NEW ZEALAND FINANCIAL ACCOUNTING

Transcription

1 J Q OOO####I i ' WWc #OOO####CI # «0O O0OQi###t i oi oo ###0 # i CRAIG DEEGAN / GRANT SAMKIN RMIT University University of Waikato NEW ZEALAND FINANCIAL ACCOUNTING The McGraw-Hill Companieii Sydney New York San Francisco Auckland Bangkok Bogota Caracas Hong Kong Kuala Lumpur Lisbon London Madrid Mexico City Milan New Delhi San Juan Seoul Singapore Taipei Toronto

2 CONTENTS Acknowledgments xix How to use this book XXIV About the authors xx E-student xxvi Preface xxii E-instructor xxvii PART 1 CHAPTER 1 THE NEW ZEALAND'ACCOUNTING ENVIRONMEIsIfl AN OVERVIEW OF THE NEW ZEALAND EXTERNAL REPORTING ENVIRONMENT 2 INTRODUCTION TO FINANCIAL ACCOUNTING Users' demand for general purpose financial statements Sources of external financial reporting regulation New Zealand's adoption of accounting standards issued by the International Accounting Standards Board 1.4 Structure of the International Accounting Standards Board 1.5 International cultural differences and the harmonisation of accounting standards The use and role of audit reports All this regulation is it really necessary? CHAPTER 2 THE CONCEPTUAL FRAMEWORK OF ACCOUNTING AND ITS RELEVANCE TO FINANCIAL REPORTING INTRODUCTION TO THE CONCEPTUAL FRAMEWORK OF ACCOUNTING AND ITS RELEVANCE TO FINANCIAL REPORTING What is a conceptual framework? The benefits of a conceptual framework Structure of the New Zealand Framework Current initiatives to develop a revised conceptual framework Building blocks of a conceptual framework Measurement principles Implications of convergence with IASB standards A critical review of conceptual frameworks The conceptual framework as a normative theory of accounting VI

3 PART 2 THEORIES OF ACCOUNTING CHAPTER 3 AN OVERVIEW OF THEORIES OF ACCOUNTING 74 INTRODUCTION TO ACCOUNTING THEORY Why discuss theories in a book such as this? Theory definition Positive Accounting Theory Accounting policy selection and disclosure Accounting policy choice and 'creative accounting' Some criticisms of Positive Accounting Theory Normative accounting theories Systems-oriented theories to explain accounting practice Theories that seek to explain why regulation is introduced Critical theory PART 3 ACCOUNTING FOR ASSETS CHAPTER 4 AN OVERVIEW OF ACCOUNTING FOR ASSETS 126 INTRODUCTION TO ACCOUNTING FOR ASSETS Definition of assets General classification of assets How to present a statement of financial position Determination of future economic benefits Acquisition cost of assets Accounting for property, plant and equipment an introduction Accounting for donated or subsidised assets Exchange of assets Expenditure maintaining the useful life of items of property, plant and equipment 4.10 Post-acquisition expenditure on non-current assets 4.11 Capitalisation of interest 4.12 Discovery of errors in prior period financial statements 4.13 Possible changes in the requirements pertaining to financial statement presentation VII

4 CONTENTS CONTINUED CHAPTER 5 DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT 168 INTRODUCTION TO ACCOUNTING FOR DEPRECIATION Depreciable amount (base) of an asset Determining useful life Methods of cost apportionment When to start depreciating assets Revision of depreciation rate and depreciation method Land and buildings 5.7 Modifying existing items of property, plant and equipment 5.8 Disposition of depreciable assets 5.9 Contractual implications of building depreciation 5.10 Depreciation as a process of allocating the cost of an asset over its useful life: further considerations 5.11 Disclosure requirements CHAPTER 6 REVALUATION AND IMPAIRMENT TESTING OF NON-CURRENT ASSETS 190 INTRODUCTION TO THE REVALUATION AND IMPAIRMENT TESTING OF NON-CURRENT ASSETS 6.1 Measuring property, plant and equipment at cost or at fair value The use of fair values 6.3 Revaluation increments 6.4 Treatment of balances of accumulated depreciation upon revaluation 6.5 Revaluation decrements 6.6 Reversal of revaluation decrements and increments 6.7 Accounting for gain or loss on the disposal of a revalued non-current asset 6.8 Impairment of assets 6.9 Determining the recoverable amount 6.10 Reversal of impairment losses 6.11 Offsetting increments/decrements within a class of non-current assets 6.12 Change in measurement base 6.13 Investment properties 6.14 Economic consequences of asset revaluations 6.15 Disclosure requirements v VIII

5 CHAPTER 7 ACCOUNTING FOR INVENTORIES 222 INTRODUCTION TO ACCOUNTING FOR INVENTORIES Definition of inventory The general basis of inventory measurement Inventory cost-flow assumptions Reversal of previous inventory write-downs Disclosure requirements CHAPTER 8 ACCOUNTING FOR INTANGIBLES 244 INTRODUCTION TO ACCOUNTING FOR INTANGIBLES Which intangible assets may be recognised and included in the statement of financial position? What is the initial basis of measurement of intangible assets? General amortisation requirements for intangible assets 8.4 Revaluation of intangible assets 8.5 Gain or loss on disposal of intangible assets 8.6 Required disclosures in relation to intangible assets 8.7 Research and development 8.8 Accounting for goodwill 8.9 Are the new approaches to accounting for intangibles an improvement? CHAPTER 9 ACCOUNTING FOR HERITAGE AND BIOLOGICAL ASSETS INTRODUCTION TO ACCOUNTING FOR HERITAGE AND BIOLOGICAL ASSETS 9.1 Accounting for heritage assets 9.2 Accounting for biological assets IX

6 CONTENTS CONTINUED CHAPTER 10 ACCOUNTING FOR LIABILITIES, PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS 324 INTRODUCTION TO ACCOUNTING FOR LIABILITIES 10.1 Classification of liabilities as current or non-current 10.2 Some implications of reporting liabilities 10.3 Debt equity debate 10.4 Accounting for debentures 10.5 Accounting for provisions, contingent liabilities and contingent assets 10.6 Accounting for contingent liabilities 10.7 Contingent assets 10.8 Hybrid securities CHAPTER 11 ACCOUNTING FOR LEASES 368 INTRODUCTION TO ACCOUNTING FOR LEASES 11.1 Interest rate for determining the present value of the minimum lease payments 11.2 Lessee accounting for finance leases Lessee accounting for operating leases 11.4 Lessee accounting for sale and leaseback transactions 11.5 Lessee disclosure requirements 11.6 Accounting by lessors 11.7 Lessor accounting for direct-financing leases Lessor accounting for lessors that are manufacturers or dealers of the leased asset 11.9 Lessor accounting for operating leases Leases involving land and buildings Lessee accounting for lease incentives under a non-cancellable operating lease Future changes in accounting for leases Implications for accounting-based contracts

7 CHAPTER 12 ACCOUNTING FOR EMPLOYEE ENTITLEMENTS INTRODUCTION TO ACCOUNTING FOR EMPLOYEE ENTITLEMENTS Overview of employee entitlements Categories of employee benefits Accounting for employee benefits Employees' accrued employee benefits and corporate collapses CHAPTER 13 CAPITAL AND RESERVES INTRODUCTION TO ACCOUNTING FOR CAPITAL AND RESERVES Different classes of shares Accounting for the issue of capital Accounting for distributions Redemption of shares Share repurchases The solvency test Forfeited shares Share splits and bonus issues Required disclosures for equity CHAPTER 14 ACCOUNTING FOR SHARE-BASED PAYMENTS INTRODUCTION TO ACCOUNTING FOR SHARE-BASED PAYMENT TRANSACTIONS Background to the release of NZ IFRS Overview of the requirements of NZ IFRS Equity-settled share-based payment transactions 14.4 Cash-settled share-based payment transactions 14.5 Share-based payment transactions with cash alternatives 14.6 Some possible economic implications of NZ IFRS Disclosure requirements XI

8 CONTENTS CONTINUED CHAPTER 15 ACCOUNTING FOR FINANCIAL INSTRUMENTS 506 INTRODUCTION TO ACCOUNTING FOR FINANCIAL INSTRUMENTS 15.1 Financial instruments defined 15.2 Set-off of financial assets and financial liabilities 15.3 Debt versus equity components of financial instruments 15.4 Recognition and measurement of financial instruments 15.5 Derivative financial instruments 15.6 Disclosure requirements Reference CHAPTER 16 INCOME AND REVENUE RECOGNITION ISSUES 566 INTRODUCTION TO ACCOUNTING FOR INCOME AND REVENUE Income and revenue recognition 16.2 Accounting for sales with associated conditions 16.3 Interest and dividends 16.4 Unearned revenue 16.5 Customer loyalty programs 16.6 Disclosure requirements 16.7 Accounting for construction contracts Reference CHAPTER 17 STATEMENT OF COMPREHENSIVE INCOME AND STATEMENT OF CHANGES IN EQUITY 604 INTRODUCTION TO THE STATEMENT OF COMPREHENSIVE INCOME 17.1 Profit and loss disclosure Statement of changes in equity Profit as a guide to an organisation's success Future changes in the requirements pertaining to how information1 about comprehensive income will be presented XII

9 CHAPTER 18 ACCOUNTING FOR INCOME TAXES INTRODUCTION TO ACCOUNTING FOR INCOME TAXES Balance sheet approach to accounting for tax Tax base of assets and liabilities: further considerations Deferred tax assets and deferred tax liabilities Changes in the tax rates Unused tax losses Transfer of tax losses Revaluation of assets Disclosure requirements Evaluation of the balance sheet approach Future changes in accounting for taxes CHAPTER 19 THE STATEMENT OF CASH FLOWS 686,686 INTRODUCTION TO THE STATEMENT OF CASH FLOWS Comparison with other financial statements Defining 'cash' and 'cash equivalents', Classification of cash flows Format of statement of cash flows Calculating cash inflows and outflows Contractual implications Potential future changes to the statement of cash flows , CHAPTER 20 EVENTS AFTER THE REPORTING PERIOD INTRODUCTION TO ACCOUNTING FOR EVENTS AFTER THE REPORTING PERIOD 20.1 Events after the reporting period 20.2 Dividends declared after the end of the reporting period 20.3 Going concern assumption 20.4 Disclosure requirements XIII

10 CONTENTS CONTINUED CHAPTER 21 SEGMENT REPORTING 746 INTRODUCTION TO SEGMENT REPORTING 21.1 An introduction to NZ IFRS Defining an operating segment Defining a reportable segment Measurement of segment items Required financial disclosures Reconciliation of segment information to financial statements Non-financial disclosures Is there a case for competitive harm? 768 CHAPTER 22 RELATED-PARTY DISCLOSURES 778 INTRODUCTION TO RELATED-PARTY DISCLOSURES NZ IAS 24 'Related Party Disclosures' Key management personnel disclosures under NZ IAS Examples of related-party disclosure notes 795 Reference CHAPTER 23 EARNINGS PER SHARE 798 INTRODUCTION TO EARNINGS PER SHARE 23.1 Computation of basic earnings per share 23.2 Diluted earnings per share XIV

11 CHAPTER 24 ACCOUNTING FOR GROUP STRUCTURES INTRODUCTION TO ACCOUNTING FOR GROUP STRUCTURES Rationale for consolidating the financial statements of different legal entities, Development of the accounting standard on consolidated financial statements 24.3 Alternative consolidation concepts 24.4 The concept of control 24.5 Direct and indirect control 24.6 Accounting for business combinations 24.7 Gain on bargain purchase 24.8 Subsidiaries' assets not recorded at fair values 24.9 Consolidation after date of acquisition Disclosure requirements CHAPTER 25 ACCOUNTING FOR INTRAGROUP TRANSACTIONS -' 872 INTRODUCTION TO ACCOUNTING FOR INTRAGROUP TRANSACTIONS Dividend payments pre-acquisition and post-acquisition Intragroup sale of inventory, Sale of non-current assets within the group 893 Key term CHAPTER 26 ACCOUNTING FOR NON-CONTROLLING INTERESTS INTRODUCTION TO ACCOUNTING FOR NON-CONTROLLING INTERESTS 26.1 What is non-controlling interest? 26.2 Non-controlling interests to be disclosed in the consolidated financial statements Calculating non-controlling interests XV

12 CONTENTS CONTINUED CHAPTER 27 ACCOUNTING FOR INDIRECT OWNERSHIP INTERESTS INTRODUCTION TO ACCOUNTING FOR INDIRECT OWNERSHIP INTERESTS 27.1 Indirect ownership interests 27.2 Direct and indirect ownership interests in a subsidiary 27.3 Sequential and non-sequential acquisitions CHAPTER 28 ACCOUNTING FOR CHANGES IN THE DEGREE OF OWNERSHIP OF A SUBSIDIARY 1012 INTRODUCTION TO ACCOUNTING FOR CHANGES IN THE DEGREE OF OWNERSHIP OF A SUBSIDIARY 28.1 Increase in the ownership interest held in a subsidiary after control has been obtained 28.2 Loss of control Key term CHAPTER 29 ACCOUNTING FOR EQUITY INVESTMENTS 1056 INTRODUCTION TO ACCOUNTING FOR EQUITY INVESTMENTS Why do firms make equity investments? Types of investments 29.3 Accounting standards for equity investments 29.4 Equity method of accounting 29.5 Applying the equity method of accounting 29.6 Losses incurred by an associate 29.7 Carrying amount of the investment in an associate 29.8 Disclosure requirements Reference XVI

13 CHAPTER 30 ACCOUNTING FOR INTERESTS IN JOINT VENTURES INTRODUCTION TO ACCOUNTING FOR INTERESTS IN JOINT VENTURES 30.1 Joint ventures defined 30.2 Jointly controlled operations 30.3 Jointly controlled assets * 30.4 Jointly controlled entities 30.5 Disclosure requirements 30.6 A new accounting standard on joint arrangements CHAPTER 31 ACCOUNTING FOR FOREIGN CURRENCY TRANSACTIONS 1110 INTRODUCTION TO ACCOUNTING FOR FOREIGN CURRENCY TRANSACTIONS 31.1 Foreign currency transactions 31.2 Determination of functional currency and presentation currency Longer term receivables and payables.' 31.4 Non-monetary items 31.5 Translation of other monetary assets such as cash deposits 31.6 Qualifying assets 31.7 Hedging transactions 31.8 Foreign currency swaps CHAPTER 32 TRANSLATING THE FINANCIAL STATEMENTS OF FOREIGN OPERATIONS INTRODUCTION TO TRANSLATING THE FINANCIAL STATEMENTS OF FOREIGN OPERATIONS Reporting foreign currency transactions in the functional currency 32.2 Changing the functional currency 32.3 Translating the financial statements of foreign operations into the presentation currency Consolidation subsequent to translation Disclosure requirements XVII

14 CONTENTS CONTINUED CHAPER 33 ACCOUNTING FOR CORPORATE SOCIAL RESPONSIBILITY 1176 INTRODUCTION TO ACCOUNTING FOR CORPORATE SOCIAL RESPONSIBILITY 33.1 Social and environmental reporting defined What are the responsibilities of business, to whom and for what? Regulation of public social and environmental reporting Limitations of traditional financial accounting Industry and government initiatives Other initiatives to assist corporate social and environmental performance Evidence of social and environmental reporting Social accounting and social auditing Assurance of social and environmental reports Diversity in reporting approaches Motivation for social and environmental reporting Stakeholder demands for, and reactions to, social and environmental information Linkage between social and environmental performance, financial risk and financial performance The growing importance of climate change issues Concluding remarks Appendix A Present value of $ Appendix B Present value of an annuity of $ Appendix C Calculating present values 1264 Appendix D New Zealand equivalents to International Financial Reporting Standards Glossary Index