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ACCA DIPAC QUESTIONS and SHORT NOTES ON FRAMEWORK and
COMMON STUFF .docx
ACCA DIPAC QUESTIONS and SHORT
NOTES ON FRAMEWORK and
COMMON STUFF .docx
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1 | P a g e DIPAC ACCOUNTING Tut.
Letter 1 : Notes: Framework Presentation
Revenue - Change in Acc Policies
Income Tax.
CONTENTS:
TO BE SCANNED IN STILL
......................................................................................................................................
.......................................................................... 3 (A)..SHORT NOTES ON
FRAMEWORK ETC.
......................................................................................................................................
........................................ 4 INCOME TAX
......................................................................................................................................
................................................................................................................. 4
DEFINITIONS OF THE ONLY 5 ELEMENTS OF FIN STATS.
......................................................................................................................................
............................... 7 MEASUREMENT AND RECOGNITION CRITERIA (for
elements of fin stats, in order to be part on SCI or SFP)
................................................................ 9 IAS NUMBERING:
......................................................................................................................................
..................................................................................................... 12 QUALITATIVE
CHARACTERISTICS OF FIN
STATS..........................................................................................................................
......................................................... 12 CURRENT OR NON-CURRENT
DISTINCTION ,ASSETS & LIABILITES
......................................................................................................................................
......... 14 OTHER GENERAL DEFINITIONS FROM THE all the IASs /IFRS s
......................................................................................................................................
.............. 15 DISCLOSURE & PRESENTATION
......................................................................................................................................
........................................................................... 17 (B)..QUESTIONS:
......................................................................................................................................
.................................................................................. 19 2013 NEW QUESTIONS :
......................................................................................................................................
................................................................................................. 19 presentation of fin
stats:
......................................................................................................................................
...................................................................................... 19 2012 AND BEFORE
OLD QUESTIONS.
......................................................................................................................................
..................................................................... 24 GENERAL NON-SPECIFIC
QUESTIONS
......................................................................................................................................
........................................................... 25 emails received answers but not made
notes yet :
......................................................................................................................................
..................................... 25 INCOME TAX
......................................................................................................................................
.............................................................................................................. 30 intangible
assets
......................................................................................................................................
...................................................................................................... 39 Presentation of
fin stats
......................................................................................................................................
....................................................................................... 39 LEASES
......................................................................................................................................
........................................................................................................................ 40
EMPLOYEE BENEFITS:
......................................................................................................................................
......................................................................................... 40 REVENUE-IAS 18
......................................................................................................................................
....................................................................................................... 44 THE
FRAMEWORK OF ACCOUNTING.
......................................................................................................................................
............................................................... 52 PRESENTATION OF FIN STATS
......................................................................................................................................
.............................................................................. 53 CHANGES IN
ACCOUNTING ESTIMATES AND POLICIES AND ERRORS
......................................................................................................................................
... 56 INTANGIBLE ASSEST: IAS38
......................................................................................................................................
.................................................................................. 57 GOV GRANTS:
......................................................................................................................................
............................................................................................................ 58
1)INVENTORIES:
......................................................................................................................................
........................................................................................................ 59
IMPAIRMENT
......................................................................................................................................
............................................................................................................. 62 PPE:
......................................................................................................................................
............................................................................................................................... 62
EMPLOYEE BENEFITS
......................................................................................................................................
.............................................................................................. 74 ?CURRENT PLACE
OF LAST
QUESTION..................................................................................................................
.................................................................................. 76 OWN QUESTIONS &
ANSWERS
......................................................................................................................................
........................................................................... 77 PASTEL/and own stuff
......................................................................................................................................
............................................................................................ 77 Close corporations:
......................................................................................................................................
.................................................................................................. 80 investment
property
......................................................................................................................................
............................................................................................... 81 GROUP
STATEMENTS: 2012
......................................................................................................................................
................................................................................. 81 GROUP COMPANIES:
2010
......................................................................................................................................
................................................................................... 82 NON-CURRENT ASSETS
HELD FOR SALE & DISCONTINUED OPERATIONS
..................................................................................................................................
87 INVENTORY
......................................................................................................................................
................................................................................................................ 92 IAS 10 :
EVENTS AFTER THE REPORTING PERIOD:
......................................................................................................................................
........................................ 92
LEASES.......................................................................................................................
......................................................................................................................................
... 93 GENERAL :
......................................................................................................................................
................................................................................................................... 93 Some
questions from another notes page - mixed up, some may be repeated here in
places, look up and down ................................................... 93 changes in accounting
policies and errors
......................................................................................................................................
...................................................... 96
PARTNERSHIPS:........................................................................................................
......................................................................................................................................
. 98 COMPANIES
......................................................................................................................................
.............................................................................................................101 BASIC
EARNINGS PER SHARE:
......................................................................................................................................
............................................................................106 borrowing costs:
......................................................................................................................................
.....................................................................................................108 related parties
......................................................................................................................................
.........................................................................................................108 EARNINGS
PER SHARE:
......................................................................................................................................
.........................................................................................108
2 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation
Revenue - Change in Acc Policies Income Tax.
LEASES.......................................................................................................................
......................................................................................................................................
.108 cash flow ias 7
......................................................................................................................................
.........................................................................................................108 (C)
ANSWERS TO QUESTIONS FROM
LECTURERS...............................................................................................................
........................................................... 109
To be scanned in still 1. Government grants :grants related to income section : see
example of complex salaries on page 328 gaap text. SCAN it in ! 2.
(A)..SHORT NOTES ON FRAMEWORK ETC. Note : any question which asks
if something may be recognized in the accounting records MUST HAVE 3
THINGS :Remember this in any question like this (1 point per item below) this is
universal, it is the Framework recognition points. 1.1.1. Definition of elements of
fin stats 1.1.2. Probability of economic benefit flow out/in 1.1.3. Must be able to be
Reliably measured
INCOME TAX 1. Definition : TAX BASE : lAS 12: The Tax Base of an asset or a
liability is the amount attributed to that asset or liability for tax purposes 2.
Definition : TAX BASE OF ASSET : The tax base of an asset is the amount that
will be deductible [ you can deduct it from your future taxable income eg you can
deduct : future wear & tear from future income for tax purposes] for tax purposes
against any taxable economic benefits that will flow to an entity when it recovers
the carrying amount of the asset ..[ in future periods] . If those economic benefits
will not be taxable, the tax base of the asset is equal to its carrying amount. 3.
Definition : TAX BASE OF LIABILITY : The tax base of a liability is its carrying
amount, less any amount that will be deductible[ future tax deduction : you can
deduct it from your future taxable income eg for a future warranty costs liability ,
you can deduct any actually paid future warranty costs from future taxable income ]
for tax purposes in respect of that liability in future periods ..[when that liability is
settled] . In the case of revenue which is received in advance, the tax base of the
resulting liability is its carrying amount, less any amount of the revenue that will
not be taxable in future periods. 4. Definition : TAX BASE OF REVENUE
RECEIVED IN ADVANCE : In the case of revenue which is received in advance,
the tax base of the resulting liability is its carrying amount, less any amount of the
revenue that will not be taxable in future periods. 5. Temporary differences are
differences between the carrying amount of an asset or liability in the statement of
financial position and its tax base. Temporary differences may be either: 6. Taxable
temporary differences : which are temporary differences that will result in taxable
amounts in determining taxable profit (tax loss) of future periods when the carrying
amount of the asset or liability is recovered or settled; or 7. Deductible temporary
differences : which are temporary differences that will result in amounts that are
deductible in determining taxable profit (tax loss) of future periods 8. EXAMPLES
OF TAX BASES OF ASSETS :that will be deductable, unless not taxable future
benefits 8.1. TRADE RECEIVABLES : Tax Base = Unless:
Carrying amount : because future economic benefits are not taxable , because it was
already included in sales, so in taxable income, when it was recoded , so rule 2.
(unless on you are on SARS payments basis, not invoice basis, of income tax, then
full amount will be taxable in the future, then tax base is = zero, unless some
deductions are allowed for tax, then tax base will be the amount of those
deductions.
9. CLASSIFICATION / DE-CLASSIFICATION AS NON-CURRENT ASSETS
HELD FOR SALE : Any change in the classification of assets from their normal
SFP heading & IAS statement into Non-Current Assets Held for Sale heading in
IFRS 5 or visa-versa will result in a Possible change in the carrying amount
/accounting valuation of the asset to or from : last carrying amount etc. VS fair
value less costs of disposal . The TAX BASE will however remain the same, so any
adjustment to the current carrying amount will result in a temporary difference
necessitating provision for deferred tax. (see pg 732 gaap for example- [P.S :
example pg 731 uses 30% not 14% for CGT watch out]) 9.1. Impairment losses
/gains : are always accounted for in Profit & Loss for Non-Current Assets Held for
Sale the related tax movement must also be in P&L. 9.2. Movement out of held
for sale for asset accounted for using the revaluation model ( except for 1 case:
unless it is a transfer back out of held for sale into normal SFP asset heading eg
PPE or Intangible assets etc, and the asset in there is accounted for using the
revaluation model- then any once-off change goes revaluations acc. so then the
deferred tax must also be done in revaluations which is in OCI (Other
Comprehensive Income). 9.3. CGT : capital gains tax: 9.3.1. VERY IMPORTANT
: RECOUPMENT : when a machine is sold, any RECOUPMENT up to the level of
the BASE COST , (not todays base cost, but Original base cost) will be recouped at
29% - the NORMAL TAX RATE. But any capital gains OVER this tax base
amount will be taxed at 14.5 % (50% x value X 29%). Since deferred tax must
reflect the consequences that will follow the manner in which entity expects to
recover the carrying amount of the asset , it is suggested by txtbk that all assets
NOT in held for sale must use NORMAL TAX (28% in SA) and all assets in
Held for sale must use normal tax up to Original Tax Base Cost (when asset was
acquired ) at normal tax rate 29% and capital gains tax CGT at 14.5% for any
potential capital gains over the current TAX BASE. (50% of assets at 29% =
14.5%) . 9.3.2. Movement into/out of held for sale : (see CGT above) So when
going INTO held for sale, the following 2 rules apply: , and when going OUT of
you must first reverse any CGT at 14.5 % still left in Deferred Tax in Other
Comprehensive Income ,then put in in Deferred Tax in P&L , and then only
reduce/increase the Deferred Tax in P&L for any incr/decr. in the valuation of the
asset actually resulting from the move OUT of held for sale. 9.3.2.1. Deferred Tax
on CGT :any change in deferred tax from CGT is done in OCI : (Other
Comprehensive Income). And NOT in P&L (why?) 9.3.2.2.Deferred tax on
potential Recoupment :any deferred tax on the recoupment up to the level of todays
Tax Base, must go to P&L 9.4. SPECIAL CASE :eg: RESEARCH COSTS
WRITTEN OFF AS PERIOD COST :IN FIRST YEAR, WHERE SARS ALLOWS
A 50/30/20 DEDUCTION. Tax Base = Carrying Amount Less : Tax Base
=Temp.Diff 10000 50% aleady written off, leaves 5000 deductable in future.
Zero (it was written off as period costs)DO NOT JUST DEEM IT TO BE 10000 in
your head!!!! R5000 (5000) negative - 5000, where if you had said carrying
amount was 10000 and not 0, you would have had positive +5000 .
9.5. DEPRECIATION : Tax Base Less:
Cost Accumulated depreciation
Less: that country) =
Scrap Value Residual Amount ( if this will not be deductable for tax in Tax Base
(wear & tear to be claimed in the future
10. EXAMPLES OF TAX BASES OF LIABILITIES :less that will be deductable
10.1. FINANCE LEASE : Carrying Amount in books eg : R1140 R140 VAT
included in it, because it is all deductable immediately on cash value of lease ,so
VAT wont be deductable in the future. = R1000 Amount that will be deductable
it is taken as if SARS will allow Deductable this as a deduction in the future by
textbook, to make it simple. : Tax Base= Carrying amount less Deductable in
Future = R1140 less R1000 ( without non-deductable part in it) Tax Base = R140
10.2. PROVISION FOR WARRANT COSTS: Start with: Carrying Amount in
books eg : R5000 LESS: 0 Deductable =R5000 Amount that will be deductable =
all future warranty costs = so it : is the full amount, since it will all be deductable as
an expense if paid out in the future. ( if you are not sure if it will be paid out or not,
just take it as if it will be paid out..it is a liability mos) Tax Base= 0, Zero 10.3.
LOAN: Start with: Carrying Amount in books eg : R5000 Deductable 0, Zero :
since the repayment of the loan itself will have no tax : consequences. If interest is
payable it may be tax deductable OR MAY NOT ,NOT SURE????ask lecturerl
Start with: LESS:
LESS: Tax Base= = less Tax Base =
0 Carrying amount less Deductable in Future R5000 0 R5000 Full Value of
Liability , so it is the full amount, since it will all be deductable as an expense if
paid out in the future.
1. EXAMPLES OF TAX BASES OF REVENUE RECEIVED IN ADVANCE :
less that will not be taxable a. DEPOSIT for manufacturing job to be done. : 1st
Calc. : LESS: =Not Taxable 2nd Calc. Tax Carrying amount less Not Taxable
in Future Base Start With R1000 Less 0 ( if it is assumed [by textbook] that the
deposit will only be taxed in the future when the job is completed) Tax Base = 0 b.
RENT : 1st Calc.: LESS: = Not Taxable 2nd Calc. Tax Carrying amount less
Not Taxable in Future Base Start With R1000 less R1000 none of the carrying
amount will be taxable in future, since SARS taxes it all on Receipt of cash
immediately) Tax Base = 0 1.2. Most important user of fin. stats. = shareholders :
investors/equity holders/risk capital providers. DEFINITIONS OF THE ONLY 5
ELEMENTS OF FIN STATS. a) ASSETS:
i) Definition : An Asset of an Entity is : (1) A resource (2) that is under the control
of the entity (3) that will result in future economic benefits flowing to the entity (4)
that originated as a result of past events. b) LIABILITIES: i) Definition : A liability
of an entity is: (1) A present obligation (2) Arising from past events (3) The
settlement of which is expected to result in an outflow from the entity of resources
embodying economic benefits. c) EQUITY; i) Definition: The residual interest in
the assets of the entity after deducting all its liabilities. d) INCOME: i) Definition
:Income is described as (1) Increases in economic benefits during the accounting
period (2) In the form of inflows or enhancements of assets or decreases of
liabilities (3) That result in increases in equity other than those relating to
contribution from equity participants. e) EXPENSES: i) Definition : expenses are
defined as (1) Decreases in economic benefits during the accounting period, (2) In
the form of outflows or depletion of assets or incurrance of liabilities (3) That result
in decreases in equity other than those relating to distributions to equity
participants. f) REVENUE: i) The GROSS INFLOW of economic benefits during
the(? Accounting?) period ii) That arises in the course of ORDINARY
ACTIVITIES of the entity iii) That results in increases in equity , excluding the
contributions of equity participants. g) FAIR VALUE i) is the amount for which ii)
an asset could be exchanged iii) or a liability settled iv) between knowledgeable,
willing parties in an arms length transaction. h) PROVISION : a PROVISION IS :
A LIABILITY of uncertain timing and amount . (get contingent liability etc right
too!, REM if you do not OWE money no PROVISION can be created somehow.) i)
So it MUST SATISFY THE DEFINITION OF LIABILITY , AND OF
PROVISION BOTH OF , to qualify . ii) A provision may be recognised: iii) If
it is a liability of uncertain timing and amount and definition of liability is as
follows : iv) if a company has a present obligation; () v) as a result of a past
event; () vi) where it is probable that there will be an outflow of economic
benefits to settle the obligation; and () vii) a reliable estimate of the obligation
can be made. i) INTANGIBLE ASSET : i) An Identifiable , Non- Monetary Asset
without Physical Presence.
MEASUREMENT AND RECOGNITION CRITERIA (FOR ELEMENTS OF FIN
STATS, IN ORDER TO BE PART ON SCI OR SFP) i) FIRSTLY IT MUST
SATISFY THE REQUIREMENTS OF THE DEFINITION OF THE 5
ELEMENTS of fin stats.assets,liabilities,etc. ii) Then , for each of the following
types it must ALSO satisfy the following Recognition & Measurement criteria. iii)
REVENUE (from IAS18) (1) MEASUREMENT: (a) At Fair Value of
Consideration received or receivable.(see definition of fair value) (2)
RECOGNITION: (a) Probability of Future Economic Benefit (flowing to the
entity- there must be probability of) (b) Requirement of Reliable Measurement
(must be able to be measured) iv) PPE: (1) MEASUREMENT: (a) IAS 16. 15 An
item of property, plant and equipment that qualifies for recognition as an asset shall
be measured at its cost (2) RECOGNITION: (a) IAS 12. 7 The cost of an item of
property, plant and equipment shall be recognised as an asset if, and only if: (i) (a)
it is probable that future economic benefits associated with the item will flow to the
entity; (it is not unsaleable or useles) (ii) (b) and the cost of the item can be
measured reliably. v) INTANGIBLE ASSETS : (1) MEASUREMENT: An
intangible asset shall be measured initially at cost . (2) RECOGNITION: (a) IAS38.
18 The recognition of an item as an intangible asset requires an entity to
demonstrate that the item meets: (i) (a) the Definition of an intangible asset 1.
Definition : An Intangible asset is an Identifiable, Non-Monetary Asset without
physical presence. (ii) (b) the Recognition criteria .(which are as follows:) 1. An
intangible asset shall be recognised if, and only if: a. (a) it is probable that the
expected future economic benefits that are attributable to the asset will flow to the
entity; and b. (b) the cost of the asset can be measured reliably. 2. 22 An entity
shall assess the probability of expected future economic benefits using reasonable
and supportable assumptions that represent managements best estimate of the set
of economic conditions that will exist over the useful life of the asset. 3. 23 An
entity uses judgement to assess the degree of certainty attached to the flow of future
economic benefits that are attributable to the use of the asset on the basis of the
evidence available at the time of initial recognition, giving greater weight to
external evidence.. vi) IMPAIRMENT: (1) RECOGNITION: (a) If, and only if, the
recoverable amount of an asset is less than its carrying amount, the carrying
amount of the asset shall be reduced to its recoverable amount. That reduction is an
impairment loss.
10 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework
Presentation Revenue - Change in Acc Policies Income Tax.
(2) MEASUREMENT: (a) At higher of fair value less costs to sell or PV of future
cashflows. vii) NON-CURRRENT ASSETS HELD FOR SALE : (1)
RECOGNITION: (a) An asset shall be classified as Held for Sale if its carrying
amount will be recovered principally through a sale transaction, rather than through
continuing use.(see conditions in own notes , to be thus classified eh within 12
mnts etc) (b) An asset shall be classified as Held for Distribution when the entity
is committed to distribute the asset ( or disposal group ) to its owners. (see
conditions in own notes , to be thus classified eg: within 1 year etc.) (2)
MEASUREMENT: The general measurement rule : is that it is measured at
LOWER of CARRYING AMOUNT or FAIR VALUE LESS COSTS TO
SELL.(OR fair value less costs to distribute for assets that are to be distributed to
the owners and not sold) viii) EMPLOYEE BENEFITS : 1) SHORT TERM
EMPLOYEE BENEFITS : (a) RECOGNITION : When an employee has rendered
service to an entity during an accounting period, the entity shall recognise the
undiscounted amount of short-term employee benefits expected to be paid in
exchange for that service: (all types special instances get extra explanation IN
THEIR headings below to be added to this) (i) as an expense, unless another
Standard requires or permits the inclusion of the benefits in the cost of an asset
(see, for example, IAS 2 Inventories and IAS 16 Property, Plant and Equipment).
AND (ii) AND as a liability (accrued expense), after deducting any amount already
paid. If the amount already paid exceeds the undiscounted amount of the benefits,
an entity shall recognise that excess as an asset (prepaid expense) to the extent that
the prepayment will lead to, for example, a reduction in future payments or a cash
refund; 2) SHORT TERM COMPENSATED ABSENCES (SICK LEAVE &
ANNUAL LEAVE) (a) RECOGNITION: (i) IAS 19.11 : An entity shall recognise
the expected cost of short-term employee benefits in the form of compensated
absences under paragraph 10 as follows: 1. (a) in the case of accumulating
compensated absences, when the employees render service that increases their
entitlement to future compensated absences; and 2. (b) in the case of non-
accumulating compensated absences, when the absences occur. 3) PROFIT
SHARING & BONUS PLANS (due within 12 mnths) 1. Recognition (perIAS 19)
An entity shall recognise the expected cost of profit-sharing and bonus payments
under paragraph 10 when, and only when: a. the entity has a present legal or
constructive obligation to make such payments as a result of past events; and b. a
reliable estimate of the obligation can be made. 2. Measurement : 4) DEFINED
CONTRIBUTION PLAN
a. Recognition : When an employee has rendered service to an entity during a
period, the entity shall recognise the contribution payable to a defined contribution
plan in exchange for that service: i. (a) as a liability (accrued expense), after
deducting any contribution already paid. If the contribution already paid exceeds
the contribution due for service before the end of the reporting period, an entity
shall recognise that excess as an asset (prepaid expense) to the extent that the
prepayment will lead to, for example, a reduction in future payments or a cash
refund; AND ii. (b) as an expense, unless another Standard requires or permits the
inclusion of the contribution in the cost of an asset (see, for example, IAS 2
Inventories and IAS 16 Property, Plant and Equipment). 45 Where contributions to
a defined contribution plan do not fall due wholly within twelve months after the
end of the period in which the employees render the related service, they shall be
discounted using the discount rate specified in paragraph 78. (Any part that must be
contributed by employee himself forms part of Gross Salary Expense of company,
NOT a separate company contribution. ) b. Measurement : If entitys contributions
fall due within 12 mnths they are not discounted, if ( rarely) they fall due after
12mnts after employee rendered service they must be discounted to PV. (you
probably carry on discounting it up to last day at fin. Yr. end if only 6 mnths left ,
after first 12 mnths is over, per normal accounting practice it is probably again
PVd to 6mnths ) The rate you use to discount is the year end market yields on high
quality corporate bonds, or in countries where no such deep market exists, then
government bonds market yield. the currency & term of bond measured &
obligation being PVd are to be the same. 5) DEFINED BENEFIT PLAN: i.
Recognition: 50 Accounting by an entity for defined benefit plans involves the
following steps: c. using actuarial techniques to make a reliable estimate of the
amount of benefit that employees have earned in return for their service in the
current and prior periods. This requires an entity to determine how much benefit is
attributable to the current and prior periods (see paragraphs 67 71) and to make
estimates (actuarial assumptions) about demographic variables (such as employee
turnover and mortality) and financial variables (such as future increases in salaries
and medical costs) that will influence the cost of the benefit (see paragraphs 72
91); d. discounting that benefit using the Projected Unit Credit Method in order to
determine the present value of the defined benefit obligation and the current service
cost (see paragraphs 64 66); e. determining the fair value of any plan assets (see
paragraphs 102104); f. determining the total amount of actuarial gains and losses
and the amount of those actuarial gains and losses to be recognised (see paragraphs
9295); g. where a plan has been introduced or changed, determining the resulting
past service cost (see paragraphs 96101); and h. where a plan has been curtailed or
settled, determining the resulting gain or loss (see paragraphs 109115). Where an
entity has more than one defined benefit plan, the entity applies these procedures
for each material plan separately. IAS 51 In some cases, estimates, averages and
computational short cuts may provide a reliable approximation of the detailed
computations illustrated in this Standard. 1. MEASUREMENT: (1) ix) NEXT:
IAS NUMBERING: FRAMEWORK IAS 1 IAS 2 IAS12 IAs 18 + circ09/06 + IAS
38 +SIC 32 IAS 16 IAS 20 IAS 36 FRAMEWORK PRESENTATION
INVENTORIES INCOME TAX REVENUE Intangible assets. PPE
GOVERNEMNT GRANTS IMPAIRMENTS
QUALITATIVE CHARACTERISTICS OF FIN STATS. 1.2.1. Understandability
(reasonable knowledge & willingness study reasonable diligence) 1.2.2. Relevance
(predictive,confirmatory roles ,does influence economic decisions,relevant to
econ.decis.) 1.2.2.1.Material 1.2.3. Reliability (It Is Reliable when free of 1-
material errors and 2-bias 3-faithfullly represents what purports) 1.2.3.1.Fair
Presentation 1.2.3.2.Prudent 1.2.3.3.Complete 1.2.3.4.Neutral 1.2.3.5.Substance
over Form 1.2.4. Comparability (through time & against other entities , similar
transactions/events , acc. policies) UNDERLYING ASSUMPTIONS 1.1.1. Accrual
basis : when they occur and not as cash or its equivalent is received or paid , and
also within the accounting period to which they relate. 1.1.2. Going concern
Assumption : intention + need OBJECTIVES OF FIN STATS. (vertabim from
framework itself) 1.1. To provide info about the fin pos fin perf + ch in fin pos 1.2.
of an enterprise 1.3. that would be usefull to a wide range of users 1.4. in making
economic decisions COMPONENTS OF FIN STATS 1.1. SFP 1.2. SCI 1.3. St of
Cash Flows
1.4. St Ch EQ 1.5. Notes to the fin stats GENERAL FEATURES OF FIN STATS.
IAS 1.15 -.46 1.1. Fair Presentation & Compliance with IFRS 1.2. Going Concern
1.3. Accrual Basis 1.4. Materiality & Aggregation 1.5. Offsetting 1.5.1. Frequency
of Reporting 1.5.2. Comparative Information 1.5.3. Consistency Of Presentation
CONCEPTS OF CAPITAL MAINTENANCE 1.5.4. Financial : 1.5.4.1.CAPITAL
IS EQUAL TO THE NET ASSETS OF A COMPANY: in money amount value of.
1.5.4.2.Historical cost 1.5.4.3.2 methods of measurement: 1.5.4.3.1.Incl. inflation
:Nominal Monetary Units : ie: inflation 1.5.4.3.2.Excl. inflation :Units of constant
Purchasing 1.5.4.4.In terms of this, capital is maintained if net assets at the
beginning of the period is equal to net assets at end of period, after excluding any
distributions to or contributions from owners of the equity 1.5.5. Physical
1.5.5.1.CAPITAL IS EQUAL TO THE PRODUCTION CAPACITY OF A
COMPANY eg: number of units produced per day 1.5.5.2.Current cost
measurement basis IDENTIFY THE PURPOSE AND STATUS OF THE
FRAMEWORK A) PURPOSE OF THE FRAMEWORK The purpose of the
Framework is to: (a) assist the Board of IASC in the development of future
International Accounting Standards and in its review of existing International
Accounting Standards; (b) assist the Board of IASC in promoting harmonisation of
regulations, accounting standards and procedures relating to the presentation of
financial statements by providing a basis for reducing the number of alternative
accounting treatments permitted by International Accounting Standards; (c) assist
national standard-setting bodies in developing national standards; (d) assist
preparers of financial statements in applying International Accounting Standards
and in dealing with topics that have yet to form the subject of an International
Accounting Standard; (e) assist auditors in forming an opinion as to whether
financial statements conform with International Accounting Standards; (f) assist
users of financial statements in interpreting the information contained in financial
statements prepared in conformity with International Accounting Standards; and (g)
provide those who are interested in the work of IASC with information about its
approach to the formulation of International Accounting Standards. B) STATUS
OF THE FRAMEWORK 1. The Status of the framework is that : a. It is not as IAS
and thus does not give any standards for any measurement or disclosure issue.
b. If there is a dispute between the framework and an IAS, then the IAS is the one
that must be followed. 2. USERS OF FINANCIAL STATEMENTS : THE
SPECIFIC INFORMATION NEEDS OF EQUITY INVESTORS, THE
GENERAL INFORMATION NEEDS OF OTHER USERS , specify the users and
their need for information . Most important users = 1-Providers of finance eg banks
2- Equity investors, namely shareholders. (a) EQUITY INVESTORS. : Ability of
the entity to pay 1-Dividends & 2-Buy, Hold or Sell : The providers of risk capital
and their advisers are concerned with the risk inherent in, and return provided by,
their investments. They need information to help them determine whether they
should buy, hold or sell. Shareholders are also interested in information which
enables them to assess the ability of the entity to pay dividends. (b) GENERAL
INFO NEEDS OF OTHER USERS The framework mentions that if the fin stats
provide sufficiently for needs of equity investors, that it should be good enough for
all other users as well. (a) Employees. Stability and profitability remuneration,
retirement benefits and employment opportunities. (b) Lenders. Paid when due. (c)
Suppliers and other trade creditors.: Paid when due (d) Customers. continuance of
an entity , some are quite dependent on entity. (e) Governments and their agencies.
regulate the activities of entities, determine taxation statistics allocation of
resources. (f) Public. Local economy , people they employ , and their patronage of
local suppliers SPECIFY THE FOUR DIFFERENT MEASUREMENT BASES
TO MEASURE THE ELEMENTS. 1.1.1. The following measurement bases are
identified in Para.100 of Framework.:( cash always means cash or cash
equivalents) 1.1.1.1.HISTORICAL COST: assets: at amount paid/value exchanged
for it / liabilities : valued at the amount of proceeds received in exchange for the
obligation(????? What about if you overpaid & owe this now ??) or in some
circumstances eg income taxes at amounts of cash /cash equivalents expected to be
paid to satisfy the liability in the normal course of business. 1.1.1.2.CURRENT
COST : assets: cash that would have to be paid if same or equivalent asset were
acquired currently. Liabilities : Undiscounted cash that would be required to settle
it currently. 1.1.1.3.REALISABLE VALUE (SETTLEMENT VALUE) ; liabilities
:undiscounted cash payable in normal course of business. Assets : at an orderly
disposal. Basicly the amount for which an asset can be exchanged between willing
parties in an arms length transaction (not NRV but RV) 1.1.1.1.PRESENT VALUE
: assets carried at present discounted values of net cash inflows that item is
expected to generate in normal course of business Liabilities are carried at the
present discounted value of future net cash outflows that are expected to be
required to settle the liabilities in the normal course of business. (framework para
100) KNOW OF, UNDERSTAND AND EXPLAIN THE MEANING OF FAIR
PRESENTATION. By:fair presentation is achieved by : 1- Application of the
principal qualitative characteristics 2- And of appropriate accounting standards
CURRENT OR NON-CURRENT DISTINCTION ,ASSETS & LIABILITES 1.
There are 2 Methods of Presenting Current & Non- Current : a. Method 1 : using
Current Assets/Liabilities And Non-Current Assets/Liabilities as headings. b.
Method 2: Liquidity Approach : Assets&liabilities are presented broadly in order
of liquidity. However there is a rule that if any 1 amount/item covers less < 1 year
and > more than 1 year at the same time,
then anything over 1 year must be specially disclosed separately as well for that
one amount/item. c. Method 1 is for entities with a clearly defined operating cycle
and Method 2 is where the operating cycle is not that clear, like financial
institutions. 2. Method 1: Current and Non Current assets / liabilities headings: a.
A CURRENT ASSET IS : i. Is expected to be realized in, or is held for sale or
consumption in the normal course of the entities operating cycle eg inventories. ii.
Is held primarily for trading purposes ( eg some financial assets held for trading) iii.
Is expected to be realized within 12 mnths (eg non-current assets held for sale.) iv.
Is cash or a cash equivalent that is not restricted from being exchanged or used to
settle a liability for the whole of at least 12 mnths from reporting date.,( eg call
account b. A NON-CURRENT ASSET IS : all other assets are classified as non-
current. c. Definition: operating cycle is the time of acquisition of raw materials
and their realization as cash . Thus if the operating cycle is longer than 12 mnths
the current assets may include items that are not expected to be realized within 12
mnths. If operating cycle is not clearly identifiable it should be assumed to be 12
mnths. d. A CURRENT LIABILITY IS : i. Is expected to be settled in the normal
course of the entities operating cycle.( eg trade payables) ii. Is held primarily for
trading purposes(eg some financial liabilities held for trading) iii. Is due to be
settled in 12 mnths from reporting date (eg dividends payable, income tax payable)
iv. The entity does NOT have the unconditional right to defer payment to after 12
mnths from reporting date.( eg bank overdraft) (if terms say convertible to share
settlement at option of counterparty, the share settlement should not affect the
classification as current or non-c. here classification should be based on expected
transfer of cash OR other assets,) e. NON CURRENT LIABILITY: all other
liabilities are Non-Current. i. Note: if non-adjusting event after reporting period
says agreement to refinance a current , it stays current in old period , do not
change. ii. Any refinancing/periods of grace etc all get classified into the period
they fall into.
OTHER GENERAL DEFINITIONS FROM THE ALL THE IASS /IFRS S i)
AC108.6 :Inventories include all items Intangible or Tangible : (1) Held for sale in
the ordinary course of business (2) In the process of production for such sale (3)
Consumed during the production of saleable goods & services (eg shampoo in a
hair salon) (4) To include the cost of labour and other expenses such as supervision
or attributable service provider costs not yet invoiced eg interim audit costs ii) Net
realisable value is the estimated selling price in the ordinary course of business less
the estimated costs of completion and the estimated costs necessary to make the
sale. Definitions from IAS 8 (acc policies/errors/estimates) 5 The following terms
are used in this Standard with the meanings specified: Accounting policies are the
specific principles, bases, conventions, rules and practices applied by an entity in
preparing and presenting financial statements.
A change in accounting estimate is an adjustment of the carrying amount of an
asset or a liability, or the amount of the periodic consumption of an asset, that
results from the assessment of the present status of, and expected future benefits
and obligations associated with, assets and liabilities. Changes in accounting
estimates result from new information or new developments and, accordingly, are
not corrections of errors. International Financial Reporting Standards (IFRSs) are
Standards and Interpretations adopted by the International Accounting Standards
Board (IASB). They comprise: (a) International Financial Reporting Standards; (b)
International Accounting Standards; and (c) Interpretations developed by the
International Financial Reporting Interpretations Committee (IFRIC) or the former
Standing Interpretations Committee (SIC). Material Omissions or misstatements of
items are material if they could, individually or collectively, influence the
economic decisions that users make on the basis of the financial statements.
Materiality depends on the size and nature of the omission or misstatement judged
in the surrounding circumstances. The size or nature of the item, or a combination
of both, could be the determining factor. Prior period errors are omissions from,
and misstatements in, the entitys financial statements for one or more prior periods
arising from a failure to use, or misuse of, reliable information that: (a) was
available when financial statements for those periods were authorised for issue; and
(b) could reasonably be expected to have been obtained and taken into account in
the preparation and presentation of those financial statements. Such errors include
the effects of mathematical mistakes, mistakes in applying accounting policies,
oversights or misinterpretations of facts, and fraud. Retrospective application is
applying a new accounting policy to transactions, other events and conditions as if
that policy had always been applied. Retrospective restatement is correcting the
recognition, measurement and disclosure of amounts of elements of financial
statements as if a prior period error had never occurred. Impracticable Applying a
requirement is impracticable when the entity cannot apply it after making every
reasonable effort to do so. For a particular prior period, it is impracticable to apply
a change in an accounting policy retrospectively or to make a retrospective
restatement to correct an error if: (a) the effects of the retrospective application or
retrospective restatement are not determinable; (b) the retrospective application or
retrospective restatement requires assumptions about what managements intent
would have been in that period; or (c) the retrospective application or retrospective
restatement requires significant estimates of amounts and it is impossible to
distinguish objectively information about those estimates that:
(i) provides evidence of circumstances that existed on the date(s) as at which those
amounts are to be recognised, measured or disclosed; and (ii) would have been
available when the financial statements for that prior period were authorised for
issue from other information. Prospective application of a change in accounting
policy and of recognising the effect of a change in an accounting estimate,
respectively, are: (a) applying the new accounting policy to transactions, other
events and conditions occurring after the date as at which the policy is changed;
and (b) recognising the effect of the change in the accounting estimate in the
current and future periods affected by the change. Definitions per IAS 18:
INTERESTcharges for the use of cash or cash equivalents or amounts due to the
entity; Preference Dividends : These can be seen as interest , but ONLY if they
ARE classified as financial liabilities as per IAS 32 at the time. Eg cumulative
redeemeable preference dividends which of course accrue on a time-proportion
basis per textbook. ROYALTIEScharges for the use of long-term assets of the
entity, for example,patents, trademarks, copyrights and computer software; and
DIVIDENDSdistributions of profits to holders of equity investments in
proportion to their holdings of a particular class of capital. Preference Dividends :
These are also seen as dividends as long as they are NOT classified as financial
liabilities as per IAS 32.
DISCLOSURE & PRESENTATION DISCOSURE & PRESENTATION: N-C
ASSETS HELD FOR SALE 1. SFP : a. In CURRENT ASSETS : N-C Assets
And Disposal Groups Held For Sale (not in N-C Assets!.) b. LIABILITIES:
Liabilities Associated With Disposal Groups Classified As Held For Sale in
liabilities (may not be set off against assets) (can this be in current as well as non-
current liabilities? Also what about single assets not in a disposal group- do their
liabilities also go in here? Eg money owed on a car still etc? or what kind of
liabilities?) c. Separate: EQUITY: Revaluation Reserve Relating To N-C Assets
Classified As Held For Sale( where does this come from ? only from the transfer
from outside held for sale or can you do revaluations inside held for sale?) d.
COMPARATIVES : note: they are not restated for effect of n-c assets reclassified
as held for sale in current year- so they will be Non current assets for last years
comparatives and CURRENT for this years held for sale (how do you show this
do you move last years N-C figure to this years Current Assets held for sale
comparatives heading?) 2. SCI: Separately any CUMULATIVE income/expense
recognized in Other Comprehensive Income relating to a held for sale asset or
group. Eg : mark to market reserve OR revaluation surplus .( does this go in notes
or in SCI? is it ONLY for the current years additions/minus ? do you have a
heading for LAST years revaluation surplus left in the OCI in the notes or
something or NOT? And where would rev. supluss come from then in SCI for
current year???) 3. NOTES: a. In its own separate number and heading in notes:
both analysis & descriptions together in 1 note. i. AN ANALYSIS of the major
classes of assets & liabilities held for sale. (just : 1-Assets each Class +
Amounts[eg Vehicles R5000] 2- Liabilities each class + Amounts) (can also all go
on face of SFP) ii. A DESCRIPTION : a writing of :Only any assets added to held
for sale in CURRENT YEAR , -this year : 1. ?? not sure Impairments for the year
of last/previous years assets added to held for sale (does this go in here or not? Or
does this just go in impairments note?) 2. New Assets Added : a. Name of
asset/group b. Reason & facts of disposal c. Expected 1-time & 2-manner of
disposal d. Impairment loss/ reversal on re-classification, as well as the heading in
SCI it is. 3. If applicable, the reportable segment : in which the n-c asset is
presented in accordance with IFRS 8 Operating Segments 4. Change of Plan :
deciding to take assets out of held for sale a. Reason & facts b. Effect on
operations of current & any prior periods presented
(B)..QUESTIONS:
2013 new questions :
GENERAL
How does a shareholders loan TO A cc OR PRIVATE COMPANY get treated :
equity or liability: if no repay date ever set then equity?some sources say equity
but should it not be in liabilities? how do you do purchase returns in pastel- is it
bank charges - contra- bank or purchase returns - contra- bank? are comparatives
required for statement of changes in equity? ho do you do it? put last years below
or year 1 and 2 next to each other in separate columns under each heading eg ret
earnings?
PRESENTATION OF FIN STATS: 1) Where does employee benefits expense that
are not distribution orientated go: in admin costs or in other expenses? In GAAP
book 2012 pg
317 it says in example that defined contribution & defined benefit plan expenses go
in other expenses I thought no emplyee costs go in other expenses at all they all
go into admin costs ? 2) In the notes : do employee costs get left out compltety or
do they actually go in the Profit before tax note in Expenses? SO ONLY defined
contribution & defined benefit plan expenses AND directors/auditors & Go in the
notes: and NORMAL STANDARD EMPLOYEE remuneration need not appear
ANYWHERE in the fin stats as a separate figure? Except for special remuneration
( what is this : we learnd other than bona fide employees?what would that be
exactly ? so if there is no heading you make your own eg: cleaning staff of
production staff ? must ALL employees show here and be aggregated into groups?
(1) Management Services (2) Technical Services (3) Admimistrative Services (4)
Secretarial Services 2) Do finance charges go anywhere in the notes at all : income
statements line item?
INCOME TAX
1. REval Surpluss & Ret Earn.: : how does it work on deferred tax account left over
from last year & reval surplus account & direct to equity account left over from last
year????? Any special Journal entries to def tx or reval acc apart from normal total
temp diff movement for the year if there ? i Reval Acc and Direct to equity Acc are
completely different to Deferred Tax account- so no entries to those 2 each year for
deferred tax temp diffs. This is because they are actually profit accounts- equity
that may as well have passed through P&L statement and be sitting in Equity now.
They simply have deferred tax removed in the same way as any profit passing
through P&L has deferred tax removed before it goes to Ret Earn (also just an
equity acc) So no entries to these accounts each year at all- they are a dead old
profit in the bank and gone already , nothing to do with temp diffs anymore.
2.
How does a change in Tax Rate work? I made some notes for myself could you
perhaps read through them an tell me if I got it right here? CHANGE IN TAX
RATE METHOD : ?? correct or not?? Al these below? Just ask another lecturer if
NONE of the tax rate change goes to current tax calc at all AND if it does, must
you take out the tax rate change that relates to Unused Losses? a. As soon as a rate
change ocours, where future deferred tax would be measured at a new rate, similar
to a correction of Prior Period Estimate, the first thing one must do at end of fin yr,
is : i. 1st : to JOURNALISE to Deferred Tax Balance Account in the SFP , the
difference that the rate makes to last years old deferred tax balance that was done at
the old rate, to bring it up to the new rate. Journal : Deferred Tax CONTRA Income
Tax . CONTRA Revaluation Account (or Retained Earnings Half may be at one
rate, the other at another rate so one must be careful.(eg capital gains tax) and there
may be 1-revaluations or 2-direct to equity deferred tax included in the Deferred
Tax account which were not put through P&L but went into Revaluations Surplus
account or Direct to Equity eg retained earnings account. (Correct) 1. to calculate
the tax rate change effect on the revaluation surplus(after all depreciation transfers
to retained earnings) left from last year. REMEMBER that revaluations are NOT
granted any tax allowance from SARS so their tax base is allways ZERO. So the
Carrying Amount is the Reval. Surplus. And the Tax Base = 0 future deductions
allowed. Only say 29%-28% = 1 % difference. So add 1% of Rev Surpl. To itself
by a journal entry. Journal : Deferred tax CONTRA Revaluation Account (SFP)
Note: IT DOES NOT GO TO INCOME TAX ACCOUNT IN P&L ! IT GOES
TO Reval Surplus instaed , and at yr end you must manually find and get the part
that goes into OCI as the deferred tax rate change for OCI t. (Correct)
Presentation Revenue - Change in Acc Policies Income Tax. ii. Line In Tax
Rate Reconcilliation Note: add effect of total change (Correct) iii. Line in Major
Components of Income Tax Note: it is just a line item in breakdown of Deferred
tax (P/L) in this note it would be inside the Deferred Tax amount of course and is
just shown in brerakdown of this item : other part of breakdown would be temp
diffs movement and any other part one could get that could possibly go in a
breakdown . Yes, this will not be part of the current tax line but will be included in
the breakdown of Deferred tax (P/L) as part of your total income tax expense (as
per Income tax note). Please refer to pg 65 TUT 102 for example. b. To work out
the normal Movement In Temporary Diffs for the Year: Then for this years Temp.
Diffs.: the only odd thing is: to get the movement ion temp diffs, you must add rate
change to last years Total used in the calc. i. Last Years : TOTAL Net Deferred
Tax Asset/ Liability figure must be adjusted for the rate change BEFORE you
minus last years Total from This years Total to get the Movement for the year .:
this is because you adjusted the deferred tax account left over from last year
separately for the rate change with another journal entry so that must also get added
in your Movement calc. ii. This Years : TOTAL Net Deferred Tax Asset/
Liability, this does not change since it is done at the new rate anyway- no rate
change adjustments are needed here- only to the old last years movement calc.
Total must a change be made. Please refer to pg 65 TUT 102 for example. You will
need to include the rate change calculated on the prior years temporary difference.
This amount will be the same figure used in the tax rate recon. If ON
REVALUATION UPWARDS ,one transfers THE reval toP&L to make upfor a
previous downward revaluation that went toP&L MUST one still do a separate
deferred tax on this- like when transferred to Reval Account? YES , -BUT THE def
tx goes to P&L , not to Reval Acc. However this part for P&L should happen
(somehow- not sure how )auto at year end in temp diff calc. For a devaluation
does one deduct deferred tax to revalution reserve as well? AND if it goes to P&L
since reval acc is empty - . YES : any deval. also must have deferred tx minused
before it goes to Reval. Account But any part that goes to P&L the def tx also only
goes to /affects P&L . If per IAs 12.15&24 an item is exempt due to initial
recognition thing: ONLY THE PORTION THAT IS LEFT OVER FROM THE
ORIGINAL EXEMPT REMAINS EXEMPT EACH YEAR, a. BUT : Depreciation
: if depr makes that initial less , Then it reduces the tax base for exempt portion
only the part left after depr on it goes as carry amount and in tax base you write
exempt for this entire amount left ove pg12of TUT b. BUT :Revaluation - if
revalued then the INITIAL stays exempt until it is depreciated away as above
BUT the revaluation ALL IS NOT EXEMPT-it gets a temp diff but what is the tax
base ??? amount deductable in future per SARS is 0 , so is tax base 0 so + reval
minus 0 tax base = a tax liability ensues for every revaluation? not sure see answer
to question own 15 in tax section after ask lecturer (no 1 own notes items memorise
before each test heading -) c. If reval it to above depreciated value but below the
level of a Rule 12.15 /24 Initial amount before depreciation ? d. Pg 11: it says 1050
is exempt , then only 997 is exempt- but on next page after revaluation- shouldnt
1050 still be exempt? If a reval is from below tax base to below tax base does it
still get deferred tax on it or exempt since this transaction (revaluation) does not
affect tax profit> How does a shareholders loan TO A cc OR PRIVATE
COMPANY get treated : equity or liability: if no repay date ever set then
equity?some sources say equity but should it not be in liabilities?
3.
4.
5.
6. 7.
8.
CURRENT TAX CALCULATION: i. Do you or do you not put a change in tax
rate in here: ii. FOR CURRENT TAX CALCAT START OF EACH QUESTION:
WHAT ABOUT Now add previous years changes to deferred tax account : tax rate
(not sure -I think yes- after you have added the change to the deferred tax contra
income tax acc))when you get an answer: fix notes no 9 in before each test and
also in change in tax rate method and also in current tax cal. method in own
notes (3 places)
9. 10.
11.
12.
On page 12 must non-deductable depr of 52500 go to Tax Recon as non-
deductable as well since it goes to current tax calc together with eg penalties &
fines I say yes - fix line 4 in own notes items memorise before each test heading:
s the tax base of a reval always zero? On page 12 :what is the tax base is year 3 and
in year 2 end and yr 2 begin : FOR RevalRes and for initial recognition separately
top table of figures. Is the tax base of a reval always zero? Or = full revalauation till
sold or does it change if your policy is moving to ret earn / only when sold?no tax
base is zero since sars does not allow deductions on revaluations- see asset for tax
definition 3-must depreciation on reval res must go to Deferred tax CONTRA
Income tax every year even if you do not send it to ret earn from rev res? Does
this happens in the temp diff calc auto but rem then that the rev res carrying
amount must change each year from depreciation even if you are NOT sending to
ret earn! see quest 3 page 12 where they do not snd to ret earn BUT still do this
Why send it to P&L when it is a OCI account ? ! Part of Special rule IAS 16.22rem
that Revauation is Dr Asset and Cr Reval- so you still have to do depreciation each
year on the full revalued amount which is ALL in the asset account since any rev
goes to asset. So the depr will go to P&L all of it- from normal depr on the
ASSET account and not from the REVAL acc. each year so the deferred tax calc at
yr end will in PPE account get that entry auto into the movement for the year since
carrying amount was depreciated. SEE PAGE 2-3 IN EXTRA UNUSED TAX
LOSSES TuT , AS COMPARED TO PG 21 IN TUT 103 2013 THE
TREATMENT OF TEMP DIFF FOR UNUSED TAX LOSSES IS DONE
DIFFERENTLY ON THE 2 TUT LETTERS? WHY?MAJOR IMPORTANCE
on one it is incl. and on the other it is excl.!
Presentation Revenue - Change in Acc Policies Income Tax. a. Already Asked
above : If there is an Unused tax Loss in the Deferred Tax Account: normally the
unused tax loss Temporary difference would NOT go in the Current Tax
Calculation- only the other Temporary Differences do- So if there is a tax rate
change (if rate change goes to current tax calc- see previous question first) do you
ONLY put the change in tax rate for other Temporary differences in the Current
Tax Calculation or do you put the Tax rate effect change of the Unused tax Loss
that is in deferred tax in Current Tax Calculation as well?
13.
14.
ASK : Pg 23 bottom tut103 2013 : should they rather have left out the lines
completely or do you loose marks for showing : ? If a temp diff of another asset is
not recognized, does it also get deducted in current tax calc- same as unused losses
not recopgnised? Pg 23 bottom tut103 2013: no , it automaticly does not appear in
the temp diff movement that goes in here. They just deducted the unused loss for
show- they should not have put it in in the first place in the line before since it may
not be recognized due to profit thing *MUST THESE ALLWAYS GO
SEPARATE : DEFERRED TAX : i. DEFERRED TAX relating to
origination&reversal of temporary differences 1. ONLY OF P&L, THOSE THAT
GO TO OCI (EG revaluation reserve) OR DIRECTLY TO EQUITY DO NOT GO
HERE AT ALL- THEY ARE JUST LEFT OUT!!!! ii. DEFERRED TAX relating
to changes in tax rates. iii. Amount of the benefit arising from a previously
unrecognised tax loss or tax credit or temporary difference that reduces the
DEFRRED TAX EXPENSE iv. Note sure here: so if you have a loss this year and
therefore create a new unused tax loss must it go in deferred tax part of Major
Components of Income tax note separate in its own line I know a previously
unrecognized unused loss does go in its own line: AND what about other temp diffs
that were previously not recognized : do they go in own line ? how do you separate
them from other temp diffs? What about a write down of a tax asset this yr due to
insufficient profits forecast next yr does that go in its own line? How to separate
it from other temp diffs? I get this from ias 12. Below see yellow. Iit is never
shown in exercises- is this maybe only shown as the sentence under the deferred
tax note ? or what. What abot the errors in h below- where is that shown- is it kept
separate from othe temp diffs movements? FIX OWN NOTES DEFERRED TAX
IN MOVEMENTS NOTE IN NOTES AND IN BEFORE EACH TEST NOTES
AFTER THSI
79 The major components of tax expense (income) shall be disclosed separately.
80 Components of tax expense (income) may include: (a) current tax expense
(income); (b) any adjustments recognised in the period for current tax of prior
periods; (c) the amount of deferred tax expense (income) relating to the origination
and reversal of temporary differences; (d) the amount of deferred tax expense
(income) relating to changes in tax rates or the imposition of new taxes; (e) the
amount of the benefit arising from a previously unrecognised tax loss, tax credit or
temporary difference of a prior period that is used to reduce current tax expense; (f)
the amount of the benefit from a previously unrecognised tax loss, tax credit or
temporary difference of a prior period that is used to reduce deferred tax expense;
(g) deferred tax expense arising from the write-down, or reversal of a previous
write-down, of a deferred tax asset in accordance with paragraph 56; and (h) the
amount of tax expense (income) relating to those changes in accounting policies
and errors that are included in profit or loss in accordance with IAS 8, because they
cannot be accounted for retrospectively.
15. 16.
17. 18. 19.
MUST THIS GO SEPARATE:? a. CURRENT TAX: i. Current Tax Expense ii.
Adjustments Recognised for Current tax of Prior Periods iii. Amount of the benefit
arising from a previously unrecognised tax loss or tax credit that reduces the
CURRENT TAX EXPENSE For deferred tax : rule 1as12.15/24 : is it Taxable
profit OR accounting profit :any 1 of the 2 or must it be both together? Dont
understand example13.14 ; no taxable grant dedycted from asset : how much goes
to tax recon + how much to curren t tax calc & how do you make a temporary
difference for : ie what is tax base of the 40 000 gov grant deduction. (PUT IN
REVENUE ONCE ANSWERED) Lay away sales: when the major part of the sales
price is received the revenue is normally recognized : but do you recognize the
price of item or only the deposit received so far? I think the full price of the item ,
and if only 90% of lay aways are by experience shown to be successful- then only
90% of items where a significant deposit has been received. Is this correct?
20. 21.
Compare pg 150 tx bk tax notes to model fin stats notes and put one of them in
your own Generic Notes Doc. TAX:GOODWILL INITIAL RECOGNITION: ( see
exam-ple in IAS 12.21 B and opposite in IAS12.21A say company depeciation
was 10% so carrying amount was 90- what would the defrred tax be- do you still
ignore the inhouse initial/subsequent recognition stuff and say 100-80= 20 or say
90-80=10? What do they mean?) SO if you start depreciating goodwill then
yes/no deferred tax, BUT if
Presentation Revenue - Change in Acc Policies Income Tax. SARS GRANTS
AN ALLOWANCE ONE YEAR FOR DEPRECIATION ON GOODWILL-
THEN IT MUST GET DEFERRED TAX ON IT YES/NO : THEN CORRECT PG
131 OWN NOTES Bit complex: Is this correct : you never put any part of the
Movement in Temporary Differences for the year due to an Unused Tax Loss in the
Current Tax calculation done at the beginning of every exercise. ONLY the
Movement in Temporary Differences due to items OTHER than Unused Tax
Losses or credits go in as the Movement in Temporary Differences for the year.
This is because the unused tax losses & credits are included in their own line in the
Current Tax calculation.(YES CORRECT) Tricky Question: When you do the
Deferred Tax Note in the financial statements in a year when profit is not
probable the next year and deferred tax assets may NOT be recognized, and it ends
up you have a list of temporary differences including Tax Assets and Tax liabilities
where there are MORE tax assets than Tax liabilites . a. Now my problem is since
you must bring the deferred tax account BALANCE DOWN to zero by the
Movement in Temporary Differences for the year entry because profit is NOT
probable next year and deferred tax assets may NOT be recognized However one
may recognize Tax Assets as long as one recognizes Tax Liabilites of the same
value to cause a balance of zero . So one must take all the Tax Liabilites and choose
Tax Assets which will balance them out to zero.to write up the list of items
included in Deferred Tax account in the deferred tax note, and then one must not
recognize those Tax Assets which can not be balanced out by a tax liability to keep
the deferred tax account at zero. Now this is very easy if you have a large unused
tax loss one can just use part of it . But if there is no tax loss, i. and how does one
choose WHICH Tax Assets to use and which not to use AND write up in the
Deferred Tax note list of Tax Liabilites & Assets ii. can one use only a part of one
of the Tax Assets to balance against the tax liabilites available if the numbers do
not have exactly the same values as each other ? eg use only R100 of a R250
Accelerated Wear & Tear Tax Asset, and iii. So then in the sentence in deferred tax
note to say which tax assets were NOT recognized during the year do you say the
other R150 Tax Asset in respect of eg Accelerated Wear & tear for Tax purposes
was not recognized due to probable insufficient profits the next year? Something
like that? Or how does one do it (a unused tax loss asset is easy to split but what
about other Tax assets- does one split them in the same way when there is no tax
loss to use?
22.
23.
CHANGE IN ACCOUNTING ERRORS ETC
24. IN PROFIT BEFORE TAX NOTE- THE change in estimate sentence: the book
one must show 2things: a. Effect on current year : 1 minus other = difference b.
Effect on future years ; nowin some exercises they workoiut ALL the future yrs eg
depreciation for next 5 yrs and minus 1 from the other , BUT in other books
(GAAP handbook) they only show NEXT yrs diff as future diff,not ALL future yrs
!?no no, you got it wrong. They never show ALL future years, that was just an
example in another chapter to show something. They only show net years as the
future, and this yrs as the current.
25.
PPE:
a. Rem-??does it y/n - de-recognition of componnents gets its own line in the PPE
table in notes or can you include it with normal disposals, and capitalization?
Must it also get its own line or can you include it with additions. ??? no- it all
goes in either additions or disposals IF YOU capitalize a new component that costs
more than derecognized one: do you make a separate PPE acc in the books eg
helicopter engine- or do you just add it to helicopter asset acc in a new line : engine
so there is only 1 account not 2? BankHelicopter thats it nothing else?NO all
goes in same one asset account- just a new line In the exam: must we do PPE table
with inspection component & machinery separate or togetherin 1 column. I know
both are permitted but which is normal for exams- what answer totals will they be
glancing at? no- it all goes in only 1 column PAGE 10 notes correct this :In ppe
table: must you have additions +disposals AND also Derecognitions +
capitalisations of components/service costs- 2 separate or 1 =Components
Capitaisations?) ? or all in same headings ? whats best? no- it all goes in either
additions or disposals Decomissioning costs: a. How does the interest on the PV in
Asset account egt treated every year : i. 1: for zero production or offfcie building it
goes to Finance costs ii. 2- BUT do these finance costs go to capitalized to
uinventory costs each year or what? YES b. Does a portion of the PV get
depreciated each year to COST OF SALES? Capitaised to inventory? Is it
depreciation or what do you call it? Or how and to where does it get depreciated?
Do the provision & asset get depreciated at different rates ie restoration till useful
life of those benefits but asset could still have a longer useful life ?Yes if question
gives different figures it does get done at different life spans c. : if there is a change
in decomissiomning costsi. How does Reval reserve work : any increase
DECREASES the reserve- then the balance goes to P&L: under what heading? And
what heading to reverse this P&L movement? change in decommissioning
costsP&L ii. If the PV in asset account is depreciated each year OK but what
about the reval reserve: it was DECREASED! By the provision increasing so how
does it get depreciated? No it increases by getting a dr balance for revaluations
even though this decreases equity all revaluations get a dr balance in here and are
depreciated
b.
c. d.
e.
Presentation Revenue - Change in Acc Policies Income Tax. from tthere so it
actually adds to the reval res balance available for depreciation move to Ret Earn!
iii. Note: for Increases in a Provision for restoration/Decomissioning an Asset
funny thing to be remembered! : there is a rule that says if there is a zero balance on
the CR side of the Reval Res then the Increase here must go to P&L. This is
somehow to make sure all amouts that go to P&L are the same for cost & reval
methods both. So you can only get a CR balance in the Reval Acc if there was a
DOWNWARDS REVALUATION or a DECREASE in the provision sometime
before. So any increase in the provision may ONLY go to OCI if there was a
DOWNWARDS REVALUATION/PROVISION before and there is a cr balance
left in OCI : 1. Also if any part that must go to P&L does it get capitaised to
inventory costs for the year? Or over a number of years? iv. Note: IF the decrease
in Provision falls below asset CARRYING AMOUNT OF ASSET AFTER Acc.
Depr is added : the excess goes immediately to P&L and not in OCI Reval Acc. so
asset does not fall below zero balance. ( to which headingin P&L) cP&L
DECREASE IN PROVISION ACC f. Note: This is all simple below except:
even if 1 machine is twice the price of the other = if cash flows from both are the
same then there is no commercial substance and thus transaction must be
measured at carrying amout of asset given up - NOT fair value of it even if it is
very evident . per textbook- is this true? Pg. 16 own notes What is commercial
substance: so if you exchange a VALUE 1000 MACHINE of FUTURE CASH
FLOWS 2000 OF PRODUCTS for the ANOTHER MACHINE of SAME CASH
FLOWS BUT5000 fair value due to colour populalarity there is no commercial
substance. ? See page 217 txbk edition 14 Descriptive transaction 4: not commerial
substance? 20000 is substance, and why carrying amoun? TO SEND EMAILstill g.
Profit Before Tax note: in the normal note called profit before tax : disclose i.
Significant Income: I think there should be a line here somewhere for insurance
payoutnot sure ??? DOES THIS GO IN Other Income? Should there be a special
line item other income in Profit before tax with all the odd things in there or not?
Yes it must exactly rigjht i) Ask lecturer again: PPE table: revaluations &
revaluation relating to a change in dismantling provision / additions / disposals /
capitalization of provisions etc Devaluations separate ? no I think- some textbooks
do allthese different to show- do we? (i) So all impairment & reval & deval &
changes in Provison for decommsission go in here? What about changes in
decomissionthat went to P&L ? up and down and reverse? (ii) PPE TABLE :the net
exchange differences arising on the translation of the financial statements
2) impairment losses 23easuremen in profit or loss 3) impairment losses reversed in
profit or loss (i) So a decommission provision INCREASES asset balance but
DECREASES REVAL ACC depending on your policy so it
results in a double blow to the SFP looking profitable 1 liability and 2 reduce
equity? a. IF IT GOES TO p&l AT CHANGE OF THESE COMISSION COSTS
ESTIMATE HOW DOES IT REDUCE THE ASSET BALANCE YOU PUT IN
THERE AT INITIAL RECOGNITION? SO ASSET IS NOW 100 + 100 = 200-
AND AFTER THE CHANGE PROVISION ACC IS DOWN FROM 100 TO 5
AND but ASSET ACC STILL SHOWS A BALANCE OF 200? 100 OVER
ORIGINAL???? BIT CONFUSING. BASICLY DO WHAT THE IAS 16 SAYS
BUT FOR CONFUSING LINE ON REVAL ETC IN IAS 16 JUST PUT ALL
REVAL+ DEVAL + REVAL IN p&l + MOVEMENTS BACK UP IN p&l FOR
REVALUATION ALL IN SAME LINE CALLED REVALUATIONS- NOT
REVAL RESERVE AT ALL.
1) In PPE table? What about reval devaluations recognized in P&L what do they
call Revaluations Reval Reserve if it also contains Revaluations (devaluations) that
went to P&L.?
h. i) PPE TABLE : a. Revaluations: : i. Revaluation Details :Date of the
revaluation; details of each thing OR as a class revalued ,whether an independent
valuer or not, methods & assumptions,techniques eg active market priceOR recent
similar transactions , ,(no reval amount is needed- that is elsewhere in fin stats PER
LECTURER) ii. At Cost less Acc Depr. Method Carrying Amount : the Carrying
Amount less Accumulated depreciation of each Class if that class had not been
revalued but carried at cost . iii. Devaluations separate???yes or no? NO IN
SAME LINE AS REVALUATIONS iv. Insurance / indemnity payouts of any
sort.???? Here or in Profit before tax note? NO- in P&L v. Contractual
commirtments to buy any PPE
vi. Address of land ADDRESS .
CAN BUT NOT IN IAS 16 SO DO IT IF THEY GIVE YOU AN
i.
Additions to / disposals of this land and date thereof. NO- NOT NEEDED Material
impairments LINE ADD THIS LINE Finace lease SOMETHING ADD THIS
LINE Note the fact that provision for decommissioning costs at initial recognition
ONLY goes There is a rule that says: For Revaluation Policy : if a new provision
for decommissioning costs goes to Reval Reserve it may only go there if there is
a CR balance in the reserve- ie a former Devaluation would have had to have
happened DOWNWARDS for there to be a CR balance in the Reval Reserve
Account.Otherwise it goes to P&L expensed as change in decommissioning
costsP&L. So in reval policy if there was no prior devaluation to date- any new
provision for decommissioning costs must go direct to P&L expensed as change
in decommissioning costsP&L and it DOES not increase the asset balance : PG
183 GAAP 2011 book. Where does it say that in IAS16 ? YOU MIXED IT UP
REDO THIS NOTE
In notes : WHERE DOES THIS GO?????Under restrictions on the distribution of
the balance of Reval.Surpluss to shareholders goes in the SFP equity line item note
number under breakdown of equity componenets. When do these 2 go in ? a.
COMPONENTS OF OTHER COMPREHENSIVE INCOME:you only need this if
the separate componenets are not shown on the face i. All items separate excluding
tax ii. At end , tax relating to (brackets ) iii. Total at bottom b. TAX EFFECT
RELATING TO EACH COMPONENT OF OTHER COMPREHENSIVE
INCOME: youonly need this is the tax effext for each separate componenet is not
shown on the face(say you just give a total figure on the face) OR in the
components of OTI note above. i. (used by all deferred tax ii. Revaluation Gains or
Losses : on Property Revaluation (1- Before Tax , 2- Tax , 3-After Tax ) ( same as
other kinds of line item for all deferred tax here) ( just put a separate note here for
property alone) iii. Under restrictions on the distribution of the balance of
Reval.Surpluss to shareholders : SFP
vii. viii. ix. x.
j. k.
GOVERNMENT GRANTS
1. ASSET GIVEN TO YOU: eg landing rights or broadcasting licence a. accounted
for by: either i. asses its FAIR VALUE then account for asset AND grant at this
value ( both get same accounting treatment below) ii. OR record asset and grant
both at a nominal value. This is say at a nominal value of R10 , and thats it. Book
says no further accounting entries will be neccessary . ( Question: not sure if it
must also get a deferred income account of same nominal value to be written to
government grant received account each year? ).
INTANGIBLE ASSETS:
1. SUBSEQUENT EXPENDITURE on intangible assets can be capitalized but a.
1st :Only rarely will subsequent expendure on asset meet this requirement above b.
2nd: it is often difficult to separate subsequent expnses from the business as a
whole, c. It must meet same criteria as above. d. Examples which CAN (these are
very few): ? PREPAYMENTS OF SOME TYPES ARE ALLOWED?(
HOW/WHICH?) (IAS38 say Research & Develop. Cost- so not sure if they must
go together or can research costs be separate to be recognised ?) ( Ias 38 .124.b
where does one show the revaluation surpl. Begin /end/change/ for intangible
assets?
2. 3. 4.
IMPAIRMENT
1.
2012 and before OLD QUESTIONS.
GENERAL NON-SPECIFIC QUESTIONS 1. CC & private co director loan
accounts : Their remuneration is often only finally determined late in the tax year or
in the following tax year. In these circumstances they finance their living
expenditure out of their loan accounts until their remuneration is determined.
EMAILS RECEIVED ANSWERS BUT NOT MADE NOTES YET :
1. : In question 4.1 on page 29 of the Tut letter 102 :( they mention in last sentence
of question that there are no temporary differences : so they take that 1 step further
and then ALLUDE TO THIS TO CONCLUDE IN THEIR ANSWER that the
depreciation on office buildings is NON- DEDUCTABLE-nowhere does it say this
though in question . on page 61 the deductions that SARS allows is listed and no
deduction is available for the office building. My question is : why then is the
depreciation on the PLANT and DELIVERY VEHICLES also not seen as NON-
DEDUCTABLE. It is simply ignored completely. What shows a difference
between the 2? And then secondly why can one not treat the buildings in the
same way as the Plant & Vehicles it may be that they all 3 simply balance out to
0 why do they choose to make a possible reason that the Buildings were bought
second hand and SARS allows no further deductions for them , but they decide that
the other 2 simply balance out somehow to zero? Couldnt the buildings also fall in
this category?How does one decide in a test basicly? If there are no tax deductions
on the office building the tax base is 0 (the definition of a tax base is future tax
deductions- she spoke of another question- later she said i was right- they should
have mentioned it) 3) Additional questions: 1. -Remeasurements on defined benefit
plans must get shown in the statement of changes in equity. How does that work.-
what would the different entries in the Statement of Changes in equity look like?
Eg: 1)Name of entry 2)Headings it affects and how it affects them for a defined
benefit change 1) upward and 2) downward? Response: Note that in accordance
with IAS 19 it allows a net defined benefit liability or asset to be recognised,
therefore the plan asset and defined benefit obligation can be netted of that only the
net liability or asset is recognised in the SFP. Firstly the manner in which the
remeasurement or actuarial gain/(loss) is calculated or determined is as follow: 1)
The opening and closing present value of the obligation and fair value of the plan
assets will be provided. 2) First recognise all the necessary adjustments with
regards to the defined benefit plan such as current service costs, benefits paid,
contributions paid, interest cost and interest income in order to calculate the
BALANCE of the obligation and plan assets before remeasurement at year-end.
For example: Present value of defined benefit obligation: Opening balance xx
Current service cost xx Interest cost xx Benefits paid xx Balance BEFORE
remeasurementxx Fair value of plan assets: Opening balance xx Interest income xx
Contributions received xx Benefits paid xx Balance BEFORE remeasurementxx
Note that the interest cost and interest income is always calculated on the opening
balance at the interest rate as at the start or beginning of the year. 3) The difference
between the balance of the obligation and the plan assets BEFORE remeasurement
and the present value of obligation and fair value of assets as determined by the
actuarial and provided in the question will then be your remeasurement or actuarial
gain/(loss) which will affect OCI. Present value of defined benefit obligation and
fair value of plan assets at year-end LESS: Balance as calculated in 2) above
BEFORE remeasurement = remeasurement or actuarial gain(loss) adjustment
Journal entries: For example if we take the adjustment for the defined benefit
obligation: If it is an upward adjustment (obligation increases): Dt Actuarial loss on
obligation (remeasurement) (OCI) xx CT Defined benefit obligation (SFP) xx
(Actuarial loss on obligation)
If it is a downward adjustment (obligation decreases); Dt Defined benefit obligation
(SFP) xx CT Actuarial gain on obligation (remeasurement) OCI xx In statement of
changes in equity It can be included for example in a column named Other
reserves or Actuarial gain(loss) on defined benefit plan and it w ill be one single
line item as part of total comprehensive income, for example: Statement of changes
in equity for year ended 20.2 Attributable to owners of the parent Share capital
Retained earnings Revaluation reserve Other reserves or Actuarial gain/(loss) on
defined benefit plan Balance no 1 Dec 20.1 Total comprehensive income for the
year: Profit for the year Other comprehensive income for the year Xx xx Xx Xx xx
xx Xx xx Xx xx xx xx Xx xx Xx Xx Noncontrolling interest
Balance 1 Dec 20.2
xx
xx
xx
xx
2.
-Ias 1.106 (a) says ,: For each component of equity, an analysis of OCI must be
shown : what exactly is this: if these is no OCI in a heading eg Ordinary shares ,
then you
leave it out and in what detail is an analysis: eg Total revaluations or must every
reavaluation be shown one by one? What other examples of detail are there?
Response: IAS 1 par 106 (a) you referred to above is actually with regards to the
disclosure requirement as in the example of the statement of changes in equity
presented above in the response to your question asked in 1) where total
comprehensive income should be disclosed on the face of the statement of changes
in equity allocated between the owners of the parent and the non-controlling
interest. IAS 1 Par106A states the following: For each component of equity an
entity shall present, either in the statement of changes in equity or in the notes, an
analysis of other comprehensive income by item (see paragraph 106(d)(ii)). IAS par
106 d (ii) (d) for each component of equity, a reconciliation between the carrying
amount at the beginning and the end of the period, separately disclosing changes
resulting from: (ii) other comprehensive income; and For an example of this
disclosure requirement have a look at example 2.10 in you GAAP handbook page
37 with regards to IAS 1. This disclosure requirement of par 106A and 106 d(ii) is
NOT a note but actually on the face of your statement of changes in equity as in the
example 2.10 in the GAAP text book on page 37. Total comprehensive income for
the year (A) below is the total of (B) and then (C). Statement of changes in equity
for year ended 20.2 Attributable to owners of the parent Share capital Retained
earnings Revaluation reserve Other reserves or Actuarial gain/(loss) on defined
benefit plan Balance no 1 Dec 20.1 Total comprehensive income for the year: (A)
Profit for the year(B) Other comprehensive income for the year ( C) Xx xx Xx Xx
xx xx Xx xx Xx xx xx xx Xx xx Xx Xx Noncontrolling interest
Balance 1 Dec 20.2
xx
xx
xx
xx
3.
For IAS 1 : Statement of Chnages in Equity : If pref shares are redeemed this goes
to CRRF: A) what if ordinary shares are redeemed,the answer is no isnt it ? B) if
share
premium account is used for redemption of pref shares , does this also go to CRRF
or only if retained earnings was used?- I forgot. Response: (A)There is no
redeemable class of ordinary shares, this is only applicable to preference shares,
and therefore it is not applicable to ordinary shares. Ordinary shares can NOT be
redeemed. IF I remember correctly the Companies Act does not allow ordinary
shares to be redeemed. (B) Preference dividends are usually redeemed at par or
either a premium. When redeeming preference shares it will never reduce the
authorized and issued share capital account. If the preference shares are redeemed
at a premium that premium will either be provided for out of the Share premium
available OR the retained earnings. IF it is redeemed out of retained earnings an
amount equal to the amount transferred out of retained earnings should be
transferred to the CRRF reserve. 4. Where do transaction costs of dividends &
share issues & share buy backs etc go in the Statement of Changes in Equity? : see
IAS1 .109 , middle
Response: It shown net of transaction costs in the statement of equity. Below the
responses to your questions asked: 1. I have a problem with 1 item in the NATURE
method of P&L - pg 580 IAS1.102. : The Changes in Inventories of Finished goods
& WIP line item. : this is like the cost of sales item in the FUNCTION method, so
does it include depreciation on factory production machines, and salaries of factor
y workers, and admin & other expenses for factory like water and lights etc ,
because these are all included in cost of sales in the FUNCTION method , are they
not? Response: The changes in inventories of finished goods & WIP will be the
changes from opening to closing balances for the period, for example the
movement in the balances. Depreciation on machinery which should form part of
cost of sales will still be included in depreciation and amortization because it is by
NATURE and not FUNCTION. The same for the other expenses mentioned,
salaries of factory workers will form part of employee expenses etc. 2. Please
explain how this item: Changes in Inventories of Finished goods & WIP line item
in the NATURE method is calculated exactly, and what part of the oldcost of
sales in FUNCTION method goes to other expenses and what part goes to this
line item .? Response: As explained above, the changes in inventories of FG and
WIP will be the movement of opening to closing balances for example opening
balance is 1000 closing balance is 1500, therefore there was a movement of 500
which should be deducted. The other expenses which normally forms part of cost
of sales such as depreciation, salaries of workers etc is classified according to their
nature and will form part of total depreciation expense and the total employee
expenses. 1. :Capital gains: using method of sars of 66% of amount at 14% : would
you put tax base as 50% @28 % of the revaluation over cost, or do you write tax
base as 100% @18.65% : ie if revalued at 50 over cost : do you put tax base as 50
or 100.? Re: ALL depreciable assets attract deferred tax at 28%. This includes
amounts above original cost for revalued assets. All non-depreciable assets will
attract deferred tax at CGT (land, IP and IFRS 5 assets). For IP and IFRS 5 assets,
this will be applicable for amounts above original cost. Amounts below will be at
28%. Neither the tax base not the CA will be adjusted by the rate change change
nor does the CA. The only change will be in the rate for amounts above original
cost. For FAC4861, your worry will be when land is involved. IP and IFRS 5 will
be dealt with next year. 2. Is there a scope exclusion in IAS 8 Accounting errors for
any tax errors, that they get covered by IAS 12 not IAS 8- or has this been deleted?
How does it work if you make an error with deferred tax calculation last year
does it get dealt with by IAS 8 method as per usual? Re: Remember that errors will
only be adjusted in prior periods if they are material. These include any tax
calculation (current and deferred). Any errors adjusted will be under IAS8. 1. IAS
12 : Income Tax on Finance Leases : See example 8.53 in GAAP handbook page
148: They have 2 lines for a lease: vehicles under finance lease ASSET and a
liability line.So for a lease there are 2 lines for every lease: a asset and a liability? It
is a finance lease for a lessee. The entity will have an asset and a lease liability
recorded in his books. 2. See example 8.6 pg 126 GAAP : tax base of liability: if it
says plant has a fair value of 114000 incl vat, then does it mean the asset has a book
value of 100 000, and a tax base of zero(no wear & tear allowed by sars) , so the
asset part of lease has a deferred tax liability of 100 000, while the deferred tax
Liability part of lease has a deferred tax asset of 100 000, so the 2 cancel each other
out?
Example 8.6 is on page 128. Remember this is finance lease for a lessee. The asset
has a tax base of zero because SARS does not recognise the asset for tax purposes
for the lessee. The tax base of the liability is equal to the VAT component of the
outstanding lease instalments. The two does not cancel each other out. Please refer
to example 10.38 on page 233
3. The application of the IAS 12.15/24 initial recognition exemption to finance
leases in the books of lessee presents a problem IF the tax authority allows a tax
deduction for lease payments.-Because since the definitions of tax asset & liability
for these 2 would leave a tax base of 0 , there will be a tempory difference. Per
IFRIC they consider the IAS12 exemptions separately for each line item, and per
them the exemption applies to both the asset & the liability, so NO deferred tax
should be accounted for for the lease on initial recognition OR SUBSEQUNTLY
per IFRIC. But the authors of textbook contend (pg 142 , 8.4.3) that there should be
since the Asset&Liability are inextricably linked, not separate. So the exemption
applies, under duress. (Why do they write this here, then on pg 128 top they give an
example where it WAS recognised at initial recognition?- so they do what IFRIC
says they MUST NOT DO why? So how exactly should we do it ? The initial
recognition exemption is not applicable to a finance lease for a lessee. How does
the Sec 24 allowance in example pg 148 GAAP Handbook bottom, 2 nd last line on
page- is it an asset or liability, and why is the carrying amount zero or dash? This is
just an allowance SARS will allow in future in term of section 24 of the tax act.
There is no carry amount because you have not recognise any accounting entry.
This allowance will create a taxable temporary difference and therefor a deferred
tax liability. 5. How does deferred tax on depreciation itself work? What would be
carrying amnt , and the tax base ? and is it a tax liability or asset. THEN how do
you show it if you are also showing the related asset? Can they be shown together,
? Can one show depreciation alone and then leave out the line for the asset in
Deferred Tax schedule ? Refer to Example 8.2 Gaap page 127. 6. What other
examples of "income or expense" tax bases are there: I only found Expense=
research costs and depreciation . What others are there ? and for income? If think of
one can you email me Dividends receivable Capitalised development cost 1)
PRE- PAYMENTS i. On page 653 of GAAP Handbook in Intangible assets
section, it says prepayments must be recognised as an asset,. (Not sure if they must
go in the table of intangible assets or not?) I DO NOT FIND THAT ON PG 653
` 4.
2) Can depreciation go in the line item : "other expenses" in the P&L statement , or
does it goe in Administration Expenses ? Or can it go in both, IT CAN GO TO
BOTH. DEPRECIATION ON ADMIN BUILDING CAN GO TO ADMIN
EXPENSES. IT SHOULD BE SHOWN IN A NOTE 3) in example 8.1, Tut 103 ,
in the profit before tax note : they deduct depreciation on machines used in research
from the DEPRECIATION total and send it to the 'Amounts Expensed of Research
& Development costs" DOES THE DEPRECIATION TOTAL ON THE FACE OF
THE P&L ALSO HAVE THIS AMOUNT DEDUCTED FROM IT? YES
I can understand that any depreciation on machines used in the research &
development phase that is capitalised as an intangible asset must get deducted from
the P&L depreciation line item- but if it simply gets expensed as research costs
must this also show in P&L. or only in Profit before tax note? THE NOTE
REPRESENTS THE AMOUNT IN P/L THUS IF IT IS DEDUCTED THEN IT
WILL ALSO BE DEDUCTED IN P/L On page 14 of TUT 103 , in question 7.3 ,
could you show me how they get the answer for Transfer to retained earnings, how
do they get the 10 800 + 14 400 transfer ? I under stand it should be Rreval. Surpl.
divided by Carrying Amount multiplied by the depreciation for the year for each
one. How do they get the above ? I get 15+ 25= 35000. Machine A: 120 000/8 x
72% = 10 800 Machine B: 140 000/7 x 72% = 14 400 Remember : revaluation
reserve divided by remaining useful life(01.01.2011) x 72% (after tax)
I have some questions on Tax
1.
If you transfer deferred tax to a "revaluation surplus " account of an asset, it
reduces it. Now when you do the PPE Table in the Notes : what do you call the line
item for this reduction in carrying amount? Does it go in the PPE table at all?
Deferred tax does not affect your asset value. Say you revalue the asset with R100
000 the jnl entries are as follows: 1. Asset Revaluation surplus 100 000 100 000
2. Revaluation surplus Deferred tax liability 28 000 28 000
2.
If an entity transfers the depreciation component of a revaluation surplus to retained
earnings (if you choose this accounting policy) every year : when we later work out
how much of the deferred tax component of the Movement for the Year in deferred
tax is to be transferred to the Revaluation Surplus account : do you deduct all the
transfers from Reval. Surpl. to retained earnings over all the past years to get the
balance on the revaluation account and use this balance x 28% to get the portion of
deferred tax that must be subtracted from the Movement and go separate to OCI?
Or do you leave out/forget these yearly depreciation transfer to retained earnings? I
am not sure if I understand you correctly. Say for instances above asset has a life of
5 years. Every year we will transfer R( 100 000 28 000 = 72 000/5= 14 400 to
retained income from the revaluation surplus in the statement of changes in equity.
Jnl Revaluation surplus Retained income 14 400 14 400
1(a) if goodwill is allocated to CGUs or to assets for the purposes of impairment
testing : does one actually move this goodwill to those assets as a component of
those assets or is it simply a completely separate calculation that never actually
gets journalised but is done on a separate excell sheet?
This is just a calculation for impairment testing. No journals are performed.
1(b) What would be the journal entry for the initial allocation of goodwill to a
CGU or Asset.?
This is just a calculation for impairment testing. No journals are performed.
2(a)When the asset to which goodwill has been allocated gets sold, the goodwill
must be included in the calculation of profit /loss. Does one therefore reduce the
Goodwill Account balance by the portion of goodwill that has been sold with the
Asset /CGU it was allocated to?Yes 2(b)What would be the ALL the Journal
entries when an asset is sold to which goodwill was allocated? This journal is
merely to account for the portion of goodwill that will form part of the CA of the
assets sold. It will not increase the carrying amount of the assets outright.
1) Dr Assets sold Cr Goodwill 2) Dr Bank (proceeds) Cr Assets sold Dr/Cr
Loss/profit on sale of assets
3) on page 600 GAAP handbook it says (middle of page) goodwill that is allocated
to an asset should be INCLUDED in the calculation of Profit/loss when the asset is
sold. However in the example on page 608 , when the boat is derecognised they DO
NOT include goodwill in the calculation of the LOSS on derecognition. Why is
this. Please refer to pg 607 (first 3rd of the page). The one boat was essentially
tested for impairment and written off fully (derecognised). After that, the CGU (the
other boats), to which Goodwill can be allocated to, was tested for impairment. 4) if
a question states that 4 of the 5 assets in a CGU which also includeds goodwill ,are
KNOWN to not be impaired ie: their fair value is known to be above carrying
amount, but they are not sure about asset number 5 ---- And then the CGU is tested
for impairment and found to be impaired do you ONLY write off the impairment
on asset number 5 and leave the others at their old level? (read the last line in
example 21.30 pg 611 GAAP handbook they does something similar to a
corporate asset they stat e that the assets mentioned could be ABOVE their fair
value whay do they do this?) ( never gave an answer to this -ndllovu)
1.
Phone hennie PPE ou for favourable componenet of operating lease. if it is
UNFAVOURABLE how do you capitalise it and how do you amortise it over its
lease term? : he is not sure.I think you add it back each year as positive
depreciation since you are mos depreciating a negative number backwards. Not
sure if you must depreciated the asset component asa full number or as a reduced
number- I think as a full number so the eventual depreciation on the asset comes
out the same as what if would have been without the additional component.
2.
INCOME TAX Questions 2012:
1. CAPITAL GAINS: TO GET THE amount that goes into the tax reconcilliation,
you do not use the depreciated carrying amount of asset you use the costs price
minus tax base : the rest would be a recoupment at a differnt tax rate : eg
recoupmenrt at 28% and capiltal gains at 14%.? Is this correct in SA? a. Where
does the recoupment go in the tax reconcilliation RECOUPMENT DOES NOT GO
IN the tax recomn at all- it goes nowhere b. If using new capital gains tax for 2012 :
what would go to the tax recon? 28% -18.35% * full amount or what?: : new capital
gains tax is 66% c. Do you get any other items except those shown on page 145
that go in a tax recon , or is that it? See below i. What are: 1. Prior Years Current
Tax Under Or Over Provisions. : which exactly could these be? Is that all- nothing
else possible? This is ONLY for if last year you worked out 100 and sars says it is
50, so you made a overprovision(orunderprovision). This must go to BOTH major
components of tax note, as well as tax reconit balances in recon becasue it does not
appear in this years Acc Profit at top (it was in last years), you put it in in Tax
Expense at bottom, so the recon item must balance it. 2. There were no rate changes
during year : is that ONLY if a rate change affects deferred tax , not if it affects
current tax ? yes, only rate changes that affect the DEFRRED TAX BALANCE
from LAST YEAR
2.
Presentation Revenue - Change in Acc Policies Income Tax. STILL left in the
books; only the effect on that . Dual tax system like a capital gains & normal tax
or similar A deferred tax asset was raised for all deductable temp diffs and all
unused tax losses : a. is this ONLY when due to loss there is doubt that there will
be sufficient profit to recognise these ,therfore it is not recognised OR can there
be another reason why a deductable temp diff is not recognosed only the profit
reason? Yes ,only for the profit reason at all. b. is it for those not recognosed this
year AND also for those not recognised last year but this year they were recognised
either in current tax or deferred tax ?or only for 1 of the 2? It is for both , any one
of the 2. Pg 152 gaap 2012 , in major componenets note of income tax exoense
note, prior years: in the prior years item, if last year you worked out tax at 100, but
sars later said it was 50 so you overprovided does this go in here or in recon? it
cant go in both? So in recon pg 145 middle: items that go in recon : what is that
item 2 : no under/overprovisions prior yr? AND how do you book it- example pg
126 they book it to income tax expensse isnt that the same as in the note/P&L
statement figure? This is if last year you worked out 100 and sars says it is 50, so
you made a overprovision. This must go to BOTH major components of tax note,
as well as tax reconit balances in recon becasue it does not appear in the Acc
Profit at top, you put it in in Tax Expense at bottom, so the recon item must balance
it.
===========================================================
================================== If ppe that was revalued is
supposed to get recovered through use deferred tax is simply the carrying amnt
even if revalued way over cost ,of PPE less tax base(sars wear & tear still allowed)
at 28% .BUT if it is through sale , how do you do it? : {{something here : Do you
do PPE carrying amount less revaluation over cost at 28% as if it would be
depreciatred, but the revaluated part over cost at 14% capital gains? What if it was
revalued downwards not upwards? Or the revaluation did not go over cost just to
between cost & carrying amount? And what must one disclose per circular 2006-
if you used use, then you disclose sale, so you disclose the other one? What : temp
diff, deff tax and %or what see the PPE sales/use example in own notes. 3. 4.
Non-Deductable: what does this mean exacly? LIKE a. ONLY IF item is
permanently non-deductable : so if SARS never has and never will allow a
deduction so no deferred tax has ever been raised before. ( so for (1) item where
eg sars deductions has been used up- does it become non-deductable on that day?
(2) say 1)a building was bought where sars will allow no more deductions , but
previous owner still had deductions he used them up VS 2) you used up all the
dedcutions ; .........so is it ONLY those asset that fall under IAS12.15/24 rule and
have never been allowe any deductions before?and liabilities that are the same?that
are non-deductable MUST it be a Permanent difference.no, if there was SARS wera
and tear allowed on an item up to lasty year, but last year the last of it was used
up.so there will never be any allowedagain- IT IS NOT a non-deductable item in
recon at all. ONLY things where SARS NEVER HAS allowed wear & tear before
are seen as non-deductable items in recon (or if law changes the status of an item ,
then it can become undeductable) Tax Reconcilliation Items : last item on page 145
GAAP only yellow : If A Deferred Tax Asset was NOT Raised : as long as one was
raised for all deductable temporary differences and unused tax losses. This can be
for : (only really happens for not recognised cause of not enough profit reason stuff
at all per lecturer) i. Last Years Unrecognised Tax loss or Deductable Temp. Diff.
: a tax loss from last year that was not able to be recognised as deferred tax LAST
YEAR because there was doubt there would be enough future taxable profit , not
enough profit, but this year it does get recognised. (say this was only recogniosed
in deferred tax , not in current tax, this year cause it could not all get used up by
this years profit, must it still go in here in the tax recon?)so for current or deferred
tax or for both. both ii. This Years Unrecognised Tax loss or Deductable Temp.
Diff: a tax loss from THIS year IS not able to be recognised as deferred tax THIS
YEAR because there is doubt there will be enough future taxable profit . iii. Goes
to Own notes pg 89 . JOURNALISATION of temporary differences : when there is
a loss and some temp. diffs. must be left out. 1. You work out this years deferred
tax from this years temporary differences schedule. 2. Then compare last years
schedule to this years schedule , and get the difference beween the 2. 3. The
difference is what gets journalised for each Deferred Tax Temporary Difference ,
eg Revenue Received in Advance , or PPE : Asset Building etc. a. So basicly
last years balance does not fall away, it stays the same. Then this years CHANGES
simply get added/subtracted to it to get the new balance for this year. REM: every
account that was included in deferred tax last year must be included again this year
(worked out again) until that account dissapears to keep your balances right. If
there was no item last year and it appears for the first time this year then take last
yrs balance as 0. 4. Goes to Own notes pg 89 : If not all of the temporary
differencesmay be used due to there being a loss this year , and half the list will not
be ableto be used , what do you do with 1)the half of 1 that may/may not be used,
and2)the ones that may not be used- how do you journalise them after choosing
which to use and not? a. For this year when that happens No: b. And 2, for next
year when you want to journalise them back in again into your deferred tax because
there is a likelyhood of now sufficient taxable profit.? 5. Howdo you journalise a
unused loss into the deferred tax account?
3.
4.
5.
6.
Presentation Revenue - Change in Acc Policies Income Tax. They do not
journalise each one individually eg vodacom. They work out the TempDiff
Schedule and take the total amount and journalise like shown below in journals: b.
if some part of the temp diffs may not be recognised , all you do is treat it as PART
OF THE MOVEMENT IN TEMP. DIFFS. For the year. So you basicly work out
what your Journalisation Amount is by determining what the deferred tax account
balance must be first : eg if it must be 0 zero , then make a corresponding journal
entry and just leave outor forget the temp diffs that may not be included. So c.
Tax Losses & Credits : rem : that tax losses & credits must go in the Schedule of
Temp. Diffs. when you work it out. So they are the last line item in it and get
inclused automaticly in the same Movement in Temp. Diffs.for the Year journal
entry at yr end all in one go. Rem that means you work out if there will be a tax
loss this year BEFORE you finish the Temp Diffs Schedule completely, to add it
in! So it forms part of the 1 figure you journalise all in 1 go , not separately . d.
Fin Stats Notes : i. Major Componenets of Income Tax : Only Year 2 : If you left
some out this year IT DOES NOT go in note, only if you recognise a previously
unrecognised amount. ii. Tax Reconcilliation : Year 1 and Year2 : if you left out
some this year it must go in tax recon, AND if you left some out last year but this
year the previously unrecognised amount was recognised they must both go in
Recon. And 2, for next year when you want to journalise them back in again into
your deferred tax because there is a likelyhood of now sufficient taxable profit.? a.
You simply do the opposite of what you did last year. So last year you reduced you
deferred asset /liability account to a certain level artificially by the very same
movement in temp diffs journal entry that you used to journalise your temp diffs
movement for the year. Now this year you have a eg very low deferred tax account
balance that must be brought up to a new level so you work out your shcedule of
temp diffs, and if you may recognise them all then get the change from last years
low balance to this years higher balance and journalise it as a NORMAL
Movement in Temp.Diffs. for the year all in one go. b. Tax Losses & Credits :
note above for this year, it works the same. c. Fin Stats Notes : i. Major
Componenets of Income Tax : You must also make a note of what the actual
amount that was unrecognised last year but did get recognised this year : becuase
that must go to Major Components of Income tax Note ii. Tax Reconcilliation :
1. Tax Reconcilliation : Year 1 and Year2 : if you left out some this year it must go
in tax recon, AND if you left some out last year but this year the previously
unrecognised amount was recognised they must both go in Recon. a.
6.
7.
Go to page 124 bottom of own notes : In IAS 12 : pg A709 : how does each item
that goes to this Major componenets Note work 1) previously unrecognised temp
diff ( not loss/credit) but now recognised cannot go to Income Tax how does that
get journalised? What is it? No, a previously unrecoghnised temp diff goes to
deferred tax heading, whether recognised this year in current or deferred tax both
would go to deferred tax heading in the Major Compoents on Income Tax note.
.........LAND : CARRYING VALUE RECOVERED THROUGH use :Building of
COST 100 000 and AccDepr. 10 000 is revalued to180 000. Before revaluing it fell
under rule ias12.15/24, since SARS did not allow any more deductions when it was
bought second hand. But after the revaluation the reval. Does affect accounting
profit that year : so ONLY the revalued part is recognised for deferred tax-capital
gains-, and as it is depreciated as well. The other part stays under IAS12.15/24 and
gets no deferred tax old part :
1.
They put movement in brackets is that a tax asset or a tax liability? Must be tax
liability- taxable temp diff-! just to be sure! yes it is a liability here. you deduct a
liability from profit but add an asset to profit in Current Income Tax account.
8.
DONE : busy making notes Quickly go through question 9.2 to see whats
happening and make questions then : Go to page 92 own notes number 2 : read it
and ask . DONE busy making notes :Pg 55 example 9: read all highlight notice
year 1 and year 2 below it. and ask how do they get a movement of 30000 from
the balance of the previous year. Wasnt last yrs balance 55000 TAX asset , and it
must move to 35000 TAX asset this year(loss goes below this in deferred tax note,
it is separate!) AND how do they get year 1 s Movement above it.
9.
10. WAS EMAILED : (Is the unearned part left in the account a liability or what
yes it is a liability under what heading does it go in the Fin Stats- it is owed to
buyer of car so a long term liability with a short term portion (the next 12 months
portion coming) or how exactly does it get treated?) where in the fin stats does it
go: just plain Nc liab and current part to current liab? 11. WAS EMAILED
Settlement discount : the gross method is exctly the same as old sa method? So why
is old sa method wrong? Is one allowed to use the gross method or not? Or only the
net method? a. 12. Next: In the recon: R TAX RECONCILLIATION Accounting
Profit Tax at the Applicable Rate of 28% (even if negative put it in here) 1-NON-
DEDUCTABLE add back (tax effect of EXPENSES not deductable in determining
taxable
profit)
R Xxx xxx
Xxx xxx
2-NON-TAXABLE subtract it (tax effect of INCOME not taxable in determining
taxable profit) 3-PROFITS IN P&L TAXED AT DIFFERENT RATES Rate Lower
: Subtract it Rate Higher Add It to Tax. (eg Foreign Profits taxed
at differenct rates , or new line for Capital Gains )
4-THERE ARE NO UNDER OR OVER PROVISIONS RELATING TO THE
CURRENT TAX OF PRIOR YEARS
Prior Years Under Provision : 2013 letterfirst few example Prior Years Over
Provision : loss this year, so rule says cannot recognise) (not allowed This year due
maybe to a
5-EFFECT OF CHANGE IN TAX RATES Reduced Rate: Lessen
Increased Rate: Increase (ONLY for not changed this year but going to next year
NOT ever if all the current tax & temp diffs were done at new tax rate this year,
that would ONLY get journalised direct to last years balance left in deferred tax
account) 6-Entity Operates in Jurisdiction with Dual Tax Rates 7-A DEFERRED
TAX ASSET (NOT LIABILITY!) WAS NOT RAISED FOR ANY 1- TEMP DIFF
2-TAX LOSS/CREDIT
This year : TAX ASSET :UNRECOGNISED: ADD IT BACK TO TAX IN
RECON TAX LIABILITY : UNRECOGNISED: SUBTRACT IT FROM TAX IN
RECON Last Year: TAX ASSET : UNRECOGNISED: ADD IT BACK TO TAX
IN RECON TAX LIABILITY : UNRECOGNISED: SUBTRACT IT FROM TAX
IN RECON see : 3 c 2013 example see : 3 c 2013 example
=Income Tax Expense in P&L
Xxx
Xxx
13. Done notes : For initial recognition of a building where SRS will not be
allowing any future deductions at all it falls under rule IS12.15 SINCE IT DOES
NOT AFFECT ACC OR TAX PROFIT SO THE DEFERRED TAX WOULD
NOT BE RECOGNISED..but next year on subsequent recognition when the
building is depreciated by the company it does affect accounting profit, so must this
defrred tax be recognised then or not? Oonly the portion on top ie revalued part
gets recognised, not the rest it stays unrecognised. If revalued down it does not get
recognised at all.
Presentation Revenue - Change in Acc Policies Income Tax. a. Done notes :Yes
recogniseFor capitalised development costs very similar to above where sars
allows full deduction as an expense in current year only, and does not allow any
future deductions, would this fall under rule ias12.15/24 or not? Does not affect
accounting or tax profit? Pg b1089 of IFRS book B : number 4 : seems to think it
does not fall under rule IAS12.15/24? What about if they mean subsequent
recognition? Or is the expense deducted this yr and effects on taxable profit so it
misses the rule. MUST it ONLY be an effect on DEFERRED TAX PROFIT , NOT
CURRENT TAX?
14. WAS EMAILED to marize : : In question 4.1 on page 29 of the Tut letter 102 :
they mention in last sentence of question that there are no temporary differences :
so they take that 1 step further and then ALLUDE TO THIS TO CONCLUDE IN
THEIR ANSWER that the depreciation on office buildings is NON-
DEDUCTABLE-nowhere does it say this though in question .My question is : why
then is the depreciation on the PLANT and DELIVERY VEHICLES also not seen
as NON-DEDUCTABLE. It is simply ignored completely. What shows a
difference between the 2? And then secondly why can one not treat the buildings
in the same way as the Plant & Vehicles it may be that they all 3 simply balance
out to 0 why do they choose to make a possible reason that the Buildings were
bought second hand and SARS allows no further deductions for them , but they
decide that the other 2 simply balance out somehow to zero? Couldnt the buildings
also fall in this castegory? 15. Done notes WAS EMAILED to marize : HOW
DOES DEFERRED TAX GET SHOWN IN THE OTHER CONMPREHENSIVE
INCOME AND IN THE OCI NOTE FOR DEFERRED TAX?:: WHERE DOES IT
GO? AND JOURNALS/ACCOUNTS: THE TAX FOR ITEMS IN OCI IS
SHOWN JUST BELOW THE ITEM ON THE FACE OF THE SCI. REFER TO
PAGE 17 IN TUT107 FOR AN EXAMPLE. a. Done notes It says in IAS 12 that
the items in OCI can either be shown of tax with tax below , or they can be shown
after tax has been deducted from each one - on the face of P&L . correct ADDED
TO CURRENT TAX NO, IT IS ONLY DISCLOSED IN THE INCOME TAX
EXPENSE NOTE, IT IS NOT APRT OF CURRENT TAX AT BOTTOM OF OCI
1 TOTAL FIGURE FOR ALL ITEMS IN OCI ADDED TOGETHER. b. Done
notes So for both methods , should one show deferred tax and current tax separate ,
AND if you decide to use the netted off method on the P&L statement, the in the
notes when you do the OCI note for tax , does one show ONLY the tax , or the tax
and the OCI line item amount , and here does one show a 2 totals for each line item
for deferred and current tax, or just 1 tax amount of bot added together.? YOU
CAN SHOW THE TAX EFFECT OF ITEMS IN OCI ON THE FACE OR IN A
NOTE. WE WILL NORMALLY ASK YOU TO DO IT ON THE FACE OF THE
SCI AS IT IS EASIER FOR UNISA TO MARK IT LIKE THAT. c. Done notes
When you transfer the deferred tax on a revaluation to the revaluation surplus
account IF YOU RAISE DEFERRED TAX ON A REVALUATION, THE
DEFERRED TAX IS RAISED IN OCI. THE JOURNAL IS DR REVALUATION
SURPLUS CR DEFERRED TAX LIABILITY (SFP) ie to OCI directly instead
of to Deferrd tax account do they have a separate co-account for the deferred tax-
in order to be able to keep track of it? NO Or do they transfer direct to reval.
Surplus account isnt it difficult to separate the 2 at year end THERE IS NO
REASON TO SEPARATE IT: one is supposed to show reval. Surplus net of
deferred tax and current tax , and then the tax as a separate amount or can one
also show the reval.surpl. after deducting all tax so NOT show the tax separately
at all? How does it all work exactly? Different sources all seem to treat it a bit
differently so one gets a bit mixed up? ON THE FACE OF THE STATEMENT OF
CHANGES IN EQUITY, THE AMOUNT SHOWN THERE IS THE CLOSING
BALANCE OF THAT ACCOUNT AT YEAR END, I.E. AFTER TAX. ON THE
FACE OF oci, YOU WILL SHOW THE INCREASE IN THE REVALUATION
SURPLUS TOGETHER WITH THE TAX EFFECT.
16. Done notes WAS EMAILED to marize : from comprehensive example in
GAAP Handbook pg 153.bottom : for "Note" for items charged "direct to equity":
should it be each item that got charged to equity itemised one by one , with the
current & deferred tax as separate totals for each item , or ONLY 1 total for ALL
items that went direct to equituydeferred tax an 1 total for all items current tax?
One total should be fine as you need to show the aggregate
1. * DONE ALL FROM HERE DOWN : *********TAX BASE OF DIVIDENDS
RECEIVABLE: = NOT TAXABLE so Tax Base = Acc. CARRYING AMOUNT
1.1. If Dividends receivable is not taxable in That country, then the second part of
Assets Rule applies so: Future Economic benefits from Asset NOT TAXABLE so
Tax base will be made = to Carrying amount of asset, per IAS12 definition.( eg in
SA for Companies : Dividens are NOT taxable so this rule would apply) 1.2. If
Dividends receivable is taxable in that country ( eg South Africa for individuals ,
NOT companies : new Withholding tax on Dividends does apply) BUT : treated
same as debtors, ie use the special rule tax
base = carry amnt, becasue the withholding or similat tax will ALLWAYS be
accounted for at recognition, SAME as for debtors and tax on profit basilcally, so
one will NEVER say any part of Dividnds rec. is deductable in the future,Onle
must ALLWAYS use the full Dividends receivable BEFORE tax as the carrying
amount, and tax base will be = to this
Presentation Revenue - Change in Acc Policies Income Tax. amount ,ONLY
ever OR ELSE if company only uses the figure after tax as the dividends
receivable, then that will be carrying amount AND also TAX BASE so the temp
diff will be same in botjh cases ie ZERO.-- because the tax will allways be
accounted for in current year same as for DEBTORS and TAX ON PROFIT story ,
so the dividends will NEVER be taxable in the future and therefore second
sentence of Asset Rule will allways apply here . (1- is this true above?
2- if some country says: as a rule, if dividends are declared this year but only paid
next year, then the company itself who received the dividends must only pay tax on
it in the year it is received , but they can put it in as a DEBTOR in current year
already: the what would the tax base and logic be?: if tax is 10%, do you say 90%
is deductable in future, so tax base is = 90% of dividends receivable or what? CAN
ONE HAVE an asset where you will be taxed on it at eg 3% in the following year
for some reason- like an enviromental tax or something, for the rest of the assets
life, and so you say the amount dedutable in the future is = ?? zero , so tax base =
zero, so temp diff = carrying amount?) : YOU PUT CARRYING AMOUNT AS
THE AMOUNT AFTER TAX WAS DEDUCTED FROM THE DIVIDENDS. 2.
DONE : TO BE TAXED ON A CASH BASIS : eg: here, interest receivable is used
as an example , but normally interest receivable is taxed on a accrual and not a cash
basis so this is just an example:(true or not)
ASSETS TAX BASES : of TO BE TAXED ON A CASH BASIS
1.1. ......... here, interest receivable is used as an example , but normally interest
receivable is taxed on a accrual and not a
cash basis so this is just an example:Company loaned mobney to a debtor, now he
owes the 22500 as interest this year already which will only be taxed on a cash
basis by SARS. If it says, item is to be taxed on a cash basis, it means that even
though there is a debtor this year already, the debtor is not taxed on an ACCRUAL
basis but on a CASH basis so , the debtor will only be taxed when he pays.
Therefore the future economic benefits ARE TAXABLE not like debtors
normally where future economic benefits are NOT taxable becasue it is normally
taxed on an accrual basis.But this is a bad example becasue in SA interest is
normall taxed on an accrual basis, not a cash basis
CARRYING AMOUNT Less: TAX BASE
22500 ( owed to company by a debtor as interest on a loan granted to debtor) 0 (
becuase none of it will be deductable in the future- it is all taxable in the future
when the cash is actuall paid across - at whatever tax %- so no tax deductions are
granted for interest) = =Temp.Diff 22500 1) Does a business combination itself
buying the business - ever generate a deferred tax by itself, separate from the assets
etc? 2) Where , as per following example also in pg 132 bottom txtbk, so if sars
allows no deductions all ASSETS will ALLWAYS fall into rule IAS12.15? =
deferred tax not allowed . AND where if ever could it happen that initial
recognition actually affects accounting profit??? ASSETS TAX BASES : OFFICE
BUILDING, Where Initial Recognition Does Not Affect Accounting Nor Taxable
Profit.
......company bought a BUILDING ,for 100 000 WHERE SARS DOES NOT
ALLOW ANY RTAX ALLOWANCE ON THE BUILDING. (COULD ALSO BE
ANY OTHER TYPE OF ASSET- SAME) . BUT : ANY transaction where SARS
does not grant any future deductions iMOST PROBABLY falls under rule
IAS12.15, since accounting profit is hardly ever affected on recognition, and then
taxable profit will also not be affected. So here: Accounting Profit is NOT affected(
Cr bank, Dr Asset) and Taxable Profit is also not affected ( no deductions allowed
ever) , therefore following rule applies and DEFRRED TAX may NOT be
recognised , even thougjh your calculation may show a temp. diff like it does in
below example.(textbook GAAP 2012 pg 132 bottom) 1.1. IAS 12.15: A deferred
tax liability shall be recognised for all taxable temporary differences, except to the
extent that the deferred tax liability arises from: (a) the initial recognition of
goodwill; or (b) the initial recognition of an asset or liability in a transaction which:
(i) is not a business combination; and (ii) at the time of the transaction, affects
neither accounting profit nor taxable profit (tax loss). However, for taxable
temporary differences associated with investments in subsidiaries, branches and
associates, and interests in joint ventures, a deferred tax liability shall be recognised
in accordance with paragraph 39.
CARRYING AMOUNT Less: TAX BASE
100 000 : (it was written off as period costs) 0 : because sars does not allow any tax
deductions due to that asset in the future for depreciation or any other reason. (BUT
future economic benefits from building are l taxable, so it does not mean that
sentence 2 of Asset rule applies here- where future earnings would not be taxable)
= =
=Temp.Diff DEFERRED TAX
100 000 NONE- disallowed by IAS12.15
3) See page 132 example 8.9 at bottom. So where if ever could the initial
recognition of an asset affect accountimng profit? NEVER? And does this mean,
that if SARS does not grant any deductions for a type of asset, TJHAT IT WILL
ALLWAYS FALL INTO RULE 12.15- where deferred tax is not recognised on it
no matter what?ans : lecturer casnnot think of any intial recognition that would
affect accounting profit. So it seems anything (ASSETS) that does not get any
deductions permanently non-deductable by sars onintial recognition falls under
this rule. 1) Any tax that does not fall in the scope of this IAS should be accounted
for using IAS 37(which are those?) 2) If the capital gains for that year is a loss, it
must be carried forward to the following year of assessment (unused tax loss : (only
for capital gains or against all tax next year?? Carried forward As tax or capital
gains?? S0- do you just include it as a deferred tax asset add it to deferred tax?
no matter whether it will get deducted from normal tax or capital gains tax next
year? 3) for how many yrs can a capital gains loss be carried forward?-Ans: check
up in book!. 4) EXEMPT: any scrip dividends? Yes or no? for WITHHOLDING
TAX ON COMPANIES DIVIDENDS. Ans: check up in book!.
17.
]. DEFERRED TAX ON FINANCE LEASES phone : ask the following 6 in
one go:
1. 2. WAS EMAILED to marize : See example 8.53 in GAAP handbook page 148:
They have 2 lines for a lease: vehicles under finace lease ASSET and a liability
line.So for a lease there are 2 lines for every lease: a asset and a liability? WAS
EMAILED to marize :See example 8.6 pg 126 GAAP : tax base of liability: if it
says plant has a fair value of 114000 incl vat, then does it mean the asset has a book
value of 100 000, and a tax base of zero(no wear & tear allowed by sars) , so the
asset part of lease has a deferred tax liability of 100 000, while the deferred tax
Liability part of lease has a deferred tax asset of 100 000, so the 2 cancel each other
out? WAS EMAILED to marize :The application of the IAS 12.15/24 initial
recognition exemption to finance leases in the books of lessee presents a problem
IF the tax authority allows a tax deduction for lease payments.-Because since the
definitions of tax asset & liability for these 2 would leave a tax base of 0 , there will
be a tempory difference. Per IFRIC they consider the IAS12 exemptions separately
for each line item, and per them the exemption applies to both the asset & the
liability, so NO deferred tax should be accounted for for the lease on initial
recognition OR SUBSEQUNTLY per IFRIC. But the authors of textbook contend
(pg 142 , 8.4.3) that there should be since the Asset&Liability are inextricably
linked, not separate. So the exemption applies, under duress. (Why do they write
this here, then on pg 128 top they give an example where it WAS recognised at
initial recognition?- so they do what IFRIC says they MUST NOT DO why? So
how exactly should we do it ? WAS EMAILED to marize :How does the Sec 24
allowance in example pg 148 GAAP Handbook bottom, 2nd last line on page- is it
an asset or liability, and why is the carrying amount zero or dash? WAS EMAILED
to marize :How does deferred tax on depreciation itself work? What would be
carrying amnt , tax base and is it liability or asset. THEN how do you show it if you
are also showing the related asset? Can they be shown together, ? can one show
depreciation alone and then leave out the line for the asset in Defrred Tax schedule
WAS EMAILED to marize :What other examples of income or expense tax bases
are there: I only found Expense= research costs and depreciation . What others are
there ? and for income? If think of one can you email me EMAILED TO
FAC4861 :Capital gains: using method of sars of 66% of amount at 14% : would
you put tax base as 50% @28 % of the revaluation over cost, or do you write tax
base as 100% @18.65% : ie if revalued at 50 over cost : do you put tax base as 50
or 100.? EMAILED TO FAC4861 : Is there a scope exclusion in IAS 8 Accounting
errors for any tax errors, that they get covered by IAS 12 not IAS 8- or has this
been deleted? How does it work if you make an error with deferred tax
calculation last year does it get dealt with by IAS 8 method as per usual?
3.
4. 5.
6.
1.
2.
GOV GRANT: 18. ASSET METHOD :Pg 167 last years descriptive acc. If a gov
grant is for 20 000, and asset cost is 100000, the carrying amount is 80000 using
the reduced asset not deferred liability method of gov grants. And SARS tax
base is 100000 for wear & tear. BUT why does it fall under rule IAS12.15/24? It
affect taxable profit : sars must allow at least 80000, if not full 100000 wear &
tear.. ? seems to ALLWAYS fall under ias 15/24 did not ask this question yet
19. 20. EMAILED MARIZE : LIABILITY METHOD : Gov Grant : initial
recognition is not allowed, but why is subsequnt recognition not allowed in
liabilituy method since you transfer from the liability to income every year and this
does affect accounting profit? Is it casue the liability lessening and income
increasing cncel each other out so that there is no effect on accounting profit? But
the liability lessening will not affect profit, only the bal sheet? Ias 12.33 pg a694
says both are never recognised for carrying amount or liability method from what i
understand- so is a gov grant never ever for any reason affects any deferred tax at
all?
21. Non-Adjusting Events: IAS 10 :Any tax rates substantively enacted after the
reporting date are considered as NON-ADJUSTING events by IAS10. Disclosure
of the non-adjusting event must be provided (namely the change in tax rates) (will
this still be a non-adjusting event if say yr end is 30 dec, and the years tax only gets
paid in feb, but the new rate is only announced in end jan?) must the whole fin stats
tax be readjusted?
22. DONE : See Yellow Below: Revaluation Surpluss (OCI) 4350 when you
journalise this, must the deferred tax go directly to the reva luation account? Does it
lower the amount of revaluation surplus in the SFP, or does it just show as a
separate item together with all other current or otherwise tax in the SCI P&L at the
bottom of OCI? Deferred tax (SFP) 4350 1. (Recognition of the deferred tax on the
revaluation of the land. ) NO it is not separate, goes in same
9. Undistributed Dividends : of the Latter included in the consolidated fInancial
statements . In SA, dividends received by COMPANIES are tax exempt, and are
also not included in normal income tax, so it will never occour with a Latter in SA,
but if a Latter is situated in foreign country, often a dividends tax is charged by the
foreign country on all dividends given out. So if the dividend has not yet been
distributed, the undistributed dividends must be included in the carrying amount/tax
base computation to get the temporary difference for this ASSET. ( Parent etc. will
of course have a right to and own a % share of all new profits of foreign
subsidiary/investment)(how do you know when to use dividends tax and when to
use capital gains tax? If dividends are undeclared this year, then what says the same
profit from this year will be given out as dividends in the future? If it is unsure
whether these dividends will be distributed- or unlikely- then can one use capital
gains tax instead?)
10. Any tax that does not fall in the scope of this IAS should be accounted for using
IAS 37(which are those?) 11. If the capital gains for that year is a loss, it must be
carried forward to the following year of assessment (unused tax loss : (only for
capital gains or against all tax next year?? Carried forward As tax or capital gains??
S0- do you
just include it as a deferred tax asset add it to deferred tax? no matter whether it
will get deducted from normal tax or capital gains tax next year? The exact amount
that is included: is that the full 100% of the capital loss or just 66.6% of the loss?
a.
12. ASK YELLOW IGNORE RED : Does debtors not fall under rule IAS12.15
cause it affects accounting profit , or taxable profit or both? Like initial recognition
of a building that gets no more deecutions allowed at all = falls under Rule
IAS12.15&24ans I THINK cause on initial recognition it did affect accounting &
tax profit by affecting current : is IAS 12.15/24rule does affect mean : affect
defrred tax profit or current tax profit? For Accounting profit it can only possibly
be 1 type- sothere is no question there.
1.
Pg a578 ias 1.91/21 : it says you must split tax between that which can be
reclassifed later, and which cannot to P&L. Then below in 92 it talks of
reclassifcation again but says in 96 that this typ edoes npt relate to revaluations-
only to cash flow hedges. Are they talking about the same thing in 91 and 96 and
how should this be done?it says in textbook that in IAS12 only 2 items are allowed
as relassication items at all ever : cash flow hedges and another complex thing.
Revaluations & emplyee benefit liability areNOT allowed as this , they are
something else. Gov grant : TO PHONE : Ask gov grant dont understand logic- if
you get a NON-TAXABLE grant then it mos affects accounting profit as well as
yrly recognition in the P&L affects , or deduction from depreciation affects
accounting profit?
2. NEXT :
1.
1.
question: if you want to deduct the part of the Movement for the Year in deferred
tax that goes to OCI , so that you can journalise: do you ONLY deduct this current
years revaluations and devaluations, that got transferred to OCI this year- or all
revaluations back over the last 100 years that still have a small portion left in the
Revaluation Account. a. Deferred tax Account. i. INCOME Tax Account ii.
Revaluation Surplus Account If you want to compare this yrs temp diff to last
years, and both years have many revaluations in them WHICH
REVALUATIONS DO YOU EXCLUDE TO GET ONLY THE P&L FIGURE?
All of them in all years going back 100 years, OR ONLY those that were revalued
THIS CURRENT YEAR and thus affect OCi this year.?
2.
Ask advertising credits eg R500 free to be used anytime : at year end how do you
show the debtor in your books if it is a trade discount: you might treat it as
income if it has to be shown as a debtor , or you might treat it as a plain trade
discount. Lecturer not sure , says both. TO PHONE : In IAS 1 st ch eq it says :
amounts of transactions wityh owners must be shown, showing separsately
contributions by and distributions to owners- so in a public company that would be
ditributions : dividends and contributions: ordinary shares issued / or preference
shares issued : thats is- nothing else at all BUT : just to know a. How do you show
DRAWINGS / OWNERS CONTRIBUTIONS in the statement of changes of
equity for a sole proprietor or a CC . Also, how would you show : And what would
the owners contributions account look like in a CC? and the drawings account?
Must every owners contribution increase the memebers shares - ? how does the
shares account look : just 1 account for all directors , or does each director get his
own account? And these form part of a main single ordinary shares account? For
a cc- you can have a memebers sidtribution account, you can distriburte every day
dosnt matter , and just put it in the account. Then in StChEq you put 1 line for
total distributions that year, and 1 line for Memebers conributions that year.
Memebrs conreributions is separate from distributions completely separate, it
does not go in the same account netted off 1 against the other like in a sole
proprietor . In a cc it is separate , never netted off. Fo a sole propritor you can also
have just 2 lines in StCHEq 1 for drawings & 1 for contributions - and then for
both of cc and Sole Proprietor you can have a note in fin stats that just says a
monthly total for each of disributions & contributions /per mnth for the year.Easy.
A Cc works like that no specuial resolution is needed for distributions unless
there are 2 or morte members, and you can get a distribution every day actually.
One can also use a members loan account to keep the members conrtibutions in a
specific ratio. b. How would that all work for the new type of Private company
/limited liability company? c. Ask: in a cc : how does the loan account work : can
you make a drawing account same as for a sole proprietor, or must it be a drawings
account due to the sort of dividends once a year type of idea , like in a company
with shares, sort of thing. i. How would a drawings account look in a old cc? do
you get that? Or does one not get drawings&contributuions for a
3. 4.
Presentation Revenue - Change in Acc Policies Income Tax. CC? do you only
get dividends same as for a company?how does the dividends account look? Just
a dividnds account CONTRA bank /creditor ? thats it? How many times a year can
they pay out dividends as often as they like as long as the rules for the directors
decision eg quorum etc are adhered to? So is that how they did it if a cc owner
makes drawings every month he writes it up as dividends in the dividends account
every month, and the total goes to statement of changes in equity at the end of the
year? ii. But wont sars want you to then add to tax the imputed interest on the
drawings account between each change in the account balance ie on a interest free
loan type of fringe benefit- or is drawings /remuneration to directors/members not
fall into a category where fringe benefits are considered to be so? So you u have
2 choices , 1)OWNER makes all owners contributions into loans to the entity ,
instead of as capital contributions, so you have a loan account , OR you make it
direct into owners equity contributions? then for SARS must a imputed interest for
a interest free loan be added to income of the company same as if company
loaned money interest free to an employee and this imputed interest gets added to
his salary as a fringe benefit?
d.
3.
1)If you have a deferrd tax account with an asset balance of 1000 left from last
year, And last year the Schedule of temporary differences was 500 asset all
recognised And this year you have only 500 Asset for temp diffs: BUT there is a
loss this year so you may not recognise any deferred tax asset: What is your
movement for the year? Is it 1000 liability ? in order to bring deferred tax account
to zero? NOW: next year, say all is well again , no more losses. Your Temp Diffs
for the year are 200 asset. What is your movement for the year: actually what I
want to know is to which figure from last year do you compare this years
Temporary Differences number to get your Movement for the Year? The 1000
movement from last year , or 50 0 temp diffs ?- No compare it to zero that is
compare it to the balance on the deferred tax account.
2,5) why dont you include OCI deferrd tax in the deferred tax section of Major
Components note? Just want to make sure one DOES NOT! No,this note is the
Income Tax figure in P&L,and OCi comes belowo it in p&L 3)Does a previously
unrecognised tax loss go in the current tax note under prior year? Im not sure but
think not- the only 2 things that ever go in current tax note are SARS assement
difference and plain current tax thats it what else can go in here? NO- only
those 2 things- SARS assesment diff and current tax.
INTANGIBLE ASSETS
a. EMAILED : PRE- PAYMENTS i. On page 653 of GAAP Handbook in
Intangible assets section, it says prepayments must be recognised as an asset,. (Not
sure if they must go in the table of intangible assets or not?)
PRESENTATION OF FIN STATS
1. Done notes WAS EMAILED to marize : : 4. In the P&L statement (from
Presentation chapter) as I understand it "interest income" goes only in other
Income, not in a separate heading or offset against "finance costs" at the bottom
?Or can one offset it against finance costs? If interest income is a significant
amount you might want to disclose it separately on the face of PL. If it is not
significant, you can include it in finance costs. But I cannot see that it will be
incorrect to include it in other income. EMAILED TO van Wyk : I have problem
wit 1 item in the NATURE method ofP&L- pg 580 IAS1.102. : The Changes in
Inventories of Finished goods & WIP line item. : this is like the cost of sales item
in the FUNCTION method, so does it include depreciation on factory production
machines, and salaries of factory workers, and admin & other expenses for factory
like water and lights et c , because these are all included in cost of sales in the
FUNCTION method , are they not? a. Please explain how this item: Changes in
Inventories of Finished goods & WIP line item is calculated exactly, and what part
of the oldcost of sales in FUNCTION method goes to other expenses and what
part goes to this line item .? EMAILED TO van Wyk : -Remeasurements on
defined benefit plans must get shown in the statement of changes in equity. How
does that work.- what would the different entries in the Statement of Changes in
equity look like? Eg: 1)Name of entry 2)Headings it affects and how it affects them
for a defined benefit change 1) upward and 2) downward? EMAILED TO van Wyk
: -Ias 1.106 (a) says ,: For each component of equity, an analysis of OCI must be
shown : what exactly is this: if
2.
3. 4.
5.
Presentation Revenue - Change in Acc Policies Income Tax. these is no OCI in
a heading eg Ordinary shares , then you leave it out and in what detail is an
analysis: eg Total revaluations or must every reavaluation be shown one by one?
What other examples of detail are there? EMAILED TO van Wyk : For IAS 1 :
Statement of Chnages in Equity : If pref shares are redeemed this goes to CRRF: A)
what if ordinary shares are redeemed,the answer is no isnt it ? B) if share premium
account is used for redemption of pref shares , does this also go to CRRF or only if
retained earnings was used?- I forgot. EMAILED TO van Wyk : Where do
transaction costs of dividends & share issues & share buy backs etc go in the
StChEq? : see IAS1 .109 middle
6.
7.
GOV GRANTS
Latest question:
2.
IMPAIRMENTS
Emailed : 1(a) if goodwill is allocated to CGUs or to assets for the purposes of
impairment testing : does one actually move this good will to those assets as a
component of those assets or is it simply a completely separate calculation that
never actually gets journalised but is done on a separate excell sheet? 1(b) What
would be the journal entry for the initial allocation of goodwill to a CGU or Asset.?
Emailed : 2(a)When the asset to which goodwill has been allocated gets sold, the
goodwill must be included in the calculation of profit /loss. Does one therefore
reduce the Goodwill Account balance by the portion of goodwill that has been sold
with the Asset /CGU it was allocated to? 2(b)What would be the ALL the Journal
entries when an asset is sold to which goodwill was allocated? Emailed : 3) on page
600 GAAP handbook it says (middle of page) goodwill that is allocated to an asset
should be INCLUDED in the calculation of Profit/loss when the asset is sold.
However in the example on page 608 , when the boat is derecognised they DO
NOT include goodwill in the calculation of the LOSS on derecognition. Why is
this. Emailed : 4) if a question states that 4 of the 5 assets in a CGU which also
includeds goodwill ,are KNOWN to not be impaired ie: their fair value is known to
be above carrying amount, but they are not sure about asset number 5 ---- And then
the CGU is tested for impairment and found to be impaired do you ONLY write
off the impairment on asset number 5 and leave the others at their old level? (read
the last line in example 21.30 pg 611 GAAP handbook they does something
similar to a corporate asset they state that the assets mentioned could be ABOVE
their fair value whay do they do this?) (P.S. I know one may not allocate any
portion to an asset that might reduce it below its Recoverable Amount / Fair
Value but if carrying amount is above this amount surely one can ?)
LEASES
3. Phone hennie PPE ou for favourable componenet of operating lease. if it is
UNFAVOURABLE how do you capitalise it and how do you amortise it over its
lease term?
EMPLOYEE BENEFITS:
1. For a termination benefit that happens over 12 mnths from yr end,it must be
treated as a OTHER LONG TERM BENEFITS. Does that mean it must immedialy
in allcases get a plan assets account, defined benefitobligation account,? Or not
really in a exam if say there just happens to be a portion that is over 12mnths say
R500 only - DO YOU BRING IT TO PV AND THATS IT? If you have 3 different
long terms benefit accounts , do you add them all together + the normal net
defined liability , to get 1 total figure for the SFP, or do you put 3 figures in the
SFP?
2. 3.
DONE ALL FROM HERE DOWN
Questions from last year 1. Add still : how does the deferred tax Liability cause
profit to drop, and where do you calc. Profit before tax ? is it after putting in
deferred tax liability or before? If before then how can your calc. work for profit
before tax and tax if you dont even know the deferred tax yet??? 2. So add: how
does deferred tax liability account to finstats work exactly what is the process 3.
Over/under provision ledger&journal entries : 4. Provisional tax ledger& journal-
see if you did nit pay last year (underprovide) then the extra you pay to sars this
year (you only pay sars final pay ment in the next year so you dont know last year
) is the underprovision from last year! Note 5. You never put deferred tax in sars
liability account you put it in deferred taxCONTRA ta x expense acc., so it will
never show as a liability to sars itself, it only shows as a liability to /in deferred
tax - BUT in SCI you do add deferred tax to the INCOME TAX EXPENSE after
profit before tax, and deduct it to get profit after tax But this is just a theoretical
calc. , it is not real life. The real life is that sars liability account will have a
DIFFERENT ENTRY + AMOUNT to SCI tax expense amount , they are 2
completely different things, because of the deferred tax PROVISION that is
made.( it is a PROVISION LIABILITY, not a TRUE LIABILITY) 6. What is
recoupment ? /sect 12c of act/ how does recoupment allowance? work. 7. What is
scrapping allowance? Tax act etc ?? 8. ASK LECTURER: a. Legal costs for debt
collection is NOT DEDUCTABLE quest 1 handout why b. Ques 1 handount why is
new machine tax only 20 % not 40 % per notes sec12c thing 9. Note: deferred tax
will always balance itself out in the recon of tax rates- till it seems like it is not
there. So thats why you do not put it in this recon of tax rates. You see this SCI tax
total has the deferred tax taken out then added in again already, so it is invisible
there- it (deferred tax)is the same as if it never happened in the SCI total. You see
you take it out with temporary differences, calc the current tax payable to sars after
that, then add deferred back to this figure afterwards so the tax in sci is always
completely void of any deferred tax anyway- unless you made amistake and added
a permanent diff as a temp diff. Main questions from last year 1. Do you have to
split up deferred tax into the Non-Current Assets and Current Assets according to
whether it will be realised within the next 12 months or not.(say certain things can
only be realized in the next 12 mnths, never any other time) *ANS: IAS 12 says
somewhere it must all be in current assets/liabilities only ever.] 2. The tax base of a
liability is: see gray for question (lAS 12 (AC 102)08). The tax base of a liability is
its carrying amount, (for accounting purposes) less any amount that will be (read
could) deductible for tax purposes in respect of that liability in future periods.
(?so if carr amt- deduct fut per = tax base , THEN carr amt-tax base =ded fut per
AGAIN ??or what)In the case of revenue which is received in advance, (this is
treated more like an asset you see- same method in effect) the tax base of the
resulting liability is its carrying amount, less any amount of the revenue that will
not be taxable in future periods. 3. See page 165 : for land and admin.buildings
the big question is what does: Initial recognition of an asset which affects neither
accounting nor tax profit/loss mean ??? the admin building was recognized 4 years
ago and is used to generate future economic benefits? Does this mean that since
initial recognition SARS may not have allowed even R1 deduction at all , or this
rule does not apply? 3.1. What happens in this case where the same admin building
is only allowed say a 25000 once off deduction in its first and second year to
compensate for something or other? Then you get a sudden deferred tax of 150
000 from nowhere which you have to say is now part of your companies loss? So
now you could get a net loss that year from such a stupid thing, just because SARS
decided you can deduct only 50000 in the first year, or even worse say maybe 1000
in the first and second year because of maybe some licencing admin that has to take
place so they give you this as a deduction or another stupid reason! 4. See income
tax handout SLIDES page 8- for the income rec in advance exearcise:
4.1. Is it taxed by sars when received or when recognised 4.2. How do you do te
IFRS book column method for year 2? Where would you get the reversal ie: (6000)
from? Is it automaitic due to movement in P/L column or is it from a Temporary
difference - my calcs say the temp diff is 0 because Carrying amnt is 0 and tax base
is also 0 in year 2. 5. SEE THE GREY PART : IF DEFERRED TAX ASSET
from depreciation causes an INCOME and causes you to pay more tax :IF
THERE WILL BE NO PROFIT NEXT YEAR/S : You may not show any
Deferred Tax Asset as an asset because there will be no profit to claim it back
from , BUT you MUST still show the extra tax you must pay in SoCI on the
DEFERRED TAX ASSET - so the DEFERRED TAX ASSET may not appear in
the books as a debtor but you must still pay the tax on the TEMPORARY
DIFFERENCE which caused the DEFERRED TAX ASSET even if you made a
loss and the only profit you made comes from the DEFERRED TAX ASSET extra
tax payable on the deferred tax asset , you must still pay it and show it.! this
means just because you have a different depreciation rate than SARS, you can end
up paying 14000 rand tax on the DEFERRED TAX ASSET (you would be able to
subtract it from TAX next year) created by the difference even when you actually
make a loss one year , now you make a loss and even more of a loss by paying this
tax on an IDEA! thats what it means to use depreciation rates different to SARS
depreciation rates!!!! 5.1. See page 173/4 example 9,17 : why is the deferred tax
asset not recognized but you still have to pay tax on it , so in effect if you make a
loss you could still pay tax of 14000 on a deferred tax asset you probably will not
be able to use anyway- just you using a different deoreciation rate to SARS can
cost you 14000 in tax??? 5.1.1. Why in notes to FinStats- in the recon of tax- they
say the 14500 comes from currect tax expense dosnt it come from defrerred tax
expense???printing error year 1? Also year 2 is part deferred part current- what is
the reason they only show current as the reason?? What is the difference? 5.1.2.
Next: SEE yellow only :Circular 1/2006 Special DISCLOSURES IN RELATION
TO DEFERRED TAX: 1. It says entities need to consider whether the carrying
amount is recovered through use , sale, or liabilities settled, because each cound
cause different material differences in the deferred tax balance. 2. Circular 1/2006
requires additional disclosures only: a. If the manner of recovery of a component of
deferred tax can CHANGE (eg from sale to use etc) b. If expected recovery manner
changes, in which event will the deferred tax for that component be materially
different AND c. when the user of the fin stats is not capable of determining the
rate at which deferred tax has been raised on that component from the info provided
in the fin stats 3. THE FOLLOWING EXACT DISCLOSURES SHOULD BE
PROVIDED OR BE CAPABLE where If expected recovery manner changes the
deferred tax for that component could become be materially different: a. The
expected manner of recovery and the tax rate used to calc. the deferred tax balance(
the one you went and used so far) b. Where more than 1 tax rate is used for each
category of temp diff(if more than 1 tax rate in 1 categ. Or if each categ has a
different tax rate?), the components of the deferred tax at the various rates incl.
those components on which no tax is expected to be paid.(is a component a
category or what? And what does no tax expected to be paid mean?- all exempt
things to to be listed or what?) 7- SA only : AC501.22 : ABOUT STC in the
NOTES: c. The amount provided for STC d. An explanation that assists in
understanding the factors affecting the STC charge(what can be the factors at all),
escpecially where STC is a significant component of the total tax charge , or the
effective STC rate varies substantially from the standard rate. ( you only get 1 stc
rate ie 10%, so what other rates are there?) e. The STC on dividends declared after
year end but brfore the fin stats were authorised for issue. f. The nature of potential
income tax consequences that would result from a dividend payout to
shareholders.where practicabley dtererminable the amounts should also be
disclosed- where not
practicably determinable an explanation is required. (also see IAS 12.82a)??what
doe sthis mean? The exact same as pont b above orwhat??) g. The amount of
deferred STC credits that arise to the extent that it is not raised as a deferred tax
asset. ( does this means ANY STC credits at all because STC is never allowed to be
a deferred tax asset) Start of TAX questions from this year (dipac) 1. What kind of
a liability is interest on a loan, what will be its tax base? Was it already deducted
from sales when booked, or it there is a liability for interest from before the last
sars return was done, and you deducted it from income in that sars return already,
what do you do with it. Or if it was booked this year but you have not used it in a
SARS return yet, then is it 100% deductable from carrying amount af liability?????
2. If you are doing the fin stats for the year, and the final tax return has not yet been
handed in , but it is after reporting date, or say midnight. Is Interest or water &
lights , which is a you owe liability, which you have incurred this year, without
paying tax on it yet, regarded as deductable in future periods or not see
descriptive pg 162 1) Provision for Depreciation Liability : if SARS allows 3000
that year, and you do your own depr. Of 12000, then WHAT WILL be left that can
be deducted in the future is ie future deductions possible from carrying amount
is only 9000 (say there are bad debts or something. ) THAT is the logic behind
depreciation, so do it that way, if you tryu figure it out your own way you will
make an error. a) To do the depreciation & debtors together : study example below
from descriptive book , and ask lecturer to explain when you visit him. What is
Income & expenses for tax base : liability or asset? Like : depreciation for deferred
tax quick calc., or income from dividends, etc. on page 39 tut 1, see c4 calc, if
deferred tax had been calculated on the building , would you still put depreciation
in this calc. again? And if an asset is not recognsed on initial recognition because
eit does not affect acc or tax profit , next year for depreciation on that asset , how
do you d the Temp.Diff and tax base for it?? Where does that depreciation go fpr
tax? What about trade receivables prvisin for bad debts?
1. GOODWILL : Per IAS 12.15 goodwill may not berecognised for temp.diff or
deferred tax . in SA goodwill may not be claimed as a deducton for tax purposes
either . Thus : for goodwill the tax base will be 0 (no deductions allowable in SA)
and TempDiff=full goodwill as a deferred tax liability(carrying -0=full
carrying). But IAS 12.15 disallows the recognition of goodwill and also of any
future impairment of this goodwill, as it would reduce the net asset value (through
the deferred tax liability) of the entity- leading to a circle of this increasing the
carrying amount of goodwill (to balance), round & round etc etc So you just
ignore it completely when calc. deferred tax. 1.1. Any future impairment of this
goodwill is also not allowed to be recognized for deferred tax at all -
1.1.1. REVALUATIONS : because it no longer relates to a initial recognition :
any Temp.diff of revaluations must have deferred tax taken into account. (see PPE
chapter for how?? Not sure what the tax base is here! What is the tax base here?)
(EXCEPT for goodwill (I think) impairments can not , but can revaluations of
goodwill create a tempo. Diff? when EVER is goodwill allowed to get a
temp.diff????) what if you buy goodwill from someone(a brand) ??is it never
allowed to be recognized. 1.2. I think there is an error in gaap handbook, pg129-
example3.2see ias12.66 or ias12.15 : you may NOT recognize goodwill in a
business combination!!! The textbook says you must!!!
REVENUE-IAS 18 ) There is a MATCHING PRINCIPLE that is applied to
revenue and expenses assosiated with that revenue. The IAS 18 says where the
assosiated costs cannot be determined yet, no revnue should be recognised - it
should be instead treated as a liability until the costs can be deternined. How does
one journalise such a transaction From unisa email: lecturer see unisa folder in
gmail 2. DR Bank/Debtors (SFP) Cr Deferred revenue (SFP) In the following year
once the costs are known: Dr Deferred Revenue (SFP) Cr Revenue (P/L) 2) (a) is
the PROFIT BEFORE TAX note a relacement for the REVENUE note from IAS
18 where the different components of revenue are displayed- ie sale of goods /
services / interest /royalties / dividends etc. ? Query 2 Profit before tax is not a
replacement for the revenue note! In this question, one would have disclosed the
revenue of 2 311 200 in the revenue note if more information was available. 2) (b)
why was "sale of goods" and "royalties" (for 500 paid for use of their trademark)
not disclosed in this REVENUE note in any of the 2 answers as is required by
IAS18 .35b ? Remember that IAS18.35b required disclosure of significant
categories of revenue in a note. The question is then: is the 500 x6 material
enough to be considered material? 1.1. For interest that goes to revenue : see scan
below so ifit goes to finace costs, would that be finance costs at end of sci- so do
you offset costs you paid against costs you received for finance costs, or do you not
? I mean where is this finance costs heading- under other income or at end with
expenses in sci?
1.2. 1-see how do rebates on how do you recognise it if the rebate is later not
granted? Or what if yu make a mistake and he is never charged - must you keep a
separate record of debtors just fr this 1 thing? 1.3. Ask lecturer: there is no example
question to try including SETTLEMENT DISCOUNT or credit terms where you
actually work it out and do the general journals. Is .neither in the tutotial NOR in
IFRS applications ther is only 1 simple ! one and no journals . Is it included in
exams and in what year does it get done (it can VERY tricky) 1.4. Can lecturer get
answers for IFRS application for question where no answer is given there is 1
question for revenue here with some numbers/figures but it has no answers./ try
UNILIM. 1.5. Swapping similar goods eg milk for milk or oil for oil to facilitate
delivery : it is NOT recorded as Revenue, so :.(how will you record this is in your
books?- Sale invoice = sold = 1 truck of milk , price charged =1 truck of milk. , or
do you issue no invoice- what will your General Journal entry be?)- none, you do
npot make a sale, you record this elsewhere in maybe a book specially made for
swapping records. Maintenance Plan included in Price of a Car : the single
transaction must be split into 2 separate transactions. Then the maintenance part
goes to an Accrued Maintenance Plan Income account and each year the
maintenance value done that year is transferred to Maintenance Income from the
accrued account and only then gets recognized as income/revenue for the year.
Before that it is still unearned ! (Is the unearned part left in the account a liability or
what under what heading does it go in the Fin Stats? is it owed to buyer of car
so a long term liability with a short term portion (the next 12 months portion
coming) or how exactly does it get treated?) (a) SUBSTANCE OVER FORM For
example, an entity may sell goods and,at the same time, enter into a separate
agreement to repurchase the goods at a later date, thus negating the substantive
effect of the transaction; in such a case, the two transactions are dealt with together
WHERE can this happen so there is NO revenue recorded- (ans: sale & leaseback)
HOW DO YOU JOURNALISE THIS SORT OF TRANSACTION? 1.6.
SETTLEMENT DISCOUNT GIVEN : 1.6.1. For method 1 & 2 separately , how
does it work with 5% for 30 days or 10 % for 10 days discount terms offered on
the sale depending when you pay , and writing back if they take the 30 days after
you made (prudence) provision for 10%. 1.6.2. BIG QUESTION : pg 336& 337
descr. Acc book : For method 1 & 2 separately, how does VAT get accounted for
together with the other entries, esp. for the write back of both if the discount is not
taken? REM you charge 100% VAT (without deducting the discount)on INVOICE
and must pay sars this BEFORE the customer even decides whether is is going to
take the discount or not ---??? 1.6.3. See circled point in blue pen pg 337 descr.
Acc book, how are sales shown at the net amount? ONLY
in fin stats by just subtracting settlement disc. Granted, or is settlement disc granted
a separate item in SCI (UNDER WHAT HEADING IN SCI DOES IT GO?) OR
IS sales reduced in the general ledger by a journal entry to follow the IAS 18
revenue rule?how can it be left at pre- discount level for this rule? How does pastel
accounting deal with this auto or manual how does one do manual for 100000
transactions?what about other accounting packages?
1.6.4. 2 METHODS OF JOURNALISING : 1.6.4.1. NET METHOD : The
allowance account for settlement discount method .(Preferred by UNI SA).
1.6.4.1.1.See example below. For method 1.6.4.1.2.VAT: how does this get done
here and write back ? REM 100% Vat charged on invoice.! 1.6.5. Allowance
Account for Discount : this is a (SFP) liability account, goes with Current/Long
term liabilites(true or not?) or is it a debtor contra account for the SFP fin stats- just
to be written off directly against debtors and only debtors nothing else at all (no end
of year adjustments etc) when transferring from Trial Balance to SFP at year end.?
And why is allowance acc on ph 336 descriptive acc also (SFP)??
1.6.5.1.1.WRITEING BACK : If Discount is Not taken: simple :you write
allowance account back into salesONLY. No VAT adj. because Vat is
Originally accounted at full 100% per SARS rules - and even paid already
probably. 1.6.5.2.GROSS METHOD : 1.6.5.2.1. See Example below for method
1.6.5.2.2.VAT: how does this get done here and write back ? REM 100% Vat
charged on invoice.! 1.6.5.2.3.Allowance Account for Discount : this is a (SFP)
liability account, goes with Current/Long term liabilites(true or not?) or is it a
contra account that does not show separately in fin stats? 1.6.5.2.4.Settlement
Discount Granted Account : this is either 1- a revenue contra account like acc
depr is to assets and never shows in SCI , only in the books , or it is a 2 - account
that show in the SCI under admin expenses and 3- is it cleared each year end to
trading account to get profit so it is zero at begin new year (BUT what happens to
transactions where it has not been decided yet if customer takes discount or not at
year end?) 1.6.5.3.WRITEING BACK : If Discount is Not taken: simple :you write
Allowance for Settlement Discount account off against CONTRA Settlement
Discount Granted account ONLY. No VAT adj. because Vat is Originally
accounted at full 100% per SARS rules - and even paid already probably.
1.6.5.4.As per tutotial letter, this is another way of doing the gross method:(how
does this work exactly, which is the right one and what does one do here??) 1.6.6.
Matching Principle : The allowance is just written back against sales if the debtor
does not pay in timeso it could cause an increase in sales in a future year if the
period allowed extended into a future period. So if the write back to sales occours
in a future period this is half logical because you now earned interest of sorts in a
follow up period for the guy not paying in time so you cancelled his discount ,but
half not logical because this discount cancelled which is more similar to interest
now has to get written up into sales ???but it is not shown as interest but as sales
so the matching principle seems to go a bit wrong here????.
1. Note : in the Gross methods PG 336 FOR DISCOUNT ALLOWANCE
ACCOUNT at bottom, the settlement discount granted account is an income-
contra account, ie a contra account like accumulated depreciation. It does not go
into the SCI /SFP etc, it brings down the value of SALES/Revneue before sales
goes to the SCI is this true? And DOES IT GET WRTITTEN OUT TO
TRADING ACCOUNT, OR TO SALES OR WHAT? AT YEAR END
PROCEDURES???
TIME VALUE OF MONEY /CREDIT TERMS GRANTED /DEFERRED
PAYMENT: IAS 39.43 as well as Circular 09/06 confirm that the time value of
money must be taken into account when the fair value of money and an associated
debtor is measured. Circular 09/06 also specifically refers to interest free credit
terms eg 6 mnths interest free : here it refers us to : IAS 39(AC 133) Financial
Instruments: Recognition and Measurement : it applies to the receivable in such
circumstances, and the effect of the time value of money should be taken into
account in these instances as well .(if it is a low interest rate must you go and find
out what he current standard rate for those transactions is and use only the
difference as your financeing allowance/deduction in revenue?) 1.1.1.
JOURNALISATION method :The amount you work out as being the finance
charges per circular 09/06 must deducted from REVENUE/ SALES and be
separately transferred to an allowance account called Accrued Finance Income
UNTIL the debtor pays,and then transferred again to Finance Income(interest)
account after the debtor pays : The reason you use an allowance account is because
you are not sure if the debtor will pay earlier than his 6 months, because if he
DOES PAY EARLIER than the credit term granted ,then part must go back to
SALES and part to FINANCE (INTEREST) INCOME. 1.1.1.1.IF THE DEBTOR
PAYS EARLY :for the months he DID get credit, that % part of the allowance
account must go to interest income, and for the months he did not take credit
due to paying early, that part must go BACK to SALES/REVENUE?tru or not?.So
if he pays early then the amount you deducted from SALES to treat as an interest
charge in order to pretend it is interest to'satisfy circular09/06, would be wrong.
So you send the wrong part back to SALES .N ote: this does NEVER apply
where you actually charge a customer interest as part of his credit terms. That
would be treated as a normal loan and no accrued finance income would be
raised- this accrued finance income is only for no finance charges are actually
openly charged and you have to pretend that they are for the sake of circular
09/06 and IAS 18 1.1.1.2. see example below for JOURNALISATION. 1.1.2. NB :
EVERY END OF MONTH MUST ?? the months finance charges are transferred
from ACCRUED INTEREST INCOME to INTERESTS INCOME , not just
all at end of term or when debtor pays , or only at end of term/or payment
date??when/how? AND at end of Fin YEAR do you have to do any adjustments to
account for interest actually earned to date or not? if it is not done monthly but at
end of term? How does this work? 1.1.3. from Accrued Finance Income.( it is
just a temporary holding account)This only happens till end of term granted,
thereafter it would be a separate penalty interest that would be raised only
!(WHERE DOES any ACCRUED FINANCE INCOME LEFT AT FIN YEAR
END , ACTUALLY GO TO????- TRANSFERRED AS A adjustment to
FINANCE INCOME or to SALES through the General Journal or just added to
finance income WITHOUT JOURNALISING AN year end adjustment like some
other stuff is done.?) 1.1.4. GOODS RETURNS: if goods are returned for a credit
both revenue + interest + accrued interest must be written back! Tru or not? is
interest non-refundable? REBATES : There are many different kinds of intricate
rebates which companies may give. (like special arrangements) Generally ALL the
rebates need to be estimated at the time of sale and be shown as a reduction in
revenue. ( per circular reimbursments of selling expenses are not included in cost of
sales/inventory per circular 09/06.21 ?) so if you give a rebate like this to someone
not sure if you must deduct from revenue or not1.6.6.1.Why is the accrued
finance income account on page 334 called accrued , can you not call it
allowance? 2. Since you are supposed to charge interest by the day after a sale ,
and if you intent to give them 10 days to pay then write this up as an interest
income allowance, WHAT ABOUT WHERE THEY SAY it is assumed that all
terms periods start FROM END OF MONTH STATEMENT DAY SO YOU
COULD BE GIVING 25 DAYS INTEREST FREE IF HE BUYS AT
BEGINNING OF THE MONTH?? DO YOU HAVE TO MAKE AN
ALLOWANCE HERE FROM DATE OF SALE UP
TO DATE OF STATEMENT OR WHAT??? This is a terrific mix up on PASTEL
which computer systems can do this automaticly?
1. 1.1. Similarly, if a bank /money lender lends at interest rate BELOW market rate,
the market rate must be used to determine the separate credit component of the
transaction and the transaction must somehow be split up like for a sale with a
credit component to it? How would one do that? 1.2. If credit is given and incl. in
sales price :DISCOUNT RATE USED if terms are given is EITHER : 1.2.1. The
current interest rate applicable to similar circumstances with a similar risk OR
1.2.2. Or the interest rate implicit in the transaction , in other words , the rate that
discounts the transaction amount to the current cash price. (it seems if the implicit
interest rate is 0 or lower than ruling interest rate then use the ruling similar type
interest rate is this true?) 1.3. Also for if credit is given: if you grant customer 3
months, so split the sales price into interest + revenue, But customer pays early
after 1 month even though he DOES NOT get any early payment discount or
anything , just by himself then do you have tyo go back and adjust the interest
portion to be less and the revenue portion to be more is this to be done in test/ and
in practice? or just take it like you would be going to charge him the interest
anyway(non- negotiable) and its his own problem if he paid early type of idea?
1.4. Edgars for example : sells for both cash or 6 mnths interest free credit at the
same price. Here the implicit interest rate OR the ruling interest rate for similar
transactions must be used to determine the fair value of revenue&the debtor, taking
into account the time value of money.(WHAT DO THEY END UP USING-
IMPLICIT=0 or RULING = 29% etc) 1.5. See example 13.2 pg 333 why do they
deduct interest IF THE IMPLICIT RATE IS not 1% or 2% but 0%. Ie I make you a
better deal than the other guy, I give you 5% instead of 12 %. So jonny says he will
give you even better , 0%, so why do you recognize it as 12 % then???? 2. FOR
journalizing 1- finance charges and 2- settlement discounts: 2.1. FINANCE
CHARGES 2.2. For finance charges imagined out of a credit sale : WHERE DOES
the ACCRUED FINANCE INCOME suspense/holding account that has not been
allotted to revenue or to interest income LEFT AT FIN YEAR END ,
ACTUALLY GO TO in the Fin Stats.????- TRANSFERRED AS A adjustment to
FINANCE INCOME or to SALES or just added to finance income WITHOUT
JOURNALISING AN year end adjustment like some other stuff is done.?) 2.2.1.
For compounded YEARLY = if you are working in years as period there is no
problem , just use the method above , but if you are working in months : same as
above in (i) EXCEPT you must first work out your APR interest rate from your
EFF annual one they give you.(since it is compounded yearly then the yearly
quoted rate is a eff not a apr , but it would be seen as a apr if compounding was
mnthly ie: just visa versa.) So just enter 12(x,y) & 2ndFuncAPR. (I think, not sure!)
Then above method after. Then you can divide this apr by 12 to get the monthly
interest rate to use in (i) above method as usual from there on . 2.3. Why is
accrued fin inc. noted as (SFP) and fin inc. as (SCI) in the descriptive acc book
pg 334 top?
RECOGNITION REQUIREMENTS: 3. WHEN EXPENSES CANNOT BE
MEASURED RELIABLY :YOU ARE NOT ALLOWED TO RECOGNISE
INVENTORY : MATCHING CONCEPT :: Revenue and expenses that relate to
the same transaction or other event are recognised simultaneously; this process is
commonly referred to as the matching of revenues and expenses. Expenses,
including warranties and other costs to be incurred after the shipment of the goods
can normally be measured reliably when the other conditions for the recognition of
revenue have been satisfied. However, revenue cannot be recognised when the
expenses cannot be measured reliably; in such circumstances, any consideration
already
received for the sale of the goods is recognised as a liability ie: as Income
Received in Advance.????????what is this as an example- WHAT EXPENSES
DO THEY MEAN- EVEN LIKE RENT OR WHAT BUT ARE NOT SURE
YET???????? INTEREST / ROYALTIES & DIVIDENDS : 2- How does the
effective INTEREST Rate method in IAS 39 . 9 & AG5 -8. Work?????
CUSTOMER LOYALTY PROGRAMS (IFRIC 13)(see all the yellow below) 1.
How does one do the General Journals entry for BOTH transactions in exercise 3.1
of tut 102 Revenue for customer loyalty programs ? 1.1. AGENT:If you collect as
an agent anything that must be paid to 3rd party is NEVER recognized as
revenue, unless something can expire basicly causing you to get it. If you collect as
an agent, the amount collected is a liability/creditor until paid over to agent.You
never recognize it as revenue unless you collect it on your own behalf (and then
only once your obligations for the credits are completely fulfilled). Any
difference/commission is only recognized as revenue once customer claims his
points- This can all happen on date of intitial transaction if it is unavoidable then
already it seems not sure? See ifric 13.8a1, &2 2. MEASUREMENT :see yellow
2.1. The value of the credits can be measured in 2 ways : 2.1.1. Fair Value of the
Credits ( means the amount for which the award credits can be sold separately.) To
be calc. or estimated 2.1.2. Or On a Pro-Rata Basis : Based on the fair value of
the credits relative to the fair value of the goods and services (this is if the goods
are sold at a very cheap price compared to their normal price, then it is unfair to say
the award credits are worth a greater % of the sale than the % part they would be at
the normal price.) 2.2. A If customers can choose from a range of different awards,
the fair value of the award credits will reflect the fair values of the range of
available awards, weighted in proportion to the frequency with which each award is
expected to be selected. 2.3. An entity may estimate the fair value of award credits
by reference to the fair value of the awards for which they could be redeemed. The
fair value of these awards would be reduced to take into account: 2.3.1.1.The fair
value of awards that would be offered to customers who have not earned award
credits from an initial sale; and 2.3.1.2.The proportion of award credits that are not
expected to be redeemed by customers. 3. AGENTS :If a third party supplies the
awards, the entity shall assess whether it is collecting the consideration allocated to
the award credits on its own account (ie as the principal in the transaction) or on
behalf of the third party (ie as an agent for the third party). 3.1. If the entity is
collecting the consideration on behalf of the third party, it shall: 3.1.1. measure its
revenue as the net amount retained on its own account, ie the difference between
the ??consideration?? allocated to the award credits and the amount payable to the
third party for supplying the awards; 3.1.2. recognise this net amount as revenue
when the third party becomes obliged to supply the awards and entitled to receive
consideration for doing so. These events may occur as soon as the award credits are
granted. Alternatively, if the customer can choose to claim awards from either the
entity or a third party, these events may occur only when the customer chooses to
claim awards from the third party.??no idea how this works??? 3.1.3. If the entity is
collecting the consideration on its own account, it shall measure its revenue (not
costs?) as the gross consideration allocated to the award credits and recognise the
revenue (not costs?) when it fulfils its obligations in respect of the awards.
4. OTHER ESTIMATION TECHNIQUES : In some circumstances, other
estimation techniques may be available. For example, if a third party will supply
the awards and the entity pays the third party for each award credit it grants, it
could estimate the fair value of the award credits by reference to the amount it pays
the third party, adding a reasonable profit margin. Judgement is required to select
and apply the estimation technique that satisfies the requirements of paragraph 6 of
the consensus and is most appropriate in the circumstances. 5. HOW DOES THE
JOURNAL ENTRIES BELOWEXERCISE WORK- I MEAN AS PER IFRIC
13.9-WHERE IS A LIABILIY RECOGNISED HERE-I mean they recohnised too
much in year 1 , and year 2, so there is not enough left in the deferred account at
those dates, so somewhere aliability must be created? ALSO How would one
actually journalise a liability if you had to for some reason here , by the way?
1. 2. 3. 4. 5.
6.
7.
8.
SERVICE CONCESSION ARRANGEMENTS (IFRIC 12 AC445) (just yellow
below) This applies where a government(only) has given an operator the right to
charge for a service(eg a toll road) in return for maintaining & operating the
service. This Interpretation applies to public-to-private service concession
arrangements if: the grantor controls or regulates what services the operator must
provide with the infrastructure, to whom it must provide them, and at what price
and the grantor controlsthrough ownership, beneficial entitlement or otherwise
any significant residual interest in the infrastructure at the end of the term of the
arrangement. Infrastructure used in a public-to-private service concession
arrangement for its entire useful life (whole of life assets) is within the scope of this
Interpretation if the conditions in paragraph -2.1- above are met. Paragraphs AG1
AG8 provide guidance on determining whether, and to what extent, public-to-
private service concession arrangements are within the scope of this Interpretation.
This Interpretation applies to both: (a) infrastructure that the operator constructs or
acquires from a third party for the purpose of the service arrangement and (b)
existing infrastructure to which the grantor gives the operator access for the
purpose of the service arrangement. This Interpretation does not specify the
accounting for infrastructure that was held and recognised as property, plant and
equipment by the operator before entering the service arrangement. The
derecognition requirements of IFRSs (set out in IAS 16) apply to such
infrastructure. METHOD: 8.1. The operator may receive 1-financial (guarantee of
full payment or shortfall payment by Gov.) or 2- intangible asset (right to charge eg
toll fees) in return for his services. The fair value of these must be recognized as
revenue, as per IAS11 (construction) and IAS 18. Costs are also accounted for per
IAS18. 8.2. If there are more than 1 job done by operator eg construction &
operating, , consideration received or receivable shall be allocated by reference to
the relative fair values of the services delivered, 8.3. I think this means you must
value the asset at fair value by using formula in mngmnt acc. For calc. value of an
investment ie: per returns expected to come in over no. of years formula
EXCHANGE TRANSACTIONS /BARTER
9. FOR EXCHANGE TRANSACTIONS INVOLVING similar goods, eg milk for
milk or different colur cars, then how do you put this in the actual accounts? In
inventory and in creditors account? To take out blue cars and put in a green one
from another dealer??? 10. SEE page 349 bottom. In 2nd last paragrapg entry,
where does the extra 10 000 for revenue for tin ltd come from. ERROR in book?
6th line from bottom. 11. For interest charges if an entity must pay back 400 in 5
years + 100 extra as finance charge : do you calculate the interest you charge every
month( for month end ledger closing off /trial balance procedures) or every year
only- I mean must it ne journalized each month or only yearly?. -DISCLOSURES
IAS18. 35 An entity shall disclose: (a) the accounting policies adopted for the
recognition of revenue, including the methods adopted to determine the stage of
completion of transactions
involving the rendering of services; (b) the amount of each significant category of
revenue recognised during the period, including revenue arising from: (i) the sale of
goods; (ii) the rendering of services; 1. (iii) interest; ( only if it is an investment
company , otherwise it forms part of finance costs per book ??not other
income??? See OLD IFRS7.IG13) DO YOU OFFSET FINANCE COSTS YOU
PAY AGAINST THOSE YOU RECEIVE IN HERE.? IN THE FINANCE COSTS
HEADING IN SCI.see scan from textbook below. 1.1. WHAT DOES IFRS 7 . IG
13 mean? See page 353 last word on page. ie: the IG 13 part what is that????
And if interest income is finance costs then how can income be a cost??? CHECK
OTHER BOOKS ON APPLICATION GUIDANCE- IG7 IS NOT IN IFRS 7 AT
ALL , NOR LAST YEARS ONE! 1.2. SEE SCAN FROM TEXTBOOK BELOW.
For this question: read comment note at bottom.
THE FRAMEWORK OF ACCOUNTING. 1. WHAT IS THE FOLLOWING-
WHEN ONE measures assets/liabilities at historical cost or present value or net
realizable value etc : 1.1.1.1.HISTORICAL COST: assets: at amount paid/value
exchanged for it / AND LIABILITIES :ARE SUPPOSEDLY Valued at the amount
of proceeds received in exchange for the obligation<<<<< (????? Ie and NOT at
amount of obligation paid in exchange for PROCEEDS , which is what you are
valuing. .What kind of funny definition to be taken literally is that, What about if
you overpaid & owe this now, or if fair value is 100 and you paid 10, how can you
value your R100 liability at R10 now in your books? Very weird!??) or in some
circumastances eg income taxes at amounts of cash /cash equivalents expected to
be paid to satisfy the liability in the normal course of business. 2. Is there is only 1
underlying assumption of Fin Stats or are there 2 or 1 or 8 as in ias1 presentation,
the 8 General Features of a finn stats- ie is Accrual Basis a underlying
assumption or not?) in framework there is only 1 2.1. GOING CONCERN
BASIS: Intentions + Need : Definition : It is assumed that the entity has neither the
Intention nor the Need to liquidate or curtail its operations materially. Should this
assumption not be valid then values should be recorded at their liquidation values
and provision made for liquidation costs. 2.2. ACCRUAL BASIS: Definition :
Transactions are recorded when they occour, not only when cash actually changes
hands., in the fin stats. of the accounting Period to which they apply. 3. What is the
maintenance of capital concept? :
3.1.1. Namely the physical concept method: how does it work? Say you can make
400 pens this year, but last year could make only 200 how does this show in SCI
and SFP etc where does this Pysical Concept actually work in the b ooks?IN
PARTICULAR PARA 4.63 OF FRAMEWORK - WHICH REALLY EXPALINS
THE DIFFERENCE.3.2. SEE QUESTION 2.1 OF TUTORIAL LETTER 1- VERY
UNFAIR MARKS GIVEN SUITANSWER , BUT PRESCRIBED IN TUT 102
THAT ANSWERS SHOULD 1ST GIVE DEFINITIONS, 2ND SHOW HOW
QUESTION FITS INTO DEFINITION, 3RD EXPIAIN POINT BY POINT WHY
DEFINITION ( ASSET + RECOGNITION + MEASUREMENT CRITERIA
DEFINTION -ALOTOFDEFINITIONS TO TAKE A LOT OF TIME !!! ---FITS
THE QUESTION OF NOT + FINAL CONCLUSION. NOW WHAT DO WE DO-
WHICH METHOD? THIS IS VERY UNFAIR OR UNPROFESSIONAL. 3.2.1.
ZERO info is given per point in the definition- just an overall yes or no and maybe
here and there some reference PRESENTATION OF FIN STATS 1) normally, a
complete set of notes here would also include a breakdown of the 3 classes of
salaries/wages paid to employees in the Expenses section of Profit before tax
note.In the model answer in this tut letter it was not done just a total figure was
given - can we safely just give a total instead of figures for each category of salary
in our answers for the Employees Remuneration "Notes "?1. email from unisa: Yes
a total figure is accepted.
2) In the answer to q 4.1 in tut 102, the P&L &OCI statement (a) Why in the notes,
in the PROFIT BEFORE TAX note, where Income and Expenses is listed
separately for the answer of Income Statement done BY FUNCTION , ....
DONATIONS is shown separately , but the answer done by "NATURE" below it
only includes DIVIDENDS RECEIVED, DONATIONS is not shown NEITHER
on the face of that Income Statement by NATURE , NOR in the Notes? (b) which
EXPENSES are actually supposed to be shown in the Notes - I mean which one
MUST appear either on the face of P&L statement or in the NOTES - is it ONLY :
1) DONATIONS 2)STAFF COSTS 3)DEPRECIATION or are there others as well
in general .Where does it state the different categories that must appear - in which
IAS or IFRS? I mean there must be 1000's of types of expenses out there. Answer:
from unisa in gmail archive Query 1 (a&b) If an entity chooses to disclose
expenses by nature, then additional disclosure in the profit before tax note will be
based on materiality of expenses and judgement on the part of the entity. If
however, an entity discloses expenses by function, then the following additional
disclosure will be required as a minimum in the Profit before tax note: 1. 2. 3.
Depreciation Amortisation Employee benefit expenses
Other additional disclosure like Dividends and Donations are not required (unless
an entity deems these to be material). Please also refer to the notes on pg 31 and 32
of TUT 102.
2. On pg 14 of tut 1 , if they say income tax (assume corrct) , then why is the
answer different n the next page pg 43? 3. For the S.C.I.(income stat.) : Remember
the other comprehensive income is always disclosed with tax already taken out of it
ie net of tax. So whether tax expense includes the tax of other comprehensive
income or not, I do not know? Ask . (or is the tax for other comprehensive income
not disclosed maybe only in the notes? if tax expense does include it -it would
be a bit wrong so profit before other comprehensive income would have a problem
with the matching principle??? m) 2) STATEMENT OF COMPREHENSIVE
INCOME for The YEAR ended 28 Feb 2007 (over a specific period) NOTES R
REVENUE COMPLEX IAS 18 Cost of Sales :Rem: for WIP work in progress
accounting type, REM to (xxxxxx) 1- Depreciation on FACTORY PLANT (not
buildings or delivery vehicles) is included in cost of sales, leave out of anywhere
else in the SCI , not in admin expenses with all the other depreciation costs like
cars etc!!! 2-Salaries of Factory Workers is Included here (not admin staff , or
marketing staff). eg not in administration expenses with other salaries! Does this
happen in NON- WIP type account as well.-no matter what type of entity, you
always do this or not?? For both of these? Next : IAS 1.104 says certain things get
incl. in this note for function method , but not for nature method . See ias
1!!!!!?? Can you add them in the nature not withu tloosing marks, or NOT??? Ie :
staff costs &depreciation?
SoCL :INCOME STATEMENT:
i) In unisa 201q book pg 41 : (1) In INCOME e=why put Profit on financial
instruments (: if you have put listed and unlisted investments again a bit later
anyway why put it twice? (2) Why put {fair value adjustment financial asset at
fair value through profit or loss.} there as well, see just above (1) stuff on pg 41
unisa now you have 3 places for financial instruments. (3) what is meaning of:
yellow-fair value adjustment financial asset at fair value through profit or loss. (4)
NOTES TO INCOME statement; which type of directors remuneration notes do we
do- the one in unisa or IFRS book????? Both are different??? (5) How do you
amortise share issue expenses over a number of years? How do you show it as an
asset?Is it N-C or current?how do you write this asset off against share premium
acc.? (6) How do you divide up in the notes- any change in the market value of 1-
non-current - available for sale financial assets (ie shares !! from Non-current
assets) and 2-current financial assets shares where the market value went up or
down. Also where does it go in the income statement? (7) Also for the 2nd
bottom section of income statement what is available for sale financial asssets?
Is it only non-current shares as per balance sheet or is it also current shares : ie ie
financial assets like those for speculation/trading (8) In the note: unisa book pg 41-
why does it say; in notes to income stat: for : Income from financial assets- 1- listed
investments:financial asset at fair value through profit & loss 2- unlisted investment
s: available for sale financial assets.? See yellow this doe s not make sense- either
of these yellow could be listed or unlisted any of the 2. So what is the sense in
this??quite some confusion!!! n) STATEMENT OF CHANGES IN EQUITY:
i) For changes in accounting policy- do you do a new line for each change.?or all in
one line only.Must it be on first line of the statement or on any line? Must one do a
restate balances line below it or not? ii) You seem to have to do a Revaluation
Reserve column in statement of change in equities, for any asset revaluations
done. (Must you or is it optional?) o) BALANCE SHEET p) Does share premium
get added to share capital or to other components of equity? in the balance
sheet? q) IN NOTES TO BALANCE SHEET: Current Financial Assets 1.Financial
Asset at Fair Value through Profit & Loss UNLISTED INVESTMENTS LISTED
INVESTMENTS 10000 Ordinary Shares in BCD(ltd) at R2 (cost 20000) 40000
(you seem to only put name . for listed companies , not unlisted as done in UNISA
manual pg 67?) i) Do you put the cost value per share next to number of shares ,
[eg 200 of R0.50 each (cost 100) 4000 ]and the market value as the main value?as
in example above ? then also cost in brackets as well? Why this confusion in
unisa acn 201q pg 75 why not actual for R20 each (cost 100) ii) Where does share
premium go in the balance sheet? this year just own line for share permiunm iii)
Where does share premium go in the notes? iv) Intellectual property & investment
property- do you do separate breakdowns or all in 1 v) Dividends payable- to own
line or to trage & other payables? fakiri says own line for this year vi) At what
price are shares shown in : subsidiary 2- balance sheet -3-listed / unlisted: and what
do you write for 474 ordinary shares of R100 (cost 2937) 27890 : so what is the
R100 at cost less/incl. share premium or at market value , and what is the 2397
incl or excl share premium?? vii) FOR CURRENT LOANS TO SUBSIDIARIES,
do you put it as other financial assets or as subsidiary loans or as what in the
current section r) GOING CONCERN : for 12 mnths from fin. Stat. date : or i) IF
There Is Just Of Material Uncertainties That May Cast Significant Doubt 1-disclose
this in notes ii) IF IT IS Really NOT A Going Concern : Disclose That It Is Not
Prepared On A Going Concern Basis, And Then On What Basis It Is
Prepared.(what other types of basiss do you get?)+2-provision for liquidation
costs+possible LIQUIDATION VALUATION METHOD 1.1. 1-Nameof Entity 2-
if any change in Name of Entity from last reporting date then disclose that(??on
every page in heading , or hidden in notes?). 2. There are 2 Methods of Presenting
Current & Non- Current ( see framework chapter before for details of rules for
methods below) 2.1. Method 1 : using Current Assets/Liabilities And Non-Current
Assets/Liabilities as headings. Method 2: Liquidity Approach : Assets&liabilities
are presented broadly in order of liquidity on face of SFP instead of current&non-
current headings.(??example??) Distribution Expenses. Discount Allowed (where
here or in another heading below ie Admin or Other Expenses)
Depreciation(where here or in another heading below ie Admin or Other
Expenses) Carriage on "Sales" (not purchases ! ) (where here or in another
heading below ie Admin or Other Packaging (also not in purchases ! ) (where
here or in another heading below ie Admin or Other Advertisements(where
here or in another heading below ie Admin or Other Expenses)
Wages and salaries(where here or in another heading below ie Admin or Other
Expenses) Water and lights(where here or in another heading below ie Admin
or Other Expenses) Administrative Expenses what goes in here? ANSWER
FROM UNISA TO ENTER IN HERE STILL WITH OTHER ANSWERS FROM
JUNE VISIT: Hi I would like to ask- for the cost of sales calculation in the SCI,
one must deduct normal cost of products made themselves , plus some other special
costs : eg depreciation on machines used to produce materials, wages of production
staff. What other costs must also be deducted here: eg: 1. 2. 3. 4. normal water and
electricity costs of production rent portion of manufacturing building , not admin
building telephone costs for production purposes maintnance costs of the
production facility eg painting the building, fixing machines that broke, normal
servicing of machines 5. basicly, if one were using a "standard costing " or ABC
costing method- from management accounting , any costs which could possibly be
apportioned to the production process , like the ones above which are normally
apportioned in this way in ABC costing systems etc, must they ALL also be
deducted in the cost of sales calculation or not? 6. any other special costs to be
deducted here? 7. Where does one draw the ine here? Thanks Regards Gavin Dear
Gavin I believe you have a good idea what cost to include. It must be cost incurred
in bringing the inventory to its present location and condition. Cost directly related
to the units of production. Please refer to IAS 2 Par 11-18 Regards Hennie Meyer
CHANGES IN ACCOUNTING ESTIMATES AND POLICIES AND ERRORS 1.
REVALUATION : the initial application of a newpolicy to Revalue qualifies as a
change in Acc policy, but it should be accounted for a a normal revaluation, and
NOT a change in acc policy.( is it a change in estimate?) 2. Future periods (If
practicable ) ( text book just said : this change will result in a decrease of
depreciation in future periods of 214000 where 214000 was the amount of extra
depreciation that was caused by the new method for current year. They did not
work out next years figures or anything like that, but one could do so a bit if you
wanted to.??? How much detail could there be/ must there be for exams? )
1. 2012 : See ias8. 53- correcting estimate of sick leave for emplyee benefits
Must they go back and correct it AND stillignore info about following period flu
outbreak? But howto correct and ignore at the same time-what do tyhey mean by
ignore??
1. 2012 :? PRIOR PERIOD ERROR EXCLUDED FROM PROFIT & LOSS : a
prior period error is excluded from P&L in the prior year it occoured in .(not
current year- the prior years) Prior years SCI is basicly NOT restated- so any prior
year comparative figures shown in the SCI are NOT restated, only SFP and other
Fin stats. IS THIS TRUESO YOU NEVER RESTATE THE sci FOR ERRORS?
WHAT ABOUT CASH FLOW STATEMENT,or ST OF CH in EQ do they get
restated? 3. INTANGIBLE ASSEST: IAS38 1) (so what is goodwill then if it is
NOT an intangible asset , and under what ias does it fall for a non-business
combination. .AND could it maybe be an intabngibe asset if some kind of goodwill
could be sold separately,or if it comes from a legal right somehow?-or NOT?) a)
PREPAYMENTS : they are an asset until you obtain the right to access the related
goods or receive the service.( are they Intangibke assets per definition? Do tyhey
fall undere ias38 and in intangibele items line item in the SFP? Why do they have
thois here??? 2) How do you do the following disclosures (orange highlighter in
book tip at inside edge of page) : in green IFRS book, pg A962-5 ,118e(i)+(ii) (in
PPE table in 3 line items for additions?) ,122 abcde writing under ppe table? , 124b
See yellow : EXCLUSIONS 1) Intangible Assets that are covered by another
GAAP statement: a) Inventory : i) Intangible assets held as stock to sell , as
inventory , in ordinary course of business covered by IAS2 inventory ( not capital)
ii) Construction work : iii) Research & development costs on behalf of others
ARE an intangible asset, but since it is inventory, (sale to others) it is covered by
IAS2 inventory and NOT by IAS 38.(????so in IAS 2 how do you treat it- ignore
all IAS 38 rules then how do you measure it, amortise it, rules for
amortization(straight line etc), recognize it ( research or development costs)- cause
these things are not in IAS 2 so what do they want you to do here? Just mix the 2
up unofficially use both IAS s or what Treat it as a service performed NOT as
intangible asset at all- it seem this is the answer!!!? Or what?) ???? b) Deferred tax
assets : by IAS 12 See yellow: STANDARD COMMON EXAMPLES TO KNOW:
1) 2) 3) 4) Patents/Licences. Marketing rights Software: is an intangible asset, even
though it may be stored on a disk eg Pastel. Windows operating system : or other
operating system without which a computer cannot function, is an exception and is
NOT seen as a separate intangible asset (software), it should form part of the
computer hardware ANDIS TREATED as PART OF PPE -vertabim - because
they cannot operate separately, but should be depreciated as a separate component
of the hardware PPE- because it has a different useful life to computer.BUT pastel
accounting IS seen as a separate intangible asset.( ???so windows is NEVER
treated as IAS38 intangible asset AT ALL it is always just a component like a
helicopter engine in a helicopter?I mean it never goes in Intang assets table in the
notes , but in PPE table, and do any one of the IAS rules ever apply here eg
amortization rules etc? or NOT AT ALL?-seems to be not at all is the answer.) 5)
Revaluation Surplus treatment : : these assets get treated exactly the same as PPE
rules , incl. net & gross method etc. , and transferring Reval .Reserve to retained
earnings etc., and also Transfer to P&L and to OCI,and subsequent first reverse that
transfer before continuing in other one.- for a plus or minus revaluation occourance.
( Q: what is the logic behind : ph 621- if reval res. is realized as the asset is used,
then an amount equal to the amortization
increase is transferred to retained earnings from reval. Reserve each year.
amoristion goes in accumulated amortization CONTRA amortization account- so
what is the double entry for this transfer to Ret. Earn. ?is it only the pro rata portion
of reval reserve : asset original cost value transferred, or is it the full amortization
amount each year? What is the logic of a full amount transfer?) USEFUL LIFE 1)
Either period deemed available for use, or no. of production units . 2) If legal right
s may be renewed, it is only part of useful life if costs insignificant compared to
future economic benefits of asset to renew( if costs to renew are not insignificant
compared to future benefits, then they will be a NEW INTAGIBLE ASSET per
book- or maybe added to old intangible asset, depending I think)(does old one fall
away then maybe if in one case old costs are what it takes to be able to renew so
it should be added to old costs instead?).
RESIDUAL VALUE 1) (see definition) is the estimated amount entity would
CURRENTLY obtain from disposal after deducting disposal costs, if asset were
already at the age and condition expected at end of useful life. 2) IT IS ASSUMED
TO BE zero for intangible sssets, UNLESS exceptionally : a) Commitment by 3rd
party to purchase it exists (then you should also discount the amount they are going
to pay for it to PV for current Residual Value per textbook if discounting is
material) (end each yr when new PV is calc, do you record it each time as a change
in accounting estimate?since if value changes it must be ch. in acc. estimate?-
inflation or bank interest rate?) OR from tut letter, example 2 pg 51: 1. For assetC
is it a loss on derecognition or a loss on impairment. Why must it be derecognized-
it can still be held at 0 value until maybe sometime in the future another use is
found for it and it can be sold to another bidder, or if the laws change etc? So
shouldnt it be loss on impairment ONLY. ? DISCLOSURE 1. WHERE DOES
IMPAIRMENT REVERSED IN SCI GO : IN intangible assets table as a separate
line item ,in the notes , or under it, or in the separate impairment note : IAS
38.118.(e).(iii)? 1. ALSO , WHERE DOES IAS 38. 118 [e] (iii - v) go as required
by IAS 38.120 ?? what do they mean - do you show it twice or only once, and does
each one go as separate line item in the Intangible Assets Table or where?WHERE
DOES IAS 38.124 [ b ] GO ? in the statement of changes in equity , or do you have
to show it in the list of revalued carrying amounts and "at cost" values of all
revalued assets from the [a] that comes before [b]? AAAA
GOV GRANTS: 1. The text book GAAp doe sa massive cchange in acc.estimate
thing for 1 of the 4 types of repayments of gov grant in pg 328 see sentence just
efore example 13.5 in ex.3.5 do we have to do it this way or is it optiona;l and
same treatment is not done to income grants because of income/expenses
problem, so it is not consistent either? 2. How does pg 33o gaap , 3rd journal entry
finance costs work? Not sure why bank is a cr for 100000, of 5%,
and why half goes to finance costs, and half to loan ? cannot understand any 1 of
the entries.then fpor asset s method below that , they do exactly the same thing, so
there is no defreed income there, now how can it be the same entry???? 3. See
Tut 103 : pg 98 , top, current tax & deferred tax entry. , as well as deferred tax calc.
on next page. a. They do current tax & deferred tax in different journal entries. But
in text book & IAS they say all deferred tax is included in the INCOME TAX
FOR PERIOD item in the SCI. and they normally debit deferred tax CONTRA
income tax expense account , instead of CONTRA deferred tax SCI account. ,
like it was dione in this exercise(maybe to show). In exam , can we do a jounal like
that ie ; first Dr deferred tax SFP Cr Curent tax P&L , then Dr current tax SCI , Cr :
SARS b. In the C1 calc. on same page 98 , the depreciation & Section 13 sex
deduction : CAN ONE NOT DO THAT IN DEFERRED TAX, AND THEN
TRANSFER THE DEFERRED TAX DR OR CR TO CURRENT TAX ? the text
book seems to indicate that all accounting entries for tax , are ONLY corrected by
the deferred tax entry/calc. ? can one not do it that way c. They seem to have done
the deferred tax for depreciation TWICE I get a different answer every time here.
They first accounted for the SARS tax base difference in calculation so C1
THEN they did it AGAIN in the deferred tax calc. So you it was done twice. If you
add the 2 up like it seems to indicate you do(the 2 journal entries) you get a wrong
answer??? i. If you leave out the deprec. thing in the C1 calc, you get exactly
141000, and if you incl the deferred tasx on deprec. = (1400 ) you get exactly
140000- like the journal entry says then its just the other deferred tax asset to
ADD ie 25200for deferred income-see C2 calc.) I am sure they double included it
he by accident, to show an accounting principle, but forgot to add the deferred
income part in the thing in C1.! 4. Tut 102, pg 102, note 3 profit before tax they
forgot the Gov.grant income entry in textbook pg 334 they do a grant income
entry. Here. 1)INVENTORIES: 1.1.1. (See yellow below in 1.1.1.3 thats all for
this section)DEFERRED SETTLEMENT TERMS : 1.1.1.1.This is where the seller
offers the buyer that he only pays in eg 12 months time, but the interest he must
pay on the credit is already included in the price that the seller quotes to him in this
way. What does buyer do?- write off interest included in the price as a period cost
or include it in inventories cost? 1.1.1.2. ISA 2.18 read with circular 9/2006 par 30
: The purchaser should recognize the inventory at the present value of the amount
payable at the end of the settlement term , assuming the time value of money is
material. The interest percentage to be used is calculated as per the effective
interest method (IAS 39) Circular 9/2006 requires that the normal credit term
should be included in period over which the amount is discounted- as it forms part
of the financing provided to the buyer. 1.1.1.3.Be careful if it says the buyer
normally extends 30 days free credit. You just ignore this and use the whole period
if the question says an interest rate of 10% is similar tpo the market rate on similar
credit arrangements.(how does this work? See the example on page 58 of textbook
IFRS (301) example 4.3) 1. By products :How does pg 68 work where by
products (top page ) are subtracted from cost of inventories of othwer products
being made with them. They are valued at NRV, but what do you do at year end
with leftover stock of by-products: subtract it from the other products cost or make
it part of inventories at NRV until it is sold- then only take the selling price off the
cost of other products sold(what if none of the other products are left in the year it
is finally sold????) 2. Write down to NRV and Reversal of write off : where does
each go in the SCI and SOF ie: under what headings in SCI and SOFP does each
go??????
3. How does the following scan work: 1- when do you use the normal banks rate of
interest and when do you use the suppliers rate of interest? 2- what about the 1
month free credit allowed by the supplier see below, they should use 11 month , not
12 months!
1. Note :When working out discount for paying in less than eg 30 days(settlement
discount) if the comoany has the intention of paying within 30 days then this is
taken off the cost price AND not recorded as OTHER Income in the SCI. ! note this
weird new type of thing!(how does this work , what is the IAS /IFRS number?) 2.
SEE QUESTION PAGE 37 OF lecturer notes handout on inventories , q1 why is
discount received not taken off sales revenue??? 3. As above q 4 pg39 why 1-
why is the inventory write down OF THE CLOSING INVENTORY added to the
cost of sales for the month , but that of the actual sales is not written down it is still
at the alod inventory price(35 were written down)?? Answer :?? Is it because the
cost of sales just got more because you had to write down the inventory sold in
retrospect so the opening inventory is basicly more expensive ! 2- is selling price
not written off as a period cost 2-ANSWER : it is valued at net realizable valuye so
selling costs must get deducted eg liquidation expense , advertising, commission
etc!!! 4. If you work out the weighted average for a periodic system , if the price
crops so you must use NRV then when do you malke this adjsuetment in your
calculations????? See eg question 7 pg 41 inventory(as above) but just say they had
to drop the price in the middle somewhere! 5. Losses must be recorded as an
expense, directly in the cost of sales figure, NOT separately like before but must
form part of the actual COST OF SALES ,BUT do NOT have to be disclosed
separately anywhere else???? Is this true. 6. 38 The amount of inventories
recognised as an expense during the period, which is often referred to as cost of
sales, consists of those costs previously included in the measurement of inventory
that has now been sold and unallocated production overheads and abnormal
amounts of production costs of inventories???is this ONLY standard costing
.over/under allocation of overheads The circumstances of the entity may also
warrant the inclusion of other amounts, such as distribution costs??when only for
NRV or also for normal inventory purposes so under which circumstances.. next:
question: Recent important changes (REDO THIS A BIT AFTER FINDING OUT)
Write downs to NRV & reversals of NRV and losses due to theft etc, any discount
granted and discount received must all be included in COST OF SALES from now
on.??? Is thi exactly true ie all discount received&granted incl. early payment
discount , like within 30days etc, or not all
next: question: OTHER COSTS: see yellow below 1.1.1.1. Included in the cost of
inventories are also all other costs incurred in bringing the inventories to current
location & condition.: 1.1.1.2.Interest: where where an entity purchases inventories
on deferred settlement terms , and the arrangement effectively contains a financing
element, the element is recognized as interest expense over the period of financing,
so IS NOT INCLUDED IN TH COST OF INVENTORIES.(AC108.18)
1.1.1.3.costs of designing products for a particular customer can be included.
1.1.1.4.Necessary storage costs in the production process are also included (eg
cheese making)( but not storage costs which are NOT necessary for the production
production process) do you include the storage costs of necessary inventory of raw
materials waiting to be used to make eg shoes., if say the stock level is optimal,not
overloaded??? 2. next: question: NOTE : If the SCI is presented in the Functional
form instead of the Nature form as shown below , then (1) as per IAS 2 somehow
the costs of the functional expenses have to also be disclosed elsewhere in the Fin
Stats, and (2) also somehow there is something weird with the cost of sales
disclosure not being comparable with other entities because they may have a
different method of arraying these costs ?????how does this work? 3. next:
question: 4. see yellow : AC108.6 :Inventories include all items Intangible or
Tangible : 4.1. Held for sale in the ordinary course of business 4.2. In the process
of production for such sale 4.3. Consumed during the production of saleable goods
& services (eg shampoo in a hair salon) 4.4. To include the cost of labour and other
expenses such as supervision or attributable service provider costs not yet invoiced
eg interim audit costs???? does end of year audit also go to inventory??? 5.
DISCLOSURE 36 The financial statements shall disclose: (1) the accounting
policies adopted in measuring inventories, including the cost formula used; (2) the
total carrying amount of inventories and the carrying amount in classifications
appropriate to the entity; Common classifications of inventories are merchandise,
production supplies, materials, work in progress and finished goods. The
inventories of a service provider may be described as work in progress. (c) the
carrying amount of inventories carried at fair value less costs to sell( this is eg in
the case of commodity brokers where selling costs are included as a trade usage
over the years, and accepted by IFRS as such) (d) the amount of inventories
recognised as an expense during the period (just the cost of sales figure?or also
discount separately etc) (e) the amount of any write-down of inventories recognised
as an expense in the period in accordance with paragraph 34;(typically done in
Profit before tax note.) (f) the amount of any reversal of any write-down that is
recognised as a reduction in the amount of inventories recognised as expense in the
period in accordance with paragraph 34;(where does this go?) (g) the circumstances
or events that led to the reversal of a write-down of inventories in accordance with
paragraph 34; and(where exactly?) (h) the carrying amount of inventories pledged
as security for liabilities.(where) 6. next: question: 1. Note :Raw Materials to be
used in production of finished goods : you DO NOT write down raw materials
which have a NRV lower than cost, if they are to be used to produce a finished
product which will have a selling price above cost. The following are all treated
differently:
1.1. STATIONARY & CONSUMABLES : they are NOT WRITTEN DOWN even
if NRV is below cost, , as it is taken that they are used in operations, which of
course leads to some sort of finished goods/services. ( as long as your finished
goods are sold at above cost- otherwise ????) 1.2. WIP Work in progress : NOT
written down if NRV is below cost , as long as finished goods are sold at above
cost. 1.3. PACKAGING MATERIAL : this is treated as selling expenses, so it is
not seen as contributing toward cost of finished product, so IT IS WRITTEN
DOWN if NRV is below cost.(what about a tub for margarine, or a heat sealed pack
for sweets, or the very fancy packaging and pictures for toys?) 2. next: question:
LOSSES, DUE TO THEFT ETC . :(Difference in Inventory Stockcount Vs
Inventory Records) 1. Losses must be recorded as an expense, directly in the cost
of sales figure, NOT separately like before but must form part of the actual
COST OF SALES ,BUT do NOT have to be disclosed separately anywhere
else???? Is this true. 2. next: question: pg 72- comprehensive question : why do
they take off overhead costs? off cost of sales? It is already off isnt it?? 1. For
rendering sevices inventory costings pg 59 :See example scanned in below:9not
in example , how can you match costs to revenue if the costs have not been
incurred yet- say now the costs were less than the costs that are estimated to match
the revenue earned so far? Pg59 2.
IMPAIRMENT 1. Scope a. : Specifically Excluded: i. Inventories ii. Construction
contract assets iii. Deferred tax assets iv. Employee benefit assets v. Financial
assets in scope of ias 39 vi. Investment properties at fair value vii. Biological assets
viii. N-C assets classified as held for sale per IFRS 5 ix. Intangible assets in scope
of IFRS 4 b. Specifically included: i. Investment in Associates, subsidiaries ,joint
venture ii. goodwill iii. PPE ,goodwill , intangible assets c. However , if any asset
has been revalued, this IAS36 statement DOES apply from then on .(only for some
or all of the above, and when does it cease to apply again?) 2. Depreciation is
adjusted accordingly , same as for a revaluation or depreciation, on the assets new
value from then on.( do you do a change in future and current estimate for
depreciation change for every impairment. So the old depreciation rate is used up to
date of impairment, then the new rate is used from there on? So if impairment is 1
mnth before year end , then old depr. rate up to there, and new depr. rate from there
on. Do you do a change in estimate for every impairment that affwects depreciation
rate then?) PPE: QUESTIONS FROM LAST YEAR
1. ITEMS TO BE INCLUDED IN COST: i. Initial estimate of dismantling ,
removing, restoring site - ??a related obligation would arise when item is acquired
or as a result of use of item for purposes other than the mnftring of inventory
during that period??whats this book pg 211 top DESCRIPTIVE
NB: ask this one first : 2. If components are depreciated separately, do you have 2
separate accounts in journal/legder for accumulated depreciation or just 1 account-
AND do you have 2 separate accounts for the compnenet and asset or just 1
account for both???
a. REPLACEMENT OF COMPONENTS AT REGULAR INTERVALS: eg
relining a furnace,seats&galley of aircraft&interior walls of a building eg office
block. i. Depreciate major components separately : You depreciate each major
component like these separately from the rest ii. capitalize the replacement cost :
When you relace a component, you can capitalize the replacement cost.(as long as
the recognition criteria of it are met) and depreciate it separately from there on. The
remaining carrying amount of the old component that was replaced shall be
derecognized at this stage.(old one ) (how do you de-recognise things? Loss on
derecognition or what?) 1. If not initially recognized : If it is not possible to
estimate the cost of the replaced component to derecognize it, (eg where the
component has not been depreciated separately) then the cost of the new
component (less prorata depreciation) may be used as an indication(can you deduct
it all in current yr profit loss as a depreciatipon write up, if you never did it before?
An will SARS accept that? ie last yrs depreciation all written up this yr?) of what
2. If last inspection not depreciated / or initially not estimated : use same method as
for major component separate depreciations: If not initially recognized : If it is not
possible to estimate the cost of the replaced inspection to derecognize it, (eg
where the inspection has not been depreciated separately or it was not initially at
purchase recognized as a separate component ) then the cost of the new
inspection (less pro-rata depreciation) may be used as an indication of what the
cost of the replaced inspection would have been.(IAS 16.70) YOU MUST take
off deemed depreciation to date from the inspection cost before you derecognise
that amount. The depreciation you take off the deemed cost must be at the rate you
depreciated THE REST OF THE ASSET SO FAR AT not at a special new faster
rate . (if inspection life = 5 yrs,and plane life = 20 yrs, but you did not depreciate
separately, now you do inspection after first 5 yrs of life, you deduct depreciation at
old rate (rate you used so far on rest of plane) so Inspection/20 * 5= depreciation,
from deemed cost of old inspection to get its derecognition value) This answer
amount must now be derecognised before the new inspection is capitalized.(can/do
you make a loss on this derecognition????)
3. ALL THIS IS ONE QUES see yellow: (4)BARTER / EXCHANGE OF ASSETS
(PPE ITEMS ) Note: IT IS VERY COMPLEX!
AS PER IAS 16.24-28: 24 (what does whole last part here mean? Very mixed
up)One or more items of property, plant and equipment may be acquired in
exchange for a non-monetary asset or assets, or a combination of monetary and
non-monetary assets. The following discussion refers simply to an exchange of one
nonmonetary asset for another, but it also applies to all exchanges described in the
preceding sentence. The cost of such an item of property, plant and equipment is
measured at fair value unless (which one , both or asset given or asset received?
And when? After the asset is booked at cost being value of item given up then you
revalue it at fair value or what? See yellow below in ias 16.26 ie the RULE as per
textbook pg 215 yellow ) (a) the exchange transaction lacks commercial substance
or (b) the fair value of neither the asset received nor the asset given up is reliably
measurable. The acquired item is measured in this way even if an entity cannot
immediately derecognise the asset given up. If the acquired item is not measured at
fair value, its cost is measured at the carrying amount of the asset given up.
25 An entity determines whether an exchange transaction has commercial
substance by considering the extent to which its future cash flows are expected to
change as a result of the transaction. An exchange transaction has commercial
substance if: (a) the configuration (risk, timing and amount) of the cash flows of the
asset received differs from the configuration of the cash flows of the asset
transferred; or (b) the entity-specific value of the portion of the entitys operations
affected by the transaction changes as a result of the exchange; and (c) the
difference in (a) or (b) is significant relative to the fair value of the assets
exchanged. For the purpose of determining whether an exchange transaction has
commercial substance, the entityspecific value of the portion of the entitys
operations affected by the transaction shall reflect post -tax cash flows. The result
of these analyses may be clear without an entity having to perform detailed
calculations. 26 The fair value of an asset for which comparable market
transactions do not exist is reliably measurable if (a) the variability in the range of
reasonable fair value estimates is not significant for that asset or (b) the
probabilities of the various estimates within the range can be reasonably assessed
and used in estimating fair value. If an entity is able to determine reliably the fair
value of either the asset received or the asset given up, then the fair value of the
asset given up is used to measure the cost of the asset received unless the fair value
of the asset received is more clearly evident. ( textbook yellow pg 215, and what
happens with the fair value of asset received- if you reliably know fair value of
asset given up? Do you just ignore it completely and utterly, and if you want to
book a profit on the barter then you must basicly do a full revaluation AFTER
you have booked the new asset as per the rule in textbook pg 215 yellow- so is
that the ONLY place at all any fair value of asset recived will be used at all? So if
your carrying amount of asset given is 100 but its fair vaue is 10, then you record a
loss even if asset received is worth 1000? and to get the profit you must after this
do a full revaluation of your new asset, or what? )
27 The cost of an item of property, plant and equipment held by a lessee under a
finance lease is determined in accordance with IAS 17. 28 The carrying amount of
an item of property, plant and equipment may be reduced by government grants in
accordance with IAS 20 Accounting for Government Grants and Disclosure of
Government Assistance. 1. This is all the IAS 16 stuff for asset exchanges(barter),
it means: a. THE RULE FOR BOOKING NEW COST PRICE OF ASSET
BOUGHT : If both items fair value can be reliably determined, the fair value of
asset given up is used as the NEW COST PRICE OF ASSET BOUGHT IN
ASSETS & PPE TABLE (in notes), unless the fair value of asset received is more
evident. THIS IS THE RULE ! So it does not matter what the value of asset
received is worth, you book the cost price you paid ( asset given up) as the new
book value of new asset recived in own asset register. You can do a
REVALUATION of asset received later if you are not happy with this cost price-
but first follow the rule. ( textbook yellow pg 215, and what happens with the dfair
value of asset received- if you reliably know fair value of asset given up? Do you
just ignore it completely and utterly, and if you want to book a profit on the barter
then you must basicly do a full revaluation AFTER you have booked the new
asset as per the rule in -textbook pg 215 yellow- so is that the ONLY place at all
any fair value of asset recived will be used at all? So if your carrying amount of
asset given is 100 but its fair vaue is 10, then you record a loss even if asset
received is worth 1000? and to get the profit you must after this do a full
revaluation of your new asset, or what? )
i. If CASH IS PART PAYMENT: if any cash exchanges hands as well in
transaction , you just increase or decrease the relevant assets value by this amount
as you go along ( so you journalise cash to bank & asset given in 2 lines s against
CONTRA cash from bank & asset received in another 2 lines b. A GAIN OR
LOSS (capital gains) is recognized as difference between fair value (of which asset
you must use asset receiveds fair value here or what? See textbook pg 215
yellow highlighter ) and carrying amount of asset given up, where applicable.
c. EXCEPTIONS TO THE RULE :There are only 2 exceptions( below), in both
cases the asset that is acquired is measured at the carrying amount of the asset
given up, and no gain or loss is recognized. i. Exception 1: exchange transaction
lacks commercial value ( see IAS 16.25 for definition of ) ii. Exception 2:if fair
values of both asset given-up & asset received cannot be measured reliably.a 2. Ask
yellow below- this is vertabim IAS 16.25 25 An entity determines whether an
exchange transaction has commercial substance by considering the extent to which
its future cash flows are expected to change as a result of the transaction. An
exchange
transaction has commercial substance if: (a) the configuration (risk, timing and
amount) of the cash flows of the asset received differs from the configuration of the
cash flows of the asset transferred; or (b) the entity-specific value of the portion of
the entitys operations affected by the transaction changes as a result of the
exchange; and(ask why is transaction 4 in example pg 216 textbook not
commercialvalue is significant 50-20=30000 difference, and fair value is higher so
entty-specific is higher you can sell it for more if you want! ) (c) the difference in
(a) or (b) is significant relative to the fair value of the assets exchanged. For the
purpose of determining whether an exchange transaction has commercial substance,
the entityspecific value of the portion of the entitys operations affected by the
transaction shall reflect post -tax cash flows. The result of these analyses may be
clear without an entity having to perform detailed calculations.
NEXT QUES : NB : Restoration Costs for LAND : IAS16 . 59 vetrabim :If the cost
of land includes the costs of site dismantlement, removal and restoration, that
portion of the land asset is depreciated over the period of benefits obtained by
incurring those costs. In some cases, the land itself may have a limited useful life,
in which case it is depreciated in a manner that reflects the benefits to be derived
from it. (SO IT SEEMS FOR LAND YOU DEPRECIATE A PORION OF THE
COST PRICE, BUT FOR ANY OTHER ASSET YOU ADD THE PV OF THE
FUTURE ESTIMATE OF RESTORATION COSTS TO THE COST PRICE &
ADD INTEREST(INFLATION) TO IT EVERY YEAR AS WELL SEE ias
16.16c now is this the rule for all non-depreciable assets or only land? And if land
is depreciable in a special circumstance which of the 2 methods do you use?)
26 The fair value of an asset for which comparable market transactions do not exist
is reliably measurable if (a) the variability in the range of reasonable fair value
estimates is not significant for that asset or (b) the probabilities of the various
estimates within the range can be reasonably assessed and used in estimating fair
value. If an entity is able to determine reliably the fair value of either the asset
received or the asset given up, then the fair value of the asset given up is used to
measure the cost of the asset received unless the fair value of the asset received is
more clearly evident. ( textbook yellow pg 215, and what happens with the fair
value of asset received- if you reliably know fair value of asset given up? Do you
just ignore it completely and utterly, and if you want to book a profit on the barter
then you must basicly do a full revaluation AFTER you have booked the new
asset as per the rule in -textbook pg 215 yellow- so is that the ONLY place at all
any fair value of asset recived will be used at all? So if your carrying amount of
asset given is 100 but its fair vaue is 10, then you record a loss even if asset
received is worth 1000? and to get the profit you must after this do a full
revaluation of your new asset, or what? )
A GAIN OR LOSS (capital gains) is recognized as difference between fair value
(of which asset you must use asset receiveds fair value here or what? See
textbook pg 215 yellow highlighter ) and carrying amount of asset given up, where
applicable.
a. REVALUATION MODEL: this method works exactly the same as the one
above except for the COST price in the ASSET account eg machine account is
not at the original cost but at a REVALUED AMOUNT - ie it gets revalued.(so if
you ever dare to revalue say a flat, then for ever more all flats in your business
must be revalued and again every year? What if no money for valuers one year-
what do you do then?)
i. There are just 2 special rules: if you ever use this method for any asset: 1. All
Assets In Same Category Get Same Treatment: all the assets in the same category
eg: machines/boats/buildings etc, must get treated in the same way ie they must
all be revalued. 2. Done Again On Regular Basis: all these assets using this method
must be revalued regularly.there are certain rules as to how soon after each other all
assets in one class must get revalued etc see IAS 16.31-42 for details. ii.
Revaluation Surplus / Other Comprehensive Income.(IMPORTANT) 1. IAS16.39
If an assets carrying amount is increased as a result of a revaluation, the increase
shall be recognised in other comprehensive income and accumulated in equity
under the heading of revaluation surplus. However, the increase shall be recognised
in profit or loss to the extent that it reverses a revaluation decrease of the same asset
previously recognised in profit or loss. ???whats this mean -same year only or any
of last years before derease as well???
2. 40 If an assets carrying amount is decreased as a result of a revaluation, the
decrease shall be recognised in profit or loss. However, the decrease shall be
recognised in other comprehensive income to the extent of any credit balance
existing in the revaluation surplus in respect of that asset. ( what if this amount
goes below zero- do you go over to the profit/loss then for the balance?) The
decrease recognised in other comprehensive income reduces the amount
accumulated in equity under the heading of revaluation surplus.
1) REVALUATION SURPLUS: a) The revaluation surpluss account is a funny
thing- it does not come into equity via profit nor owners contributions,and once it is
in equity cannot get out of equity by a transfer of loss to equity(retained earnings) ,
but only by issue of capitalization shares or specially going and writing out the
portion of each asset in there due to depreciation or selling the asset. So this
account must be handled specially and separately, and a record kept of all the
things which make up a part of it and a record next to each asset which ever got
revalued as to the portions involved- so you can control it . it is a absolute cow- so
note b) It is viewed as part of equity. c) It is shown as perhaps a non-distributable
reserve in the StCHEQ in its own column. d) It is always unrealized and unused
and once it gets realised it is gone and becomes something else . It can only either
be 1-USED up or 2-REALISED, or it just stays there and does nothing. i) It may be
USED only for: (1) Capitalisation issues(how do you do this?? And how do
youtake it out agin for sale/depreciation? If asset gets depreciated , how do you
know which assets stuff was used for shaeres/ so which asset may you not write off
depreciation throuhh thos account?)
(2) OR to absorb subsequent revaluation deficits ( if reval. Of some asset goes
down)
(i) REVALUATION DEFICIT : THIS IS IF A REVALUATION is downward/less,
then YOU MAY ONLY DECREASE THE REVALUATION ACCOUNT BY
THE PORTION OF THAT ASSET THAT IS IN THE REVALUATION
ACCOUNT FROM A PREVIOUS REVALUATION upwards. Any excess over
whats left of a previous revaluation surplus for that one asset , or if that particular
asset has no positive revaluation balance in this account at all , then that part goes
directly to profit/loss account as a loss for the year- period cost/expense- YOU
CANNOT MAKE A REVALUATION SURPLUSS ACCOUNT NEGATIVE
EVER! (ii) Deficits of one item can not be set off against surplusses of another
item, even if such items are from the same category (iii) IF AN ASSET IS
REVALUED UPWARDS(a impairment reversal works same way), you first have
to go check if that asset ever had a deficit revaluation that resulted in a loss going
direct to the profit/loss section of SCI ( NOT Other Comprehensive Income
decrease but a normal loss) due to the reasons in (i) above. Then you must first add
a profit to the exact same value as that previous loss to the normal profit/loss in SCI
so profit /loss account-(even if its 10 years later) , then only the balance may be
credited as REVALUATION SURPLUS-this is some funny rule to stop cockeyed
things happening with these matters!
ii) It may be REALISED only by: (1) Disposal Immediatly (you sell the asset and
(where / how do you keep a record of the revalued part of each asset so you can go
back and revese this part of it in the books it once it gets sold?) (a) JOURNAL
ENTRIES: once sold you just transfer the surpluss of that one asset from
Surplus..acc to Retained earnings Acc.it seems that the profit/loss calc. as usual in
accounts will end up balancing this reval thing once it all gets to the ret.earn.
account. It SEEMS YOU ARE SAYING THE REVALUATION COULD HAVE
BEEN A OWNER S CONTRIBUTION, LIKE HE GAVE AN ASSET EG: CAR,
TO THE ENTITY- SO CR owners equity AND DR asset account!. How that work
I dont know Now you have a extra amount in here that comes from nowhere!
(tax/profit/sale at aloss etc etc) but thats it. (b) For De-Recognition: same, you just
transfer the surpluss of that one asset from Surplus..acc to Retained earnings Acc
(c) StChEQ; THIS TRANSFER MUST BE SHOWN DIRECTLY IN THE
STCHEQ in its own line!
(2) Usage Gradually : this is before you sell the asset while its still yours, you say:
(a) ONLY the difference in depreciation between what the old depreciation amount
that year would have been and the new depreciation amount that year is allowed to
be deducted from Revaluation Surplass Account from the amount that particular
asset caused to be in there of course- no more. See example below. (b) Journal
Entries: this depreciation charge is COMPLETELY separate from normal
depreciation account it is just : lessen DR Reval Surplus. Acc. And move it into
CR Retained Earnings. These 2 accounts are both equity accounts.so both increase
on the CR side. You just move it out SURPLUS.. and into RETAINED.. (so it does
not get used as an expense depreciation?? OR go through tax , I mean depreciation
is an expense so it should decrease retained earnings.THIS NORMALLY
HAPPENS BY IT BEING WRITTEN AS AN EXPENSE THEN GOING TO
RETAINED EANINGS THROUGH PROFIT/LOSS ACCOUNT. But What
happens here?) (c) StChEQ; THIS TRANSFER MUST BE SHOWN DIRECTLY
IN THE STCHEQ in its own line!
(d) ALSO ;what s this mean?: see textbook page 225 yellow- must still transfer this
to notes but cannot understand it. (e) What do ou do when you have a sale- what
happens to the reval.surpluss then??
2) DEPRECIATION AND PROFIT AND LOSS a) Depreciation is calc. on the
revalued amount less any residual value b) Gains/losses on disposal are calc. using
principles in IFRS5. c) An asset should not be revalued shortly before disposal in
order to manipulate the gain/loss unless the revaluaton forms part of a systematic
revaluation program. d) An item held for sale will seldom be revalued because of
cost of revaluation.& bookkeeping needed eg updating asset register. e) PPE items
must be evaluated as a class/group. To bear in mind requirement that fin stats
should not be misleading, if it is not possible to revalue all items in a group
simultaneously for all items in a group, then do some internal valuations which
should be supported by external valuations from time to time. 3) TIMING OF
REVALUATION a) It is better to revalue at begin or end of a period (not middle
cause then there are 2 depreciation amounts that year , one to halfway the next from
halfway onwards), so the user can compare depreciation to the carrying amount
more plainly and clearly. 4) Disclosure a) A full record in the asset register of all
revaluations and transfers in/out to reval.surp.acc. eg depreciation etc and the
historical cost must be kept very well so that one can comply with the disclosure
requirements eg you must show carrying amount at cost method + reval method
every time. b) Reval at end year appears to be the better option by SFP needs for
comparability but aggravates the workload at end of year. c) THER seems to be a
huge bugger up about the begin/end of year story. If reval is done at begin of year
there is no problem,everything works out just fine and depreciation for tht year is
just calc. from this new amount. But if done at end of year , instead of just doing
things logicly step by step, the book says if REVAL done at end of year you must
roll this back to begin year before you do the depreciation for the year. (I am not
sure about if done in middle of year it does not say what do you do then????roll
back or do half /half. If done at end why cant you also do half/ half?)
i) REVAL DONE BEGIN OF YEAR: ii) REVAL DONE END OF YEAR: you roll
the reval back to begin year, so you try add back any depreciation that that revalued
amount WOULD have had the whole year so if reval amount at end is 100, you
say what
depreciation would that 100 have been subject to the whole year to get to 100- if
there is a useful life of 2 years left at end year on straight line basis you say
100*3/2= 150. So depreciation was R50 that year. NEVER use the old carrying
anmount depreciation, ALLWAYS roll back if the revaluation was dome at year
end.And rem: the reval.surpluss you add as a line item in the PPE table must not
just be the actual reval surplus, but it must get increased by the depreciation you
work out as being for that year!! It is higher!! So you make it more from the roll-
back!! see example below (WHY I DONT KNOW?)
Can you make a new class of assets for IAS16 , so you can do revaluationon some
machines and on another group not do revaluations? And can you make anew class
for each type of depreciation method used?
Are you not allowed more than 1 depreciation type and rate in one class of PPE?
How do you show useful ives in the notes- one figure per class of PPE? Or what ?
for 1 class of PPE of 10000 PPE machines in the notes? As one figure. Or 10000
amounts.? For when you sell/depreciate/derecognize an asset and the revaluation
surpluss is transferred to the retained earnings account, they say you can also leave
it in the revaluation surplus account if you want in textbook as well as ias16
somewhere- how does this work , if you leave it in there wont it confuse the issue
with how much of the rela.surpluss account is depreciate write-offable, or still even
owned by the entity, or whatever? What is the reason to leave it in there?? When
you sell the asset ------------Disclosure 73 The financial statements shall disclose,
for each class of property, plant and equipment: (a) the measurement bases used for
determining the gross carrying amount;(what is a measurement basis?) PPE
QUESTIONS FROM THIS YEAR. 1. ENTITY-SPECIFIC VALUE is the present
value of the cash flows an entity expects to arise from the continuing use of an
asset and from its disposal at the end of its useful life or expects to incur when
settling a liability.(does this incl repairs& maintenance ie cash outflows as well
and can you set -off liabilities vs positive- what does it mean expects to incur
when settling a liability?)
2. Question: how can you move it to ret earn. from reval. Surpluss, if it is GONE
now- I mean it has been depreciaqted, it is gone,out the door , no more. So how
come it gets moved to retained earnings ? ANS: when the depreciation you did in
P&L SCI moves through to retained earnings for the year, it will AUTO reduce the
amount you transferred there from reval. Acc. another QUES: what if they spend
all profit before they move it and dont move it to ret.earn. first to balance out the
thing , now you have some deprecciation in ret. Earn. which must be taken out ? it
is used up gone? My own ANS ask if correct :: I think they moved it there
magically since depreciation reduced profit (deprec. is just imaginary anyway) so
that part of profit was not able to be spent before it got to ret.earn , and thus what
could have gone to ret.earn. if you had forced it (profit) did not go, so ret. Earn. is
auto. Poorer by that amount, no matter what you do with the profit after tax! Is this
correct??or not?
a. REPLACEMENT OF COMPONENTS AT REGULAR INTERVALS: eg
relining a furnace,seats&galley of aircraft&interior walls of a building eg office
block. i. Depreciate major components separately : You depreciate each major
component like these separately from the rest
ii. Capitalize the replacement cost : When you replace a component, you can
capitalize the replacement cost.(as long as the recognition criteria of it are met) and
depreciate it separately from there on. The remaining carrying amount of the old
component that was replaced shall be derecognized at this stage.(old one ).. note :
derecognition is the same process as a sale of an asset :treat it as a sale where you
got paid 0. (ie transfer asset + acc.depr. to Asset Realisation account, then get
profit/loss and transfer to profit/loss on sales of asset account) iii. If not initially
recognized : If it is not possible to estimate the cost of the replaced component to
derecognize it, (eg where the component has not been depreciated separately) then
the cost of the new component (less pro-rata depreciation) may be used as an
indication of what the cost of the replaced component would have been.(IAS 16.70)
YOU MUST take off deemed depreciation to date from that new replacement cost
before you derecognise that amount. The depreciation you take off the deemed cost
must be at the rate you depreciated THE REST OF THE ASSET SO FAR AT not
at the new rate you are going to start depreciating the new replacement part at . (if
seats life = 5 yrs,and bus life = 20 yrs, but you did not depreciate separately, now
you relace seats, you first deduct depreciation at old rate (rate you used so far on
rest of bus) over 20 yrs, but if the seats were replace 5 yrs after buying bus then
only for 5 yrs of course but at 20yr rate ie cost/20 * 5 yrs= depreciation, from
deemed cost of old seats to get their derecognition value) see example below .Also
note, from now on the new asset gets depreciated at its OWN rate, dont use the
buss old rate for it anymore. a. ???How do you do this in the books?raise a new
asset from scratch at current date and acc .depr and depr. For year , all in one go ,
and then sell it ie derecognize it? Or what . Also, must this depreciation show in
P&L SCI ? or does it not show??? 3. If not initially recognized : If it is not possible
to estimate the cost of the replaced component to derecognize it, (eg where the
component has not been depreciated separately) then the cost of the new
component (less pro-rata depreciation) may be used as an indication of what the
cost of the replaced component would have been.(IAS 16.70) YOU MUST take off
deemed depreciation to date from that new replacement cost before you
derecognise that amount. The depreciation you take off the deemed cost must be at
the rate you depreciated THE REST OF THE ASSET SO FAR AT not at the new
rate you are going to start depreciating the new replacement part at . (if seats life =
5 yrs,and bus life = 20 yrs, but you did not depreciate separately, now you relace
seats, you first deduct depreciation at old rate (rate you used so far on rest of bus)
over 20 yrs, but if the seats were replace 5 yrs after buying bus then only for 5 yrs
of course but at 20yr rate ie cost/20 * 5 yrs= depreciation, from deemed cost of old
seats to get their derecognition value) see example below .Also note, from now on
the new asset gets depreciated at its OWN rate, dont use the buss old rate for it
anymore. 1. ???How do you do this in the books?raise a new asset from scratch at
current date and acc .depr and depr. For year , all in one go , and then sell it ie
derecognize
4. Initial estimate of dismantling , removing, restoring site on which asset is
located- IAS16.16 (c) the initial estimate of the costs of dismantling and removing
the item and restoring the site on which it is located, the obligation for which an
entity incurs either when the item is acquired OR as a consequence of having used
the item during a particular period for purposes other than to produce inventories
during that period. (??a related obligation would arise when item is acquired or as a
result of use of item for purposes other than the mnftring of inventory during that
period . ??whats this to the left?- means if inventory was produced in same period
as dismantle/restore/remove asset then capitalize costs to inventory and NOT to
PPE as per IAS2.- so how do you know? - all machines produce inventories ! when
you buy machine and its going to be
used for making inventories later on, do you still capitalize these costs or not.(what
if it only very distantly will be used for inventories ie: acts in a very remote
supporting role)
5. ITEMS TO BE EXCLUDED FROM COST a. INITIAL OPERATING LOSSES
MAY NOT BE CAPITALISED- eg losses incurred while demand is growing is
NOT capitalised. b. Costs of opening a new facility (new factory for machine? Or
what) c. Costs of introducing a new product : eg advertising & promotional costs d.
Costs of conducting business in a new location or new class of customer : eg staff
training e. Admin & general overhead costs ( ?/electricity used in testing phase?yes
or no) f. Costs incurred after capable of being brought into operation as intended by
mngmnt: eg has yet to be brought into use or is used at less than full capacity. (say
it cannot go at full capacity because it is not working properly, so they run at half
capacity for both testing&profit ie trying to get it to go properly and it is
loss/profit what about electricity because it is being tested and fixed still etc??) g.
Costs of re-organising /relocating part or all of entities operations. h. If the testing
phase not quite JUST a test : ie if it is that the machine is to sink an operational
shaft over 2 years and in this time we will see if it works properly- this is NOT incl.
as capitalized costs.But where it is a bit confusing , like in this example ,book says
if it is possible to apportion the testing costsand say 10% of costs sre testing, then
one can capitalize that part only, that is allowed. (2)ASSET DISMANTLING,
REMOVAL & RESTORATION COSTS a. If INVENTORY WAS PRODUCED
IN SAME PERIOD BY THE ASSET AS period of restore/dismantle/removal :
then it is added to costs of inventory, not to costs of PPE per IAS2 (but what about
if it was capitalized at the begin when you bought it , what do you do to that then
later? ) b. ELSE per IAS16.16 Entity must have a legal or constructive obligation
(at acquisition ,like years before, when initially bought) (see IAS37) , to
restore/dismantle/removal , then it can be added to PPE- IAS16.16 (c) the initial
estimate of the costs of dismantling and removing the item and restoring the site on
which it is located, the obligation for which an entity incurs either when the item is
acquired or as a consequence of having used the item during a particular period for
purposes other than to produce inventories during that period.. [So it must be
ONLY 1 of 2 things : either on DATE of buying , or if not on DATE of buying, but
sometime after that , then only if not used to produce inventory in that period
(IAS2) ] DISCOUNTING THE COSTS TO PV: The interest does not get
capitalized, it is charged as an expense each year to profit/loss. :(Q-?are you not
allowed to capitalize interest generally speaking?) 1) IF DISMANTLING COSTS
which have been capitalized ARE RE-ASSESED: different for each cost model
type: i. UNDER COST MODEL :per IFRIC 1 you just re-work out the Present
Value of the changed dismantling costs, and if the amount in you books is different
you change it by capitalizing the difference : so Building asset account CONTRA
Provsion for dismantling etc account add/subtract the change in costs to the asset.
Do NOT book this change as interstest expense , that is completely sepatarate- just
keep the 2 apart and treat this change as capital, and the interest has nothing to do
with it , it is a separate charge each year calculated from the balance of the
Provision liability account. These changes are disclosed as changes in estimate
ALSO see IFRIC 1 for there should be testing of impairment when cost estimates
go down due to higher discount rate or declining costs..(if it goes up do you do
anything special with IAS change in accounting estimate ? and if it goes down do
you de-recognise it or just change it and finished?) ii. UNDER REVALUATION
MODEL: increases in provision set off against revaluation surpluss by debiting
other comprehensive income./decreases by crediting it. Remaining balances after
debiting are written off to profit /loss of OtherComInc, what doe sthis mean ? no
clue! ?example 11.17 in descriptive book Very complex- see book again no 2. See
example below for method(:In this example 11.8 in descriptive book, may one
capitalize the interest payments?yes or no) this is where the price of a building has
to be paid in 6 mnths, and deemed interest is exctracted etc from price. 3.
1. 40 If an assets carrying amount is decreased as a result of a revaluation , the
decrease shall be recognised in profit or loss. However, the decrease shall be
recognised in other comprehensive income to the extent of any credit balance
existing in the revaluation surplus in respect of that asset. ( do you first reduce any
balance of that asset left in reval acc.and THEN send the rest to P&L, or do you do
both qat the same time? -what if this amount goes below zero- do you go over to
the profit/loss then for the balance?) The decrease recognised in other
comprehensive income reduces the amount accumulated in equity under the
heading of revaluation surplus. 2. CHANGE IN ACC POLICY :AS PER IAS 8 if
you change from cost to reval method it is a IAS8 change in acc. Policy , BUT as
per IAS 16 it need only be treated as a common revaluation. SO THE FIGHT
between the 2 ends by saying one must follow IAS16- just treat it as a
revaluation as per IAS16, not as a change in acc policy. As per IAS8.(???? Do
you NOT treat it as a change in acc. Policy or do you?i think it could be disclosed
but ends up just becomng a revaluation) 3. GROSS and NET method of doing a
REVALUATION: a. GROSS METHOD: you adjust acc.depr. so that the
CARRYING amount of the asset is equal to the new revaluated amount. i. The
Acc.Depr. must be adjusted by bring it to the level of : by recalculating
depreciation from scratch for the asset, as if it was bought at the new revaluated
amount when it was bought many years ago, and using the EXACT same
depreciation rate as used from then till now(old rate) up to now. (as if it was always
depreciated at that level.) (If you wish to change depreciation rate you must do it
from now onwards , not in the past. )This method is normally used where you do
not want to do a revaluation for some reason, so you take the current replacement
value of the asset, and make that your cost(bring the asset book cost to that level)
.then you also adjust depreciation so your carrying amount is the new depreciated
revalued rate 1. Depreciation & Acc Depr & Reval. : this method never affects the
depreciation line item in the SCI. Funny thing: for Acc Dep. You just add/less
from acc dep account, and the CONTRA is the PPE asset account that will always
be on the opposite side. It is a natural contra just make these 2 opposing entries in
1 journal entry. Then the reval. Account ONLY gets the balance of what the 2
entries (reval + acc dep) on one side need to balance out the PPE entry on other
side: it is just some weird method they work out somehow notice acc dep is a CR
and reval .acc. is also Cr. (can you say [acc dep. Contra depreciation in P/L for
year] why must [acc dep & reval surp. CONTRA asset], why cant [reval.surp.
CONTRA PPE asset account] alone. How does this funny method work?not sure.)
NEW yr2012 QUESTIONS 1. Initial estimate of dismantling , removing, restoring
site on which asset is located- IAS16.16 (c) the initial estimate of the costs of
dismantling and removing the item and restoring the site on which it is located, the
obligation for which an entity incurs either when the item is acquired OR as a
consequence of having used the item during a particular period for purposes other
than to produce inventories during that period.
a. They are allowed to be capitalized ONLY if a Provision may be raised per
recognition criteria for a provision else expensed when incurred. If NOT satisfy
this requirement, then it auto gets SUBTRACTED from residual value of asset ,
txtbk says : so whichever way is used, it will increase the yrly depreciation amount
of the asset. b. Residual value : see above sentence. c. If the FUTURE VALUE :is
given, say in 10 yrs, then it must be brought down to PV using a suitable discount
rate, AND also depreciated each year separately.(how do you depreciate it and do
the increase in PV each year d. (??what if you initially capitalize the costs, then
later it is decommissioned in a year when inventory was produced.What do you do
with all your old capitalising book entries you nowhave?)AND howdo you
depreciate(txtbk pg 161 ) AND increase the PV each year(pg 158) . is this a change
in ACC estimate every year the increase in PV value of future restoration
costs?)??? 2. was produced.What do you do with all your old capitalising book
entries you nowhave?) 2. If INVENTORY WAS PRODUCED IN SAME PERIOD
BY THE ASSET AS period of restore/dismantle/removal : then it is added to costs
of inventory, not to costs of PPE per IAS2 (but what about if it was capitalized at
the begin when you bought it , what do you do to that then later? ) a. IF
DISMANTLING COSTS ARE RE-ASSESED: different for each cost model type:
(dont understand these 2??? ) i. UNDER COST MODEL :per IFRIC 1 you just re-
work out the Present Value of the changed dismantling costs, and if the amount in
you books is different you change it by capitalizing the difference : so Building
asset account CONTRA Provsion for dismantling etc account add/subtract the
change in costs to the asset. Do NOT book this change as interstest expense , that is
completely sepatarate- just keep the 2 apart and treat this change as capital, and the
interest has nothing to do with it , it is a separate charge each year calculated from
the balance of the Provision liability account. These changes are disclosed as
changes in estimate ALSO see IFRIC 1 for there should be testing of impairment
when cost estimates go down due to higher discount rate or declining costs..(if it
goes up do you do anything special with IAS change in accounting estimate ? and
if it goes down do you de-recognise it or just change it and finished?) ii. UNDER
REVALUATION MODEL: increases in provision set off against any revaluation
surplus left over by debiting other comprehensive income./decreases by crediting it.
Remaining balances after debiting are written off to profit /loss of OtherComInc,
(what doe sthis mean ? no clue! ?example 11.17 in descriptive book Very complex-
see book again no clue.ANS : see the example below, it is very clear you just
write off anything ober whats left in revaluation account to to P/L 3. EMPLOYEE
BENEFITS 1. Salary Increases : if the next year after the reporting date accrued
leave pay adjustment , a salary increase is expected , then the Gross Salary used to
do the calculation is the NEW salary, because this is what the employee will be
getting for free on those days when he is on holliday next y ear using these
accrued days.(if there is a salary increase next year, does an employee who takes it
in cash get last years when he did not go on holiday or this years new salary rate?
and can a company decide to pay previous years leave pay at old rates as a policy
or MUST it per industry standard usage pay at the new rate is that a
convention) 2. PAST SERVICE COST: a. This is where: Past periods of service a
worker already has accrued are affected by either: benefits are
introduced for the first time, OR where a change is made by the company to the
formula for calculating benefits, NOT for current years service but for PRIOR
PERIODS service only. b. The PV of what you work out as the change in benefits
is handled as follows. i. Method: First work out the PV of what you work out as the
change in benefits , then 1. 1st: Funny part : First send to a SFP holding account
called Unrecognised Past Service Cost CONTRA Defined Benefit Obligation
liability account. ( not sure if first is a liability acc or what since the Defined
Benefit Ob;igation acc is the liability acc- maybe its an an Equity account?under
which heading in SFP does it go) 3. Were there any major changes from 2011 in
any of moduleswearedoing thisweek I stillhave 2011 textbook not sure if
allmajor things have had any important changes? ( Do they still use corridor
metyhid- and give 4 choices for actuarial gains/lossesrecognition?) 4. Actuarial
gains losses recognition- corridor method is out now only 1 method left or what?
For old corridor method: you use last yrs gains/losses + last yrs assets&obligations
levels- so do you use LAST yrs avg employees life or current yrs? And you use last
yrs Acturial gains losses: is it before or after last years transfer to P&L ? is it
before!? 5. UNRECOGNISED ACTUARIAL LOSSES/GAINS: do both the plan
assets and also the defined benefit obligation unrecognized actuarial losses/gains
BOTH go to the same holding account? So do they have 2 separate ones or botjh
use the same one and it all gets recognized in as a whole in P&l (or OCI) 6.
EXPECTED RETURN ON PLAN ASSETS: pg 291 book 1. Plan Assets: Return
on Capital Invested = interest,dividends,other revenue, + realised & unrealized
gains or losses on the plan assets, LESS admin costs & taxes on plan but costs
counted by actuary are not counted again here, they are incl. in the valuation of
Defined Benefit Obligation itself. 2. IAS 19 REQUIRES that the market
expectations at beginning of period be used to recognize any Return on the
Plan.(when do you do the journal entry? At begin of year or end of year ? AND
Why use market expectations if you can use Actual Return on the books for the
year- or why use next years expectations then?) 3. Book says return either ALSO
includes OR comes from the investment by contributions in an d benefits paid out
of fund.( how can RETURN include contributions/benfits isnt that another 2
journal entrys : pg 291 book?) 4. So any Returns REDUCE the Staff Costs for the
year( is this strictly so so does this get Cr to normal staff costs for the year MAIN
ACCOUNT, where all the other staff costs accumulate . & can one actually have all
the sub costs in a main chief account and the sub costs in sub accounts beneath it
Staff Costs : Returns on investment , and Staff costs: Current Service Costs, and
Pension Contributions etc for all the journals ? can you also write them all like that
in exam?) 5. Journals: a. Dr Plan Assets (SFP) i. CR Staff Costs : Expected Return
on Plan Assets (staff costs) (P&L) [reduces staff costs!] 6. So for new IAS 19,
interest cost of defined benefit obligation, and expected interest income of the Plan
Assets, MUST both be exactly the same for each quest ion, and cannot be different
for each like in last yrs GAAP book pg 295 exercise 1. (?? Still or not new IAS
19 ?asset ceiling test as well as IFRIC 14 also apply to other long term employee
benefits. )) 2. If you have a Other Long term employee benfit, and also a Defined
benefit Plan in the same entity do you have to have 2 of each account for
everything, or does it all go in the same accounts? Meaning : Plan assets, defined
benefit obligation, Interest charge, service costs , past service costs etc?? what
about if you have 2or 3 different Defined benefit obligatuion plans what then
same question?
3. For other long term benefits: what does ias 19.154 last sentence mean: that these
benefits are never recognized in OCI ? : 1- that the holding accounts ie : Un
recognized Actaurial gains/losses and Unrecognised past service costs are not
allowed to be used at all and it all goes direct to P&L - OR that one cannot choose
to recognise these costs (where you would use the corridor method or direct etc) in
OCI only in P&L.??? 4. what other difference is there to doing a defined benefit
plan or a other long term benefits plan? Nothing I mean same accounts , same
methods , same everything , exept you NEVER do ANY of the disclosures for
Other long term employee benfit- is that correct. 5. Do reimbursement rights
Unrecognised Actuarial gains & losses., as well as defined benefit obligation +
plan assets one all go in same Unrecognised Actuarial gains & losses., account
or in 3 different accounts, AND 3 different journals for transfer each year to P&L ?
6. It says to treat Termination benefits as post employment benefits if they are
somehow incl. in a plan like that. So how does one do the accounts if they are
included in a Defined Benefit Plan all the currwent service costs, interest costs,
actuarial remeasurement etc? 7. Must we know ifric 14 8. Ias 19 . 149 , c- it says
for defined benfit plans that share risks between firms if accounted for as a
allocated portion of whole defined benfit plan : then disclosure should be about
plan as a whole: so is disclosure using WHOLE PLANS figures for
EVERYTHING, but Generla ledger accounts use only the allocated portion of the
plan? Or what does this mean? 9. Why on quest 12.2 vol4, is whole past service
cost of 120 recognised in 2010 year,when it is supposed to vest over 5 years?
Shouldnt 1/5 vest per year so only 1/5 goes toP&L per year and thus to Proift
before tax note because this note is a P&L note only-not SFP? 10. Unreconised Past
service cost -does it still go into Net liability? 11. If actuarial gains &past service
costs goto OCI then why is there no OCI note in Q12.2?
?CURRENT PLACE OF LAST QUESTION. After exam questions: 1. Very
flowing question- people you ask are mostly not very sure of an answer :
Settlement discount for purchases- in year 1 textbooks they have discount allowed
as an account in GL , which increases profit in P&L account. But today they want
all settlement discounts to reduce inventory cost EXACTLY the same as a trade
rebate.So you must estimate when you will pay : ie in 15 days or 30 , and just
deduct the discount as if you already got it- then do adjustment journals if you pay
late by accident etc. So is there place for a Settlement discount account anymore-
how could ity still be used in practice? AND what about discounts for non-
inventory items eg: expenses like telephone or plumbing etc if you get a discount
there can you still use disc rec. acc. and treat it as a income AND what about
assets like buy a machine and get a discount. EG: in Pastel Accounting they have
a standard account called discount received for cash . I also know for DISCOUNT
GIVEN , one can still use a discount given account to make things simple, then
just net it off against revenue at end of year.SO for purchases doesone use
2separate discount allowedaccounts one for cost of sales and the other for
expenses andjust net them off at end of year aganist sales & expenses? Yes you
could use 2 discount accounts, but at year end you must estimate those you have
not paid yet and raiseaccordingly, or even easier use a allowance for settlement
discount account 2. What about revenue if you give early payment discounts
do you just use the allowance for discount account and at year end any debtor
that could still fall within the ir early payment period is automaticly treated as if
they will pay early - ?yes 3. IF A SUPPLIER LIKE ADVERT AGENCY GIVES
YOU A CREDIT OF R100 FOR LOYALTY , AND IT SHOWS ON THEIR
MONTHLY STATEMENT AS A CREDIT IE: THEIR STATEMENT SAYS
YOU ARE SAY 50 IN THE BLACK- THEY OWE YOU 50- BUT YOU CAN
CAN NOT TAKE IT AS CASH. WHAT DO YOU PUT ON YOUR BOOKS AT
YEAR END? ARE YOU ALLOWED TO BOOK IT AS A DEBTOR- SO THEN
IT BECOMES AN OTHER INCOME OR REVENUE OF COURSE? OR
MUST IT BE IGNORED AS A TRADE REBATE AND JUST DECRESE THE
FIRST INVOICES FROM THE FOLLOWING YEAR
TO TREAT IT AS A TRADE REBATE ? SO THEIR MONTHLY
STATEMENT WILL NOT AGREE WITH YOUR SUPPLIER BALANCE? : you
dont have control over inflow so it doesnot satisfy definition of asset=debtor, so it
must be a trade discount- ignore it then 4.
5. TO PHONE : In IAS 1 st ch eq it says : amounts of transactions wityh
owners must be shown, showing separsately contributions by and distributions to
owners- so in a public company that would be ditributions : dividends and
contributions: ordinary shares issued / or preference shares issued : thats is- nothing
else at all BUT : just to know a. How do you show DRAWINGS / OWNERS
CONTRIBUTIONS in the statement of changes of equity for a sole proprietor or a
CC . Also, how would you show : And what would the owners contributions
account look like in a CC? and the drawings account? b. CAN you use a
RETAINED EARNINGS account in the StChEq for a CC- and what about a sole
propritor? c. What do you call it for a CC: owners equity or members contribution?
d. How would that all work for the new type of Private company /limited
liability company? : must it look exactly like a public company with shares etc, or
can it look like a CC or sole proprietor? e. f. Must every owners contribution
increase the memebers shares - ? how does the shares account look : just 1 account
for all directors , or does each director get his own account? And these form part of
a main single ordinary shares account? Ask: in a cc : how does the loan account
work : can you make a drawing account same as for a sole proprietor, or must it be
a drawings account due to the sort of dividends once a year type of idea , like in a
company with shares, sort of thing. For a cc- you can have a memebers distribution
account, you can distriburte every day dosnt matter , and just put it in the account.
Then in StChEq you put 1 line for total distributions that year, and 1 line for
Memebers conributions that year. Memebrs conreributions is separate from
distributions completely separate, it does not go in the same account netted off 1
against the other like in a sole proprietor . In a cc it is separate , never netted off.
Fo a sole propritor you can also have just 2 lines in StCHEq 1 for drawings & 1
for contributions - and then for both of cc and Sole Proprietor you can have a note
in fin stats that just says a monthly total for each of disributions & contributions
/per mnth for the year.Easy. A Cc works like per lecturer :that no specuial
resolution is needed for distributions unless there are 2 or morte members, and you
can get a distribution every day actually. One can also use a members loan account
to keep the members contributions in a specific ratio. Then the loan lower interest
rate could be taxable.
6. For cost of sales in P&L, there are a number of items that must specially get
added: a. Theft or missing inventory b. Depreciation on production machines c.
Salaries & production costs eg water & lights etc i. Now this all must go to cost of
sales in the P&L BUT: ii. In the perpetual inventory system , in the cost of sales
account: do these costs ever get transferred to this account(what about ? Or do they
never go to this account, and all only get transferred to the trading account at year
end ? iii. In year end journals in a simple set of books in practice: I suppose they
must all go to TRADING ACCOUNT ? and not just straight to PROFIT & LOSS
account OWN QUESTIONS & ANSWERS
PASTEL/AND OWN STUFF PASTEL 1. If you have a supplier who is also a
customer, and you get paid R40 by them one day , but they actually owed you 50
and minused 10 for what you owed them as a supplier, how do you enter the 40 you
received in the cash books? Do you split it and put 10 on the payments side of cash
book and 50 on amount received side or just put 40 as the amount on the received
side? How are you going to do the bank reconit will be very tricky if there are lots
of entries!!! This is all in saynedbank cash book. 2. How does the possible
discount on a sale work with revenue how does pastel split the 1- if terms are
granted like 3 months, the finance charges built into the price of the goods sold, 2-
possible discount for early payment
for a sale where credit was granted .ie split the sale amount on invoice between
finance charges and revenue.???? 3. For pastel, how does it do the settlement
discount and vat that must go to an Allowance account and reduce total of sale
until customer either pays early or late, and if late then it must be transferred back
to Sales from there. 4. 5. If one supplier sells to you and also receives cash as an
agent for you (like a bank) and charges you a fee for every transaction, but is not a
bank can you open a separate account for its OWING YOU MONEY so it can
only be a customer then in pastel, and a separate one as a supplier for the fee it
always charges you for each transaction. OR do you ONLY open a supplier
account and all the fees and any money they receive for you goes in here which
means the supplier account will MOSTLY owe you a lot and MOSTLY be a
debtor? 6. Google ads : if you get R100 free credit to use to make ads, do you
record it as an income or what? 7. Why is petty cash in same account number as
bank-exmple in text book of pastel..ANS:Can you do it in its own account and
basicly transfer from bank by cheque and from petty cash by bank deposit.? It
should have its own account number, and you can choose either way to to transfers-
by cheque OR by the transfer button on the cash books screen. 8. How does
rounding off work in pastel- you got a field for it in customers setup- what happens
to the rounding account you setup at the end of year? And what happens to
rounding field on the customers invoice that it says it will print? And what happens
to massive decimals from discounts or other things in the books? Where does it go
to in the system?ANS: the system ALLWAYS rounds down- so you dint cheat the
customer, and thus is goes to an expense account in your books. 9. pastel to lookup
on web help a. service item - what is service items income stat account & ANS :
you caqn make a new separate account under the sales account (with its
completely own different accountnumber) so if sales is no.1000 then make it say
1100 or so to keep them in the same area. b. consignment accounts ANS: some
people make an inventory item , but cost stays zero till you sell it, then only then do
you BUY IT in your books and record it as sold at same time. c. make average
cost 0 when 0 on hand for 'inventory setup'.- how does this work ?? not know yet!
d. allow invenbtory to fall below zero- how do you do end of year adjustment
account for this? not know yet! 10. How do you do BoB in pastel as a supplier or
customer or both? Bank/credit card FEES/LISTING FEES/HOLD FUNDS FROM
CUSTOMER ETC ANS : yes you make a supplier and a customer account, then at
year end just transfer and dr or cr to the appropriate account with a general journal
entry easy! Also Since you are supposed to charge interest by the day after a sale ,
and if you intent to give them 10 days to pay then write this up as an interest
income allowance, WHAT ABOUT WHERE THEY SAY it is assumed that all
terms periods start FROM END OF MONTH STATEMENT DAY SO YOU
COULD BE GIVING 25 DAYS INTEREST FREE IF HE BUYS AT
BEGINNING OF THE MONTH?? DO YOU HAVE TO MAKE AN
ALLOWANCE HERE FROM DATE OF SALE UP TO DATE OF STATEMENT
OR WHAT??? This is a terrific mix up on PASTEL which computer systems can
do this automaticly? 11. 12. HOW DO YOU TRANSFER A DEBIT BALANCE
IN SUPPLIERS CONTROL ACCOUNT TO DEBTORS CONTROL ACC AT
YEAR END, OR AT INTERIM FINANCIAL STATEMENT PRINTING- SO
YOU CAN STILL LOOK AT THE SAME CREDITOR ACCOUJNT AND SEE
OH YOU STILL HAVE A POSITVCE BALANCE HERE , WHEN YOU CHECK
ALL THE ACCOUNTS EACH MONTH TO SEE WHO YOU MIGHT OWE.
ANS : yes you make a supplier and a customer account, then at year end just
transfer and dr or cr to the appropriate account with a general journal entry easy!
13. Where is the trading account and profit/loss account? It does not show? Ans: no
patel uses ret earnings only- it does not have the other 2 accounts really per
lecturer. 14. Why does the profit loss acoount not get auto transferred to retained
income in equity at year end function? It shows up in ret income in the general
legdger acc but not on the tiral balance or balance sheet of the firat month of the
new year? Must you ytransfer it manually? 15. For Bid or buy account they are 1-
customers all sales pass through them 2- suppliers they charge a fee for each item
sold and for credit card transactions , they also act as a bank so customers pay the
money to them and they then pay it to you so your payment does not come from
the customer , it comes from them but only after all deductions. a. SO do you make
a both a separate customer + a supplier account for them , or just a supplier account
or just a customer account? And the day the customer pays them they are an agent
receiving money for you here- do you enter it in your books at that time as money
received or do you record BoB as a debtor on that day? (they provide a service by
receiving some of the money customers can elect to pay through them or directly
to you) b. If some company is a customer and a supplier for real what do you
name their account in pastel and if they only pay you the set-off amount each
month(balance) then how do you enter the money received in cash book? Only
enter the balance or the full amount paid and full amount received that the set-off
balance represents. 16. Say last year you had 3 accounts one as customer/debtor
for sales that they acted as agent for & processed payment for,one as
supplier/creditor for transaction fees ,and one as customer for affiliate fees(you
advertise for them on your website if you want to change it all this year to just
one account as supplier cause that is the main thing then do you remove the old
accounts from pastel, and what do you state in the notes: do you have to make a
note of this change in accounting policy or not? And must this change be applied
retrospectively or not? How do you apply it retrospectively in pastel? OWN
QUESTIONS: NOT PASTEL 17. how do you do a reversal of an unpaid item in
your bank statement. Eg: bank charges or a debit order were debited to your
account, but due to lack of funds , the next day they were reversed by the
bank.Your first transaction goes to the cash payments journal, and where does the
second one go?cash receipts journal OR purchase returns journal or ANY of the
2.Which is best? a. Where do you R100 put free credits which you may use any
time in the future,which you get for just opening a service/ or advertising account
with some agency. IT IS NOT TRADE DISCOUNT, BECAUSE AT end of year
they might still owe you this R100 free credits, and you do not have to buy
anything to get them so they are creditor!!! b. By the way if somebody eg Telkom
for telephone charges ,who you paid, refunds you R100 because they later find out
they overcharged you, can that also go to cash receipts journal,or only to purchase
returns journal? Is'nt the purchase returns journal there so you can subtract it from
your purchases(of products for sale) when you do the Income statement to show
the correct figure so you can work out cost of sales properly? So if you put things
in the purchase returns journal like telephone charges, thenyou get an incorrect
figure for your cost of sales if you sell eg: only groceries ,like checkers or so. c. If
an entity has separate bank accounts under the same name , or even at different
banks, - do you put a note in journals as to which taccount each transfer is to/from
or do you have separate bank ledger accounts more than 1- and separate columns
in the journals? d. What is a 3 column cash journal(at cna)
e. What is a cash book cpj or crj. What other odd jurnals do you get and their
format/setup? f. If you do a year end adjustment for bank charges, where you have
received the statement but the bank only charges you in january for all your
december banking charges,so it only appears on your january statement as well(that
is their method) if you do a year end adjustment so you credit accrued bank
charges and debit bank charges , when the bank does charge you in january, you
debit accrued bank charges and credit bank, or can you somehow reverse (by debit
accrued bank charges and debit bank)before they actually charge you , so on first
day of new fin year? If you reverse before they charge you then when they charge it
will happen that you will have to write in the date as january and dr the bank
charges expense account for january because the expense account from last year is
already closed off? So it will appear wrongly on your next yrs fin statement
AGAIN? So may one not reverse an income/or expense adjustment untill that
expense/ income is actualy received or paid? g. For a year end adjustment is it so
that all transactions must show up in correct year but not in correct month, so if you
reverse income rec. in advance at beginning of year then when you put it back into
the correct income account eg: services rendered ,then it can show up in january(
for dec year end) in the books but the work can only be done in july- so wrong
month? h. BAD debts : if a bad debt occours in 2007 but the sale took place in 2006
dos'nt it show up wrongly on the 2007 income statement? 16: also for pastel, same
as above , how does the the accrued finance income in a credit sale work?
1.
if a creditors account gets a DEBIT Balance due to a refund which happens after
end of the month and after you have ALREADY paid the invoice in question, do
you have to transfer this balance to the Debtors Ledger and open a new Debtors
account for the same debtor before you record any refund in cash from the supplier-
or can you just do the whole thing in the creditors ledger (instead of just reducing
your next purchase by this amount) If you buy from and sell to the same customer,
do you have to have a debors and also a creditors account for the same supplier?
For the purchase returns journal if you have returns for maybe overcharged
electricity account, or telephone account, do you have to have a electricity returns
accou nt like the purchase returns account so you do not mix the 2 up in cost of
sales, or do you just have a sundries returns account for all exept purchases of
stock , or 3- do you just debit the electricity account directly instead of first going
through the purchase returns account?( to not mix up cost of sales)
2.
3.
CLOSE CORPORATIONS:
4.
A cc must by law keep its records in such a way as to prevent falsification and to
fqacilitate discovery of such falsification.What method / what are all the points 1 to
10 etc.-that must be used to do this as per saica / trade usage accepted by
courts.(exactly , not sort of)?
5.
What must the legally required report of the financial officer , to be included with
the AFS of a cc, contain exactly(not sort of).
Presentation Revenue - Change in Acc Policies Income Tax. 6.
The AFS must be 1-approved 2- signed by or on behalf of every member of the cc.
IT ALSO SAYS the AFS must be approved &signed by or on behalf of a
member or members who together hold an interest of at least 51% in the
corporation.(check this up which is correct. )
7.
i. . INVESTMENT PROPERTY 1. You must choose whether to hold items using
the COST model or the REVALUATION model .it all works exactly same as
PPE.(it is doubtful whether the change from cost model to reval. Model can be
performed, as it is not evr likely to result in more relevant & reliable reporting.
per book) if it is too expensive every year for firm to revalue all its asssets in class-
is it more relvant to change to cost from reval. , due to firm cannot afford proper
reval. , and thus values are not shown at a relevant & reliable rate, so the costs
model is better?) GROUP STATEMENTS: 2012 1. BRING TEXTBOOK FOR A
LOT OF REFERENCING TO IT BELOW: 2. How to account for bond using
amortised cost model, ie for held to maturity bonds : is it just interest adds up
separately ordo you put interest with asset as part of asset .-ie where do you
actually amortise anything ? 3. For IRS 3 , for intangible assets treatment at initial
recognition : see yellow: a. Intangible Assets: IAS 38.33-43 Int. Assets, gives
guidance on group stats, basicly it says: i. Fair value at Date ii. Probability of
Economic inflow ALLWAYS deemed satisfied at DATE even if timing&amount
of inflow uncertrain at date. iii. Recognised separately from goodwill if
identifiable per definition of identifiable in IAS38.: 1. However, if NOT
separately identifiable, the aquirer will absorb into GOODWILL the value of all
assets that are not identifiable, as well as any OTHER ASSETS that do not qualify
as assets for some reason on DATE- this is consistent with principle in IAS 38.I
think they get absorbed into goodwill only into ONLY cons fin stats, NOT into
subsidiaries books , on date. (???But do subsidiaries books changeas well because
of this rule AT ALL if the status above is different to what he has in his books at
date - at all or can his books be different here to cons fin stats? surely not! And
would it get absorbed into his GOODWILL at date as well? Or not? Where
COULD his goodwill possibly be different to cons fin stats goodwill?????) iv. If
fair value of an intangible asset changes at DATE: then goes in cons fin stats at
new Fair Value at DATE, not old fair value. Must also be changed in subsidiaries
books of course. ( what if subsidiary falls in a no- revaluation needed year that year
can they stillgo on showing it at a different fair value to cons fin stats.? and turn a
blind eye to the revaluation that was done?) b. Operating Leases Intangible Asset :
basicly aquirer shall not recognize assets & liabilities related to these, EXCEPT for
as an INTANGIBLE ASSET if their market value is different to their book value ie
i. Note: this is only if subsidiary is the LESSEE , if he is the LESSOR ie OWNER ,
it works exactly the opposite then both parent & subsidiary MAY NOT recognize
a separate Intangible asset, he must instead somehow incl. the difference in the
FAIR VALUE of eg building at DATE .See measurement guidance section below.
ii. Aquirer shall determine if terms of operating lease are favourable or
unfavourable : If terms of
operating lease are favourable , then an INTANGIBLE ASSET is recognized (how
I dont knowprobably just simply done) is calc. at discounted PV value and is
amortised over its remaining yrs. ( normally evidenced by fact that market is
prepared to pay a price for the lease to take it over from you eg rent a building )-If
unfavourable then just forget it- nothing is done. .( MUST THE INTANGIBLE
ASSET ASLO BE RECORDED IN SUBSIDIARIES BOOKS? or only in books
of Cons Fin Stats? per IAS38) iii. A separately identifiable intangible asset may be
recognized by: 1. REM FV = O on calculator , and you want PV : Initial
recognition : REM FV =Eg: PV = ? FV = 0, N = 5 yrs PMT = (5500-5000= 500
difference in value ) i=15% :SAY FOR this one market value of rent is 5500 PM
and you have a contract to pay only 5000 pm for next 10yrs at DATE. Just get PV
at eg 15% interest p/a and amount difference that it is favourable in your favour is
used as the PMT .(HOW DO YOU WRITE THIS UP IN THE BOOKS? HOW
IS THE ANSWER SHOWN SEPARATELY AS AN INT.ASSET? from operating
lease?) 2. Amortised over remaining life: either do above calc. again and
subtractfor amount to be amortised off the asset value that year , that will work
(or similar method if you can skim it up! Not sure check amortization on
calculator.-) 4. See yellow:NOTE : even if a question says subsidiary did not
recognize it previously in their old books as a contingent liability for some obscure
reason but it seems they were wrong and should have , if it fits the definition above
you MUST recognize it for the new Cons. they can get Duh tricky with this -(
even though subs. Would then probably also have to recognize it if you are correct
)( is example 2.12 pg 2.06- does it mean they were wrong previously not to
recognise it??) 5. GROUP COMPANIES: 2010 1. Find out about which part of
voting rights/ shares / etc etc gets to control a company see below. Definition
:Parent : must possess the majority of voting rights OR of the voting equity
shares-ie:Ordinary Shares (Note-NOT PREF.SHARES ,see below)-. So if any
share (incl. ordinary shares) does not have all its voting rights, then only the voting
rights counts toward if it is a parent or not, the voting potion of shares is what
counts , not just the percentage held of all ordinary shares- Has the right to control
composition of the board of directors, holds o 2. 1-must a subsidiary present GAFS
to the AGM?or only the parent(repair your notes at bookmark 1) 2-how does the
below work: see ii,results misleading( a-what does misleading and prejudicial
mean, is it your competitors find out your stuff or whatand b -do you just never
prepare any? Or later or only for registrar etc? what ?)+ iii operations different( ask
same questions as for ii) and for i-must they be prepared later anyway if no time
left etc. When are group statements not required/drafted? a. Group statements need
not deal with a subsidiary if the directors are of the opinion that : i. Impractical or
no real use to members( eg insignificant sums) or if the cost or delay would be out
of proportion to the usefulness to members. ii. Results would be misleading or
prejudicial to the affairs of the parent or other subsidiary. Permission of the
Registrar is required in cases 2+3 iii. Operations of the parent and subsidiaries are
so different that they could not be treated as a single enterprise. Permission of the
Registrar is required in cases 2+3 b. Group AFS are not required when the Parent is
itself a wholly owned subsidiary of another company. 3. Do not understand any of
the below provisions properly. GENERAL PROVISIONS 1. GAFS should be a fair
reflection of the state of affairs of the parent and its subsidiaries at the accounting
date.
2. Profits losses that have arisen as a result of transactions within the group, where
such profits/losses have not been realized in respect of persons outside the
group,should be eliminated. 3. The provisions of the Companies Act 1973 must be
complied with. 4. All intercompany balances must be eliminated by determining
the total assets and liabilities of the group. 5. Dividends declared by a subsidiary
out of pre-aquisition profits do not form part of the parents profits that are available
for distribution. 6. Elimination of the carrying amount of the parents investment in
the subsidiary. 4. In which companies books does the goodwill get written off or
is it added?- subsidiary or parents? Does one reverse these journal entries in the
new year ? or how can you do the same entry every year- it will add up.ALSO : no
2 : ask about retained earnings below see yellow. 5. When does the goodwill in the
parents books get originally entered in N_C assets?On purchase of the original
shares or when? Does it get written into the books and out of again every year-
because you do the same journal entry each year!? Is it not when the purchase takes
place ? how does this work? STEP (2) JOURNAL ENTRY DR CR Share capital of
B.Ltd (Ordinary shares of R1 ea) 50,000 Retained Earnings (B.Ltd) 40,000
Goodwill ?????????????????????? 10,000 Investment in B Ltd 100,000 Elimination
of shareholders equity of B.Ltd at acquisition NOTE: 1-Retained Earnings: you
only eliminate the retained earnings from before acquisition, not from after
acquisition.(I think make sure?????) the before part is in the assets + goodwill you
paid for (asset swap for cash)so it is written out, but the after part ???????- re do
update these notes after you ask about this : pg 124!!!!!) 2- GOODWILL: this is
written ??into or out of ?? (subsidiary or parent ) in order to what??? Update this in
own notes after asked: pg124 6. For journal entries- are they done in both enitites
books, so as if 1 journal entry is made in both books to join the two companies into
1- so it is like 1 journal entry. 7. Ask about yellow below- to work out %
shareholding- you leave out pref.shares, and include ordinary shares, but only the
voting part of each one or what? STEP (1) Determine the percentage interest in
each subsidiary: Investment in Subsidiary(Ltd) Total Ordinary Shares of Subsidiary
= eg 100 000 shares div. by :eg 100 000 shares X 100 1 =100% : therefore wholly
owned
NOTE: 1) interest in subsidiary is determined by the amount of shares held NOT in
Rands Value- You must use 100000 shares and NOT EVER R145000 to determine
this percentage. 2) the shares you use to work this out are ONLY ordinary
shares(with a vote or per part of a vote-is it 0.5 % of a vote = 1 share or o.5 share
even if same value??ask-, or something like that not sure), never preference
shares. 8. Journal Entry (for non controlling interest in a group statement) is: all
Subsidiaries Share Capital & Retained Earnings get written out- and then just the
non- controlling interest gets written in as a CR to balance this all out in a separate
line.(is this non-controlling interest a ledger heading? How does it go in the
ledger.? Pg 125 own notes update 9. Can you put 3 dr journal entries above 3 cr
journal entries , so 6, + only 1 narration, for eliminate inter-company balances ie: a
loan,debenture+dividend???
10. By when must a company declare its dividend-year end, and then in retained
earnings c/d from the appropriation account we usually have to write 1 Jan or 1
Mar for the date, but if dividends are only declared 1 week later what do we write
then?- still 1 jan for 31 dec? and what about if we only finish 3 weeks into the new
year with the end of year calc. in this ledger account- what date do we put for this
thing then.? What about interim dividends: how many times and by when must the
decision be taken and how do you do the ledger entry?(cd / b/d etc) 11. SEE PAGE
78 OF UNISA GUIDE FOR GREEN HIGHLIGHTER ETC.Where do all the other
journal entries go? What account does each one pertain to and in whose books of
parent or subsidiary-is each one- so also what type of account is each one? An
expense or income/asset /liability etc?How EXACTLY does each one work?AS
FIOLLOWS PER ITEM IN JOURNALS: i. Eliminate shareholders equity at
acquisition: 1. Retained Earnings: you only eliminate the retained earnings from
before acquisition, not from after acquisition.(I think make sure?????) the before
part is in the assets + goodwill you paid for (asset swap for cash)so it is written out,
but the after part must come from somewhere and so balance out with
equity+liabilities section in group statement by being shown as +retained
earnings???????- re do update these notes after you ask about this!!!!!) 2.
Goodwill: update from questions after ask- this is written ??into or out of ??
(subsidiary or parent ) in order to what??? Update this in own notes after asked:
pg124 When does the goodwill in the parents books get originally entered in N_C
assets?On purchase of the original shares or when? Does it get written into the
books and out of again every yearbecause you do the same journal entry each
year!? Is it not when the purchase takes place ? how does this work? 3. Non-
Controlling interest: is written out of where? Into where? 4. Out where /into where
do all the rest go? ii. Recording non-contr. Interest in profit after tax: does the dr
(SCI) write it out of the profit for the year(parentsgroup) and the cr(SFP) write it
out of ret.earnings? iii. Eliminate intercompany dividend and record non-control
interest in dividend. 1. Are you moving the total dividend out from subsidiary
across to parent(-cause now it must look like all dividends come from the parent,
not subsidiary who is now a part of the parent,) and writing out div. rec. by parent(
so it becomes just a part of the total bank balance-as if it was just transferred to the
bank of parent, not paid) and writing ..??to where does the Non-Cntr. Get this
dividend as a dr??? 12. LOANS/DEBENTURES: where do you eliminate any
interest paid out already on loans or debentures intercompany. 13. What STCHEQ
reserves or CRRF or revaluation reserves or share premium columns from
subsidiary ever appear in the parents side at at date in stcheq.And does share
premium, or crrf, of reval.reserves from since ever go on parents side in their own
columns?which ones would never ? 14. If parent owns any pref shares in
subsidiary: does this ever go in own column in stcheq on parents side for at OR
for since 15. Revaluations: see pg 91 unisa202r for first type-where assets
revalued merely for determining purchase pricewithout a journal entry being made
in subsidiaries books- then how do you do ConsSFP the PPE- add reval or not?and
analysis of equity?- first add entry at at date, then subtract/revalue it at since
date? Or just mention nothing at all-?? How 1) Ask about yellow below: a) Journal
entry 6:Eliminate profit/loss in closing inventory.: you take out the profit left over
in closing inventory of buyer(inventory is a dr so you cr it) and take out profit from
the sales of the seller by (Take Note!:) ADDING it to Cost of Sales of seller (cost
of sales is a dr so you dr it) instead of subtracting it from sales of seller because
otherwise you could not do a contra type journal entry to balance because you are
trying to do 1 journal entry for the books of 2 companies and this is the only way it
will work properly(I think-check up on this)
b) Journal entry7:Eliminate profit/loss in opening inventory.: you take out the profit
in OPENING INVENTORY so that when one basicly goes into this current year
from previous year, you get rid of any profit left over in stock from last year which
is a loose end , since sales&cost of sales from last year never show up anywhere in
this years statements, only retained earnings from last year still includes this profit
left in inventory because you use the books of subsidiary-where it is still in- to
compile this years cons.fin.stats,not the cons.fin.stats. of last yearwhere it[inventory
profit] was taken out-)So you take it out of last years retained earnings of SELLER
(this years opening ret.earnings) by dr it ,to take it out there (because retained
earnings is a cr so you dr it to take it out) and you take it out of the inventory of
BUYER by (Take note!) writing it out of the SELLERS Cost of Sales (for some
weird reason-dont know-must ask!) 2) Ask yellow below: i) StChEq: (re-do-not
done properly no time!) (1) Parents Beginning of year ret. Earnings: (2) Parents
Tot. Comp.Income for Year: (3) Non-Controlling interest begin year balance: (a)
Parent to Subsidiary Sales: you do it normal, as if there was no issue with
stock/sales etc. (b) Subsidiary to Parent sales: for some weird reason, you MUST
subtract the profit left in the parents [closing-opening+ inventory from the
minoritys retained earnings at As well as doing the same for the parent of course.
(4) Non-Controlling interest Tot.Comp. Income for Year. (a) In the same way as
for retained earnings above, for some weird reason, you also MUST subtract the
profit left in the parents [closing-opening+ inventory from the minoritys share of
the profit for the year, as well as doing the same for the parent of course. 3) Ask
yellow below : a) ANALYSIS OF EQUITY: i) For parent to subsidiary sales: NO
profit/loss/stock.etc. deductions/calculations are done on the Analysis of
Shareholders Equity, all are ONLY EVER all done separately in other
calculations/workings. NO changes ever show here, everything is done as if no
intergroup profit/loss/stock changes need to be made at all. This is so the minoritys
share of profit loss is properly calc. without any deductions etc. ii) For Subsidiary
to Parent sales: because the subsidiary sold the items, the adjustments need to be
shown on the analysis of equity.so: (1) Retained earnings: you subtract answer of
profit left (eg *25/125) in :(closing-opening) inventory of PARENT(not subsidiary)
from everybodys TOTAL RETAINED EARNINGS,not just the parents, so also
minority share as well as parents share get reduced(why I cannot understand!-
surely the dividends of minority NEVER get affected by whats left in parents
inventory! Surely they must get their full profit!And then, if the inventory is left in
subsidiaries stock for a visa versa transaction, why is the same not done
then?because it was an asset swap by subsidiary or what?why does minority suffer
for parents not having sold stock(they could take up the production of the
subsidiary and hoard it, or sell it at a loss, then minority sits without dividends for a
few years! Or what) (2) Profit for current year: you reduce the TOTAL by
subtracting answer of profit (eg *25/125) left in :(closing-opening) inventory of
PARENT (not subsidiary) from everybodys TOTAL, not just parents BUT also
subsidiaries, so also minority share as well as parents share get reduced(why I
cannot understand!see question in (i) above.) 4) What does consider the carrying
amounts of the assets of A and B to be equal to their fair value at acquisition
esp. when the same question says the land was considered undervalued by 50000
?see exam questions! 5) See yellow below Journal entry 9: Elimination of
depreciation associated with sale of asset. A sells to B: Accumulated Depreciation
(of Buyer B) 1000 Depreciation (of ?sellerA? ) Isnt it of buyer? 500 Booksays
seller (only if sold in previous fin.years.) Retained Earnings (of Isnt it of buyer
500 Book says seller
?sellerA?) Elimination of depreciation associated with the sale of the asset.
Pg 111 unisa book
Pg 111 unisa book.
1. Why does the revaluation reserve of subsidiary for any part from after
acquisition till current, not show in the parents SFI under its own heading , or at all,
but for the minority interest it does show? See page 123 in unisa book.ANSWER:
Wrong- it does show!!!!you must show it!!! 2. For a PPE profit transaction : what
happens if one company still owes the other company for this intergroup sale- do
you have to reduce Trade& Other receivables in order to eliminate this debt ??
whay was it not done in Lucia & Marius exercise?(put answer in notes: as a special
remember) 3. 1-if you want to revalue property,which ledger account do you put
this revaluation in: like accumulated depression or accumulated (upward)
revaluations etc or what 1. FOR THE StChEq : see yellow NON-CONTROLLING
INTEREST: this must be shown NCI gets its own separate column in StChEq ,
and forms part of Total column too. You get the begin of year figure for this
column from the total of the At to begin current Yr part of the ANALYSIS OF
EQUITY. If the cons fin stats are done at acquisition just the total of the NCI as
from ANALYIS OF EQUITY under line item name: Subsidiary appears in its
own line to record NCI share at aquisition . a. NCI share of profit for the year: The
NCI share of this profit must be shown in a separate column for NCI. Both figures
come straight from the ConsSCI, NOWHERE ELSE, if you try to work it out from
single SFPs & SCIs you will get a wrong answer .ONLY use the Cons.SCI to get
these two figures because many changes have been made to them as you went
along to get to the Cons.SCI figure. b. DIVIDENDS: this is a funny one. In the
same line as dividends paid by parent NCI dividends paid must also be recorded.
Parents portion is ONLY what the parent itself paid out- nothing AT ALL to do
with the subsidiary. BUT the NCI portion is ONLY the NCI portion per %ratio of
the dividends paid out by subsidiary. This you can get from the Journal Entry to
Eliminate dividends paid by subsidiary. WHY on earth they show for the NCI this I
DONT KNOW. The NCI then pays AND receives this same dividend. ??? just do
it and ask later?? 2. How do you do negative goodwill for a NCI from a SHARE
VALUE method of doing the valuation of NCI , (instead of proportionate method)
so is it a gain from a bargain purchase or what? And does it get a current assets
negative goodwill account to balance itself out in retained earnings (because it
does not go to ret.eaRN. LIKE A GAIN by the parent from a bargain purchase
so where does it balance out here??? Does it get a SFP account or a SCI entry
which?? a. AND what happens if a goodwill positive balance of the parent , is
cancelled out (set -off) by a negative goodwill of NCI do you now leave out the
goodwill heading in SFP , or make it 0 , or leave goodwill as an asset and do
something else with NCI negative goodwill.??? 3. See page 129 why do they do
gain twice here? Is it a printing error in top one? How can they add it twice? Is it
supposed to mean you can split the entry up in 2 parts and the top one is a primting
error or what? NON CONTROLLING INTEREST: 1. IAS27.27 N-c interest shall
be presented in SFP within equity,separate from equity of owners. 2. IAS27.28 :
OTHER COMPREHENSIVE INCOME section: for each component of Other
Comprehensive Income the n-c interest shall be presented separately. ALSO it says
this shall be presented separately even if it results in a deficit balance for the N-C
interest. 3. JOURNAL ENTRIES : all the amounts th show in the NCI column in
analysis of equity of subsidiary worksheet from AFTER the AT date ,MUST
get a separate journal entry for eac h one : just go down the row and do a journal
for each amount in this column so you dont leave any out : ie 1- Retained Earning
for At till begin current year 2-profit 3-dividends , 4-any other items in this
column. (???5- must gain from bargain purchase/goodwill of NCI when using share
valuation method get any extra entries here in year 2 or later , AND where must
you add this in in StCHEq begin year retained earnings for NCI or ret.earn.in
SFP ??? etc) 4.
NON-CURRENT ASSETS HELD FOR SALE & DISCONTINUED
OPERATIONS 1. ( do you get N-C as well as Current 1-liabilities held for
distribution and also 2-liabilities held for sale ????) 2. See yellow only ;
RECOGNITION OF IMPAIRMENT LOSSES: i. If the fair value less costs to sell
is lower than carrying Amount at re-classification date, then the new reduction is to
be handled as an INPAIRMENT LOSS. ii. DO you test for impairment on re-
classification date? It is authors opinion that Impaiment is ONLY tested at End of
Year(except for special types of assets) , so no, you do NOT test for impairment
when this happens , just write the asset down as if it were an impairment if this
fair value less costs to sell is lower than carrying amount. iii. Although IFRS 5
is not very clear on the issue per txtbk, it seems as though every impairment
should be recognized in P&L, even if asset is carried at a revalued amount(ie If
carrying amount is from an old revaluation , you DONT first decrease the
revaluation surpluss.account anymore, you recognize any impairment directly in
P&L.(is this correct?then when you sell the asset you can optionally write out
reval.surpluss. to retained earnings or do you write this rev surpl.out to
ret.earn. on classification as held for sale date?) 3. ALL ASSETS EXCLUDED
FROM SCOPE SEEM TO STATE IN THEIR IAS THAT THEY MUST BE
TESTED FOR IMPAIRMENT, (not just at year end ) JUST BEFORE RE-
CLASSIFICATION AS HELD FOR SALE. So there should not be any reason to
have to impair them (although there may be a reason to bring them down to fair
values less costs to sell-that is different to impair) just after reclassification. BUT
all assets that are included in scope do not have this condition in their IAS, so they
could be written down AFTER, if fair value less costs to sell of the asset is lower
than carrying amount.(is this true- see GAAP txtbk pg 725 TOP.) a. (SEE printing
error 4000 instead of 5000 on page 724 bottom) i. 4. See yellow
:MEASUREMENT OF INDIVIDUAL N-C ASSET OUTSIDE MEASUREMENT
SCOPE (ie: excluded from scope) a. This ones measurement is done as per the IAS
that applies to that type of asset , not IFRS 5 at all. This goes for impairments as
well as for revaluations or other. b. SUBSEQUENT MEASUREMENT: This must
also be done at the method per IAS that applies. Impairments & Revaluations( if
held at revaluation method) + depreciation/amortistion (??is this true??)etc at year
end are all NOT per IFRS 5 but per applicable IAS. Eg: for investment property, if
the fair value goes up OR down it would be revalued at that amount in the books,
and costs to sell would not be included ,because it is npot in IFRS 5, but goes as per
IAS 40 Investment property where costs to sell are not incl, and fair value can go
up or down (for IFRS 5 assets it may only go down, not up except for rimpairment
reversal!) 5. MEASUREMENT OF DISPOSAL GROUP INSIDE
MEASUREMENT SCOPE (ie: not excluded from scope)this is a VERY trick one:
a. Immediately before + on date of re-classification as held for Sale: , all assets in
disposal group MUST be re-measured using their normal IAS method JUST
BEFORE they are re-classified- so all depreciation / revaluation etc must be
brought up to date.(1-MAY you and 2- MUST you revalue assets that are held
using revaluation model on this day or not?) i. ALL ASSETS EXCLUDED FROM
SCOPE SEEM TO STATE IN THEIR IAS THAT THEY MUST BE TESTED
FOR IMPAIRMENT, (not just at year end ) JUST BEFORE RE-
CLASSIFICATION AS HELD FOR SALE. So there should not be any reason to
have to impair them (although there may be a reason to bring them down to fair
values less costs to sell-that is different to impair), just after reclassification.
BUT all assets that are included in scope do not have this condition in their IAS, so
they could be written down AFTER, if fair value less costs to sell of the asset is
lower than carrying amount.(is this true- see GAAP txtbk pg 725 TOP.) 1. (SEE
printing error 4000 instead of 5000 on page 724 bottom)
ii. So investment property in an incuded group ,should be changed ON THAT
DATE up/down to its fair value. And inventory must be changed to its Net
Realizable Value.(NRV). all before the reclassifaction. (Impairments are
seemingly not done unless there is an indication of impairment for a special type of
asset eg indefinite intangible assets then but what about revaluations?) iii. On re-
classification date: they are from now on all measured per IFRS 5 . The rule is that
if even 1 asset in the disposal group falls within IFRS 5 scope then ALL the assets
in the disposal group MUST be treated using IFRS 5 measurement methods. BUT
if not one asset in group falls in IFRS 5 scope, then they are all each measured
individually using their original respective IASs . - eg investment property etc. iv.
Note: if on classification date, there is any impairment of the whole DISPOSAL
GROUP of assets, this impairment can only come from the assets incl. in scope of
IFRS 5, because all assets excl. from scope seem to have it in their IAS that they
must be tested for IMPAIRMENT just before reclassification as Held for Sale- so
ANY IMPAIRMENT ON CLASSIFICATION DATE , on first measurement at
IFRS 5 standards just afterwards , must ONLY first come off goodwill, then come
off ONLY assets incl. In scope, not assets excl. out of scope of IFRS 5. v. Special
Note: note that if the GROUP has an impairment as a whole, you NEVER use the
fair values of individual assets in this step, the group one is dominant then . So then
you just adjust the assets to equal the new group impaired etc . value . 1. So if
ON CLASSIFICATION DATE after first remeasuremnt at IFRS5 standards , that it
happens that the DUE to the accountant deciding on an IMPAIRMENT of the
disposal group as a whole, (here you can decide to impair individually or as a group
of coursedepending which is more accurate) ,so then that in a group the assets are
worth LESS than singly one by one and you have to then adjust each assets book
value accordingly, it (difference) MUST come off assets in scope of IFRS 5, not
those outside scope, to bring down to the Disposal Group value. NOTE: this applies
only if you actually impair the group itself as a whole. *what happens here: ??
is this true (I dont think it is true !!)If you were talking about cost of disposal of
the group as a whole and tr y to bring down assets value singly for that, you must
first look carefully at how each asset OUTSIDE scope was treated individually for
cost of disposal or whatever , - eg: : IAS 40 investment property does not ever
incl. cost of disposal , so you might have apportion to Disposal Group
estimated disposal costs to investment property when you do the second round of
IFRS 5 re-measurement each year all other up/downs get treated in the same
complex way of course.- ps dont do this , I dont think my idea is right here!!!] vi.
Note: Impairing a CGU (cash generating unit) : 1. Goodwill:Any Impairmant loss
must first be allocated to goodwill of the CGU, thereafter to the remaining assets in
proportion to their carrying amounts ( the same rules as above apply of course still
for either in or / out of scope assets. 2. the rule in IAS 40 impairments that says
individual asssets in a DISPOSAL GROUP cannot be written down to below what
their individual NRV is , from impairment that comes from impairing a CGU (cash
generating unit) as a disposal group as a whole then filtering it down , DOES not
apply to IFRS 5 impairments . Here you may write it down because here it is
impossible that he individual assets ever get sold separately if they are in a
DISPOSAL GROUP so the group must be impaired as a whole and it may filter
down and let assets go below individual NetRepl.Val., since if they were ever to be
sold singly they MAY NOT BE in a disposal group. vii. Subsequent
Remeasurement: on subsequent measurement of held for sale assets in a disposal
group (end of every fin year) 1. 1st : remeasure all assets & liabilities OUTSIDE
scope of IFRS 5 singly using their original IFRSs.: this will include 1-adding
interest on liabilites to the liability if unpaid yet, 2revaluation and 3-impairment
and also 4-DEPRECIATION/AMORTISATION :(is this all true
1 to 4?) 2. 2nd : after you have done this , NOW again remeasure all those amounts
AS WELL AS all the assets that do fall in the scope of IFRS 5, using the IFRS 5
method- ie lower of carrying amount OR fair.val less costTOsell. This will usually
be a value placed on the group as whole, so perhaps an impairment of the whole
group, that must be apportioned between the assets themselves. a. Special Note:
note that if the GROUP has an impairment as a whole, you NEVER use the fair
values of individual assets in this step, the group one is dominant then . So then you
just adjust the assets individual values to equal the new group impaired etc . value
. b. When you change the individual assets values to reflect the new
estimation/impairment of the GROUP value , You do NOT change the value of the
assets OUTSIDE scope of IFRS 5 because they are already at correct levels
since they are measured individually in the first step above. So you ONLY apply
these whole group changes to assets in the group that fall WITHIN the scope of
IFRS 5 even if their value falls far below their individual fair value. c. AND
NOTE : when you apportion the group value or group total impairment to the
Assets within scope of IFRS 5 , the value they may fall to is NOT LIMITED TO
THEIR individual fair value less costs to sell ,they may fall below this all the
way down to a value of zero. Just the assets out of scope never get any group
impairment or group impairment reversal apportioned to them- they do their own
thing.
6. a a.
Costs to sell & time VALUE OF MONEY 1. If the asset is to be held for longer
than 12 months, then the costs to sell must be brought to PV using a suitable
discount rate. 2. This assets costs to sell then always get calc. using the time value
of money from now on, till i t is sold- you never change back. a. So if costs to
sell are calc. using PV because it is estimated that an asset will be sold after 18
mnths (and criteria of IFRS 5 are still met because reason for delay is out of control
of entity) , and at end of fin year after say the first 12 mnths have passed, it is
estimated that here are only 6 mnths left before asset is sold , you re-calc. this PV
of costs to sell again and use the new PV again you do not just say forget the
PV and use straight costs to sell cause it is now less than 12 mnt hs left.- no, you
make a new PV of 6 mnths. But the whole process is only initiated by a initial
going over of the 12 mnths limit, otherwise you never use PV of costs to sell. 3.
Note: this is only costs to sell, NOT of amount of impairment of asset , just the
costs to sell portion. 4. Question : a. when will this time evr go over 12 mnths (
see txtbk pg 729 bottom underlined) since you only find out at year end that it
could not be sold, then maybe it will be sold in the next 12 mnths . And if it seems
loger than 12 mnths then criteria will not be met, so it cannot be classified as
held for sale anyway??? b. If after first 12 mnths asset is still not sold, but you
only notice at year end after 12 mnths have passedthen say ypou are not sure when
the asset will be sold but are hoping within in the next 12 mnths do you start with
PV of costs to sell just because 12 mnths have already passed , or NOT at all, I
mean MUST there first be an estimate of over 12 mnths, OR must you have just
gone over the 12 mnths limit for this
PV rule to start working??? 5. Reversal Of an Impairment Loss: a. This is even
trickier: if a disposal group rises in value then any previous impairments to the
group singly or as a whole , may be reversed, BUT only up to the the limit of the
amount that it was previously impaired by as whole group, or as assets individually,
whether per IAS 36 impairments before the classification as held for sale or per
IFRS 5 after . THIS APPLIES ONLY to assets in scope, assets outside scope do not
get affected by group impairment or reversal, since they are measure separately in
1 st step per their own IAS before 2nd step of IFRS 5 measurment , on first day as
well as every year thereafter. ( those not in scope do NOT go up or down , and
those in scope can go as far down as you want , but may only go up as far as any
group impairments did to each one individually, or any previous IAS 36
Impairments did to them before they became held for sale.( can previous
revaluations/ devaluations for those assets using revaluations method, also count
as impairments for these?) P.S if a group impairment causes assets in scope to ALL
go below zero where does the balance go to?since it may not go to assets outside
scope?) CHANGES TO THE PLAN TO SELL: 1. If an entity decided not to sell an
asset that is held as held for sale anymore, then the following must happen: a. It
must be reclassified OUT of held for sale back into its old heading under its old
IAS . b. All profit/loss on c. Depreciation ONLY starts again from date of Un-
Classification as held for sale, so even if you adjust the original cost less adjusted
depreciation because that amount is lower than the fair val .less cost to sell and use
that as your new value, you do not write that amount of adjusted depreciation up in
PPE table or depreciation account ad depreciation that only starts after it is
transferred to new account out of held for sale assets- you write it up as Profit
/Loss on Declassifation as held for sale or ??????? or what???? d. Re-
measurement: i. Asset out of scope of IFRS 5 : the value will of course remain the
same. ii. Asset in scope of IFRS 5 : 1. It must be re-measured at the LOWER of : a.
Recoverable amount per IAS 36 Impairment , at date of reclassification b. Its
Carrying amount before classification as held for sale , adjusted for any 1
depreciation 2-amortisations 3- revaluations that would have been recognised had
the asset not been held as held for sale. 2. Any difference/adjustment must be
recognized in Profit & Loss in the period in which the criteria are no longer met ,
UNLESS it is an item of PPE or intangible asset THAT IS CARRIED using the
REVALUATION MODEL, then it is to be accounted for as a Revaluation increase
or decrease, NOT a P&L adjustment. Ques: (if the new amount happens to be
original cost less adjusted depreciation because that amount is lower than the fair
val .less cost to sell , do you record that depreciation in depreciation account / PPE
table or not? So would it go in revaluation count ? or if cost mdel is used in plain
P&L other expenses?what would you call the account : revluation on de -
classification or acc.depr. if it is not a reversal of impairment . And if it is a
reversal of impairment or a plain impairment , what does it get called then in the
ledger?ie asset contra) or See example 28.18 in textbk, gripping GAAP, they say
depreciation only starts from AFTER it is unclassified) 2. For reversal of
impairment of assets in a disposal group, may it only be reversed up to the level
that asset was when it entered n-c assets held for sale account, of may it also be
reversed up to the level of any impairment it got BEFORE it got reclassified as
entered n-c assets held for sale. DEFERRED TAX:
1. CLASSIFICATION / DE-CLASSIFICATION AS NON-CURRENT ASSETS
HELD FOR SALE : Any change in the classification of assets from their normal
SFP heading & IAS statement into Non-Current Assets Held for Sale heading in
IFRS 5 or visa-versa will result in a Possible change in the carrying amount
/accounting valuation of the asset to or from : last carrying amount etc. VS fair
value less costs of disposal . The TAX BASE will however remain the same, so any
adjustment to the current carrying amount will result in a temporary difference
necessitating provision for deferred tax. (see pg 732 gaap for example- [P.S :
example pg 731 uses 30% not 14% for CGT watch out]) a. Impairment losses
/gains : are always accounted for in Profit & Loss for Non-Current Assets Held for
Sale the related tax movement must also be in P&L. b. Movement out of held for
sale for asset accounted for using the revaluation model ( except for 1 case:
unless it is a transfer back out of held for sale into normal SFP asset heading eg
PPE or Intangible assets etc, and the asset in there is accounted for using the
revaluation model - then any once-off change goes revaluations acc. so then the
deferred tax must also be done in revaluations which is in OCI (Other
Comprehensive Income). c. CGT : capital gains tax: i. VERY IMPORTANT :
RECOUPMENT : when a machine is sold, any RECOUPMENT up to the level of
the BASE COST , (not Original base cost, but todays base cost left over after all
wear&tear deductions etc.) will be recouped at 29% - the NORMAL TAX RATE.
But any capital gains OVER this tax base amount will be taxed at 14.5 % (50% x
value X 29%).(Is this exactly true?) Since deferred tax must reflect the
consequences that will follow the manner in which entity expects to recover the
carrying amount of the asset , it is suggested by txtbk that all assets NOT in held
for sale must use NORMAL TAX (28% in SA) and all assets in Held for sale
must use normal tax up to Original Tax Base Cost (when asset was acquired ) at
normal tax rate 29% and capital gains tax CGT at 14.5% for any potential capital
gains over the current TAX BASE. (50% of assets at 29% = 14.5%) . %).(Is this
exactly true?) ii. Movement into/out of held for sale : (see CGT above) So when
going INTO held for sale, the following 2 rules apply: , and when going OUT of
you must first reverse any CGT at 14.5 % still left in Deferred Tax in Other
Comprehensive Income ,then put in in Deferred Tax in P& L , and then only
reduce/increase the Deferred Tax in P&L for any incr/decr. in the valuation of the
asset actually resulting from the move OUT of held for sale.(is this true?what you
figured here ?) 1. Deferred Tax on CGT :any change in deferred tax from CGT is
done in OCI : (Other Comprehensive Income). And NOT in P&L (why?) 2.
Deferred tax on potential Recoupment :any deferred tax on the recoupment up to
the level of ORIGINAL Tax Base when asset was bought, must go to P&L but
not any above level of that tax base. DISCOSURE & PRESENTATION: N-C
ASSETS HELD FOR SALE 4. SFP : a. In CURRENT ASSETS : N-C Assets
And Disposal Groups Held For Sale (not in N-C Assets!.) b. LIABILITIES:
Liabilities Associated With Disposal Groups Classified As Held For Sale in
liabilities (may not be set off against assets) (can this be in current as well as non-
current liabilities? Also what about single assets not in a disposal group- do their
liabilities also go in here? Eg money owed on a car still etc? or what kind of
liabilities?) c. Separate: EQUITY: Revaluation Reserve Relating To N-C Assets
Classified As Held For Sale( where does this come from ? only from the transfer
from outside held for sale or can you do revaluations inside held for sale?) d.
COMPARATIVES : note: they are not restated for effect of n-c assets reclassified
as held for sale in current year- so they will be Non current assets for last years
comparatives and CURRENT for this years held for sale (how do you show this
do you move last years N-C figure to this years Current Assets held for sale
comparatives heading?)
5. SCI: Separately any CUMULATIVE income/expense recognized in Other
Comprehensive Income relating to a held for sale asset or group. Eg : mark to
market reserve OR revaluation surplus .( does this go in notes or in SCI? is it
ONLY for the current years additions/minus ? do you have a heading for LAST
years revaluation surplus left in the OCI in the notes or something or NOT? And
where would rev. supluss come from then in SCI for current year???) 6. NOTES: a.
In its own separate number and heading in notes: both analysis & descriptions
together in 1 note. i. AN ANALYSIS of the major classes of assets & liabilities
held for sale. (just : 1-Assets each Class + Amounts[eg Vehicles R5000] 2-
Liabilities each class + Amounts) (can also all go on face of SFP) ii. A
DESCRIPTION : a writing of :Only any assets added to held for sale in
CURRENT YEAR , -this year : 1. ?? not sure Impairments for the year of
last/previous years assets added to held for sale (does this go in here or not? Or
does this just go in impairments note?) 2. New Assets Added : a. Name of
asset/group b. Reason & facts of disposal c. Expected 1-time & 2-manner of
disposal d. Impairment loss/ reversal on re-classification, as well as the heading in
SCI it is. 3. If applicable, the reportable segment : in which the n-c asset is
presented in accordance with IFRS 8 Operating Segments 4. Change of Plan :
deciding to take assets out of held for sale a. Reason & facts b. Effect on
operations of current & any prior periods presented b. INVENTORY 1- on TUT of
unisa first question on inventories it says payment iof deferred for 6mnths beyond
the 2 mnths normal term but they use 6mnths instead of 8 mnths for finance cost :
however descriptive accounting book see one of first few examples they use the
FULL 8 mnths incl. normal terms? So what do you do? ALSO isnt 2 mnths normal
credit terms to be seens as a finace cost as well? ANYWAY I mean?. 2-on tut 1
question 2 inventories : 3 questions in the book itself you wrote in pen +ADD all
other questions from last year
IAS 10 : EVENTS AFTER THE REPORTING PERIOD: IF NOT DONE (if fin
stats are not prepared on a )ON GOING CONCRN BASIS, WHAT CHANGES IN
FIN STATS- other than a little note note describing the problem at hand. 1.
EVENTS AFTER REPORTING PERIOD NOTE: (separate note in own heading
number referenced to item in SCI/SFP etc it affects) a. Date authorized & who
authorized issue of Fin Stats.: An entity shall disclose the date when the financial
statements were authorized for issue and who gave that authorisation. And also
disclose If the entitys owners or others have the power to amend the financial
statements after issue for some reason (like law etc)(?? could this also probably go
somewhere else in notes if there were no events to report that year so this sub-
heading fell Away.??) b. Adjusting events just change amount or disclosure in the
finstats and then (? ?I think for every change made disclose it in this sub-heading as
well or not at all.???) eg provision bad debts changed etc. c. Non-Adjusting Events:
just the 1-Nature 2-Amounts of each event.
LEASES Initial direct costs are incremental costs that are directly attributable to
negotiating and arranging a lease, except for such costs incurred by manufacturer or
dealer lessors. (SO WHICH LESSORS ARE not DEALERS, SO ISSO DOES
TTHIS only MEAN PRIVATE PERSONS OR WHO?SOR IS not A DEALER
AANY BUSINESS WHO LEASES SOMETHING OUT IS A DEALER IN
SOMETHING OR OTHER?) Gross investment in the lease is the aggregate of: (a)
the minimum lease payments receivable by the lessor under a finance lease, and (b)
any unguaranteed residual value (note this means it is imaginary figures here-for
theory purposes, dont use it for any book entries , you must first deduct the
unguaranteed amounts before doing any accounting entry I am sure) accruing to the
lessor.(why unguaranteed, why not Guaranteed? And so does this exclude anything
that is guaranteed or not?)answ: I think it means the guaranteed part is incl. in (a) ie
minimum lease payments because it is guaranteed , and this (b) is just extra on
top of that. A non-cancellable lease is a lease that is cancellable only: (a) upon the
occurrence of some remote contingency; (y/n ???OR /ANDI think) (b) with the
permission of the lessor; (y/n??? ORAND I think) (c) if the lessee enters into a
new lease for the same or an equivalent asset with the same lessor; or (d) upon
payment by the lessee of such an additional amount that, at inception of the lease,
continuation of the lease is reasonably certain. GENERAL : What other things go
in a returns & allowances journal ? except for returns?
SOME QUESTIONS FROM ANOTHER NOTES PAGE - MIXED UP, SOME
MAY BE REPEATED HERE IN PLACES, LOOK UP AND DOWN Journals: 1.
For purchase ret. Jour. how does discount received get treated- both before and
after creditor has already been paid. 2. 2purchase ret.jour how does vat
input/output get treated?Why to reverse out of vat input instead of add to vat output
instead ??can you do any? What about you have already paid the vat input+creditor
then you reverse from a possible zero balance in vat input- same principle as for
discount reverse should apply here is'nt it ie:you might already have paid the vat to
SARS so it goes to the opposite account- why not here. 3. 2purchase ret.jour- do
you do a purchase returns jour, for a debt already paid to creditor?or how? 4. How
to reverse an attempted debit by bank that did not work- do you journalsie it both
ways like the bank does or just ignore it? For bank recon etc? General: 1. Provision
bad debtors where go to bad debts in income statement? 2. Where does bank
overdraft go in income statement? To 1-current liabilities 2- interest bearing
borrowings 3both ie: both headings in current liabilities. 3. Must provision for bad
debts be written off against debtors at year end in fin stats.? Yes 4. where does prov
for bad debts go at year end closing procedure?1 as an income if decreases ,or2- as
an expense if increases 5. you write off bad debts for 2001 in 2003 and show in
income statement for 2003?? Not reflect accurately!!!!! Earnings for 2003 then ??
how does this work 6. How many decimal places for ratios answers in ixam.
7. Inventory opening/closing operartion for closing entries type? How does it
work? 8. Where does income from a loan to others go in income stat. "income from
other fin assets" or not? 9. How does redeemable pref shares under ' non-distrib.
reserves work' 10. Clubs 1. difference between receipts& payments account or rec
& pay statement? Which is t- account / which goes as a narrative form(one column
like Fin.Stat. type) 2. Companies : 1. No par value ordinary shares do they get a
share premium account? Esp.if some were issued later at a higher value than some
previously issued? 2. Pref. shares- no par value possible yes or no? 3. No par value
shares do they go to same acc as ordinary shares? can not have ordinary & no par
at same time. 4. Redeemable pref shares- how does it go in the balance sheet for
companies. 5. Where does income from a loan or debentures go in the NEW
STYLE TYPE of income statment. 6. Which other income & expense gets
separated from operational income / expense. For new style income statement- next
years syllabus 7. HOW work if par value shares authorised but no par value issued.
8. Ordinary & pref shares do they have same or different share premium & shared
dividends accounts. 9. What deo you do to SARS account at year end if they owe
you?what is contra account for this Credit-"Tax expense" ?Bank is contra(you paid
them) and they are treated as a normal debtor(with set-off possible though) At year
end. 10. Non-distributable reserves- does 'revaluation fund' come from
'depreciation account' if it is credit balance. 11. Is capital redemption reserve fund a
ledger account? 12. Tax- how do you record 'tax accounting date" is that 1 per
year /per 6mnthys/ per mnth.?pg 416 16.6.2 for the genuine actual tax payment date
?- 1 per year for company tax or per 2 mnths for vat. 13. Do provisional Tax
payment ever go to "tax expense account"? No. 14. Capital and Reserves :do all the
issued shares go under "issued shares" including Preference shares? 15. How does
Preliminary Costs and share issue costs get put in ledger accounts as an asset and as
an expense (DOES IT GO TO Income Statement ) HOW DOES IT get written off
over a few years (matching principle +SARS)(because it is seen as an asset to get
written off over a few years?) 16. What is put shares for "redeemable pref shares"
in shares or "borrowings " 17. What is "Minority interest" in Income statment Pg
408. 18. Do you put 'capital redemption reserve fund' in 'Stat of changes in equity'
19. for 'New style income stat' where do the terms: "Distribution" "Administration"
&" other" expenses" WHERE does each one go /or dissapear into? 20. Tax for
"extra-ordinary items' for income stat of companies,must it be included in income
stat. under Tax ' or "extraordinary items" 21. Stat. of changes in equity page: 413 1-
what order must items be in? 2- CAN ISSUE OF SHARES GO FIRST 3- CAN
TRANSFER GO BEFORE others? 22. Does "redemption of capital reserve" go in
statement of changes in equity or where? 23. Is interim dividends separate to
normal dividends in accounts and in fin stats? 24. What about Trade& other
payables /trade & other receivables go in new style inc.stat. 25. For the new Inc.
stat. Style : Where does income from a loan to others go in income stat. "income
from other fin assets" or not? 26. How do you do closing off procedure for
companies - closing off to Capital account and current account?
Partnerships
1. If provision for bad debts is created+ put in revaluation acc. ,where does it
appear/go to bad debts acc. for the year end financial stat. to reflect correctly. 2. If
you write bad debts off to prov. For bad debts acc, when prov. Acc. goes negative
what do you do? Carry on or start the 'bad debts acc' balance now only? 3. Gradual
Liquidation :'amount allowed to draw'Page 383 of Intro.To Fin.Acc. how do you
work out the Gradual Liquidation amounts of partners equity which exeed profit
sharing ratio? 4. My book-Intro to fin acc. says profits by common law shared by
capital ratio- while prescribed book says "equally"- what is right here?pg 354 top
2nd sentance own ,5th page prescr. 5. ??what do you tell creditors when you merge
2 partnership with liabilities?Nothing or what- now 4 people each owe less ,before
it was 2 people now you must fight 4,also it may weaken firm etc??? 6. How does
merge partnerships work? Close all books/keep one set open to build on/transfer all
liabilities/etc etc??? 7. For insurance policy on lives of partner-why give dead c the
share of surrender values of policies of a+b ,when his policy pays out???Why
this?see prescribed book under life policies partnership 8. Revaluation: Do we
transfer Acc.Depr. to Mach Acc. first ,before we transfer mach. acc to revaluation
acc to get revaluated ?And start acc dep. at zero again? 9. Do you do closing entry
from 1- profit & loss acc or 2 from Appropriation ACCOUNT.answ-from profit
loss acc TO appropriation acc 10. Do partners monthly salaries normally go to all
other salaries + profit&loss account or to Appropriation acc? 11. Cash Flow
STATEMENTS: 1. To calculate the 'cash received from customers' as heading 1 of
the 'operations section' : if increase in receivables=you subtract this from sales-
BUT for decrease in inventories do you add this to sales?matching principle=you
are now showing last years income as this years cash flow ?? Is this
correct??should it not be also subtracted from 'sales for this year'???? 2. What
happens to income received in advance for 'cash receipts from customers' ?or
anywhere else (see the +1000 part of question 1 handout exercises in answer from
lecturer-next to balance c/d ) 3. How does this work: cash payments to
suppliers&customers? 1- all suppliers incl water&lights,services eg fix the
roof&stationary &true goods for sale(your revenue)suppliers? 2- what about other
income page 492 text book own for 495 solution 3- is 495 solution or cost of sales
solution Q2 answer correst-which? 3-how to do :why is inventory increase to be
added?decrease to be subtracted? 4-why payables incr-add /decr. Minus????? 5-
waht about other expenses/ income/insurance etcetc? 4. For 'investments cash flow'
do you do a full 1- equipment 2 acc dep 3- profit/loss account for each item? Yes
or no or how? 5. Separate profit /loss on sale of each asset class or all in 1 sum for
eventual profit or loss? 6. SEPARATE THE PURCHASE /:1-addition 2-
replacement for each asset class or all in 1 go/sum 7. For Recon.- do you do a
'payables account' for purchASES or what ? just difference? 8. For payables
account if depreciation is taken out is interest taken out too? 9. For payables
account: profit on sale of asset? Loss on sale of asset ? where do these two go. 10.
Payables inventory increase/decrease- which side to go on and why? 11. (1) Cash
payments to SUPPLIERS & EMPLOYEES:(Cost of Sales) 1-
REMEMBER:Suppliers includes all suppliers as well as goods for sale suppliers
,water & lights,stationary,services like fix the roof suppliers,etc etc , OR what is a
supplier? 2- You only take Revenue netr profit before tax = net expenses ADD
:Interest/dividends income Profit on disposal of assets Profit on revaluation of
assets
Other income INVENTORIES Increase (you ??????sold it so you paid that to your
suppliers) PAYABLES Decrease LESS: Interest paid Depreciation /revaluation
loss+ loss on disposals of assets +any other type of payment not=su
INVENTORIES Decrease PAYABLES Increase 12. FINANCE COSTS :heading
(put no totals here-just a heading) Dividends Received/Paid Or how do you do this
what is this? 1- AC118 Cash flow from interest& dividends to be disclosed
separately ,each classified as either ????operating,investment or financing
activities???????? I thought only as operating activities see page 496 own book for
Ac118 description given here! 2- Can you do 3 0r 4 acc.depr. accounts in one: ie
for vehicles+ equip+ other??or separate only.? 3- What about "other income';does it
get added to revenue or subtracted later or what??? 4- DIRECT METHOD (method
used in acc 102) why is admin expenses on cr side in your "payables" t account
(used to get the figure for 'paid to suppliers &employees' ) ,why not on dr side
.Also why is cost of sales on cr side as well. Also how does it all work- this
account? Which side and where and from which accounts to logically make up the
total you want here.? Please explain this account!!!!and total!!!! 5- Where does
'increase/decrease in pre-paid expenses ' go ? how do you know if it is a cash or
non-cash transaction? or if it is a non cash ' other income ' item to be subtracted?or
if it is shown elsewhere on the face of the cash flow statement. 6- Where does
'increase/decrease in accrued expenses ' go ?what is it here exactly? Is it to be
removed/added to expenses or creditors? With which does it go? how do you know
if it is a cash or non-cash transaction? or if it is a non cash ' other income ' item to
be subtracted?or if it is shown elsewhere on the face of the cash flow statement.
7Budgets 1. Is transport cost part of materials input costs for materials budget? 2.
What is a cash budget RATIOS 1. Roe:include pref shares & share premium? No
only ordinary ,not preference,no share premiums 2. Many of the ratios do not
understand principle or which values to use???? Recheck through all of the ratios to
be sure. 3.
CHANGES IN ACCOUNTING POLICIES AND ERRORS 3. Per IAS8.26 ,
Retrospective application to a prior period is not practicable unless it is practicable
to determine the cumulative effect on the amounts in both the opening and closing
statements of financial position for that period. This means that??????what????? 4.
For disclosure requirements as to changes in acc policy note answer for voluntary
& statutory types : just the yellow at bottom : DISCLOSURE STATUTORY
CHANGE due to IFRS CHANGE IAS 8 .28 When initial application of an IFRS
has an effect on the current period or any prior period, would have such an effect
except that it is impracticable to determine the amount of the adjustment, or might
have an effect on future periods, an entity shall disclose: (a)Title : the title of the
IFRS; (b) Transitional Title : when applicable, that the change in accounting policy
is made in accordance with its
transitional provisions; (c) Main Description :the nature of the change in
accounting policy; (d) Transitional Description :when applicable, a description of
the transitional provisions; (e)Future Period Possible Transitional Effects : when
applicable, the transitional provisions that might have an effect on future periods;
(f) Current&Comparatives Changed Amounts On Fin Stats Face :for the current
period and each prior period presented, to the extent practicable, the amount of the
adjustment: (i) Fin Stat Line items :for each financial statement line item affected;
and (ii) EPS : if IAS 33 Earnings per Share applies to the entity, for basic and
diluted earnings per share; (g) Prior Periods : ??same as above-in the notes or what
what amounts to be shown all relevant info or??the amount of the adjustment
relating to periods before those presented, to the extent practicable; 5. See yellow at
end : When an entity applies an accounting policy retrospectively or makes a
retrospective restatement of items in its financial statements or when it reclassifies
items in its financial statements, it shall present, as a minimum, three statements of
financial position, two of each of the other statements, and related notes. An entity
presents statements of financial position as at: (a) the end of the current period, (b)
the end of the previous period (which is the same as the beginning of the current
period), and (c) the beginning of the earliest comparative period.(or is this the end
of the period before this??what difference???) 6. What is the difference between do
not know the cumulative effect and impracticable dosnt both mean exactly he
same thing?IAS 8.25 7. IF IT SAYS YOU MUST CHANGE SOMETHING
RETROSPECTIVELY, DOES IT MEAN YOU GO TO YOUR BOOKS, AND
CHANGE EVERY ACCOUNT WITH A NEW JOURNAL ENTRY WHICH
SAYS CHANGE DUE TO SO AND SO FROM AS FAR back as 1850 , and
open every tax assessments up with SARS as far back as 1850 for those they might
want to re-open for some reason or whatever, and re-issue every financial statement
as far back as 1850 in the newspaper for public listed entities, and also post all of
then to all shareholders and submit to the JSE.?? Also , how do you journalise
changes , do you reverse all old figures first and replace them or do you just
add/subtract the difference like one does with provision for bad debts type
calculation thing? 8. SARS does not normally go back and re-open assesmensts for
previos years for changes in acc. Policies. This means the tax base of inventories in
prior years will be determined using the old method of valuation. IAS 8 (AC103)
however requires that the carrying amounts of inventories be chabged
retrospectively so that the prior years values will be in accordance with the new
basis of valuation. This gives rise to a temporary difference for deferred tax
purposes.-(where will this temporary difference ever disappear? Will it just stay
there forever? Or how will it disappear? ) 9. SEE page 105 textbook example no
4&5 . cannot understand why they add the temporary differences of 900 of opening
inventory new/old balances why do they add it to the taxable income for 2003.?
Why is it added to current taxexpense here but not in the sci of page 103? Must
they pay this or not? It says at bottom of block on same page 105 that sars does not
reopen assessments for previous years? So how doe sthis work 9.1. Also cannot
understand (5) - ie the calc of deferred tax. 10. See page 106/108 highlighter what
does SARS mean by this- cannot understand where the deductions come from? 11.
See page 111/112 own textbook yellow highlighter what did they do here????
12. FOR ERROR CORRECTION : do you write back all errors and then write in
corrected version after, or do you just cr/dr the difference like with bad debt
provision changes. Do some errors work on way and others another. 12.1.How do
you journalise error corrections properly? 12.2.For expense/income items that were
closed off at end of last year- how do you journalise and post to the relevant ledger
account? Since you are not allowed to add the error change to current years
profit/loss how do you add it to last years ledger account if it is closed off already
and continued with this year? 12.3.What about if the ledger account is no longer
used say it is a closed account- do you re-open it or what in the General ledger.
PARTNERSHIPS: 1-if you want to revalue property,which ledger account do you
put this revaluation in: like accumulated depression or accumulated (upward)
revaluations etc or what 2-Partnerships : Revaluation account:do you cr /dr all the
asset accounts contra reval.acc. a. Is the REVAL. Acc a profit&loss acc(like in
closing off procedure) or is it an "asset contra account" like acc. depreciation is
?what are all the other entries for a reval. i mean in the asset accounts, acc.depr.
accounts ,and profit&loss accounts etc? b. Can any kind of expenses or income
ever go to the reval.account. c. If a new partner is admitted, does one first have to
close off all expense and income acc.'s to the profit &loss acc and distribute the
profit etc , and calculate depreciation etc- so old partners do not loose their share of
profit befor new entrant? d. How would one do a normal (not for partnerships-but
rather for companies etc.) upwards revaluation to an asset use an acc. depr.acc to
do this? ,or can you open a new type of account revaluation acc.- to do this. 2. If
you dr the reval account instead of the bad debts account to create a Prov. for Bad
Debts then how does the 'bad debts' go to the Income statment at the end of the
year? Wont one leave out this singular +/- now because its not visible? 3. If there
are expenses and income for the period before the new partner comes in- say he
enters in march and the fin year ends in dec.Those expenses+income must they
not be closed off to the profit&loss account and full year end closing procedures
done before new partners come in to make sure any profit/loss is distributed in the
old ratios befor the new partners get there? How much of closing off procedure can/
must one do trading account? Can you do profit & loss account or not at all?
Must it all go to the revaluation account? Or can it go in reval. Acc. if you want or
NOT possible?and must it first go through profit/loss account(year end type) or
not? a. THEN must you write it all back in the new ratios or NOT at all- i mean
write it all back to the relevant expense/income accounts so your year end
calculations all work out right? b. What else should one know here? 4. What is
GARNER vs MURRAY (loss goes in profit ratio to others?) BUT what do you do
if this rule is NOT applied? Eg miles,lindsay,nelson question? a. Is garner/murray
to use capital ratios just before liquidation or after all realisations? b. Do you use
capital ratios OR profit/loss ratios in middle of distribution schedule,while there is
assets to be sold still ,or only at end. c. What is fixed/ variable Balances type of
partnership : in conjunction with Garner Murphy rule:ALSO what is the method
hereunder: please read and say it it is correct for us(check this method some things
you dont understand (solvents must add cash according to loss) According to
Garner vs Murray Rule: from http://basiccollegeaccounting.com

The loss on account of insolvency of a partner is a CAPITAL loss which should be
borne by the solvent partners in the ratio of their capitals standing in the balance
sheet on the date of dissolution of the firm.
Notes: Capital in this case relates to the real capital of the partners and not
capital as may be standing in the books of partnership firm in the names of different
partners. This distinction is especially critical when the partners are maintaining
their capital accounts on fluctuation capital system. The true capitals according to
this rule will be ascertained after making all adjustments regarding reserves,
drawings, unrecorded assets on the date of the balance sheet on the date of
dissolution of the partnership firm. When the capitals are FIXED, no such
adjustment is required. Where a partner is solvent but has a debit balance in
his/her capital account, just before the dissolution of the partnership firm, such a
partner will not be required to bear the loss on account of insolvency of a partner.

The rules dictates that:The solvent partners should bring in cash equivalent to their
respective share of loss on realization and The loss due to the insolvency of a
partner should be then be divided among the solvent partners in the ratio of capitals
standing after the partners have brought in cash equal to their share of loss on
realization.
5. What is a fluctuating and a fixed capital account system , so the difference
between the 2, in partnerships accounts. As per the internet stuff on garner-murray
rule above. 6. Do you re-open reval acc. To write back all reval if not wanted in
books ie: asset back to reval.acc back to out of capital acc . ANSWER = YES 7.
For transfer of general reserve- must it first go to current acc;s of partners or
straight to capital acc;s. 8. What happens to the 9. Do we have to write date in
ledger all way down ,or only at top of column till it changes. 10. For revaluation
acc.s and also for general transferring-eg if one partner must increase/decrease his
capital to bring it in line with new ratios etc, must all/some of these amounts first
go to current acc.s of partners or straight to capital?Should' nt everything first go
through current acc,s instead of straight to capital? Where would one use a current
acc? in a gradual liquidation. 11. Must all current acc.s first be closed off to
capital acc;s before the new ratios an d all revaluations etc when new partner is
admitted or how?When does one not do this? In gradual liquidation or change to
company /cc etc? 12. How can capital ratios (the actual amounts in the Capital
accounts of partners) of partners change in fin.year/end fin.year.? Only on
retire/new etc or when? 13. For the following (less used methods)- how do they
work ? a. INSURING a PARTNERS INTEREST: for the adjustment method of :
capitalised value vs surrender value adjustment ,how does itr work?
b. `for the second method where you debit the premiums to the life insurance
policy accounts which are definitely treated as "assets?" then credited with
policy amount when paid out- how can you debit an asset account with policy
premiums or even credit the account with a payout( should'nt it be debited?) i
mean if you credit the acc. with payout then that is an income/expense acc. ,they
get credited with income-not an asset acc.? c. With the more common method-
premiums debited to inc/.expense of firm and 'surrender value' only taken into
account when new partner is admitted, or if profit ratios change( as an asset value
to be evenly balanced between ratios to capital. how is this surrender value
taken into account- at end of each year revalued + debited with extra- or only
RAISE this surrender value when new partner joins etc, then write it back out
again? Shouldnt surrender value be in balance sheet + income statement each year
end or fin position is understated? i. Where premiums borne more by firm- is
payout credited to firm or individuals. d. Isnt premiums paid from operating
expense(dissapear in profit ratio) and ____surrender value re-calc end fin year-as
asset and payout disclosed as note or visa versa._____ best method for treating
this? How can you get payout and surrender value shown as assets at same time?
(a) ((((ACCOUNTING POINT OF VIEW: 4 WAYS OF TREATING
ACCOUNTING : (i) Less used in Practice Methods. 1. Premiums paid from
partnership funds, debited to life policy accounts which are treated as assets.Policy
Payouts are credited to same policy account.Surplass yielded by policy "above
amount of capitalised premiums????" is credited to capital acc.s in profit share
ratio. 2. Alternative method- annual adjustment of capitalised total on policy to
surrender value of policy at fin.end.year.Normally amounts to a write offon balance
of policy acc.Corresponding debit can go direct to profit&loss or current acc's of
partners. (ii) More encountered in Practice Methods. 1. Premiums debited to
income ,but not capitalised at all ?whats this?????,Payout cerited to capital acc.s in
profit share ratio.This method is SUPPOSED TO BE More conservative than asset
method since partners all bear share of ???????premiums since it is treated as
operating expense so dissapears in profit ratio payout.-thus limits amount
available for with drawal by partners.??????(other too!!!!?)Disadvantage is fin
position understated to extent of surrender value-can overcome by showing in
'notes'. 2. Where premiums borne by firm(???no 1 not or what??)not by
partners,and debited against income, the surrender value of different policies must
be taken into account an retirement/ new admission / profit ratio change/etc.AS is
the case withy any other asset this requires approriate valuation and adjustment
for each circumstance mentioned.(??/what about year end???) i. ))))) 14. For
partnerships what goes to realisation acc- only n-c assets or also c-assets ,what
about expenses-are there any special types that go here?Or once one has closed off
all expense accounts-do the expenses go to reval. Account or where? What about
other income from services etc?? ANSWER: so far: Prov.doubt.debts YES
,Goodwill YES , 15. What is GARNER vs MURRAY rule? 16. Could
Accumulated Depreciation And profit /loss on change in asset value also go to asset
accounts only.- then just profit/loss to realisation acc.? or not allowed at all(note
this method ffor normal mach. Realisations)?what about if all is first transfered to
'realisation of machinery acc'- and then just profit to realisation acc? 17. Does
profit/loss on sale of asset go to revaluation acc(not realisation acc) ,also if an asset
is transferred to a partner- through reval.acc?And its profit/loss through reval.acc
? 18. When do all the expense accounts and income accounts get closed off to
profit/loss accounts and final year end procedures happen in a liquidation? Do
expenses and income start going straight to the realisation account after all other
accounts are closed off or not.Can one put expenses in the realisation account or
not eg:liquidation expenses?
19. How does one round off decimal fractions to get correct answer? a. How do you
balance accounts if you get eg 2.15372- do you move up or down.say a gets
2.33333 ,b gets 2.43333333 and c gets 2.233333- where does the extra 0.1 go to
balance out? 20. If a partnership is legally terminated , just to let one partner leave/
or enter(as per law of partnerships) how do the books legally effect this : I mean
you go to GOV, deregister , then reregister with new/ erased partner : Then what?
Can your "new company '" books start half way in the middle of all accounts etc?
Or should all expense/income be closed off to profit/loss acc. +trading acc then all
profit apportioned, then all current accounts closed off etc? a. Do you show
Fin.Statements at next year end for only eg; last 7 months from partnership new
enrant/old leave or for full Fin.Year incl eg first 5 mnths before new partner
entered? b. Does one have to Do Full Fin. Statements like a proper year end closing
procedure for the exact time the second before new partner was admitted? So for a
new/retiring partner 2 sets of fin. Stat. should be prepared: 1-just before start of
procedure (to get figures of deprec.+asset carrying values + actual
capital/(+profit/loss) before revaluations etc., 2-just before new guy enters, after all
closing off and revaluations., to show as a Financial year end+Termination of
partnership Official Records? Or is there a shorter way? c. COMPANIES 1) If
assets are taken in as capital for a new shareholder, at less than their valued
amount, for non-par shares,but still must be recorded at valued amount, so you
must - dr asset real value , but cr new shareholder at lesser amount then where
does balance go? to other shareholders as extra shares for them or
what?ANSWER: I think bring in at lower amount, then revalue/have them revalued
to a higher amount thereafter. 2) Is it possible to have a "INCOME TAX
ACCOUNT" Or is ther never any Tax account in Ledger? If so, how does it work?
If tax is transferred from the appropriation account at year end, then how does it go
to DR "Taxs expense acc." and CR : SARS if all the expense accounts for the year
are closed off, and any new entries go through to the following years Fin. Stats.
And end up showing there.Must it be closed off again before new year entries or
what/how? 3) The share premium account may be used for : a) Paying up the
unissued share capital of the company as fully paid up capitalisation shares which
may be issued to members of the company, ???or may be used as a write off???, or
b) The provisional expenses of the company.(that is , expenses incurred with the
founding of the company) c) The expenses relating to either the commission paid or
discount allowed on the creation or issue of shares or ???obligations.??? d)
Provision of the premium payable on the redemption of redeemable preference
shares or debentures of the company. 4) REDEEMABLE PREF SHARES: a) If a
company redeems pref shares without re-issuing new shares, must it then have
double the capital at the ready , once to pay person back, and 2nd to create a
CRRF.Or must it first transfer the money to be paid to the CRRF, and from there
use it to pay the person who it is being redeemed from?Which way around? i) If
shares are sold to fund redemption must the sale price first be transferred to a
CRRF before redeeming , or just to Bank ? b) Can the capital in the CRRF be used
for any business purposes or not? c) Can the amount you pay the person who you
are redeeming the shares from be more or less than the current book value of the
shares? Ie at their original value paid ? (less= from dilution of last (his)high price
paid), if not, then the person could get more or less than he paid for them! d) If the
above is true then only the book value of the shares may go to the CRRF fund- so
it could be more or less than the capital actually paid out?
e) HOW DO ALL THE COMPANIES ONE ALLWAYS HEAR ABOUT
BUYING THEIR OWN SHARES BACK DO THIS? Is it allways Red.Pref
Shares that get redeemed or any type they want?As per law against buying back
own shares how do they do this? f) Pg 462 IFRS book : the highlighted in yellow
on page 462 IFRS: is this actually : preincorporation profits go to appropriation
account, then go to goodwill account? Or straight from pre-inc,profits to goodwill?
Why cant you just transfer straight from nominal acc. Eg: SALES, to goodwill,
why must it first go through the Pre-Inc.Profits account? How does this whole
offset against goodwill process work exactly see other highlight on page.! By the
way,as a separate question, can one transfer profit to appropriation account and
then to reserves etc. in middle of year as well,or only at end of year? (1) See yellow
here : what is it? Alternatively, if purchase price in purchase contract includes
UNVALUED GOODWILL and PURCHASE PRICE is NOT payable in SHARES
((1-I think if shares are not involved herenot sure), AND 2- : ,if part payment in
shares-not sure then if use ratio or just 1 of either method???), the pre-incorporation
profits can be offset against goodwill (means you reduce UNVALUED
GOODWILL total by value of pre-incorporation profits).Once UNVALUED
GOODWILL=0, treat the excess pre-inc. profits as a RESERVE. Whether this
reserve is distributable depends on what the Articles say about the distribution of
Capital Profits.So if not distributable - will form part of non-distributable
reserves, and if Articles allow distribution , then part of non-distributable
reserves/profits. (2) I do not understand the yellow- why and how is this so? pg
53 own notes, pg 463 Intro to IFRS book : for profits/losses from effective date of
purchase to actual date of purchase-accounting treatment thereof :Purchase price is
determined by bringing into account profits as NON -DISTRIBUTABLE
RESERVES, since these profits represent in effect a DIVIDEND PAYMENT out
of CAPITAL.The profits referred to here means profits from EFFECTIVE date of
purchase per contract to ACTUAL date of purchase.(I think I know,not 100% sure)
(3) To transfer to Pre-Incorporation profits :Distributable Reserves , must you (4)
For pre-acquisition profits etc :note in last example at end-these profits go to
retained earnings, so it seems there is an end-of year type transfer to appropriation
account then to retained earnings,not just to profit in appropriation account but a
full retained earnings thing just before certificate to commence business. So where
exactly is must a set of fin. Stats. Be prepared here, and where a year end closing
procedure etc etc, and where transfers to appropriation account , then to retained
earnings etc?? g) If you buy shares in a company for 5000 rand, how can you get
your 5000 rand back and return the shares, with all the laws against reduction of
capital etc. i) And if a company wants to sell some of its assets and distribute the
profits, how can it do that? ii) So if one ever uses profits to buy eg : some asset,
then it is gone forever into capital? How is one to distinguish which assets are
capital and which just converted profits.Where do you make a mark or something
to show this? iii) How can one convert profit into capital? iv) What is a member of
a company where do they pass a special resolution? v) What is a special
resolution? vi) Where else other than AGM may shareholders vote / and where may
they exercise their authority otherwise. h) See yellow : can all the rest be converted
so long , or how does this work? Does these stay as unissued yet or how/what does
this mean :a Conversion of ordinary or preference shares having a par value to
stated capital.:a Par value of 1 class(ordinary or preference) made be converted to
Non-Par value of the same class.All Share Premium is simply also converted at
same time,as if it were part of the share value.If there is any share premium then
naturally the value of the non-par will be higher than the par were,if not then
the values should stay the same. Provided that any share capital not fully paid up
cannot be converted.(see section 78.1)how does this work? Can only all ,or also
just some, be converted ,any other rules and regulations?
Next question : i) See yellow for question :My notes:The share premium account
may only be used for the following purposes : i) A capitalization issue : you just
take the share premium and issue shares to itss value (or part) (how it is done
/shared between other shareholders I do not know exactly) does each one get in
proportion, and any fractions of full share value left /unissueable due being less
than full share value just remain in premium acc? Like that? Or how.And for no-par
say you are issuing from retained earnings instead of paying dividends-can you
just transfer it to stated capital and finished to increase value of shares or must
you issue individual shares one by one, at old book value?And can you issue them
at a premium?esp. for unissueable fractions of book value left over-just include it
as a premium? ii) Writing off preliminary expenses : done directly against the share
premium account ,see example below , and not via the income statement (I think
means not via first share premium to appropriation acc. Or something??) iii)
Writing off commissions paid and discount allowed on issue of shares .(if you give
a discount or pay bank etc commission?????) iv) Payment of the premium over the
par value of shares acquired in accordance with section 85(company may under
certain circumstances aquire shares in itself) (1) New amendment to act It is
further provided that if ordinary shares are converted to redeemable preference
shares, only that portion of the share premium account which arose on the issue of
these ordinary shares may be applied to the provision of the redemption premium
on the redemption of redeemable preference shares. See question below: (a) How
does one convert ordinary shares to redeemable pref.shares? can just afew be
converted or must all at once? Must the premium paid on those exact few each time
they changed hands, or just the last time they changed hands, also be converted to
redeemable pref shares, or not?If you convert all ordinary to redeemable pref.,do
you have to convert the share premium account too or can you choose to if you
want? NOTE : see previous question for inleiding to this question before you ask
itnew law they passed etc
NEXT QUESTION: see yellow below for question: conversion of ordinary or
preference shares having a par value to non par value shares (npv) stated capital. j)
Par value of 1 class(ordinary or preference) made be converted to Non-Par value of
the same class.All Share Premium is simply also converted at same time,as if it
were part of the share value.If there is any share premium then naturally the value
of the non-par will be higher than the par were,if not then the values should
stay the same. Provided that any share capital not fully paid up cannot be
converted.(see section 78.1)
i)
Section 77 -effect of conversion of par value shares into no par value shares and
visa-versa . (1) If a company converts its ordinary or preference shares with a par
value into no par value shares, then the following must be transferred to the Stated
Capital Acc. (a) The total ordinary or preference share capital amount
(b) The portion of the share premium account attributable to the shares so
converted where it has not been used for the write off of those items per section
76(3)
Question for all of above : how do you know what part of the share premium
account has been used for what? If for preliminary expenses , does one work it out
proportionally just use whats left? If whats left in share premium account is less
than the amount attributable to those shares converted then what? What if shares
that were recently just issued at a premium are converted but those shares share
issue expenses were written off share premium account ?, if there is enough in
share premium account do you put the full premium amount of those converted to
stated capital account or only portion less the issue expenses written off? But to be
fair how will you know for very old shares and issue expenses etc and other old
costs written off what to take off and what not?? END OF QUESTION NEXT
QUESTION: j) SECTION 78 effect of conversion of no par to par i) All Stated
capital transfers to share capital acc., none to any share premium acc. ii) Fractions
arising on conversion must be rounded off and if material in value, must be
transferred to a nondistributable reserve.(what is material : 0.1c ?or 0.001c,? what
happens to the non-distributable reserve later,stays forever?) AND how do you do
the transfer ie: name of new account,(just NDR rounding off ?) AND if a
rounding off account is able to get R1 shares out, what do you do with it? Share it
out as shares?What can this account be used for to write-off eg: preliminary
expenses etc?) NEXT QUESTION : k) HIPPO ltd- does share premium get used
for debenture expenses? new law page 472/473 l) If the shares book value of stated
capital includes fractions of cents, what do you do? i mean how do you value the
shares for a transaction? Or if it is R65, 80c then can you issue more at R66,00 or
not , as per the law.What about other transactions? Where would the rounding off
go then? m) Sections 8590 discuss circumstances in which a company can
repurchase shares issued by it .see yellow below for the question: it. The
procedures that must be followed, plus the directors and shareholders liability are
discussed. A company may acquire shares issued by itself provided that n) a special
resolution is passed (general approval or specific approval); and o) the acquisition
is authorised by its articles. 5) A company may not pay for these shares in any way
if there are reasonable grounds for believing that j) once the company has paid for
these shares, it will not be able to settle its debts in the normal course of business
(liquidity requirements), or k) the consolidated assets fairly valued following the
payment would be less than the consolidated liabilities of the company (solvency
requirements). 6) Shares acquired by a company in itself may not be acquired under
this section, if after such acquisition, there would be no shares in issue other than
convertible or redeemable shares. In other words, the company must have ordinary
share capital.
7) If par-value shares are acquired at a premium over the par value,premium may
be paid out of reserves,incl.statutory non-distributable reserves(refer section 76
Share premium and section 98-capital redemption reserve fund. 8) ( it does not say
anything about reduction of capital here ie:CRRF , but it should it seems ?? ask or
check up about this!!! Page 476 IFRS book)See section 98 for CRRF ie a CRRF
must be created and the same share capital that was bought back /redeemed, must
go to this fund, to prevent reduction of a companies share capital( not allowed). 9)
The company does not hold the voting rights and shares afterwards- it simply
writes them out/cancels them so there are less shares afterwards,but the authorized
share capital remains the same. 10) See example below for entries in journal. j) If a
company issues 1 share for every 5 held to all shareholders out of profits ie
distributable reserves, then what happens to people who only have 1 or 2 shares(too
few) , or if you have 7 or 8(odd number) k) See page 470 in IFRS book. Can you
have par ordinary shares 500 of R1 and 500 of R2 issued? Can you have 500
authorised but not issued at R1 but 500 issued at R1.80? then you can issue at R1
and and you have 2 shares of different value for same class ie ordinary.?From
conversion from par to no par, then transfer general reserve to stated capital, then
convert back to par, scheme. ANSWER: no, you cannot have par and no par at the
same time.so all authorised must also be changed back and forth at the same time.
i) For the above scheme, could one also only convert half the issued shares to no
par?ANSWER: no, you cannot have par and no par at the same time. ii) The
Proceeds of new issue of shares made for the purposes of the redemption up to
the nominal value of the Par-Value shares which are redeemed, or in the case of
No-Par value shares, equal to the BOOK VALUE, here the Proceeds
=premium+nominal amount as defined before : so you can use part of premium
from the new issue of shares, which have been issued to pay for the redemption of
redeemable pref. shares, to pay for the nominal part/the shares themselves of
Redeemable Preference Shares but you cannot use part of the Nominal value of the
newly issued shares to pay for the premium part of the Redeemable Pref Shares.(or
can you question????) l) NEXT QUESTION: see yellow
ConsolIdate share capital and reduce the number of issued shares in the process. A
company can decide to decrease the No. and thereby increase the value of its
shares.All that happens is that the TOTAL CAPITAL remains exactly the same but
for: PAR VALUE SHARES: the value of each share increases in proportion, and
the number of shares issued and authorized of course decreases in proportion. NON
PAR VALUE SHARES: the TOTAL VALUE remains the same but NUMBER of
shares is reduced proportionally. The share capital remains the same, just disclosure
of share capital is different.So in notes and on balance sheet the new figures are
disclosed.(sodoes one journalise this? Is there some share register where this just
goes to, or also to journalise / or somewhere else as a record) s) If you change from
par to no par (or visa versa but the book example says yes for no par to par), can
you change the number of shares at the same time in one go or must that be a
different journalisation transaction. t) For redeemable pref shares, to issue new
shares to pay for the remmption, do you have to re-authorise new shares, or can you
just issue shares that were authorized years before for other reasons? u) ,for RPF
redeemed from distributable reserves ,(must all profit first go through books
+appropriation account to become retained earnings before it can be used to write
off/pay any redemption of redeemable pref shares? Can this be done in mid fin year
or only from last financial stats/ fin year end profit/transfers) v) Per unisa ACN 201
Q manual pg 22 :for a capitalisation issue, where shares are issued to shareholders
in proportion to their shareholding from retained earnings, The total value of share
portfolio will remain the same,
but the value per share will drop because more shares have been issued.The
investor then , in his books(the actual shareholders books) in his Investment
Account will increase the number of shares held and reduce their value.(why does
this happen why does the value drop? If you transferred retained earnings , and
issued shares for its value , then the value should stay the same????) w) Arrear and
current cumulative dividends get paid first, then preference shares then ordinary.:
what is current at yellow highlight- is it in arrears or not in arrears??? x) For
appropriation account- do you get a retained earnings Ledger account? Do you ever
transfer from retained earnings for expenses during the year? y) If you use a
general reserve do you write it out against the expense account used immediately?
This will decrease your tax deductions- ie it will mean you pay more tax, so you
pay tax twice anything that gets written out of the general reserve ( you also
loose if you write out against share premium or stated capital account s or not?)
z) To pay for 1- premium 2- nominal on redemption , if paud from profits, must it
come from the after tax profits (ie Distributable reserves) or from before tax profits
ie from bank ? Must the premium be written off against disributable reserves or
against retained earnings? Where is the retained earnings account- is there a ledger
account for it?When do things go to that account or out of it (ie at year end
appropriation how does it work?) aa) Can ordinary shares be issued after the
redemption of /payment for preference shares has taken place in order to pay for
them so you dont have to transfer to CRRF, or not?,and how long after is it still
allowed( past fin year end or not- what if not all were taken up by year end etc?)
bb) DIRECTORS EMOLUMENTS IN NOTES: i) What can be a 3rd party which
pays a pension to past directors: ie it is definitely not an independent pension fund
of the same company eg independant Anglo American pension fundper example
in IFRS book pg 493 so who could a 3rd party be??? Maybe The holding
company of a subsidiary for whom we are now drawing up the Fin Stats, or who
else too???? BASIC EARNINGS PER SHARE: 1. WHAT IS THE YELLOW
BELOW?? a. Basic earnings per share are calculated as follows: i. PROFIT 1.
AFTER a. Tax b. Preference share dividends the fixed portion incl. any from
cumulative pref. shares. c. ????Attributable profit after tax of associates and non-
consolidated subsidiaries which has been accounted for by the equity method.????
2. What is yellow : i. BASIC EARNINGS: Definition: Basic Earnings are the profit
or loss for the period attributable to ordinary shareholders after deducting
preference dividends. All items of income and expense that are recognised in a
period, including tax expense and {???non-controlling interests???} are included in
the determination of the profit or loss for the period. The amount of preference
dividends that is deducted from the profit for the period is as follows: 3. FOR THE
CALCULATION OF EPS AND DIVIDENDS FROM SHARES WHICH WERE
ISSUED FOR FREE : HOW DOES THE FOLLOWING BELOW WORK?SEE
YELLOW BELOW: a. 1-Basic Earnings: b. The only thing that could have any
effect on the calc. of Basic Earnings in these cases is if Pref.Shares were issued as a
Bonus Issue or Capitalisation issue and the dividends paid to them must be
subtracted from Basic Earnings somehow. IT DOES NOT SAY IN THE BOOK
BUT I THINK JUST TREAT THEM AND THEIR DIVIDENDS AS IF PAID
FROM BEGINNING OF ANY YEAR DEALT WITH-exactly the same as in (2-)
below. c. 2-Weighted Average number of Shares.
You Treat the Extra shares which were issued for free by the Capitalisation issue as
if they were issued at the beginning of the year of the Financial stats. or if there is a
Comparative Year shown in the fin.stats. then as if they were issued at beginning of
that year. The logic behind this is that the equity of the shares issued was part of
reserves anyway at the time so it must then get shown e. , if the 2 years are to be
comparable.(but what happens if the reserves only appeared halfway through this
period?- so they were NOT there at the beginning of the years??) 4. SEE YELLOW
FOR QUESTION :If a company raises capital by means of a rights issue and the
issue price is less than the fair value of the company's shares when issued, a bonus
element arises. a. 1-BASIC EARNINGS : b. Done as per usual-nothing special
(remember to deduct Pref.Dividends) ????Pref. Dividends is probabley calculated
in the same way as done below for ordinary shares if the Pref.Dividends were also
Issued at less than fair value??? 5. Do you have to disclose every type of shares
EPS and dividends separately: incl cumulative pref shares &noncumulative pref
shares & participating pref shares of each of those 2 types & any other ones?
Which can you lump together and which must go separate. 6. As to the fair value of
shares when working out the theoretical ex-rights value of shares for a rights issue
at below fair value-see yellow below for question: a. Note: Fair Value means what
the management judge to be what the shares are worth at the time, not the Current
Book Value of the shares or also not the current plain market value- just the Fair
Value in managements estimation at the time.-(not quite sure- must ask) 7. See
yellow below- this is if you issued shares in payment for other shares at a
later/before date than you gat theirs so matching concept does not work out
lekker BASIC EARNINGS : To calc. the Preference Dividend which must be
subtracted from the Net Profit to get Basic Earnings you can do any of the
following : To accomplish the matching of cost with profit, the preference dividend
should be provided for by one of following methods : 1. Use The Date To Calculate
Pref. Dividends. as if it were from the time the shares in the other company become
yours (actually the time you can include profits from their shares in your SCI), so
even if you issued your own Pref. shares in return 2 months later/before and in
reality only pay dividends from then, you ignore this and use false figures and
make as if you pay dividends from date you acquired the interest.(???where do
you disclose this fact that you used fanciful figures)??? 8. For shares issued at less
than fair value for the calc. of basic earniongs: can pref.shares be issued like this
and how does that work? a. BASIC EARNINGS : b. Done as per usual-nothing
special (remember to deduct Pref.Dividends) ????Pref. Dividends is probabley
calculated in the same way as done below for ordinary shares if the Pref.Dividends
were also Issued at less than fair value??? 9. what does Fair Value mean ?
what the management judge to be what the shares are worth at the time, not the
Current Book Value of the shares or also not the current plain market value- just
the Fair Value in managements estimation at the time.-(not quite sure- must ask)
10. -(2)If there are any multiple issues in the Current financial year before the
rights at less than fair value issue then each period in between each issue is
simply treated alone using the same formula and above and then just weighted and
added together with the others to get the final answer.i think??? NOT SURE??? 11.
For a rights issue at less than fair value : for WEIGHTED AVERAGE NUMBER
OF SHARES: a. (a)Here you must backdate any rights issues as if it happened at
the beginning of the year.So you must treat it as if it happened at beginning of year.
If the rights issue was in the middle of the year and there were other issues before
that that had to be weighted by month, then you just work down the list in
d.
order of dates (???I dont think you weight a normal issue before the rights issue
as out of say 3/6 months if the rights issue after it was half way through the year
and it happened in the 3rd month- I think you just weight it as normal- add it up to
the previous ones and work from there!???_) 12. For dividends : do you disclose
the adjusted or unadjusted for current year and for Comparative years. In unisa
book pg 268 they disclose both, or adjusted on page 3-4 pages before in previous
section or unadjusted in exercises what is supposed to be done? So for the current
year I believe you only EVER disclose the actual dividends( see unisa book 268 the
write up on dividedns says this) and for the last year only ever disclose the
weighted - in the case of no consideration for a share equity change- thing .What
are the hard and fast rules all over here?
BORROWING COSTS: 1. Ask in IFRS book see ques pg 703, why not use bank
overdraft separate interest rate? For 2nd expense only??? What rule does one refer
to to decide if you must slit up a group loan or put the loan in a group/ RELATED
PARTIES 1. How do you show all the categories Para 18 ias 24. Wghta do you
do -? NEVER show a person individually, ONLY in groups, ie or under each
category show ALL the related parties in it?see .22 aggregation? 2. Check IAS1 77-
80A, what is this how does it fit in with IAS24 In same place or in different places
in the notes. EARNINGS PER SHARE: 1. RIGHTS ISSUE: WHERE DO YOU
MWHERE MORE THAN FAIR VALUE IS PAID, DO YOU INCR. THE
AMOUNT OF SHARES OR NOT ( IE YOU DECREASE FOR LESS THAN
FAIR VALUE, WHY NOT INCREASE FOR MORE.?because they put more
money in so they expect so much more EPerShare out. 2. RIGHTS ISSUE:
WHAT IS THE DIFFERENCE BETWEEN BOOK VALUE & FAIR VALUE
WHEN DOING THE CALCULATIONS FOR A RIGHTS ISSUE.where do you
use what and ignore what? 3. ISSUE AFTER REPORTING DATE : IF THERE IS
A ISSUE AFTER REPORTING DATE pg 726 Textbook, - DO YOU ADJUST,
FOR A 2009 REPORTING DATE, DO YOU ADJUST 2009 & 2010, OR 2008 &
2009? And do you show 2010 in comparatives?or Not? 4.
LEASES 1. A non-cancellable lease is a lease that is cancellable only: (a) upon the
occurrence of some remote contingency; (y/n ???OR I think) (b) with the
permission of the lessor; (y/n??? OR I think) (c) if the lessee enters into a new
lease for the same or an equivalent asset with the same lessor; or (d) upon payment
by the lessee of such an additional amount that, at inception of the lease,
continuation of the lease is reasonably certain.
CASH FLOW IAS 7 Cash payments to SUPPLIERS & EMPLOYEES:(Cost of
Sales)
1) This amount is calculated by comparing the figures for inventory and trade and
other payables as given in the SFP & StChEq. If inventory increased from one year
to the next, the effect on cash flow would be negative because your net profit
would record this as an increase in profits but it IS NOT CASH because it is all
locked up in inventory, cash had to go OUT to pay for it . If the number of trade
and other payables increased from one year to the next, this means that less cash
flowed out and the figure would then be positive in respect of cash flow (sort of
like -any stuff you got from the creditor increases your profit as an asset without
you paying for it , so these increase in assets must be subtracted, where you got
services its something else. All purchases of inventory and expenses which were
paid for in cash are also included in the calculation.- [??how does this work , if you
get credit (payables) for services [production machine overhaul repairs] where does
the actual cash come in theres no cash flow here ?]
1) Factored debtors OR discounted bills : (???How in direct method in cash from
customers calc ??? If a bill has been discounted- or a debtor factored , but the
debtor must still pay you and you pay the bank then what do you do with it? then
it is not in receivables anymore it should be in discounted bills or something??-
but anything discounted is certainly cash in and must be treated as a loan with
security or removed from debtors, one of the 2, depending o 2) n the discounting
deal type- ) 3) Major questions : a) Where does VAT go? 1- direct & 2-Indirect b)
Bad Debts : what do you do with this? 1- direct & 2-Indirect : where does it get
added back or whatever ie , if it has already been taken off the amount you get for
receivables in the SFP - and you still go add it back in adjustments because it is
a non-cash item in the SCI profit that year, then yoyu should add it back to
receivables again so it does not show as a cash flow in by double adding !! c)
Provision bad debts : what happens with all the contra account stuff like above?
And where does it come off in the direct method? And Where doe sit go in 1- direct
& 2-Indirect d) Leases: where does the thing get added to investments ever if it
is a finance section thing only? e) Recovered bad debts : where does it go in 1-
direct & 2-Indirect
(C) ANSWERS TO QUESTIONS FROM LECTURERS
This message (and attachments) is subject to restrictions and a disclaimer. Please
refer to http://www.unisa.ac.za/disclaimer for full details.
Dear Gavin, Thank you for your e-mail. I am busy updating the tutorial for next
year, and wanted to finish the reviewing of the topics which happen to be same on
which your queries were. I could not finish everything quick enough apologies
for the delay herewith the answers to your queries: Please feel free to comment if
anything is not clear or I have not covered your questions in full. There are two
questions in red. One you were going to mail your query and the other one I cant
exactly remember what was queried.
1) P 126 Example 8.1: Provisional payments Individual 1 31 Aug 2 3 28 Feb 30
Sept
Company 1 6mnths after year end 2 3 12mnths after year end 7mnths after year end
Explanation of journals: J1 First provisional payment for 20x4 year. J2 Final
payment with regard to previous year. It is mentioned that R9 840 is the amount
due for the 20x3 year and this amount will be provided for under creditor: tax
authority please note this amount is the net amount (tax payable less 20x3
provisional tax payments). Finance cost and penalties are accounted for in profit
and loss refer to note below example. Thus the difference between the amount
paid and the amount due, will calculate the over or under provision for 20x3. J3
The second provisional payment for the 20x4 financial year. J4 The income tax
expense for 20x4 provided for at the end of the financial year. The net of this
amount and the provisional payments will be the outstanding balance at the end of
the year - similar to R9 840 i.r.o. 20x3. Note: The amount recognised in current tax
will be the provision less adjustments to previous year provisions.
2) Rebates: Will it be written back if did not meet the conditions? Yes. You will
only provide for it if it is expected (current year volumes sold already override the
conditions/ based on previous year volumes) that the conditions will be met. If you
expected that the conditions will be met, based on previous year experience, and
this year turned out to be less fruitful, then you reverse the provision increasing
revenue. 3) Settlement discounts: Are provided for on the selling date when
recognising the selling transaction. If the debtor does not settle before the required
date, then the discount will be written back.
Thus: You provide according to your expectation (which is uncertain and should be
based on previous experience), and if there is any change in that you reverse it once
confirmed.
4) Revaluation: Where disclosed? Change in accounting policy note or only in PPE
note? Can you please elaborate on this question, I cant remember exactly what was
queried. 5) Intangible Assets: IAS 38 prepaid payment GAAP p? (You will still
send me this query) 6) IAS38: Cost to renew legal right. If I remember your
argument correctly, you were querying what if there is an internally generated asset
which forms part of this and will be written off and only the cost of the new legal
right will be acknowledged as the value of the asset, since the cost to renew the
right was material, but it is immaterial with regard to the value of the asset. Thus
you are carrying an asset at a much lower value. My answer to this is that the legal
right will always be accounted for separately. This cant form part of an internally
generated asset. Also refer to IAS38.63.
7) 3rd Party Commitment: Residual value to PV. Recalculated each year is this a
change in accounting estimate? If there is a change in interest every year, is this
also a change in estimate? Can you please indicate where it is mentioned that the
PV is calculated (I assume this is still under IAS 38). Here the residual value is the
value of a current asset with the same age as what the asset will be when the asset
will be sold to the third party. It is thus not the present value of what you will
receive once you sell the asset, but the actual estimated value which you will
receive at the end of the assets useful life. A change in this will consist a change in
estimate, but it is not likely that this will frequently change materially.
8) Derecognition/Impairment Disclosure in Statement of Profit or loss
Impairment has to be disclosed separately - refer IAS 1G and IAS1.97
Derecognition: According to IAS1.97, if material disclosed separately. (Loss on
withdrawal) SFP: Part of movement in reconciliation of assets in notes to SFP.
Kind Regards, Anine Uys Senior Lecturer
Financial Acounting Tel: 012 429 4750
AJH van der Walt Building 2-113
From: Gavin skymail [mailto:gavin.sky.mail@gmail.com] Sent: 11 July 2012
02:59 To: Uys, Anine Subject: email address Dear Lecturer I recently visited you
with some questions about CTA level 1 accounting, I think I forgot to leave my
email address regarding some of the questions you were going to get back to me
with. It is: gavinskymail@gmail.com Thanks Best Regards Gavin

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