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Potential to produce economic benefits

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Potential to produce economic benefits – This is all about: An economic resource is a right that has the potential to produce economic benefits.

In the Conceptual Framework 2018, an asset is now specified as ‘a present economic resource controlled by the entity as a result of past events’. An economic resource, which previously had no definition, is defined as ‘a right that has the potential to produce economic benefits‘.

Previously an asset was defined as ‘a resource controlled by the entity as a result of past events and from which economic benefits are expected to flow to the entity’.

In other words, the potential to produce economic benefits now means that the flow of Read more

Sales warranties

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Sales warranties – the Case: Example on recognising and measuring provisions

A manufacturer gives warranties at the time of sale to purchasers of its product. Under the terms of the contract for sale, the manufacturer undertakes to make good, by repair or replacement, manufacturing defects that become apparent within three years from the date of sale. On the basis of experience, it is probable (ie more likely than not) that there will be some claims under the warranties.

Considerations Sales warranties

Present obligation as a result of a past obligating event—the obligating event is the sale of the product with a warranty, which gives rise to a legal obligation. Sales warranties

An outflow of resources embodying economic … Read more

IAS 41 Agricultural activity and produce

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IAS 41 Agricultural activity and produce – The objective of IAS 41 is to prescribe the accounting treatment and disclosures related to agricultural activity.IAS 41 Agricultural activity and produce

Scope IAS 41 Agricultural activity and produce

IAS 41 shall be applied to account for the following when they relate to agricultural activity:

  1. biological assets, except for bearer plants; IAS 41 Agricultural activity and produce
  2. agricultural produce at the point of harvest; and
  3. conditional or unconditional grants relating to a biological asset measured at its fair value less costs to sell.

IAS 41 does not apply to:

  1. land related to agricultural activity;
  2. bearer plants related to agricultural activity. However, IAS 41 applies to the produce on those bearer plants;
  3. government grants related
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Present obligation as a result of past event

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Present obligation as a result of past event – some basics in accrual accounting, some legal presumptions and a lot to understand….

Obligation: A duty or responsibility to act or perform in a certain way. Obligations may be legally enforceable as a consequence of a binding contract or statutory requirement. Obligations also arise, however, from normal business practice, custom and a desire to maintain good business relations or act in an equitable manner.

It is important to distinguish between a present obligation and a future commitment. A management decision to purchase assets in the future does not, in itself, give rise to a present obligation.

Settlement of a present obligation will involve the entity giving up … Read more

Obligation

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Obligations may be legally enforceable as a consequence of a binding contract or statutory requirement. This is normally the case, for example, with amounts payable for goods and services received. However, obligations do not have to be legally binding.

If, for example, an entity decides as a matter of policy to rectify faults in its products even when these become apparent after the warranty period has expired, the costs that are expected to be incurred in respect of goods already sold are liabilities.

Obligations do not include future commitments.

Some liabilities can be measured only by using a substantial degree of estimation. Some entities describe these liabilities as provisions. In some countries, such provisions are not regarded … Read more

Transition to IFRS 17 Insurance contracts

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Transition to IFRS 17 Insurance contractsTransition to IFRS 17 Insurance contracts – IFRS 17 should be applied for annual reporting periods beginning on or after 1 January 2021. FRS 17 supersedes IFRS 4 [IFRS 17 C34]. Early adoption is permitted if the entity applies IFRS 9 and IFRS 15 not later than on the date of initial application of IFRS 17.

1 January 2021 is the date of initial application of IFRS 17 unless an entity early adopts IFRS 17 [IFRS 17 C1]. The transition date is the beginning of the reporting period immediately preceding the date of initial application. Therefore, if an entity adopts on 1 January 2021, the transition date is 1 January 2020 [IFRS 17 C2Read more

Provisions and contingent liabilities

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Provisions and contingent liabilities – A provision shall be recognised when: Provisions and contingent liabilities

  1. an entity has a present obligation (legal or constructive) as a result of a past event;Provisions and contingent liabilities
  2. it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and
  3. a reliable estimate can be made of the amount of the obligation. Provisions and contingent liabilities

If these conditions are not met, no provision shall be recognised. Provisions and contingent liabilities

An entity shall not recognise a contingent liability. Provisions and contingent liabilities

This is what it is about, make your decision supportable! Provisions and contingent liabilities

Provisions are liabilities of uncertain timing … Read more

Leasehold makegood and restoration provisions

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Leasehold makegood and restoration provisions – Lease makegood / leasehold restoration provisions should be recognised in relation to properties held under operating leases. Such a provision may arise because many property leases contain clauses under which the lessee has to make good dilapidations or other damage which occurs to the property during the course of the lease or restore a property to a specified condition.

Overview Leasehold makegood and restoration provisions leased office

Under IAS 37 14, a provision shall be recognised when: Leasehold makegood and restoration provisions leased office

  • “An entity has a present obligation (legal or constructive) as a result of a past event;
  • It is probable that an outflow of resources embodying economic
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Financial Position

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Financial Position – In short an overview: Financial Position

The financial position of an entity is the relationship of its assets, liabilities and equity as of a specific date as presented in the statement of financial position. These are defined as follows:

  1. an asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity; Financial Position
  2. a liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits; and
  3. equity is the residual interest in the assets of the entity after
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Current and non-current liabilities

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Current and non-current liabilities explains the liabilities as in the Conceptual Framework 2018: this is the definition: A liability is a present obligation of the entity to transfer an economic resource as a result of past events.

A liability is defined as a company’s legal financial debts or obligations that arise during the course of business operations. Liabilities are settled over time through the transfer of economic benefits including money, goods or services. Recorded on the right side of the balance sheet, liabilities include loans, accounts payable, mortgages, deferred revenues and accrued expenses.

Liabilities are a vital aspect of a company because they are used to finance operations and pay for large expansions. They can also make … Read more