Equity reserves

Equity is defined as follows: The residual interest in the assets of the enterprise after deducting all of its liabilities.

Equity consists of several components such as Share capital, Treasury shares (issued shares held by the entity in a buyback), Share premium account (or Additional paid-in capital), Retained earnings and Non-controlling interest. But there is more…. Equity reserves – separated equity components

  • Translation reserve (foreign currency translation reserve), that arises from the change in FX rates from translation of foreign operating entities (in other than the consolidationEquity reserves Equity reserves Equity reserves currency) from reporting period to reporting period, When realised the result is reclassified from OCI (and translation reserve) to profit or loss,
  • Cash flow hedge reserve (hedging reserve). Hedging reserves arise
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Cost of self-constructed assets

IAS 16 22 sets out the core principle for determining the cost of a self-constructed asset.

The cost of a self-constructed asset is determined using the same principles as applicable to an purchased asset. If an entity makes similar assets for sale in the normal course of business, the cost of the asset is usually the same as the cost of constructing an asset for sale. Any internal profits are eliminated in arriving at such costs. Similarly, the cost of abnormal amounts of wasted material, labour, or other resources incurred in self-constructing an asset is not included in the cost of the asset.

Elements of cost for a purchased asset and self-constructed asset are the same. For internally … Read more

Inventory or Equipment?

Equipment is recognised component-wise. This means each significant part is treated just like an asset. When that part is replaced, it is derecognised and new part is capitalised.

Therefore, the stock of such significant parts are not classified as inventories. They are just like capital work in progress. The stock of significant parts awaiting utilisation may be classified as for example equipment in stock, just explain it!

Repairs and maintenance

Normally spare parts and servicing equipment are accounted for as an item of inventory and expensed when used. Day to day maintenance expenses are expensed as repairs and maintenance. This type of costs include labour, consumables and small parts. Inventory or Equipment?

In case spares parts and servicing equipment … Read more

PPE – Components and parts

A complex asset is comprising of many major and small parts. Its cost excluding directly attributable costs is CU 1,000,000. One of its part costs CU 120,000 and another CU 180,000. All other parts cost less than CU 100,000.

Estimated useful life of the main asset and two parts are as follows: – Main Asset 30 years; Part1 10 years; Part 2 30 years. PPE – Components and parts

In this case, the company shall classify these parts in the following manner: PPE – Components and partsPPE - Components and parts PPE - Components and parts PPE - Components and parts PPE - Components and parts

  • Complex asset: cost CU 1,000,000 – Useful life 30 Years, residual value 5% PPE – Components and parts

    • Main asset: cost CU 1,000,000 (including another part of CU 180,000) – Useful life 30

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Control – Joint control – Significant influence

This is a discussion on IFRS 10 – IFRS 12 Control, Joint control, Significant influence and the accounting applied. It is added with some other logical IFRS topics: the fair value option and the other investments (no control, no joint control and no significant influence).

ControlControl of an investee Control of an investee

Consolidated subsidiaries – Consolidated structured entities

For an investor to control an investee, the investor must possess all of the following elements:

  • Power over the investee, which is described as having existing rights that give the current ability to direct the activities of the investee that significantly affect the investee’s returns (such activities are referred to as the ‘relevant activities’)
  • Exposure, or rights, to variable returns from its involvement
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Plan to sell a factory Highly probable?

An entity is committed to a plan to sell a factory. The production cycle is six months and pollutants are involved. The company must meet its existing orders. Dismantling the equipment and cleaning up the pollution will put the facility out of action for six months. Does the factory meet the criterion of ‘availability for immediate sale’? Highly probable?

No. The fact that several months must be spent fulfilling existing orders and then dismantling and cleaning the factory means that it is not available for immediate sale in its present condition. Therefore, the factory cannot be classified as held for sale at the date of the decision to sell.Plan to sell a factory Highly probable Plan to sell a factory Highly probable

When a sale is ‘highly probable'? Highly probable?

IFRS 5 … Read more