Continuation of Example 4 in the following year In the following year 02, entity E”s profit before tax according to IFRS is CU 100. E”s taxable profit for 02 is CU 140. The difference between these amounts arose as follows: 1. On Sep 01, 01, E acquired shares for CU 200 which are accounted for at fair value through other comprehensive income (IFRS 9.5.7.1b and […]

Deferred tax – change in the tax rate Entity E holds the following shares which were each acquired for CU 900: Shares of entity A: These shares meet the definition of “held for trading” (IFRS 9, Appendix A). Therefore, they are accounted for at fair value through profit or loss (IFRS 9.4.1.1–9.4.1.4, 9.5.7.1b, and 9.5.7.5). On Dec 31, 01, the carrying amount of these shares […]

Recognition of deferred tax with respect to goodwill On Jan 01, 01, entity E acquires all of the shares of entity F. This business combination results in: (a) Goodwill of CU 80 according to IFRS. The carrying amount of goodwill for tax purposes is zero. (b) Goodwill of CU 80 according to IFRS. The carrying amount of goodwill for tax purposes is zero. On Dec […]

Component accounting – engine On Jan 01, 01, entity E, a railroad company, acquires a railway locomotive for CU 108 that is available for use on the same day. Payment is effected in cash on the same day. It is planned to use the engine for 24 years. After every six years a major inspection of the engine is necessary. On Jan 01, 01, the […]

Depreciation methods and depreciable amount On Jan 31, 01, entity E acquires a machine for CU 15 that is available for use on the same day. Payment is effected in cash on the same day. The residual value of the machine is CU 3. Required Determine the depreciation expense in E”s financial statements as on Dec 31 for the years 01–03. Depreciation is calculated (a) […]

Decommissioning, restoration, and similar liabilities On Jan 01, 01, entity E acquires a machine for CU 220 that is available for use on the same day. Payment is effected in cash on the same day. The useful life of the machine is three years. The machine consists of some materials that are ecologically harmful. Consequently, E is legally obliged to dispose of the machine appropriately […]

Accounting treatment of property, plant, and equipment (including a sale) On Jan 01, 01, entity E acquires an automobile for CU 24 that represents an item of property, plant, and equipment in E”s operations. Depreciation is calculated according to the straight-line method. Unexpectedly, the automobile is already sold on Jun 30, 02 for CU 20. Version (a) E is a car rental agency. Each year, […]

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 […]

Revaluation of land – without taking deferred tax into account On Jan 01, 01, entity E acquires land for CU 40. Payment is effected in cash on the same day. The piece of land is measured according to the revaluation model after recognition. Revaluations are carried out on an annual basis. Fair value of the land changes as follows: Dec 31, 01 44 Dec 31, […]

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 […]