Module 1: IFRS Framework & Software Initialization

Example: Materiality Assessment & Opening Balance Adjustment

Scenario: Company A is transitioning from local GAAP to IFRS on 1 January 2025. Profit
before tax for 2024 under local GAAP was $2,000,000. The company’s policy sets
materiality at 5% of profit before tax.

Step 1 – Calculate materiality threshold

Materiality = 5% × $2,000,000 = **$100,000**
Any error or adjustment larger than $100,000 must be corrected; smaller errors can be
ignored if immaterial.

Step 2 – Identify an adjustment needed for IFRS

Under local GAAP, a building was carried at cost $1,000,000 with accumulated
depreciation $200,000 → net book value $800,000.
Under IFRS (revaluation model), fair value of the building is $950,000.

Step 3 – Calculate the adjustment

Adjustment = IFRS carrying amount – Previous GAAP carrying amount
= $950,000 – $800,000 = $150,000 (increase)

Step 4 – Compare to materiality

$150,000 > $100,000 → material → must be recorded.

Step 5 – Software initialization journal entry (opening balance adjustment)

· Debit Building (Asset) $150,000

· Credit Revaluation Surplus (OCI) $150,000

The software will carry this revaluation surplus forward, and depreciation will be based
on the revalued amount.

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Module 2: Managing the Supply Chain (IAS 2 & IFRS 15)

Example: Inventory Cost, NRV Write‑down & Revenue Allocation

Part A – Inventory cost calculation (IAS 2)

Company B buys raw materials:

· Invoice price: $50,000

· Trade discount (10%): ($5,000)
· Freight in: $2,000
· Import duties: $1,500

Inventory cost = 50,000 – 5,000 + 2,000 + 1,500 = **$48,500**

(Per unit if 1,000 units = $48.50/unit)

Part B – Net realisable value (NRV) and write‑down

At year‑end, 500 units remain. Cost per unit = $48.50 → total cost = $24,250
Expected selling price per unit = $40
Costs to sell per unit = $5
NRV per unit = $40 – $5 = **$35**
Total NRV = 500 × $35 = $17,500

Write‑down = Cost – NRV = $24,250 – $17,500 = $6,750

Journal entry:

· Debit Inventory Write‑down Expense (COGS) $6,750

· Credit Inventory $6,750

Part C – Revenue allocation (IFRS 15)

Company sells a software licence + 1 year of support. Total price = $2,000. Stand‑alone
prices: licence $1,800, support $400 (total $2,200).

Allocate to licence = $1,800 × ($2,000 / $2,200) = $1,800 × 0.90909 = **$1,636.36**

Allocate to support = $400 × 0.90909 = $363.64

Revenue recognised at point of delivery for licence; support revenue recognised over
the year.

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Module 3: Fixed Assets & Depreciation (IAS 16)

Example: Depreciation calculation (straight‑line, units of production) and disposal

Scenario: Company C buys a delivery van on 1 January 2025.

· Cost = $60,000
· Residual value = $10,000
· Useful life = 5 years OR 200,000 km driven

Part A – Straight‑line depreciation

Depreciable amount = $60,000 – $10,000 = $50,000
Annual depreciation = $50,000 / 5 = **$10,000** per year
Monthly = $10,000 / 12 = $833.33

Journal each month:

· Debit Depreciation Expense $833.33

· Credit Accumulated Depreciation – Van $833.33

Part B – Units of production (for comparison)

Depreciation per km = $50,000 / 200,000 km = **$0.25 per km**
If in 2025 the van drives 35,000 km → depreciation = 35,000 × $0.25 = **$8,750**
(lower than straight‑line in this year)

Part C – Disposal after 3 years (straight‑line)

After 3 years, accumulated depreciation = 3 × $10,000 = $30,000
Net book value = $60,000 – $30,000 = $30,000
Sold for $35,000 cash on 31 December 2027.

Gain = $35,000 – $30,000 = $5,000

Disposal journal:

· Debit Cash $35,000

· Debit Accumulated Depreciation $30,000
· Credit Van (Asset) $60,000
· Credit Gain on Disposal (P&L) $5,000

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Module 4: Cash Management & Financial Operations

Example: Foreign currency revaluation & cash flow statement (indirect method)

Scenario: Company D (functional currency EUR) has a USD bank account. On 30

November, balance = $200,000. Exchange rate = 0.85 EUR/USD → €170,000. On 31
December, rate = 0.90 EUR/USD.
Part A – Foreign currency revaluation
New EUR value = $200,000 × 0.90 = €180,000
Unrealised gain = €180,000 – €170,000 = €10,000

Journal entry 31 December:

· Debit USD Bank Account €10,000

· Credit Foreign Exchange Gain (P&L) €10,000

Part B – Cash flow statement (indirect method) for the year

Extract from income statement & balance sheet:

· Net profit = €150,000

· Depreciation expense = €20,000
· Increase in accounts receivable = (€15,000)
· Increase in inventory = (€10,000)
· Increase in accounts payable = €8,000
· Unrealised FX gain (non‑cash) = (€10,000)

Cash from operations = Net profit + Depreciation – Increase in receivables – Increase in

inventory + Increase in payables – Unrealised FX gain
= 150,000 + 20,000 – 15,000 – 10,000 + 8,000 – 10,000 = €143,000

This is the cash generated from operating activities, excluding investing/financing.

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Module 5: Payroll & Human Resources (IAS 19)

Example: Payroll accrual, vacation liability, bonus accrual

Scenario: Company E has 10 employees. December payroll total = $40,000 (paid 10 Jan
next year). Each employee has 6 unused vacation days (daily wage $150). Bonus plan:
8% of profit exceeding $500,000. Year‑end profit = $620,000.

Part A – Salary accrual (December work)

· Debit Salaries Expense $40,000

· Credit Accrued Salaries Payable $40,000

Part B – Vacation liability (accumulating absences)

Total unused days = 10 × 6 = 60 days
Liability = 60 days × $150 = **$9,000**

· Debit Vacation Expense $9,000

· Credit Vacation Payable $9,000

Part C – Bonus accrual

Profit above threshold = $620,000 – $500,000 = $120,000
Bonus = 8% × $120,000 = $9,600

· Debit Bonus Expense $9,600

· Credit Bonus Payable $9,600

Total liability recognised at year‑end = $40,000 + $9,000 + $9,600 = $58,600.

All paid in January next year.

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Module 6: IFRS Reporting & Finalization

Example: Closing entries, deferred tax, EPS, comprehensive income

Scenario: Company F has the following trial balance before closing (extract):

Account Debit Credit

Revenue 800,000
Operating expenses 500,000
Depreciation 50,000
Interest expense 10,000
Retained earnings (1 Jan) 200,000
Dividends declared 30,000
Revaluation surplus (OCI) 40,000
Deferred tax liability ?

Tax rate = 25%. Temporary difference: Carrying amount of asset = $200,000, tax base =
$150,000 → taxable temporary difference = $50,000.

Part A – Deferred tax calculation

Deferred tax liability = $50,000 × 25% = **$12,500** (already exists; adjustment if
needed).

Part B – Net income

Net income = Revenue – (Op exp + Deprec + Interest) = 800,000 –
(500,000+50,000+10,000) = $240,000

Part C – Closing entries

1. Close revenue and expenses to Income Summary:

· Debit Revenue $800,000; Credit Income Summary $800,000
· Debit Income Summary $560,000; Credit Op exp $500k, Deprec $50k, Interest $10k
2. Close Income Summary to Retained Earnings:
· Debit Income Summary $240,000; Credit Retained Earnings $240,000
3. Close Dividends to Retained Earnings:
· Debit Retained Earnings $30,000; Credit Dividends $30,000

Ending retained earnings = 200,000 + 240,000 – 30,000 = $410,000

Part D – Basic EPS

Weighted average shares = 100,000
Basic EPS = $240,000 / 100,000 = **$2.40 per share**

Part E – Total comprehensive income

Net income = $240,000
Other comprehensive income = Revaluation surplus (new, not yet closed) = $40,000
Total comprehensive income = $240,000 + $40,000 = $280,000

Final statements:

· P&L shows $240,000 profit.

· Statement of changes in equity: beginning RE $200k + profit $240k – dividends $30k =
$410k; plus OCI $40k to other equity component.
· Balance sheet shows deferred tax liability $12,500.