Dr. Dieter Christian is a lecturer at the Vienna University of Economics and Business, several other Austrian universities and various private seminar companies. He is an author in the area of IFRS and Austrian GAAP. He was formerly a Senior Manager and head of the department for IFRS and Austrian GAAP at BDO Austria and also worked in the IFRS department for PricewaterhouseCoopers in Austria. He has a Doctorate in Business Administration and an MBA from Vienna University of Economics and Business. He is a Member of the IFRS working group of the Austrian Financial Reporting and Auditing Committee (AFRAC).

Dr. Norbert Lüdenbach is a tax advisor and chartered accountant, and is Head of the IFRS Department of BDO Germany. He is an author of commentaries on IFRS and German GAAP as well as being a lecturer at the University of Freiburg (Germany). He is also the publisher of a practice-oriented German IFRS journal which is published on a monthly basis.

Preface xvii

Abbreviations xix

The Conceptual Framework for Financial Reporting 1

1 Introduction 1

2 The Objective of General Purpose Financial Reporting 1

3 Going Concern 2

4 Qualitative Characteristics of Useful Financial Information 2

4.1 Introduction 2

4.2 Fundamental Qualitative Characteristics 2

4.2.1 Relevance 3

4.2.2 FaithfulRepresentation 3

4.3 Enhancing Qualitative Characteristics 4

4.3.1 Comparability 5

4.3.2 Verifiability 5

4.3.3 Timeliness 5

4.3.4 Understandability 5

5 The Cost Constraint on Useful Financial Reporting 5

6 The Elements of Financial Statements 6

6.1 Definitions 6

6.2 Recognition 6

6.3 Measurement 7

7 Exampleswith Solutions 7

IAS 1 Presentation of Financial Statements 11

1 Introduction and Scope 11

2 Going Concern 11

3 Fair Presentation of the Financial Statements and Compliance with IFRSs 11

4 General Principles Relating to Presentation 12

4.1 Materiality and Aggregation 12

4.2 Offsetting 12

4.3 Frequency of Reporting 12

4.4 Comparative Information 12

4.5 Consistency of Presentation 13

5 Components of the Financial Statements 13

6 Structure and Content of the Components of the Financial Statements 13

6.1 Statement of Financial Position (Balance Sheet) 13

6.2 Statement of Comprehensive Income and Separate Income Statement 14

6.2.1 Profit or Loss, Other Comprehensive Income and How They Interrelate 14

6.2.2 Preparation of the Statement(s) 16

6.3 Statement of Changes in Equity 19

7 Exampleswith Solutions 20

7.1 Examples that can be Solved Without the Knowledge of Other Chapters of theBook 21

7.2 Examples that Require Knowledge of Other Sections of the Book 25

IAS 2 Inventories 33

1 Scope 33

2 Measurement 33

2.1 Measurement at Recognition 33

2.2 Measurement after Recognition 34

3 Presentation and Derecognition 35

4 Exampleswith Solutions 35

IAS 7 Statement ofCash Flows 43

1 Introduction 43

2 Preparation of the Statement of Cash Flows 44

2.1 Operating Activities 44

2.2 Investing and Financing Activities 44

3 Special Topics 45

3.1 Interest and Dividends 45

3.2 Income Taxes 45

4 Consolidated Statements ofCash Flows 45

4.1 Introduction 45

4.2 Acquisitions and Disposals of Subsidiaries 46

4.3 Associates 46

5 Exampleswith Solutions 46

IAS 8 Accounting Policies, Changes in Accounting Estimates, and Errors 55

1 Introduction 55

2 Accounting Policies 55

2.1 Selection and Application of Accounting Policies 55

2.2 The Principle ofConsistency 56

2.3 When an Accounting Policy Has to be Changed 57

2.4 Consequences of a Change in Accounting Policy 57

3 Changes in Accounting Estimates 57

3.1 Introduction 57

3.2 Accounting Treatment 58

4 Correction of Prior Period Errors 58

5 Exampleswith Solutions 59

IAS 10 Events after the Reporting Period 71

1 Overview 71

2 Exampleswith Solutions 72

IAS 11 Construction Contracts 75

1 Introduction 75

2 Contract Revenue 75

3 ContractCosts 76

4 Percentage of Completion Method 76

4.1 Introduction 76

4.2 Reliable Estimate of the Outcome of a Contract 77

4.3 Determining the Stage ofCompletion 77

4.4 Recognition of Expected Losses 78

4.5 Uncertainties in Collectibility 78

4.6 Presentation andDisclosure 78

5 When the Outcome of a Contract Cannot be Estimated Reliably 79

6 Exampleswith Solutions 79

IAS 12 Income Taxes 91

1 Introduction 91

2 Current Tax 91

3 Deferred Tax 91

3.1 The Logic Behind Recognizing Deferred Tax 91

3.2 Recognition Criteria 93

3.2.1 Taxable Temporary Differences 93

3.2.2 Deductible Temporary Differences 93

3.2.3 Unused Tax Losses andUnused TaxCredits 94

3.2.4 Reassessment of Unrecognized Deferred Tax Assets 94

3.2.5 Outside Basis Differences vs Inside Basis Differences 94

3.3 Measurement 94

3.3.1 Applicable Tax Rates and Tax Laws 94

3.3.2 Manner of Recovery or Settlement of the Carrying Amount of an Asset or a Liability 95

3.3.3 Prohibition of Discounting 95

3.3.4 Impairment and Reversal of Impairment 95

3.4 Presentation 95

3.5 Specific Issues 96

3.5.1 Change in the Tax Rate 96

3.5.2 BusinessCombinations 96

4 Tax (or Tax Rate) Reconciliation 96

5 Exampleswith solutions 97

IAS 16 Property, Plant, and Equipment 111

1 Introduction 111

2 Recognition 111

3 Measurement at Recognition 112

4 Measurement after Recognition 113

4.1 Cost Model and Revaluation Model 113

4.2 Depreciation 113

4.2.1 Depreciable Amount 113

4.2.2 Depreciation Period 114

4.2.3 DepreciationMethod 114

4.2.4 Component Accounting 115

4.3 Impairment 115

4.4 Changes in Existing Decommissioning, Restoration, and Similar Liabilities 115

5 Derecognition 116

6 Exampleswith solutions 116

IAS 17Leases 127

1 Introduction and Scope 127

2 DefinitionsRelating to Time 127

3 Classification of Leases as Finance Leases or Operating Leases 127

3.1 Introduction 127

3.2 Primary LeaseClassificationCriteria 128

3.3 Supplemental Indicators of a Finance Lease 129

4 Accounting of Leases by Lessees 130

4.1 Finance Leases 130

4.2 Operating Leases 130

5 Accounting of Leases by Lessors 131

5.1 Finance Leases 131

5.2 Operating Leases 131

6 Sale and Leaseback Transactions 132

7 Exampleswith Solutions 132

IAS 18 Revenue 143

1 Introduction and Scope 143

2 Measurement of Revenue 143

3 Sale of Goods 144

4 Rendering of Services 145

5 Interest, Royalties, and Dividends 145

6 Multiple Element Transactions and Linked Transactions 146

6.1 Introduction 146

6.2 Multiple Element Transactions 146

6.2.1 Sale onCredit 146

6.2.2 Servicing Component 147

6.2.3 Customer Loyalty Programs 147

6.3 Linked Transactions 148

7 Exampleswith solutions 148

IAS 19 Employee Benefits and IAS 26 Accounting and Reporting by Retirement Benefit Plans 155

1 Introduction 155

2 Financial Reporting without Early Application of the Amendments to IAS 19 Issued in June 2011 155

2.1 Introduction and Scope 155

2.2 Short-term Employee Benefits 156

2.3 Post-employment Benefits 156

2.3.1 Introduction 156

2.3.2 Defined Contribution Plans 157

2.3.3 Defined Benefit Plans 157

2.4 Other Long-term Employee Benefits 160

2.5 Termination Benefits 160

2.6 Exampleswith Solutions 161

3 The Amendments to IAS 19 Issued in June 2011 169

3.1 Post-employment Benefits 170

3.2 Termination Benefits 171

3.2.1 Recognition 171

3.2.2 Measurement 172

IAS 20 Government Grants 173

1 Introduction and Scope 173

2 Recognition and Measurement 173

3 Presentation 174

3.1 GrantsRelated toAssets 174

3.2 Grants Related to Income 174

4 Repayment of Government Grants 175

5 Exampleswith Solutions 175

IAS 21 The Effects of Changes in Foreign Exchange Rates 183

1 Scope 183

2 Monetary vs non-Monetary Items 183

3 Translation of Foreign Currency Transactions 184

3.1 Initial Recognition 184

3.2 Subsequent Reporting - Monetary Items 184

3.3 Subsequent Reporting - Non-monetary Items 184

4 Translation of Financial Statements of Foreign Operations When Preparing the Consolidated Financial Statements 185

4.1 Determining the Functional Currency and the Method of Foreign Currency Translation 185

4.2 CurrentRate (orClosingRate)Method 186

4.3 Monetary/Non-monetary Method 187

5 Exampleswith Solutions 188

IAS 23BorrowingCosts 197

1 Introduction 197

2 Specific and General Borrowings 197

3 Period ofCapitalization 198

4 Exampleswith Solutions 199

IAS 24Related PartyDisclosures 203

1 Introduction 203

2 Related Parties andRelationshipswith Them 203

3 Disclosures 204

4 Application of IAS 24 in the Consolidated Financial Statements 205

5 Exampleswith Solutions 205

IAS 26 Accounting and Reporting by Retirement Benefit Plans: see the Chapter on IAS 19/IAS 26 209

IAS 27 (2008) Consolidated and Separate Financial Statements, IAS 27 (2011) Separate Financial Statements, and IFRS 10 (2011) Consolidated Financial Statements 211

1 Introduction 211

2 Financial Reporting without Early Application of IFRS 10 and IAS 27 (2011) 212

2.1 The Concept of "Control" 212

2.2 Balance Sheet Date of the Consolidated Financial Statements and Diverging Balance Sheet Dates of Subsidiaries 213

2.3 Preparing the Consolidated Financial Statements 213

2.3.1 Overview 213

2.3.2 Elimination of Intragroup Receivables and Liabilities 214

2.3.3 Elimination of Intragroup Income and Expenses 215

2.3.4 Elimination of Intragroup Profits and Losses that are Recognized in the Carrying Amounts of Assets 215

2.3.5 Non-controlling Interests 215

2.4 Acquisition and Disposal of Shares 216

2.5 Investments in Subsidiaries, Jointly Controlled Entities, and Associates in Separate Financial Statements 217

2.6 Exampleswith Solutions 218

3 IFRS 10...