377 / 488
366
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).