Unit 12) IFRS 15: Revenue from Contracts with Customers

Definition:
IFRS 15 establishes the principles for reporting revenue from contracts with customers, recognizing
revenue to reflect the transfer of promised goods or services at the amount expected in exchange for
those goods or services​(Z Koppeschaar, J Rossou…).

Five-Step Revenue Model:

1. Identify the Contract: Ensure an agreement between two parties with enforceable rights and
obligations, covering specifics like payment terms and commercial substance.
2. Identify Performance Obligations: Determine distinct goods/services within the contract.
3. Determine the Transaction Price: Set the transaction price, accounting for any variable
considerations, time value of money, and non-cash considerations.
4. Allocate Transaction Price to Performance Obligations: Base allocation on the stand-alone
selling price of each performance obligation.
5. Recognize Revenue upon Satisfying Obligations: Recognize revenue either over time or at a
specific point, depending on when control is transferred​(Z Koppeschaar, J Rossou…)​(Z
Koppeschaar, J Rossou…).

Unit 17) IAS 37: Provisions, Contingent Liabilities, and Contingent Assets

Definitions:
IAS 37 defines:

● Provisions: Present obligations with probable outflow of resources, requiring reliable estimates.
● Contingent Liabilities: Possible obligations based on future events, disclosed but not recognized
in financial statements.
● Contingent Assets: Potential assets, recognized only when virtually certain​(Z Koppeschaar, J
Rossou…)​(Z Koppeschaar, J Rossou…).

Decision Tree Requirements for Recognizing Provisions:

1. Present Obligation from Past Event? If yes, proceed.

2. Probable Outflow? If yes, check if a reliable estimate can be made.
3. Reliable Estimate? Create a provision if possible, otherwise disclose as contingent liability.

Disclosure Requirements for Provisions:

Each category of provision should disclose nature, timing, and amount of uncertainty, with explanations
for expected outflows and assumptions​(Z Koppeschaar, J Rossou…).

Unit 10) IAS 8: Accounting Policies, Changes in Accounting Estimates, and Errors
Definition:
IAS 8 deals with selecting and applying accounting policies, handling changes in estimates, and
correcting errors. The goal is to ensure relevance and reliability in financial reporting​(Z Koppeschaar, J
Rossou…).

Key Requirements:

● Accounting Policies: Policies are based on standards or interpretations; changes are made only if
required by standards or if they provide more reliable, relevant information.
● Changes in Accounting Policies: Apply retrospectively unless impracticable. If a new standard
applies, follow its transitional provisions.
● Changes in Estimates: Apply prospectively to current and future periods, with disclosure on the
nature and impact on future periods.
● Correction of Errors: Apply retrospectively by restating prior-period statements as if the error
never occurred​(Z Koppeschaar, J Rossou…)​(Z Koppeschaar, J Rossou…)​(Z Koppeschaar, J
Rossou…).

Unit 16) IAS 10: Events after the Reporting Period

Definition:
IAS 10 addresses events occurring between the reporting period end and the financial statements’
authorization date, differentiating between adjusting and non-adjusting events​(Z Koppeschaar, J
Rossou…).

Event Types and Requirements:

1. Adjusting Events: Provide evidence of conditions that existed at the end of the reporting period.
These adjust the financial statements (e.g., insolvency of a debtor with existing financial issues).
2. Non-Adjusting Events: Indicative of conditions arising after the reporting period (e.g., natural
disaster affecting assets post-period). These do not adjust financial statements but are disclosed
if material​(Z Koppeschaar, J Rossou…)​(Z Koppeschaar, J Rossou…).

Specific Disclosure Issues:

● Dividends Declared Post-Reporting: Disclose in notes, as there is no liability at the reporting

date.
● Going Concern: If events indicate the going concern assumption no longer applies, the financial
statements need significant revision​(Z Koppeschaar, J Rossou…)​(Z Koppeschaar, J Rossou…)​(Z
Koppeschaar, J Rossou…).
Unit 12) IFRS 15: Revenue from Contracts with Customers

● Discussion Question:
Explain the importance of identifying performance obligations within a contract and how this
affects revenue recognition under IFRS 15.
Answer:
Identifying performance obligations is essential as it determines the timing and amount of
revenue recognized. Each distinct good or service promised in a contract is treated as a separate
performance obligation. Revenue is only recognized when control over the promised good or
service transfers to the customer, either over time or at a specific point, aligning revenue with
the actual performance. This ensures accuracy in reporting revenue that truly reflects the
entity's business activities as outlined by IFRS 15​(Z Koppeschaar, J Rossou…).
● Calculation Question:
Brit Ltd receives an advance payment of R7,972 for a product to be delivered in two years. The
market interest rate is 12%. Calculate the revenue recognition upon delivery after accruing
finance costs.
Solution Method:
1. Present Value (PV) and Future Value (FV) Calculation: Given PV=7,972PV =
7,972PV=7,972, i=12%i = 12\%i=12%, and n=2n = 2n=2 years, calculate FV:
FV=PV×(1+i)n=7,972×(1.12)2=10,000FV = PV \times (1 + i)^n = 7,972 \times (1.12)^2 =
10,000FV=PV×(1+i)n=7,972×(1.12)2=10,000
2. Accrued Finance Costs: Calculate finance costs for each year and recognize them until
the control transfers. By 31 Dec 2022, recognize full revenue at R10,000.
● Answer:
Total revenue recognized is R10,000 on product delivery after recognizing finance costs of R957
(Year 1) and R1,071 (Year 2)​(Z Koppeschaar, J Rossou…).

Unit 17) IAS 37: Provisions, Contingent Liabilities, and Contingent Assets

● Discussion Question:
Under what conditions is a provision recognized according to IAS 37? Discuss why future
operating losses do not meet the criteria for recognition.
Answer:
A provision is recognized if there is a present obligation from a past event, a probable outflow of
resources, and a reliable estimate can be made. Future operating losses are not recognized as
provisions because they do not arise from past events and do not create present obligations.
Recognizing such losses would prematurely impact financial statements, which violates IAS 37's
guidelines for reliable and present obligations​(Z Koppeschaar, J Rossou…)​(Z Koppeschaar, J
Rossou…).
● Calculation Question:
Charlie Ltd expects to incur R20 million for environmental restoration in 20 years. Calculate the
provision for environmental costs using a discount rate of 15%.
 Solution Method:
1. Discount the Future Cost: Using FV=20,000,000FV = 20,000,000FV=20,000,000, i=15%i =
15\%i=15%, and n=20n = 20n=20: PV=FV(1+i)n=20,000,000(1.15)20=1,222,006PV =
\frac{FV}{(1 + i)^n} = \frac{20,000,000}{(1.15)^{20}} =
1,222,006PV=(1+i)nFV​=(1.15)2020,000,000​=1,222,006
2. Finance Costs Over Time: Adjust the provision annually based on the discount rate.
● Answer:
Initial provision is R1,222,006, with finance costs accruing annually​(Z Koppeschaar, J Rossou…).

Unit 10) IAS 8: Accounting Policies, Changes in Accounting Estimates, and Errors

● Discussion Question:
Explain the difference between a change in accounting estimate and a correction of an error.
Provide examples to illustrate the treatment of each under IAS 8.
Answer:
A change in accounting estimate involves adjustments due to new information or developments
(e.g., useful life of an asset), and is applied prospectively. In contrast, an error correction
addresses mistakes in prior period financial statements and is applied retrospectively by
restating prior period financials. For instance, if an error in depreciation is discovered, past
financials are adjusted, but if the useful life estimate changes, future depreciation is updated​(Z
Koppeschaar, J Rossou…).
● Calculation Question:
Delta Ltd discovers that depreciation of R50,000 was understated in the prior year. How should
this be corrected in the current period under IAS 8?
Solution Method:
1. Retrospective Adjustment: Adjust prior-year financials, increasing accumulated
depreciation by R50,000.
2. Disclosure: Disclose the nature and amount of the error, along with its impact on
financials.
● Answer:
Adjust accumulated depreciation and retained earnings by R50,000​(Z Koppeschaar, J Rossou…).

Unit 16) IAS 10: Events after the Reporting Period

● Discussion Question:
Differentiate between adjusting and non-adjusting events after the reporting period and provide
examples of each.
Answer:
Adjusting events provide additional evidence of conditions that existed at the reporting date
(e.g., customer bankruptcy with known financial distress) and require adjustment in financial
statements. Non-adjusting events indicate conditions arising after the reporting date (e.g.,
natural disaster affecting assets post-period) and are disclosed if material but not adjusted in the
 financials​(Z Koppeschaar, J Rossou…).
● Calculation Question:
Assume a customer owing R500,000 declares bankruptcy after the reporting date. Given
indications of financial distress before year-end, should this amount be adjusted?
Solution Method:
1. Assessment of Financial Condition at Reporting Date: Determine if financial distress
was evident.
2. Adjusting Entry: If confirmed, adjust the receivable and recognize impairment.
● Answer:
Recognize a provision for impairment on the receivable as an adjusting event​(Z Koppeschaar, J
Rossou…).