9/20/2019

ACCOUNTING
STANDARDS AND THE
CONCEPTUAL
FRAMEWORK

ACCOUNTING STANDARDS AND THE

CONCEPTUAL FRAMEWORK
• ACCOUNTING EQUATION
 ASSET – LIABILITY = EQUITY

Increase Decrease
Asset Debit Credit
Liability Credit Debit
Equity Credit Debit

ACCOUNTING STANDARDS AND THE

CONCEPTUAL FRAMEWORK
• ACCOUNTING BODIES
 FRC
 AASB
 IASB

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ACCOUNTING STANDARDS AND THE

CONCEPTUAL FRAMEWORK
• ACCOUNTING BODIES
 FINANCIAL REPORTING COUNCIL (FRC)
 AUSTRALIAN ACCOUNTING STANDARDS BOARD (AASB)
 INTERNATIONAL ACCOUNTING STANDARDS BOARD (IASB)

ACCOUNTING STANDARDS AND THE

CONCEPTUAL FRAMEWORK
• FINANCIAL REPORTING COUNCIL (FRC)
 UNDER THE AUSTRALIAN SECURITIES AND INVESTMENTS
COMMISSION ACT 2001 (ASIC ACT), THE FRC MUST
PROVIDE BROAD OVERSIGHT OF THE PROCESSES FOR
SETTING ACCOUNTING STANDARDS IN AUSTRALIA

ACCOUNTING STANDARDS AND THE

CONCEPTUAL FRAMEWORK
• AUSTRALIAN ACCOUNTING STANDARDS BOARD (AASB)
 UNDER THE ASIC ACT THE AASB MUST: (A) DEVELOP A
CONCEPTUAL FRAMEWORK, NOT HAVING THE FORCE OF AN
ACCOUNTING STANDARD, FOR THE PURPOSE OF
EVALUATING PROPOSED ACCOUNTING STANDARDS AND
INTERNATIONAL STANDARDS; AND (B) MAKE ACCOUNTING
STANDARDS UNDER SECTION 334 OF THE CORPORATIONS
ACT FOR THE PURPOSES OF THE CORPORATIONS
LEGISLATION

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ACCOUNTING STANDARDS AND THE

CONCEPTUAL FRAMEWORK
• INTERNATIONAL ACCOUNTING STANDARDS BOARD
(IASB)
 MISSION TO DEVELOP INTERNATIONAL FINANCIAL
REPORTING STANDARDS (IFRS) THAT WILL BE ADOPTED
GLOBALLY AND BRING TRANSPARENCY,
ACCOUNTABILITY AND EFFICIENCY TO FINANCIAL
MARKETS AROUND THE WORLD

ACCOUNTING STANDARDS AND THE

CONCEPTUAL FRAMEWORK
• CONCEPTUAL FRAMEWORK
 DEFINING ENTITIES THAT NEED TO PREPARE GENERAL
PURPOSE FINANCIAL REPORTS (GPFR)
 AN OVERALL OBJECTIVE FOR PREPARING GPFR
 DEFINITIONS OF BASIC QUALITATIVE CHARACTERISTICS
THAT FINANCIAL INFORMATION SHOULD HAVE

ACCOUNTING STANDARDS AND THE

CONCEPTUAL FRAMEWORK
• QUALITATIVE CHARACTERISTICS THAT FINANCIAL
INFORMATION SHOULD HAVE:
 RELEVANCE
 FAITHFUL REPRESENTATION

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ACCOUNTING STANDARDS AND THE

CONCEPTUAL FRAMEWORK
• BALANCE SHEET
 ASSET
 LIABILITY
 EQUITY

ACCOUNTING STANDARDS AND THE

CONCEPTUAL FRAMEWORK
• FURTHER CHANGES IN EQUITY
 APPROPRIATION OF PROFITS
 TRANSFER TO/FROM RESERVE
 DIVIDENDS

ACCOUNTING STANDARDS AND THE

CONCEPTUAL FRAMEWORK
• 4 MAIN FINANCIAL STATEMENTS:
 STATEMENT OF PROFIT AND LOSS AND OTHER
COMPREHENSIVE INCOME
 STATEMENT OF CHANGES IN EQUITY
 STATEMENT OF FINANCIAL POSITION
 STATEMENT OF CASH FLOWS

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ACCOUNTING FOR
INCOME TAX

ACCOUNTING FOR INCOME TAX

ACCOUNTING FOR INCOME TAX

• UNDER AASB112 THERE ARE TWO TYPES OF
DIFFERENCES:
 PERMANENT DIFFERENCES – WILL ALWAYS EXIST
UNLESS EITHER THE AASB OR ATO CHANGE THE RULES
 TEMPORARY DIFFERENCES – ONLY EXIST DUE TO A
DIFFERENCE IN TIMING AND WILL EVENTUALLY REVERSE

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ACCOUNTING FOR INCOME TAX

• TEMPORARY DIFFERENCES:
 THERE ARE NO DIFFERENCES BETWEEN ACCOUNTING
AND TAX WITH RESPECT TO THE AMOUNT RECOGNIZED
FOR COST OF SALES AND WAGES AND SALARIES
EXPENSES
 BOTH SETS OF RULES RECOGNIZED THESE
EXPENSES/DEDUCTIONS AT THE SAME AMOUNT

ACCOUNTING FOR INCOME TAX

• CURRENT TAX WORKSHEET

ACCOUNTING FOR INCOME TAX

• JOURNAL ENTRIES:

Debit Credit
Taxable Income Income Tax Expense Current Tax Liability
Tax Loss Deferred Tax Asset Income Tax Expense
Previous Tax Loss Income Tax Expense Deferred Tax Asset
Current Tax Liability

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Accounting for Income Tax

Assets
Beg Cash Rec / Exp
Rev /Cash paid End

Accounting for Income Tax

Liabilities
Rev /Cash paid Beg
End Cash Rec / Exp

Accounting Profit XXX

Add:
Expense XXX
Cash Received XXX
Non-deductible XXX XXX

Less:
Exempt Income (XXX)
Government Grant (XXX)
Revenue (XXX)
Cash Paid (XXX) (XXX)

Taxable Income XXX

CTL@30% XXX

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Accounting for Income Tax

CA-TB TB-CA
CA FTA FDA TB TTD DTD
Asset
Cash XX XX
AR CA Allow DD CA + Allow DD XX
Prepaid XX XX XX
PPE C - Acc Dep C - Acc Dep C - Tax Dep C - Tax Dep XX
TB-CA CA-TB
Liabilities
Provision XX (XX) XX
Rent received in advance XX (XX) XX

Total Temporary Differences XX XX

DTL (30%) XX
DTA (30%) XX
Beg Balances XX XX
Movement during the year XX
Increase/(Decrease) XX XX

ACCOUNTING FOR INCOME TAX

• DEFERRED TAX WORKSHEET:
 TB OF ASSET = CA + FTA – FDA
 TB OF LIABILITY = CA – FDA

• NOTE: THERE SHOULD BE NO P&L ACCOUNTS IN THE

DEFERRED TAX WORKSHEET

PROPERTY, PLANT &

EQUIPMENT

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PROPERTY, PLANT & EQUIPMENT

• INITIAL MEASUREMENT OF PPE:
 PURCHASE PRICE
 INITIAL ESTIMATE OF COST DISMANTLING, REMOVING
THE ITEM OR RESTORING THE SITE
 DIRECTLY ATTRIBUTABLE COST (DAC)

PROPERTY, PLANT & EQUIPMENT

• SUBSEQUENT MEASUREMENT OF PPE:
 DEPRECIATION
 DEPRECIATION EXPENSE
= (COST – RESIDUAL VALUE) / USEFUL LIFE
 REMEMBER TO PRO-RATE IF DEPRECIATION IS LESS THAN
A YEAR

PROPERTY, PLANT & EQUIPMENT

• SUBSEQUENT MEASUREMENT OF PPE:
 REVALUATION
 GAIN ON REVALUATION => FV > CA
 GAIN ON REVALUATION (OCI)
 LOSS ON REVALUATION => CA > FV
 LOSS ON REVALUATION (P&L)

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PROPERTY, PLANT & EQUIPMENT

• SUBSEQUENT MEASUREMENT OF PPE:
1. DEPRECIATION
2. REVALUATION (GAIN / LOSS)
3. NEW DEPRECIATION AMOUNT

PROPERTY, PLANT & EQUIPMENT

• PREVIOUS GAIN/(LOSS) OF PPE:
 GAIN (OCI) => LOSS (OCI) + LOSS (P&L) IF CURRENT
LOSS IS MORE THAN PREVIOUS GAIN
 LOSS (P&L) => GAIN (P&L) + GAIN (OCI) IF CURRENT
GAIN IS MORE THAN PREVIOUS LOSS
 IF OCI JOURNAL ENTRIES CREATED, THE AMOUNT NEED
TO BE TRANSFER TO ASSET REVALUATION SURPLUS
ACCOUNT

PROPERTY, PLANT & EQUIPMENT

• SUBSEQUENT MEASUREMENT OF PPE:
1. DISPOSAL / SALES OF ASSET
2. TRADE IN OF ASSET
3. ADDITION OF ASSET

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