International Financial Reporting Standards (IFRS)
Core Concepts
A thorough understanding of IFRS as endorsed by the EU is essential. Focus on:
- IAS 1: Presentation of financial statements (fair presentation, going concern, accrual basis).
- IAS 2: Inventories (lower of cost and net realisable value).
- IAS 16: Property, plant and equipment (cost model vs. revaluation model, depreciation).
- IAS 36: Impairment of assets (recoverable amount, value in use, fair value less costs to sell).
- IAS 37: Provisions, contingent liabilities and contingent assets.
- IAS 38: Intangible assets (research vs. development phase).
- IFRS 9: Financial instruments (classification and measurement, expected credit losses).
- IFRS 15: Revenue from contracts with customers.
- IFRS 16: Leases (right-of-use asset and lease liability).
- IFRS 3: Business combinations (goodwill calculation).
Common Traps
- Development costs can be capitalised only if specific criteria are met; research costs are expensed.
- Revaluation surplus goes to OCI, not profit or loss.
- Impairment loss for a cash-generating unit is allocated pro rata to assets, but not to cash or inventories.
- Lease term includes extension options if reasonably certain to be exercised.
- Expected credit losses under IFRS 9 use a forward-looking approach.
Worked Example
A company has a machine with carrying amount BGN 500,000. Its fair value less costs to sell is BGN 450,000, and value in use is BGN 470,000. Recoverable amount = higher of the two = BGN 470,000. Impairment loss = 500,000 - 470,000 = BGN 30,000. Rule of thumb: Always compare carrying amount to recoverable amount (higher of FV less costs to sell and value in use).