IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

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Wiley IFRS: Practical Implementation Guide and Workbook

Required Advise Exuberance Corp. on the treatment of all the above items under IFRS I. Solution

In order to prepare the opening IFRS balance sheet at January I, 2004, Exuberance Corp . would need to make these adjustments to its balance sheet at December 3 1, 2003, presented under its previous GAAP: (a) lAS 38 does not allow advertising costs to be deferred whereas Exuberance Corp.' s previ ous GAAP allowed this treatment. Thu s, $ 1,000,000 of such deferred costs should be derecogni sed (expensed) under lFRS. (b) lAS 37 requires recognition of a provision for warranty but Exuberance Corp.'s previous GAAP did not allow a similar treatmen t. Thus, a provision for warranty of $200,000 should be recognised under lFRS . ; (c) lAS IOdoes not allow proposed dividends to be recognised as a liability; instead, under the lat– est revision to lAS 10, they should be disclosed in footnotes. Exuberance Corp.' s previous GAAP allowed proposed dividends to be treated as a current liab ility. Therefore, proposed dividends of $500,000 should be disclosed in footnotes. (d) lAS 16 requires all directly attributable costs of bringing an asset to its working condition for its intended use to be capitalized as part of the carryi ng cost of property, plant, and equipment. Thus $300,000 of architects' fees should be capitalized as part of (i.e., used in the measurement of) property, plant, and equipment under IFRS. 7. ACCOUNTING POLICIES IFRS I requires that in preparing an "o pe ning IFRS balance sheet," the "firs t-time ado pter" shall use the same ac co unting pol icies as it has used th rough out all period s presented in its firs t IFRS financ ia l sta teme nts . Furthermore, the St andard stipulates that tho se accounti ng poli ci es shall com– ply with each IFRS effec tive at the " report ing date" (exp lained below) for its fi rst IFRS financ ia l sta tements, except under certain circ umstances whe re in the entity cl aims targeted exemptions from retrospective application of IFRS or is p rohibited by IFRS to app ly IFRS retrospectively (bo th con– cep ts disc ussed later). In other words, a "first-time adopter" sh ould cons isten tly apply the same acc ounting poli cies throu ghout the pe riods pre sented in its fir st IFRS fina nc ia l sta tements , and these accounting poli cies sho uld be based on "la tes t ve rs io n of the IFRS" (rationa le fo r th is dis– cussed later) effective at the rep orting date. In case a new IFRS has been issued on the reporting date but it is not yet mandato ry to apply it, but entities are encouraged to apply it before the effe c– tive date, then the "fi rst-time ado pter" is permitted but not required to apply it. 8. REPORTING PERIOD "Re po rting date" fo r an entity's firs t IFRS fi nancial stateme nts re fers to the end of the latest period covered by the annua l fi na ncial sta tements or int erim fina nc ial stateme nts , if any, tha t the ent ity presents under lAS 34 for the period covered by its fir st IFRS fin anc ial st atem ents. Example 1 Brilliant Corp. presents its fir st annual fi nancial statements under IFRS for the calendar year 2005. The statements include an explicit and unreserved statement of compliance with IFRS in the foo tnotes. Brilliallt Corp. also presents full comparative financial information f or the calendar year 2004. In this case, the latest period covered by these annual finan cial statements would end on December 31, 2005. and the "reporting date " fo r the purposes of IFRS 1 is December 31, 2005 (presuming the entity does not present interim fi nancial statements under lAS 34 fo r the calendar year 2005). Example 2 Alternatively, if Brilliant Corp. decides to present its fi rst 1 FRS interim financ ial statements fo r the six months ended June 30. 2005. in addition to the first 1FRS annual finan cial statements for the year ended December 31,2005, the "reporting date" may no longer be December 31,2005; it is dependent on how the interim fi nancial statements are prepared. If the interim financia l statements for the six months ended June 3D, 2005, were prepared in accordance with lAS 34, then the "reporting period " would be June 30, 2005 (instead of December 31,2005). If, however. the interim fi nancial statements fo r the six months ended June 3D, 2005, were not prepared in accordance with lAS 34. then the reporting date would continue to be December 31,2005 (and not June 30,2005).