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Areas need to be discussed
1. Changes in the conceptual framework for financial reporting
i. Changes in the Objectives of general purpose financial statements
ii. Changes in the Qualitative characteristics of useful financial information
iii. Changes in the Identification of the Underlining accounting assumption
iv. Changes in the Elements of financial statements
2. Changes in the presentation of financial statements
3. Changes in the selected Accounting Standards [LKAS /IAS]
3
1.The conceptual framework
This Conceptual Framework is not a Sri Lanka Accounting Standard and hence does not define
standards for any particular measurement or disclosure issue. Further the Conceptual
Framework do not overrides any specific Sri Lanka Accounting Standard in any time. There may
be a few numbers of instances that a conflict between the Conceptual Framework and a Sri
Lanka Accounting Standard. In those cases where there is a conflict, the requirements of the Sri
Lanka Accounting Standard prevail over those of the Conceptual Framework. These conflicts
between the Conceptual Framework and Sri Lanka Accounting Standards will solve as this
Conceptual Framework is used in developing the future Standards and in the reviewing of
existing Standards.
Areas included in the conceptual framework for financial reporting.
The following are included in the conceptual framework for financial reporting.
I. Objectives of general purpose financial statements
II. Qualitative characteristics of useful financial information
III. Identification of the Underlining accounting assumption
IV. Elements of financial statements
The objective of general purpose financial reporting
The objective of general purpose financial reporting is to provide financial information about the
reporting entity that is useful to existing and potential investors, lenders and other creditors in
making decisions about providing resources to the entity. Those decisions involve buying, selling
or holding equity and debt instruments, and providing or settling loans and other forms of
credit.
Qualitative Characteristics of useful Financial Information
These characteristics are the attributes that makes the financial information useful to the
existing and potential investors, lenders and other creditors for making decisions about the
reporting entity on the basis of financial information in its financial report (financial
information).
The framework identifies basically two types of characteristics which are the
1. Fundamental characteristics
2. Enhancing characteristics
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If financial information is to be useful, it must be relevant and faithfully represent what it
purports to represent are the Fundamental characteristics. The usefulness of financial
information is enhanced if it is comparable, verifiable, timely and understandable and these are
considered as the enhanced characteristics.
Fundamental qualitative characteristics
The fundamental qualitative characteristics are relevance and faithful representation.
Relevance
Information in financial information is relevant when it influences the economics decisions of
users. To full fill the quality of relevance the user should be in the position to take the economics
decisions by depending on the information provided in the financial statements.
It can do that both by
• Relevance can be help the economic decision makers to evaluate the past, present,or future
events relating to an enterprise and
• Confirm or correct past evaluations they have made.
Materiality is the component of relevance. Information is treated as material if the omission or
misstatement could influence the economic decisions of the user.
Timeliness is another components of relevance to be useful, information must be provided to
users within the time period in which it is most likely to bear on their decisions.
Nature and the materiality of the information give and impact to the relevance of the
information. If the omission or the misstatement of particular event leads the users to change
the decisions taken by depending on the financial information, such facts are treated as
materiality. If the omission or misstatement does not give any impact for the users to change the
decisions such facts are not treated as material. There may be instances where the information is
not material, quantitatively it may be relevant due to the nature of and the statutory
requirements with regard to particular information.
Faithful representation
Financial reports represent economic phenomena in words and numbers. To be useful, financial
information must not only represent relevant phenomena, but it must also faithfully represent
the phenomena that it purports to represent. To be a perfectly faithful representation, a
depiction would have three characteristics. It would be complete, neutral and free from error. Of
course, perfection is seldom, if ever, achievable. The Council’s objective is to maximize those
qualities to the extent possible.
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A complete depiction includes all information necessary for a user to understand the
phenomenon being depicted, including all necessary descriptions and explanations. For example,
a complete depiction of a group of assets would include, at a minimum, a description of the
nature of the assets in the group, a numerical depiction of all of the assets in the group, and a
description of what the numerical depiction represents (for example, original cost, adjusted cost
or fair value). For some items, a complete depiction may also entail explanations of significant
facts about the quality and nature of the items, factors and circumstances that might affect their
quality and nature, and the process used to determine the numerical depiction.
Applying the fundamental qualitative characteristics
Information must be both relevant and faithfully represented if it is to be useful. Neither a
faithful representation of an irrelevant phenomenon nor an unfaithful representation of a
relevant phenomenon helps users make good decisions.
The most efficient and effective process for applying the fundamental qualitative characteristics
would usually be as follows
1. Identify an economic phenomenon that has the potential to be useful to users of the
reporting entity’s financial information.
2. Identify the type of information about that phenomenon that would be most relevant if it
is available and can be faithfully represented.
3. Determine whether that information is available and can be faithfully represented.
Enhancing qualitative characteristics
Comparability, verifiability, timeliness and understandability are qualitative characteristics that
enhance the usefulness of information that is relevant and faithfully represented. The enhancing
qualitative characteristics may also help determine which of two ways should be used to depict a
phenomenon if both are considered equally relevant and faithfully represented.
Comparability
Users must be able to compare financial statement of an enterprise through time in order to
identify trends in its financial position and performance. Users must also be able to compare the
financial statements of different enterprises in order to evaluate their relative financial position,
performance and changes in financial position. Hence, the measurement and display of the
financial effect of like truncations and other events must be carried out in a consistent way
through out and enterprise and over time for that enterprise and in a consistent way for
different enterprise.
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Financial statements should provide the comparative figures to identify the trends in
profitability and the financial status. At least it is expected to present the previous years financial
statements for the comparison of the users. Further the comparison can be made even with the
other organizations. To get the maximum benefits of the comparison, financial information
should be prepared in accordance with the accounting standards. Further accounting standards
applied and the deviations from the accounting standards should also be disclosed clearly. Hence
comparison can be ensured by preparing the financial statements according to the Sri Lanka
Accounting Standards. This does not mean that the quality of presentation can not be improved
by changing the accounting policies applied in previous years. These changes can be made if the
change leads to enhance the quality of the financial statements and if the change and the reasons
for the changes are also clearly explained in the financial statements.
Normally it is not expected to maintain the above mentioned qualities 100% at the time but it is
advisable to take every effort to maintain the qualitative characteristics at a maximum level.
Objective of these qualitative characteristic is to maintain the quality level of financial
statements at a higher level.
Verifiability
Verifiability helps assure users that information faithfully represents the economic phenomena
it purports to represent. Verifiability means that different knowledgeable and independent
observers could reach consensus, although not necessarily complete agreement, that a particular
depiction is a faithful representation. Quantified information need not be a single point estimate
to be verifiable. A range of possible amounts and the related probabilities can also be verified.
Verification can be direct or indirect. Direct verification means verifying an amount or other
representation through direct observation, for example, by counting cash. Indirect verification
means checking the inputs to a model, formula or other technique and recalculating the outputs
using the same methodology.
Timeliness
Timeliness means having information available to decision-makers in time to be capable of
influencing their decisions. Generally, the older the information is the less useful it is. However,
some information may continue to be timely long after the end of a reporting period because, for
example, some users may need to identify and assess trends.
7
Understandability
Classifying, characterising and presenting information clearly and concisely makes it
understandable. Some phenomena are inherently complex and cannot be made easy to
understand. Excluding information about those phenomena from financial reports might make
the information in those financial reports easier to understand. However, those reports would
be incomplete and therefore potentially misleading.
Financial reports are prepared for users who have a reasonable knowledge of business and
economic activities and who review and analyse the information diligently. At times, even well-
informed and diligent users may need to seek the aid of an adviser to understand information
about complex economic phenomena.
Applying the enhancing qualitative characteristics
Enhancing qualitative characteristics should be maximized to the extent possible. However, the
enhancing qualitative characteristics, either individually or as a group, cannot make information
useful if that information is irrelevant or not faithfully represented.
Applying the enhancing qualitative characteristics is an iterative process that does not follow a
prescribed order. Sometimes, one enhancing qualitative characteristic may have to be
diminished to maximize another qualitative characteristic.
The cost constraint on useful financial reporting
Cost is a pervasive constraint on the information that can be provided by financial reporting.
Reporting financial information imposes costs, and it is important that those costs are justified
by the benefits of reporting that information. There are several types of costs and benefits to
consider.
Providers of financial information expend most of the effort involved in collecting, processing,
verifying and disseminating financial information, but users ultimately bear those costs in the
form of reduced returns. Users of financial information also incur costs of analyzing and
interpreting the information provided. If needed information is not provided, users incur
additional costs to obtain that information elsewhere or to estimate it.
8
Reporting financial information that is relevant and faithfully represents what it purports to
represent helps users to make decisions with more confidence. This results in more efficient
functioning of capital markets and a lower cost of capital for the economy as a whole. An
individual investor, lender or other creditor also receives benefits by making more informed
decisions. However, it is not possible for general purpose financial reports to provide all the
information that every user finds relevant. In applying the cost constraint, it is assesses whether
the benefits of reporting particular information are likely to justify the costs incurred to provide
and use that information. When applying the cost constraint in developing a proposed financial
reporting standard, it also seeks information from providers of financial information, users,
auditors, academics and others about the expected nature and quantity of the benefits and costs
of that standard. In most situations, assessments are based on a combination of quantitative and
qualitative information. Because of the inherent subjectivity, different individuals’ assessments
of the costs and benefits of reporting particular items of financial information will vary.
Therefore, it seeks to consider costs and benefits in relation to financial reporting generally, and
not just in relation to individual reporting entities. That does not mean that assessments of costs
and benefits always justify the same reporting requirements for all entities. Differences may be
appropriate because of different sizes of entities, different ways of raising capital (publicly or
privately), different users’ needs or other factors.
Underlying Assumption
Going concern
The financial statements are normally prepared on the assumption that an entity is a going
concern and will continue in operation for the foreseeable future. Hence, it is assumed that the
entity has neither the intention nor the need to liquidate or curtail materially the scale of its
operations; if such an intention or need exists, the financial statements may have to be prepared
on a different basis and, if so, the basis used is disclosed.
Elements of financial statements
Capital maintenance adjustments
The revaluation or restatement of assets and liabilities gives rise to increases or decreases in
equity. While these increases or decreases meet the definition of income and expenses, they are
not included in the income statement under certain concepts of capital maintenance. Instead
these items are included in equity as capital maintenance adjustments or revaluation reserves.
9
Concepts of capital
A financial concept of capital is adopted by most entities in preparing their financial statements.
Under a financial concept of capital, such as invested money or invested purchasing power,
capital is synonymous with the net assets or equity of the entity. Under a physical concept of
capital, such as operating capability, capital is regarded as the productive capacity of the entity
based on, for example, units of output per day.
The selection of the appropriate concept of capital by an entity should be based on the needs of
the users of its financial statements. Thus, a financial concept of capital should be adopted if the
users of financial statements are primarily concerned with the maintenance of nominal invested
capital or the purchasing power of invested capital. If, however, the main concern of users is
with the operating capability of the entity, a physical concept of capital should be used. The
concept chosen indicates the goal to be attained in determining profit, even though there may be
some measurement difficulties in making the concept operational.
Concepts of capital maintenance and the determination of profit
a) Financial capital maintenance. Under this concept a profit is earned only if the financial
(or money) amount of the net assets at the end of the period exceeds the financial (or
money) amount of net assets at the beginning of the period, after excluding any
distributions to, and contributions from, owners during the period. Financial capital
maintenance can be measured in either nominal monetary units or units of constant
purchasing power.
b) Physical capital maintenance. Under this concept a profit is earned only if the physical
productive capacity (or operating capability) of the entity (or the resources or funds
needed to achieve that capacity) at the end of the period exceeds the physical productive
capacity at the beginning of the period, after excluding any distributions to, and
contributions from, owners during the period.
The concept of capital maintenance is concerned with how an entity defines the capital that it
seeks to maintain. It provides the linkage between the concepts of capital and the concepts of
profit because it provides the point of reference by which profit is measured; it is a prerequisite
for distinguishing between an entity’s return on capital and its return of capital; only inflows of
assets in excess of amounts needed to maintain capital may be regarded as profit and therefore
as a return on capital. Hence, profit is the residual amount that remains after expenses
(including capital maintenance adjustments, where appropriate) have been deducted from
income. If expenses exceed income the residual amount is a loss.
10
The physical capital maintenance concept requires the adoption of the current cost basis of
measurement. The financial capital maintenance concept, however, does not require the use of a
particular basis of measurement. Selection of the basis under this concept is dependent on the
type of financial capital that the entity is seeking to maintain.
The principal difference between the two concepts of capital maintenance is the treatment of the
effects of changes in the prices of assets and liabilities of the entity. In general terms, an entity
has maintained its capital if it has as much capital at the end of the period as it had at the
beginning of the period. Any amount over and above that required to maintain the capital at the
beginning of the period is profit.
2. Changes in the presentation of financial statements
LKAS 1 Presentation of Financial Statements
Changes of the presentation of financial information can be summarized as follows and given
below are the components of a set of Financial Statements to be prepared for a business;
I. A statement of the financial position as at the end of the period.
II. A statement of the comprehensive Income for the period.
III. A statement of changes in equity for the period.
IV. A statement of Cash Flows for the period.
V. Notes comprising a summary of significant accounting policies and other
explanatory information.
Terminology presently been used New terminology to be used
Income Statement Comprehensive Income Statement and Other Comprehensive Income Statement
Balance Sheet Statement of Financial Position
11
Comprehensive income
Comprehensive income is the total non-owner change in equity for a reporting period. This
change encompasses all changes in equity other than transactions from owners and
distributions to owners. Most of these changes appear in the income statement. A few special
types of gains and losses are not shown in the income statement but as special items in
shareholder equity section of the balance sheet.
Since these comprehensive income items are not closed to retained earnings each period they
accumulate as shareholder equity items and thus are entitled “Other Comprehensive Income”
and is sometimes referred to as "OCI".
Other comprehensive income is a subsection in equity where "other comprehensive income" is
accumulated (summed or "aggregated").
The balance of OCI is presented in the Equity section of the Balance Sheet as is the Retained
Earnings balance, which aggregates past and current Earnings, and past and current Dividends.
Other comprehensive income
Other comprehensive income is the difference between net income as in the Income Statement
(Profit or Loss Account) and comprehensive income, and represents the certain gains and losses
of the enterprise not recognized in the P&L Account. It is commonly referred to as "OCI".
In practice, it comprises the following items:
1. Unrealized gains and losses on available for sale securities [LKAS 39 / IAS 39 – Financial
Instruments ]
2. Gains and losses on derivatives held as cash flow hedges (only for effective portions) [LKAS 39
/ IAS 39 – Financial Instruments]
3. Gains and losses resulting from translating the financial statements of foreign subsidiaries
(from foreign currency to the presentation currency) [LKAS 21 / IAS 21 — The Effects of
Changes in Foreign Exchange Rates],
4. Actuarial gains and losses on defined benefit plans recognized (Minimum pension liability
adjustments) [LKAS 19/ IAS 19 — Employee Benefits]
5. Changes in the revaluation surplus [LKAS 16 / IAS 16 - Property, Plant and Equipment].
12
While the OCI balance is presented in Equity section of the balance sheet, the annual accounting
entries, as flows, are presented sometimes in a Statement of Comprehensive Income. This
statement expands the traditional Income Statement beyond Earnings to include OCI in order to
present Comprehensive Income.
Under the revised IAS 1, all non-owner changes in equity (comprehensive income) must be
presented either in one Statement of comprehensive income or in two statements (a separate
income statement and a statement of comprehensive income).
LKAS 01 - Presentation of Financial Statements
Statement of financial position
31 December 2012
Assets
Non-current assets
Property, plant and equipment xxx
Intangible assets and goodwill xxx
Biological assets xxx
Trade and other receivables - xxx
Investment property xxx
Equity-accounted investees xxx
Other investments, including derivatives xxx
Deferred tax assets xxx
Employee benefits xxx
Total Non-current assets xxx
Current assets
Inventories xxx
Biological assets xxx
Other investments, including derivatives xxx
Current tax assets xxx
Trade and other receivables xxx
Prepayments xxx
Cash and cash equivalents xxx
Assets held for sale xxx
Total Current assets xxx
Total assets XXX
Equity
Share capital xxx
Share premium xxx
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Reserves xxx
Retained earnings xxx
Total Equity attributable to owners of the Company xxx
Liabilities
Non-current liabilities xxx
Loans and borrowings xxx
Employee benefits xxx
Trade and other payables xxx
Deferred income/revenue xxx
Provisions xxx
Deferred tax liabilities xxx
Total Non-current liabilities xxx
Current liabilities
Bank overdraft xxx
Current tax liabilities xxx
Loans and borrowings xxx
Trade and other payables xxx
Deferred income/revenue xxx
Provisions xxx
Liabilities held for sale xxx
Total Current liabilities xxx
Total liabilities xxx
Total equity and liabilities xxx
Statement of comprehensive income
For the year ended 31 December 2012
Continuing operations Revenue xxx
Cost of sales xxx Gross profit xxx Other income xxx Selling and distribution expenses xxx Administrative expenses xxx Research and development expenses xxx Other expenses xxx
Results from operating activities xxx
Finance income xxx Finance costs xxx
Net finance costs xxx
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Share of profit of equity-accounted investees, net of tax xxx
Profit before tax xxx
Tax expense xxx
Profit from continuing operations xxx
Discontinued operation xxx Profit (loss) from discontinued operation, net of tax xxx
Profit for the year xxx Other comprehensive income
Net change in fair value of available-for-sale financial assets xxx Net change in fair value of available-for-sale financial assets reclassified to profit or loss xxx Effective portion of changes in fair value of cash flow hedges xxx Net loss on hedge of net investment in foreign operation xxx Foreign currency translation differences – foreign operations xxx Foreign currency translation differences – equity-accounted investees xxx Defined benefit plan actuarial gains (losses) xxx Revaluation of property, plant and equipment xxx Tax on other comprehensive income xxx
Other comprehensive income for the year, net of tax xxx
Total comprehensive income for the year xxx
15
3.Changes in the selected Accounting Standards [LKAS /IAS]
LKAS 01 Presentation of Financial Statements
Existing Para Reference : Para 07 (d) & (f)
Replaced/ added paragraph : The components of other comprehensive income include :
(d) gains and losses from investments in equity instruments measured at fair value through
other comprehensive income in accordance with paragraph 5.7.5 of SLFRS 9 Financial
Instruments;
Example: Investments in Shares
Convertible preference shares
(f) for particular liabilities designated as at fair value through profit or loss, the amount of the
change in fair value that is attributable to changes in the liability's credit risk.
Example : Lease
Existing Para Reference : Para 69 (d)
Replaced/ added paragraph : Current Liabilities
An entity shall classify a liability as current when:
(d) it does not have an unconditional right to defer settlement of the liability for at least
twelve months after the reporting period. Terms of a liability that could at the option of
the counterparty, result in its settlement by the issue equity instruments do not affect its
classification.
Example : Debentures
Existing Para Reference : Para 123 (a)
Replaced/ added paragraph : [deleted]
16
LKAS 2 Inventories
Existing Para Reference : Para 2 (b)
Replaced/ added paragraph : (b) financial instruments (see LKAS 32 Financial
Instruments:Presentation and SLFRS 9 Financial Instruments); and
Example : Earlier LKAS 39 now it has renamed as SLFRS 9
LKAS 7 Statement of Cash Flows
Existing Para Reference : Para 2 (b)
Replaced/ added paragraph: The separate disclosure of cash flows arising from investing
activities is important because the cash flows represent the extent to which expenditures have
been made for resources intended to generate future income and cash flows. Only
expenditures that result in a recognised asset in the statement of financial position are
eligible for classification as investing activities. Examples of cash flows arising from
investing activities are:
(a) cash payments to acquire property, plant and equipment, intangibles and other long-term
assets. These payments include those relating to capitalised development costs and self
constructed property, plant and equipment;
(b) cash receipts from sales of property, plant and equipment, intangibles and other long-term
assets;
(c) cash payments to acquire equity or debt instruments of other entities and interests in joint
ventures (other than payments for those instruments considered to be cash equivalents or those
held for dealing or trading purposes);
17
(d) cash receipts from sales of equity or debt instruments of other entities and interests in joint
ventures (other than receipts for those instruments considered to be cash equivalents and those
held for dealing or trading purposes);
(e) Cash advances and loans made to other parties (other than advances and loans made by a
financial institution);
(f) Cash receipts from the repayment of advances and loans made to other parties (other than
advances and loans of a financial institution);
(g) cash payments for futures contracts, forward contracts, option contracts and swap contracts
except when the contracts are held for dealing or trading purposes, or the payments are
classified as financing activities; and
(h) Cash receipts from futures contracts, forward contracts, option contracts and swap contracts
except when the contracts are held for dealing or trading purposes, or the receipts are classified
as financing activities.
When a contract is accounted for as a hedge of an identifiable position the cash flows of the
contract are classified in the same manner as the cash flows of the position being hedged.
Example :property, plant and equipment,intangibles and other long-term assets;
18
LKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
Existing Para Reference: Para 53
Replaced/ added paragraph : Hindsight should not be used when applying a new accounting
policy to, or correcting amounts for, a prior period, either in making assumptions about what
management’s intentions would have been in a prior period or estimating the amounts
recognised, measured or disclosed in a prior period. For example, when an entity corrects a
prior period error in calculating its liability for employees’ accumulated sick leave in accordance
with LKAS 19 Employee Benefits, it disregards information about an unusually severe influenza
season during the next period that became available after the financial statements for the prior
period were authorised for issue. The fact that significant estimates are frequently required
when amending comparative information presented for prior periods does not prevent reliable
adjustment or correction of the comparative information.
19
LKAS 16 Property, Plant and Equipment
Assets
Tangible Non-Current Assets - All the assets are classified as Non-Current assets other than the
followings,
i. Realised (Sold /Consumed) in entity's normal operating cycle,
ii. Which are held for trading
iii. Like cash/ cash equivalent (unless restricted from being exchanged)
iv. Expected to realize within 12 months after SOFP date
The above are known as current assets
Examples for Tangible non-current assets
1. Property, Plant and Equipment, e.g. Building, Machinery and computers used for
business. Traditionally these assets are called fixed assets. These were covered from the
LKAS 16, IAS 16 Property, Plant and Equipment Standard
2. Investment properties, e.g. building given on rent plot of land held for capital
appreciation only. These were covered from the IAS 40 Investment Property.
3. Property, Plant and Equipment classified as held for sale, IFRS 5 Non current Assets held
for sale and discontinued operations
LKAS 16 - Property, Plant and Equipment standard shall not be applicable for:
i. Non-current assets held for sale (SLFRS 5)
ii. Discontinued operations (SLFRS 5)
iii. Biological assets (LKAS 41)
iv. Exploration of mineral assets (SLFRS 6)
v. Mineral rights and reserves such as oil, gas
Articles which can be recognition as Property, Plant and Equipment when :
i. It is probable that future economic benefits associated with the item will
flow to the entity and
ii. The cost of the item can be measured reliably
Both the above conditions should be met in order to recognize an item as an asset
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Initial Recognition of Non-Current Assets
Measurement of Non-Current Assets at recognition:
1. An item of property, plant and equipment that qualifies for recognition as an asset
shall be measured at cost. Elements of cost are Purchase price and related taxes
and duties, Any cost directly attributable to bringing the asset to the location and
the condition, Initial estimate of the costs of dismantling and removing the item
and restoring the site
2. Measurement of costs: The cost of an item of PPE is the cash price equivalent at
the recognition date and Specific borrowing costs should be capitalised in line
with LKAS 23
Measurement after recognition:
1. Cost model : After recognition as an asset an item of PPE asset, should be carried at cost
less accumulated depreciation and any accumulated impairment losses.
2. Re-valuation model : After recognition as an asset an item of PPE asset, whose fair value
can be measured reliably shall be carried at a revalued amount (being its fair value at the
date of the re-valuation) less accumulated depreciation and any accumulated impairment
losses
Re-valuation of Property, Plant & Equipment
Re-valuation model: Revaluations shall be made with sufficient regularity.
Methods and values for revaluation e.g., Land and buildings - market based evidence, Assets with
no market based evidence – use income or depreciated replacement cost method.
Frequency in carrying out the revaluation process General rule of frequency is 3-5 years.
Accounting for Re-valuation of Property, Plant & Equipment
Property, Plant & Equipment First year of revaluation
There can be a revaluation gain or loss from first year of revaluation
First year Gain/surplus from the revaluation
Financial Statement
Debit Credit
Respective Assets Account Debit xxx
Financial Position
Revaluation Reserve Account Credit
xxx Other Comprehensive Income Statement
[Recording of Revaluation Gain/ Surplus]
21
First year Loss from the revaluation
Financial Statement
Impairment Expense Account Debit xxx
Income Statement -under other expenses
Respective Assets Account Credit
xxx Financial Position
[Recording of Revaluation Loss]
Fist year revaluation gain and second year further revaluation gain
Financial Statement
Respective Assets Account Debit xxx
Financial Position
Revaluation Reserve Account Credit
xxx Other Comprehensive Income Statement
[Recording of Revaluation Gain/ Surplus]
Fist year revaluation gain and second year revaluation loss
(second year loss is greater than the first year gain)
Financial Statement
Revaluation Reserve Account Debit xxx
Other Comprehensive Income Statement
Impairment Expense Account Debit xxx
Income Statement -under other expenses
Respective Assets Account Credit
xxx Financial Position
[Recording of first year Revaluation Gain/ Surplus and second year Revaluation Loss]
First year revaluation Loss and second year further revaluation loss
Financial Statement
Impairment Expense Account Debit xxx
Income Statement -under other expenses
Respective Assets Account Credit
xxx Financial Position
[Recording of Revaluation Loss]
First year revaluation loss and second year revaluation Gain / Surplus
( second year Gain is greater than the first year Loss)
Financial Statement
Respective Assets Account Debit xxx
Financial Position
Impairment Expense Account Credit
xxx Income Statement -under other expenses
Revaluation Reserve Account Credit
xxx Other Comprehensive Income Statement
[Recording of first year Revaluation Loss and second year Revaluation Gain/ Surplus]
22
Cost of the Asset (Carrying Amount) Rs.
100 mn
First Year Revaluation
Rs. 80 mn Rs. 120 mn
Impairment Expense Account Debit Rs. 20 mn Respective Assets Account Credit Rs. 20 mn
Respective Assets Account Debit Rs. 20 mn Revaluation Reserve Account Credit Rs. 20 mn
Second Year Revaluation Second Year Revaluation
Rs. 50 mn Rs. 110 mn Rs. 90 mn Rs. 150 mn
Impairment Expense Account Debit Rs. 30 mn Respective Assets Account Credit Rs. 30 mn
Respective Assets Account Debit Rs. 30 mn Impairment Expense Account Credit Rs. 20 mn Revaluation Reserve Account Credit mn 10 mn
Revaluation Reserve Account Debit Rs. 20 mn Impairment Expense Account Debit Rs. 10 mn Respective Assets Account Credit Rs. 30 mn
Respective Assets Account Debit Rs. 30 mn Revaluation Reserve Account Credit Rs. 30 mn
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