BAC 200 Exam Sheet LA11-17 PDF

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BAC 200 – Exam Sheet Conceptual Framework – LA1 Contents Conceptual Framework – LA1 Conceptual Framework – LA1 Revenue from Contracts with Customers – LA3 Inventories – LA4 Inventories – LA4 Property, Plant and Equipment – LA5 Income Taxes – LA6 Income Taxes – LA6 Income Taxes – LA6 Impairment of As...

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BAC 200 – Exam Sheet Contents Conceptual Framework – LA1 ................................................................................................................. 2 Conceptual Framework – LA1 ................................................................................................................. 3 Conceptual Framework – LA1 ................................................................................................................. 4 Revenue from Contracts with Customers – LA3 ..................................................................................... 5 Inventories – LA4 .................................................................................................................................... 6 Inventories – LA4 .................................................................................................................................... 7 Property, Plant and Equipment – LA5..................................................................................................... 8 Income Taxes – LA6................................................................................................................................. 9 Income Taxes – LA6............................................................................................................................... 10 Income Taxes – LA6............................................................................................................................... 11 Impairment of Assets – LA7 .................................................................................................................. 12 Intangible Assets – LA8 ......................................................................................................................... 13 Intangible Assets – LA8 ......................................................................................................................... 14 Investment Property – LA9 ................................................................................................................... 15 Investment Property – LA9 ................................................................................................................... 16 Investment Property – LA9 ................................................................................................................... 17 Changes in Accounting Estimates and Errors – LA10............................................................................ 18

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Conceptual Framework – LA1 Asset Definition requirements: • Present economic resource An economic resource is a right(a) that has the potential to produce economic benefits(b) (a) A right can take many forms, including: -

Rights that correspond to an obligation of another party, for example: rights to receive cash and rights to receive goods or services. Rights that do not correspond to an obligation of another party, for example: rights over physical objects (for example PPE) and rights to use intellectual property.

(b) An economic resource could produce economic benefits for an entity by entitling or enabling them to, for example: -

Receive contractual cash flows or another economic resource. Produce cash inflows or avoid cash outflows. Receive cash or other economic resources by selling the economic resource. Extinguish liabilities by transferring the economic resource.

• Controlled by the entity An entity controls an economic resource if the entity has the present ability to direct the use of the economic resource and obtain the economic benefits that may flow from it. For an entity to control an economic resource, the future economic benefits from that resource must flow to the entity either directly or indirectly rather than to another party. Control of an economic resource usually arises from an ability to enforce legal rights. • As a result of past events The past event refers to the event that happened in the past that lead the entity to obtain control of the economic resource.

Recognition criteria: If an item meets the definition of an asset, it may only then be recognised if it provides users of financial statements with information that is useful, i.e.: • Relevant information Recognition of an asset may not provide relevant information if: -

An asset exists, but the probability of an inflow of economic benefits is low.

• Faithful representation -

Whether a faithful representation can be provided may be affected by the level of measurement uncertainty associated with the asset. Where there is an uncertainty about the measurement of the asset, reasonable estimates can be used and do not undermine the usefulness of the information if the estimates are clearly and accurately explained.

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Conceptual Framework – LA1 Liability Definition requirements: • Present obligation of the entity An obligation is a duty or responsibility that an entity has no practical ability to avoid. Obligations can arise because of a contract or legislation and are legally enforceable. Obligations can also arise from customary practices, published polices or specific statements these obligations are referred to as a constructive obligation. • To transfer an economic resource The obligation has the potential to require the entity to transfer economic resources to another party. For that potential to exist, it does not need to be certain, or even likely, that the entity will be required to transfer an economic resource. Obligations to transfer economic resources include, for example: -

obligations to pay cash. obligations to deliver goods or provide services.

• As a result of past events A present obligation exists as a result of past events only if: -

the entity has already obtained economic benefits or taken an action; and as a consequence, the entity will or may have to transfer an economic resource that it would not otherwise have had to transfer.

Recognition criteria: If an item meets the definition of a liability, it may only then be recognised if it provides users of financial statements with information that is useful, i.e.: • Relevant information Recognition of a liability may not provide relevant information if: -

A liability exists, but the probability of an outflow of economic benefits is low.

• Faithful representation -

Whether a faithful representation can be provided may be affected by the level of measurement uncertainty associated with the liability. Where there is an uncertainty about the measurement of the liability, reasonable estimates can be used and do not undermine the usefulness of the information if the estimates are clearly and accurately explained.

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Conceptual Framework – LA1 Expense Definition requirements: • • •

Decreases in assets, or increases in liabilities, that result in decreases in equity, other than those relating to distributions to holders of equity claims.

Recognition criteria: If an item meets the definition of an expense, it may only then be recognised if it provides users of financial statements with information that is useful, i.e.: • Relevant information Recognition of an expense may not provide relevant information if: -

An asset or liability exists, but the probability of inflow or outflow of economic benefits is low.

• Faithful representation -

Whether a faithful representation can be provided may be affected by the level of measurement uncertainty associated with the asset or liability. Where there is an uncertainty about the measurement of the asset or liability, reasonable estimates can be used and do not undermine the usefulness of the information if the estimates are clearly and accurately explained.

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Revenue from Contracts with C Customers ustomers – LA3 5 Step Revenue Model: 1. 2. 3. 4. 5.

Identify the contract. Identify the performance obligations in the contract. Determine the transaction price. Allocate the transaction price to the performance obligations in the contract. Recognise revenue when (or as) the entity satisfies a performance obligation.

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Inventories – LA4 Measurement Steps: 1) Determine the cost of inventories: Historical Cost: 1. Purchasing Costs: a. Purchase price of finished goods or raw materials. b. Import duties and other non-recoverable taxes. c. Transport costs. d. Handling costs. e. Other costs directly attributable to acquisition of inventory. f. LESS Trade discount, cash discount and settlement discount received. g. LESS Rebates. 2. Conversion Costs: a. Direct labour costs b. Production overhead costs (variable and fixed) 3. Other costs incurred in bringing inventories to their present location and condition: a. costs of designing products for a particular customer. b. borrowing costs relating to inventories where substantially long ageing periods are required. c. necessary storage costs in the production process.

2) Apply cost allocation techniques (and cost formulas)

3) Determine the net realisable value (NRV) NRV = Selling Price – Costs to make the sale 4) Record at lower of cost and NRV Journal Entry:

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Inventories – LA4 Flow of Costs in General Ledger

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Property, Plant and Equipm Equipment ent – LA5 PPE Note

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Income Taxes – LA6 Definitions: Normal income tax – levied on the income of a taxpayer. VAT – levied on the supply of goods and services by registered vendors, 15% rate. Capital gains tax (CGT) – levied on the transfer in ownership of assets. Companies include 80% of capital gains in income tax. Individuals include 40% of capital gains in income tax, first R40 000 is exempt. Dividend tax – 20% tax rate on dividends paid by resident and non-resident companies listed on the JSE. Estate duty – 20% tax levied on the transfer of wealth based on the value of a deceased’s assets. Donation tax – 20% tax on transfer of wealth from one person to another. Profit before tax (accounting profit) – This is the profit or loss shown in the SPLOCI before deducting tax expense. Taxable income / profit – Calculated for a period then the tax rate is applied to calculate current tax expense. Current tax – Income tax payable or recoverable after adjusting accounting profit. Payable on taxable income at 28%. This remains an estimate until final SARS tax assessment. Tax Year – End of February for individuals and entities. For companies and close corporations, the same as their financial year.

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Income Taxes – LA6 Calculation of Taxable Income PROFIT BEFORE TAX (PBT) EXEMPT AND NON-DEDUCTIBLE ITEMS (1) • Add Donations • Add Fines • Add Interest paid to SARS for late payment • Less Dividend received • Less Exempt Capital Gains (20%) TEMPORARY DIFFERENCES (2) ACC: Add depreciation TAX: Subtract wear & tear ACC: Subtract profit on sale TAX: Add recoupment ACC: Add loss on sale TAX: Subtract scrapping allowance ACC: Credit Loss Allowance: o Add increase amount; OR o Subtract decrease amount • TAX: Credit Loss Allowance: o Deduct Credit Loss Allowance Current Year x 25% o Add Credit Loss Allowance Previous Year x 25%

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Taxable Income (TI) Current Tax Expense

R XXX xx / (xx) xx xx xx (xx) (xx) xx / (xx) xx (xx) (xx) xx xx (xx) xx (xx) (xx) xx PBT – (1) – (2) (TI) x 28%

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Income Taxes – LA6 Recognition of tax expense and liability 1. Record provisional tax payments: 1st Provisional Payment – 6 months after commenced tax year, 50% of total tax payable. 2nd Provisional Payment – Towards end of reporting period, total tax payable LESS 1st payment.

2. Calculate taxable income and tax expense. 3. Record tax expense and total current tax payable @ year end

4. Submit tax return to SARS. 5. Receive tax assessment from SARS. 6. Calculate and record difference between FS and SARS.

7. Record penalties and interest

Included in other expenses. rd

8. Record 3 (final/top-up) payment (if necessary and only in following year)

9. Record refund from SARS (if applicable and only received in the following financial year)

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Impairment of Assets – LA7 PPE Note with Impairment Losses:

Profit before tax:

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Intangible Assets – LA8 Disclosure:

Other intangible assets note:

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Intangible Assets – LA8 Descriptive information below notes:

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Investment Property – LA9 Financial Statements Extracts: SFP

SPLOCI

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Investment Property – LA9 Investment Property Note: Fair Value Model:

Cost Model:

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Investment Property – LA9 Profit before tax:

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Changes in Accounting Estima Estimates tes and Errors – LA LA10 10 Profit before tax note: Disclosure requirements: 10. Nature of the change 11. Amount of the change in current period Current effect = New - Old 12. Effect of the change on future periods Future effect = New - Old

EXAMPLE LIMITED Notes for the year ended 31 December 20XX 3 – Profit before tax Profit before tax is stated after taking the following into account: Current Year (2021) Line item

R xxxx

Previous Year (2020) R xxxx

Change in accounting estimate: Included in Line item is a change in accounting estimate amounting to R xxxx. The (increase/decrease) in Line item is a result of (reason for change). The cumulative effect of the change in future periods is an (increase/decrease) in Line item of R xxxx.

Correction of prior period:...