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    International Accounting Standards

    (IAS) Guidance:Terminology and Presentation

    [email protected]+44 (0) 2476 518951www.lcci.org.uk

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    2

    International Accounting Standards (IAS) Guidance: Terminology and Presentation

    Introduction 3

    1 First Level 4

    1.1 Terminology 4

    1.2Format of the IncomeStatement and Statement ofFinancial Position

    4

    1.3 Treatment of discount 5

    1.4 Summary 5

    2 Second Level

    2.1 Preface 6

    2.2 Partnerships 6

    2.3 Limited liability companies 8

    2.4 Manufacturing Accounts 10

    2.5 Non-trading organisations 11

    2.6Statement of ComprehensiveIncome

    11

    2.7 Summary 11

    3 Third Level

    3.1 Preface 12

    3.2 Terminology 12

    3.3Accounting treatment of

    goodwill

    12

    3.4

    Format of ConsolidatedIncome Statement andConsolidated Statement ofFinancial Position

    13

    3.5 Cash flows 14

    3.6 IAS standards 15

    3.7 Summary 15

    4 Fourth Level

    4.1 Preface 16

    4.2Components of financialstatements

    16

    4.3Format of the Statement ofFinancial Position

    16

    4.4Statement of ComprehensiveIncome

    17

    4.5Statement of Changes in

    Equity

    17

    4.6 Financial statements 18

    4.7 IAS Standards 20

    Contents

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    International Accounting Standards (IAS) Guidance: Terminology and Presentation

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    Introduction

    The International Accounting Standards (IAS) and the International Financial Reporting Standards (FRS)

    are widely used throughout the world. Since 2001, almost 120 countries have required or permitted theuse of IFRS. All remaining major economies have established time lines to converge with or adopt IFRS in

    the near future.

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    International Accounting Standards (IAS) Guidance: Terminology and Presentation

    1. First Level

    1.1 Terminology

    UK IAS

    Fixed Assets Non-current Assets

    Stock Inventory

    Trade Debtors Trade Receivables

    Prepayments Other Receivables

    Trade Creditors Trade Payables

    Accruals Other Payables

    Trading Profit and Loss Account Income StatementSales Revenue

    Balance Sheet Statement Of Financial Position

    Provision for Doubtful Debts Allowance For Doubtful Debts

    Net Book Value Carrying Amount

    Creditors amounts falling due within 1 year Current Liabilities

    Creditors amounts falling due after more than 1 year Non-current Liabilities

    Long term Debenture Loan Note

    1.2 Format of the Income Statement and the Statementof Financial Position

    Whilst there are no compulsory requirements for the presentation of the accounts of sole traders, it is

    recommended that candidates become familiar with preparing accounts in the IAS format.

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    International Accounting Standards (IAS) Guidance: Terminology and Presentation

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    1.2.1 Format of Financial Statements for a sole trader

    1.4 Summary

    The impact of international accounting standards at this level is mainly presentational. Candidates

    preparing accounts under recognisable formats will not be penalised as IAS does not apply to sole traders.

    However, candidates wishing to progress to higher levels would be encouraged to use these formats.

    1.3 Treatment of Discount

    Discount allowedshould be deducted from revenue,

    Discount receivedshould be deducted from purchases.

    Peter PiperIncome Statement for the year ended

    31 March 20x0$ $

    Revenue 18,300

    Cost of goods sold

    Opening inventory 2,200

    Add Purchases 13,100

    15,300

    LessClosing inventory (2,100 13,200

    Gross profit 5,100

    Less Expenses:

    Motor expenses 1,000

    Rent and rates 1,500

    Light and heat 1,300

    Loan interest 50

    Sundry expenses 200 (4,050

    Profit for the year 1,050

    Peter PiperStatement of Financial Position at

    31 March 20x0$ $

    Non-cuurent Assets

    Plant and equipment 4,560

    Motor vehicles 2,500

    7,060

    Current Assets

    Inventories 2,100

    Trade receivables 4,200

    Other receivables 150

    Cash 70 6,520

    Total Assets 13,580

    Capital

    Opening balance 4,150

    Add Profit for the year 1,050

    5,200

    Less Drawings ( 400

    4,800

    Non-current Liabilities

    Bank loan 5,000

    Current Liabilities

    Trade payables 2,400

    Other payables 400

    Bank overdraft 980 3,780

    Total equity and liabilities 13,580

    )

    )

    )

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    International Accounting Standards (IAS) Guidance: Terminology and Presentation

    2. Second Level

    2.1 Preface

    Practices and principles raised at the First Level will be relevant at the Second Level, reflecting the

    cumulative requirements of the LCCI syllabuses.

    2.2 Partnerships

    2.2.1 Terminology

    UK IAS

    Trading, Profit and Loss and Appropriation Account Income Statement and Appropriation Account

    Balance Sheet Statement of Financial Position

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    International Accounting Standards (IAS) Guidance: Terminology and Presentation

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    2.2.2 Format of Financial Statements for a partnership

    Peter and PopeStatement of Financial Position at

    31 March 20x0

    $ $

    Non-cuurent Assets

    Plant and equipment 4,560

    Motor vehicles 2,500

    7,060

    Current Assets

    Inventories 2,100

    Trade receivables 4,200

    Other receivables 150

    Cash 70 6,520

    Total Assets 13,580

    Capital Accounts

    Peter 1,550

    Pope 1,550 3,100

    Current Accounts

    Peter 1,000

    Pope 700 1,700

    4,800

    Non-current Liabilities

    Bank loan 5,000

    Current Liabilities

    Trade payables 2,400

    Other payables 400

    Bank overdraft 980 3,780

    Total equity and liabilities 13,580

    Peter and PopeIncome Statement and Appropriation

    Account for the year ended31 March 20x0

    $ $

    Revenue 18,300

    Cost of goods sold

    Opening inventory 2,200

    Add Purchases 13,100

    15,300

    LessClosing inventory (2,100 13,200

    Gross profit5,100

    Less Expenses:

    Motor expenses 1,000

    Rent and rates 1,500

    Light and heat 1,300

    Loan interest 50

    Sundry expenses 200 (4,050

    Profit for the year 1,050

    Interest on Drawing

    Peter 100Pope 50 150

    1,200

    Salary-Pope ( 500

    Interest on capital

    Peter 100

    Pope 100 ( 200

    500

    Share of Profits

    Peter (1/2 x 500) 250

    Pope (1/2 x 500) 250 ( 500

    )

    )

    )

    )

    )

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    International Accounting Standards (IAS) Guidance: Terminology and Presentation

    2.3 Limited liability companies

    The accounts of limited liability companies are affected much more substantially, and candidates

    preparing for examinations under IAS will be expected to comply with the basic layouts to be given in

    sections 2.3.2 and 2.6.

    2.3.1 Terminology

    2.3.2 Treatment of prefered share capital

    UK GAAP IAS equivalent

    Limited Company (Ltd) Private Company

    Public Limited Company Public Company

    Preference share Capital Preferred share capital

    Ordinary shares Equity shares

    Profit & loss/Accumulated profits Retained earnings

    UK GAAP IAS equivalent

    Redeemable preferred share capital Shown in Non Current liability

    Irredeemable preferred share capital Shown in Shareholders equity

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    2.3.2 Format of Financial Statements for companies

    Hill TradersStatement of Financial Position at

    31 March 20x0

    $ $

    Non-current Assets

    Plant and equipment 17,600

    Motor vehicles 2,500

    20,100

    Current Assets

    Inventories 2,100

    Trade receivables 4,200

    Other receivables150

    Cash 70 6,520

    Total Assets 26,620

    Equity and Liabilities $ $

    Capital and reserves

    Ordinary share capital 10,000

    Share premium 5,000

    Retained earnings 4,000

    Equity 19,000

    Non-current Liabilities

    Bank loan 3,000

    Current Liabilities

    Trade payables 2,400

    Other payables 400

    Bank overdraft1,820 4,620

    Total equity and liabilities 26,620

    Hill TradersIncome Statement for the year ended

    31 March 20x0$ $

    Revenue 18,300

    Cost of goods sold

    Opening inventory 2,200

    Add Purchases 13,100

    15,300

    LessClosing inventory (2,100 13,200

    Gross profit 5,100

    Less Expenses:

    Motor expenses 1,000

    Rent and rates 1,500

    Light and heat 1,300

    Loan interest 50

    Less: Sundry expenses 200 (4,050

    Profit for the year 1,050

    )

    )

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    International Accounting Standards (IAS) Guidance: Terminology and Presentation

    2.4 Manufacturing accounts

    The layout of manufacturing accounts will be unchanged, however, although the terminology will be

    consistent with IAS, and for example stock will be referred to as inventory.

    2.3.5 Format of the Statement of Changes in Equity of companies

    2.3.3 Presentation of Dividends

    Dividends paid by limited companies are no longer reported in the Income Statement. They are included

    in the Statement of Changes in Equity, as shown in 2.5. Only dividends paid before the yearend are

    included.

    2.3.4 Statement of Changes in Equity

    The Statement of Changes in Equity reports information about the increase/decrease in net assets or

    wealth of equity shareholders. The items that are likely to appear in the Statement of Changes in Equity at

    this level are:

    Profit for the year

    Additional shares issued during the year

    Dividends paid during the year

    Transfers between reserves (for example , transfer from retained earnings to general reserve)

    TrottersStatement of Changes in Equity

    For the year ended 31 March 20x0

    Sharecapital

    SharePremium

    Retainedearning

    Generalreserve

    Totalequity

    $000 $000 $000 $000 $000

    Balance at 1 April 1,000 200 500 100 1,800

    Changes in Equity for 20x0

    Issue of share capital 200 200

    Transfers (200) 200

    Profit for the period 600 600

    Dividends (300) (300)

    Balance at 31 March1,200 200 600 300 2,300

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    2.5 Non-trading organisations

    The layout of the accounts of non-trading organisations will remain unchanged, although the terminology

    will be consistent with IAS.

    However, the Statement of Financial Position will be laid out similarly to Hill Traders, in theStatement of

    Financial Position shown in 2.3.2. The Accumulated Fund will be shown above Non Current Liabilities.

    2.6 Statement of Comprehensive Income

    The Statement of Comprehensive Income will be examined at Level 4.

    2.7 Summary

    Changes at this level are mainly presentational and specific formats only apply to company accounts.

    However, once again, candidates wishing to progress to higher levels would be encouraged to become

    used to the formats.

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    International Accounting Standards (IAS) Guidance: Terminology and Presentation

    3. Third Level

    3.1 Preface

    Practices and principles raised at the First and Second Levels will be relevant at the Third Level, reflecting

    the cumulative requirements of the LCCI syllabi.

    3.3 Accounting treatment of goodwillThere are two methods of calculating goodwill, the partial and full methods. The partial method is the

    method that is currently examined in the syllabus and is therefore currently the only method that is

    examined.

    3.2 Terminology

    UK IAS

    Minority interest Non-controlling interest

    3.3.1 Accounting treatment of positive goodwill

    Goodwill arising from the acquisition of a subsidiary is not amortised. After the initial measurement and

    recognition, the group is expected to measure the goodwill at cost less any accumulated impairment

    losses since acquisition. The goodwill impairment loss should be charged to the Income Statement.

    3.3.2 Accounting treatment of negative goodwill

    Negative goodwill should be credited to the Income Statement. It does not appear in the Consolidated

    Statement of Financial Position.

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    3.4 Format of the Consolidated Income Statement andConsolidated Statement of Financial Position

    Peter Pope Group

    Consolidated Statement of Financial Positionat 31 March 20x0

    $ $

    Non-cuurent Assets

    Goodwill 5,000

    Plant and equipment 17,600

    Motor vehicles 2,500

    25,100

    Current Assets

    Inventories 2,100

    Trade receivables 4,200

    Other receivables 150

    Cash 70 6,520

    Total Assets 31,620

    Equity and Liabilities

    Capital and reserves $ $

    Ordinary share capital 10,000

    Share premium 5,000

    Retained earnings 2,000

    17,000

    Non-controlling Interest 1,000

    Equity 18,000

    Non-current Liabilities

    Redeemable preferred share

    capital 5,100

    Bank loan 5,000 10,100

    Current Liabilities

    Trade payables 1,400

    Other payables 400

    Bank overdraft 1,720 3,520

    Total equity and liabilities 31,620

    Peter Pope Group

    Consolidated Income Statementfor the year ended 31 March 20x0

    $ $

    Revenue 18,300

    Cost of sales 13,200

    Gross profit 5,100

    Less: Distibution costs 1,200

    Less: Administrative expense 1,000 (2,200

    2,900

    Other operating income1,100

    Profit from operations 4,000

    Interest payable 500

    Profit for the year 3,500

    Profit attributable to: $

    Owners of the Parent 3,200

    Non-controlling interest 300

    3,500

    )

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    International Accounting Standards (IAS) Guidance: Terminology and Presentation

    3.5 Cash Flows (IAS 7)

    3.5.1 Format of the Statement of Cash Flow

    IAS 7 requires reporting of cash flows to be shown under three headings. These are Operating activities;

    investing activities and Financing activities.

    The example is designed to show the possibilities likely in an LCCI examination and contains more figures

    than a typical question. However, as in previous sittings, examiners may ask for separate calculations of

    the cash flow from operating activities, cash flow from investing activities and cash flow from financing

    activities.

    WhellarsStatement of Cash flows for the year ended 31 March 20x1

    $ $

    Cash flows from operating activities

    Profit for the year 7,600

    Adjustments for:

    Depreciation of non-current assets 120

    Interest expense 10

    Investment income ( 12

    Operating profit before working capital changes 7,718

    Decrease in trade receivables 4,210

    Increase in inventories ( 1,100

    Decrease in trade payables (1,800 1,310

    cash generated from operations 9,028

    Interest paid ( 80

    Net cash flow from operating activities 8,948

    Cash flows form investing activities

    Cash paid for non-current assets (4,000

    Cash received from the sale of non-current assets 1,400

    Interest received 300

    Dividends received 200

    Net cash used in investing activities (2,100

    Cash flows from financing activities

    Proceeds from issue of shares 100

    Proceeds from long term borrowing 200

    Dividends paid ( 400

    Net cash used in financing activities ( 100

    Net increase in cash and cash equivalents 6,748

    Cash and cash equivalents at 1 April 20x0 1,200

    Cash and cash equivalents at 31 March 20x1 7,948

    )

    )

    )

    )

    )

    )

    )

    )

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    3.6 Relevant international accounting standards

    3.6.1 IAS 2 (Inventories)

    Inventories are valued at the lower of cost and net realisable value. Costs include purchase cost,

    conversion costs and other costs incurred in bringing the inventory to its present location and condition.No different from the UK standards.

    3.6.2 IAS 7 (Statement of Cash Flows)

    Cash flows are reported under three main headings: operating activities, investing activities and financing

    activities

    3.6.3 IAS 16 (Non-current Assets)

    Tangible non-current assets are assets that have a physical substance and are held for use in the

    production or supply of goods or services, for rental to others or for administrative purposes andare expected to be utilised in more than one reporting year. A tangible non-current asset should be

    depreciated over its useful economic life. No different from the UK standards.

    3.6.4 IAS 27 (Consolidated Financial Statements)

    Consolidated financial statements are financial statements of a group (parent and subsidiary) presented

    as those of a single entity. Non-controlling interests are reported in equity in the Consolidated Statement

    of Financial Position. This standard will be superseded by IFRS 10 from 2013.

    3.6.5 IFRS 3 (Business Combinations)

    Goodwill arising from consolidation is measured as the difference between the cost (fair value of

    the purchase consideration) of an acquired entity and the aggregate of the fair values of the entitys

    identifiable assets and liabilities. No different to the UK standards.

    3.7 Summary

    Changes at this level are once again mainly presentational, most notably with regards to the Statement of

    Cash Flow.

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    International Accounting Standards (IAS) Guidance: Terminology and Presentation

    4. Fourth Level

    4.1 Preface

    The issues raised in the First, Second and Third Levels will be relevant at the Fourth Level, reflecting as

    such, the cumulative requirements of LCCI syllabi.

    4.3 Format of the Statement of Financial Position

    IAS 1 does not prescribe a format of the statement of financial position. However, it stipulates the

    minimum information that has to be disclosed on the face of the statement of financial position.

    4.2 Components of financial statements

    IAS 1, states that a complete set of financial statements should include the following:

    A Statement of Financial Position at the end of the reporting period.

    A Statement of Comprehensive Income for the period.

    A Statement of Changes in Equity for the period

    A Statement of Cash Flows for the period.

    Notes to the accounts, which include accounting policies and relevant explanatory notes.

    This information is:

    Cash and cash equivalents

    Intangible assets

    Inventories

    Issued capital and reserves attributable to the owners of the firm

    Non-controlling interest (minority interest) presented within equity

    Payables (trade and other)

    Provisions

    Property, plant and equipment

    Receivables (trade and other)

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    4.4 Statement of Comprehensive Income

    Comprehensive Income for a period includes profit or loss for that period and Other Comprehensive

    Income recognised during the period. The only item reported under Other Comprehensive Income that

    is examinable at this level is a gain/loss on the revaluation of a non-current asset during the reporting

    period.

    4.5 Statement of Changes in equity

    The Statement of Changes in Equity reflects information about the increase or decrease in net assets or

    wealth of equity shareholders. The minimum information on the face of the statement of changes in equity

    includes:

    Profit or loss for the period

    Each item of other comprehensive income

    Additional shares issued during the period

    Dividends paid during the year

    Purchase of shares during the period

    Effects of changes in accounting policy

    Effects of correction of errors

    4.4.1 Minimum Information required on the Statement of Comprehensive Income

    The minimum information on the face of the statement of comprehensive Income required by IAS 1

    includes:

    Revenue

    Finance costs

    Profit or loss for the period

    Each component of other comprehensive income classified by nature

    Total comprehensive income

    Profit or loss attributable to non-controlling

    Profit or loss attributable to equity holders of the parent company

    Total comprehensive income attributable to non-controlling interests

    Total comprehensive income attributable to the parent company

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    International Accounting Standards (IAS) Guidance: Terminology and Presentation

    4.6 Financial statements

    4.6.1 Statement ofComprehensive Income

    classifying expenses byfunction

    4.6.2 Statement ofComprehensive Incomeclassifying expenses bynature

    Hayes MetalsStatement of Comprehensive Income

    for the year ended 31 March 20x0

    $ $

    Revenue 18,300Cost of sales 13,200

    Gross Profit 5,100

    Less: Distribution costs 1,200

    Less: Administrative expense 1,000 (2,200

    2,900

    Other operating income 1,000

    Profit from operations 3,900

    Finance costs ( 200

    Profit for the year 3,700

    Other comprehensive income

    Gains on revaluation of property 1,000

    Total comprehensive income 4,700

    Hayes Metals

    Statement of Comprehensive Incomefor the year ended 31 March 20x0

    $ $

    Revenue 18,300

    Change in inventories of finishedgoods and WIP

    1,000

    Own work capitalised 1,500

    Other operating income 1,000 3,500

    21,800

    Raw materials and consumables 3,000

    Staff costs 5,000

    Depreciation and amortisation 6,900

    Other operating expenses 3,000 (17,900

    Profit from operations 3,900

    Finance costs ( 200

    Profit for the year 3,700

    Other comprehensive income

    Gains on revaluation of property 1,000

    Total comprehensive income 4,700

    )

    )

    )

    )

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    4.6.3 Consolidated Statement of Comprehensive Income

    Questions at this level would not combine group accounts with the presentation of accounts inaccordance with IAS 1, although candidates would be expected to prepare their answers in a clear and

    well-presented way.

    Hayes MetalsConsolidated Statement of

    Comprehensive Incomefor the year ended 31 March 20x0

    $ $

    Revenue 18,300

    Cost of sales 13,200

    Gross Profit 5,100

    Less: Distribution costs 1,200

    Less: Administrative expense 1,000 (2,200

    2,900

    Other operating income 1,100

    Profit from operations 4,000

    Interest payable ( 600

    Profit for the year 3,400

    Other comprehensive income

    Gains on revaluation of property 200

    Total comprehensive income 3,600

    Profit attributale to:

    Owners of the Parent 3,100

    Non-controlling interest 300

    3,400

    Total comprehensive income

    attributable to:

    Owners of the Parent 3,250

    Non-controlling interest 350

    3,600

    )

    )

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    International Accounting Standards (IAS) Guidance: Terminology and Presentation

    4.7 Relevant international accounting standards

    4.8.1 IAS 8 - Accounting policies

    Accounting policies

    Accounting policies are specific principles, bases, conventions and practices used by an entity in preparingand presenting its financial statements. They explain the way a firm treats items within its financial

    statements.

    Changes in accounting policies

    Accounting policies should only be changed where a new accounting standard requires such a change or

    where the new policy will result in more relevant and reliable information being presented.

    Changes in accounting estimates

    An example of a change in accounting estimate is a change in the percentage used to estimate allowance

    for doubtful debts. The effect of the change is recognised in the income statement for the year in which

    the change takes place. Another example of a change in accounting estimate is a change in the useful

    economic life of an asset.

    Prior period errors

    A prior period error is where an error has occurred even though reliable information was available when

    those financial statements were authorised for issue. Examples are mathematical errors, mistakes in

    applying accounting policies, misinterpretation of facts and fraud.

    4.7.2 IAS 10 - Events after the reporting period

    IAS 10 with events that occur between the year-end date and the date the financial statements are

    authorised for issue by the directors. The events that occur are either adjusting events or non-adjusting

    events. Adjusting events are those that provide evidence about conditions that existed at the end of

    the reporting date. Non-adjusting events are those that are indicative of conditions that arose after the

    reporting date.

    4.7.3 IAS 11 Construction contracts

    There are minor differences between IAS 11 and SSAP 9, but they will not affect examination questions set

    at this level.

    4.7.5 IAS 20 - Government grants

    Grants must not be recognised until conditions have been complied with and there is reasonable

    certainty that the grant will be received (prudence). Government grants received must be matched with

    expenditure for which the grant is intended (accruals). This standard is not materially different from the

    equivalent UK standard.

    4.7.4 IAS 16 Accounting for property, plant andequipment

    IAS 16 deals with the recognition of non-current assets, initial measurement, subsequent measurementand depreciation. There are no major differences between IAS 16 and FRS 15, the equivalent UK standard.

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    4.7.6 IAS 37 - Provisions, contingent liabilities and assets

    A liability is an obligation of an entity to transfer economic benefits as a result of past transactions or

    events. A provision is a liability of uncertain timing or amount. A provision should be recognised when:

    A firm has a present obligation as a result of a past event. The obligation may be legal or constructive

    It is probable that an outflow of resources will be required to settle the obligation

    A reliable estimate can be made of the amount

    If a firm through its future actions can avoid an obligation, a provision cannot be set up

    Contingent liability

    If one or more of the conditions required for a provision is not met a contingent liability may exist. A

    contingent liability should be disclosed unless the possible outflow to meet the obligation is remote. If

    outflow of resources is remote do not disclose in the accounts.

    Contingent assets

    A contingent asset is a possible asset that arises from past events and whose existence will be confirmed

    only by the occurrence of one or more uncertain future events not wholly within the entitys control. Acontingent asset should be disclosed when the expected inflow of economic resources is probable.

    4.7.7 IAS 38 Intangible assets

    Intangible non-current assets are identifiable non-monetary assets that do not have a physical substance.

    IAS 38 deals with all intangible non-current assets, including development expenditure. Under SSAP 13

    development expenditure may be capitalised after certain conditions have been satisfied. However, under

    IAS 38, development expenditure must be capitalised after certain conditions have been satisfied.

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    Tel. +44 (0) 2476 518951Email. [email protected]

    www.lcci.org.uk

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