Costs of purchase – financing element Entity E purchases merchandise on Nov 01, 01. Delivery takes place on the same day. In the case of (normal) deferred settlement terms of one month, the purchase price would be CU 200. However, E and its supplier stipulate that payment has to be made on Nov 30, 02, but at an amount of CU 212 (CU 200 plus […]

Measurement of merchandise On Dec 31, 01, entity E owns 100 units of merchandise M. The purchase took place on Oct 15, 01. Settlement in cash and delivery took place on the same date. The costs of purchase were CU 1 per unit. On Dec 31, 01, the net realizable value amounts to CU 0.9 per unit. On Jul 10, 02, 90 units of M […]

Introductory example – gain on disposal of an item of property, plant, or equipment On Dec 31, 01, entity E sells a machine for CU 10. Payment is effected in cash on the same day. On the same day, the machine”s carrying amount is CU 9. This results in the following entry in which the gain on disposal is recognized on a net basis (IAS […]

Preparation of a statement of cash flows Entity E”s statement of financial position as at Dec 31, 01 is presented as follows: ASSETS Dec 31, 01 Dec 31, 00 EQUITY AND LIABILITIES Dec 31, 01 Dec 31, 00 (a) Building 1 290 0 (e) Share capital 260 160 (h) Building 2 0 40   Profit for year 40 0 (c)                  Truck 20 0 (c) […]

Interest, issue, and redemption of a bond On Jan 01, 01, entity E issues a bond. On the same day, E receives CU 100 for issuing the bond. No interest is explicitly stipulated. However, E has to pay CU 121 on Dec 31, 02 in order to settle its obligations under the bond. E measures the bond at amortized cost, i.e. according to the effective […]

Acquisitions and disposals of subsidiaries On Dec 31, 01, entity E acquires 100% of the shares of entity S1 (which is free of debt) for CU 11. Payment is effected in cash on the same day. On the acquisition date, the fair values of S1″s assets are as follows: Machines 3 Buildings 2 Finished goods 3 Cash and cash equivalents 2 Goodwill 1 Purchase price […]

Scope of the principle of consistency (a) Useful life of a wind-driven power station of entity E was initially estimated to be 16 years. When preparing the financial statements for a later period, it turns out that repairs are necessary more often than originally expected and that there are more down times than previously expected. (b) Contingent liabilities are disclosed in the notes unless the […]

Changes in accounting estimates (a) On Jan 01, 01, entity E acquired a machine (property, plant, and equipment) for CU 100 that was available for use on the same date. The machine”s useful life was originally estimated to be 10 years. At the end of 05 it becomes clear that the entire useful life of the machine is eight years instead of 10 years due […]

Fixed prices per unit Purchaser P and supplier S enter in a parts supply agreement for the lifetime of the finished product concerned. S uses tooling equipment that is specific to the needs of P. The tooling is explicitly identified in the agreement and S could not use an alternative asset. The estimated capacity of the tooling equipment is 500,000 units which corresponds to the […]

Retrospective restatement On Jan 01, 01, entity E acquired software for CU 5 that was available for use on the same date. The useful life of the software is 5 years. On Jan 01, 01, the cost of the software was capitalized (“Dr Software Cr Cash CU 5”) (IAS 38.24). Mistakenly, no amortization expense was recognized for the software in E”s financial statements as at […]