Cash-generating unit

Equity – 2 understand it all at best

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Equity

There are, at least, two ways to discuss equity:

  • Equity is the residual interest in the assets of the entity after deducting all its liabilities, or
  • An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.

But also:

  • For the purposes of IFRS 3, equityinterests is used broadly to mean ownership interests of investor-owned entities and owner, member or participant interests of mutual entities.
  • The equity method is a method of accounting whereby the investment is initially recognised at cost and adjustedEquity thereafter for the post-acquisition change in the investor’s share of the investee’s net assets. The investor’s profit or loss includes its share of the investee’s profit or loss and the investor’s other comprehensive income includes its share of the investee’s other comprehensive income.
  • An equity-settled share-based payment transaction is a share-based payment transaction in which the entity:
    1. receives goods or services as consideration for its own equity instruments (including shares or share options), or
    2. receives goods or services but has no obligation to settle the transaction with the supplier.

1. Equity the residual interest in the assets of the entity after deducting all its liabilities

1. Statement of Financial Position

Assets

Equity and liabilities

1. Non-current assets

2. Current assets

Help

Help

A – TOTAL ASSETS [1 + 2] = B

3. Non-current liabilities (including Provisions)

4. Current liabilities (including Provisions)

5. Equity [1 + 2 -/- 3 -/- 4]

Help

B – TOTAL EQUITY AND LIABILITIES [3 + 4 + 5] = A

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Cash flow forecasting

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A Basic Guide to Cash Flow Forecasting

Nobody wants their business to fail. Although it’s impossible to predict the future with 100% accuracy, a cash flow forecast is a tool that will help you prepare for different possible scenarios in the future.

In a nutshell, cash flow forecasting involves estimating how much cash will be coming in and out of your business within a certain period and gives you a clearer picture of your business’ financial health

What is Cash Flow Forecasting?

Cash flow forecasting is the process of estimating how much cash you’ll have and ensuring you have a sufficient amount to meet your obligations. By focusing on the revenue you expect to generate and the expenses you need to pay, cash flow forecasting can help you better manage your working capital and plan for various positive or difficult scenarios.

A cash flow forecast is composed of three key elements: beginning cash balance, cash inflows (e.g., cash sales, receivables collections), and cash outflows (e.g., expenses for utilities, rent, loan payments, payroll).

Building Out Cash Flow Scenario Models

It’s always good to create best case, worst-case and moderate financial scenarios. Through cash flow forecasting, you’ll Cash flow forecastingbe able to see the impact of these three scenarios and implement the suitable course of action. You can use the models to predict what needs to happen especially during difficult and uncertain times.

In situations where variables shift quickly such as during a recession, it is highly recommended to review and update your cash flow forecasts regularly on a monthly or even weekly basis. By monitoring your cash flow forecast closely, you’ll be able to identify warning signs such as declining revenue or increasing expenses.

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Lessee accounting under IFRS 16

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Lessee accounting under IFRS 16

The key objective of IFRS 16 is to ensure that lessees recognise assets and liabilities for their major leases.

1. Lessee accounting model

A lessee applies a single lease accounting model under which it recognises all leases on-balance sheet, unless it elects to apply the recognition exemptions (see recognition exemptions for lessees in the link). A lessee recognises a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make payments. [IFRS 16.22]

[IFRS 16.47, IFRS 16.49]

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IAS 16 Generation assets for Power and Utilities

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Generation assets for Power and Utilities

– are often large and complex installations. They are expensive to construct, tend to be exposed to harsh operating conditions and require periodic replacement or repair. This environment leads to specific accounting issues.

1 Fixed assets and components

IFRS has a specific requirement for ‘component’ depreciation, as described in IAS 16 Property, Plant and Equipment. Each significant part of an item of property, plant and equipment is depreciated separately. Significant parts of an asset that have similar useful lives and patterns of consumption can be grouped together. This requirement can create complications for utility entities, because many assets include components with a shorter useful life than the asset as a whole.

Identifying components of an asset

Generation assets might comprise a significant number of components, many of which will have differing useful lives. The significant components of these types of assets must be separately identified. This can be a complex process, particularly on transition to IFRS, because the detailed record-keeping needed for componentisation might not have been required in order to comply with national generally accepted accounting principles (GAAP). This can particularly be an issue for older power plants. However, some regulators require detailed asset records, which can be useful for IFRS component identification purposes.

An entity might look to its operating data if the necessary information for components is not readily identified by the accounting records. Some components can be identified by considering the routine shutdown or overhaul schedules for power stations and the associated replacement and maintenance routines. Consideration should also be given to those components that are prone to technological obsolescence, corrosion or wear and tear that is more severe than that of the other portions of the larger asset.

First-time IFRS adopters can benefit from an exemption under IFRS 1 First-time Adoption of International Financial Reporting Standards. This exemption allows entities to use a value that is not depreciated cost in accordance with IAS 16, and IAS 23 Borrowing Costs as deemed cost on transition to IFRS. It is not necessary to apply the exemption to all assets or to a group of assets.

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Need for accounting measurement the big 1

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Need for accounting measurement

Need for accounting measurement provides a summary of the measurement bases in use in Financial Reporting
and the concepts behind these measurement bases.
The measurement bases that will be considered here are

All these bases are forms of accrual accounting – that is, they are intended to measure income as it is earned and costs as they are incurred, as opposed to simply recording cash flows. The last four are all forms of current value measurement.

In forming a judgment on the appropriateness of measurement bases, in literature, the overriding tests has been identified to be their cost-effectiveness and fitness for purpose. However, in the absence of direct evidence on these matters, it is usual to argue in terms of various secondary characteristics that ought to be relevant in assessing the quality of information (see the key indicators in What is useful information?).

The most important of these characteristics are generally considered to be relevance and faithful representation / reliability (older term).

For each basis, an outline is given of how it works and the relevance and faithful representation of the resulting measurements. The question of measurement costs is also considered briefly. In reading the analyses that follow, the following comments should be borne in mind.

Bases of measurement in financial reporting are not carved in stone. Different people have different views on how each basis should work, and meanings evolve as practice changes. Some readers may therefore find that the way a particular basis is described does not match how they understand it.

This does not mean either that their understanding is wrong or that the description in the report is wrong; views on these things simply differ.

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IFRS 5 Non-current assets Held for Sale and Discontinued Operations

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  IFRS 5 Non-current assets Held for Sale and Discontinued Operations at a glance – here it is the ultimate summary: Source: https://www.bdo.global/en-gb/services/audit-assurance/ifrs/ifrs-at-a-glance Definitions Cash-generating unit – The smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Discontinued operation – A component of an entity that either has been disposed of or is classified as held for sale and either: Represents a separate major line of business or geographical area Is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations Is a subsidiary acquired exclusively with a view to resale. SCOPE Applies to all … Read more

IAS 36 Best brilliant impairment of telecom assets

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IAS 36 Best brilliant impairment of telecom assets sets out the procedures that an entity should follow to ensure that it carries its assets at no more than their recoverable amount. Recoverable amount is the higher of the amount to be realised through using or selling the asset. Where the carrying amount exceeds the recoverable amount, the asset is impaired and an impairment loss must be recognised. The standard details the circumstances when an impairment loss should be reversed, and also sets out required disclosures for impaired assets, impairment losses, reversals of impairment losses as well as key estimates and assumptions used in measuring the recoverable amounts of cash-generating units (CGUs) that contain goodwill or intangible assets with indefinite lives. … Read more

Recoverable amount

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Recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs to sell and its value in use.