IAS 36 How Impairment test

IAS 36 How Impairment test is all about this – When looking at the step-by-step IAS 36 impairment approach it comes down to the following broadly organised steps: IAS 36 How Impairment test

  • What?? – Determining the scope and structure of the impairment review, explained here,
  • If and when? – Determining if and when a quantitative impairment test is necessary, explained here,
  • IAS 36 How Impairment test or understanding the mechanics of the impairment test and how to recognise or reverse any impairment loss, if necessary. Which is explained in this section…

The objective of IAS 36 Impairment of assets is to outline the procedures that an entity applies to ensure that its assets’ carrying values are not … Read more

First IFRS financial statements

The first annual financial statements in which an entity adopts International Financial Reporting Standards (IFRSs), by an explicit and unreserved statement of compliance with IFRSs. IFRS 1 sets out detailed rules that entities must follow when adopting IFRS for the first time. The standard also sets out a number of exemptions that may be applied when adopting IFRS. If an entity wishes to apply either of these exemptions a full audit trail must be produced to outline the assessment and sufficient evidence must be provided to evidence that the application of the exemption is appropriate.

Fair value through other comprehensive income

Financial assets measured at fair value through other comprehensive income. This is part of the classification of financial assets.

Where did Other Comprehensive Income come from?

Where did Other Comprehensive Income come from – Prior to 1997, other comprehensive income (OCI) and its components weren’t required to be reported anywhere in the financial statements, and many items bypassed the income statement and went directly to owners’ equity.

In June 1997, Statement of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income, established the requirement for reporting and displaying comprehensive income and its components as a required component of a full set of general-purpose financial statements.

SFAS 130 (codified as Accounting Standards Codification® Topic 220, Comprehensive Income) defines OCI as consisting of net income and ‘other comprehensive income’, which refers to revenues, expenses, gains, and losses that, under GAAP, are included in comprehensive income but excluded from … Read more

What is important in pension accounting?

What is important in pension accounting – For a start:

While pension accounting is complicated, an understanding of a few basic concepts can help answer the important questions regarding the company’s pension balances and the required disclosures to provide useful information to all users of financial statements. What is important in pension accounting?

This textbook explains key concepts underlying the company’s pension liability and pension expense, how they are calculated, and what factors influence the amounts reported in the consolidated financial statements. What is important in pension accounting?

Parties involved in a pension plan

A pension plan is funded by an employer, and/or an employee, during an employee’s working years. Pension payments are later made to retired employees from … Read more

Impact of the Discount Rate on Pension obligations

Impact of the Discount Rate on Pension obligations – In order to understand how the discount rate impacts the company’s pension obligations, it is useful to first understand the finance concepts of time value of money and present value. Note that the discount rate is the most important (and most difficult to assess) assumption in calculating pension obligations.

Time Value of Money Impact of the Discount Rate on Pension obligations

The concept of time value of money is best explained in a simple way: a dollar today is worth more than a dollar in the future.

Imagine receiving $1,000 today and putting it in a simple bank savings account. That Impact of the Discount Rate on Pension obligations $1,000 will eventually grow over the years because the bank … Read more

Components of a company’s pension liability

Components of a company’s pension liability – A company’s defined-benefit pension plans have three basic components:

    • accrued-benefit obligations, or the future liabilities created by employees’ service;
    • plan assets, used to pay pension benefits; and
    • unamortized actuarial gains and losses.

Setting aside unamortized actuarial gains and losses, when plan assets are less than the accrued benefit obligation, a net pension liability is recorded on the statement of financial position. A net pension liability is the estimate of the amount needed to pay for pension benefits that have been earned by current and past employees, less the pool of assets set aside in a separate legal entity to eventually pay for the benefits.

A net pension asset arises when plan assets … Read more

Determining annual pension expense

Determining annual pension expense – In general terms, pension expense reported in the statement of profit or loss is driven by how much the pension liability increased during the year, net of returns on the plan’s assets. Normally, a pension liability increases as employees earn additional future benefits from an additional year of service, and as they get closer to collecting retirement benefits. These factors also increase the pension expense in the statement of profit or loss.

Plan assets increase with returns that the plan earns on its investments, reducing the pension expense reported in the statement of profit or loss.

The company’s annual pension expense consists of the following components:

Determining annual pension expense

(- cost, + income)

31/12×1

31/12×0

Cost of benefits
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