COMPREHENSIVE IFRS & IAS STUDY NOTES
(DETAILED EXAM GUIDE)
These notes provide full explanations, principles, recognition criteria, measurements, journal ideas,
and practical examples for deeper understanding and exam preparation.
IFRS 15 – Revenue from Contracts with Customers
This standard explains how and when revenue should be recognized. The aim is to show the
transfer of goods or services to customers in a faithful way that reflects the amount the entity
expects to receive.
Objective and Scope
• Applies to all contracts with customers except leases, insurance, and financial instruments.
• Ensures consistency in revenue recognition across industries.
Key Definitions
• Contract – agreement creating enforceable rights and obligations.
• Performance obligation – a promise to transfer goods or services.
• Transaction price – consideration expected to be received.
• Control – ability of the customer to direct the use of the asset.
Five-Step Model (Detailed)
• Step 1: Identify the contract and confirm collectability is probable.
• Step 2: Identify separate performance obligations.
• Step 3: Determine transaction price including variable consideration and discounts.
• Step 4: Allocate price based on stand■alone selling prices.
• Step 5: Recognize revenue when or as obligations are satisfied.
Recognition Methods
• Over time: long-term construction or services.
• Point in time: retail sales or delivery of goods.
Other Important Areas
• Contract assets and contract liabilities.
• Accounting for returns, warranties, and customer loyalty points.
• Significant financing components.
• Extensive disclosures required.
Example
• A company sells goods for 10,000 with 5% discount and expected returns of 500. Revenue =
9,000 after adjustments.
IAS 1 – Presentation of Financial Statements
This standard provides the overall framework for preparing financial statements and ensures that
they are comparable, reliable, and understandable.
Complete Set of Financial Statements
• Statement of Financial Position.
• Statement of Profit or Loss and Other Comprehensive Income.
• Statement of Changes in Equity.
• Statement of Cash Flows.
• Notes to the accounts.
Fundamental Assumptions
• Going concern – entity continues operating.
• Accrual basis – transactions recorded when they occur.
Presentation Principles
• Consistency of classification.
• Material items shown separately.
• No offsetting unless allowed.
• Comparative figures required.
Structure Rules
• Current vs non-current assets and liabilities.
• Minimum line items such as cash, inventory, PPE, revenue, expenses.
Disclosure Requirements
• Accounting policies.
• Judgements and estimates.
• Capital management information.
IAS 2 – Inventories
Inventories represent goods held for sale or used in production. The aim is to ensure inventories
are not overstated.
Recognition
• Recognize inventories as assets when future benefits are expected and cost can be measured.
Measurement Principle
• Lower of cost and net realizable value (NRV).
• NRV = selling price minus completion and selling costs.
Cost Components
• Purchase price, import duties, transport.
• Conversion costs: direct labour and production overhead.
• Other directly attributable costs.
Cost Formulas
• FIFO assumes earliest goods sold first.
• Weighted Average uses average cost.
• LIFO is not permitted.
Write-Downs
• If damaged or obsolete, reduce to NRV.
• Loss recognized in profit or loss immediately.
Example
• Cost 8,000, NRV 7,200 → report 7,200 and record 800 loss.
IAS 8 – Accounting Policies, Changes in Estimates and Errors
This standard guides how to choose policies and how to treat changes to maintain consistency.
Accounting Policies
• Specific principles and methods used in preparing statements.
• Choose IFRS-compliant policies and apply consistently.
Change in Accounting Policy
• Apply retrospectively.
• Restate comparative figures.
• Adjust opening retained earnings.
Change in Estimate
• Occurs when new information arises.
• Apply prospectively only.
• Examples include useful life or bad debt percentage.
Errors
• Arithmetic mistakes, fraud, or misuse of policy.
• Correct by restating previous periods.
• Full disclosure required.
IAS 16 – Property, Plant and Equipment (PPE)
PPE are long-term tangible assets used to generate income. Proper accounting ensures assets are
not overstated and depreciation is systematic.
Recognition Criteria
• Future economic benefits probable.
• Cost can be measured reliably.
Initial Measurement
• Purchase price.
• Import duties and taxes.
• Installation and testing costs.
• Directly attributable expenses.
Subsequent Measurement Models
• Cost model: cost less accumulated depreciation.
• Revaluation model: fair value less depreciation.
Depreciation
• Systematic allocation over useful life.
• Methods: straight-line, reducing balance, units of production.
• Review useful life annually.
Impairment and Derecognition
• Reduce carrying amount if impaired.
• Remove asset when disposed and record gain or loss.
Example
• Machine cost 100,000, life 5 years → annual straight-line depreciation = 20,000.
IAS 20 – Government Grants
This standard explains how government assistance should be recorded so that income is matched
with related costs.
Recognition Conditions
• Reasonable assurance conditions will be met.
• Grant will be received.
Types of Grants
• Income grants – recognized in profit or loss over related periods.
• Asset grants – reduce asset cost or treated as deferred income.
Measurement
• Recognize at fair value of assistance received.
Presentation Methods
• Deduct from expense or show separately as income.
Disclosure
• Nature, amounts, and unfulfilled conditions must be disclosed.
IAS 23 – Borrowing Costs
This standard explains whether interest on loans should be expensed or added to asset cost.
Borrowing Costs Include
• Interest on loans.
• Finance lease interest.
• Exchange differences treated as interest.
General Rule
• Expense borrowing costs immediately.
Capitalization Rule
• Capitalize costs directly attributable to qualifying assets.
• Qualifying assets take substantial time to prepare such as factories or bridges.
Capitalization Period
• Begin when expenditures and borrowing start.
• Suspend during interruptions.
• Stop when asset is ready for use.
Example
• Loan interest 2,000,000 used to build factory → add to cost of factory instead of expense.