Connolly – International Financial Accounting and Reporting – 4 th Edition CHAPTER 25 FINANCIAL INSTRUMENTS. - ppt download

Connolly – International Financial Accounting and Reporting – 4 th Edition CHAPTER 25 FINANCIAL INSTRUMENTS. - ppt download

Probability of future economic benefits

Probability of future economic benefits

Probability here means the degree of uncertainty that the future economic benefits associated with an
item will flow to or from the entity. This must be judged on the basis of the characteristics of the entity's
environment and the evidence available when the financial statements are prepared.

Non-Current Assets

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Non-current assets
If an asset's life extends over more than one accounting period, it earns profits over more than one period.

It is a non-current asset.


Definition

Asset. A resource controlled by an entity as a result of past events and from which future
economic benefits are expected to flow to the entity.



Property, plant and equipment are tangible assets that:

• Are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes
• Are expected to be used during more than one period

Recognition

It is probable that the future economic benefits will flow to the
entity and the asset has a cost or value that can be measured reliably.

First criterion: future economic benefits
The degree of certainty attached to the flow of future economic benefits must be assessed. This should
be based on the evidence available at the date of initial recognition (usually the date of purchase). The
entity should be assured that it will receive the rewards attached to the asset and it will incur the
associated risks, which will only generally be the case when the rewards and risks have actually passed to
the entity. Until then, the asset should not be recognised.

Second criterion: cost measured reliably
It is generally easy to measure the cost of an asset as the transfer amount on purchase, ie what was paid
for it. Self-constructed assets can also be measured easily by adding together the purchase price of all
the constituent parts (labour, material etc) paid to external parties

Statement of financial position example

Statement of financial position example

The example given by IAS 1 is as follows.

XYZ GROUP – STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER

   20X7                20X6

Assets                                                                                   $'000                $'000

Non-current assets

            Property,plant and equipment                               350,700            360,020

            Goodwill                                                                 80,800              91,200

            Other intangible assets                                          227,470            227,470

            Investments in associates                                     100,150            110,770

            Investments in equity instruments                         142,500            156,000

901,620            945,460

 Current assets

            Inventories                                                            135,230            132,500

            Trade receivables                                                  91,600              110,800

            Other current assets                                             25,650              12,540

            Cash and cash equivalents                                  312,400            322,900

564,880            578,740

Total assets                                                                      1,466,500         1,524,200

Equity and liabilities

            Equity attributable to owners of the parent

            Share capital                                                     650,000            600,000

            Retained earnings                                             243,500            161,700

            Other components of equity                               10,200              21,200

                                                                                    903,700            782,900

 Non-controlling interest                                                 70,050              48,600

Total equity                                                                   973,750            831,500

Non-current liabilities

            Long-term borrowings                                        120,000            160,000

            Deferred tax                                                      28,800              26,040

            Long-term provisions                                         28,850              52,240

Total non-current liabilities                                             177,650             238,280

Current liabilities

            Trade and other payables                                  115,100            187,620

            Short-term borrowings                                       150,000            200,000

            Current portion of long-term borrowings             10,000              20,000

            Current tax payable                                           35,000              42,000

            Short-term provisions                                        5,000                4,800

Total current liabilities                                                    315,100            454,420

Total liabilities                                                               492,750            692,700

Total equity and liabilities                                               1,466,500         1,524,200

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The difference of deferral expenses & prepaid expenses ?

Deffered expences are those. whose payments are made before more than one year. these are non-current assests.

Prepaid Expences are those. which are paid less than one year before. These are current assets.

What is the difference between an accrual and a deferral?

An accrual occurs before a payment or receipt. A deferral occurs after a payment or receipt. There are accruals for expenses and for revenues. There are deferrals for expenses and for revenues.

An accrual of an expense refers to the reporting of an expense and the related  liability in the period in which they occur, and that period is prior to the period in which the payment is made. An example of an accrual for an expense is the electricity that is used in December, but the payment will not be made until January.

An accrual of revenues refers to the reporting of revenues and the related receivables in the period in which they are earned, and that period is prior to the period of the cash receipt. An example of the accrual of revenues is the interest earned in December on an investment in a government bond, but the interest will not be received until January.

A deferral of an expense refers to a payment that was made in one period, but will be reported as an expense in a later period. An example is the payment in December for the six-month insurance premium that will be reported as an expense in the months of January through June.

A deferral of revenues refers to receipts in one accounting period, but they will be earned in future accounting periods. For example, the insurance company has a cash receipt in December for a six-month insurance premium. However, the insurance company will report this as part of its revenues in January through June. 

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