?

Now, after you picked so much new IFRS stuff you might be wondering:
hmmm, well, this all looks nice, but it is sooo different from what I apply now!
How the heck am I going to make my first IFRS financial statements?

Therefore, let me draft a few thoughts related to the first-time adoption of IFRS.

Standard IFRS 1 First-time Adoption of International Financial

Reporting Standards sets out the procedures you shall follow when
preparing your IFRS financial statements for the first time.

What should you do before preparation of your first IFRS

statements?
In general, I would advise to follow a few simple steps:

•Get the good knowledge of IFRS – that’s self-explanatory.

•Select accounting policies according to IFRS related to individual items in
your financial statements. This is very important, because IFRS gives you
choices. Your selection may significantly influence the financial results of
your company so you must think about it thoroughly.

•Identify differences between IFRSs and your own GAAP and focus your
efforts to understand and treat these differences correctly.
•Understand and apply IFRS 1.

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What’s the point of IFRS 1?
The general principle in IFRS 1 is that when you prepare IFRS financial
statements for the first time, you have to apply all IFRS retrospectively in the
opening IFRS statement of financial position, the comparative period and the
first IFRS reporting period.

Want example?
Let’s say you want to adopt IFRS for the year ended 31 December 2015. Then
you have to prepare a statement of financial position as of 1 January 2014
(opening), 31 December 2014 (comparative) and 31 December 2015 in line with
IFRS.

What does retrospective application mean?

Well, you’ll read about the standard IAS 8 in the later chapter, but to brief you a
bit:

It means that you apply IFRS as if it had always been used. You have to
recalculate and restate also opening retained earnings from the earliest period
presented and comparative amounts disclosed for each period presented.

What if you can’t get the past data?

IFRS 1 takes this into account.

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In fact you don’t need to make all adjustments retrospectively, because
IFRS 1 gives you a few exceptions and exemptions.

The reason is that indeed, sometimes the cost of obtaining the data is higher
than the benefit and therefore it makes no sense.

What are the exceptions from application of IFRS 1?

There are 5 exceptions from retrospective application: IAS 39 – Derecognition
of financial instruments, IAS 39 – Hedge accounting, IAS 27 – Non-controlling
interest, Full cost oil and gas assets and Determining whether arrangement
contains a lease.

These exceptions are mandatory and the entity must apply them
prospectively.

What are the exemptions from application of IFRS 1?

There are about 16 exemptions from retrospective application of IFRS 1, related
to some aspects of business combinations, leases, employee benefits and more.

The difference from exceptions is that exemptions are optional and an entity
may select to apply them prospectively or retrospectively.

What adjustments shall we make to move from previous

GAAP to IFRS?
There are a number of them, but listing just the basic ones:

•You shall derecognize some previous GAAP assets and liabilities. For example,

if your GAAP allows capitalization of start-up expenses, then you have to

eliminate them, as IAS 38 prohibits showing them as assets.

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• You shall recognize some IFRS assets and liabilities. For example, many local

GAAPs do not recognize derivatives nor embedded derivatives, while IAS

39 / IFRS 9 require their recognition.

• You shall reclassify some assets and liabilities. For example, if your local

GAAP allows classifying its own treasury stock under assets, well, then you
have to reclassify them under equity in line with IFRS.
•You shall re-measure certain assets and liabilities in line with IFRS.

Just do remember that all adjustments required to move from previous GAAP
to IFRS shall be recognized directly to retained earnings (or another
category of equity if appropriate).

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How to Deal with Property, Plant and
Equipment

As you probably guessed from the title, we are going to examine the area of
fixed assets.

Standard IAS 16 Property, plant and equipment (PPE) is one of the most
important IFRS, because almost every company holds some fixed assets in its
accounts.

This topic seems relatively straightforward, however, there might emerge some
trickier issues, such as what comes into the cost of an asset, what to do with
subsequent expenditures, how to depreciate or revalue, etc.

What can you include in the cost of a property, plant and

equipment?
Cost of PPE comprises the following items:

• its purchase price including import duties, non-refundable purchase taxes,

after deducting trade discounts and rebates;

• any costs directly attributable to bringing the asset to the location and
the desired condition, for example costs of site preparation, professional
fees, initial delivery and handling, installation and assembly, etc.;

26
• the initial estimate of the costs of dismantling and removing the
item and restoring the site on which it is located.

What should we do with expenses incurred afterwards?

When a PPE is already in your accounts and you depreciate it, you still might
incur certain subsequent expenditures related to it, for example, refurbishing,
repairs, servicing, etc.

Basically, when such an expense just maintains an asset’s capacity, then it is an

expense, not an addition to the asset – for example, day-to-day servicing,
repainting, repairs, etc.

Be careful here, because when major inspections or overhauls are required,

then they represent the addition to the cost of an asset rather than expense.

When such an expense enhances an asset’s capacity, then it shall be added to

the cost of an asset, for example, extension to an existing hall.

But what about the new seats in our aircraft?

Sometimes, you know right at the purchase of original PPE that it will require
replacement of some part before the end of the asset’s useful life.

In such a case, you shall recognize the asset as 2 items: the part that will be
replaced and the remaining asset and depreciate them separately.

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What shall we do with an asset once it is in our accounts?
Now we are talking about subsequent measurement. You can choose either the
cost model or revaluation model.

What is a cost model?

Under the cost model, you simply leave the cost of an asset as it is (if you don’t
have any subsequent expenditure as described above). But, as you consume the
asset over time, you shall account for this gradual consumption. In other words,
you will depreciate the asset.

Therefore, your accounts will show the asset at its carrying amount:

What is a revaluation model?

Under the revaluation model, the asset is carried at revalued amount:

It means that you will revalue assets to their fair value at the closing date.
When you find out the fair value of an asset, you calculate the revaluation
surplus as the asset’s fair value less carrying amount.

Then you account for revaluation as:

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How to depreciate PPE?
In order to depreciate an item of PPE, you shall select 3 parameters: useful life,
depreciation method and depreciable amount.

Useful life means how long you will use the asset and it shall be determined
either as some period of time or number of units expected to be produced by the
item.

Depreciation method means how (in what manner) you will depreciate
and it shall reflect the pattern of the item’s consumption by the company, for
example straight line or accelerated.

Depreciable amount means how much you will depreciate and it is

basically the asset’s cost less its residual value (if you can obtain something
from the asset after you stop using it).

How to account for depreciation?

In almost all cases the depreciation shall be accounted for as an expense:

Sometimes, the debit side can also be the cost of another asset, for example
inventories.

When should we remove the item of PPE from our

accounts?
You shall remove PPE (or derecognize it) when you dispose of it, or when you
do not expect any future economic benefits from this asset.

29
Sometimes, you incur a gain or loss at derecognition that is calculated as the
net disposal proceeds (usually income from sale of item) less the carrying
amount of the item.

The gain or loss from derecognition of PPE shall be recognized in the profit or
loss.

Now, I would like to invite you to watch the video that summarizes IAS 16 for
you here.

30
Capitalize or Not to Capitalize?

Let’s take a look at how IFRS tackle the issue of intangible assets. It might seem
simple, yet many questions and difficulties might arise here.

For example, do we really have an intangible asset or is it just an expense? So

can we capitalize the expenditure or recognize it as an expense?

And how do we measure intangible assets? What comes into its cost?

Standard IAS 38 Intangible assets gives answers to these questions. It deals

with many types of intangible assets including training costs, costs for
advertising, start-ups, R&D and many more.

What is an intangible asset?

Intangible assets are identifiable non-monetary assets without physical
substance.

First of all, it must be identifiable. We must be able to distinguish it from

other items. So, if you can separate the asset from the entity OR the asset arises
from some contract or legal right, then it is identifiable.

For example, an internally generated customer list is identifiable as you can

clearly separate it from the entity (you can print it and pass it to somebody
else).

Second, you must have control over the asset.

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Third, there must be some future economic benefits from the asset, for
example, some cost savings or revenues.

What are examples of intangible assets?

Typical examples of intangible assets are: software, licenses, registered patents
or products, copyrights, rights to make a movie, acquired customer lists,
franchises, client or supplier relationships, internet domain names, etc.

Of course, although these are intangible assets, it does not automatically mean
they need to be recognized in the financial statements!

When to recognize intangible assets in the financial

statements?
Intangible assets can be recognized only if 2 conditions are fulfilled:

• it is probable that future economic benefits from this asset will flow to the
entity; and
• the cost of the asset must be measured reliably.

These 2 criteria apply for both externally purchased and internally generated
intangibles. By the way, an internally generated asset means that the
company created the asset itself.

So if you have an internally generated intangible asset, for example an

internally grown customer list, then would you show it in your balance sheet
under intangible assets?

Well, probably not, because you cannot really measure the cost of creating such
a list reliably, could you? That leads us to another question…

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What are the recognition criteria for internally
generated assets?
In order to capitalize internally generated assets, the entity must divide the
process of asset’s creation into 2 phases:

1. Research phase

2. Development phase

IAS 38 gives you good guidance on how to distinguish between these two.

And it is very important to do so properly, because expenditures incurred in the

research phase cannot be capitalized and must be accounted into profit or
loss.

On the other hand, some expenses in the development phase can be

capitalized, but the entity must first demonstrate its intention, technical
feasibility and ability to complete the asset, and a couple more things.

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Can all internally generated assets be capitalized?
No. Internally generated customer lists, brands, mastheads, publishing titles
and similar items cannot be capitalized.

How shall intangible assets be measured?

Initially, all intangibles shall be measured at cost.

If an intangible asset is purchased, then into its cost you would include similar
items as cost of property, plant and equipment under IAS 16 – just review one
of our previous chapters.

If an intangible asset is internally generated, then you can include design and
development cost, correction expenses or testing expenses into its cost.

What you should never include in cost: internally generated goodwill, start-
up, pre-opening or pre-operating expenses, training cost, advertising or
promotion nor relocation costs.

What about subsequent measurement?

This is exactly the same as property, plant and equipment. You are allowed to
apply cost model or revaluation model on your intangible assets.

Revaluation model is quite rare, because fair value of intangibles has to be

determined based on the active market – and really, active market for
intangibles is not so common (unless we talk about some taxi licenses or
production quotas).

So cost model is very common. If you remember from IAS 16, you shall carry
your assets at carrying amount equal to cost less accumulated amortization less
impairment losses.

34
How to amortize intangible assets?
IAS 38 classifies intangible assets based on their useful life in two categories:

1. Intangible assets with finite lives: these have a limited period of

benefit to the entity, for example, some software.

In this case, you amortize cost less residual value over the useful life of
an asset.

2. Intangible assets with indefinite lives: there is no foreseeable limit

to the period over which the asset brings benefits to the entity, for
example, a famous brand.

In this case, you do not amortize.

35
How to Calculate Impairment Loss

So far you have learned quite a lot about various kinds of assets.

But what do you do when the value of your assets goes down? And how do you
determine it?

Standard IAS 36 Impairment of assets gives you the guidelines in case of

impairment, so let’s take a look.

What is an impairment of assets?

An asset is impaired when its carrying amount is greater than its recoverable
amount.

36
The carrying amount of an asset is the amount shown in the accounting
records. The recoverable amount of an asset is in fact the asset’s "real
value" (we’ll come back to this).

So, when accounting records show the assets at higher amounts than their “real
value”, then there is an impairment of assets and we should recognize some
impairment loss.

How do we find out that there is impairment?

Every company shall watch out for external and internal indicators of a possible
impairment.

External indicators are: significant decline in market value, significant adverse

changes in technological, market, economic or legal environment, increase in
market interest rates or rates of return, and carrying amount of company’s net
assets exceeds market capitalization.

Internal indicators are: obsolescence or physical damage, internal evidence

available that asset’s performance will be worse than expected, significant
adverse changes to company including plans to discontinue or restructure an
operation using the asset or to dispose of it earlier than planned.

Therefore, if the company finds any of these indicators, it should determine

asset’s recoverable amount and find out whether there is impairment.

What is a recoverable amount?

According to IAS 36, a recoverable amount is the higher of an asset’s fair
value less cost to sell and asset’s value in use.

Fair value less cost to sell is the amount which could be obtained from the
sale of the asset after deducting expenses in order to sell it (for example, some
preparation or cleaning of asset before sale). Basically, it is a price set in the sale
agreement or market price of similar assets.

37
Value in use is the discounted or present value of future cash flows expected
to arise from either continuing use of an asset and its disposal at the end of its
useful life.

What is a cash generating unit (CGU)?

Sometimes it is not possible to determine the recoverable amount for some
assets because they are a part of some group of assets and do not generate their
own cash inflow.

For example, a pizza oven in a pizzeria – the pizza oven itself does not generate
any cash flow, but is a part of a restaurant and helps to generate the restaurant’s
cash flow.

Therefore, IAS 36 introduces a concept of cash generating units (CGU),

which is the smallest identifiable group of assets that generates cash inflow
from continuing use that are largely independent of the cash inflows of other
assets.

In our small pizza example, the cash generating unit would be the whole
pizzeria and all assets would belong to this CGU.

38
How to calculate impairment loss?
Impairment loss is calculated as the asset’s or CGU’s carrying amount less the
asset’s or CGU’s recoverable amount.

If it is not possible to calculate the recoverable amount of an individual asset,

then calculate the recoverable amount of the whole CGU and determine
impairment loss for the whole CGU.

The CGU’s impairment loss then must be allocated to the individual assets.

So, if you calculated the impairment loss for the whole pizzeria, then you must
allocate this loss to its individual assets, including the pizza oven :).

How to account for impairment loss?

If a cost model is applied, then the impairment loss is recognized as:

If a revaluation model is applied, then the impairment loss is recognized as:

Be careful, because if there was no revaluation surplus in the equity, then you
should recognize impairment loss to profit or loss account.

And do not forget to adjust the depreciation for the future periods!

39
Is it possible to reverse impairment loss?
Yes - if there are some indicators that impairment loss might have decreased.
Reversal of impairment loss under cost model is always recognized as:

Again, adjust the depreciation for the future periods. And never reverse
impairment loss on goodwill – that is prohibited by IAS 36.

Please watch the summary of IAS 36 here.

40
Inventories

One of the most common areas in any business is inventories. Looking pretty
simple and straightforward, but still you might find some traps there!

What are inventories?

Inventories are assets that are held for sale in the ordinary business. Or,
inventories are also assets in the process of production for such sale, production
of goods or rendering services.

Inventories comprise merchandise, production supplies, materials, work in

progress and finished goods.

Be careful, because IAS 2 does not speak about the following items: work in
progress in construction contracts, financial instruments and biological assets
(e.g. milk, harvest, etc.).

41
How shall we measure inventories?
Inventories shall be measured at lower of cost and net realizable value.

What can be included in the costs of inventories?

Costs of inventories include:

•costs of purchase: purchase price, import duties and non-refundable taxes,

transport, handling, but less any trade rebates and discounts

•costs of conversion: costs directly related to units of production (direct

labor, direct expenses, subcontracted work) and systematic allocation of
fixed and variable production overheads incurred in converting materials
into finished goods
•other costs: only to the extent incurred in bringing the inventory to its
present location and condition

What cannot be included in the costs of inventories?

Examples of expenses that have to be accounted for directly to profit or loss
(and not included in the cost of inventories) are: abnormal waste, storage costs
(but these are in some cases allowable), administrative overheads, selling
expenses and similar items.

How to determine the cost of inventories at the year-end?

Production process might be very complex and involve lots of stages. Therefore,
it is not always possible to relate expenditure to specific units of inventory.

As a result, several methods have been developed to reliably estimate the actual
cost of inventories and the year-end. IAS 2 allows you to use just a few of them:

42
FIFO (first-in-first-out): The cost of inventories is calculated on the basis that
the quantities actually in the warehouse at the year-end represent the latest
purchases or production.

Weighted average: Here, average price of inventories is calculated as total

cost of units divided by the total number of such units. The price is recalculated
each time a purchase is made. Then, items that are dispatched from the
warehouse are removed at the actual weighted average price.

Are some other techniques of cost measurement allowed

by IAS 2?
Except for weighted average or FIFO, IAS 2 allows application of standard cost
and retail method techniques to approximate costs of inventory.

Standard costs: This technique of cost measurement takes normal levels of

materials and supplies, labor, efficiency and capacity utilization into account.
Standard cost shall be regularly reviewed and revised.

Retail method: This method is very often utilized in the retail industry where
inventories are in large quantities and fast moving. Here, sales value of
inventory is reduced by the appropriate percentage gross margin.

LIFO (last-in-first-out) is prohibited by IAS 2.

What is net realizable value?

Net realizable value is the estimated selling price of inventories in ordinary
course of business less estimated cost of completion and less estimated costs
necessary to make the sale.

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What happens if inventories’ cost is greater than their net
realizable value?
Net realizable value is indeed sometimes lower than cost. For example, when
inventories were damaged, became obsolete, errors in production happened,
selling prices fell, etc.

In such a case, a company writes the value of inventories down in its accounting
records. The accounting entry is as follows:

Of course, appropriate disclosures in the notes to the financial statements must

be made.

44
When to Recognize Revenue?

Do you know when to recognize revenue? This might seem very easy – and it is,
in many situations.

However, under some circumstances, it is not so clear when to recognize

revenue. For example when you sell some machine and agree to repurchase it
back after some time – can you recognize revenue?

So, the biggest issue with accounting for any type of revenue is whether and
when to recognize it.

Standard IAS 18 Revenue gives you the guidance on accounting for revenue
from various types of transactions.

Before we learn what IAS 18 says, I would like to stress here that the revenue
recognition is the area where the biggest differences between IFRS and
US GAAP arise.

Therefore, IAS 18 is under a big revision process now, and the new rules on
revenue recognition are expected to be adopted in the near future.

When can we recognize revenue?

In any transaction, the revenue shall be recognized when the future economic
benefits flow to the entity and the amount of revenue can be reliably measured.

45
IAS 18 gives further guidance on revenue recognition from sale of goods,
rendering of services and receiving interest, royalties or dividends.

When should the revenue be recognized from sale of

goods?
IAS 18 names 5 criteria to be met for recognition of revenue from sale of goods:

•significant risks and rewards of ownership are transferred to the buyer

•seller does not retain control nor managerial involvement over the goods sold

•amount of revenue can be measured reliably

•economic benefits associated with the transaction will flow to the seller

•costs in respect to the transaction can be measured reliably

All 5 criteria must be fulfilled in order to recognize revenue from sale of goods.

IAS 18 gives you guidance on the specific circumstances, like bill and hold sales,
goods shipped subject to certain conditions, consignment sales, cash on
delivery sales, etc.

46
When should the revenue be recognized from rendering of
services?
Here, IAS 18 prescribes 4 criteria for revenue recognition:

•amount of revenue can be measured reliably

•economic benefits associated with the transaction will flow to the seller

•stage of completion at the reporting date can be reliably measured

•costs in regards to the transaction can be measured reliably

If all 4 criteria are met, then you can recognize revenue from rendering of
services based on the stage of completion. It is so-called “a percentage-of-
completion” method.

If these criteria are not met, then revenue from rendering of services can be
recognized only to the extent of expenses incurred that are recoverable. It is so-
called “a cost-recovery” method.

IAS 18 gives further guidance on the specific services, such as franchising,

advertising commissions, insurance agency commissions, installation fees and
others.

When can the revenue from interest, dividends and

royalties be recognized?
First of all, 2 basic conditions must be fulfilled for recognition of any revenue:
the future economic benefits flow to the entity and the amount of revenue can
be reliably measured.

Then, revenue from interest shall be measured using effective interest

method according to IAS 39 / IFRS 9.

Revenue from dividends shall be recognized when a shareholder's right to

receive payment is established, for example after dividends are approved in a
general assembly meeting.

47
Revenue from royalties shall be recognized on an accrual basis in line with the
specific contract or agreement.

Please watch the video with the summary of IAS 18 here.

48
Construction Contracts

Construction contracts are a topic closely related to inventories and revenue

recognition and the standard IAS 11 guides us in this area.

Why is there separate standard on the construction contracts? Let me outline

the example for you.

Building a production hall

Let’s say that ABC has just entered into a contract to build a production hall for
another company for a total price of 10 million EUR. The hall would be built
during 3 years.

ABC’s building costs related to this contract are: in the first year 2 million EUR,
in the second year 3 million EUR and in the third year 2.5 million EUR. Overall
profit on the contract is therefore 2.5 million EUR (10-2-3-2.5).

Now the question is: When should this profit be recognized? Well, under
the most prudent accounting treatment, in the third year.

However, this does not give a true and fair view of ABC’s activities, since in the
first 2 years, ABC would show no profit and in the last year – a full load of it!

That’s why IAS 11 on construction contracts comes in place. According to IAS

11, ABC will recognize the profit over the life of the project – spread over 3
years.

49
What are construction contracts?
A construction contract is a contract specifically negotiated for the
construction of an asset (or a combination of closely related assets).

Also, some contracts for rendering services are construction contracts, if these
services are related to construction of assets, such as work of architects,
designers, etc.

What types of construction contracts are there?

IAS 11 defines 2 basic types of construction contracts:

A fixed price contract – this is a construction contract in which the contractor

agrees to a fixed contract price or a fixed rate per unit of output. Sometimes, it
is subject to cost escalation clauses.

A cost plus contract – this is a construction contract in which the contractor is

reimbursed for allowable or otherwise defined costs plus a percentage of these
costs or a fixed fee.

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Accounting treatment of a construction contract is basically the same for both –
the only difference is setting reliable estimates of the contract’s outcome
(contract revenue and contract cost).

What comprises contract revenue and contract cost?

Contract revenue comprises the initial amount of revenue agreed in contract
and variations in contract work, claims and incentive payments (probably and
reliably measurable).

Contract costs comprise costs directly related to the specific contract, costs
attributable to contract activity in general that can be allocated to the contract
and such other costs as are specifically chargeable to the customer under the
terms of the contract.

When shall we recognize contract revenue and contract

cost?
Contract revenue and contract costs shall be recognized according to the stage
of completion of the contract on the reporting date, but only when the outcome
of the activity can be estimated reliably.

So what is the issue here?

Well, total contract price has been agreed. But, total costs of the contract just
have to be estimated and here is the uncertainty. IAS 11 gives you guidance
about reliable estimates, but basically stage of completion, cost to complete and
costs attributable to contract must be reliably measurable.

51
How to determine the stage of completion?
There are several ways to do it:

• Proportion of contract costs incurred:

• Surveys of work performed: the stage of completion is calculated as:

• Physical proportion completed

How to account for construction contract?

Accounting treatment of construction contract depends on whether its outcome
can be estimated reliably or not.

If the outcome can be estimated reliably, then the contract revenue and contract
cost should be recognized as revenue and expenses by reference to the stage of
completion at the reporting date.

If the outcome cannot be estimated reliably, then the revenue should be

recognized only to the extent of contract costs incurred (if it will be recovered)
and contract costs shall be recognized as an expense in the period incurred.

Any expected loss on the construction contract shall be recognized as an

expense immediately.

52
Of course, IAS 11 requires lots of disclosures and specific presentation (gross
amount due to or from customers). Please, watch the case study #2 here and
download the file with the example, too!

53
Borrowing Costs

In today’s world, many companies need to take external financing in order to

buy or construct new assets.

You might know many examples of this: developers taking loans to build rental
properties, IT companies taking loans to develop new software and others.

And as you surely know, every loan bears interest cost with it.

But do you know how to account for such an interest?

No, no, not as interest cost. You are taking a loan in order to build or buy some
assets, right?

Standard IAS 23 Borrowing costs talks specifically borrowing costs

attached to your external financing.

What is a borrowing cost?

Well, borrowing cost is an interest and other costs incurred by the company in
connection with borrowing funds.

Interest attached to a loan is crystal clear. But note that there are also other
types of borrowing costs.

54
What costs besides interest are borrowing costs?
Interest itself might arise on various types of borrowings, not only on the bank
loan.

For example, did your company issue bonds in order to raise enough funds to
build the asset? Well then, interest expense on these bonds represents
borrowing costs.

Did your company take some assets under the finance lease? In this case,
finance cost arising in such a lease can also be borrowing cost.

But careful, because if you took a foreign currency loan, then the exchange rate
difference related to adjustment of interest cost is also a part of borrowing cost.

So how do we account for borrowing costs?

IAS 23 says that you should capitalize all borrowing costs directly attributable
to acquisition, construction or production of a qualifying asset.

In other words, you must include all borrowing costs mentioned above into
cost of an asset.

All other costs shall be recognized as an expense in the period when they are
incurred.

55
What is a qualifying asset?
It is an asset that takes a substantial period of time to get ready for its
intended use or sale.

IAS 23 does not say what a substantial period of time is – you have to apply
your judgment based on your circumstances.

For example, construction of a large shopping center that lasts 5 years would
clearly represent a qualifying asset.

Do you need to capitalize all the borrowing cost related to

a qualifying asset?
No.

You must ask yourself 2 questions:

•Does this cost meet the definition of borrowing cost according to IAS 23?

•If yes, is this borrowing cost directlyattributable to acquisition,

construction or production of a qualifying asset?

In other words, would you have avoided these costs if you would not have
built the asset? If yes, then the costs are directly attributable.

When can we start to capitalize borrowing costs?

Capitalization of borrowing costs starts when expenditures on qualifying assets
are incurred, borrowing costs are incurred and activities that are necessary to
prepare the asset for its intended use or sale are in progress.

56
When should we stop capitalization?
You should suspend the capitalization in the periods in which the activities
necessary to prepare the asset for its intended use are interrupted.

Capitalization ceases when substantially all activities necessary to prepare the

asset for its intended use are completed.

How should we capitalize?

It depends on the type of borrowing.

If you have a specific borrowing (borrowed specifically for obtaining the

asset), then you basically capitalize actual borrowing costs incurred during the
period.

If you have a general borrowing (borrowed generally but used for obtaining
the asset), then you determine the correct amount by applying capitalization
rate to the expenditures incurred.

57
Leases = Off-Balance Sheet Item?

Leases are a very perfect example of “off-balance sheet” financing if not

recorded properly in the financial statements. Why?

Because although the contract may say that a company leases an asset from
another company, in fact, the contract’s conditions may be very similar to
purchase.

For example, the lessee (or company who takes an asset under the lease) will
lease an asset for almost all of its useful life, will be responsible for maintaining
and repairs, etc.

IAS 17 Leases requires you to record such a transaction not in accordance

with the strict legal form (legally, the owner of an asset remains the lessor), but
in line with the “substance over form” principle.

Which leases shall be recorded in line with “substance

over form”?
IAS 17 classifies leases into 2 types:

Finance lease – this is a lease that transfers substantially all the risks and
rewards incident to ownership of an asset to the lessee, while legal title does not
necessarily need to be transferred. Exactly this type of lease shall be recorded in
line with substance over form principle.

Operating lease – this is a lease other than finance lease and is accounted for
as regular rent.

58
How shall we determine whether the lease is finance or
operating?
Standard IAS 17 lists 5 basic situations that normally lead to a finance lease:

1. The lease transfers the ownership of an asset to the lessee by the end of
the lease term.

2. The lessee has an option to purchase the asset at a price sufficiently

lower than its fair value at the date of purchase (for example, lessee can
purchase leased asset for 1 EUR at the end of the lease term).

3. The lease term is for the major part of the economic life of the asset even if
the title is not transferred (for example, a car is leased for 3 years, while its
economic life is 4 years).

4. At the inception of the lease, present value of the minimum lease

payments comes close to the fair value of the leased asset.

5. Leased assets are of such specialized nature that only the lessee can use
them without major modifications.

If any of these situations happens, then the lease is almost for sure a finance
lease.

59
How to account for finance leases (lessee)

1. Lease at the inception:

At the inception of the lease, the lessee acquires an asset under the lease which
is in fact a loan. Therefore, the accounting entry is:

The amount of the accounting entry is lower of the fair value of the leased
property and the present value of the minimum lease payments.

2. Lease payments

Each lease payment also contains the interest, as the finance lease is in fact a
loan. Therefore:

Each fixed installment therefore needs to be split between interest paid and
loan repayment. This split must be done as to produce a constant periodic
rate of interest on the remaining balance of the liability for each period.

Actuarial method does this best – it uses the interest rate implicit in the
lease (internal rate of return of the lease) to calculate the finance charge for the
period based on the amount of outstanding finance lease liability.

Please watch the case study #3 with the demonstration of actuarial method and
download the file with the example, too!

The interest charge is recorded as:

60
The actual repayment or installment is recorded as:

3. Depreciation

As the lessee acquires the non-current asset, it must be depreciated over the
shorter of the lease term and asset’s useful life. Depreciation entry is as follows:

How to account for finance leases (lessor)

The concept of lessor accounting for finance leases is the same as for the lessee,
but the perspective is a bit different. The capital part of the lease payments is a
receivable in the lessor’s financial statements and the interest part is a finance
income.

How to account for operating leases

Here, as no asset is acquired by the lessee, the rental payments should be
recognized as an expense in the income statement, most of the time on a
straight line basis.

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Is the some change in the lease accounting in the near
future?
Oh yes. IASB will issue the new standard about leases and as a result, the lease
reporting will change substantially.

If you want to take a short look right now, please watch the following video
summarizing current IAS 17 and new developments here.

62
How to Make Consolidated Financial
Statements

Many businesses grow organically, or step-by-step from the internal sources.

However, many businesses grow by acquisition of other companies.

So imagine that a company (parent) buys 100% shares of another company

(subsidiary) in order to get control over subsidiary’s activities. That is an
example of a business combination.

Standard IFRS 3 Business combinations specifies financial reporting by

the entity who undertakes a business combination. It says every business
combination must be accounted for by applying the acquisition method.
Pooling of interests is not allowed anymore.

So what is a business combination?

A business combination is a transaction or other event in which an acquirer
obtains control of one or more businesses.

Here I would like to stress the word control.

Previously, if an acquirer acquired more than a 50% share in another company,

it would be enough to apply acquisition method. Now, the emphasis is not that
much on the percentage of ownership – it is control that matters.

Standard IFRS 10 Consolidated financial statements defines control in a

very broad extent and gives some guidance on it.

63
What is the acquisition method?
The acquisition method accounts for a business combination from the
perspective of the acquirer.

The acquisition method involves the following steps:

1. Acquirer must be identified. An acquirer is an entity that obtains control

over some other entity or business (acquiree). In other words, an acquirer
is a purchaser and an acquiree is a purchased business or company.

2. The acquisition date must be identified. Acquisition date is the date on

which the acquirer obtains control over the acquiree.

3. Acquirer must recognize and measure all identifiable assets acquired,

liabilities assumed and any non-controlling interest in the acquiree.

4. Acquirer must recognize and measure goodwill or a gain from a

bargain purchase.

What is non-controlling interest?

Non-controlling interest (“minority interest” before) is an equity of a
subsidiary (or acquiree) that is not attributable to the acquirer or parent.

64
For example, if an acquirer purchases just an 80% share in the acquiree, then
non-controlling interest is 20% of the acquiree’s equity.

If an acquirer purchases a 100% share in the acquiree, then non-controlling

interest is 0.

What is goodwill?
To put it simply, goodwill is simply the amount paid for the acquiree less the
acquiree’s net assets purchased. Of course, the formula for goodwill calculation
is more complex than this.

If the amount paid is lower than the acquiree’s net assets purchased, then there
is a gain from a bargain purchase.

What financial statements shall the acquirer prepare?

In fact, every acquirer shall prepare 2 sets of financial statements:

• Separate financial statements required by IAS 27, and

• Consolidated financial statements required by IFRS 10.

65
What is the difference between separate and consolidated
financial statements?
Separate financial statements show assets, liabilities, equity, income, expenses
and cash flows SOLELY of the parent company. Investment in the acquiree or
subsidiary is shown either at its cost, or in line with IFRS 9 (or IAS 39).

Consolidated financial statements show assets, liabilities, equity, income,

expenses and cash flows of both parent and subsidiary – or of the whole group,
as it would have been a single entity.

How to prepare consolidated financial statements?

You would follow the next steps to prepare consolidated financial statements:

•Combine or add up items of assets, liabilities, equity, income, expenses and

cash flow of the parent with the similar items of the subsidiaries.
•Eliminate the carrying amount of the parent’s investment in the
subsidiary with the parent’s portion of equity of the subsidiary and account
for any goodwill and non-controlling interest.
•Eliminateintragroup assets and liabilities, equity, income,
expenses and cash flows between parent and subsidiary.

In fact, you must apply the acquisition method when preparing consolidated
financial statements. Remember, when preparing separate financial statements
you just account for an investment at cost or in line with IAS 39/IFRS 9.

Now, does that sound too confusing?

Please watch our case study #4 with the example of preparation of separate and
consolidated financial statements.

66
Less than 50% Share?

Now, let’s take a look at a situation where the parent does not acquire enough
shares to get control over the subsidiary.

When the acquirer acquires less than 50% but at least 20% of the shares of
another company, then he gains significant influence over his investment.

In this case, we call the investment of the acquirer “associate” (not subsidiary,
as in business combinations).

What is significant influence?

Significant influence is the power to participate in the financial and operating
policy decisions of the associate.

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What is the difference between control and significant
influence?
You must not interchange significant influence with control. Significant
influence is the power to participate, whereas control is the power to direct or
decide.

Just remember this:

How to account for associates?

Standard IAS 28 requires accounting for associates using equity method.

What is equity method?

The investor initially recognizes his investment in associate at cost.

68
Subsequently, the investment is then adjusted for post-acquisition
change in the investor’s share of net assets of the associate. Also, profit or loss
of the investor includes his share on profit or loss of an associate.

So here, the carrying amount of the investment in associate is not adjusted

based on the market changes (as would probably be according to IAS 39 / IFRS
9).

How to apply equity method?

Just follow these simple steps:

1. In the consolidated financial statements, you should recognize the

investment in associate at cost. The accounting entry is very simple:

2. Subsequently, after the recognition date, increase or decrease the investor’s

share of the associate’s profit or loss and other comprehensive income.

3. With regard to transactions between investor and associate, you do NOT

need to eliminate balances related to mutual transactions like in business
combinations, because you are not aggregating figures here.

However, you DO NEED to adjust the investor’s share on the associate’s

total comprehensive income for profit or loss from transactions between
these two.

4. Also remember that distribution of dividends from associate reduces the

carrying amount of investment.

There are also some other rules related to equity method, for example what
to do with goodwill, fair value adjustments, etc., but we will not deal with
these in this lesson about basics.

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 Do you remember the business combination’s example from the previous
chapter?

Let’s take the same companies, but now ABC is going to acquire just a 15%
share in DEF. Please watch the video with case study #5 here.

What about separate financial statements?

Well, an investor accounts for an associate exactly as for the business
combinations in its separate financial statements. That is at cost or in
accordance with IAS 39 / IFRS 9.

Who else applies equity method?

Except for accounting for associates, equity method is applied where the joint
venture is established.

Joint venture is a joint arrangement whereby the parties (joint venturers)

have rights to the net assets of the arrangement. It is some kind of a joint
business, simply said.

But be careful, because except for joint venture, IFRS 11 also defines joint
operation, which is quite different from joint venture.

What is the difference between joint venture and joint

operation?
Joint operation is simply joint arrangement whose parties (joint operators)
have rights to the assets and obligations for the liabilities – not the net assets,
as in joint venture.

Joint operations are not accounted for using equity method. Instead, joint
operators or investors recognize their share of assets, liabilities, share of
revenues and expenses in relation to joint operation.

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Remember this:

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Understanding Foreign Currencies

Many companies develop foreign activities for many reasons and everything
seems to be globalizing now.

It means that foreign activities of any company are more and more significant.
And of course, financial statements of foreign businesses have become more
important, too.

But here is the issue: Still, the world does not use a single currency. Instead, we
have dollars, pounds, euros, crowns, rupees, yuans, yens, pesos, rubles, just
name it.

Lot of foreign business out there

So just imagine a Chinese company who has some receivables towards a
German company in EUR currency. How should this be translated to yuans?

Or let’s take something more advanced. Imagine an American company who

has a subsidiary in Mexico. How will Americans prepare consolidated financial
statements if they report in USD and the Mexican subsidiary in pesos?

Let’s take a look at standard IAS 21 The Effects of Changes in Foreign

Exchange Rates, which gives us answers to all these questions.

You will learn 2 things here:

•How to translate foreign currency amounts to your functional currency (that’s

our Chinese company with German receivables)

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•How to translate a foreign operation’s financial statements to presentation

currency (Mexican subsidiary of American company).

What is the difference between functional currency and

presentation currency?
Functional currency is the currency of the primary economic environment in
which the company operates. And, you need to translate all foreign currency
amounts to your functional currency.

Presentation currency is the currency in which the financial statements are

presented.

In many cases, functional and presentation currency are the same.

But in many cases they are not – for example, when a subsidiary needs to be
consolidated with the parent in the parent’s functional currency.

How to determine functional currency?

You must be careful here! Functional currency is not necessarily the local
currency of the country where the business is established. Let me give you an
example:

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ABC company has its seat and factory in China. ABC is primarily financed by
the external loan in USD. ABC’s main activity is producing engines. ABC buys
materials in USD and sells them in USD to its American customers. Wages,
electricity and other local expenses are paid in Chinese yuans.

So guess what the functional currency of ABC is?

Yep, it’s probably USD, although the local currency is that of China. But selling
price is quoted in USD, most material expenses are in USD – these are primary
factors for determining functional currency.

So how do you translate foreign currency amounts to

functional currency?
Let me give you a few basic steps:

1. Determine your functional currency – we have just talked about it.

2. Initially, translate all foreign currency amounts at the rate of exchange at

the date of the transaction.

3. At each subsequent closing date, you shall translate:

• all monetary items in foreign currency -> use closing exchange rate at
the reporting date;

• non-monetary items in foreign currency carried at historical cost -> use

historical exchange rate (at the date of transaction);
• non-monetary items in foreign currency carried at fair value -> use
exchange rate at the date when fair value was determined.

4. Recognize all exchange rate differences on monetary items in profit or

loss (except for net investment in foreign operation, but let’s not complicate
things here).

So now you should know how the Chinese company translates its receivables to
the German company to its functional currency – yuans.

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How to translate foreign operation’s financial statements
to presentation currency?
Well, let me say why we do it: When you want to consolidate the parent’s and
the subsidiary’s financial statements, they must be prepared in the same
currency.

You just cannot aggregate EUR and USD amounts, could you?

So please remember the following rules:

•Assets (including goodwill) and liabilities -> use closing exchange rate of that

balance sheet.

•Income and expenses -> use historical exchange rates (at the dates of

transaction). You can use average rates for the period instead.
•Post-acquisition reserves, capital increases and dividends paid -> use

historical exchange rates (at the dates of transaction).

•Share capital and share premium exchange rates -> use acquisition exchange

rates (at the dates of acquisition).

•Recognize all exchange rate differences in other comprehensive income

as a separate line. It is called “CTD” or currency translation
difference.

Fine, so now, even translating a Mexican subsidiary’s financial statements in

pesos to USD should not be a problem.

Or is it? OK, I know this topic could be a bit complicated. So please take a look
to our case study #6 here and download the excel file with this example, too.

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What Does the Stock Exchange Want to
Know?

I am sure that everyone has heard about PE or P/E ratio at least once. What is
it? PE ratio or price-earnings ratio is probably the most important ratio for
analysis of the publicly traded shares in the stock exchange.

Thanks to PE ratio, investors are able to compare different companies and

calculate “value for money” of individual shares.

Here, we are not going to deal with interpretation of PE ratio, although let me
brief you a bit.

What does PE ratio mean?

PE ratio tells you how many years of the same earnings are necessary to return
back the price you paid for the share.

So if PE is 10, then your investment into a certain share will return back to you
after 10 years (provided the earnings are the same each year and earnings are
paid out to investors in full).

Of course, this is very theoretical and probably such a situation never happens,
but despite this fact PE ratio is a very popular measure among investors.

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How to calculate PE ratio?
PE ratio is calculated as price of the share in the market (P, or PPS) divided
by earnings per share (E, or EPS).

You can get the market price from looking into the stock exchange data.

And now, you will learn about the second component of PE ratio – EPS, or
earnings per share.

Who needs to calculate EPS?

Standard IAS 33 dealing with EPS prescribes that every company whose shares
are publicly traded (or in the process of public issuance) must present EPS on
the face of the statement of profit or loss and other comprehensive income.

So if your company has not entered into the stock exchange yet, but prepares
IFRS financial statements, there is no need to present EPS.

What shall the company present?

Each publicly traded company has to present both basic and diluted EPS. And,
if a company achieved a loss instead of profit, negative EPS must also be
presented.

It might seem quite easy to calculate EPS, but there might arise lots of
complications, for example existence of preference shares, some debt
instruments convertible to equity, potential shares, etc.

How to calculate basic EPS?

The formula is as follows:

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Let’s quickly explain both parameters.

Profit attributable to ordinary shares is calculated as profit or loss

attributable to the parent entity less after-tax dividends to preference shares (if
the preference shares are classified as equity).

Weighted average number of ordinary shares is calculated as number of

shares at the beginning of the period plus number of shares issued during the
period x time factor less number of shares bought back during the period x (1-
time factor).

Time factor is a daily time weighting factor calculated based on the number of
days between share issue or buy back.

To illustrate this, please refer to our case study #7.

What is diluted EPS?

Sometimes, there might exist some potential ordinary shares. These are the
financial or other contracts that might entitle its holder to ordinary shares. For
example, share options, convertible loans, warrants and similar items.

Now, as all these instruments might convert to ordinary shares, investors want
to know what effect this conversion has on EPS. The reason is that earnings do
not change, but conversion increases amount of ordinary shares and therefore,
EPS decreases – bad thing!

How to calculate diluted EPS?

Profits or losses attributable to ordinary shares for the period need to be
adjusted for after-tax effects of dilutive potential ordinary shares.

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These adjusted profits are divided by the sum of the weighted average number
of ordinary shares outstanding during the period and weighted average number
of dilutive potential ordinary shares.

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How to Correct or Change the Things

Have you ever thought about what happens if you make an accounting error
and you realize it after the closing of the reporting period?

Or what you should do when your company changes the useful lives of your
fixed assets? How about changes in accounting policies?

Of course, IFRS has solutions for all of these cases. So now, we will look at
IAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors.

What is a difference between accounting policy and

accounting estimate?
Accounting policy is a specific principle or rule that a company applies in
preparation of its financial statements. An example is an application of a
weighted average for determining inventory’s cost.

On the other hand, accounting estimate is what it says – an estimate of a

carrying amount of an asset or liability, or an estimate of a pattern of a
consumption of an asset.

An example is an estimate of useful life of property, plant and equipment.

Depreciation charged based on useful life is also a kind of accounting estimate,
since you estimate the pattern of consumption of an asset.

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When can a company change an accounting policy?
A company may change its accounting policy only when a change is required by
some IAS / IFRS standard or interpretation (SIC / IFRIC).

Also, an accounting policy might be changed voluntarily, but only if this change
will result in more reliable and relevant financial information.

For example, if your company finds out that the FIFO method would give more
relevant information about inventory’s cost than weighted average costing, then
the change from weighted average to FIFO is a voluntary change in accounting
policy.

How to account for a change in accounting policy?

If a change in accounting policy occurs due to some new standard or
interpretation issued, then the transitional provisions in that standard will tell
you what to do.

But, if the new standard does not contain the transitional provisions, then you
must apply the new accounting policy retrospectively. The same applies if your
company changes accounting policy voluntarily.

It means that you apply the new accounting policy as if it had always been used.
You also have to recalculate and restate opening retained earnings from the
earliest period presented and comparative amounts disclosed for each period
presented.

How to account for a change in accounting estimate?

That’s a lot easier than a change in accounting policy, because the change in
accounting estimate is accounted for prospectively.

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It means you calculate the amount of change and include it in profit or loss
either in the current period, or both in the current and future periods
depending on whether the change affects only current or also future periods.

Anyway, just watch our video with case study #8.

What happens if we find errors in the prior reporting

periods?
This strongly depends on the nature and amount of an error. If an error is
immaterial, then you can forget it and correct it in the current reporting period.

However, if an error is material, then you have to correct it retrospectively.

And yes, retrospective correction means that you have to restate comparative
amounts for the prior periods in which the error occurred (for the earliest
period presented, to be more precise).

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Financial Instruments: Clarifying the
Confusion

One of the most complex areas in the finance world is the area of financial
instruments.

There are numerous kinds – from relatively simple ones such as shares, bonds
or trade receivables to complex ones such as derivatives, compound financial
instruments and many others.

How the things went complicated

Increasing a variety of new financial instruments on the market led to differing
accounting treatments and, therefore, IASB developed 2 IFRS that dealt
specifically with financial instruments: IAS 32 Presentation of Financial
Instruments and IAS 39 Financial instruments: Recognition and
Measurements.

But what happened? IAS 39 was too complicated and very hard to apply
correctly. Therefore, IASB decided to rewrite IAS 39 and issued the new
standard on financial instruments IFRS 9. Also, presentation and disclosures
on financial instruments were rewritten in the new standard IFRS 7.

In this chapter, we will look closely at the very basics of IFRS 9 / IAS 39 on
recognition and measurement of financial instruments.

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What is the current status of IFRS 9 / IAS 39?
The new standard IFRS 9 has not been fully completed yet and therefore some
areas are still arranged by older IAS 39.

Companies will have to apply IFRS 9 in the future – the final mandatory
effective date has not been set yet. Until then, they can either apply old IAS 39,
or decide on an earlier adoption of IFRS 9.

So it means that currently both standards are valid.

What areas do IAS 39 and IFRS 9 arrange?

IAS 39 deals with classification of financial assets and liabilities, embedded
derivatives, initial recognition, initial and subsequent measurement,
impairment of financial assets, derecognition and hedge accounting.

IFRS 9 deals with new classification of financial assets and liabilities, initial
recognition, initial and subsequent measurement, embedded derivatives and
derecognition. For the remaining areas not covered by IFRS 9, older IAS 39
applies.

How do we classify the financial assets?

The classification of financial assets and financial liabilities is the most
important because financial assets or liabilities are measured depending on
their category.

IAS 39 classifies financial assets into 4 categories:

•Financial asset at fair value through profit or loss

•Held-to-maturity financial investments

•Loans and receivables

•Available-for-sale financial assets

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IFRS 9 brings certain simplification as it classifies financial assets into just 2
categories:

•Financial asset subsequently measured at amortized cost

•Financial assets subsequently measured at fair value, with 2 subcategories:

• Through profit or loss;

• Through other comprehensive income (for equity instruments only).

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How do we classify the financial liabilities?
Both IAS 39 and IFRS 9 classify financial liabilities into 2 main categories:

•Financial liabilities at fair value through profit or loss:

•Other financial liabilities measured at amortized cost using the effective

interest method

However, no matter how the financial instrument would be initially classified,

IAS 39 and IFRS 9 permit entities to initially designate the instrument at fair
value through profit or loss.

How do we measure financial instruments initially?

Both IAS 39 and IFRS 9 prescribe to initially measure financial asset or
financial liability at its fair value.

When financial asset or financial liability are not measured at fair value, then
directly attributable transaction costs shall be included in the initial
measurement.

How do we measure financial instruments subsequently

(after recognition)?
Subsequent measurement of financial instruments directly depends on its
classification.

For example, if some corporate bond is classified as held-to-maturity

investment, then it is subsequently measured at amortized cost using the
effective interest method.

But the same corporate bond might as well be classified as financial asset at fair
value through profit or loss and in this case, it will be subsequently measured at
its fair value.

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Also, you have to account for the gain or loss from re-measurement depending
on the category of the financial instrument.

Please watch the case study #9 with an illustration of subsequent measurement

and download the file with the example here.

Need more?
Well, the area of financial instruments is so complex that we touched just a tip
of a bigger iceberg here. For more information, please watch short summaries
of IAS 39 and IFRS 9.

If you are more interested in this topic, then please consider IFRS Kit that
includes great and detailed videos on financial instruments – after watching
them you’ll be able to tackle this topic with high confidence!

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Facing a Lawsuit?

In the past there were almost no rules on when a provision must or must not be
made. As a result, many companies made and then released provisions just to
smooth their profits and show better results.

Therefore, IAS 37 Provisions, Contingent Liabilities and Contingent

Assets outlines the principles for accounting for provisions and contingencies
and thus reduces the room for potential “creative accounting” practices.

What is provision?
A provision is a liability of uncertain timing or amount. A company must
account for a provision when the following conditions are met:

1. There is a present obligation (legal or constructive) as a result of a past

event;

2. it is probable that outflow of economic resources will be required to

settle the obligation;

3. a reliable estimate of the amount of the obligation can be made

A legal obligation derives from a contract or legislation.

A constructive obligation derives from the actions of the reporting entity,

where it is expected (based on the past, best practice, etc.) that the entity will
accept certain responsibilities.

“Probable” means more likely than not, i.e. more than 50% chance.

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So, if all 3 conditions are fulfilled, then the provision must be recognized.

If you are not sure whether to recognize provision or just disclose a contingent
liability or do nothing, standard IAS 37 contains a decision tree that helps us to
make a judgment:

Should the provision be recognized for…

…future operating losses? No, because there was not a past event and future
operating losses do not meet the definition of a liability.

…onerous (unfair, loss) contracts? Yes, if a company has no choice to avoid it.

…warranty repairs? Yes, if based on the company’s practices or past experience

customers expect repairs of faulty products and the company can reasonably
estimate the costs of repairs.

…training due to changes in law? No, as the company has the choice to avoid
training. This is not a liability.

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How the provision should be recognized?
In most cases, the provision is accounted for as:

However, in some cases, the amount of provision might be capitalized to the

cost of another asset. For example, when there is an obligation to remove the
asset and restore the site at the end of the asset’s useful life, then the provision
for the removal costs is recognized as:

If a provision is expected to be settled after 12 months, then it must be

discounted to present value.

What is contingent liability?

Simply speaking, if one of the above 3 conditions is not met then the company
does not recognize the provision. Instead, it discloses the information about the
contingent liability in its notes to the financial statements as prescribed by
IAS 37.

Contingent liability is:

•a possible (not present) obligation arising from past events. Its existence will

be confirmed by some future events out of the company’s control; or

•a present obligation arising from past events which is not recognized, because

either the outflow of economic benefits is not probable (< 50% chance) or
the amount of the obligation cannot be reliably measured (but this is
very rare).

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What is contingent asset?
A contingent asset is a possible asset arising from past events whose existence
will be confirmed by future events out of the company’s control.

A company cannot account for a contingent asset in its financial statements, but
if the inflow of economic benefits is probable (> 50% chance), then the
company makes a disclosure about it in its notes to the financial statements.

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IFRS + Tax Rules = IFRS Deferred Tax

Now we are going to look at one of the most difficult concepts in the whole IFRS
– income tax. Standard IAS 12 Income Taxes deals both with current and
deferred taxation.

Current income tax

Current income tax is relatively straightforward. It is simply calculated as
taxable profit multiplied by the enacted tax rate and accounted for as

However, then we also have a deferred tax.

What is deferred tax?

First, there is always some difference between accounting profit and taxable
profit. The reason is that the tax rules usually differ from the financial
accounting principles.

Second, as a result, if you multiply accounting profit with the tax rate, you will
not get your actual tax expense. Instead, theoretical tax expense will be
quite different from your actual tax expense.

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Therefore, deferred tax is an accounting measure to match the tax effect
and accounting effect of various transactions and thus produce less distorted
results in the financial statements.

In other words, deferred tax is a connection between tax returns and IFRS
statements.

What differences are there between tax rules and

accounting principles?
There are 2 types of differences:

1. Permanent differences: these differences arise when certain items in

the profit or loss are either not taxable or not tax allowable; for example,
government grants exempt from tax. No deferred tax arises on these
differences.

Careful, because IAS 12 does not deal with the concept of permanent
differences - it's just for you to understand the topic.

2. Temporary differences: these differences arise when there are

differences between carrying amount of an asset or a liability and its value
for tax purposes (tax base).

For example, when some expense is recognized in 1 period but allowable when
paid – carrying amount of related accrual is amount recognized as an expense,
but its tax base is 0.

Deferred tax relates only to temporary differences.

What are the types of temporary differences?

Temporary differences can be either taxable or deductible.

Taxable temporary difference arises when a carrying amount of an asset

exceeds its tax base and it gives rise to deferred tax liability. For example,

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interest revenue recognized in the period when it occurred, but taxed when the
cash is received (so the tax base = 0).

Deductible temporary difference arises when a carrying amount of an

asset is lower than its tax base and it gives rise to deferred tax asset. For
example, healthcare liabilities to employees are recognized in the period when
the employees work, but tax deductible when paid.

Where do these differences arise in most cases?

You should watch out for the potential temporary differences in the following
areas:

•accounting depreciation or amortization is different from allowable tax

depreciation or amortization;

•accruals for some expenses are tax deductible after the cash is paid;

•accruals for some revenues are taxable after the cash is received;

•assets are revalued to fair value while these revaluations are not taxable;

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•there are some tax losses or credits carried forward from previous periods, etc.

How shall the deferred tax be measured and recognized?

The simple formula for measuring deferred tax is:

Please be careful, because deferred tax shall never be discounted.

Deferred tax asset or liability shall be, in most cases, accounted for as:

In some cases, deferred tax is recognized to other comprehensive income

(equity) directly, mostly if it relates to revaluations through equity or
corrections of previous errors.

IAS 12 sets the rules when deferred tax asset might be offset with deferred tax
liability and prescribes a number of disclosures.

Please watch the video with summary of IAS 12 here.

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Offering Employee Benefits?

One of the basic accounting principles tells us to match expenses with revenues.
Or, recognize an expense in the period when matching revenue is recognized.

That’s why you probably hunt for all these provisions, accrued expenses and
similar stuff at the closing date.

What about employee benefits?

But have you realized that expenses for employee benefits should be treated the
same way?

It means that expenses and liabilities for employee benefits should be

recognized in the same period when the employee works for the company.

Well, it is easy with salaries, bonuses and paid vacations. But how about
employee benefits paid on the future date?

For example, retirement bonus is paid when the employee retires, but it is not
usually the time when the employee really worked. Standard IAS 19 Employee
Benefits tackles exactly this issue. So let’s explore it.

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What types of employee benefits are there according to
IAS 19?
IAS 19 classifies employee benefits into several categories: short-term employee
benefits, post-employment benefits, other long-term benefits and termination
benefits.

What are short-term employee benefits?

Those are usually payable within 12 months after the reporting date and they
shall be recognized as expenses in the period when the employee provides
services.

Examples are: wages, paid vacation, profit-sharing and bonus payments.

What are post-employment benefits?

Those are usually payable after the completion of employment; for example,
retirement benefit, pension scheme, post-employment medical care, etc.

IAS 19 recognizes 2 types of post-employment benefits:

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1. Defined contribution plan

2. Defined benefit plan

It is very important to know the differences between these 2 types and

categorize your benefit properly, because accounting treatment is very different.

What is a defined contribution plan?

Here, the employer has the obligation to pay contributions into some fund on
behalf of the employees.

And employees get the benefit based on the amount of assets in this fund. If the
fund’s assets are insufficient, the employer does not need to pay the difference.

So as you can see, the risk is with the employee.

Accounting treatment is very simple: employer just recognizes the expense and
obligation for the contribution to be paid in the period when the employee
provided a service (worked).

What is a defined benefit plan?

Basically, under a defined benefit plan, the employer has the obligation to
provide a certain amount of benefit.

He does not necessarily need to send payments to some separate fund that
would pay the benefits to employees. However, many employees do it.

And, if there are insufficient assets in the fund, the employer must pay the
difference and the employee must get his benefit.

So, the risk is with the employer.

And as a result of that, accounting for defined benefit plans is one of the most
difficult and complex issues in all IFRS.

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IAS 19 requires application of projected unit credit method, then discounting,
compounding, use of many actuarial assumptions and other staff.

For illustration of projected unit credit method, please watch our case study
# 10 here.

What are other long-term benefits?

Other long-term benefits are just what they say: all benefits other than short-
term benefits, post-employment benefits and termination benefits.

For example, long-term paid absences, jubilee bonuses or deferred

remuneration fall into this category.

Other long-term benefits are measured and recognized in a very similar way as
defined benefit plans, but there is some simplification, as not all rules apply
here.

What are termination benefits?

Termination benefits are employee benefits provided in exchange for the
termination of the employee’s employment, normally before the regular
retirement age.

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Termination benefits are recognized as an expense and a liability and
sometimes must be discounted (when they are payable more than 12 months
after the reporting date).

IAS 19 then specifies more precisely when to recognize termination benefits

depending on certain conditions.

You can watch the summary of IAS 19 here.

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Let’s Go a Little Deeper

I created this e-book to give people a better understanding of IFRS and how to
apply the rules. There is so much more to cover, but I didn’t want this e-book to
be too overwhelming. I know how difficult the material is to learn.

As I’ve compiled more lessons I decided to turn it into a full course. That course
walks you through all kinds of issues you may see whether you apply this
information at work or want to pass the IFRS test.

I call my program the IFRS Kit because I wanted it to help you unravel the
confusion as you try to learn the material. It teaches you everything from the
basics to advanced level practices.

The material shows you the real life situations, complications and their step-by-
step solutions. As a bonus you can download all excel spreadsheets and other
materials attached for your further reference.

If you want to learn more please check out the benefits of going a little deeper
with your knowledge:

IFRS Kit

If you have any questions at all please let me know. I believe that everyone can
learn the IFRS material quickly if they learn how to simplify the information
and make the learning fun.

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