IFRS Essentials

Dr. Dieter Christian is a lecturer at the Vienna University of Economics and Business, several other Austrian universities and various private seminar companies. He is an author in the area of IFRS and Austrian GAAP. He was formerly a Senior Manager and head of the department for IFRS and Austrian GAAP at BDO Austria and also worked in the IFRS department for PricewaterhouseCoopers in Austria. He has a Doctorate in Business Administration and an MBA from Vienna University of Economics and Business. He is a Member of the IFRS working group of the Austrian Financial Reporting and Auditing Committee (AFRAC). Dr. Norbert Ludenbach is a tax advisor and chartered accountant, and is Head of the IFRS Department of BDO Germany. He is an author of commentaries on IFRS and German GAAP as well as being a lecturer at the University of Freiburg (Germany). He is also the publisher of a practice-oriented German IFRS journal which is published on a monthly basis.

Foreword V Abbreviations XXI The Conceptual Framework for Financial Reporting 1 1. Introduction 1 2. The objective of general purpose financial reporting 1 3. Going concern 1 4. Qualitative characteristics of useful financial information 2 5.The cost constraint on useful financial reporting 5 6.The elements of financial statements 5 7. Examples with solutions 7 IAS 1 Presentation of Financial Statements 11 1. Introduction and scope 11 2. Going concern 11 3. Fair presentation of the financial statements and compliance with IFRSs 11 4. General principles relating to presentation 12 5. Components of the financial statements 13 6. Structure and content of the components of the financial statements 13 7. Examples with solutions 20 IAS 2 Inventories 33 1. Scope 33 2. Measurement 33 3. Presentation and derecognition 35 4. Examples with solutions 35 IAS 7 Statement of Cash Flows 43 1. Introduction 43 2. Preparation of the statement of cash flows 44 3. Special topics 45 4. Consolidated statements of cash flows 45 5. Examples with solutions 46 IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors 55 1.Introduction 55 2.Accounting policies 55 3. Changes in accounting estimates 57 4. Correction of prior period errors 58 5. Examples with solutions 58 IAS 10 Events after the Reporting Period 69 1. Overview 69 2. Examples with solutions 70 IAS 11 Construction Contracts 73 1. Introduction 73 2. Contract revenue 73 3. Contract costs 74 4. Percentage of completion method 74 5. When the outcome of a contract cannot be estimated reliably 77 6. Examples with solutions 77 IAS 12 Income Taxes 91 1. Introduction 91 2. Current tax 91 3. Deferred tax 91 4. Tax (or tax rate) reconciliation 96 5. Examples with solutions 97 IAS 16 Property, Plant and Equipment 111 1. Introduction 111 2. Recognition 111 3. Measurement at recognition 112 4.Measurement after recognition 112 5. Derecognition 115 6. Examples with solutions 116 IAS 17 Leases 127 1. Introduction and scope 127 2. Definitions relating to time 127 3. Classification of leases as finance leases or operating leases 127 4. Accounting of leases by lessees 130 5. Accounting of leases by lessors 130 6. Sale and leaseback transactions 131 7. Examples with solutions 132 IAS 18 Revenue 143 1. Introduction and scope 143 2. Measurement of revenue 143 3. Sale of goods 144 4. Rendering of services 144 5. Interest, royalties and dividends 145 6. Multiple element transactions and linked transactions 146 7. Examples with solutions 148 IAS 19 Employee Benefits and IAS 26 Accounting and Reporting by Retirement Benefit Plans 155 1. Introduction 155 2. Financial reporting without early application of the amendments to IAS 19 issued in June 2011 155 3. The amendments to IAS 19 issued in June 2011 170 IAS 20 Government Grants 175 1. Introduction and scope 175 2. Recognition and measurement 175 3. Presentation 176 4. Repayment of government grants 177 5. Examples with solutions 177 IAS 21 The Effects of Changes in Foreign Exchange Rates 185 1. Scope 185 2. Monetary vs. non-monetary items 185 3. Translation of foreign currency transactions 186 4. Translation of financial statements of foreign operations when preparing the consolidated financial statements 187 5. Examples with solutions 190 IAS 23 Borrowing Costs 199 1. Introduction 199 2. Specific and general borrowings 199 3. Period of capitalization 200 4. Examples with solutions 200 IAS 24 Related Party Disclosures 203 1. Introduction 203 2. Related parties and relationships with them 203 3. Disclosures 204 4. Application of IAS 24 in the consolidated financial statements 205 5. Examples with solutions 205 IAS 26 Accounting and Reporting by Retirement Benefit Plans: see Section IAS 19/IAS 26 209 IAS 27 (2008) Consolidated and Separate Financial Statements, IAS 27 (2011) Separate Financial Statements and IFRS 10 (2011) Consolidated Financial Statements 211 1. Introduction 211 2. Financial reporting without early application of IFRS 10 and IAS 27 (2011) 211 3. IFRS 10 (issued in May 2011) 227 4. The new version of IAS 27 (issued in May 2011) 232 IAS 28 Investments in Associates and IAS 28 (2011) Investments in Associates and Joint Ventures 233 1. Introduction 233 2. Financial reporting without early application of the amendments to IAS 28 issued in May 2011 233 3. The amendments to IAS 28 issued in May 2011 249 IAS 29 Financial Reporting in Hyperinflationary Economies 251 1. Introduction 251 2. Application of IAS 29 relating to foreign operations: the "7-step-approach" 251 3. Reporting period in which an entity identifies hyperinflation when the currency was not hyperinflationary in the prior period 252 4. Example with solution 253 IAS 31 Interests in Joint Ventures and IFRS 11 Joint Arrangements 259 1. Introduction 259 2. IAS 31 "Interests in Joint Ventures" 259 3. IFRS 11 "Joint Arrangements" (issued in May 2011) 263 IAS 32 Financial Instruments: Presentation 271 1. The term "financial instrument" 271 2. Scope 272 3. Differentiation between equity and liabilities 272 4. Accounting for a convertible bond after recognition by the issuer 273 5. Treasury shares 273 6. Costs of an equity transaction 274 7. Offsetting 274 8. Examples with solutions 274 IAS 33 Earnings per Share 281 1. Introduction and scope 281 2. Ordinary shares and potential ordinary shares 281 3. Basic earnings per share 281 4. Diluted earnings per share 282 5. Presentation and disclosure 283 6. Examples with solutions 283 IAS 34 Interim Financial Reporting 291 1. Introduction 291 2. Content of an interim financial report 291 3. Materiality 292 4. Recognition and measurement 292 5. Examples with solutions 294 IAS 36 Impairment of Assets 299 1. Introduction and scope of IAS 36 299 2. When to test for impairment 299 3. When to reverse an impairment loss 300 4. Determining the recoverable amount for an individual asset or for an asset s CGU? 300 5. Determining the recoverable amount 301 6. Determining the carrying amount of a CGU 304 7. Goodwill 304 8. Corporate assets 305 9. Recognizing and reversing an impairment loss 305 10. Non-controlling interests 306 11. Examples with solutions 307 IAS 37 Provisions, Contingent Liabilities and Contingent Assets 323 1. Scope 323 2. Definition and recognition of provisions 323 3. Contingent liabilities 325 4. Contingent assets 325 5.Measurement 326 6. Reimbursements 326 7. Changes in provisions 327 8. Specific issues 327 9. Examples with solutions 329 IAS 38 Intangible Assets 335 1. Scope of IAS 38 335 2. The term "intangible asset" 335 3. Recognition and initial measurement 336 4. Further prohibitions of capitalization 339 5. Measurement after recognition 339 6. Derecognition 341 7. Examples with solutions 342 IAS 39 Financial Instruments: Recognition and Measurement: see Section IFRS 9/IAS 39 347 IAS 40 Investment Property 349 1. The concept of "investment property" 349 2. Recognition 350 3. Measurement at recognition 350 4. Measurement after recognition 350 5. Derecognition 352 6. Presentation 352 7. Examples with solutions 352 IAS 41 Agriculture 361 1. Introduction and scope 361 2. Recognition 361 3. Measurement 361 4. Government grants 362 5. Examples with solutions 362 IFRS 1 First-time Adoption of International Financial Reporting Standards 367 1. Introduction and scope 367 2. Recognition and measurement 368 3. Presentation and disclosure 370 4. Examples with solutions 371 IFRS 2 Share-based Payment 375 1. A general introduction to employee share options 375 2. Scope of IFRS 2 376 3. The accounting of employee share options 376 4. Examples with solutions 379 IFRS 3 Business Combinations 385 1. Introduction and scope 385 2. Acquisition of shares vs. acquisition of the individual assets 385 3. Identifying the acquirer 386 4. Acquisition date 386 5. Acquisition-related costs 386 6. Accounting for a business combination on the acquisition date 386 7. Subsequent measurement and accounting 392 8. Deferred tax 393 9. Entries necessary in order to prepare the consolidated financial statements 393 10. Determining what is part of the business combination transaction 394 11. Examples with solutions 395 IFRS 4 Insurance Contracts 417 1. Introduction and scope 417 2. Insurance contracts, insurance risk and the scope of IFRS 4 417 3. Financial reporting for insurance contracts 417 4. Example with solution 418 IFRS 5 Non-current Assets Held for Sale and Discontinued Operations 421 1. Introduction and overview 421 2. Scope 422 3. Non-current assets and disposal groups held for sale 422 4. Presentation of discontinued operations 426 5. Examples with solutions 427 IFRS 6 Exploration for and Evaluation of Mineral Resources 437 1. Introduction and scope 437 2. Financial reporting 437 3. Example with solution 438 IFRS 7 Financial Instruments: Disclosures 441 1. Introduction 441 2. Significance of financial instruments for financial position and performance 441 3. Nature and extent of risks arising from financial instruments 442 4. Transfers of financial assets 443 5. Examples with solutions 443 IFRS 8 Operating Segments 447 1. Introduction 447 2. Scope 447 3. Operating segments and chief operating decision maker 447 4. Reportable segments 448 5. Segment disclosures 450 6. Entity-wide disclosures 452 7. Examples with solutions 452 IFRS 9 Financial Instruments and IAS 39 Financial Instruments: Recognition and Measurement 457 1. Introduction 457 2. Financial instruments accounting according to IFRS 9 (as issued in 2010) and its consequential amendments to IAS 39 457 3. Financial instruments accounting prior to IFRS 9 490 IFRS 10 Consolidated Financial Statements: see Section IAS 27/IFRS 10 499 IFRS 11 Joint Arrangements: see Section IAS 31/IFRS 11 501 IFRS 12 Disclosure of Interests in Other Entities 503 1. Introduction 503 2. The term "structured entity" 503 3. The individual disclosure requirements of IFRS 12 504 4. Example with solution 507 IFRS 13 Fair Value Measurement 509 1. Introduction 509 2. Scope 509 3. The measurement requirements of IFRS 13 510 4. Illustration of the application of selected valuation techniques 517 5. Examples with solutions 518 Index