Ifrs All About Debit and Credit

IFRS
All about Debit and

Credit By
CS. Rajkumar S Adukia
B.Com(Hons.) FCA, ACS, MBA, AICWA, LLB ,Dip
IFRS(UK) DLL& LW
rajkumarfca@gmail.com
www.carajkumarradukia.com
09820061049/09323061049
www.carrajkumarradukia.com 1
ATTITUDE
“He is able ,who

thinks he is
PAUL CATTS able.”-Buddha
www.carajkumarradukia.com 2
“Not much happens without a
dream. And for something great
to happen, there must be a great
dream.” – Robert Greenleaf
( ICSI Journal – July 2011)
Agenda of our Session
 We will study about IFRS GAAP/I GAAP
 MY DREAM FOR THIS SESSION Make IFRS
as a whole very very simple for all of us
 Overview /principles of IFRS
 Making clear the practical application of IFRS
 The whole gamut on IFRS
 How to get work on IFRS
Professional Opportunities in
IFRS
1. Consultation
2. Convergence in 123 countries
3. Internal audit of Convergence
4. Training India/abroad
5. Writer of Technical Material
6. Training for IPSAS in UN bodies and other NPO
7. Research work for various trade bodies like
IBA/IRDA/RBI
8. To become Trustees or assist other countries
5
CONCEPTS IN IFRS
 It is a GAAP
 There can be 192 GAAP or more
 IFRS is global GAAP
 We can compare with FEMA or FERA ,
Income tax Act ,1961 or Direct tax code etc.
What is IFRS?
IFRS Defined in (IAS 1.7, IAS 8.5 ,IFRS 1 Appendix
A)
Standards and Interpretations adopted by the International
Accounting Standards Board (IASB). They comprise
 International Financial Reporting Standards
 International Accounting Standards; and
 Interpretations developed by the International Financial
Reporting Interpretations Committee (IFRIC) and
 Former Standing Interpretations Committee (SIC)
IFRS Complete Literature
Three groups
 Preface , Conceptual Framework & Glossary
 IFRS Foundation Constitution, due process

Handbook of IASB & due process Handbook
of IFRS Interpretation Committee
 65 IFRSs PLUS SME IFRS
Working of IASB
Approves trustees
IFRS
Monitoring
foundation
Board Reports to
Monitors appoints
appoints Reviews
effectiveness
Informs funds
IFRS advisory IFRS

committee IASB interpretation
committee
creates
Creates
IFRS
9
Accounting
 Accounting consists of two things Systems and
methods -systems are of two types
 Single entry book keeping/double entry book keeping
 Method of accounting Cash, Accrual, Mixed
 1494 Italian Economist Luca Pacioli introduced
double entry principals
 Every debit has to have equal credit
 Fair value baring bank 1995 Nick (nicholas) Leeson
Principles of Accounting
 All account heads have to fall in 3 types
 Personal, Real and Nominal
 Golden Rules
 Personal -Debit the Receiver , Credit the Giver
 Real -Debit what comes in, Credit what goes out
 Nominal -Debit all expenses and losses, Credit all

gains and income
Major principles of IFRSs
Type of asset / liability Initial Measurement Subsequent measurement
Inventories IAS 2 Cost Lower of cost and net
realizable value
Property, Plant and Equipment Cost Cost model or revaluation
IAS 16 model
Investment property Cost Fair value model or cost model
IAS 40
Intangible assets Cost Cost model or revaluation
IAS 38 model
Exploration and Evaluation of Cost Cost model or revaluation
mineral assets model
IFRS 6
Non Monetary Government Fair Value or Nominal Value Fair Value or Nominal Value
grants IAS 20
Non-current assets held for sale lower of carrying value and lower of carrying value and
& Disposal groups fair value less costs to sell fair value less costs to sell
IFRS 5
Biological Assets Fair value Fair value less costs to sell
IAS 41 www.carajkumarradukia.com 12
Measurement of Financial Assets
Nature of Financial Initial recognition Subsequent

Assets measurement
Held for trading At fair value At fair value (through
profit or loss)
Available for sale At fair value plus directly At fair value (through
attributable transaction equity)
costs
Held to maturity At fair value plus directly At amortised cost
attributable transaction
costs
Loans and Receivables At fair value plus directly At amortised cost
attributable transaction
costs
Measurement of Financial Liability
Nature of Financial Initial recognition Subsequent measurement
Liability
Financial liabilities at fair At fair value directly At fair value
value through profit and attributable transaction cost
loss includes derivative is charged to profit and loss
liability account
Financial liability arising Measured at amortised cost
out of continuing or fair value
involvement asset
Financial guarantee Higher of the
contract less cumulative 1.Amount initial
amortisation recognised recognition
2.Valuation as per IAS 37
Other financial liabilities At fair value directly At amortised cost

including debentures, attributable transactions
bonds, preference shares cost is included in the fair
classified as valuewww.carajkumarradukia.com 14
14
Components of Financial Statements
 IAS 1 defines a complete set of Financial Statements to be

comprised of the following:
1. a statement of financial position as at the end of the period
2. a statement of comprehensive income for the period;
3. a statement of changes in equity for the period;
4. a statement of cash flows for the period;
5. notes, comprising a summary of significant accounting policies and
other explanatory information; and
6. a statement of financial position as at the beginning of the earliest
comparative period when an entity applies an accounting policy
retrospectively or makes a retrospective restatement of items in its
financial statements, or when it reclassifies items in its financial
statements
15
Elements of Financial Statements
 The elements of financial statements
 Financial position – assets, liabilities and equity
 Performance – income, expense
 Income – Revenue and gains
 Revenue - sales, fees, interest, dividends, royalties
and rent
 Gains – disposal of non current assets, revaluation of
marketable securities, unrealised gains
16
Assets
 Conceptual Framework for financial reporting
 Definition 4.4(a)
 An asset is a resource controlled by the entity as a
result of past events and from which future
economic benefits are expected to flow to the
entity .
17
Liability
4.4(b)
 Definition – A present obligation of the entity
arising from past events, the settlement of
which is expected to result in an outflow from
the entity of resources embodying economic
benefits
18
Income
4.25(a)
 Definition-
 Income is increases in economic benefits during
the accounting period in the form of inflows or
enhancement of assets or decreases of liabilities
that result in increases in equity other than those
relating to contributions from equity participants.
19
Expenses
4.25(b)
 Definition – Decreases in economic benefits
during the accounting period in the form of
outflows or depletions of assets or incurrence
of liabilities that result in decreases in equity,
other than those relating to distributions to
equity participants.
20
Elements of Financial Position
 4.4(c) Equity is the residual interest in the
assets of the entity after deducting all the
liabilities
 There is no IFRS on equity
21
Measurement of Elements of
Financial Statements
 4.55 (a) Historical Cost
(b) Current Cost
(c) Realisable Value ( Settlement)
(d) Present Value
22
Fair Value Measurement – IFRS
13
 The IFRS explains how to measure fair value
for financial reporting.
 Some IFRSs require or permit entities to
measure or disclose the fair value of assets,
liabilities or their own equity instruments.
 Fair value is a market-based measurement, not
an entity-specific measurement.
Barings Bank
 Barings Bank - 1762 to 26th February 1995
 ING, a Dutch bank, purchased Barings Bank in 1995
for the nominal sum of £1and assumed all of Barings'
liabilities, forming the subsidiary ING Barings
 The bank lost £827 million ($1.3 billion) the loss is
twice the banks available trading capital
 It was due to speculative investing, primarily in
futures contracts, at the bank's Singapore office.
 Nick Leeson Key Personnel in the Baring Bank (Born
on 25thFebruary 1967 ) (age 44)
24
PPE
 Asset Value Rs.100,00,000
 Depreciation SLM over a period of 5 years
 At the end of the 4th year it was re-determined
at a further period of 5 years
 Carrying amount of Rs.40,00,000 will be
depreciated at Rs.8,00,000 every year for the
next 5 years
Depreciation A/c Dr 8,00,000
To PPE A/c 8,00,000
Financial Instruments
 A Ltd holds Glaxco Ltd shares purchased at
Rs.50,000
 A Ltd sell the shares to B Ltd.
 The Investment has been sold for Rs.5,00,000
 Fair Value on the date of Sale is Rs.13,00,000
How do we account for the same?
A/c Entry in A Ltd
Initial Measurement
Fair Value on the date of purchase is
Rs.1,00,000
Shares in Glaxco Ltd A/c Dr 1,00,000

To Bank A/c 50,000
To Gain on Purchase 50,000
A/c Entry in A Ltd
 On the date of sale - Revision of Fair Value at
Rs.13,00,000

To Mark to Fair Value 12,00,000
Bank A/c Dr 5,00,000

Loss on Sale Dr 8,00,000
To Shares in Glaxco Ltd A/c 13,00,000
A/c Entry in B Ltd
On the date of purchase

To Bank A/c 5,00,000
To Gain on Purchase 8,00,000
Agriculture – IAS 41
Purchase of Livestock
 Fair Value – 6000
 Purchase Cost 500
Livestock A/c Dr 6000

To Bank 500
To Gain on Purchase 5500
( Measurement is at fair value under IAS 41)
Income Taxes – IAS 12
An entity’s PPE Carrying Value – Rs.10,00,000
Revalued at Rs.15,00,000
Rate of Tax 20%
What is the Deferred Tax Liability and the entry
to be passed?
Income Tax
 Carrying Value is Rs.15,00,000 after
revaluation.
 Tax Liability – 20%*( 15,00,000-10,00,000)
 Deferred Tax Liability is Rs.1,00,000
Income Tax
PPE A/c Dr Rs.5,00,000

To Revaluation Surplus A/c Rs.5,00,000
Revaluation Surplus A/c Dr Rs.1,00,000

To Deferred Tax Liability A/c Rs.1,00,000
Business Combination
Complete merger by payment - Purchase of
Business
 Fixed Assets 5 crores
 Current Assets – 3 crores
 Current Liabilities - 2 crores
 Contingent Liabilities 1 crores
 Payment made 4 crores
 Fair Value of Fixed Assets – 4.5 crores
Journal Entry for purchase of business
Non Current Assets A/c Dr 4.5cr
Current Assets A/c Dr. 3cr
To Current Liabilities A/c 2cr
To Contingent Liabilities A/c 1cr
To Bank A/c 4cr
To Gain on Purchase .5cr
 Future liability of Rs.1crore to be paid to the buyer
after two years
Non Current Assets A/c Dr 4.5cr
Current Assets A/c Dr 3cr
Goodwill A/c Dr .5cr
To Long Term Liability A/c 1cr
To Current Liability A/c 2cr
To Contingent Liability A/c 1cr
To Bank A/c 4cr
Few other examples
 Customer loyalty programmes
 Service concession arrangements
 Part of an item accouting IAS 16.43
 Cost model /revaluation model
 Concept of financial instrument
 Conceptual framework
 Unwinding of interest
 Present value sales, liabilities
HOW TO GET WORK
 HAVE A DREAM THAT YOU ARE
GLOBAL PRACTITIONER
 PROJECT YOURSELF
 WRITE ARTICLE IN CHAMBER
PERIODICALS,BUSINESS
NEWSPAPER,ETC
 ADDRESS ON THE SUBJECT
 TALK ABOUT IT
 WWW
Questions/ Suggestions/
Comments???
39
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IFRS

All about Debit and

“He is able ,who

 IFRS Foundation Constitution, due process

IFRS advisory IFRS

 Nominal -Debit all expenses and losses, Credit all

Nature of Financial Initial recognition Subsequent

Other financial liabilities At fair value directly At amortised cost

 IAS 1 defines a complete set of Financial Statements to be

 The Investment has been sold for Rs.5,00,000

 Fair Value on the date of Sale is Rs.13,00,000

How do we account for the same?

Shares in Glaxco Ltd A/c Dr 1,00,000

Shares in Glaxco Ltd A/c Dr 12,00,000

Bank A/c Dr 5,00,000

Shares in Glaxco Ltd A/c Dr 13,00,000

 Purchase Cost 500

Livestock A/c Dr 6000

PPE A/c Dr Rs.5,00,000

Revaluation Surplus A/c Dr Rs.1,00,000

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