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Tag Archives: Financial Reporting

Difference Between Functional Currency And Presentation Currency

A parent entity might have subsidiaries that are located in a foreign country. In many cases, the financial statements of the foreign subsidiary are prepared in the currency of the foreign country. In order for the financial statements of the foreign operation to be included in the consolidated financial statements of the parent entity , it is necessary to translate the foreign operation’s financial statements to the currency used by the parent entity for reporting purposes. Functional Currency And Presentation Currency Para 3 of IAS 21 notes that its two …

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Methods Of Cash Flow Statement

 The cash flow provides information on a company’s earnings and financial strength. Cash flow is particularly important for creditors and investors as well as shareholders of a company.  Cash Flow Statement is dealt in IAS 7. 1) Definitions of Cash flow Cash flow is the surplus of regular operating income over regular operating expenses. It thus provides the cash reserves that can be generated sustainably from the company’s operations in order to cover specific operating expenses. The cash flow quantifies the surplus, which results when the expenditure is deducted from …

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New Requirements For Reporting Under IFRS 7

A growing scope of design often has a downside also. With leasing, Mezzanine and Co. offer a variety of sources of financing in addition to the classic bank credit. However, the combination of different forms of debt financing and equity financing entails many risks for the company and the lenders. The new International Accounting Standards (IFRS 7), which oblige management to undertake systematic and open risk management, are to be remedied. The new regulations pose a growing challenge to finance and accounting. Reporting must be supplemented by information on the …

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Purpose Of Consolidated Financial Statements

The consolidated financial statements combine the financial statements of all the entities within a group. The entities in the group consist of two types; namely (a) parent and (b) subsidiary. There is only one parent in a group, which is the controlling entity. This means the entity that controls all other entities in the group is a parent.  All other entities (controlled entities) in the group are called subsidiaries. There are a number of prime reasons or purpose of consolidated financial statements as to why they are prepared. 1. In …

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How To Calculate Unrealised Profit In Inventory Consolidation

Do all transactions require adjustment entries for NCI? No, not all transactions require an adjustment entry for the Non-Controlling Interest (NCI) or Minority Interest calculation. Calculating Unrealised profit on inventory is a consolidation adjustment. The accounting adjusting entries for NCI require for those transactions which have the following characteristics: • After the transaction, the other party to the transaction (for two-company structures this is the parent) must have on hand an asset (e.g. inventory) on which the unrealised profit is accrued. • The transaction must result in the subsidiary recording …

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How To Present Non Controlling Interest In Consolidated FS

The Non Controlling Interest (NCI) is entitled to a share of consolidated equity because it is a contributor of equity to the consolidated group. Since, the consolidated equity is affected by profits and losses made in relation to transactions within the group, the calculation of the NCI is affected by the existence of intra-group transactions. In other words, the Non Controlling Interest (NCI) is entitled to a share of the equity of the subsidiary adjusted for the effects of profits and losses made on intra-group transactions. A parent shall present …

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IFRS 16 will Replace IAS 17 Leases – What are the Changes?

The introduction of IFRS 16 “Leases” will profoundly change the lease accounting rules with a potentially significant impact on the financial statements presented in accordance with IFRS. This standard is applicable from the beginning of January 2019 but early application of this standard is possible for entities adopting IFRS 15. Let us see the changes in standard and its future impact on the financial statements, positioning us lessee side. For the lessor, the consequences are limited. Why a new standard – IFRS 16? IAS 17 “Leases” published in 2003 based …

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Objectives Of The Statement of Cash Flows

statement of cash flows

Objectives Of The Statement of Cash Flows In Brief: The objective of a statement of cash flows is to present financial information about changes in the cash and cash equivalents of an entity during the period. It is classified into three activities. They are – operating activities, investing activities and financing activities. According to International Accounting Standards, cash equivalents are short term and highly liquid investments which are readily convertible into known amounts of cash and that are subject to an insignificant risk of changes in market value.  Cash equivalents …

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Importance of Cash Flow Statement to Investors

cash flow statement

Generally, all investors, creditors and other stakeholders of an entity want to get cash out of their investment. Therefore, information about an entity’s receipts and payments is of primary importance to such users of financial statements. The statement of cash flows  (otherwise cash flow statement) provides this information by reporting cash inflows and outflows classified into operating, investing and financing activities, and the net movement in cash and cash equivalents during the period. IAS 7 Statement of Cash Flows (otherwise cash flow statement) prescribes that a statement of cash flows …

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Debate On The Best Measurement Method for Assets And Liabilities

Best Measurement Method

The debate over the best measurement method for assets and liabilities is not a new one in the accounting arena. Discussions of the decision-usefulness of various models of current value accounting have occupied huge space pages in accounting journals and were the focus of the research of many institutes. Current accounting standards primarily rely on the use of historical cost but the use of fair values has become increasingly common in recent years, particularly with the focus on financial instruments. The standard setters hence decided that it was time to …

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