The International Accounting Standards Board (IASB) has published its revised 'Conceptual Framework

for Financial Reporting'. Included are revised definitions of an asset and a liability as well as new
guidance on measurement and derecognition, presentation and disclosure. The new Conceptual
Framework does not constitute a substantial revision of the document as was originally intended when
the project was first taken up in 2004. Instead the IASB focused on topics that were not yet covered or
that showed obvious shortcomings that needed to be dealt with.

The Conceptual Framework had been left largely unchanged since its inception in 1989. In 2004, the
IASB and the FASB decided to review and revise the conceptual framework, however, changed priorities
and the slow progress in the project led to the project being abandoned in 2010 after only Phase A of
the original joint project had been finalised and introduced into the existing framework as Chapters 1
and 3 in September 2010. Phase D saw the publication of a discussion paper and an exposure draft but
was never finalised. The Boards discussed Phases B and C quite extensively without any consultation
document ever being issued, and Phases E to H largely remained untouched.

During the 2011 agenda consultation many participants called for the IASB to reactivate and finalise the
conceptual framework project given the multitude of open conceptual issues it is facing in many of its
current projects. As a result, the IASB officially added the project to its agenda again in September 2012,
this time as an IASB-only project and no longer aimed at a substantial revision of the framework but
focused on those topics that are not yet covered (e.g. presentation and disclosure) or that show obvious
shortcomings that need to be dealt with. As a first step, a Discussion Paper covering all aspects of the
framework project was published in July 2013, followed by a comprehensive Exposure Draft in May
2015.

The IASB bases its financial reporting standards on the conceptual framework that it adopted in 2010.
The conceptual framework was developed by IASB and it lays down the basic concepts and principles
that act as the foundation for preparation and presentation of the financial statements. The framework
is also used as guide to develop / improve standards and to resolve any accounting conflicts. Note that
the conceptual framework is not an accounting standard in itself and cannot be used as an alternative to
the financial reporting standards applicable in your country.

Question 1
A) The first section notes that the Conceptual Framework's purpose is to assist the IASB in
developing and revising IFRSs that are based on consistent concepts, to help preparers to
develop consistent accounting policies for areas that are not covered by a standard or where
there is choice of accounting policy, and to assist all parties to understand and interpret IFRS. It
maintains that the framework does not override any specific IFRS. Should the IASB decide to
issue a new or revised pronouncement that is in conflict with the framework, the IASB will
highlight the fact and explain the reasons for the departure in the basis for conclusions.
 The primary purpose of the Conceptual Framework was to assist the IASB in the
development of future IFRSs and in its review of existing IFRSs  

 The Conceptual Framework may also assist preparers of financial statements in developing
accounting policies for transactions or events not covered by existing standards  

 In rare cases, the IASB might need to issue a new or revised IFRS that conflicts with some
aspects of the Conceptual Framework. If so, the IASB would need to describe and explain that
departure from the Framework in the basis for conclusions on the IFRS?
 B)
According to the Framework of IAS/IFRS, the underlying assumptions for the preparation of financial
statements are:

Accrual basis The financial statements are prepared under the accrual basis. According to accrual basis
of accounting, the effects of transactions and other events are recognized when they occur and not
when the cash is received or paid. In other words, the transactions are recorded in the books of
accounts when they occur and not when the cash is received or paid. It is opposite to cash basis of
accounting.

Going concern basis The financial statements are prepared under the going concern basis. Under going
concern basis, it is assumed that the enterprise will continue in operation for the foreseeable future,
and the enterprise has neither the intention nor the need to liquidate or curtail materially the scale of its
operations.

There are two fundamental assumptions underlying the financial statements: Going Concern, and
Accruals.

Going Concern: Here the idea is that the business will continue to operate for the forceable future. This
is a really important assumption because if it was so that the business will close by the end of the year,
then all the assets will have to be sold and their sale value would have to be recorded in the books.
However, this is not the case and businesses use their assets and resources for many years.

Accruals: The second important assumption is the accrual principal according to which we match any
income and expenses to the period in which they were earned or incurred not in the period in which the
payment was received or made.

C)
The concepts of capital maintenance are used in IAS 29 Financial Reporting in Hyperinflationary
Economies. Concepts of capital maintenance are important as only income earned in excess of amounts
needed to maintain capital may be regarded as profit. The existing Conceptual Framework describes the
following concepts of capital maintenance:
(a) Financial capital maintenance. Under this concept a profit is earned only if the financial (or money)
amount of the net assets at the end of the period exceeds the financial (or money) amount of net assets
at the beginning of the period, after excluding any distributions to, and contributions from owners
during the period. Financial capital maintenance can be measured in either nominal monetary units or
units of constant purchasing power.
(b) Physical capital maintenance. Under this concept a profit is earned only if the physical productive
capacity (or operating capacity) of the entity (or the resources or funds needed to achieve that capacity)
at the end of the period exceeds the physical productive capacity at the beginning of the period, after
excluding any distributions to, and contributions from owners during the period.

The IASB note that the concepts of capital maintenance are most relevant for entities operating in high
inflation economies. The IASB plans to undertake research to determine whether to revise IAS 29.
Consequently, the IASB believes that the issues associated with capital maintenance are best dealt with
at the same time as a possible standards level project on accounting for high inflation rather than as part
of the Conceptual Framework project. 5. Hence, the IASB plans to include the existing descriptions and
discussion of capital maintenance concepts in the revised Conceptual Framework largely unchanged
until such time as any standards level project on accounting for high inflation indicates a need for
change.
D)
The two fundamental characteristics that make financial information useful are relevance and faithful
representation.2
Financial statements are relevant if they contain information that can influence economic decisions or
affect evaluations of past events or forecasts of future events.
Information that is faithfully representative is complete, neutral (absence of bias), and free from error.
Four characteristics enhance relevance and faithful representation: comparability, verifiability,
timeliness, and understandability.
 Comparability. Financial statement presentation should be consistent among firms and across
time periods.
 Verifiability. Independent observers, using the same methods, obtain similar results.
 Timeliness. Information is available to decision makers before the information is stale.
 Understandability. Users with basic business knowledge should be able to understand the
statements.
E)
Materiality, in accounting terms, assumes the significance that certain facts or data have in the
decision making of a reasonable user, and how their inclusion or omission within the financial
statements will have consequences in the evaluation of past, present and future events. Materiality is
the most important concept in financial reporting. Its application impacts on decisions such as how an
entity should recognise, measure and disclose specific transactions and information in the financial
statements; whether misstatements require correction; and whether assets and liabilities or items of
income or expense should be separately presented. Indeed, most definitions of the fundamental
concepts of “true and fair” or “present fairly” revolve around financial information being materially
correct. Where information that is required by a financial reporting standard is omitted or misstated and
such information is deemed material, those financial statements cannot then be said to achieve a fair
presentation or give a true and fair view.

Question 2
A)
IFRS 1 First-time Adoption of International Financial Reporting Standards sets out the procedures that an
entity must follow when it adopts IFRSs for the first time as the basis for preparing its general purpose
financial statements. The IFRS grants limited exemptions from the general requirement to comply with
each IFRS effective at the end of its first IFRS reporting period.

A restructured version of IFRS 1 was issued in November 2008 and applies if an entity's first IFRS
financial statements are for a period beginning on or after 1 July 2009.
A first-time adopter is an entity that, for the first time, makes an explicit and unreserved statement that
its general purpose financial statements comply with IFRSs. [IFRS 1.3]
An entity may be a first-time adopter if, in the preceding year, it prepared IFRS financial statements for
internal management use, as long as those IFRS financial statements were not made available to owners
or external parties such as investors or creditors. If a set of IFRS financial statements was, for any
reason, made available to owners or external parties in the preceding year, then the entity will already
be considered to be on IFRSs, and IFRS 1 does not apply. [IFRS 1.3]
An entity can also be a first-time adopter if, in the preceding year, its financial statements [IFRS 1.3]
asserted compliance with some but not all IFRSs, or included only a reconciliation of selected figures
from previous GAAP to IFRSs. (Previous GAAP means the GAAP that an entity followed immediately
before adopting to IFRSs.)
However, an entity is not a first-time adopter if, in the preceding year, its financial statements asserted:
Compliance with IFRSs even if the auditor's report contained a qualification with respect to conformity
with IFRSs. Compliance with both previous GAAP and IFRSs.
An entity that applied IFRSs in a previous reporting period, but whose most recent previous annual
financial statements did not contain an explicit and unreserved statement of compliance with IFRSs can
choose to apply the requirements of IFRS 1 (including the various permitted exemptions to full
retrospective application), or retrospectively apply IFRSs in accordance with IAS 8 Accounting Policies,
Changes in Accounting Estimates and Errors, as if it never stopped applying IFRSs. [IFRS 1.4A]

B)
Since IAS 1 requires that at least one year of comparative prior period financial information be
presented, the opening statement of financial position will be 1 January 2013 if not earlier. This would
mean that Prisca Plc's first financial statements should include at least: [IFRS 1.21]
Three statements of financial position
Two statements of profit or loss and other comprehensive income
Two separate statements of profit or loss (if presented) two statements of cash flows two statements of
changes in equity, and related notes, including comparative information
If a 31 December 2014 adopter reports selected financial data (but not full financial statements) on an
IFRS basis for periods prior to 2013, in addition to full financial statements for 2014 and 2013, that does
not change the fact that its opening IFRS statement of financial position is as of 1 January 2013.

Part 2
Question 3
A)
IAS 2 Inventories contains the requirements on how to account for most types of inventory. The
standard requires inventories to be measured at the lower of cost and net realisable value (NRV) and
outlines acceptable methods of determining cost, including specific identification (in some cases), first-in
first-out (FIFO) and weighted average cost.
IAS 2 provides guidance for determining the cost of inventories and the subsequent recognition of the
cost as an expense, including any write-down to net realisable value. It also provides guidance on the
cost formulas that are used to assign costs to inventories. Inventories are measured at the lower of cost
and net realisable value. Net realisable value is the estimated selling price in the ordinary course of
business less the estimated costs of completion and the estimated costs necessary to make the sale.
The cost of inventories includes all costs of purchase, costs of conversion (direct labour and production
overhead) and other costs incurred in bringing the inventories to their present location and condition.
The cost of inventories is assigned by:
 specific identification of cost for items of inventory that are not ordinarily interchangeable; and
 the first-in, first-out or weighted average cost formula for items that are ordinarily
interchangeable (generally large quantities of individually insignificant items).
When inventories are sold, the carrying amount of those inventories is recognised as an expense in the
period in which the related revenue is recognised. The amount of any write-down of inventories to net
realisable value and all losses of inventories are recognised as an expense in the period the write-down
or loss occurs.
B)
Cost should include all: [IAS 2.10] N X Y Z
costs of purchase 9,47 1283 3550 7680
0 0
costs of conversion 880 1540 1260 0
costs incurred in bringing the inventories to their present location and 1080 940 750 460
condition

Inventory cost should not include: [IAS 2.16 and 2.18]

abnormal waste 44 77 63 0
storage costs
administrative overheads unrelated to production
selling costs
foreign exchange differences arising directly on the recent acquisition
of inventories invoiced in a foreign currency
interest cost when inventories are purchased with deferred
settlement terms.
Total Inventory Cost of Each Vehicle 11,3 15,2 5,49 8,14
86 33 7 0
Vehicles as at 30 June 2020 should be shown in the final accounts of 40,256
Portville Plc
The total cost of abnormal wastage of materials that has been 184
incurred on the conversion of the four

Question 4
A)
1) Fair value through profit or loss, FVTPL
2) Fair value through profit or loss, FVTPL
3) Amortized Cost
4) Fair value through other comprehensive income, FVTOCI

B)
IFRS 7 Financial Instruments: Disclosures requires disclosure of information about the significance of
financial instruments to an entity, and the nature and extent of risks arising from those financial
instruments, both in qualitative and quantitative terms. Specific disclosures are required in relation to
transferred financial assets and a number of other matters. There are three types of risk. Such as,
Credit risk
Credit risk is the risk that one party to a financial instrument will cause a loss for the other party by
failing to pay for its obligation.
Disclosures about credit risk include:
maximum amount of exposure (before deducting the value of collateral), description of collateral,
information about credit quality of financial assets that are neither past due nor impaired, and
information about credit quality of financial assets whose terms have been renegotiated [IFRS 7.36] for
financial assets that are past due or impaired, analytical disclosures are required [IFRS 7.37] information
about collateral or other credit enhancements obtained or called [IFRS 7.38]
Liquidity risk
Liquidity risk is the risk that an entity will have difficulties in paying its financial liabilities. [IFRS 7]
Disclosures about liquidity risk include: [IFRS 7.39]
a maturity analysis of financial liabilities description of approach to risk management
Market risk [IFRS 7.40-42]
Market risk is the risk that the fair value or cash flows of a financial instrument will fluctuate due to
changes in market prices. Market risk reflects interest rate risk, currency risk and other price risks. [IFRS
7]
Disclosures about market risk include:
a sensitivity analysis of each type of market risk to which the entity is exposed additional information if
the sensitivity analysis is not representative of the entity's risk exposure (for example because exposures
during the year were different to exposures at year-end). IFRS 7 provides that if an entity prepares a
sensitivity analysis such as value-at-risk for management purposes that reflects interdependencies of
more than one component of market risk (for instance, interest risk and foreign currency risk
combined), it may disclose that analysis instead of a separate sensitivity analysis for each type of market
risk

C)
Loan Schedule (AT THE END)
Year Beginning Instalment Interest Principal Repay Ending Balance
1 680,970 179638.17 68097 111541.1705 569,429
2 569,429 179638.17 56942.88295 122695.2875 446,734
3 446,734 179638.17 44673.3542 134964.8163 311,769
4 311,769 179638.17 31176.87257 148461.2979 163,307
5 163,307 179638.17 16330.74277 163307.4277 0.00