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The Statement of Cash Flows

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A Historical Perspective on the Statement of Cash Flows

In 1987, the Financial Accounting Standards Board (FASB) issued an accounting standard, FASB Statement no. 95, requiring that the statement of cash flows be presented as one of the three primary financial statements. Previously, companies had been required to present a statement of changes in financial position, often called the funds statement. In 1971, APC Opinion no. 19 made the funds statement a required financial statement although many companies had begun reporting funds flow information several years earlier.

The funds statement provided useful information, but it had several limitations. First, APB Opinion no. 19 allowed considerable flexibility in how funds could be defined and how they were reported Read more

IFRS 3 What are the different classifications of software?

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IFRS 3 What are the different classifications of software?, well off course it depends.

Computer software can be classified as either a tangible asset, i.e. property, plant and equipment or an intangible asset, depending on the level of integration with the related hardware.

Software integrated in hardware

In cases where software is an integral part of the related hardware, i.e. the hardware cannot operate without the software, the software will be treated as property, plant and equipment together with the related hardware already recognised, which will normally be computer equipment, a laboratory computer equipment (e.g. computer hardware and related operating systems are recognised under PPE). In such a case, the Accounting Policy on Property, Plant and Equipment … Read more

What is Investment Property?

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What is Investment Property provides a quick introduction in a important industry that affects almost each living person and businesses.

Investment property is real estate property that has been purchased with the intention of earning a return on the investment, either through rental income, the future resale of the property or both. An investment property can be a long-term endeavor or an intended short-term investment such as in the case of flipping, where real estate is bought, remodeled or renovated, and sold at a profit.

The way in which an investment property is used has a significant impact on its value. Investors sometimes conduct studies to determine the best, and most profitable, use of a property. This … Read more

Asset-based business valuations

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Asset-based business valuationsAsset-based business valuations are one of the most used valuation approaches in accounting. The asset accumulation method and the adjusted net asset method are both generally accepted business valuation methods of the asset-based business valuation approach.

When properly applied using consistent valuation variables, all asset-based business valuation approach methods should conclude approximately the same value for the subject business enterprise.

Additionally, when properly applied using consistent valuation variables, all asset-based business valuation approach methods may be used to conclude any of the following ownership interests:

  1. Total business enterprise (i.e., total long-term debt and total owners’ equity)
  2. Total business assets (i.e., total subject entity tangible and intangible assets)
  3. Total business owners’ equity (e.g., all classes of equity)
  4. A
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Change in accounting principles

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Change in accounting principles – There is an underlying presumption that an accounting principle, once adopted, should not be changed for similar events and transactions. A change in principle may be Change in accounting principlescaused by new events, changing conditions, or additional information or experience.

There are two circumstances when a company is required to change an accounting policy. These are:

  • If the change is required by a Standard or an Interpretation; or Change in accounting principles
  • If the change results in the financial statements providing more reliable and relevant information about the effects of transactions (or other events).

IAS 8 19 (b) requires retrospective application (i.e., the application of a different accounting method to previous years as if that Read more

What is Property plant and equipment?

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What is Property plant and equipment – Property, plant, and equipment (PP&E) is tangible items that are expected to be used in more than one period and that are used in production, for rental, or for administration. This can include items acquired for safety or environmental reasons. In certain asset-intensive industries, PP&E is the largest class of assets.

PP&E items are commonly grouped into classes, which are groups of assets having a similar nature and use. Examples of PP&E classes are buildings, furniture and fixtures, land, machinery, and motor vehicles. Items grouped within a class are typically depreciated using a common depreciation calculation. What is Property plant and equipment

When recording an item within PP&E, include in … Read more

IFRS 16 Leases and joint arrangements

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IFRS 16 Leases and joint arrangements – Entities often enter into joint arrangements with other entities for certain activities (e.g., exploration of oil and gas fields, development of pharmaceutical products).

A contract for the use of an asset by a joint arrangement might be entered into in a number of different ways, including:

  1. Directly by the joint arrangement, if the joint arrangement has its own legal identity IFRS 16 Leases and joint arrangements
  2. By each of the parties to the joint arrangement (i.e., the lead operator and the other parties, commonly referred to as the non-operators) individually signing the same arrangementIFRS 16 Leases and joint arrangements
  3. By one or more of the parties to the joint arrangement on behalf of the joint
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IFRS 3 Identify a business

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IFRS 3 Identify a business – An entity shall determine whether a transaction or other event is a business combination by applying the definition in IFRS 3, which requires that the assets acquired and liabilities assumed constitute a business. If the assets acquired are not a business, the reporting entity shall account for the transaction or other event as an asset acquisition. See also the accounting treatment acquisition of a business or asset(s) 

Guidance on identifying a business combination and the definition of a business are as follows:

The definition of a business: An integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing goods or services to … Read more

IFRS 13 Adjusted net asset method

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IFRS 13 Adjusted net asset method and the asset accumulation method are both generally accepted business valuation methods of the asset-based business valuation approach.

First, the valuation expert typically starts with the subject company’s GAAP-based balance sheet. The valuation expert will use the balance sheet dated closest to the analysis valuation date. Preferably, the valuation expert will use the company’s balance sheet that was prepared just before the analysis valuation date. IFRS 13 Adjusted net asset method

Second, the valuation expert identifies and separates (for further analysis) any non-operating or excess assets reported on the balance sheet. Such assets may include vacant land or other assets held for investment purposes. Such assets may also include those … Read more

Hyperinflation in Argentina

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Hyperinflation in Argentina – Argentina is now (October 2019) considered to be a hyperinflationary economy. IAS 29 – Financial Reporting in Hyperinflationary Economies is therefore applicable to entities whose functional currency is the Argentine peso.

Assessment of the situation

Hyperinflation in ArgentinaIAS 29 sets out a number of quantitative and qualitative characteristics for the purpose of assessing whether an economy is hyperinflationary (IAS 29 3), including:

  • the general population prefers to keep its wealth in non-monetary assets or in a relatively stable foreign currency (e.g., the US dollar or the euro);
  • transactions are conducted in terms of a relatively stable foreign currency;
  • sales and purchases on credit take place at prices that compensate for the expected loss
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