Accounting Theory Group Research Project

Topics: Generally Accepted Accounting Principles, Balance sheet, Financial statements Pages: 7 (1630 words) Published: May 25, 2015
IFRS 5
IFRS 5 is about non-current assets held for sale and discontinued operations, which state that the aims of disclosed discontinued operations and non-current asset disposal is to helped group of users of the financial statement to assess the financial effects. The definition of discontinued operation in IFRS may differ from other accounting standard, IFRS has defined discontinued operation is an asset or component of a company that either has been disposed or is regarded as held-for-sale, and also have any of the following conditions: 1) It represents a separate key business or an operation area 2) It is part of a single coordinated plan to dispose of a separate key business area of operations 3) Acquired a subsidiary that with purpose for resale

The entity should disclose discontinued operations in both income statement, balance sheet and cash flow statement, and look at the three special points in the following: First, the entity should disclose a single amount in the income statement including the sum of the profit or loss after tax of the discontinued operation and recognized the gain or loss after tax by using the measurement of fair value less cost to sell or on the disposal of the assets. Second, the entity should analysis of the single amount in the income statement or in the notes which had indicated above, this analysis consist of revenue, expenses, profit or loss before tax and related income taxes expenses, the sum of the gain or loss after tax by using the measurement of fair value less cost to sell or on the disposal of the assets and must be reported the amount for prior periods of the balance sheet date. Third, the net cash flows attributable to operating, investing and financing activities from discontinued operations, it can be disclosed either in the notes or in the cash flow statement, and it is also must be disclosed the amount for prior periods. Here is an example of the accounting treatment of the discontinued operations: If there is a company which have a subsidiary held-for-sale, as follows:

Carrying value
Fair value
Impairment
Fair value less costs to sell
Goodwill
16,000
16,000
(16,000)

PPE
28,000
26,000

26,000
Inventory
20,000
18,000

18,000
Financial assets
17,000
17,000

17,000
Financial liabilities
(14,000)
(14,000)

(14,000)

67,000
63,000
(16,000)
47,000

According to IFRS 5, it requires to disclose disposal group and re-value the disposal group, the sum of the profit or loss after tax (4,000+16,000 without tax) should be disclosed in the income statement. In balance sheet, the asset and liabilities which are regard as held-for-sale must have a separate presentation in assets and liabilities sections. As follows: Asset

Non-current assets and current assets classified as held-for-sale(note) 61,000
Non-current Liabilities

Current liabilities

Liabilities directory associated with non-current assets classified as held-for-sale 14,000

A narrative description of the accounting treatment to be used by the ASPE (with references to specific sections) along with a numerical example of the accounting treatment. Although Accounting Standards for Private Enterprises (ASPE) has been become effective for about four years now, the standards were used to meet the needs of private enterprises and its financial reports’ primary users are not equity investors, but owners and lenders. According to section 3475 – “Disposal of Long-lived Assets and Discontinued Operation”, the definition criteria and presentation requirements are stated as: “A discontinued operation is a component of an enterprise that either has been disposed of, or is classified as held for sale”. Moreover, the component also needs to meet either of following requirements: is a separate major line of business, or operation’s geographical area and a “subsidiary acquired exclusively with a view to resale”. Moreover, the new requirements in presenting in income statement and...
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