2. Elements of FS-Assets & Revenues -NBE (2)

Welcome to the Training
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on IFRS
Organizer : National Bank of

Ethiopia (NBE)
2
Part II
Elements of Financial
Statements
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IFRS 13
Fair Value
Measurement
1.Objective
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 The objectives of IFRS 13 are to:

1)Define fair value;
value
2)Provide a single set of
requirements for measuring fair
value;
value
3)Specify the disclosure
requirements for fair value
measurement.
4. Main Definitions
6
1) Fair Value : The price that would

be received to sell an asset or paid
to transfer a liability in an orderly
transaction between market
participants at the measurement
date.
 This definition of fair value is
sometimes referred to as an ‘exit
price’
price not ‘entry price’.
price
4. Main Definitions
7
2) Market Participants : are buyers and

sellers in the principal (or most
advantageous)
advantageous market for the asset or
liability that have all of the following
characteristics:
a) They are independent of each other,
other i.e. they
are not related parties as defined in IAS 24 :
Related Party Disclosures,
Disclosures although the price
in a related party transaction may be used as
an input to a fair value measurement if the
entity has evidence that the transaction was
entered into at market terms;
4. Main Definitions
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b) They are knowledgeable,

knowledgeable having a reasonable
understanding about the asset or liability and
the transaction using all available information,
including information that might be obtained
through due diligence efforts that are usual
and customary;
c) They are willing to enter into a transaction for
the asset or liability (i.e. they are motivated,

but not forced or otherwise compelled, to do
so).
d) They are able to enter into a transaction for
the asset or liability;

4. Main Definitions
9
3) Orderly transaction : ‘A transaction that assumes

exposure to the market for a period before the
measurement date to allow for marketing activities
that are usual and customary for transactions
involving such assets or liabilities; it isn't a forced
transaction (e.g. a forced liquidation or distress sale).’
4) Principal market : The market with the greatest
volume and level of activity for the asset or liability.’
Access
5) Most advantageous market : ‘The market that
maximizes the amount that would be received to sell
the asset or minimizes the amount that would be paid
to transfer the liability,
liability after taking into account
transaction costs and transport costs’.
costs
6) Unit of account : The level at which an asset or a
liability is aggregated or disaggregated in an IFRS for
recognition purposes.’
4. Main Definitions
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Self Test Question
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Market 1 2
Daily trade
100,000 20,000
volume
Price 100 108
Price less
95 101
transport costs
Transaction
4 4
costs
Entity A has an access to 91
Net the two markets. 97
Entity A sells in Market 2.
Which Market will determine the fair value in
accordance with IFRS 13?
Self Test Question
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 The principal market is market 1

since it has the greatest volume
and level of activity.
 The most advantageous market is
market 2 since it has the highest
net proceeds. 97
 The fair value will be determined in
accordance to market 1 since:
market 1 is the market with the
greatest volume and level of
5. MEASUREMENT – KEY FACTORS AND
CONSIDERATIONS
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1. The asset or liability

 Fair value measurement - is specific to each asset or
liability.
liability
 Consequently, FV measurement needs to take into
account the specific characteristics of the asset or
liability if market participants would take those
characteristics into account when pricing the asset
or liability at the measurement date such as :
 The condition, location and restrictions (if any) on
the sale or use of the asset.
 It excludes things that are not characteristics of the
asset or liability
 Transactions costs and restrictions on use or sale
that are not a characteristic of the item.
5. MEASUREMENT – KEY FACTORS AND
CONSIDERATIONS
14
2) The market concept

 One of the major principles of IFRS 13 is
the market concept (i.e. reference in
IFRS 13 to ‘market participants’, ‘market
conditions’, ‘market transactions’,
‘market information’, ‘principal market’,
‘most advantageous market’).
market
 Also, IFRS 13 notes that: ‘Fair value is a
market-based measurement not an
entity-specific measurement…’.
5. MEASUREMENT – KEY FACTORS &
CONSIDERATIONS
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3) Fair value at initial

recognition
 Generally, the transaction price (entry
price)
price will equal the FV (exit price),
price
although there is a conceptual
difference between the two.
 It is therefore important to understand
that transaction costs will not cause a
difference between entry price and exit
price.
price
CONSIDERATIONS
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4) Non-financial assets
 IFRS 13 requires the FV of a non-financial
asset to be measured based on its highest
and best use (HBU) HBU from a market
participant’s perspective. This requirement
doesn’t apply to financial instruments ,
liabilities or equity.
equity
 FRS 13 states that HBU of a non-financial
asset takes into account the use of the
asset that is physically possible, legally
permissible and financially feasible,
feasible as
follows:
Activity : Non Financial
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Assets
Ex : Your Factory is built on Plot 900,
900 in a recently
developed industrial development zone on the
outskirts of Addis Ababa where the land that is
divided into one hundred two acre plots that before
their further development were essentially
homogenous. Factories,
Factories like yours, are the highest
and best use for the land rights.
On December 31, 2000 two of the plots adjoining
your plot were sold (i.e. sale of the land rights and
the buildings, if any, constructed thereon):
 Plot 901, sold for $30 million:
million land rights with a
similar factory of the same age, same condition and
same floor area as yours.
 Plot 899, sold for $10 million because it is
undeveloped (yet to be built on).
Activity : Non Financial
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Assets
On 31 December 2000, what is the fair value of your
land rights (i.e., excluding the factory building)?
Choose 1 of:
1) $0; 2) $10 million; 3) $20 million; 4) $30 million; 5) $70

million; 6) $80 million; 7) $100; million; or 8) another
amount
On 31 December 2000, what is the fair value of your
factory building (i.e., excluding the land rights)?
Choose 1 of:
1) $0; 2) $10 million; 3) $20 million; 4) $30 million; 5) $70

million; 6) $80 million; 7) $100; million; or 8) another
amount
Activity : Non Financial
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Assets
Example : The facts are the same as Example
above, except that in this example (fifteen years
later), on 31 December 2015:
 high-rise commercial development is
now the highest and best use for ABC’s
land rights because the rapidly
expanding financial district of Addis
Ababa has grown to the boundary of
plots 899, 900 and 901.
901
 Consequently, on 31 December 2015
Plots 899 and 901 each sold for Br100
million.
million
Activity : Non Financial
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Assets
On 31 December 2015 what is the fair value of
ABC’s land rights (i.e. excluding the factory
building)?
building
Choose 1 of:
1) Br0; 2) Br10 million; 3) Br20 million; 4) Br30

million; 5) Br100 million; or 6) another amount
On 31 December 2015 what is the fair value of
ABC’s factory building (i.e. excluding the land
rights)?
rights
Choose 1 of:
1) Br 0; 2) Br10 million; 3) Br20 million; 4) Br30

million; 5) Br100; million; or 6) another amount
Activity: Restriction on use : Non
Financial Assets
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Ex : You own land use rights to Plot A that is zoned

‘green belt’—which
belt prohibits the construction of
buildings on that land.
Similar neighbouring plots’ with the same land use
rights and subject to the same restrictions sold
recently:
 for Br 950,000 on 30 October 2015 (Plot B);
B and
 for Br30,000,000 on 31 December 2015 (Plot C).
C
The difference in the selling price of Plots B and C
is attributable primarily to the press leaked
confidential government dossier (file) setting out
the government’s plans for proposing an
amendment to the law to allow for the
construction of high-rise buildings on some
(but unspecified which) green belt land.
Required : What is the fair value of the Plot-A?
Activity: Restriction on use :
Financial Assets
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Ex: Entity A pledges 100,000 Awash Bank shares that it

owns as collateral in a borrowing arrangement with other
Bank.
Consequently, Entity A cannot sell its Awash Bank shares
until it settles the borrowing.

Awash Bank shares are issued without such a restriction
and trade on Ethiopian Stock Exchange market.

Is the restriction relevant to measuring the fair value of
the Awash Bank shares held by Entity A? A Choose one of:

a) Yes
b) No
c) It depends (specify)
24CONSIDERATIONS
5) Liabilities and own credit risk

(including equity issued by the entity)
 The general principle for measuring the FV
of liabilities (and an entity’s own equity

instruments) in accordance with IFRS 13 is
that FV assumes that a financial or non-
financial liability or an entity’s own equity
instrument (e.g. equity interests issued as
consideration in a business combination) is
transferred to a market participant at the
measurement date as outstanding.
outstanding
CONSIDERATIONS
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6) Bid and ask prices

 Bid and ask prices are common within markets
for securities, financial instruments and
commodities.
commodities
 In these markets, dealers stand ready to buy at
the bid price and sell at the ask price.
 A bid price reflects the highest price a potential
buyer is willing to pay for an asset and an ask
price reflects the lowest price a potential seller
will accept. The difference is the bid-ask
spread.
spread
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CONSIDERATIONS
 IFRS 13 states that the entity should
use the price within the bid-ask spread
that is most representative of FV.
FV
 The use of bid prices for asset positions
and ask prices for liability positions is
permitted but isn’t required.
 In practice, however, we would expect
that for stand-alone financial assets and
financial liabilities,
liabilities bid and ask prices
would be used for valuation purposes.
CONSIDERATIONS
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7) Premium and discount

 When a quoted price in an active market exists
for an item (a Level 1 input),
input the quoted price is
used without adjustment.
 However, for certain financial and non-financial
assets and liabilities,
liabilities quoted prices in an active
market typically will not exist (such as:
a) for shares in unlisted entities,
b) debt instruments not listed on a public market,
c) investment properties, and
d) items of property plant and equipment.
 For those assets and liabilities, the FV
measurement should incorporate premiums or
discounts if market participants would consider
them in determining FV for the purposes of their
acquisition or sale.
6. Fair Value Hierarchy
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1. Level 1 inputs
 Level 1 inputs - are quoted prices in active markets for identical
assets or liabilities that the entity can access at the measurement
date.
date
 A quoted market price in an active market provides the most reliable
evidence of FV and is used without adjustment to measure FV
whenever available, with limited exceptions.
 Highest priority is given to quoted prices in active markets for
identical assets or liabilities
EX. Level I inputs
-Price of company’s publicly traded shares
-each share is identical and actively traded
Information on prices on an exchange is readly
available
An entity can readily value its holdings of the
company;is common shares through reference to
the closing price of those shares on the
measure,ent date
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2. Level 2 inputs
 Level 2 inputs - are inputs other than quoted
market prices included within Level 1 that are
observable for the asset or liability, either directly
or indirectly.
indirectly
 Level 2 inputs include:
a) quoted prices for similar assets or liabilities in
active markets;
markets
b) quoted prices for identical or similar assets or
liabilities in markets that are not active;
active
c) inputs other than quoted prices that are observable
for the asset or liability;
d) inputs that are derived principally from or
corroborated by observable market data by
correlation or other means ('market-corroborated
inputs').
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3. Level 3 inputs
 Level 3 inputs are unobservable inputs for the asset or
liability.
 Unobservable inputs are used to measure FV to the
extent that relevant observable inputs are not
available, thereby allowing for situations in which
there is little, if any, market activity for the asset
or liability at the measurement date.
 An entity develops unobservable inputs using the best
information available in the circumstances, which might
include the entity's own data, taking into account all
information about market participant assumptions that
is reasonably available.
 Estimate using a valuation technique (a model)
7. Valuation Techniques
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 IFRS 13 includes definitions for three valuation

techniques that are commonly utilized in practice:
1. Market Approach : A valuation technique that
uses prices and other relevant information
generated by market transactions involving
identical or comparable (i.e. similar) assets,
liabilities, or a group of assets and liabilities. (e.g.
a business)
 The following valuation techniques are described
under the market approach in the document:

a) Transaction price paid for an identical or a similar
instrument in an investee;
b) Comparable company valuation multiples.
c) Ex. Earning per share, sales , EBIT etc.
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2. Income approach : A valuation technique that

converts future amounts (e.g. cash flows or income and
expenses)
expenses to a single current (i.e. discounted/Present
value)
value amount.
 The following valuation techniques are described in the
document:
a) Discounted Cash Flow (DCF) method : Under this
method, the investor would discount expected cash
flows to a present value at a rate of return that
represents the time value of money and the relative
risks of the investment.
b) Dividend discount model (DDM) : This model
assumes that the price of an equity instrument equals
the present value of all its expected future dividends in
perpetuity when the investee consistently pays
dividends.
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c) Constant-growth DDM (dividend discount

model) : This model determines the FV of
the equity instrument by referring to a
forecast of growing dividend streams.
streams This
model is sensitive to the assumptions about
the growth rate.
rate
d) Capitalization model : This model applies a
rate to an amount that represents a measure
of economic income to arrive at an estimate
of present value.
value The model is useful as a
cross-check when other approaches have
been used.
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3. Cost approach
a) Replacement Cost (DRC) - A valuation
technique that reflects the amount that would be
required currently to replace the service
capacity of an asset (often referred to as
current replacement cost).
cost
b) Adjusted net asset method -This cost approach
definition assumes that FV is the cost to acquire or

construct a substitute asset of comparable utility,
adjusted for obsolescence (including physical
deterioration , functional (technological)
obsolescence and economic (external)
obsolescence)
obsolescence
8. Disclosures
37
 IFRS 13 FV Measurement - introduces a

comprehensive disclosure framework for FV
measurement.
 This framework is intended to help users of financial
statements assess the valuation techniques and inputs
used to develop those measurements.
1. The disclosures required are affected by the FV
hierarchy discussed above, with increased disclosure
requirements applying to the lower levels of that
hierarchy (in particular Level 3).
2. A distinction is also made between recurring FV
measurements (measurements made on a FV basis at
each reporting date) and non-recurring
measurements (measurements triggered by particular
circumstances).
8. Disclosures
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3) Disclosure of the effect of the FV measurement

on profit or loss or other comprehensive income
for the period is required for recurring FV
measurements that involve significant
unobservable (Level 3) inputs.
4) Disclosure requirements also apply to each class
of asset and liability not measured at FV in the
statement of financial position but for which the
fair value is disclosed (e.g. financial instruments
measured at amortized cost, and investment
property accounted for in accordance with the
cost model). For these items, the disclosures
requirements are less extensive.
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IAS 16
Property, Plant and
Equipment (PPE)
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1. Objective
 To prescribe the accounting treatment
for property, plant and equipment ;
 The principal issues in accounting for
property, plant and equipment are :

a) Recognition of assets;
b) Measurement of assets;
c) Depreciation charges;
d) Subsequent costs;
e) Disposal of assets :
2. Definition
41
 Property, Plant & Equipment

(PPE) - are tangible assets that:
1.held for use – production ,
administration, warehousing, etc.
2. to be used more than one
period.
period
3. Recognition of PPE
42
 It applies to both initial and

subsequent costs.
 PPE recognition depends on two
criteria.
1. Probable future economic benefits
inflow,
2. Cost measured reliably-
reliably both
acquired and self-constructed assets.
4.a. Initial Measurement - Acquired
PPE
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 Purchase price less any trade discount or rebate.

 Import duties and non-refundable purchase taxes.
 Directly attributable costs of bringing the asset to
working condition for its intended use, e. g:
- The cost of site preparation.
- Initial delivery and handling costs/Freight-In.
- Installation costs.
- Testing costs.
- Professional fees (architects, engineers)
 Initial estimate of the unavoidable cost of
dismantling and removing the asset and restoring
the site on which it is located.
4. b. Initial Measurement – Self
Constructed PPE
44
1. The same principles are applied as for

acquired assets.
2. Construction and sale are normal
business, the cost of its production
/Inventory. ( IAS 2: Inventories)
3. Abnormal costs (wasted material,
labor or other resources) are
excluded from the cost of the asset.
4.c. Initial Measurement-
Exchanges of PPE
45
 Regardless of similar or
dissimilar exchange, the cost
the acquired asset:
1. FV of asset acquired or FV of asset
given up, which is measured
reliably, if not
2. Carrying Amount of the asset
given up.
5. Subsequent Expenditure
50 of PPE
 Replacements and overhauls should be capitalised
if they lead to an enhancement in performance by:
i. increasing the capacity,
ii. improving the quality of output,
iii. extending the economic life of the asset or
iv. by reducing the operating costs of the assets
 All other subsequent expenditure should be
recognised as an expense in the period in which it
is incurred
 Day-to-day servicing costs are revenue expenditure
6. Subsequent Measurement of
PPE
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1. Cost Model
 Carry the asset at its Cost (-) A/D &
Impairment Loss
 Carrying Amount (Book Value) =
Acquisition (original) cost …….xx
+ Subsequent costs capitalized….xx
- Accumulated Depreciation……..xx
- Accumulated Impairment Loss….xx
6.b. Subsequent Measurement
of PPE
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2. Revaluation Model:
Model
 Carry the asset at a Revalued amount/ FV
at the date of the revaluation (-) any

subsequent A/D & Impairment Losses.
 It is available only if the FV of the item can
be measured reliably.
 Carrying Amount (Book Value) =
Revalued Amount/Fair Value .…..xx

+ Subsequent costs capitalized……xx
- Accumulated Depreciation……….xx
- Accumulated Impairment Loss……xx
6.a. Subsequent Measurement of PPE
(Cost Model)…
53
Case #1: Decrease in Value

Example : An entity originally
acquired land for ETB 15,000,000.
It was revalued upwards to ETB
20,000,000 two years ago. The value
has now fallen to ETB 13,000,000.
Required: Account for the
revaluation in the current year.
Jan 24, 2025
(Cost Model)…
54
Solution
Impairment Loss (P/L)….…2,000,000
(DR)
Land……………………………..2,000,000
(CR)
Jan 24, 2025

(Cost Model)…
55
Case #2: Increase in Value

Example: An entity has an item of land carried in
its books at ETB 13,000,000 now. Two years ago a
fall in land values led the economic entity to reduce
the carrying value from ETB 15,000,000. This was
recognized in surplus or deficit. There has been a
surge in land prices in the current year, however,
and the land is now worth ETB 20,000,000.
Required: Account for the revaluation in the
current year.
Jan 24, 2025

(Cost Model)…
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Solution
Land…………………………………2, 000,000 (DR)
Loss Reversal (P/L)……………………..

2,000,000 (CR)
Jan 24, 2025

6.b. Revaluation Model
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Case #1: Increase In Value

 How should any increase in value be treated when
a revaluation takes place?
1. Asset Value (Dr) in the SFP & Revaluation
Surplus (Cr) in Owners’ Equity /OCI.
a) Increase in value reversing (offset/reversal) of
a previous decrease (Expense / Impairment
Loss ) is recognized as Income/Gain in the SP/L.
b) Any excess is recorded as Revaluation Surplus in
Owners’ Equity /OCI.
Example: Revaluation
59
Model
 ABC Co has an item of land carried in its
books at $13,000. Two years ago a fall
in land values led the company to
reduce the carrying value from $15,000.
This was taken as an expense in profit
or loss. There has been a surge in land
prices in the current year, however, and
the land is now worth $20,000.
Required: Account for the revaluation in
the current year.
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Model
6.b. Revaluation Model
62
Case #2: Decrease In Value

 How should any decrease in value be treated
when a revaluation takes place?
1. Any decrease should be recorded as taken as
an Expense (Loss), Dr in SP/L. How ever,

a) Offset of a previous increase (reversal) is
recorded as Revaluation Surplus, Dr in

Owner’s Equity/OCI.
b) Any decrease in value greater than the
previous upwards /increase as
Expense/Loss, Dr in SP/L
63
Model
 Let us simply swap round the
example given above. The
original cost was $15,000,
revalued upwards to $20,000
two years ago. The value has now
fallen to $13,000. Account for
the decrease in value.
64
Model
 Note: the credit to the revaluation

surplus will be shown under 'other
comprehensive income'. The case is
similar for a decrease in value on
revaluation.
7. Depreciation of PPE
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1. Every part of PPE with a cost that is

significant in relation to the total cost of
the item must be depreciated
separately.
2. It should begin when PPE became
available for use even if it is idle .
3. It should end when it is derecognized.
7. Depreciation Methods
67
1. The selected method (SLM,

Activity, DDB,SOYD, etc) should
be applied consistently to
ensure comparability from period
to period.
2. The effect and the reason for
the change should be
quantified and disclosed when
the method is changed.
7. Depreciation of Bearer
68 Plants
 Bearer plant is a living plant that (since
2016 as PPE) :
a) is used in the production or supply of
agricultural produce;
b) is expected to bear produce for more
than one period; and
c) has a remote likelihood of being sold as
agricultural produce, except for
incidental scrap sales.
69
Plants
With effect from 1 January 2016 coffee farmers’
applying IFRS must depreciate their growing
coffee plants. Which method of depreciation
best reflects how a coffee farmer expects to
consume the service potential of its growing coffee
plants? Choose one of:
1) the straight-line method
2) the double-declining-balance method
3) the units-of-production method on the basis
of total expected cherry to be produced by
the coffee plant over its useful life
4) another method (specify)
5) management is free to choose whatever
depreciation method it likes
70
Plants
 When should a coffee grower begin
depreciating a growing coffee plant
(sometimes referred to as the ‘point of
maturity’)?
maturity Choose one of:
1) when the coffee is planted
2) when the first cherry is harvested (say 3
years after planting)
3) when the first cherry yield of commercial
value is harvested
4) when the first cherry yield of maximum yield
is harvested (say 7 years after planting)
71
Plants
 What is the residual value of the Coffee
trees? Choose one of:
1) Nil;
2) The expected wood yield from the tree
today (measurement date) multiplied by
today’s price;
multiplied by today’s price;
multiplied by the price expected
discounted to today; or
5) Another.
7. Review of Depreciation
Method
72
 At least once in financial /fiscal

year end.
 Change in accounting estimates.
 Depreciation charge should be
accounted prospectively- for the
current and future periods.
8. Useful life of PPE
73
 It’s estimated/judgmental based on

previous experience but should consider
the following factors:
1. Expected physical wear and tear.
2. Obsolescence
3. Legal or other limits on the use of the

assets
8. Review of Useful life
74
of PPE
 At least once in financial /fiscal
year, end.
 Change in accounting
estimates.
 Depreciation charge should be
accounted prospectively- for
the current and future periods.
Example: Review of
75
Useful Life
 ABC Co acquired a non-current
asset on January 1, 20X2 for
$80,000. It had no residual value
and a useful life of 10 years. On
January 1, 20X5 the remaining
useful life was reviewed and
revised to 4 years. What will be
the depreciation charge for 20X5?
Example: Review of
76
Useful Life
9. Residual value of
77
PPE
 It is likely to be immaterial in
most cases.
 It must be estimated at the Date
of Purchase/Subsequent
Revaluation.
 Net RV = Gross RV - Expected
Costs of Disposal
10. Complex PPE
78
 Assets which are made up of

separate components.
 Each component is separately
depreciated over their useful life.
 E.g.
E.g Aircraft - Fuselage,
Undercarriage, Engines
Example :Complex PPE
79
 An aircraft could be considered

as having the following
components:
Example :Complex PPE
80
 Depreciation at the end of the first year, in

which 150 flights totaling 400 hours
were made, would then be:
11. Overhauls of PPE
81
 An asset may require regular

overhauls in order to continue to
operate.
 The cost of the overhaul is
treated as an additional
component and depreciated
over the period to the next
overhaul.
Example: Overhauls of
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PPE
 In the case of the aircraft above, we will
assume that an overhaul is required at the
end of year 3 and every third year
thereafter at a cost of $1.2m. This is
capitalized as a separate component. The
depreciation for year 4 (assuming 150
flights again) will therefore be:
12. Revaluations &
83
Depreciation
 How to depreciate revalued assets?
1. Revaluation surplus is only realized when the
asset is sold, but when it is being depreciated,

part of that surplus is being realized as the asset is
used.
2. Revaluation surplus realized = Depreciation
charged on the revalued amount ( - )

Depreciation which would have been charged on
the asset's original cost/before Revaluation.
3. Revaluation surplus realized transferred to
Retained (i.e. Realized) Earnings but not
through Profit or Loss (SP/L).
 Movement in Owner’s Equity not in SP/L.
12. Revaluations &
84
Depreciation
 When a PPE is revalued, any accumulated
depreciation at the date of revaluation is
treated in one of the following ways:
1. The accumulated depreciation is restated
proportionately with the gross carrying
amount, so that the carrying amount after the
revaluation equals the revalued amount; or
2. The accumulated depreciation is
eliminated against the gross carrying amount
and the net amount restated to the revalued
amount.
Example: Revaluation and
85
Depreciation
 ABC Co bought an asset for $10,000
at the beginning of 20X6. It had a
useful life of five years. On January 1,
20X8, the asset was revalued to
$12,000. The expected useful life has
remained unchanged (i.e. three years
remain). Account for the revaluation
and state the treatment for
depreciation from 20X8 onwards.
Depreciation
86
Depreciation
87
13. Impairment of PPE
90
 Impairment loss should be

treated in the same way as a
revaluation decrease.
 Refer the Previous Lesson.
14. De-recognition of
91
PPE
 Retirements and Disposals of PPE
 Withdrawal of PPE from the Book of
Accounts/SFP if no more useful.
a) Gains/losses on disposal = Estimated
net Disposal Proceeds (-) Carrying
Amount of the PPE.
b) Income/Expense in SP/L.
14. De-recognition of PPE
92
 ABC Co. is preparing its financial statements for

the year ended 31 December 2012. A van,van which
had cost $5,000 and had a carrying amount of $
2,813, at 1 January 2012, was traded in as part
exchange for the purchase of a new van,van which
cost $7,800.
$7,800
 A cheque for $ 5,800 was paid by the company to
complete the purchase. Depreciation is charged

on vans at 25% per annum on a straight line basis.
Required:
Required Prepare the journal entries necessary to
record the above in the company’s financial
statements for the year ended 31 December 2012.
14. De-recognition of
93
PPE
DR CR
Van- New 7,800
Accumulated Depreciation – 2,187
Van 813
SPLOCI – P/L (Loss on 5,000
Disposal) 5,800
Van- old
Cash-Bank
Depreciation Charge – Vans 1,950
Accumulated Depreciation 1,950
– Vans
15. Presentation &
94
Disclosure of PPE
 It may include but not limited to:
1. Measurement bases for determining the gross carrying
amount.
2. Depreciation methods used.
3. Useful lives or depreciation rates used.
4. Gross carrying amount and accumulated
depreciation & impairment losses at the beg & end
of the period
5. Reconciliation of the carrying amount at the beginning
and end of the period showing: Additions, Disposals,
Acquisitions through business combinations,
Increases/decreases during the period from
revaluations and from impairment losses,
Impairment losses recognized in profit or loss,
Impairment losses reversed in profit or loss,
Depreciation, Net exchange differences (from
translation of statements of a foreign entity), any
15. Presentation & Disclosure of
PPE
95
 For revalued PPE , additional disclosures

include :
1. Basis used to revalue the assets.
2. Effective date of the revaluation.
3. Whether an independent valuer was involved.
4. Nature of any indices used to determine
replacement cost.
5. Carrying amount of each class of PPE that
would have been included at Cost Model.
6. Revaluation surplus, indicating the movement
for the period and any restrictions on the
distribution of the balance to shareholders.
16. Format used to disclose PPE
Movements
96
97
IAS 40
Investment
Property
1. Objective
98
 The objective of this Standard is to

prescribe the accounting treatment
for investment property and
related disclosure requirements.
 This Standard shall be applied in the
recognition, measurement and
disclosure of investment property.
3. Definitions
100
1. Investment property – is property (land or a

building or part of a building or both) held (by
the owner or by the lessee as a right-of-use
asset) to earn rentals or for capital appreciation
or both, rather than for:
a) Use in the production or administrative
purposes, or
b) Sale in the ordinary course of business
2. Owner-occupied property - is property held
(by the owner or by the lessee as a right-of-use
asset) for use in the production or supply of
goods or services or for administrative purposes.
purposes
4. Examples of Investment
Property
101
1. Land held for long-term capital

appreciation.
appreciation
2. Building owned by the reporting entity (or
held by the entity under a finance lease)
and leased out under an operating lease.
3. Building held by a parent and leased to a
subsidiary.
4. Property that is being constructed or
developed for future use as an
investment property.
5. Recognition of Investment
Property
102
 Investment property should be

recognized as an asset when two
conditions are met.
1. Probable future economic benefits inflow,
inflow
2. Cost of the investment property measured
reliably.
reliably
6. Initial measurement of
Investment Property
103
1. An investment property
should be measured initially at
its cost , including transaction
costs.
costs
7. Subsequent Measurement
Investment Property
104
 An entity may choose between two

models.
1. Fair Value model

2. Cost model
7.1. Fair Value Model
105
1. After initial recognition, an entity that

chooses the FV model should measure all
of its investment property at FV,
FV except in
the extremely rare cases where this cannot
be measured reliably. In such cases, it
should apply the IAS 16 cost model.
model
2. A gain or loss arising from a change in the
FV of an investment property should be
recognized in net profit or loss (SP/L)
SP/L
for the period in which it arises.
106
 EEN acquired two buildings on January 1,

2012 that are to be let on an arm’s length
basis to a third party. EEN applies the fair
value model in accounting for investment
properties.
properties The valuation details are as
follows:
 Required : Explain and set out the journal
entries necessary to record the movements
between cost and far value in respect of
each of the properties for the period ended
December 31, 2012 and 2013.
2013
107
Prope Cost Fair value Increase/

rty Birr Birr Decrease
million million Birr million
2012 201 2012 2013
3
IP 1 210 345 400 135 55

IP 2 390 280 320 (110) 40
108
IP 1
2012
Investment Property 135m
Gain on Investment Property (P/L) 135m
2013
IP 2
2012
Loss on Investment Property (P/L) 110m
2013
8. Transfers to Investment
Property
110
 It should only be made when there is a

change in use .
 When there is a transfer from Investment
Property carried at FV to owner-occupied
property (IAS 16)
16 or Inventories (IAS 2),
2
the property's cost for subsequent
accounting should be its Fair Value at the
date of change of use.
 Any gain or loss on the transfer shall be
treated as per the relevant standard.
9. Disposals of Investment
Property
111
 An investment property shall be

derecognized on disposal or when the
investment property is permanently
withdrawn from use and no future economic
benefits are expected from its disposal.
 Gains or losses on the disposal of asset shall
be recognized in P/L on SPLOCI;
 Compensation from third parties for
investment property that was impaired, lost or
given up shall be recognized in P/L on SPLOCI
when the compensation becomes receivable.
10. Disclosure
112
 An entity shall disclose but not limited to :

1. The accounting policy applied (whether fair
value model or the cost model);
model
2. Whether property interests held as operating
leases are included in investment property;
property
3. Criteria for classification as investment property;
4. Assumptions in determining fair value;

value
5. Use of independent professional valuer
(encouraged but not required)
6. Rental income and expenses
7. Any restrictions or obligations
8. Other details
113
IAS 23
Borrowing
Costs
1. Objective
114
 It is applied for accounting for

borrowing costs or Capitalization
of borrowing costs,
costs self-
constructed assets where an entity
builds its own inventory or non-
current assets over a substantial
period of time.
3. Definitions
116
1. Borrowing costs - are interest and other costs

that an entity incurs in connection with the
borrowing of funds. They may include:
a) interest expense calculated using the effective
interest method (IFRS 9);
9
b) interest in respect of lease liabilities recognized
in accordance with IFRS 16 Leases; and
c) exchange differences arising from foreign
currency borrowings to the extent that they are
regarded as an adjustment to interest costs.
costs
3. Definitions
117
2. Qualifying asset - is an asset that

necessarily takes a substantial period of
time to get ready for its intended use or
sale. Depending on the circumstances, it
may include:
a) Inventories
b) Manufacturing plants
c) Power generation facilities
d) Intangible assets
e) Investment properties
f) bearer plants.
3. Definitions
118
3. Non Qualifying Assets - include

:
a) Financial assets and inventories
that are manufactured over a
short period of time;
b) Assets that are ready for their
intended use or sale when
acquired are not qualifying assets.
4. Recognition &
119
Measurement
1. An entity shall capitalize borrowing
costs that are directly attributable to
the acquisition, construction or
production of a qualifying asset as part
of the cost of that asset.
2. An entity shall expense other
borrowing costs in period in which it
incurs them.
4. Recognition &
120
Measurement
Example-1 : Specific
123
Borrowings
 On 1 January 2006 ST Co borrowed $1.5m to
finance the production of two assets, both of
which were expected to take a year to build.
Work started during 2006. The loan facility
was drawn down and incurred on 1 January
2006, and was utilized as follows, with the
remaining funds invested temporarily.
Asset A Asset B $'000
$'000
1 January 2006 250 500
 1The
Julyloan
2006 250 ST Co can500
rate was 9% and invest
surplus funds at 7%.
Solution: Specific
124
Borrowings
Particulars Asset A ($) Asset B ($)
Borrowing costs to 31 December 2006 45,000 90,000
$500,000/$1,000,000 × 9%
Less: Investment income to 30 June 2006 (8,750) (17,500)

$250,000/$500,000 × 7% × 6/12
36,250 72,500
Cost of assets
Expenditure incurred 500,000 1,000,000
Borrowing costs 36,250 72,500
536,250 1,072,500
Example-2: General
125
Borrowings
 AD Co had the following loans
in place at the beginning and
end of 2006. January December
1, 2006 31, 2006
10% Bank loan repayable 120 120
2008
9.5% Bank loan repayable 80 80
2009
Example-2: General
126
Borrowings
 The 8.9% debenture was issued to fund the
construction of a qualifying asset (a piece of mining
equipment), construction of which began on 1 July
2006. On 1 January 20X6, AD co began construction
of a qualifying asset, a piece of machinery for a
hydroelectric plant, using existing borrowings.
Expenditure drawn down for the construction was:
$30m on 1 January 2006, $20m on 1 October 2006.
 Required: Calculate the borrowing costs that can be
capitalized for the hydro-electric plant machine.
Solution: General
127
Borrowings
Capitalization rate = weighted average
rate
=[10%*[120/(120+80) ]]+
[9.5%*[80/(120+80)]]
= 9.8%
5. Commencement of
128
capitalization
 The commencement date for capitalizing
borrowing costs for Qualifying
Assets is the date when the entity first
meets all of the following conditions:
a) it incurs expenditures for the asset;
b) it incurs borrowing costs; and
c) it undertakes activities that are

necessary to prepare the asset for its
intended use or sale.
6. Suspension of
129
capitalization
 An entity shall suspend capitalization of
borrowing costs during extended
periods in which it suspends active
development of a qualifying asset.
 Suspension of capitalization of
borrowing costs is not necessary for
temporary delays or for periods when
substantial technical or administrative
work is taking place.
7. Cessation of
130
capitalization
 An entity shall cease capitalizing
borrowing costs when substantially all
the activities necessary to prepare the
qualifying asset for its intended use or
sale are complete.
 This will normally be when physical
construction of the asset is completed,
completed
although minor modifications may still
be outstanding.
8. Disclosure
131
 An entity shall disclose:

a) the amount of borrowing costs
capitalized during the period;
and
b) the capitalization rate used to
determine the amount of
borrowing costs eligible for
capitalization.
132
IFRS 5
Non-current Assets held for
Sale & Discontinued
Operations
1.Objective
133
 The objective of this IFRS is to

specify the accounting for
assets held for sale,
sale and the
presentation and disclosure of
discontinued operations.
operations
3. Definitions
135
 Non-current Assets held for sale refers to an

individual asset or group of assets ;
 An individual non-current asset is regarded as
‘held for sale’
sale if its carrying amount will be
recovered principally through a sale transaction
rather than through continuing use;
 A disposal group is a group of assets to be
disposed of together as a single transaction
together with liabilities directly associated with
those assets that will be transferred in the
transaction
4. Classification of a non-current
assets /
136 group as held for sale
 Classify an asset / group as held for sale
if carrying amount will be recovered
principally through a sale transaction
rather than through continuing use;
 Asset or disposal group must be available
for immediate sale in its present
condition and the sale must be highly
probable (i.e. management must be
committed to the disposal);
 Period to complete sale may extend
beyond 1 year due to circumstances
outside the entity’s control.
5.1. Measurement immediately
prior to
137
reclassification as held for
sale
1. Immediately before the initial
classification of the asset as held for sale,
the carrying amount of the asset is
measured in accordance with applicable
IFRS (e.g. IAS 16, IAS 40)
40
2. Any impairment loss is recognised in
SPLOCI – P/L unless the asset had been
measured at a re-valued amount under
IAS 16 or IAS 38, in which case the
impairment is accounted for as a
revaluation decrease.
decrease
5. 2. Measurement upon re-
classification as
138 held for sale
 Measure at lower of:
(a) carrying value;
value and
(b) FVLCS
 Any impairment arising upon re-classification as
held for sale as a result of (b) being less than (a)
is recognised in SPLOCI – P/L
 When the sale is expected to occur > 1
year, costs to sell must be measured at
their present value.
 Do not depreciate or amortise while
classified as held for sale.
sale
5.3. Measurement after re-
classification
139 as held for sale
No depreciation or amortisation
charges (even if asset is still used);
 At subsequent reporting dates, re-
measure to FVLCS;
Impairment losses are recognised in
SPLOCI – P/L
Gains are recognised for increases in FVLCS
but not in excess of cumulative impairment
losses recognised in accordance with IFRS 5
or previously in accordance with IAS 36
Example
140
A property is purchased for ETB 500,000 on 1 January

2011. The useful life of the property is 20 years (zero
residual value). The property is measured subsequently
at depreciated historical cost. On 30 June 2013, it is
decided that the property is to be classified as held for
sale (classification criteria are met). An impairment
assessment on 30 June 2013 determines the recoverable
value (based on value in use) to be ETB 400,000.
The fair value less costs to sell on 30 June 2013 is ETB
390,000.
Required:
a)What is the carrying value of the property immediately
before re-classification as held for sale on 30 June 2013?
b)What are the required accounting entries in 2013 in
respect of the re-classification of the asset as held for
sale?
Exercise
Example
141 a)
Cost 500,000
Depreciation 2011 (25,000)
Depreciation 2012 (25,000)
Depreciation six months 2013 (12,500)
Carrying value at 30 June 2013 prior to impairment
437,500
assessment
Impairment charge 2013 (37,500)
b) 400,000
Carrying value at date of re-classification as held
400,000
for sale
Fair value less costs to sell 390,000
Impairment charge 2013 10,000
7. Presentation
142
 A non-current asset that meets the

criteria to be classified as held for
sale should presented separately in
the statement of financial position
and the results of discontinued
operations to be presented
separately in the statement of
comprehensive income.
income
8. Disclosures
143
 An entity shall disclose the following

information:
 a description of the non-current asset ;
 a description of the facts and circumstances of
the sale, or leading to the expected disposal,
and the expected manner and timing of that
disposal;
 the gain or loss recognized ,if any;
 if applicable, the reportable segment in which
the non-current asset is presented in
accordance with (IFRS 8) Operating Segments.
144
IAS 38
Intangible
Assets
1. Objective
145
 The objective of this Standard

is to prescribe the accounting
treatment for intangible
assets that are not dealt with
specifically in another
Standard.
3. Definitions
147
1. Intangible asset - an identifiable non-monetary

asset without physical substance. Example :
Computer software , patents , motion picture films
, copyrights, franchises and fishing rights, etc.
2. Amortization - systematic allocation of the
depreciable amount of an intangible asset over its
useful life.
3. Carrying amount - the amount at which an asset
is recognized in the statement of financial position
after deducting any accumulated amortization and
accumulated impairment losses thereon.
4. Conditions for Intangible
148
Assets…
 Conditions to classify items as Intangible
Assets are:
a) They must be identifiable ;
b) They must be controlled as a result of a
past event - benefits are controlled by the

entity (i.e. prevent access of others to
those benefits); and
c) They must provide future economic
benefits .
5. Recognition
152
 An intangible asset shall be recognized if

and only if:
a) it is probable that the expected future
economic benefits that are attributable to

the asset will flow to the entity; and
b) the cost of the asset can be measured
reliably.
c) Identifiable from other assets
6.1. Initial Measurement
153
 An intangible asset shall be measured initially at cost.

1. The costs allocated to an internally generated
intangible asset should be only costs that can be directly
allocated on a reasonable & consistent basis to creating,
producing or preparing the asset for its intended use.
2. The conditions under which the intangible asset has been
acquired will determine the measurement of its cost.

-purchase -transaction
- grant,- fair value
1. Exchange- fair value of assets
2. Business combination –fair value

6.1. Initial Measurement
154
6.1e. Initial Measurement - Internally Generated
Goodwill
159
Internally generated goodwill is not

recognized as an asset because it fails to
meet recognition criteria because :
1. It is not an identifiable resource- It is not
separable from other resources;
2. It can not be controlled by the reporting
entity since it does not arise from
contractual or other legal rights;
3. It can not be measured reliably at cost-
since its measurement is extremely
subjective;
6.1f. Initial Measurement – Internally
Generated Intangibles other than
160
Goodwill
 To assess whether an internally generated
intangible assets meets the criteria for recognition,
an entity classifies the generation of the asset into:
a) Research Phase (of internal Project) - is original
and planned investigation undertaken with the prospect
of gaining new scientific or technical knowledge and
understanding.
b) Development phase (of internal project) – is the
application of research findings or other knowledge to a

plan or design for the production of new or substantially
improved materials, devices, products, processes,
systems or services before the start of commercial
production or use.
Generated Intangibles other than
161
Goodwill
 IAS 38 provides that internally generated
intangible assets are to be capitalized and
amortized over the projected period of
economic utility, provided that certain
criteria are met.
1. Costs incurred in the research phase are
expensed immediately; and Why ???
2. If costs incurred in the development
phase meet the recognition criteria for an
intangible asset, such costs should be
capitalized.
Generated Intangibles other than Goodwill
163
 The following internally

developed intangible assets
can be recognized if they meet
the recognition criteria.
1. Patents;
2. Copyrights;
3. Trademarks;
4. Franchises;
6.1f. Initial Measurement –
Internally generated Intangibles
other than Goodwill
164
 The following internally developed

intangible assets cannot be
recognized because the costs of these
cannot be distinguished from those to
develop a business in general:
1. Internally generated brands;
2. Mastheads;
3. Publishing titles;
4. Customer lists;
5. Others, similar in nature to these.

7. Subsequent Measurement…
165
 An entity shall choose as its

accounting policy either :
1. Cost model or- most cost since no
fair value/market value
2. Revaluation Model.
 If an intangible asset is accounted by
using the Revaluation Model, all

the other assets in its class shall also
be accounted by using the same
model, unless there is no active
market for those assets.
7.1. Cost Model
166
 If an entity chooses Cost Model,

an intangible asset shall be
carried at its :
 cost less any accumulated
amortization & any
accumulated impairment
losses.
7.2. Revaluation Model
167
 If an entity chooses Revaluation Model , an

intangible asset shall be carried at :
1. a revalued amount (i.e. its fair value at the
date of the revaluation less any subsequent
accumulated amortization and any
subsequent accumulated impairment losses.
2. If the fair value can no longer be determined,
the carrying amount of the asset shall be its
revalued amount at the date of the last
revaluation less any subsequent accumulated
amortization and any subsequent
accumulated impairment losses.
7.2.1. Amortization and Revaluation of
Intangible Assets
168
 When Intangible Asset is revalued, any

accumulated amortization at the date of
revaluation is treated in one of the following
ways:
1. The accumulated amortization is restated
proportionately with the gross carrying amount,
so that the carrying amount after the
revaluation equals the revalued amount; or
2. The accumulated amortization is eliminated
against the gross carrying amount and the net
amount restated to the revalued amount.
7.2.2. Realization of Revaluation
Surplus/Reserve
169
 The cumulative revaluation surplus included in equity

may be transferred directly to retained earnings when it is
realized.
1. The whole surplus may be realized on the retirement or
disposal of the asset.
2. However, some of the surplus may be realized as the asset
is used by the entity; in such a case, the:
 Revaluation surplus realized = Amortization based on the
Revalued Amount ( - ) Amortization which would have
been charged on the asset's original cost/before
Revaluation.
 Revaluation surplus realized transferred to Retained (i.e.
Realized) Earnings but not through Profit or Loss (SP/L).
 Movement in Owner’s Equity not in SP/L.
8. Useful life of Intangible
170
Assets…
 It should be assessed which may be finite or
infinite.
1. An intangible asset has an indefinite useful life when
there is no foreseeable limit to the period over which
the asset is expected to generate net cash inflows for
the entity.
 It should not be amortized but tested for
impairment at least annually.
 The change in the useful life assessment from
indefinite to finite shall be accounted for as a change
in an accounting estimate ( IAS 8).
 Reassessing the useful life of an intangible asset as
finite rather than infinite is an indicator that the asset
may be impaired and therefore it should be tested for
impairment.
8. Useful life of Intangible
Assets
171
2. The useful life of an intangible asset with definite

useful life should also be reviewed each year.
 The useful life of an intangible asset that arises from
contractual or other legal rights should not exceed
period of the rights but may be shorter depending on
the period over which the entity expects to use the
asset.
 An intangible asset with an definite useful life should
be amortized.
 The amortization method used shall reflect the pattern
of its use by the entity. Unless, the straight-line
method shall be used.
 An intangible asset with a definite useful life are also
tested for impairment at least annually.
9. Residual value of Intangible
Assets
172
 The residual value of an intangible asset with a

finite useful life shall be assumed to be zero
unless:
a) there is a commitment by a third party to
purchase the asset at the end of its useful life; or

b) there is an active market ( IFRS 13) for the
asset and:
i. residual value can be determined by reference to
that market; and

ii. it is probable that such a market will exist at the
end of the asset’s useful life.

10. Impairment of
173
Intangible Assets
 To determine whether an intangible
asset is impaired, an entity shall apply
IAS 36 : Impairment of Assets.
 It explains :
1. when and how to identify potentially impaired
assets;
2. how to determine the recoverable amount of
an impaired asset &
3. when to recognize or reverses an impairment
loss.
11. Retirement and
174
Disposals
 An intangible asset shall be
derecognized:
a) on disposal; or
b) when no future economic benefits
are expected from its use or

disposal.
 Gain or loss on derecognition are
recognized in P/L on SPLOCI.

12. Disclosures…
175
A. General Disclosures:
 For each class of intangible assets, distinguishing b/n
internally generated intangible assets and other
intangible assets:
1. Accounting policies and methods used;
2. Reconciliations between opening and ending balances ;
3. Details of and definite and indefinite useful life intangible
assets;
4. Intangible assets acquired by way of a government
grant ;
5. Intangible assets that have been restricted and pledged
as security for liabilities.
6. The amount of any commitments for the future
acquisition of intangible assets’
7. Other details.
12. Disclosures
176
B. Intangible assets under Revaluation Model

1. The effective date of the revaluation (by class of
intangible assets);
2. The carrying amount of revalued intangible
assets;
3. The carrying amount that would have been shown if
the cost model had been used, and the amount of
amortization that would have been charged;
4. The amount of any revaluation surplus on intangible
assets and its movements during the year ;
5. The methods and significant assumptions applied in
estimating assets' fair values;
6. The amount of R & D expenditure that have been
charged as expenses of the period.
7. Other details.
Example : Accounting for Intangible
assets…
177
EX-1: A patent right is acquired July 1, 2012, 2012 for

$250,000; while it has a legal life of 15 years, due to
rapidly changing technology, management estimates a
useful life of only five years. Straight-line amortization
will be used. At January 1, 2013,
2013 management is uncertain
that the process can actually be made economically
feasible, and decides to write down the patent to an
estimated market value of $75,000. Amortization will be
taken over three years from that point. On January 1,
2015,
2015 having perfected the related production process, the
asset is now appraised at a depreciated replacement cost
of $300,000. Furthermore, the estimated useful life is now
believed to be six more years.
years
Required: Recognize the necessary entries.
Example : Accounting for
Intangible assets…
178
7/1/12 Patent…………………… 250,000 (Dr)

Cash…………………………………250,000
(Cr)
12/31/12 Amortization expense……25,000 (Dr)
Acc/Amortization(Patent)
….....................25,000 (Cr)
1/1/13 Impairment Loss-Patent…….…150,000 (Dr)
Acc/Impairment
(Patent)............................150,000 (Cr)
12/31/13 Amortization expense ……….25,000 (Dr)
Acc/Amortization(Patent)…………….
25,000 (Cr)
12/31/14 Amortization Expense………25,000 (Dr)
Acc/Amortization(Patent)………………
179
Intangible assets
Computations :
1.The entry at year-end 2012 is to record
amortization based on original cost, since there
had been no revaluations through that time; only
a half-year amortization is provided
[($250,000/5) × 1/2].
2.On January 1, 2013,
2013 the impairment is recorded
by writing down the asset to the estimated value
of $75,000, which necessitates a $150,000
charge against profit (carrying amount,
$225,000, less fair value, $75,000).
Intangible assets
18

0
3. In 2013 and 2014, amortization must be

provided on the new lower value recorded at the
beginning of 2013; furthermore, since the new
estimated life was three years from January
2013, annual amortization will be $25,000.
4. As of January 1, 2015, the carrying amount of
the patent is $25,000; had the January 2013
revaluation not been made, the carrying amount
would have been $125,000 ($250,000 original
cost, less two-and-one-half years amortization
versus an original estimated life of five years).
Intangible assets
181
5. The new appraised value is $300,000, which will

fully recover the earlier write-down and add even
more asset value than the originally recognized cost.
Under the guidance of IAS 38, the recovery of
$100,000 that had been charged to expense should
be recognized as profit; the excess will be
recognized in other comprehensive income and
increases the revaluation surplus for the asset in
equity.
6. In 2013 and 2014,
2014 amortization must be provided on
the new lower value recorded at the beginning of
2013; furthermore, since the new estimated life was
three years from January 2013, annual amortization
will be $25,000.
182
IAS 36
Impairment of
Assets
1. Objective
183

prescribe accounting procedures :
a) how to identify when an impairment
loss may have occurred?

b) how to measure the recoverable
amount of the impaired asset;

c) how to report impairment loss in
the financial statements ?
2. Scope…
184
 This Standard shall be applied in accounting

for the impairment of all assets other than:
a) Inventories ( IAS 2 : Inventories);
b) Contract assets and assets arising from costs
to obtain or fulfil a contract ( IFRS 15 :

Revenue from Contracts with Customers);
c) Deferred tax assets ( IAS 12 : Income
Taxes);
d) Assets arising from employee benefits (IAS
19: Employee Benefits);

e) Financial assets (IFRS 9 : Financial
Instruments);
2. Scope…
185
f) Investment property that is measured at fair

value ( IAS 40 : Investment Property);
g) Biological assets related to agricultural activity
( IAS 41 : Agriculture that are measured at fair
value less costs to sell;
sell
h) Deferred acquisition costs,
costs and intangible assets,
arising from an insurer’s contractual rights under
insurance contracts (IFRS 17 : Insurance
Contracts) ; and
i) Non-current assets (or disposal groups) classified
as held for sale ( IFRS 5 : Non-current Assets
held for sale and discontinued operations)
2. Scope…
186
 This Standard applies to financial

assets classified as:
a) Subsidiaries (IFRS 10 : Consolidated
Financial Statements);
b) Associates ( IAS 28 : Investments in
Associates and Joint Ventures); and

c) Joint ventures ( IFRS 11 : Joint
Arrangements).
3. Definitions
187
1. Impairment loss - is the amount by which the

carrying amount of an asset or a cash-
generating unit exceeds its recoverable amount.
2. Carrying amount - is the amount at which an
asset is recognized after deducting any
accumulated depreciation (amortization) and
accumulated impairment losses thereon.
3. Recoverable amount - is the higher of its fair
value less costs of disposal and its value in use
of an asset or a cash-generating unit.
4. Value in use - is the present value of the future
cash flows expected to be derived from an asset or
cash-generating unit.
3. Definitions
188
5. Corporate assets - are assets other than

goodwill that contribute to the future cash flows
of both the CGU under review and other CGUs.
6. Cash-generating unit (CGU) - is the smallest
identifiable group of assets that generates
cash inflows that are independent of the cash
inflows from other assets or groups of
assets. EX. A, B, C business lines
7. Costs of disposal - are incremental costs
directly attributable to the disposal of an asset
or cash-generating unit excluding finance
costs and income tax expense.
4. Identifying an asset that may be
impaired…
189
 An entity shall assess at the end of each

reporting period whether there is any
indication that an asset may be impaired.
 The following assets must always be tested
annually irrespective of indications of

impairment.
a) An intangible asset with an indefinite useful
life.
life
b) Goodwill acquired in a business
combination.
combination
impaired…
190
 Internal Sources on Information include

:
a) Evidence of Obsolescence or physical damage of
an asset.
b) Significant changes on the entity adversely
affecting the usage of the asset (i.e. idle asset ,
plans to restructure the operation or to dispose of
an asset and reassessing the useful life of an
asset as finite rather than indefinite)
c) evidence from internal reporting that indicates
that an asset’s economic performance is worse
than expected.
impaired
191
 External Sources on Information include :

a) A fall in the asset's market value that is
more than normally be expected from passage
of time;
b) Unfavorable change in the technological,
market, legal or economic environment of
the business where the asset is employed;
c) An increase in market interest rates or
market rates of return on investments likely
to affect the discount rate used in calculating
value in use.
use
d) The carrying amount of the entity's net
assets being more than its market
capitalization.
capitalization
5. Measuring recoverable
192
amount
 Recoverable amount of an asset or
CGU is measured as the higher value of :
a) FVLCS (fair value of the asset less
costs to sell)
 Net selling price of the impaired asset
&
b) VIU(EV) - Value in use/Economic Value
 PV of NCF from Operation & Net Disposal
Value the impaired asset.
 We want to use the asset
6. Recognition and measurement of an
impairment loss..
196
impairment loss..
197
 When the asset or CGU is impaired,

1. An impairment loss shall be recognized
immediately in P/L in SPLOCI but it is
treated as a revaluation decrease for the
revalued assets.
2. The asset's carrying amount should be
reduced to its recoverable amount in the

SFP.
impairment loss..
198
3. When the amount estimated for an

impairment loss is greater than the
carrying amount of the asset to which
it relates, an entity shall recognize a
liability.
4. After the recognition of an impairment
loss, the future depreciation

(amortization) for the asset shall be
revised based on the revised carrying
amount, useful life & residual value .
impairment loss..
199
1. Cost Model
 Rule to leran:
 If the recoverable amount of an
asset is lower than the carrying
amount,
amount the difference (i.e. the
impairment loss)
loss should be
charged as to P/L in SPLOCI.
SPLOCI
impairment loss..
200
2. Revaluation Model
 Rule to lean:
i. To the extent that there is a
revaluation surplus held in respect of
the asset, the impairment loss should
be charged to revaluation surplus.
surplus
ii. Any excess should be charged to P/L
in SPLOCI
8. Identifying the CGU to which an
asset belongs
201
1. If there is any indication that an asset

may be impaired, recoverable amount
shall be estimated for the individual asset.
2. If it is not possible to estimate the
recoverable amount of the individual asset,
an entity shall determine the recoverable
amount of the CGU to which the asset
belongs (the asset’s CGU).
 CGU shall be identified consistently from
period to period for the same asset or
types of assets unless a change is justified.
asset belongs
202
Example-1: Assume that Alliance Bus

Company provides services under
contract that requires minimum service
on each of five separate routes. Assets
devoted to each route and the cash flows
from each route can be identified
separately. One of the routes operates at
a significant loss. Required: Identify the
CGU of Alliance Bus Company.
asset belongs
203
 Solution: Because the entity does not

have the option to curtail any one bus
route, the lowest level of identifiable
cash inflows that are largely
independent of the cash inflows from
other assets or groups of assets is the
cash inflows generated by the five
routes together. The cash-generating
unit for each route is the Alliance Bus
Company as a whole.
9. Impairment loss for a
204
CGU…
 When an impairment loss is
recognized for a CGU, the loss
should be allocated between the
assets in the CGU in the following
order.
order
1. Goodwill allocated to the CGU; and
2. All other assets in the CGU on a

pro rata basis.
CGU…
206
 Example-2 : A cash-generating unit comprises the

following:
 Following a recession, an impairment review

has estimated the recoverable amount of the
cash-generating unit to be $50m. Required
: Compute and recognize the impairment loss.
207
1. Good will impaired full= 10

2. 2. Current assets not impaired
So. Impairment 16 (66-50) be allocated to

Building and plant and equipment
Impairement to Buil and PE is 16.10= 6
Building share 30/36 * 6= 5
PE share 6/36 * 6= 1
CGU …
208
 The loss will be applied first against the goodwill

and then against the tangible non-current assets
on a pro-rata basis.
basis
10. Reversal of an
Impairment Loss
209
 An entity shall assess at the end

of each reporting period
whether there is any indication
that prior impairment loss
recognized in for an asset other
than goodwill may no longer
exist or decreased.
10. Reversal of an
Impairment Loss
210
 Internal Sources on Information include :

a) Significant changes on the entity
favorably affecting the usage of the
asset (i.e. costs incurred during the
period to improve the asset’s
performance or operation )
b) Evidence from internal reporting that
indicates that the economic performance

of an asset is better than expected.
10. Reversal of an
Impairment Loss
211
 External Sources on Information include :

a) Observable indications that the asset’s value has been
increased significantly during the period.
b) Significant favorable change in the technological,
market, legal or economic environment of the
business or market in which the entity operates or that
asset is dedicated.
c) Favorable change( decrease) in market interest rates
or market rates of return on investments that affect
the discount rate used in calculating value in use.
PV= FV/(1+i)n
10.1. Reversal of an impairment
loss for an asset
212
 When an impaired asset is recovered,

1. The carrying value of an asset should be
increased to its recoverable amount but the
increased carrying amount cannot exceed the
carrying amount that would have been
determined had no impairment loss been
recognised-under cost model (IAS 16).
2. A reversal of an impairment loss should be
recognised immediately in P/L in the SPLOCI
unless the asset is carried at revalued amount
(Revaluation Model, IAS 16) when the reversal
would be treated as a revaluation increase.
3. Recalculate future depreciation
(amortization) after reversal of impairment
loss based on the revised carrying amount,
useful life & residual value.
10.1. Reversal of an impairment loss
for an asset
213
Example 3 : Cost Model

 Asset acquired =Machine (PPE);
 Date of Acquisition= January 1, 2011;
 Initial Cost = $1 million;
 Useful life = 10 years ;
 Depreciation method = straight-line method;
 Residual Value = Nil ;
 Recoverable amount ( December 31, 2014) =
$300,000;
 Recoverable amount (December 31, 2016) =
$800,000;
 Required : Prepare the appropriate journal entries.
Solution
214
 Deprecation/year= 1,000,000/10= 100,000*4= $400,000
 BV= 1,000,000-400,000= $600,000 (2014)
 RV (recoverable amount)= 300,000
 Impairment loss 300,000
 Journal: 2014
 Impairment loss 300, 000
 PPE 300,000
 2016 , Value of asset is $300,000( RA at 2014)
 Remaining life (10-4=6)
 Depreciation= 300,000/6= 50,000 *2= 100,000
 So, CV= 300,000-100,000= 200,000
 Recoverable amount in 2016= $800,000
-
215
 Surplus of 600,000, but we need only

200,000 to recover inful (1000000/10 =100000
*6 = 600,000,
 so, BV= (1000,000-600,000)= 400,000.
 But, at 2016, it showed 200,000, we need only
200,000 restore CV.
 2016
 PPE 200,000
10.1. Reversal of an impairment loss for
an asset
216
for an asset
217
Example 4 : Revaluation Model

 Asset acquired =Machine (PPE);
 Date of Acquisition= January 1, 2011;
 Initial Cost = $1 million;
 Useful life = 10 years ;
 Depreciation method = straight-line method;
 Residual Value = Nill ;
 Revalued amount ( December 31, 2012) = $
1,200,000;
 Recoverable amount ( December 31, 2014) =
$300,000;
 Revalued amount (December 2016) = $800,000;
(fair value)
 Required : Prepare the appropriate journal entries.
Solution
218
Depn/year = 1000000/10= 100,000= 100000*2=200000

2012
CV= 1000,000-200,000= 800,000
Revalued amount (RA) = 1,200,000
Revaluation surplus(gain)= 400,000 (OCI)
PPE 400,000
Revaluation surplus (OCI) 400,000
2014, depreciation base is $1,200,000, Remaining life at 2012 (10-2=8yrs)
Dep/year= 1,200,000/8= 150,000/yr, so 150000 * 2= 300,000
CV= 1,200,000 - 300,000= $900,000, BUT
RA = 300,000
Impairment= 600,000
219
 600,000 impairment above goes to

 400,000 to eliminate previous surplus
 200,000 impairment loss account
 2014
 Surplus 400,000
 PPE 600,000
220
 2016
 Asset base ( RV, of 2014)= 300,000
 Depn/ year = 300,000/(10-4), at 2014)= 50,000,
 50,000 *2= 100,000
 BV= 300,000-100,000= 200,000
 RV (2016) 800,000
 Surplus 600,000
 Journal 2016
 PPE 600,000
 Impairment loss 200,000 (PL)
 R. Surplus 400,000(OCI)


for an asset
221
11. Disclosure
223
 An entity shall disclose for each class of assets:

a) the amount and line item of impairment losses
recognized in P/L during the period in the SPLOCI .

b) the amount and line item of reversals of
impairment losses recognized in P/L during the
period in SPLOCI.
c) the amount of impairment losses on revalued
assets recognized in OCI during the period.

d) the amount of reversals of impairment losses on
revalued assets recognized in OCI during the period.

e) Other details.
224
IAS 2
Inventories
Jan 24, 2025
1. Objective
225

prescribe the accounting treatment for
inventories.
 This Standard provides guidance on :
a) the determination of cost and
b) its subsequent recognition as an

expense, including any write-down to
net realizable value (NRV).
c) the cost formulas that are used to assign
costs to inventories. Jan 24, 2025
2. Scope
226
 The following items are excluded from the scope

of the standard.
a) Work in progress under construction contracts
- costs incurred to fulfil a contract with a customer

that do not give rise to inventories ( i.e., IFRS 15
: Revenue from Contracts with Customers).
b) Financial instruments (i.e. shares, bonds)
(IFRS 9)
c) Biological assets related to agricultural
activity and agricultural produce at the point
of harvest (IAS 41)
Jan 24, 2025
3. Definitions
227
 The following terms are used in this

Standard with the meanings specified:
1. Inventories are assets:
a) held for sale in the ordinary course of
business;
b) in the process of production for such sale; or
c) in the form of materials or supplies to be
consumed in the production process or in
the rendering of services. Jan 24, 2025
3. Definitions
228
 According to Federal Income Tax

Proclamation # 979/2016, Article
2/24, Inventory means Trade Stock
and includes:
a) anything produced, manufactured,
purchased, or otherwise acquired for
manufacture, sale, or exchange;
b) any raw materials or consumables used
in a production or manufacturing process; or
c) livestock but not including animals used as
farming/ dairy farming; Jan 24, 2025
4. Initial Recognition & Measurement of
Inventories
230
1. Inventories shall be recognized when

the recognition criteria for assets are
met in the IFRS framework.
2. The initial cost of inventories shall
comprise :
a) all costs of purchase, plus
b) costs of conversion, plus
c) other costs incurred in bringing the
inventories to their present location
and condition.
Jan 24, 2025
4. 1. Costs of purchase
231
 The costs of purchase of inventories

comprises :
i. the purchase price,
price plus
ii. import duties and other taxes (other than
those subsequently recoverable by the entity

from the taxing authorities), plus
iii. transport,
transport handling and other costs directly
attributable to the acquisition of finished
goods, materials and services, less
iv. Trade discounts,
discounts rebates and other similar
items in determining the costs ofJanpurchase.
24, 2025
4.2. Costs of production
232
 Costs should only be recognized if they are

incurred in bringing the inventories to their
present location and condition. It consists
of two main parts.
a) Direct Costs - costs directly related to the
units of production. E.g. Direct Materials &

Labor.
b) Indirect Cots – costs that are incurred in
converting materials into finished goods,

allocated on a systematic basis. E.g. FFOH
& VFOH
Jan 24, 2025
4.3. Costs of
233
conversion…
1. Conversion costs - include costs
directly related to the units of
production, such as Direct Labor, VFOH
and FFOH that are incurred in converting
materials into finished goods.
2. The entity can use Full/Absorption
Costing Method for Products Costing
(GPFR) and Variable/Marginal
Costing for Internal (Management)
decision.
Jan 24, 2025
4.4. Joint costs
235
allocation…
 Joint Costs - are the common resources of joint
production process which yields two or more
products or services (Joint/Main Products and/or
Byproducts).
 They should be allocated to Joint products on :
1. Market Approach – allocate using market based data ($):
a) Sales value at split off
b) Net Realizable Value (NRV)
c) Constant Gross-Margin percentage NRV
2. Physical Measures Approach – allocate using

physical units pf their tangible attributes such as
pounds, gallons, barrels, etc. Jan 24, 2025
4. 5. Other costs
236
1) Non Production Overheads – such as the costs

of designing products for specific customers
may be included in the cost of inventories to
the extent that they are incurred in bringing the
inventories to their present location and
condition.
2) Deferred Purchase Contract - When an entity
purchases on deferred settlement
agreement, the arrangement effectively
contains a financing element (i.e. a difference
between the purchase price for normal credit
terms and the amount paid) is recognized as
Jan 24, 2025
interest expense over the period of the financing.
4.6. Period costs
237
 The standard lists types of cost which would

not be included in cost of inventories but to
be recognized as an expense in the period
they are incurred.
a) Abnormal amounts of wasted materials,
labor or other production costs;
b) Storage costs unless costs which are
necessary in the production process before a
further production stage);
c) Administrative overheads that do not
contribute to bringing inventories to their
present location and condition; and
Jan 24, 2025
d) Selling costs
5. Techniques for the measurement
of cost
238
 Two techniques may be used for

convenience if the results approximate cost.
1. Standard Cost Method – Standard costs
take into account normal levels of

materials and supplies, labor, efficiency
and capacity utilization.
2. Retail Method – used in the retail
industry for measuring inventories of large
numbers of rapidly changing items with
similar margins for which it is
impracticable to use other costing
Jan 24, 2025
methods.
5.1. Standard cost
239
determination
Standard Cost for Material =
(Material Usage Standard x Standard Purchase
Price)
Price
Standard Cost for Labor =
(Standard Usage time x Standard wage rate )
Standard Cost for FOH =

(Standard activity driver x POR )
Standard Cost of a Product = SCDM + SCDL +

SCFOH
Jan 24, 2025
5.2. Retail Method
240
 It is a technique used to estimate the

value of ending inventory and involves
the following steps:
1. Determine the Cost to Retail Ratio
(i.e. C% = GAS @Cost/GAS @RP).

2. Determine ending inventory at retail
price.(i.e. EI @ RP= GAS@RP-NS)

3. Determine the ending inventory at
cost.(i.e., EIC=EI@RP*C%)
Jan 24, 2025
6. Cost formulas
241
1. Cost of inventories should be

assigned by specific
identification of their individual
costs for:
a) Items that are not ordinarily
interchangeable ;
b) Goods or services produced and
segregated for specific projects.
Jan 24, 2025
6. Cost formulas
242
2. The cost of inventories for inventories that

are ordinarily interchangeable or are not
produced and segregated for specific projects
shall be assigned by using
perpetual/periodic :
a) First-in, first-out (FIFO) or
b) Weighted Average cost formula.
3. An entity shall use the same cost formula for

all inventories having a similar nature and use
to the entity.
4. For inventories with a different nature or use,
different cost formulas may be justified.
5. The LIFO formula (last in, first out) is not
permitted by the revised IAS 2.Jan 24, 2025
7. Subsequent measurement of
inventories
243
 The standard states that :

1. Finished goods and Merchandise Inventories -
held at the end of the financial period should be stated
at the lower of cost and net realizable value (NRV).
2. Materials and Parts - held at the end of the financial
period should be stated at the lower of cost and
replacement cost.
3. Raw Materials for use are not written down below
cost if the finished products in which they will be
incorporated are expected to be sold at or above cost.
However, when a decline in the price of materials
indicates that the cost of the finished products
exceeds NRV, the materials are written down to NRV.
Jan 24, 2025
7. Subsequent measurement of
inventories
244
 The principal situations in which NRV is likely

to be less than Cost, i.e. where there has
been:
a) An increase in costs.
b) A fall in selling price.
c) A physical deterioration in the condition of

inventory.
d) Obsolescence of products.
e) A decision as part of the company's

marketing strategy to manufacture & sell
products at a loss.
f) Errors in production or purchasing.
Jan 24, 2025
7.1. Methods of Applying
LCNRV
245
 LCNRV may be applied in three ways

a) Item – by- item – it is most commonly used
and gives the lowest LCNRV amount.
b) Group of similar/related Items- is
appropriate when items of inventory relating
to the same product line that have similar
purposes or end uses and cannot be assessed
separately from other items in that product line.
c) Whole of Items – such as finished goods or
inventories in a particular operating
segment as a whole. It gives the highest
LCNRV amount but its application
Jan 24, 2025
is not
appropriate.
7.1. Methods of Applying LCNRV
248
 The entity can recognize the loss due to

LCNRV either Loss/ COGS (Dr) and credit
Inventory/ Allowance to Reduce-
Inventory to NRV(Cr) accounts.
 Required : Recognize the alternative
entries for the above LCNRV assuming
Item-by –Item Method.
Jan 24, 2025

7.2. Recovery of Inventory Loss -
LCNRV
249
 When there is increase in NRV because of the

changed circumstances previously affected
the value of inventories,
a) Amount of write-down is reversed.
b) Reversal limited to amount of original
write-down so that the new carrying
amount is the lower of the cost and the
revised NRV.
 Required : Recognize the reversal of Loss
for the above LCNRV assuming if there is an
increase in NRV of Inventory to ¥ 430,000
Jan 24, 2025
?
8. Recognition as an
250
expense
1. When inventories are sold, the carrying
amount is recognized as an expense in the
period in which the related revenue is
recognized;
2. The amount of any write-down of inventories
to NRV and all losses of inventories are
recognized as an expense in the period the
write-down or loss occurs
3. The amount of any reversal of any write-down
of inventories, arising from an increase in NRV,
is recognized as a reduction in the amount of
inventories recognized as an expense in the
period in which the reversal occurs.
Jan 24, 2025
9. Disclosure…
251
 The financial statements shall disclose:

a) the accounting policies adopted in
measuring inventories, including the cost
formula used;
b) the total carrying amount of inventories
and the carrying amount in classifications
appropriate to the entity;
c) the carrying amount of inventories carried
at fair value less costs to sell;
d) the amount of inventories recognized as an
expense during the period; Jan 24, 2025
9. Disclosure
252
e) the amount of any write-down of inventories

recognized as an expense;
f) the amount of any reversal of any write-
down that is recognized as a reduction in the
amount of inventories recognized as expense ;
g) the circumstances or events that led to the
reversal of a write-down of inventories ; and
h) the carrying amount of inventories pledged
as security for liabilities.
i) Other details
Jan 24, 2025
253
IFRS 15
Revenue from
Contracts with
Customers
1. Introduction
254
 Existing IFRS guidance is set

out in two relatively old
standards
1)IAS 18 : Revenue and
2)IAS 11 : Construction
Contracts which are
accompanied by a number of
Interpretations.
2. Objective
256
 IFRS 15 establishes a single and comprehensive

framework which sets out how much revenue is
to be recognized, and when.
when
 The core principle is that a vendor should
recognize revenue to depict the transfer of
promised goods or services to customers in an
amount that reflects the consideration to which
the vendor expects to be entitled in exchange
for those goods or services.
 Revenue will now be recognized by a vendor
when control over the goods or services is
transferred to the customer.
3. IFRS 15’s Five-Step Revenue
Recognition Model
257
Recognition Model
258
Recognition Model
259
Step 1 : Identify the contract

 IFRS 15 is applied to contracts with customers that
meet all of the following five criteria:
1) The contract has been approved in writing,
writing orally,
orally or in
accordance with other customary business practices
and the parties are committed to perform their
obligations in the contract;
2) Each party’s rights regarding the goods or services to
be transferred can be identified;
3) The payment terms for the goods or services to be
transferred can be identified;
4) The contract has commercial substance (i.e. the risk, risk
timing or amount of the vendor’s future cash flows is
expected to change as a result of the contract);
5) It is probable that the consideration for the exchange of
the goods or services that the vendor is entitled to will
be collected.
collected
Recognition Model
260
Step 2 : Identify separate

performance obligations in the
contract
 Having identified the contract in step one, a
vendor is then required to identify the
performance obligations(s) contain in the
contract.
 A performance obligation is a promise to a
customer to transfer:
transfe
1) A good or service (or a bundle of goods or
services) that is distinct; or
2) A series of distinct goods or services that are
substantially the same and that have the same
pattern of transfer to the customer.
Recognition Model
261
Recognition Model
262
Step 3:
3 Determine the
transaction price of the contract
 The transaction price is the amount of consideration
that a vendor expects to be entitled to in exchange
for the goods or services. This will often be the
amount specified in the contract.
contract
 Although a number of estimates about the future may
need to be made when determining the transaction
price, these are based on the goods and services to
be transferred in accordance with the existing
contract.
contract
 They do not take into account expectations about
whether the contract will be cancelled , renewed or
modified.
modified
Recognition Model
263
Step 4 : Allocate the transaction

price to the performance
obligations
The amount allocated to each separate
performance obligation reflects the
consideration to which a vendor expects to
be entitled in exchange for transferring the
related goods or services to the customer.
The starting point for the allocation is to
base it on the standalone selling prices of

each performance obligation.
Recognition Model
264
Recognition Model
266
 Step 5: Recognize revenue when

each performance obligation is
satisfied
 Revenue is recognized when (or as) goods or
services are transferred to a customer.
 A vendor satisfies each of its performance
obligations (that is, it fulfils its promises to the
customer) by transferring control of the promised
good or service underlying that performance
obligation to the customer.
 Under the control model,
model an analysis of risks and
rewards is only one of a number of factors to be
considered and this may lead to a change in the
timing of revenue recognition in certain industries.
Recognition Model
267
 Indicators that control has

passed include that the customer
has:
a) A present obligation to pay ;
b) Physical possession of the
asset(s);
c) Legal title;
title
d) Risks and rewards of ownership;
e) Accepted the asset(s).

Recognition Model
268
 The benefits of an asset are the potential cash

flows (inflows or savings in outflows) that can
be obtained directly or indirectly, such as by:
a) Using the asset to produce goods or provide
services (including public services)
b) Using the asset to enhance the value of other
assets
c) Using the asset to settle liabilities or reduce
expenses
d) Selling or exchanging the asset
e) Pledging the asset to secure a debt liability
f) Holding the asset.

Recognition Model
269
Recognition Model
271
 Percentage of Completion Method

4. Other Issues
272
4.1. Consignment
arrangements
 A vendor may deliver a product to another
party, such as a dealer or retailer, for sale to
end customers. In these circumstances, the
vendor is required to assess whether the
other party has obtained control of the
product.
 If the other party has not obtained control,
the product may be held in a consignment
arrangement.
arrangement
 A vendor does not recognize revenue on
delivery of a product to another party which
is held on consignment.
4. Other Issues
273
 The following indicates the existence of a

consignment arrangement:
arrangement
1) The product is controlled by the vendor until
a specified event occurs (e.g. sale of the
product to a customer of the dealer or
retailer, or until a specified period expires);
2) The vendor is able to require the return of
the product or transfer the product to a third
party (e.g. transfer to another dealer or
retailer); and
3) The dealer or retailer does not have an
unconditional obligation to pay for the
product. However, there might be a
requirement for a deposit to be paid.
4. Other Issues
274
4.2. Principal versus Agent

4. Other Issues
275
4.2. Principal versus Agent

4. Other Issues
276
4.3. Warranties
 IFRS 15 distinguishes between two types of warranties:
1. Assurance-type warranty :Warranties that provide a
customer with the assurance that the product will
function as intended because it complies with agreed-
upon specifications.
specifications These warranties are accounted for
in accordance with the guidance on product warranties
included within IAS 37: Provisions, Contingent
Liabilities and Contingent Assets.
2. Service-type warranty: Warranties that provide the
customer with a service in addition to the assurance
that the product complies with agreed-upon
specifications. These ‘additional service’
service warranties are
accounted for as a performance obligation and
allocated to a portion of the transaction price in
accordance with the principles of IFRS 15.
15
4. Other Issues
278
4.4. Licensing
 A license establishes a customer’s
rights over the intellectual property of
a vendor, such as:
1) Software and technology ;
2) Media and entertainment (e.g. motion
pictures);
3) Franchises;
4) Patents, trademarks, and copyrights.

4. Other Issues
279
5. Presentation
280
 In its SFP,
SFP a vendor is required separately
to present contract assets,
assets contract liabilities
and receivables due from customers.
1. When a vendor transfers control over goods
or services to a customer before the
customer pays consideration, the vendor
presents the contract as either a contract
asset or a receivable.
receivable
2. Note that where revenue has been invoiced
a receivable is recognized. Where revenue
has been earned but not invoiced,
invoiced it is
recognized as a contract asset.
asset ????
5. Presentation
281
1. A contract asset is a vendor’s right to consideration

in exchange for goods or services that the vendor
has transferred to a customer, when that right is
conditional on the vendor’s future performance.
performance
2. A receivable is a vendor’s unconditional right to
consideration, and is accounted for in accordance
with IFRS 9: Financial Instruments or IAS 39 :
Financial Instruments:
Instruments Recognition and
Measurement. A right to consideration is
unconditional if only the passage of time is required
before payment of that consideration is due.
3. A contract liability - is an entity’s obligation to
transfer goods or services to a customer for which
the entity has received consideration (or an
amount of consideration is due) from the customer.
6. Disclosures
282
 IFRS 15 includes an overall disclosure objective,

which is for the disclosures to include sufficient
information to enable users of financial statements
to understand the nature, amount, timing and
uncertainty of revenue and cash flows arising from
contracts with customers.
 This is accompanied by comprehensive disclosure
requirements about a vendor’s:

1) Contracts with customers
2) Significant judgments,
judgments and changes in the
judgments, made in applying IFRS 15 to those
contracts
3) Assets recognized in respect of costs of obtaining
contracts, and in fulfilling contracts.
Question or
287 Comment ?

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Welcome to the Training

Organizer : National Bank of

 The objectives of IFRS 13 are to:

1) Fair Value : The price that would

2) Market Participants : are buyers and

b) They are knowledgeable,

the asset or liability (i.e. they are motivated,

the asset or liability;

3) Orderly transaction : ‘A transaction that assumes

 The principal market is market 1

1. The asset or liability

2) The market concept

3) Fair value at initial

1) $0; 2) $10 million; 3) $20 million; 4) $30 million; 5) $70

1) $0; 2) $10 million; 3) $20 million; 4) $30 million; 5) $70

1) Br0; 2) Br10 million; 3) Br20 million; 4) Br30

1) Br 0; 2) Br10 million; 3) Br20 million; 4) Br30

Ex : You own land use rights to Plot A that is zoned

Ex: Entity A pledges 100,000 Awash Bank shares that it

until it settles the borrowing.

and trade on Ethiopian Stock Exchange market.

the Awash Bank shares held by Entity A? A Choose one of:

5) Liabilities and own credit risk

of liabilities (and an entity’s own equity

6) Bid and ask prices

7) Premium and discount

 IFRS 13 includes definitions for three valuation

under the market approach in the document:

2. Income approach : A valuation technique that

c) Constant-growth DDM (dividend discount

definition assumes that FV is the cost to acquire or

 IFRS 13 FV Measurement - introduces a

3) Disclosure of the effect of the FV measurement

property, plant and equipment are :

 Property, Plant & Equipment

 It applies to both initial and

 Purchase price less any trade discount or rebate.

1. The same principles are applied as for

at the date of the revaluation (-) any

Revalued Amount/Fair Value .…..xx

Case #1: Decrease in Value

Jan 24, 2025

Case #2: Increase in Value

Jan 24, 2025

Loss Reversal (P/L)……………………..

Jan 24, 2025

Case #1: Increase In Value

Case #2: Decrease In Value

an Expense (Loss), Dr in SP/L. How ever,

recorded as Revaluation Surplus, Dr in

 Note: the credit to the revaluation

1. Every part of PPE with a cost that is

1. The selected method (SLM,

 At least once in financial /fiscal

 It’s estimated/judgmental based on

3. Legal or other limits on the use of the

 Assets which are made up of

 An aircraft could be considered