OVERVIEW OF ACCOUNTING
Accounting - “Process of identifying, measuring, and communicating economic
information to permit informed judgements and decisions by users information
Identifying - analyzing events/transactions to determine whether they will be
recognized
Measuring - assigning numbers in monetary terms to transactions
Communicating - transforming economic information into useful accounting
information
ACCOUNTING CONCEPTS
1. Double entry system - each accountable event recorded in 2 pairs debit/credit
2. Going concern assumption - entity does not expect to end in foreseeable future
3. Separate entity - personal transactions of owners not recorded in entity’s
records
4. Stable monetary unit - Assets, liabilities, equity, and income are stated in terms
of a common unit of measure
*to be useful - accounting information should be stated in a common
denominator
5. Time period - life period of entity divided into series of periods
6. Materiality concept - Information material if its omission could impact decision
7. Accrual basis - income/expense is recognized when earned rather than when
cash is collected or paid
8. Matching concept - cost are recognized as expenses when related revenue is
recognized
9. Entity theory - “Assets = liabilities +capital”
10.Proprietary theory - Assets - liabilities = capital
FUNDAMENTAL QUALITATIVE CHARACTERISTICS
1. Relevance - if it can make a difference in the economic decision
2. Faithful representation -information provides a true and correct depiction of
economic phenomena that it intends to represent
● completeness - all information necessary is provided
● Neutrality - information is selected/presented without bias
● Free from error - no errors in description or process by which info is
selected and applied
ENHANCING QUALITATIVE CHARACTERISTICS
1. Compatibility - helps identify similarities and differences
2. Verifiability - different users could reach a general agreement
3. Timeliness - available to users in time to influence their decisions
4. Understandability - presented in a clear and concise manner
Asset - , entity has control, right and potential to produce economic benefits
PAS 16 PPE
PPE are:
1. Tangible
2. Used in business
3. Long-term in nature
Recognition:
a. Probable future economic benefits associated with the item will flow to the entity
b. Cost of the item can be reliably measured
Initial measurement:
● Initially measured at cost
a. Purchase price + import duties + non refundable purchase tax - trade discounts &
rebates
b. Direct attributable cost
- Employee benefits from construction of PPE
- Cost of site preparation
- Initial delivery and handling
- Installation and assembly
- Testing cost gross of disposal proceeds
- Professional fees
Expensed cost:
-cost of opening a new facility
-introducing new product
-cost of conducting business in new location
-administration and other overhead costs
Priority Cost of PPE exchanged with non monetary asset:
1. Fair value of assets given up (lost)
2. Fair value of asset received
3. Carrying amount of asset lost (default if exchange lacks commercial substance)
Subsequent expenditures on recognized PPE
- Capitalization stops when PPE is in location and condition necessary for operation
Following expenditures are recognized as expenses
-repairs and maintenance
-cost incurred has yet to be brought to use or less than full capacity
-initial operating losses
-cost of relocating or reorganizing part of entity’s operation
Subsequent measurement:
- Entity either chooses COST MODEL or REVALUATION MODEL
-
Cost model: PPE carried at cost - accumulated dep & impairment losses
Revaluation model: FV @ date of revaluation - subsequent accumulated depreciation
& impairment losses
*revaluation applied to an entire class of PPE
*increase or decrease recognized in OCI & accumulated in equity under “revaluation
surplus
Depreciation
*each significant part of PPE depreciated separately
-STARTS when asset is available for uses
-STOPS when asset is derecognized, held for sale, fully depreciated
-DOES not CEASE when asset is idle, or retired from active use
Depreciation method
-straight line , diminishing, units of production
*PAS16 requires management to choose method that best reflects expected pattern
of consumption of future economic benefits
*revenue based depreciation PROHIBITED
