IFRS Principles of Accounting

CHAPTER 1 INTRODUCTION TO FINANCIAL ACCOUNTING

1.1 SCOPE AND PURPOSE OF FINANCIAL ACCOUNTING ························· 14
1.2 OTHER BRANCHES OF ACCOUNTING ······················································· 16
1.3 TYPES OF BUSINESS ENTITY ········································································ 17
1.4 BUSINESS ACTIVITIES ······················································································ 18
1.5 UNDERLYING CONCEPTS OF FINANCIAL ACCOUNTING ···················· 19
1.6 THE ACCOUNTING EQUATION ······································································ 22
✜ Multiple Choice Questions / 27
✜ Exercises / 30

CHAPTER 2 FINANCIAL STATEMENTS

2.1 INTRODUCTION ··································································································· 40
2.2 CASH BASIS VERSUS ACCRUAL BASIS OF ACCOUNTING ··············· 43
2.3 INCOME STATEMENT ························································································ 44
2.4 STATEMENT OF FINANCIAL POSITION ······················································ 46
2.5 CLASSIFIED FINANCIAL STATEMENTS ······················································ 48
✜ Multiple Choice Questions / 55
✜ Exercises / 58

CHAPTER 3 RECORDING TRANSACTIONS

3.1 INTRODUCTION ··································································································· 68
3.2 ACCOUNTING CYCLE ························································································ 69
3.3 ACCOUNTS ············································································································ 69
3.4 TWO ACCOUNTING BOOKS: JOURNAL AND LEDGER ························ 71
3.5 CHART OF ACCOUNTS ····················································································· 73
3.6 ENTERING DEBITS AND CREDITS IN THE ACCOUNTS ····················· 74
3.7 TRIAL BALANCE ·································································································· 83
3.8 PREPARATION OF FINANCIAL STATEMENTS ··········································· 84
✜ Multiple Choice Questions / 86
✜ Exercises / 89

CHAPTER 4 ADJUSTING AND CLOSING ENTRIES

4.1 INTRODUCTION ································································································· 100
4.2 PREPAID EXPENSES ······················································································· 102
4.3 UNEARNED REVENUES ················································································· 104
4.4 ACCRUED EXPENSES ···················································································· 105
4.5 ACCRUED REVENUES ···················································································· 106
4.6 DEPRECIATION ·································································································· 107
4.7 CLOSING ENTRIES ·························································································· 108
4.8 POST-CLOSING TRIAL BALANCE ······························································· 112
✜ Multiple Choice Questions / 113
✜ Exercises / 116

CHAPTER 5 PREPARATION OF FINANCIAL STATEMENTS

5.1 INTRODUCTION ································································································· 126
5.2 WORKSHEET FOR A SERVICE FIRM ······················································· 127
5.3 PREPARATION OF FINANCIAL STATEMENTS ········································ 132
5.4 AFTER THE FINANCIAL STATEMENTS ARE PREPARED ··················· 134
✜ Multiple Choice Questions / 136
✜ Exercises / 139

CHAPTER 6 ACCOUNTING FOR MERCHANDISING FIRMS

6.1 INTRODUCTION ································································································· 148
6.2 ACCOUNTING FOR MERCHANDISE SALES ··········································· 149
6.3 ACCOUNTING FOR MERCHANDISE PURCHASES ································ 152
6.4 COST OF GOODS SOLD ················································································ 154
6.5 CONDENSED INCOME STATEMENT ························································· 156
6.6 WORKSHEET FOR MERCHANDISING FIRMS ········································ 157
6.7 FINANCIAL STATEMENTS FOR MERCHANDISING FIRMS ················ 160
✜ Multiple Choice Questions / 163
✜ Exercises / 166

CHAPTER 7 CASH AND FINANCIAL ASSETS

7.1 INTRODUCTION ································································································· 172
7.2 CASH ····················································································································· 173
7.3 CONTROL OF CASH ························································································ 174
7.4 BANK RECONCILIATION ················································································ 175
7.5 CASH SHORT AND OVER ············································································· 179
7.6 FINANCIAL ASSETS ························································································· 180
✜ Multiple Choice Questions / 184
✜ Exercises / 188

CHAPTER 8 INVENTORIES

8.1 INTRODUCTION ································································································· 196
8.2 DETERMINING THE OWNERSHIP OF GOODS ······································ 197
8.3 PERPETUAL AND PERIODIC INVENTORY SYSTEMS ·························· 198
8.4 COST-BASED INVENTORY VALUATION METHODS ····························· 201
8.5 OTHER INVENTORY VALUATION METHODS ········································· 205
✜ Multiple Choice Questions / 210
✜ Exercises / 214

CHAPTER 9 RECEIVABLES AND PAYABLES

9.1 TYPES OF RECEIVABLES ············································································· 222
9.2 RECOGNITION AND VALUATION OF ACCOUNTS RECEIVABLE ···· 223
9.3 METHODS OF COMPUTING PROVISION FOR UNCOLLECTIBLE
ACCOUNTS ·········································································································· 226
9.4 WRITING OFF CUSTOMERS’ ACCOUNTS ················································ 229
9.5 RECOVERY OF WRITTEN-OFF RECEIVABLES ······································ 230
9.6 PROMISSORY NOTES ······················································································ 231
9.7 DISCOUNTING A NOTE RECEIVABLE ······················································ 232
9.8 NOTES PAYABLE ······························································································ 236

CONTENTS 9

✜ Multiple Choice Questions / 239
✜ Exercises / 242

CHAPTER 10 PROPERTY, PLANT AND EQUIPMENT, AND INTANGIBLE ASSETS
10.1 PROPERTY, PLANT, AND EQUIPMENT ····················································· 250
10.2 MEASUREMENT AFTER INITIAL RECOGNITION ··································· 251
10.3 DEPRECIATION ·································································································· 252
10.4 DISPOSAL OF PROPERTY, PLANT, AND EQUIPMENT ························ 258
10.5 IMPAIRMENT ······································································································ 264
10.6 INTANGIBLE ASSETS ······················································································ 264
10.7 ACCOUNTING FOR INTANGIBLE ASSETS ··············································· 267
✜ Multiple Choice Questions / 269
✜ Exercises / 272

CHAPTER 11 LIABILITIES

11.1 INTRODUCTION ································································································· 282
11.2 CURRENT LIABILITIES ··················································································· 283
11.3 NONCURRENT LIABILITIES ··········································································· 284
11.4 BONDS PAYABLE ····························································································· 285
11.5 BONDS ISSUED BETWEEN INTEREST DATES ····································· 290
11.6 REDEMPTION OF BONDS ············································································· 292
11.7 PROVISION AND CONTINGENT LIABILITIES ·········································· 293
✜ Multiple Choice Questions / 295
✜ Exercises / 298

10 CONTENTS

CHAPTER 12 SHAREHOLDERS’ EQUITY

12.1 INTRODUCTION ································································································· 306
12.2 TERMINOLOGY ·································································································· 307
12.3 TYPES OF SHARES ························································································· 308
12.4 SHAREHOLDERS’ EQUITY ············································································ 309
12.5 ISSUANCE OF SHARES ················································································· 310
12.6 TREASURY SHARES ························································································ 313
12.7 DIVIDENDS ········································································································· 315
12.8 SHARE SPLIT ····································································································· 319
12.9 RETAINED EARNINGS ···················································································· 320
✜ Multiple Choice Questions / 322
✜ Exercises / 325

CHAPTER 13 STATEMENT OF CASH FLOWS

13.1 PURPOSE OF THE STATEMENT OF CASH FLOWS ···························· 336
13.2 CASH FLOWS BY ACTIVITIES ····································································· 337
13.3 TYPES OF CASH INFLOWS AND OUTFLOWS ······································· 338
13.4 METHODS FOR PREPARING THE STATEMENT
OF CASH FLOWS ····························································································· 342
13.5 THE DIRECT METHOD ·················································································· 344
13.6 THE INDIRECT METHOD ·············································································· 349
13.7 INTERPRETING INFORMATION IN THE STATEMENT
OF CASH FLOWS ····························································································· 357
✜ Multiple Choice Questions / 360
✜ Exercises / 363

CONTENTS 11

CHAPTER 14 REVENUE RECOGNITION

14.1 INTRODUCTION ································································································· 374
14.2 FIVE STEPS TO REVENUE RECOGNITION ············································ 375
14.3 PERFORMANCE OBLIGATIONS ··································································· 377
14.4 TIMING OF REVENUE RECOGNITION:
A POINT IN TIME OR OVER TIME RECOGNITION ····························· 378
14.5 ALLOCATION OF TRANSACTION PRICE TO PERFORMANCE
OBLIGATIONS ···································································································· 380
14.6 RECOGNIZE REVENUE AS EACH PERFORMANCE
OBLIGATION IS SATISFIED ·········································································· 382
14.7 VARIABLE CONSIDERATIONS ······································································ 384
14.8 ESTIMATION OF STANDALONE SELLING PRICES ······························ 386
14.9 SPECIAL ISSUES IN REVENUE RECOGNITION ···································· 387
14.10 REVENUE FROM LONG-TERM CONTRACTS ········································· 391
✜ Multiple Choice Questions / 396
✜ Exercises / 401

INDEX ··································································································································· 409