Post on 01-Mar-2023
Masaryk UniversityFaculty of Economics and Administration
Faculty of Economics and Administration
Field of study: Accounting
Financial reporting for non-current and current assets under national
GAAP and global IFRS for SME. Evidence from Belarus
Master’s Thesis
Supervisor: Author: Ing. Oleksandra LEMESHKO Mikhail BALYKA
Brno, 2019
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MASARYK UNIVERSITY
Faculty of Economics and Administration
MASTER’S THESIS DESCRIPTION
Academic year: 2018/2019
Student: Mikhail Dmitrievich Balyka
Field of Study: Finance (Eng.)
Title of the thesis/dissertation: Financial reporting for non-current and current assets under national
GAAP and global IFRS for SME. Evidence from Belarus.
Title of the thesis in English: Financial reporting for non-current and current assets under national
GAAP and global IFRS for SME. Evidence from Belarus.
Thesis objective, procedure and methods used: Aim of thesis:
On the basis of evaluation of impact of reporting for non-
current and current assets under national BY GAAP and
global IFRS on performance and financial position of
chosen SME from Belarus to identify advantages and
disadvantages of both reporting frameworks and to
make a set of recommendations for their further
revision
Plan of thesis:
Introduction
1. Financial reporting for non-current and current assets
under global IFRS for SME.
2. Financial reporting for non-current and current assets
under Belarusian BY GAAP.
3. Financial reporting for non-current and current assets
in the chosen SME from Belarus.
4. Pros and cons of both reporting frameworks and a
set of recommendations for their further revision.
Conclusion
Methodology: literature review, analysis, comparison, synthesis
Extent of graphics-related work: According to thesis supervisor’s instructions
Extent of thesis without supplements: 60 – 80 pages
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Literature: Accounting and reporting Act of July 12th 2013 57-Z. :
Ministry of Finance of the Republic of Belarus, 2013.
Decree of the Ministry of Finance of the Republic of Belarus of April 12th 2012 №25 "Concerning approval of the instruction on intangible assets accounting". 2012.
Decree of the Ministry of Finance of the Republic of
Belarus of April 30th 2012 №26 "Concerning approval
of the instruction on PPE accounting". 2012.
Decree of the Ministry of Finance of the Republic of
Belarus of November 12th 2010 133 ”Concerning
approval of the instruction on inventory accounting”.
2010.
Decree of the Ministry of Finance of the Republic of
Belarus of September 30th 2011 No.102 ”Concerning
approval of the instruction on revenues and expenses
accounting”. 2011.
IFRS Manual of accounting (global edition) two-
volume set. 2016. ISBN 978-0-7545-5439-4.
International financial reporting standard for small and
medium-sized entities (IFRS for SMEs). London:
International Accounting Standards Board, 2009. 230
s. ISBN 9781907026171.
Thesis supervisor: Ing. Oleksandra Lemeshko
Thesis supervisor’s department: Faculty of Economics and Administration
Thesis assignment date: 2018/04/22
The deadline for the submission of Master’s thesis and uploading it into IS can be found in the academic year calendar.
In Brno, date: 2019/05/07
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Name and surname of the author : Mikhail Balyka
Master’s thesis t i t le: Financial reporting for non-current and current
assets under national GAAP and global IFRS for
SME. Evidence from Belarus
Department : Finance
Master’s thesis supervisor: Ing. Oleksandra Lemeshko
Master’s thesis date : 2019
Annotation
The goal of the submitted thesis: “Financial reporting for non-current and current assets under
national BY GAAP and global IFRS. Evidence from Belarus” to identify advantages and
disadvantages of both reporting frameworks and to make a set of recommendations for their further
revision on the basis of evaluation of impact of reporting for non-current and current assets under
national BY GAAP and global IFRS on performance and financial position of chosen SME from
Belarus.
Keywords
Belarus, property plant and equipment, intangible assets, inventories, comparison, IFRS, IAS16,
IAS38, IAS 2
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Declaration
„I certify that I have written the Master’s Thesis ‘Financial reporting for non-current and current
assets under national GAAP and global IFRS for SME. Evidence from Belarus’ by myself under
the supervision of Oleksandra Lemeshko and I have listed all the literary and other specialist
sources in accordance with legal regulations, Masaryk University internal regulations, and the
internal procedural deeds of Masaryk University and the Faculty of Economics and
Administration.“
Brno,
Author’s s ignature
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Table of contents
INTRODUCTION ......................................................................................................................... 11
CHAPTER I. COMPARISON OF THE REPORTING UNDER INTERNATIONAL
FINANCIAL REPORTING STANDARDS AND BELARUSIAN GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES ..................................................................................................... 13
1.1 Property, plant and equipment ................................................................................................. 14
1.1.1 Recognition and measurement ...................................................................................... 14
1.1.2 Subsequent measurement .............................................................................................. 15
1.1.2.1 Depreciation............................................................................................................ 15
1.1.2.2 Revaluation ............................................................................................................. 17
1.1.2.2 Impairment ............................................................................................................. 19
1.1.2.3 Modernization, reconstruction, repair .................................................................... 22
1.1.3 Derecognition and disposal ........................................................................................... 23
1.2 Intangible assets ....................................................................................................................... 23
1.2.1 Recognition and measurement ...................................................................................... 23
1.2.2 Subsequent measurement .............................................................................................. 26
1.2.2.1 Amortisation ........................................................................................................... 26
1.2.2.2 Revaluation ............................................................................................................. 29
1.2.2.3 Impairment ............................................................................................................. 30
1.2.3 Goodwill ........................................................................................................................ 31
1.2.4 Derecognition and disposal ........................................................................................... 32
1.3 Inventories ............................................................................................................................... 32
1.3.1 Recognition and measurement ...................................................................................... 32
CHAPTER II. EVALUATION OF THE IMPLEMENTAION OF INTERNATIONAL
FINANCIAL REPORTING STANDARDS AND ITS IMPACT ON FINANCIAL REPORTING
OF BEK-EXPERT ......................................................................................................................... 39
2.1 Company profile ...................................................................................................................... 39
2.2 Methodology ............................................................................................................................ 40
2.3 Case study I: Acquisition of PPE. Depreciation charge. Repairment costs ............................ 40
2.3.1 Case summary ............................................................................................................... 40
2.3.2 Recognition and initial measurement ............................................................................ 41
2.3.3 Subsequent measurement. Depreciation ....................................................................... 41
2.3.4 Repairment costs ........................................................................................................... 42
2.3.5 Useful life review under IFRS ...................................................................................... 43
2.4 Case study II: Acquisition of PPE. Borrowing costs ............................................................... 46
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2.4.1 Case summary ............................................................................................................... 46
2.4.2 Recognition and initial measurement ............................................................................ 47
2.4.3 Disposal ......................................................................................................................... 50
2.5 Case study III: Acquisition of PPE. Precious metals............................................................... 51
2.5.1 Case summary ............................................................................................................... 51
2.5.1 Precious metals treatment.............................................................................................. 52
2.6 Case study IV: Acquisition of IA. Recognition criteria ......................................................... 57
2.6.1 Case summary ............................................................................................................... 57
2.6.2 Recognition ................................................................................................................... 57
2.6 Case study V: Acquisition of inventories. Net realisable value ............................................. 59
2.6.1 Case summary ............................................................................................................... 59
2.6.1 Recognition ................................................................................................................... 59
2.6.2 Measurement of inventories. Cost of purchase ............................................................. 59
2.6.3 Net realisable value ....................................................................................................... 60
Recommendations for BY GAAP ................................................................................................. 62
Conclusion ..................................................................................................................................... 64
List of literature ............................................................................................................................. 66
List of tables .................................................................................................................................. 68
List of abbreviations ...................................................................................................................... 70
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INTRODUCTION
Since independence, Belarus has been harmonizing the national accounting and auditing
system with international standards. During these 25 years different stages of accounting
development has been passed through: in the beginning the accounting system was extremely strict
and facilitated the needs of tax authorities. This set a stamp upon accountants’ perception of actions
the can take within the scope of their professional area. The next stage in the development of
accounting system was related to the creation of the union with Russia and, as a result, convergence
with Russian accounting system. The present stage characterized with a movement of accounting
system towards the international practice.
As of today, International Financial Reporting Standards (hereinafter – IFRS) in Belarus are
required by domestic public companies (i.e. all listed companies and financial institutions).
For all the other companies national standards are used. And the first problem here is that
officially there is the only body which sets accounting standards: Ministry of Finance, but in fact
there could be different bodies.
And this is the issue because sometimes clashes between different legal acts appear for the
same transactions and in that case we need to use the one which was issued later. To find solutions
on these issues we will observe, compare and analyze Belarusian accounting standards and IFRS.
Importance of the topic chosen is confirmed by the fact that Belarus, being a European
country, should not stay on the sideline from the global development trends in financial reporting.
Like many countries in the world, Belarus is involved in the harmonization of the national
accounting system in accordance with IFRS.
The importance of IFRS in modern financial relations is that the use of such standards
contributes to that companies become opened to the world investment market, thus, obtaining
loans in foreign banks, and attract investments from foreign companies. These areas are very
relevant for our country.
The goal of the diploma thesis is to identify advantages and disadvantages of both global full
IFRS (also IFRS for SMEs) and Generally Accepted Accounting Principles (hereinafter – BY
GAAP) reporting frameworks and to make a set of recommendations for their further revision on
the basis of evaluation of impact of reporting for non-current and current assets under national BY
GAAP and global IFRS on performance and financial position of chosen SME from Belarus.
The aim of the diploma thesis is accomplished within the following structure of thesis. Thesis
comprises two parts:
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- the first one is a theoretical review and comparison of accounting standards for property,
plant and equipment (hereinafter – PPE), intangible assets (hereinafter – IA) and inventories, using
domestic legislation acts, international accounting standards and articles on its application;
-the second part is the implementation of the results made on the basis of the theoretical review
using the examples from the business activity of the Belarusian company, BEK-expert, in 2012-
2018.
Based on the analysis performed one general conclusion can be made: National accounting
and reporting standards are highly harmonized with IFRS. On the other hand, BY GAAP is more
rule-based, while IFRS is more judgement based. Although, Accounting and reporting Act of July
12th 2013 57-Z declares the priority of economic substance, but in reality, BY GAAP are more
focused on legal form, accounting procedures and documentation requirements and, to a lesser
extent, the economic substance of operations.
Methodology used in the work: literature and legislation review in the theoretical part
comparative analysis (в практике) of impact of IFRS based reporting and BY GAAP based
reporting on financial performance and position of the chosen company.
Based on the conducted study it is recommended to continue gradual harmonization with IFRS
while avoiding complete adoption. That is fair value concept should be introduced in a separate
document as it is done in IFRS 13; depreciation approach should be reviewed for the assets retired
from the active use; recognition criteria for intangible assets should be changed; the concept of net
realizable value for inventories should be implemented.
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CHAPTER I. COMPARISON OF THE REPORTING UNDER
INTERNATIONAL FINANCIAL REPORTING STANDARDS
AND BELARUSIAN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
Belarus is continuing the convergence of the national accounting and auditing system with
international standards. Accounting and reporting act, which establishes a multi-level accounting
system was adopted, as well as the Act on Auditing.
The introductory period (1990-1994) was characterized by the development of national
approaches of the accounting standards in connection with the state formation.
The accounting methodology was actually tailored to the needs of the tax system. The
composition of the costs included in the cost of production (work delivery, service rendering) was
strictly regulated.
The core stage (1995 - 1998) began with the entry into legal force of the laws on accounting
and auditing. This stage was characterized by the emergence of a new level of regulation in
connection with the introduction of the concept of an accounting policy of the organization, as
well as a steady trend towards strengthening the fiscal function of accounting.
The system development stage (1999 - 2008) was associated with the need to unify the
legislations of Belarus and Russia in connection with the conclusion of the Treaty on the creation
of the Union State of Russia and Belarus. This event determined a significant impact of the Russian
accounting practice on the development of accounting in our country. There is a new type of
accounting – tax accounting. As a result, the fiscal accounting function has been decreased. At this
stage, two sets of accounting documents were adopted (for banks and for the corporate sector) and
a system of audit rules.
At the present stage (2009 - present), measures are being implemented for the adoption of
International Financial Reporting Standards (hereinafter – IFRS) in the territory of the Republic
of Belarus, enshrined in a number of policy documents. Our country has ratified three international
agreements, having committed to unify the rules of accounting for financial market participants.
Currently, the first and the main task is to introduce IFRS as technical regulatory legal acts.
The second task is the development of a system of national standards. The third task is to organize
certification with the subsequent issuance of certificates of professional accountants.
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1.1 Property, plant and equipment
1.1.1 Recognition and measurement
According to Decree of the Ministry of Finance of the Republic of Belarus of April 30th, 2012
№26 "Concerning approval of the instruction on PPE accounting" (hereinafter referred to as
Decree №26) assets are recognized as PPE if:
assets are intended for using in a company’s business activity (i.e. production, work
delivery, rendering of services, administrative needs or assignment for temporary use;
it is assumed that a company will receive economic benefits associated with the usage of
an asset;
the cost of an asset can be measured reliably.
assets are intended for use within more than 12 months;
a company doesn’t expect these assets to be sold within 12 months from the date of
acquisition;
All these requirements are mentioned on IAS 16 except the last one.
In Belarus PPE that are expected to be sold should be transferred to another account “Fixed
assets held for sale”.
Also, a company may define in its accounting policy a minimum threshold (amount of money)
for assets that are assumed to be recognized as PPE.
According to Decree №26 an item of PPE initially should be recorded at cost. The cost of
acquired PPE is the sum of actual:
cost of acquisition, included:
contractual value of PPE;
customs fees and duties;
loans interest;
freight insurance;
cost of services related to bringing an asset to “ready-for-use” condition;
other costs directly associated with acquisition, delivery, installation and assembly.
In addition to this in IAS 16 there is one more criterion:
the initial estimate of cost of dismantling and removing an item of fixed assets and restoration of
the area occupied by it an obligation for which a company assumes either when an asset is
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acquired, or because of its use over a certain period for purposes other than the production of
inventories during that period1.
In Belarus this is not obligatory - a company has the right to include this estimated cost. For
this purpose, a provision should be created.
The initial cost of self-constructed assets is determined in the amount of actual direct and
variable indirect costs incurred during its construction2.
The cost of assets which were an owner’s capital contribution is determined based on an
estimate of their value made in accordance with the law.
The cost of donated assets is determined based on their fair value as of the recognition date.
If PPE was acquired in exchange for a non-monetary asset or combinations of monetary and
non-monetary assets its cost is measured as a value of these non-monetary assets according to
Decree №26 and as a fair value according to IAS16.
The cost of PPE identified during assets reconciliation is determined on the date of the
recognition based on documents confirming the price of similar assets (price lists, catalogs and
others), or based on valuation reports made by persons conducting valuation activities.
1.1.2 Subsequent measurement
1.1.2.1 Depreciation
In IFRS, depreciation of fixed assets is not described under a separate document and included
in IAS 16 and IAS 38. But for understanding of approaches we should also address to some other
standards of IFRS.
Determination of a depreciable item in IAS 16 based on the idea of recognizing an asset,
primarily as controlled by the company and bringing her economic benefits over a period of time.
Pursuant to paragraph 55 of IAS 16 depreciation begins when it is available for use, but not
when it is put for use as it is stated in Belarusian standard.
IFRS requires that the depreciable amount of an asset should be mandatory allocated on a
systematic basis over its useful life3. Hence, if an asset works and participates in a flow of
economic benefits, non-depreciation, as it is allowed by Belarusian legislation, is prohibited4.
1 Paragraph 16 of IAS 16 “Property, plant and equipment” of June 30th, 2014; paragraph 17.10 of IFRS for SMEs,
IASB, ed. 2015 2 Paragraph 10 of Decree of the Ministry of Finance of the Republic of Belarus of April 30th, 2012 №26
"Concerning approval of the instruction on PPE accounting", paragraph 22 of of IAS 16 “Property, plant and
equipment” of June 30th, 2014 3 Paragraph 50 of IAS 16 “Property, plant and equipment” of June 30th, 2014; paragraph 17.16 of IFRS for SMEs,
IASB, ed. 2015 4 Resolution of the Council of Ministers of Belarus №802 ”On depreciation non-charging of PPE and intangible
assets in 2018 and further years” as of October 30, 2017
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Depreciable amount is the cost of an asset less its residual value and as it was mentioned above
it should be allocated over an asset’s useful life. According to paragraph 51 of IAS 16 residual
value should be restated in the end of each financial year if an entity’s current expectations differ
from the previous evaluations. Using of a residual value is not a requirement but a recommendation
due to Belarusian accounting standards5.
Paragraph 55 of IAS 16 emphasizes that depreciation does not cease when an asset becomes
idle or retired from active use unless it is fully depreciated, except in the case when it is already
fully depreciated. Unlike Belarusian standards, IAS does not require to change source of
depreciation during repair, idle time, etc.
Useful life of an asset is determined in terms of expected utility of the asset and it is a matter
of professional judgement based on the entity’s experience with similar assets.
As an analogue of this rule in Belarusian accounting, to some extent, is considered a work of
a depreciation commission that is created to define an asset’s useful life. Initially the commission
should determine so called standard operation time using the Decree of the Ministry of Economics
as of 30.09.2011 №161 “On determining PPE’s standard operation time” (hereinafter Decree
№161). This document represents a list of tables with number of years assigned against each group
of assets. With the reference to this table the commission then define an asset’s useful life within
the prescribed range:
for buildings – 0.8-1.2 of the standard operation time;
for machines, mechanisms and equipment – 0.5-1.5 of the standard operation time;
computers – 0.5-1.5 of the standard operation time;
transport vehicles – 0.5-1.5 of the standard operation time6.
IAS 16 declares that the depreciation method used should reflect the scheme in which an asset’s
expected future economic benefits will be consumed. Herewith, p. 62 of IAS 16 offers to use the
straight-line method, the diminishing balance method and the units of production method.
National accounting standard disclose two additional methods – sum of years’ digits and
inversed sum of years’ digits methods.
The first method is an accelerated method that allows to depreciate and quickly replace an
asset which wears very fast and thus loses its productivity efficiency in the first years. Under this
method, a depreciation expense is computed by dividing the remaining useful life of an asset by
the sum of the useful life years’ digits and multiplying it by the carrying amount.
5 Paragraph 7-1 of Decree of the Ministry of Economics, Ministry of Finance, Ministry of Architecture № 37/18/6
“On depreciation of PPE and amortization of intagible assets” 6 Appendix 3 to Decree of the Ministry of Economics as of 30.09.2011 №161 “On determining PPE’s standard
operation time”
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The inverse method of the sum digits is to determine the annual amount of depreciation based
on the depreciable amount of assets and the ratio, in the numerator of which is the difference
between the useful life and the number of years remaining until the end of the useful life, increased
by 1, and in the denominator - sum of numbers of years of useful life. At its core, the inverse
method of a slow depreciation, which in the first years of use of an item of fixed assets makes it
possible to charge minimum depreciation amounts with a gradual increase in subsequent years.
Upon that, the method applied is a subject to review at least each financial year-end7. If a
significant change is found in the expected consumption pattern of future economic benefits
embodied in the asset, this method should be adjusted to reflect this change. Such an adjustment
is should be accounted for as a change in an accounting estimate according to IAS 88.
Note that this does not mean that a company can change the depreciation method in order to affect
its financial results, as it is allowed in paragraph 46 of Decree № 37/18/6 “On depreciation of PPE
and amortization of intangible assets”.
According to this clause an entity has the right to change a depreciation method the straight-
line method in case of unforeseen changes in production conditions sales of goods, products,
services that causes losses.
In paragraph 43 of IAS 16, each component of an item of fixed assets, the cost of which is
significant compared to the total cost of the item, should be necessarily depreciated separately. In
Belarus, it is also possible to depreciate different parts of the same item at different useful lives.
Thus, in accordance with paragraph 6 of Decree №26, in the case if an item has several parts
with different useful lives, each such part is accounted for as an independent inventory item. But
in IFRS in books it is recognized as a unit item, not as separate ones.
Pursuant to Decree №26 an asset’s cost is not subject to change, except of the following cases:
revaluation of PPE;
impairment of PPE;
reconstruction (modernization, restoration) of PPE.
1.1.2.2 Revaluation
IFRS provide for two models of PPE carrying after its recognition: cost model and revaluation
model. According to the first model an entity’s PPE should be carried at its cost less depreciation
and impairment, but the second model requires to use a fair value instead of a cost9. Fair value is
7 Paragraph 61 of IAS 16 “Property, plant and equipment” of June 30th, 2014; paragraph 17.19 of IFRS for SMEs,
IASB, ed. 2015 8 Paragraph 32 of IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors” as of October 31st,
2018; paragraph 10.15 of IFRS for SMEs, IASB, ed. 2015 9 Paragraph 28 of IAS 16 “Property, plant and equipment” of June 30th, 2014; paragraph 17.15 of IFRS for SMEs,
IASB, ed. 2015
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a market-based measurement that takes into account a market participant’s ability to generate
economic benefits by using the asset in its highest and best use. The highest and best use is
determined from the perspective of market participants that would be acquiring the asset, but the
starting point is the asset’s current use. It is presumed the current use is the asset’s highest
and best use, unless market or other factors suggest that a different use would be result in a
higher value10.
Contrary to IAS 16, Decree №26 does not allow an entity to choose either the cost or
revaluation model for carrying of PPE after a recognition11. According to Decree №26 it is
compulsory to revaluate the following classes of PPE: buildings, pipelines, electrical transmission
lines. It has to be done in case if a November’s inflation rate reaches the level of 100% to the last
mandatory revaluation date (last time it happened in January 2014)12. The current inflation rate
according to Statistics Committee is 57,8%13, which means that entities are not obliged to make a
revaluation, but they are eligible to make it on a voluntary basis – for the all entity’s PPEs or just
for a chosen group.
Under Presidential Decree №622 the following methods are used in the revaluation of an
organization’s property:
direct appraisal - recalculation of the value of PPE into prices for January 1 of the year
following the reporting year using documents prepared by an entity itself, or an entity
engaged in appraisal activities;
recalculation of foreign currency - restatement of the value of property in foreign currency
at the official rate of the National Bank as of December 31 of the reporting year;
index method - revaluation by the index method involves the calculation of the revalued
amount by multiplying the cost of the property recorded before the revaluation by the rate
of change in the value of PPE that is published by the National Statistical Committee of
the Republic of Belarus each January following the reporting date.
IAS16 allows using the following two methods for revaluation methods:
index method
write-off method.
Depending on the method chosen, the calculation and the reflection of the revaluation will
10 Paragraph 29 of IFRS 13 “Fair value measurement” of December 12th, 2013; paragraph 2.34 of IFRS for SMEs,
IASB, ed. 2015 11 Paragraph 10 of Decree of the Ministry of Finance of the Republic of Belarus of April 30th, 2012 №26
"Concerning approval of the instruction on PPE accounting" 12 Paragraph 1.1.1 of Decree of the President of the Republic of Belarus of October 20th, 2006 №. 622 “Concerning
revaluation of fixed assets” 13 http://www.belstat.gov.by/ofitsialnaya-statistika/makroekonomika-i-okruzhayushchaya-sreda/tseny/operativnaya-
informatsiya_4/ob-urovne-inflyatsii/ob-urovne-inflyatsii-v-noyabre-2018-g-k-date-provedeniya-posledney-
pereotsenki/
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differ.
Index method - according to it, the amount of accumulated depreciation (3) is recalculated in
proportion (1) to the change in the gross carrying amount of an asset (2), so that the carrying
amount after revaluation equals the revalued amount. This method is often used when an asset is
revalued using an index in order to determine its depreciable recoverable amount.
The following formulas are used:
𝐼𝑟 =𝐹𝑎𝑖𝑟 𝑣𝑎𝑙𝑢𝑒
𝐶𝑎𝑟𝑟𝑦𝑖𝑛𝑔 𝑎𝑚𝑜𝑢𝑛𝑡 (1)
𝐶𝑜𝑠𝑡𝑟 = 𝐶𝑜𝑠𝑡 × 𝐼𝑟 (2)
𝐴𝑐𝑐𝑢𝑚. 𝑑𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛𝑟 = 𝐴𝑐𝑐𝑢𝑚. 𝑑𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 × 𝐼𝑟 (3)
Write-off method - its peculiarity is that it provides for the elimination of the accumulated
depreciation. The value of an asset obtained after this is revalued in such a way to make it equal
to the fair value. In other words, the cost becomes equal to the fair value, and the accumulated
depreciation becomes equal to zero. Mostly this method is used for revaluation of buildings.
IAS 16 does not require to involve a professional appraiser. The standard does not contain a
requirement for professional appraisal performed by an independent company or for engaging a
professional value for this purpose, although in practice entities often use professional appraisal
services14.
Revaluation frequency is not prescribed by IAS 16. The only requirement is that revaluations
should be made with sufficient regularity to ensure that the carrying amount does not differ
materially from the fair value at the end of the reporting period15.
The date of any voluntary revaluation in Belarus is only January 1 of the year following the
reporting year. A revaluation that is made in accounting more than once a year or on a different
reporting date contradicts the law16.
1.1.2.2 Impairment
Based on the concept of prudence in the process of accounting and the preparation of financial
statements, it is necessary to ensure that assets and revenues of an entity should not be
overestimated. To comply with this requirement in accordance with Decree № 26, an entity may,
based on a decision of its manager, reflect in books at the end of the reporting period the amount
of impairment of fixed assets. It must be equal to the amount of the excess of the carrying amount
14 E&Y LLP, Wiley,2016. International GAAP2016 under IFRS,p.1298 15 Paragraph 31 of IAS 16 “Property, plant and equipment” of June 30th, 2014;paragraph 17.15B of IFRS for SMEs,
IASB, ed. 2015 16 Paragraph 1.2 of Decree of the President of the Republic of Belarus of October 20th, 2006 №. 622 “Concerning
revaluation of fixed assets”
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of an asset over its recoverable amount. This requires the availability of documentary evidence of
indication of impairment of the fixed asset and the possibility of reliable measurement of the
amount of impairment17.
Hence, recognition of impairment is a right in the Republic of Belarus, and not an obligation
for entities. This is a much more liberal approach than in IFRS, where testing of certain assets for
impairment is mandatory, and if there are relevant indicators, items should be accounted for at cost
less accumulated depreciation and accumulated impairment losses18.
In particular, paragraph 9 of IAS 36 "Impairment of Assets" (hereinafter - IAS 36) states that the
organization should assess at the end of each reporting period whether there are any indications of
impairment of assets. If any indication exists, the entity should estimate the asset's recoverable
amount.
In turn, in accordance with paragraph 63 of IAS 16, an entity applies IAS 36 to determine
whether an impairment has occurred with an item of PPE. This standard explains how an entity
analyzes the carrying amount of its assets, how it determines the recoverable amount of an asset
and when it recognizes or reverses impairment losses.
Based on the paragraph 16 of Decree № 26, and paragraph 12 of Decree №25 “On Accounting
of Investment Real Estate”, an entity should specify in its accounting policy whether it will apply
the procedure for impairment of assets. If impairment of assets is foreseen, then the accounting
policy should also disclose the procedure for determining of the discount rate.
International framework offers different ways for determining of discount rate if it is not
available at market. For instance, an entity could use its WACC, incremental borrowing rate or
other market rates19. Conversely, Decree №26 offers just one approach: using of key rate set by
the National Bank.
According to p. 16 of Decree № 26 the following indications should be considered in assessing
whether there is impairment (for the period from the beginning of the year to the reporting date):
a significant (more than 20%) decrease in the current market value of an asset;
significant changes in the technological, market, economic environment in which an entity
operates;
increase in market interest rates;
a significant change in the use of the asset;
physical damage;
17 Paragraph 16 of Decree of the Ministry of Finance of the Republic of Belarus of April 30th, 2012 №26
"Concerning approval of the instruction on PPE accounting"; paragraph 17.24 of IFRS for SMEs, IASB, ed. 2015 18 Paragraph 30 of IAS 16 “Property, plant and equipment” of June 30th, 2014; "; paragraph 17.24 of IFRS for
SMEs, IASB, ed. 2015 19 Paragraph 57 of IAS 36 “Impairment of assets” of May 29th, 2013
21
other signs of impairment of the asset.
Notably, that these indications are almost the same we those described by p.12 IAS 36, but do
not include the indicator, when net assets of the company higher than market capitalization.
Obviously, it was missed because there are no capital markets in Belarus and only some companies
who are listed in foreign exchanges.
And the last indicator presented in this list makes a room for an accountant’s professional
judgement such as;
asset is idle, part of a restructuring or held for disposal;
worse economic performance than expected;
for investments in subsidiaries, joint ventures or associates, the carrying amount is higher
than the carrying amount of the investee's assets, or a dividend exceeds the total
comprehensive income of the investee, that were mentioned in IAS 36.
Decree № 26 does not specify which documents should confirm the presence of these
indications and how to evaluate the possibility of reliable assessment of the amount of impairment.
Apparently, the first issue should be enshrined in an accounting policy, and the second should be
determined by the professional judgment of an accountant.
A decrease in the current market value of an asset can be confirmed by the results of an
independent or internal assessment20.
Significant changes in the technological, market, economic environment in which the
organization operates, as well as the method of using the asset can be confirmed by referring to
business plans, production programs, management accounting data, decisions of the board of
directors etc.
If there are signs of impairment of the asset, its recoverable amount at the end of the reporting
period should be determined. It is the higher of the fair value of the asset, less the estimated costs
directly attributable to its sale, and the value in use of the asset21.
Value in use is the present (discounted) value of future cash flows from the use of the asset
and its disposal at the end of the useful life. It is calculated by multiplying the discounting rate and
the amount of future cash flows from the use of the asset. At the same time, future cash flows are
determined for the period not more than 5 years. The principle of calculating of value in use is the
same for IFRS and national accounting standards.
20 Paragraphs 5,8 of Decree of the President of the Republic of Belarus as of 13.10.2006 № 615 "On valuation
activity in the Republic of Belarus". 21 PwC LLP, Global Accounting services, 2016.Manual of accounting: IFRS 2017,p. 137, ISBN 978-0-7545-5439-4
22
1.1.2.3 Modernization, reconstruction, repair
Investments in the reconstruction, modernization or restoration of PPE are widely distributed
in a business practice of entities. The procedure for accounting and reporting of these capital
investments raises many questions both within the framework of Belarusian accounting standards,
and in the preparation of financial statements under IFRS.
IAS 16 does not describe specific criteria for qualifying costs associated with existing assets,
as capitalization costs for reconstruction, modernization or restoration. The concept of
reconstruction in IFRS does not exist as well.
Companies should be guided by the general rules for capitalizing expenses related
to fixed assets22, as well as requirements for the measuring of subsequent costs included in IAS
16. Thus, an entity should not recognize in the book value of PPE costs of day-to-day maintenance
of facilities, including the cost of repairs and routine maintenance23. However, in some cases,
subsequent costs associated with an asset might be capitalized, in particular, the cost of regularly
replacing parts of an asset, as well as the cost of regular major technical inspections necessary to
continue its operation. Moreover, the subsequent costs capitalization is possible only if the general
criteria for their recognition in the book value of the asset are met24:
likelihood of obtaining (increasing) future economic benefits associated with the item;
the possibility of a reliable measurement of the cost of the item.
The decision on whether costs met the capitalization criteria or not relates to the professional
judgment of an accountant, which can be based on information received from technical specialists,
calculations of the financial and economic departments regarding the economic efficiency of
investments made etc.
In contrast with international accounting rules Belarusian accounting legislation has a clearer line
regarding the concepts of such costs.
Indeed, the appendix №5 to the Decree №37/18/6 “On depreciation of PPE and amortization of
intangible assets” provides the following definitions:
repair - a set of actions which is intended to restore the correct functioning or operability
of an item (or its parts with bringing the item into compliance with the requirements defined
by technical regulatory legal acts) as well as to prevent their further intensive wear and
tear;
modernization - a set of works to improve the item by replacing its structural elements and
22 Paragraph 4.3 of “Conceptual Framework for financial reporting” issued by IASB, March 2018 23 Paragraph 12 of IAS 16 “Property, plant and equipment” of June 30th, 2014; "; paragraph 17.15 of IFRS for
SMEs, IASB, ed. 2015 24 Paragraphs 7, 13, 14 of IAS 16 “Property, plant and equipment” of June 30th, 2014
23
systems with more efficient ones, leading to an increase in the technical level and economic
characteristics of the item.
In accordance with paragraph 20 of the Decree № 26, actual costs associated with the
reconstruction (modernization, restoration) of PPE, and other similar works are included in its
costs.
Hence, we can find the main difference in two approaches: IFRS allows in some circumstances
to capitalize costs related to repair of an asset whereas national BY GAAP prohibit it and capitalize
only those costs, which improve the characteristics of the asset.
1.1.3 Derecognition and disposal
In IAS16 derecognition of an item takes place when:
it is disposed;
no future economic benefits are expected from its use.
Gain or loss arising from derecognition of an item of PPE is included in profit or loss at the
time of derecognition of the item.
If PPE that is to be derecognized contains precious metals, then they must be collected and
recognized in the manner prescribed by Decree № 34 “Concerning use of precious metals and
stones”.
Thus, the value of PPE containing precious metals (precious stones), during its transfer or sale
must not be lower than the cost of the precious metals (precious stones) contained in it, calculated
at prices of the first day of month when these assets were derecognized.
When an asset is disposed the value of precious metals it contains should be recognized as a
current asset and a profit from this disposal is recognized as well. Afterwards precious metals
should be sold to the state25.
Accumulated depreciation is eliminated against an asset’s cost and if there is revalue surplus
it should go to retained earnings – these principles are the same for both IFRS and Belarusian BY
GAAP.
1.2 Intangible assets
1.2.1 Recognition and measurement
The procedure of recognition of intangible assets in entities is determined by the Decree of the
Ministry of Finance of the Republic of Belarus of April 30th, 2012 №25 " Concerning approval of
25 Paragraphs 71,75 of Decree № 34 “Concerning use of precious metals and stones” of March 15 th, 2004.
24
the instruction on intangible assets accounting" (hereinafter referred to as Decree №26). For
accounting purposes assets are recognized as intangible assets by a company if they do not have a
physical form and when certain criteria are met:
they must be identifiable, i.e. separable from other assets of an entity;
it is assumed that a company will receive economic benefits associated with the usage of
an asset and is able to block access of others to these benefits;
cost of an asset can be measured reliably;
assets over a period of more than 12 months;
an entity does not expect assets to be sold within 12 months from the date of the acquisition.
All these requirements except the last two we can find in IAS 38 “Intangible assets”. The list
of items that can be accounted as intangible assets of an entity in accordance with the Belarusian
legislation differs from that under IFRS. According to IAS 38, these include trademarks, brand
names, software, licenses and franchises, copyrights, patents and other industrial property rights,
service and maintenance rights, recipes, formulas etc.
In Decree № 25 trademarks, trade names are excluded from the list of possible items of
intangible assets.
IAS 38 applies for costs incurred on advertising, development training, and start-up research
expenses. Assets obtained under a finance lease agreement may also be intangible if the terms for
acquisition were more favorable than market terms. These items are also not mentioned as possible
intangible assets in Decree № 25. Such a restriction of the range of assets that may be considered
as intangible may lead to an underestimation of value of assets of an enterprise as when it is sold
to external investors26.
Also, Belarusian standard requires an entity that created an item of intangible assets to have
documents confirming the ownership (patents, certificates)27, while IAS 38 (paragraph 13) states
that legal enforceability of the right is an optional condition for control28.
In practice, these documents become the main obstacle to the reliable accounting of the main
part of intangible assets - intellectual property rights. Because all the documents noted in the decree
except just one (brand registration certificate) are not right stating documents. As a result, there
may be errors in accounting for intangible assets, its amortization, tax calculation, nullity of license
agreements and alienation of property rights.
From the standpoint of accounting, the main problem that one has to face in practice is a legal
paperwork related to confirmation of existence of an asset itself. To properly qualify these
26 Zubkov A.S., 2017 Changing the value of intangible assets. Glavnaya kniga, 24, p. 5 27 Paragraph 9 of Decree of the Ministry of Finance of the Republic of Belarus of April 30th, 2012 №25
"Concerning approval of the instruction on intangible assets accounting" 28 Paragraph 13 of IAS 38 “Intangible assets” of May 12th, 2014; paragraph 18.16 IFRS for SMEs, IASB, ed. 2015
25
documents, you must have sufficient legal knowledge in the field of copyright and patent law. The
lack of this knowledge among practicing accountants causes difficulties in deciding on the
allocation of costs for the acquisition of an asset that does not have a tangible form29.
Contrary to Belarussian accounting, the structure of costs that can be allocated to intangible
assets on its initial measurement depends on the method of acquisition of intangible assets.
Unlike this rule, Decree №25 states that an intangible asset should be measured at its cost on
initial recognition i.e.:
acquisition cost of intangible assets;
customs fees and duties;
interest on loans and borrowings;
the cost of the services of other persons related to bringing intangible assets into a condition
suitable for use;
other costs directly related to the acquisition of intangible assets and bringing them into a
condition suitable for use30.
All these costs are similar to those mentioned in IAS 38 for separate acquisition cases. In
addition to it, acquisitions can be made through business combinations, government grants,
exchange of assets or internal generation. When an item acquired as a result of a business
combination or an asset exchange, it is measured at fair value. When an item of intangible assets
was internally generated an entity needs to assess whether the item meets the requirements for
recognition by classifying the process of its generation into two phases31:
research;
development.
Research refers to planned work aimed at obtaining new scientific and technical knowledge,
activities on application of the results, as well as the search for alternative materials, devices,
products, processes, systems, services, etc.
Costs incurred at the research phase are not capitalized but are recognized as expenses during
the period in which they were incurred, because at the research phase a company cannot
demonstrate assurance in receiving future economic benefits32.
Development - the application of research results in manufacturing engineering, new or
significantly improved materials, products, etc. before the start of their commercial production.
The costs incurring at the development stage are associated with the design, construction and
29 Zubkov A.S., 2017 Changing the value of intangible assets. Glavnaya kniga, 24, p. 5 30 Paragraph 13 of Decree of the Ministry of Finance of the Republic of Belarus of April 30th, 2012 №25
"Concerning approval of the instruction on intangible assets accounting" 31 Paragraph 52 of IAS 38 “Intangible assets” of May 12th, 2014;paragraph 18.14 IFRS for SMEs, IASB, ed. 2015 32 Paragraph 54 of IAS 38 “Intangible assets” of May 12th, 2014; paragraph 18.15 IFRS for SMEs, IASB, ed. 2015
26
testing of experimental samples of products, which, due to their scale, are not suitable for
commercial use. These costs may be considered as components of the value of intangible assets
when the following conditions are met33:
the creation of an intangible asset is technically feasible, an entity plans to complete the
development phase and has resources for this;
created asset can be used by an entity or be sold;
there is a rationale for how the company will receive economic benefits from an asset;
the cost of creating an asset during the development phase can be reliably measured.
All costs incurred prior to the fulfillment of the above conditions and written off for the
expenses of the period cannot be recovered and included in the value of an asset.
1.2.2 Subsequent measurement
1.2.2.1 Amortisation
In IAS 38 useful life is generally defined in the same way as the useful life of PPE in IAS 16.
Under IAS 38, the useful life is:
the period during which an asset is expected to be available for use by an entity; or
the number of units of production or similar units that an entity expects to receive from the
use of an asset.
In accordance with IAS 38, when assessing the useful life of an intangible asset, many factors
should be taken into account, among which are:
the expected use of an asset by a company;
typical asset life cycle for an asset and publicly available information on estimates of useful
lives of similar assets that are operated in the same way;
technical, technological, commercial and other types of asset obsolescence;
the stability of the industry in which the asset is involved, and changes in market demand
for products or services produced using the asset;
expected actions of competitors (including potential competitors);
the period of control over an asset, legal or other restrictions on the use of the asset;
dependence of the useful life of a relevant asset on the useful life of the other assets of an
entity.
As already noted, IAS 38 does not provide any mandatory requirements regarding useful usage
of intangible assets for more than 12 months. This is due to the fact that the use of such intangible
33 Paragraph 57 of IAS 38 “Intangible assets” of May 12th, 2014; paragraph 18.17 IFRS for SMEs, IASB, ed. 2015
27
assets such as new technologies and software may be short due to their rapid obsolescence. The
maximum useful life is also not limited.
IAS 38 regulates the regular revision of the useful life of intangible assets at least once at the
end of each reporting year34.
This international standard provides several methods for the amortisation of intangible assets.
Method that is used must comply with the scheme of obtaining economic benefits from the item
of intangible assets. IAS 38 recommends the following methods for the depreciation of intangible
assets:
straight-line method;
diminishing balance method;
units of production method.
The listed methods do not differ from the depreciation methods for fixed assets, therefore, they
do not require separate clarification.
For intangible assets with an indefinite useful life amortisation is not charged. Goodwill is also
not amortised when purchase price of the acquisition exceeds the fair value of the assets and
liabilities acquired.
IAS 38 necessitate to revise the method of amortisation of intangible assets at least once at the
end of each fiscal year. If there has been a significant change in the pattern of economic benefits
from an asset, the amortisation method needs to be changed.
Depreciable amount under IAS 38 is equal to the original (or revalued) value of an item,
reduced by its residual value. Residual value is defined in IAS 38 as the estimated amount that an
entity would have received from the disposal of an asset after deducting the estimated costs of
disposal.
Residual value of an intangible asset under IAS 38 differs from zero only if an entity intends
to sell an asset at the end of its useful life. Residual value should be reviewed at least at the end
of each fiscal year35.
Amortisation should begin from the moment when an intangible asset becomes available for
use, i.e. when its location and condition provide the possibility of its use in accordance with the
intentions of the management of a company. Amortisation should cease at the earlier of the two
dates:
the date when the asset is classified as held for sale (or included in a disposal group
classified as held for sale) in accordance with IFRS 5;
at the date of its derecognition.
34 Paragraph104 of IAS 38 “Intangible assets” of May 12th, 2014; paragraph 18.21 IFRS for SMEs, IASB, ed. 2015 35 Paragraph102 of IAS 38 “Intangible assets” of May 12th, 2014; paragraph 18.20 IFRS for SMEs, IASB, ed. 2015
28
Decree № 37/18/6, in contrast to IAS 38 for intangible assets, establishes a useful life of at
least 12 months. At the same time, contrary to this international standard, the Belarusian regulation
does not require an annual check on the useful life of intangible assets, but it can be reviewed if
an asset’s functioning is prolonged or resumed36. The factors that should be taken into account in
Decree № 37/18/6 when assessing the useful life of intangible assets are not clearly described as
it done in IAS 38. According to the Belarusian act, the useful life of these assets is determined
based on the following:
expected physical wear and tear, depending on conditions of production: operating mode
(number of shifts), environmental impact;
obsolescence as a result of increase in efficiency of newly introduced similar assets;
restrictions on the use of an asset.
The decision is made by the depreciation commission based on the specified conditions,
reproduction needs, approved business plans, plans for technological renewal and restructuring of
production, established competitiveness of goods, products, works, services. Obviously, the list of
factors listed in IAS 38 is much wider than that presented in Decree № 37/18/6.
Moreover, the Decree put limits on maximum useful life duration of different groups of
assets37:
intellectual property designations – up to 40 years;
for industrial property rights – up to 20 years;
other intangible assets – up to 10 years.
The methods of amortisation calculation of intangible assets correspond to the methods
prescribed by IAS 38. Unlike the international standard, the Decree does not require to revise the
method of amortisation of intangible assets.
The procedure for evaluation of the depreciable amount of intangible assets in domestic and
international standards is somewhat different. Decree № 37/18/6 does not include residual value
(which is used in IAS 38) when calculating the depreciable amount. In this regard, the amount of
amortisation of intangible assets calculated in accordance with Belarusian accounting standard
may be higher than the amount of amortisation defined in accordance with IAS 38.
There is no indefinite useful life duration mentioned in Decree № 37/18/6, which means that
every item of intangible asset should be amortised all other conditions being equal.
In IFRS and national accounting standards, the dates of beginning and cease of the amortization
36 Paragraph 24 of Decree of the Ministry of Economics, Ministry of Finance, Ministry of Architecture № 37/18/6
“On depreciation of PPE and amortization of intagible assets” 37 Paragraph 20 of Decree of the Ministry of Economics, Ministry of Finance, Ministry of Architecture № 37/18/6
“On depreciation of PPE and amortization of intagible assets”
29
of intangible assets do not coincide. In contrast to IAS 38 for Decree № 37/18/6, amortisation
starts on the 1st day of the month following the month when these assets are booked (and not from
the moment when these intangible assets become available for use). Amortisation of intangible
assets according to Decree № 37/18/6 cease from the 1st day of the month following the month of
full amortisation or derecognition of these assets from accounting (and not earlier than two dates:
a) on the date of classification of these assets as held for sale or b) on the date of their derecognition
- as provided for by IAS 38).
1.2.2.2 Revaluation
According to paragraph 17 of Decree №25, cost of intangible assets is not subject to change,
except for cases established by law. Decree № 25 discloses one of the cases of change in the initial
value of these assets, namely, their revaluation at the current market value when it can be reliably
measured from the active market data of these assets.
To carry out revaluation of intangible assets in Belarus in practice is hard if not impossible
due to immaturity of the market for the vast majority of intangible assets. The reasons for this lie
in some types of intangible assets, and in the insufficiency of the number of producers for these
types of assets. Intangible assets items such as copyright, as well as items of industrial property
law (inventions, industrial designs, production secrets, etc.), The results of scientific and technical
activities have unique characteristics, are made in single copies and can not be repeated in other
assets of this type. The market for these assets is represented by single copies of the product and
operates in the absence of competition or slight competition. Thus, pricing of assets of this type
can not be of a market nature, where the ratio of supply and demand is crucial38.
Some types of intangible assets, such as computer software and databases, are represented on
the market by several development companies. However, at present, the market for each type of
software is controlled by certain companies. Prices in such conditions are not determined by the
influence of market factors but are set by developers on a cost basis and are often tied to the dollar
(euro) rate. Therefore, their value remains relatively stable and changes mainly with the change in
the exchange rate of the national currency. As a result, the revaluation of intangible assets at market
value is also virtually impossible.
Similar to IAS 16, IAS 38 allows companies to use to model after recognition39:
cost model;
revaluation model.
38 Zubkov A.S., 2017 Changing the value of intangible assets. Glavnaya kniga, 24, p. 5 39 Paragraph 74 of IAS 38 “Intangible assets” of May 12th, 2014
30
If revaluation model is chosen, an asset should be carried at a revalued amount, which is fair
value less any accumulated amortisation and impairment loss. The frequency is not prescribed, but
it is required to perform revaluations that by the end of reporting year an asset carrying amount
would not differ materially from its fair value40. Belarusian standard allows to revalue assets just
once per year.
1.2.2.3 Impairment
Based on the principle of prudence41 in the process of accounting and the preparation of
financial statements it is necessary to ensure that the accounting estimate of the assets and income
of an organization is not overstated.
In order to comply with this requirement under BY GAAP, an organization is entitled, on the
basis of a decision of its manager, to recognize at the end of the reporting period the amount of
impairment of intangible assets42. It must be equal to the amount of the excess of the residual value
of the asset over its recoverable amount. This requires the availability of documentary evidence of
indicators of impairment of the asset and the ability to reliably determine the amount of the
impairment.
Thus, recognition of impairment is a right in the Republic of Belarus, and not an obligation
for organizations. This is a much more liberal approach than in International Financial Reporting
Standards, where testing certain assets for impairment is mandatory, and if there are relevant
indicators, PPE and intangible assets, should be accounted for at cost less accumulated
depreciation impairment losses.
In particular, paragraph 9 of IAS 36 specifies that an entity should assess at the end of each
reporting period whether there are any signs of impairment of assets. If any such indication
exists, the entity must estimate the asset's recoverable amount.
Regardless of whether there are any indications of impairment, the entity also43:
tests an intangible asset with an indefinite useful life or an intangible asset that is not yet
ready for use for impairment annually by comparing its book value with the recoverable
amount.
This impairment test may be carried out at any time during the annual period, provided that it is
held at the same time every year. Various intangible assets can be tested for impairment at different
40 Paragraph 75 of IAS 38 “Intangible assets” of May 12th, 2014; paragraph 18.21 IFRS for SMEs, IASB, ed. 2015 41 Paragraph 2.16 of “Conceptual Framework for financial reporting” issued by IASB, March 2018; section 3,
paragraph 8 of “Accounting and reporting Act” of July 12th 2013 57-Z 42 Paragraph 18 of Decree of the Ministry of Finance of the Republic of Belarus of April 30th, 2012 №25
"Concerning approval of the instruction on intangible assets accounting" 43 Paragraph 10 of IAS 36 “Impairment of assets” of May 29th, 2013; paragraph 27.7 IFRS for SMEs, IASB, ed.
2015
31
times. However, if such an intangible asset was initially recognized during the current annual
period, then it should be tested for impairment before the end of the current annual period;
tests goodwill acquired in a business combination for impairment annually.
In IAS 36, it is noted that the ability of an intangible asset to produce future economic benefits
in an amount sufficient to recover its carrying amount is usually subject to greater uncertainty
before the asset is started to be used than after the start of its use. Therefore, IAS 36 prescribes that
an entity should conduct an impairment test at least once a year for the carrying amount of an
intangible asset that is not yet ready for use44.
A company under IFRS framework should test an intangible asset with an indefinite useful life
for impairment by comparing its recoverable amount with its book value annually, as well as every
time when there are indications of a possible impairment of the intangible asset45.
Under BY GAAP an entity should specify in its accounting policy whether it will apply the
asset depreciation procedure. If impairment of assets is foreseen, then the accounting policy should
also indicate the procedure for determining the discount rate.
If there are indications of impairment, a recoverable amount of an item of intangible assets at
the end of the reporting period is determined as the higher of the current market value of the item
less the estimated costs directly related to its sell and the value in use.
The calculation of value in use is similar to that, described in the chapter 1.1.2.2, hence, there
is no need for the further clarification.
1.2.3 Goodwill
Belarusian legislation did not define goodwill before January 1st, 2015, when National
Standard №46 “Consolidated financial statement” (hereinafter - Standard №46) was implemented.
In the previous years accountants did not have the opportunity to recognize goodwill as a separate
item of financial statement.
This standard defines goodwill as an asset arising at the date of acquisition in the amount of
excess of investments of a parent company in the authorized capital of a subsidiary or associated
company over the value of the share capital of a subsidiary or associated company owned by the
parent company46.
According to paragraph 13 of Standard №46, goodwill is included in the consolidated
statement as an item of fixed assets.
44 Paragraph 11 of IAS 36 “Impairment of assets” of May 29th, 2013; paragraph 27.10 IFRS for SMEs, IASB, ed.
2015 45 Paragraph 108 of IAS 38 “Intangible assets” of May 12th, 2014; paragraph 27.9 IFRS for SMEs, IASB, ed. 2015 46 Paragraph 2 of National Standard №46 issued by the Ministry of Finance of the Republic of Belarus of June 30th,
2014
32
Under IFRS there are two standards that define the treatment of goodwill. IFRS 3 “Business
combinations” defines goodwill as an asset representing the future economic benefits arising
from other assets acquired in a business combination that are not individually identified and
separately recognized47. This standard sets out the principles on the recognition and measurement
of assets and liabilities acquired through a business combination and the determination of
goodwill. It requires an acquirer to recognize goodwill as the difference between:
the aggregate of: the consideration transferred measured in accordance with this IFRS,
which generally requires acquisition‑date fair value; the amount of any non‑controlling
interest in the acquire measured in accordance with this IFRS; and in a business
combination achieved in stages, the acquisition‑date fair value of the acquirer’s previously
held equity interest in the acquiree.
the net of the acquisition‑date amounts of the identify able assets acquired and the
liabilities assumed measured in accordance with this IFRS.
1.2.4 Derecognition and disposal
According to paragraph 112 of IAS 38 an intangible asset should be derecognized in two
cases: on its disposal or when the future economic benefits from the use of an asset are not expected
anymore.
As for Decree № 25 – it does not provide the clear situations as it is done in IAS 38, but it
establishes forms of different source documents that should be used when an item of intangible
assets is disposed, swelled or donated. Thus, it is put an emphasis on the documentation, but not
on disclosure or providing a guideline for accountants.
As a result, we can imagine a situation when an entity under IFRS should derecognize an asset
because it does not provide the company with economic benefits whereas under BY GAAP is not
required to derecognize the asset because expectation of economic benefits is an initial recognition
criterion, but it does note arise from the absence of this criteria in the future that an entity must
derecognize such a type of assets.
1.3 Inventories
1.3.1 Recognition and measurement
Inventories are a critical component of the accounting records of commercial organizations
engaged in the production and sale of products. Their assessment as an element of the
47 Appendix A to IFRS 3 “Business combinations” of October 22nd, 2018
33
organization’s current assets is taken into account when determining its solvency. The higher the
estimate of inventories recognized in a balance sheet asset, the higher a current liquidity ratio,
which is calculated as the ratio of the entity’s current assets to its current liabilities. The greater its
value, the more solvent in the eyes of stockholders is the reporting entity.
On the other hand, the accounting methodology for assessing a company’s inventories has an
impact on the users' impression of the profitability of a business entity. From this point of view,
the cost of inventories is the capitalized expenses of the entity, which form the financial result of
the reporting period at the time of their decapitalization, that is, the write-off when sales are
booked.
The change in the value of the financial result (profit or loss), that is visible to users of
financial reports, forms the opinion of the users on the profitability of the entity. After all,
profitability indicators are calculated by comparing the amount of profit with a number of
indicators: WACC, costs, revenue, equity and others.
The volume of capitalization and decapitalization of costs for the purchase (creation) of an
entity’s inventories depends on the methods of allocating costs, which are determined by its
accounting policy regarding the accounting of the entity’s inventories48.
In formulating its main objective, IAS 2 indicates that the main issue in inventory accounting
is to determine the amount of costs to be recognized as an asset and transferred to the next reporting
periods before recognizing the corresponding revenue. This means that eventually, the meaning of
all accounting methodologies in the field of inventory accounting is to distribute the costs incurred
by an entity for the purchase (creation) of stocks between the balance sheet (capitalized part that
does not decrease the profit of the reporting period) and the profit and loss statement (the
decapitalized part, which forms the profit of the reporting period). This decision determines the
values of analytical indicators to assess profitability and solvency.
An important point in applying the requirements of IAS 2 is to determine its scope. First of all,
IAS 2 defines the concept of inventories. According to IAS 2, stocks are defined as assets49:
intended for sale during the main activity of the company;
created in the course of production for sale during the main activity of the company;
representing raw materials or materials intended for use in the production process or in the
rendering of services.
Compliance with at least one of the criteria, mentioned above, allows the relevant asset to be
classified as inventories.
48 Bancevich E.E., 2014 Inventories in IFRS. Ilex, 35, p.8 49 Paragraph 6 of IAS 2 “Inventories” of December 18th, 2003; paragraph 13.1 IFRS for SMEs, IASB, ed. 2015
34
IAS 2 states that inventories acquired also include items purchased for resale. These include,
for example, goods purchased by a retailer, or land and other property held for resale. Inventories
also include work in progress, produced by an entity, raw materials and materials intended for
further use in the production process. In service companies, inventory includes the cost of unsold
services, that is, those for which the entity has not yet recognized the related revenue.
Along with the special definition of the term “inventories”, IAS 2 separately introduces two
concepts: “net realisable value” and “fair value”.
According to IAS 2, the net realisable value of inventories is the estimated selling price in the
normal course of business less selling costs50.
The fair value of inventories is the amount by which an asset can be exchanged, or an
obligation settled when a transaction is made between well-informed, willing to make such a
transaction and independent from each other parties.
Two separate definitions of these concepts in the text of IAS 2 indicates that the net realisable
value of inventories may not be equal to their fair value less costs to sell. The fact is that the net
realisable value is related to the net amount that an entity expects to receive from the sale of stocks
in the course of normal activities, that is, is determined by management decisions of a particular
company. The fair value of inventories reflects the amount for which it is theoretically possible to
exchange similar stocks in a transaction between well-informed, willing buyers and sellers in the
market to make such a deal.
IAS 2 establishes a general rule that an entity’s inventories should be booked at the lower of
two values: cost and net realisable value51. According to IAS 2, the cost of inventories includes all
the acquisition costs, processing and other costs incurred in order to bring the stocks to their current
condition and place. Thus, the idea of determining the cost is to calculate the full
amount of costs incurred to purchase or produce an item of assets, attributable to inventories. The
cost of an entity’s acquisition of inventory in IAS 2 may include their purchase price, import
customs duties and other taxes (except those that are later refunded to companies by tax authorities,
such as VAT in domestic taxation practices), as well as the costs of transportation, processing and
other costs directly related to the acquisition of the item.
Defining the accounting treatment for the cost of inventory conversion, IAS 2 sets the rules
for capitalization and decapitalization of fixed and variable, direct and indirect costs associated
with the production and processing of stocks.
According to IAS 2, fixed overhead production costs are those indirect production costs that
remain relatively constant regardless of the volume of production, such as depreciation and
50 Paragraph 7 of IAS 2 “Inventories” of December 18th, 2003; paragraph 31.8 IFRS for SMEs, IASB, ed. 2015 51 Paragraph 9 of IAS 2 “Inventories” of December 18th, 2003; paragraph 13.14 IFRS for SMEs, IASB, ed. 2015
35
maintenance of buildings and equipment and administrative and management costs.
Variable overhead production costs are those indirect production costs that are directly or
almost directly dependent on changes in the volume of production, such as raw materials costs and
indirect labor costs.
The procedure for assigning fixed costs to the units of production is determined by the
accounting policy of the entity, which should take into account the specifics of the conditions of
its activities as much as possible.
A calculation of the fixed costs of the company attributable to the expenses of the reporting
period affects the amount of profit for the current reporting period. The more fixed costs are
recognized as an expense (decapitalized), the lower the profit and, accordingly, the entity's
profitability indicators are more modest.
IAS 2 contains a special list of examples of costs that are not attributable to the cost of
inventories but are recognized as expenses in the period in which they are incurred. These
include52:
above-limit loss of raw materials, labor or other production costs;
storage costs, unless they are necessary in the production process to proceed to the next
stage;
administrative overhead costs that are not related to bringing stocks to their present location
and condition;
costs of sale.
Another important aspect of inventory accounting in accordance with IAS 2 is the choosing a
method for measurement of interchangeable inventories, which allows to determine the cost of
inventories transferred to production (or sale), the batches of which have different acquisition price
or cost price. At the same time, it is important that IAS 2 establishes a general rule that the cost of
individual stock items that are not interchangeable, as well as goods and services intended for
special projects, should be determined by identifying individual item of inventories and costs. IAS
2 states that the calculation of actual costs for specific inventory units means that certain stocks
are allocated to certain items of expenses. IAS 2 determines that when there is a large amount of
inventories that can be interchanged, to obtain predetermined effects on P/L the method of
selecting those inventories that remain capitalized in the balance sheet can be used. IAS 2
establishes that the cost of inventories, which are interchangeable and do not belong to the group
of inventories that are intended for special projects, is determined by the FIFO method (first in -
first out, the first purchased - the first sold) or by the weighted average cost method. At the same
52 Paragraph 16 of IAS 2 “Inventories” of December 18th, 2003; paragraph 13.13 IFRS for SMEs, IASB, ed. 2015
36
time, according to IAS 2, an entity is required to apply the same valuation methods for all
inventories of similar nature53.
The meaning of these methods is familiar to domestic accounting specialists. In accordance with
Decree of the Ministry of Finance of the Republic of Belarus of November 12th 2010 №133
"Concerning approval of the instruction on inventory accounting"(hereinafter - Decree №133), the
cost method for accounting of raw materials, materials and other material resources is made in
accordance with the accounting policies adopted by an entity and includes the following methods:
by average prices; accounting prices, taking into account deviations from their actual value; at first
purchase prices (FIFO)54.
Thus, the domestic accounting practice suggests the possibility of using a larger number of
methods for estimating decapitalization of inventories than provided by IAS 2.
The use of inventory valuation methods (FIFO or average prices) can change the
measurement of two indicators of financial statements: financial result and the value of inventories
as an item of an entity’s current assets.
IAS 2 determines that when using the FIFO method, stocks purchased or produced first
will be written off first, respectively, inventories remaining in the balance sheet at the end of the
reporting period were the last to be acquired or produced. At the same time, it is of fundamental
importance that the FIFO method does not allow to take into account the effect of inflation rates
in the market. In this method, inventories are written-off at "outdated" prices that do not reflect
their current value, or, in other words, the cost of resources necessary for the continuation of the
entity’s activities. At the same time, stocks reflected at the end of the reporting period in the asset
balance, on the contrary, receive an estimate as close as possible to their replacement cost. Since
the latter is closer to a fair assessment, the FIFO method, which focuses on the informational
priority of the balance sheet over the profit and loss statement, in conditions of significant price
movements is more consistent with the task of presenting information about the entity’s solvency
compared to evaluating the profitability.
Using the method of average prices allows to level the effect of the dynamics of prices for
accounting information. According to the weighted average cost method, the cost of each item of
decapitalized inventories is determined from the weighted average cost of similar items at the
beginning of the period and the cost of the same stocks purchased or produced during the period.
The average value can be calculated on a periodic basis or upon purchase of each additional batch,
depending on the circumstances of the company.
53 Paragraph 25 of IAS 2 “Inventories” of December 18th, 2003; ; paragraph 13.18 IFRS for SMEs, IASB, ed. 2015 54 Paragraph 14 of Decree of the Ministry of Finance of the Republic of Belarus of November 12th 2010 №133
"Concerning approval of the instruction on inventory accounting"
37
The use of methods of accounting prices, taking into account deviations from their actual value
for inventories released into production or written off for other purposes can be carried out in
domestic practice with the following options:
based on the average monthly actual cost, the calculation of which includes the quantity
and cost of materials at the beginning of the month and all purchases for the month
(reporting period);
by determining the actual cost of the material at the time of its release, when the calculation
of the average price includes the amount and cost of materials at the beginning of the month
and all purchases until the release.
The option of calculating the average prices of materials should be disclosed in the accounting
policies of the organization.
According to IAS 2, the cost of inventories may not be recoverable if these stocks are
damaged, if they are completely or partially obsolete, or if their possible selling price has
decreased. IAS 2 states that entities must revaluate inventories to the net realisable value (contrary
to Decree №133)55, which follows the general rule of international standards, according to which
assets should not be taken into account above the amounts expected from their sale or use. IAS 2
defines a number of requirements for calculating the net realisable value of inventories. It is
important to remember that the net realisable value of inventories is not a possible selling price,
but the difference between the estimated possible selling price and the value of the expected
possible costs associated with their sale. The net realisable value of inventories held for sale of
rendering of services is based on the price determined in contracts. If the sales contract is for less
than stocks, then the net realisable value of the remaining part of the stocks is based on the general
level of the selling prices. If inventories are expected to be sold not lower than the cost, then raw
materials and other materials in the stocks, which may be included in the cost price of such
products, are not impaired below their cost price. However, when the reduction in the price of raw
materials indicates that the cost of finished products exceeds the net realisable value, that is, the
possible selling price (minus the cost of sales), then the raw material is written down to the net
realisable value. In this case, the best measurement of the net realisable value is determined the
cost of replacing the raw materials.
In each reporting period, a new assessment of the net realisable value of stocks should be
made. In cases when the circumstances that caused the need to write down inventories ceased to
exist or when there was evidence of an increase in the net realisable value of stocks due to changes
in economic conditions, the corresponding amount of the write-down should be reversed to the
55 Paragraph 28 of IAS 2 “Inventories” of December 18th, 2003; paragraph 13.4 IFRS for SMEs, IASB, ed. 2015
38
extent of the original write-down to bring the new value to the lesser of two values: cost or revised
net realisable value. Also, IAS 2 indicates that any amount of reversal of the write-down
(decapitalized) cost of inventories caused by an increase in net realisable value should be
recognized as a decrease in the value of inventories recognized as an expense (decapitalized)
during the period of reversal.
The ability to use different methods of inventory valuation provided by IAS 2 makes it
necessary to include in IAS 2 prescriptions on what information should be disclosed in financial
statements of entities applying it. An important aspect is the disclosure of the contents of the
accounting policies adopted for valuation of inventories, including the method used to calculate
their cost and method for evaluating interchangeable inventories.
The conducted study allows to conclude that the approaches to the assessment of objects
of decapitalized inventories in the national accounting system of the Republic of Belarus do not
contradict international experience and accounting standards.
39
CHAPTER II. EVALUATION OF THE IMPLEMENTAION OF
INTERNATIONAL FINANCIAL REPORTING STANDARDS
AND ITS IMPACT ON FINANCIAL REPORTING OF BEK-
EXPERT
2.1 Company profile
BEK-Expert JLLC is one of the divisions of the FEC group of companies, the share of foreign
investments in the authorized capital of the company is 99%.
The company was established in accordance with the legislation of the Republic of with the aim
of carrying out economic activities aimed at making a profit.
FEC group of companies is the largest supplier of foreign electronic components for the
development, production and repair of consumer and industrial electronics in the Republic of
Belarus. The head office is located in Minsk. The range of goods supplied is more than 300
thousand items and is divided into the following main groups:
- optoelectronic devices and display elements;
- capacitors, resistors;
- relays;
- connectors;
- transformers, fuses, fans, etc.;
- components for the repair of consumer and industrial electronics;
- measuring devices, power supply equipment, etc.;
- housing for electronic equipment.
There is a huge range of components supplied from leading global manufacturers:
- digital, analog and specialized chips: Motorola, Fairchild, Infineon Technologies, National
Semiconductor, ON Semiconductor, Texas Instruments, Toshiba, Vishay, Intersil,
STMicroelectronics, MAXIM, Fujitsu, Liner Technology;
- power electronics: IGBT, MOSFET, Power MOSFE, International Rectifier, Semikron, Vishay,
Motorola, Toshiba, IXYS, EUPEC;
- optoelectronics: LITE-ON, KingBright, Vishay, Agilent Technologies, Rohm, Infineon, Para
Light;
- passive components: Vishay, Epcos, Murata, Rohm, BC Components, Yageo, Phycomp;
- connectors and terminal blocks: Tyco Electronics AMP Gmbh, Molex, WAGO, Excel Cell,
Schlemmer, HTS;
40
- buttons and switches: Cherry, Augat, Omron;
- optical, inductive and capacitive sensors: Turck, LEM;
-relay: Telecom, Reed, industrial, automotive, Tyco Electronics, Axicom, Tyco Electronics,
Schrack, Relpol, Omron, Meder, NAIS;
- coils: Murata, Vishay, Epcos, Siemens;
- buzzer, piezo emitters: Hitpoint;
- network transformers, small-sized: Marschner, MYRRA;
- a wide range of domestic electronic components.
An important role in the effective and profitable work of BEK-expert is played by a rational
work organization and a well established management system.
The structure of management of the organization is determined in the management scheme,
in the organizational charts. The company is managed in accordance with the current legislation
and the company statute.
According to the organizational charts as of 01.01.19. the number of employees of the
company was 18 people. Financial and economic work at BEK-expert is organized and carried out
by the financial and economic departments.
The level of automation of the company's management process is at a fairly high level.
Accounting is performed in the software “1C: Enterprise 7.7”.
2.2 Methodology
In this chapter the cases from the business activity of BEK-expert are represented to evaluate
the impact of different accounting frameworks on financial statements. This part captures 7 years
of the company’s activity starting from 2012. Accounting treatment of a particular assets is shown
in the tables in the form of journal entries and comments to these tables. For this purpose,
information from the company’s general ledger has been used to represent the treatment under BY
GAAP, and the author’s computations derived from the international accounting standards are
used to evaluate the transaction happened according to IFRS. Recommendations are given based
on the conducted study.
2.3 Case study I: Acquisition of PPE. Depreciation charge. Repairment costs
2.3.1 Case summary
BEK-expert in May 2014 entered into a contract with a third-party contractor. According to
the agreement the contractor should make a street led advertisement banner (dimensions are 6 m
x 0.89 m), which will be located directly on its office roof, the cost of work is 3,160 BYN
(including VAT 527 BYN), installation costs are 474 BYN (including VAT - 79 BYN). The work
41
on creating the asset were done on 26 May, 2016 and all the documents for accounting purposes
were received on the same day. The banner was shipped to the customer location and installed on
27 May, 2016.
2.3.2 Recognition and initial measurement
First of all, we need to check whether this banner meets all the requirements to be recognized
as an item of PPE; the comparison of the PPE recognition requirements is represented in Table 1:
Table 1. The recognition criteria for PPE under IFRS and BY GAAP
Decree №26 IAS 16
Used in the company’s business activities
Probable that future economic benefits associated with the asset will flow to the company
Cost can be measured reliably
Intended for use during more than 12 months Expected to be used during more than one
period
Not expected to be sold within 12 months -
Source: Author’s own comparison based on IAS 16 and Decree №26
Thus, both domestic and international accounting standards allows to recognize the item as
PPE, besides, both accounting approaches capitalize costs of installation and as it follows, in Table
2 we can see the following entries:
Table 2. Journal entries at the recognition
Date Transaction Debit Credit Amount (BYN)
27.05.2014 The item received, put in use and recognized as PPE
PPE
AP
3,028
27.05.2014 Input VAT is booked Input VAT AP 606
Source: BEK-expert’s journal entries based on IAS 16 and Decree №26
2.3.3 Subsequent measurement. Depreciation
Depreciation in domestic accounting starts in the month, following the date when an asset was
put in use which differs from IFRS, where it begins, when the asset is available for use or, more
precisely, when the asset is in the desired condition and location which perfectly meets our case.
Thus, in domestic accounting Depreciation starts in June and according to IFRS it starts in May.
The commission on depreciation decided to determine the asset’s useful life equal to 5 years
according to Decree №161 and straight-line method was chosen for the asset’s depreciation as it
reflects the pattern of future economic benefits consumption. We assume the same decision is
made by accountants following the IFRS rules. The only difference arising here is that domestic
depreciation starts in June and international depreciation begins in May.
42
It is assumed that zero residual value is used according to IFRS (due to the high level of the
asset’s customization which results in inability to sell it) and according to domestic standards the
company uses its right not to apply residual value concept.
The entries represented in Table 3 appear on the company’s accounts during the asset’s useful
life on a monthly basis:
Table 3. Journal entries on the depreciation
Date Transaction Debit Credit
Amount (BYN) BY GAAP IFRS
Last day of each month starting from
June 2014 (last charge is on May
2019)
Last day of each month starting from May 2014 (last charge is on April
2019)
Depreciation charge
P/L Accumulated depreciation
50.47*
Source: BEK-expert’s journal entries based on IAS 16 and Decree №37/18/6. Note: *3,028/60
2.3.4 Repairment costs
In December 2016 after a windstorm the metal construction of the banner as well as the light
emitting diode array was damaged and needed to be replaced. Repairing was performed on 26
December, 2016 by an external company and costed 450 BYN (including VAT of 75 BYN).
Decree №26 and Decree №37/18/6 offer different treatment for the costs incurred during
modernization and repairment. Repairment can not be capitilized in contrast with IAS 16,
paragraph 13, which allows to capitalize some repair costs if they meet recognition criteria.
Domestic legislation defines repairment as an activity aimed at restoring performance of an asset,
and modernization is aimed at improving it. Therefore, there are two different ways to account for
this transaction. In Table 4 it is represented accounting of repairment under domestic standards:
Table 4. Journal entries on the repairment costs incurred under BY GAAP
BY GAAP
Date Transaction Debit Credit Amount (BYN)
26.12.2016 Repairment costs P/L AP 374
26.12.2016 Input VAT is booked Input VAT AP 76
Source: BEK-expert’s journal entries based on Decree 26 and Decree №37/18/6
In IFRS parts that are replaced during a repair should be derecognized according to paragraph
13 of IAS 16. In addition, paragraph 70 of IAS 16 allows to determine amount of replaced parts
equal to the replacement costs. Thus, in Table 5 we obtain the following entries:
Table 5. Journal entries on the repairment costs incurred under IFRS
IFRS
Date Transaction Debit Credit Amount (BYN)
26.12.2016 Repairment costs PPE AP 374
26.12.2016 Input VAT is booked Input VAT AP 76
26.12.2016 Derecognition of the
replaced parts P/L PPE 374
Source: Author’s own computations based on IAS 16
43
2.3.5 Useful life review under IFRS
Domestic legislation does not allow to review an asset’s useful life after repairments even it
gives the right to review it in the beginning of every financial year (paragraph 24 of Decree
37/18/6). In turn, paragraph 51 of IAS 16 requires to review an asset’s useful life at least at each
financial year-end. Let’s assume, the company reviewed the asset’s useful life and defined it equal
to 7 years. As a result, starting from January 2017 the depreciation charge for the assets will differ
from the one, calculated according to IFRS (see Table 6).
Table 6. Journal entries on the depreciation after review
Date Transaction Debit Credit Amount (BYN)
BY GAAP: last day of each month starting from June 2014 Depreciation
charge P/L
Accumulated depreciation
50.47*
IFRS: last day of each month starting from January 2017
27.17**
Source: Author’s own computations based on IAS 16. Note: *3,028/60; **1,413/52
Carrying amount of the asset by the date of its useful life revision equals 3,028 −
(50.47 × 32) = 1,413 and the remaining useful life is not 28 months as it was before revision,
but 24 months more. Thus, we devide the carrying amount by the remaining useful life in months
(52) and get a new depreciation charge.
Table 7 sums up the transactions happened in 2014 under IFRS and BY GAAP and shows the
year-end difference in the asset’s carrying amount.
Table 7. Journal entries for the year 2014
2014
Date Transaction
IFRS BY GAAP
Dr Cr Amount (BYN)
Dr Cr Amount (BYN)
27.05.2014 PPE received
and recognized
PPE AP 3028 PPE AP 3028
27.05.2014 Input VAT
booked Input VAT
AP 606 Input VAT
AP 606
31.05.2014- 31.12.2014
Depreciation charge
P/L Accumulated depreciation
403,76 P/L Accumulated depreciation
353,29
Closing balance carrying amount
2624,24 2674,71
Source: Author’s own computations based on IAS 16, BEK-expert’s journal entries based on Decree 26
and Decree №37/18/6
The asset’s carrying amount is higher because of the earlier starting date of the depreciation
under IFRS; the impact on the balance sheet and profit and loss statement: both IFRS and BY
GAAP recognize 3б028 BYN the same cost of PPE in the balance sheet, but since under IFRS
depreciation starts earlier, the carrying amount under BY GAAP will be more: 2,674.71 BYN
against 2,624.24 BYN under IFRS reporting, and 353.29 BYN and 403.76 BYN will be recognized
as items of P/L under BY GAAP and IFRS respectively.
44
Table 8 sums up the transactions happened in 2015 under IFRS and BY GAAP and shows the
year-end difference in the asset’s carrying amount.
Table 8. Journal entries for the year 2015
2015
Date Transaction
IFRS BY GAAP
Dr Cr Amount (BYN)
Dr Cr Amount (BYN)
31.01.2015- 31.12.2015
Depreciation charge
P/L Accumulated depreciation
605.64 P/L Accumulated depreciation
605.64
Closing balance carrying amount
2,018.6 2,069.07
Source: Author’s own computations based on IAS 16, BEK-expert’s journal entries based on Decree 26
and Decree №37/18/6
The asset’s carrying amount is higher because of the earlier starting date of the depreciation
under IFRS; the impact on the BS and P/L: since under IFRS depreciation starts earlier, the
carrying amount under BY GAAP will be more: 2069.07 BYN against 2018.6 BYN under IFRS
reporting, and the same amount of 605.64 BYN will be recognized as items of P/L under both
approaches.
Table 9 sums up the transactions happened in 2016 under IFRS and BY GAAP and shows the
year-end difference in the asset’s carrying amount.
Table 9. Journal entries for the year 2016
2016
Date Transaction
IFRS BY GAAP
Dr Cr Amount (BYN)
Dr Cr Amount (BYN)
26.12.2016 Repairment PPE AP 374 P/L AP 374
26.12.2016 Input VAT Input VAT
AP 76 Input VAT
AP 76
26.12.2016 Derecognition of the replaced
parts P/L PPE 374
-
31.01.2016- 31.12.2016
Depreciation charge
P/L Accumulated depreciation
605.64 P/L Accumulated depreciation
605.64
Closing balance carrying amount
1,412.96 1,463.43
Source: Author’s own computations based on IAS 16, BEK-expert’s journal entries based on Decree 26
and Decree 37/18/6
The asset’s carrying amount is higher because of the earlier starting date of the depreciation
under IFRS; the impact on the BS and P/L: since under IFRS depreciation starts earlier, the
carrying amount under BY GAAP will be more: 1,463.43 BYN against 1,412.96 BYN under IFRS
reporting, and the same amount of 979.64 BYN will be recognized as items of P/L under both
approaches.
Table 10 sums up the transactions happened in 2017 under IFRS and BY GAAP and shows
the year-end difference in the asset’s carrying amount.
45
Table 10. Journal entries for the year 2017
2017
Date Transaction
IFRS BY GAAP
Dr Cr Amount (BYN)
Dr Cr Amount (BYN)
31.01.2017- 31.12.2017
Depreciation charge
P/L Acc.
depreciation 326.04 P/L
Acc. depreciation
605.64
Closing balance carrying amount
1,086.92 857.79
Source: Author’s own computations based on IAS 16, BEK-expert’s journal entries based on Decree 26
and Decree №37/18/6
The asset’s carrying amount is higher because of the earlier starting date of the depreciation
under IFRS and the depreciation charge had changed as a result of reviewed useful life; the impact
on the BS and P/L: after review of the asset’s useful life, the depreciation charge has changed and
as a result by the end of month we obtain the higher carrying amount under IFRS: 1,086.92 BYN
against 857.79 BYN under BY GAAP reporting, and 326.04 BYN and 605.64 BYN will be
recognized as items of P/L under IFRS and BY GAAP respectively.
Table 11 sums up the transactions happened in 2018 under IFRS and BY GAAP and shows
the year-end difference in the asset’s carrying amount.
Table 11. Journal entries for the year 2018
2018
Date Transaction
IFRS BY GAAP
Dr Cr Amount (BYN)
Dr Cr Amount (BYN)
31.01.2018- 31.12.2018
Depreciation charge
P/L Acc.
depreciation 326.04 P/L
Acc. depreciation
605.64
Closing balance carrying amount
760.88 252.12
Source: Author’s own computations based on IAS 16, BEK-expert’s journal entries based on Decree 26
and Decree №37/18/6
By the end of the 5-year period the asset under IFRS has three times bigger carrying
amount recognized in BS and still has 28 months of the remaining useful life, whereas the asset
under BY GAAP has just 5 months remaining. It means that IAS16 allows to reflect the benefits
consumption pattern in a better way, because in May 2019 when under BY GAAP the item is fully
depreciated, it will still be in operation. Thus, the matching principle of expenses and revenues
will be violated. The impact on P/L is the following 605.64 BYN are recognized as expenses in
P/L under BY GAAP and just 326.04 BYN under IFRS.
46
2.4 Case study II: Acquisition of PPE. Borrowing costs
2.4.1 Case summary
The company in September 2013 acquired from an individual a used car worth 24,000 BYN
for management needs. The payment was made in advance on 10 September 2013, a 15-months
loan was taken for this purpose.
The loan was issued with the floating interest rate equal to the refinancing rate of the National
Bank of Belarus + 2%, without the possibility of early repayment.
The car was received by the company on September 11. On the same day, a contract of
compulsory insurance of civil liability for drivers of vehicles for a period of 15 days was signed
and the insurance premium was paid in the amount of 30 BYN.
The car is registered in the traffic police and recognized as an item of PPE on September 14.
The entity paid the fee for registration in the amount of 90 BYN. The total kilometers logged at
the date of acquisition is 16,984 km. Table 12 lists the refinancing rates set by the National Bank
of Belarus during the loan agreement.
Table 12. Refinancing rates, September 2013-June 2014
Month Rate, %
September 2013 23.5
October 2013 23.5
November 2013 23.5
December 2013 23.5
January 2014 23.5
February 2014 23.5
March 2014 23.5
April 2014 22.5
May 2014 21.5
June 2014 21.5
July 2014 20.5
August 2014 20
September 2014 20
Source: Official website of the National Bank of the Republic of Belarus
All the costs directly attributable to an acquisition of PPE are included in cost of an item both
in IAS 16 and in Decree №26. Paragraph 1 of IAS 23 specifies that only borrowing costs incurred
for a qualifying asset (an asset that takes a lot of time to get ready for its use). Domestic standard
allowed entities to capitalize borrowing costs during January 2013 - December 2016.
The useful life of the car was determined by the commission equal to 500,000 km. Units of
production depreciation method was chosen for the car. Information on the kilometers covered is
shown in Table 13. The company does not intend to use the asset for more than 5 years with an
average annual mileage of 15,000 km.
For IFRS purposes it is assumed that residual value estimated by accountants for depreciation
purposes equals to 10,000 BYN (5 years of expected use multiplied by 15,000 km and compared
47
to the useful life with respect to obsolescence). Contrary, Decree №26 does not require to use
residual value concept.
Table 13. Car usage, 2013-2018
Year Kilometers covered
2013 4,214
2014 14,629
2015 15,037
2016 16,452
2017 14,728
2018 9,269
Source: Official website of the National Bank of the Republic of Belarus
2.4.2 Recognition and initial measurement
As it was described in the first case, an asset should meet certain requirements to be
recognized as an item of PPE (see Table 14).
Table 14. The recognition criteria for PPE under IFRS and BY GAAP
Decree №26 IAS 16
Used in the company’s business activities
Probable that future economic benefits associated with the asset will flow to the company
Cost can be measured reliably
Intended for use during more than 12 months Expected to be used during more than one
period
Not expected to be sold within 12 months -
Source: Author’s own comparison based on IAS 16 and Decree №26
Table 15 represents the transactions related to the car recognition and initial measurement.
Table 15. Journal entries at the recognition under BY GAAP
BY GAAP
Date Transaction Dr Cr Amount (BYN)
10.09.2013 The loan received Bank account Loans 24,000
10.09.2013 Payment for the
asset AP Bank account 24,000
11.09.2013 The car received Investments in
fixed assets AP 24,000
11.09.2013 Registration fees paid Investments in
fixed assets AP 120
14.09.2013 Interest incurred
before the car was put in use
Investments in fixed assets
Interest expense
85
14.09.2013 The car recognized
as PPE PPE
Investments in fixed assets
24,205
31.10.2013-31.12.2013
Depreciation charge P/L Accumulated depreciation
204
31.09.2013-31.12.2013
Interest recorded Interest expense
Interest payable 1,694.77
31.12.2013 Interest capitalized PPE Interest expense
1,609.77
The item of PPE closing balance at 31.12.2013 25,814.77
The item of PPE accumulated depreciation at 31.12.2013 204
Source: BEK-expert’s journal entries based on Decree 26. Notes:*24,205/500,000*4,214; **1,694.77-85
48
Under IFRS the costs capitalized to the item of PPE are different: interest expense is not
included (see Table 16), because the car does not meet the definition of a qualifying asset under
IAS 23, paragraph 5.
Table 16. Journal entries at the recognition under IFRS
IFRS
Date Transaction Dr Cr Amount (BYN)
10.09.2013 The loan received Bank account Loans 24,000
10.09.2013 Payment for the asset AP Bank account 24,000
11.09.2013 The car received PPE AP 24,000
11.09.2013 Registration fees paid PPE AP 120
31.09.2013-31.12.2013
Depreciation charge P/L Accumulated depreciation
14,120/500,000* *4,214=119
31.09.2013-31.12.2013
Interest recorded P/L Interest payable 1,694.77
The item of PPE closing balance at 31.12.2013 24,120
The item of PPE accumulated depreciation at 31.12.2013 119
Source: Author’s own computations based on IAS 16 and IAS 23
Difference in the car’s depreciation charge is mainly due to the IAS 16 requirement to apply
residual value concept. Thus, under BY GAAP requirements the amount of 25,610.77 BYN
(25,814.77-204) was recognized in the BS, whereas under IFRS it is 24,101 BYN (24,120-119).
On the other hand, all the interest expenses in the amount of 1,694.77 BYN go directly to P/L
under IFRS, but not capitalized as it was done under BY GAAP. The journal entries for the years
2014-2018 are shown in Tables 17-20.
Table 17. Journal entries for the year 2014 under BY GAAP
BY GAAP
Date Transaction Dr Cr Amount (BYN)
31.01.2014-31.12.2014
Depreciation charge P/L Accumulated depreciation
761.71= 25,814.77/(500,000-
4,214)*14,629
31.01.2014-31.09.2014
Interest recorded Interest expense Interest payable 1,755.08
31.12.2014 Interest capitalized PPE Interest expense 1,755.08
The item of PPE closing balance at 31.12.2014 27,569.85
The item of PPE accumulated depreciation at 31.12.2014 965.71
Source: BEK-expert’s journal entries based on Decree 26 and Decree 37/18/6
In the end of 2014 the interest expense incurred was also capitalized by the end of the year
and the depreciation charge per 1 kilometer changed, whereas under IFRS there is the interest
expense that is attributed directly to P/L as a result the following amounts went to the statements:
under BY GAAP the carrying amount of 26,604.14 BYN (27,569.85-965.71) was recognized in
the balance sheet, whereas under IFRS it is 23,587.88 BYN (See Table 17). On the other hand, all
the interest expenses in the amount of 1,755.08 BYN go directly to profit and loss statement under
IFRS, but not capitalized as it was done under BY GAAP.
49
Table 18. Journal entries for the year 2014 under IFRS
IFRS
Date Transaction Dr Cr Amount (BYN)
31.01.2014-31.12.2014
Depreciation charge P/L Accumulated depreciation
413.12
31.01.2014-31.09.2014
Interest recorded P/L Interest payable 1,755.08
The item of PPE closing balance at 31.12.2014 24,120
The item of PPE accumulated depreciation at 31.12.2014 532.12
Source: Author’s own computations based on IAS 16 and IAS 23
Since the loan was paid out in 2014 and no more interest expenses were recorded on accounts
starting from 2015, there was just one entry related to the asset during January 2015- July 2018.
Table 19. Journal entries for the years 2015-2018 under BY GAAP
BY GAAP
Date Transaction Dr Cr Amount (BYN)
31.01.2015-31.12.2015
Depreciation charge P/L Accumulated depreciation
861.61
The item of PPE closing balance at 31.12.2015 27,569.85
The item of PPE accumulated depreciation at 31.12.2015 1,827.32
31.01.2016-31.12.2016
Depreciation charge P/L Accumulated depreciation
942.68
The item of PPE closing balance at 31.12.2016 27,569.85
The item of PPE accumulated depreciation at 31.12.2016 2,770
31.01.2017-31.12.2017
Depreciation charge P/L Accumulated depreciation
843.9
The item of PPE closing balance at 31.12.2017 27,569.85
The item of PPE accumulated depreciation at 31.12.2017 3,613.9
31.01.2018-31.07.2018
Depreciation charge P/L Accumulated depreciation
531.1
The item of PPE closing balance at 31.07.2018 27,569.85
The item of PPE accumulated depreciation at 31.07.2018 4,145
Source: BEK-expert’s journal entries based on Decree 26 and Decree 37/18/6
During the period represented in Table 18 just normal depreciation took place.
Table 20. Journal entries for the years 2015-2018 under IFRS
IFRS
Date Transaction Dr Cr Amount (BYN)
31.01.2015-31.12.2015
Depreciation charge P/L Accumulated depreciation
424.65
The item of PPE closing balance at 31.12.2015 24,120
The item of PPE accumulated depreciation at 31.12.2015 956.77
31.01.2016-31.12.2016
Depreciation charge P/L Accumulated depreciation
464.6
The item of PPE closing balance at 31.12.2016 24,120
The item of PPE accumulated depreciation at 31.12.2016 1,421.38
31.01.2017-31.12.2017
Depreciation charge P/L Accumulated depreciation
415.92
The item of PPE closing balance at 31.12.2017 24,120
The item of PPE accumulated depreciation at 31.12.2017 1,837.29
31.01.2018-31.07.2018
Depreciation charge P/L Accumulated depreciation
261.76
The item of PPE closing balance at 31.07.2018 24120
The item of PPE accumulated depreciation at 31.07.2018 2099,05
Source: Author’s own computations based on IAS 16 and IAS 23
50
By the end of the asset’s useful life the carrying amount under BY GAAP was equal to
23,424.85 BYN and 22,020.05 BYN under IFRS. Through 2015-2018 the amount of 3,179.29
BYN went to P/L in the form of depreciation under BY GAAP and 1,566.93 BYN under IFRS.
2.4.3 Disposal
In the beginning of August 2018 the company decided to sell the car and placed an advert on
different car-selling websites. Before the sale the car was still in use, it was sold on 28 August,
2018 for 16,500 BYN (excluding VAT).
Under IFRS there is a separate standard that classifies assets as held for sale – IFRS 5. To be
classified as held for sale an asset should meet some requirements: if it is considered that an asset
carrying amount will be recovered through a sale, but not through a continuing use, also the asset
should be available for immediate sale and the sale should be highly probable.
This perfectly meets the case; thus, the car should be accounted for as held for sale starting from
August.
Depreciation ceases for assets held for sale according to paragraph 25 of IFRS 5.
Assets should be measured at lower of its carrying amount and fair value, when classified as held
for sale. In this example for IFRS purposes the selling price is used as fair value.
Domestic legislation has the same concept of accounting for the assets, intended for sale, which is
described in Decree №25.
Besides the criteria listed in Decree №25, to be classified as held for sale, an asset should not
be used by a company and this contradicts the case. Thus, from domestic accounting’s point of
view the car is accounted for as an item of PPE (see Table 21) as it was accounted before.
Table 21. Journal entries for the car’s disposal under BY GAAP
BY GAAP
Date Transaction Dr Cr Amount (BYN)
28.08.2018 Recognized revenue
from the sale AR P/L 19,800
28.08.2018 Output VAT P/L Output VAT 3,300
28.08.2018 Accumulated
depreciation was written-off
Accumulated depreciation
PPE 4,145
28.08.2018 Carrying amount of PPE was written-off
P/L PPE 23,424.85
28.08.2018 Financial result from
the sale Loss P/L 6924.85
Source: BEK-expert’s journal entries based on Decree 26 and Decree 37/18/6. Notes:
Accounting treatment under IFRS (see Table 22) differs in the way that the asset meets the
requirements of IFRS 5 and qualified as held for sale, its depreciation cease in the month, when
it is qualified as held for sale.
51
Table 22. Journal entries for the car’s disposal under IFRS
IFRS
Date Transaction Dr Cr Amount (BYN)
01.08.2018 Accumulated
depreciation was written-off
Accumulated depreciation
PPE
2,099.05
01.08.2018 The car was
classified as held for sale
Assets held for sale
PPE 22,020.95
28.08.2018 Carrying amount of PPE was written-off
P/L Assets held for
sale 16,500
28.08.2018 Impairment recorded P/L Assets held for
sale 5,520.95*
28.08.2018 Recognized revenue
from the sale AR P/L 19,800**
28.08.2018 Output VAT P/L Output VAT 3,300
28.08.2018 Financial result from
the sale Loss P/L 5,520.95
Source: Author’s own computations based on IAS 16 and IFRS 5. Notes: *22,020.95-16,500;
**16,500*120%
Based on the example described above, it can be concluded that the domestic legislation for
borrowing costs, used during 2013-2017 contradicted the prudence concept (not to overestimate
assets) and decreased the level of relevance of financial information represented in financial
statements.
Concerning the treatment of assets held for sale it can be said that it is important for investors
and stakeholders to have information reflected in financial statement separately, when a company
decides to sell an asset. And domestic accounting standards give this opportunity, but due to some
differences in criteria needed for classification of assets as held for sale, in this example it led to
the different approaches used under IFRS and BY GAAP, which also makes a presentation of
financial statements under BY GAAP less faithful.
2.5 Case study III: Acquisition of PPE. Precious metals
2.5.1 Case summary
On 24 October, 2012 the company acquired four personal computers for the prices listed in
Table 23.
Table 23. Price list of computers acquired, BYN
Computer №1 1,105.7
Computer №2 451.83
Computer №3 377.6
Computer №4 586.25
Source: BEK-expert’s accounting data based on the delivery note
Computer №2 broke in March 2016, and in May 2016 computer №4 broke. In computer № 2,
the system unit was broken. Computer №4 - the monitor, keyboard and mouse. Repair of these
52
components was not possible. The depreciation commission decided to write off both computers.
Spare parts, that were in operating conditions, were received as a result of the write-off of these
computers.
Later, it was decided to use spare parts to create a new computer.
From the write-off of the computer № 1, a monitor, mouse and keyboard suitable for further use
were capitalized. From computer № 2 - the system unit. The cost of these components is
determined by the company based on the value of similar assets, considering the degree of wear
and tear, made up at 250 BYN (150 BYN –spare parts from computer №2). Useful life was
determined by the commission equal to 17 months.
Broken components received from the write-off of the computers were transferred to the third
party for dismantling and primary processing. The cost of services for primary processing – 57,61
BYN.
The act of the results of primary processing of scrap was received from the contractor in May
2016. According to it, the content of precious metals in the system unit, monitor, mouse and
keyboard is: gold - 0.91 g, silver - 1.62 g, palladium - 0.35 g.
The estimated prices for precious metals from 01.05.2016 amount to 1 g: gold – 81.24 BYN;
silver – 0.97 BYN; palladium – 32.34 BYN.
Scrap containing precious metals was transferred to the State Fund.
Carrying amount and accumulated depreciation of the computer № 2 under BY GAAP was 150.61
and 301.22 BYN respectively, of the computer №4 – 175.88 and 410.38 BYN respectively.
According to the accounting policy, depreciation on computers is charged on a straight-line
basis, useful life is 5 years.
When fully depreciated, computers were transferred to the third party for dismantling and
primary processing. The cost of services for primary processing – 152.71 BYN.
The act of the results of primary processing of scrap was received from the contractor in October
2017. According to it, the content of precious metals in the computers is: gold - 1.71 g, silver -
4.15 g, palladium - 0.74 g.
The estimated prices for precious metals from 01.12.2016 amount to 1 g: gold – 77.3 BYN;
silver – 1.01 BYN; palladium – 56.18 BYN. Scrap containing precious metals was transferred to
the State Fund.
2.5.1 Precious metals treatment
After the write-off of computers, it is prohibited to throw away the faulty components (system
unit, monitor, keyboard and mouse). Because they contain precious metals. And this means that
all the precious metals must be removed and handed over to the state to replenish the State Fund.
Entities are obliged to account precious metals in all types and states.
In this situation, the disassembly of the system unit, monitor, keyboard and mouse to extract
53
scrap containing precious metals was made by a third-party.
The cost of scrap is determined based on the weight of these precious metals in it (in grams)
and estimated prices for them, which are set by the Ministry of Finance. For calculation, prices are
taken on the first day of the month when scrap is accepted for accounting.
Table 24 represents the journal entries for the computers during their useful life.
Table 24. Journal entries for the computers under BY GAAP
BY GAAP
Date Transaction Dr Cr Amount (BYN)
24.10.2012 PPE received PPE AP 2,521.43
24.10.2012 Input VAT Input VAT AP 504.29
30.11.2012- 29.02.2016
Depreciation charged till March 2016
P/L Accumulated depreciation
1,680.95
March 2016 Accum. depreciation
write-off Accumulated depreciation
PPE 301.22
March 2016 Carrying amount write-
off P/L PPE 150.61
March 2016 Inventories from
disposal recognized Inventories P/L 150
31.03.2016-30.04.2016
Depreciation charge for the remaining 3
computers P/L
Accumulated depreciation
68.99
May 2016 Accum. depreciation
write-off Accumulated depreciation
PPE 410.38
May 2016 Carrying amount write-
off P/L PPE 175.88
May 2016 Inventories from
disposal recognized Inventories P/L 100
31.05.2016 Depreciation charge for
the remaining 2 computers
P/L Accumulated depreciation
24.72
May 2016 New item of PPE was
created PPE Inventories 250
March-May 2016
Precious metals received
Inventories P/L 86.82*
March-May 2016
Cost of the precious decapitalized
P/L Inventories 86.82
March-May 2016
Revenue from transferring the
precious metals was recognized
AR P/L 86.82
March-May 2016
Costs from extracting of precious metals
recognized P/L AR 57.61
30.06.2016- 31.10.2017
Depreciation charge P/L Accumulated depreciation
670.28
31.10.2017 Accum. depreciation
write-off Accumulated depreciation
PPE 1733.35
October 2017 Precious metals
received Inventories P/L 177.95 **
October 2017 Cost of the precious
decapitalized P/L Inventories
177.95
October 2017
Revenue from transferring the
precious metals was recognized
AR P/L 177.95
October 2017 Costs from extracting
of precious metals recognized
P/L AR 152.71
Source: BEK-expert’s journal entries based on Decree 26, Decree 34 and Decree 37/18/6 Notes: *(0.91 x
81.24) + (1.62 x 0.97) + (0.35 x 32.34);** (1.71 x 77.3) + (4.15 x 1.01) + (0.74 x 56.18)
54
Even under IFRS the company should follow legislation of its residence and account precious
metals as it is stated in Decree №34.To account for precious metals under IFRS the concept of
residual value should be used as it is required by paragraph 6 of IAS 16. The company can use
technical documentation of PPE to make an estimation of the value of precious metals.
Moreover, this residual value should be reviewed annually according to paragraph 51 of IAS
16. For this purpose, prices for precious metals published by the Ministry of Finance can be used
(see Table 25).
Table 25. Prices for precious metals set by the Ministry of Finance of Belarus
Date\Price Gold (BYN) Silver (BYN) Palladium (BYN)
31.12.2012 44.85 0.84 15.93
31.12.2013 35.6 0.57 20.65
31.12.2014 39.19 0.54 26.62
31.12.2015 58.48 0.78 30.37
31.12.2016 71.95 1.01 46.31
Source: Official website of the Ministry of Finance of the Republic of Belarus
Besides, for the purposes of determining the residual value and its annual reviewing the
information on precious metals in the computers acquired can be found in Table 26.
Table 26. Content of precious metals in the computers acquired
Gold, g Silver, g Palladium, g
Computer №1 0.96 1.65 0.38
Computer №2 0.92 1.62 0.36
Computer №3 0.90 1.59 0.34
Computer №4 0.90 1.60 0.34
Source: Technical documentation of the computers
For the computer, created from the spare parts, containing of the precious metals is determined
as an average of its “parental” computers: №2 and №4.
Multiplying the data from these two tables above we will obtain residual value of the
computers for each year in use (see Table 27).
Table 27. Residual value for the computers for IFRS purposes, BYN
Date\Residual value Computer №1 Computer №2 Computer №3 Computer №4
31.12.2012 51.50 50.36 50.12 51.13
31.12.2013 43.96 43.11 42.97 43.97
31.12.2014 49.63 48.51 48.18 49.19
31.12.2015 69.97 68.00 67.20 68.21
31.12.2016 89.34 86.50 85.11 86.12
Source: Author’s own computations based on the data from Tables 23 and 24
In consideration of the matters described above, Table 28 represents the accounting treatment
of the computers and the precious metals they contain in accordance with IFRS
55
Table 28. Journal entries for the computers under IFRS
IFRS
Date Transaction Dr Cr Amount (BYN)
24.10.2012 PPE received PPE AP 2,521.43
24.10.2012 Input VAT Input VAT AP 504.29
31.10.2012- 29.02.2016
Depreciation charged till March 2016
P/L Accumulated depreciation
1,584.46
March 2016 Accum. depreciation
write-off Accumulated depreciation
PPE 274.38
March 2016
Carrying amount write-off
(excluding residual value)
P/L PPE 109.45
March 2016 Inventories from
disposal recognized Inventories P/L 150
31.03.2016-30.04.2016
Depreciation charge for the remaining 3
computers P/L
Accumulated depreciation
58.33
May 2016 Accum. depreciation
write-off Accumulated depreciation
PPE 381.8
May 2016 Carrying amount
write-off P/L PPE 136.24
May 2016 Inventories from
disposal recognized Inventories P/L 100
May 2016 New item of PPE was
created PPE Inventories 250
March-May 2016
The precious metals capitalized in inventories
Inventories P/L 136.21
March-May 2016
Revenues from precious metals
AR P/L 86,82*
March-May 2016
The precious metals were decapitalized
P/L Inventories 136.21
March-May 2016
Costs from extracting of precious metals
recognized P/L AR 57.61
31.05.2016- 30.09.2017
Depreciation charge P/L Accumulated depreciation
483.98
30.09.2017 Accum. depreciation
write-off Accumulated depreciation
PPE 1,470.59
30.09.2017
Carrying amount of depreciated
computers was written-off and
precious metals capitalized in inventories
P/L PPE
262.76
Inventories P/L
October 2017 Revenues from precious metals
AR P/L 161.5**
October 2017 The precious metals were decapitalized
P/L Inventories 262.76
October 2017 Costs from extracting
of precious metals recognized
P/L AR 152.71
Source: Author’s own computations based on IAS 16. Notes:*(0.91 x 81.24)+(1.62 x 0.97)+(0.35 x
32.34);** (1.71 x 71.95) + (4.15 x 1.01) + (0.74 x 46.31)
Decree №34 that requires to account for precious metals in PPE has no analogues in IFRS,
but it still can be done using the concept of residual value, described in IAS 16. In the same time
56
it puts a burden on accountants and increases administrative costs, whereas the benefits from such
a treatment are doubtful.
To summarize, Table 29 shows the impact of IFRS framework and BY GAAP framework on
items of the balance sheet and the profit and loss statement during 2012-2017.
Table 29. Impact of the accounting treatment on the company balance sheet
Balance sheet
Item BY GAAP (BYN) IFRS (BYN) Difference (BYN)
2012
PPE (less depreciation)
+2,437.38 +2,405.51 +31.87
2013
PPE (less depreciation)
-504.29 -463.66 -40.63
2014
PPE (less depreciation)
-504.29 -471.42
-32.87
2015
PPE (less depreciation)
-504.29 -463.61 -40.68
2016
PPE (less depreciation)
-530.25 -377.74 -152.51
2017
PPE (less depreciation)
-394.28 -492.87 +98.59
Source: Author’s own computations based on IAS 16 and Decree 26
In 2012 the company recognizes PPE for the same amount of 2,521.43 BYN under BY GAAP
and IFRS, but due to the different depreciation charges that also go to profit and loss statement
(see Table 30), stemmed from the residual value concept used under IFRS, the carrying amount
differs from year to year.
Table 30. Impact of the accounting treatment on the company profit and loss statement
Profit and loss statement
Item BY GAAP (BYN) IFRS (BYN) Difference (BYN)
2012
Operating expenses +84.05 +115.92 -31.87
2013
Operating expenses +504.29 +463.66 +40.63
2014
Operating expenses +504.29 +471.42 +32,87
2015
Operating expenses +504.29 +463.61 +40.68
2016
Operating expenses +924.68 +821.56 +103.12
Operating income +423.64 +473,03 -49.39
2017
Operating expenses +724.94 +908.34 -183.4
Operating income +355.9 +424.26 -68.36
Source: Author’s own computations based on IAS 16 and Decree 37/18/6
57
2.6 Case study IV: Acquisition of IA. Recognition criteria
2.6.1 Case summary
In June 2016 BEK-expert for the purposes of promotional campaign of devices used for
cryptocurrency mining creates a landing page on its own. The term of use of the site is set equal
to the duration of the promotion - 12 months.
When creating the website, the company incurred expenses:
- for the development of the site - 200 BYN;
- domain name registration – 12 BYN (including VAT- 2 BYN);
- hosting – 24 BYN (including VAT – 4 BYN.).
2.6.2 Recognition
Table 31 represents the comparison of requirements applied to assets to be recognized as items
of IA. And according to Decree №25 the website cannot be recognized as an item of IA.
Table 31. IFRS and BY GAAP recognition and definition criteria comparison
Decree №25 IAS 38
Identifiable non-monetary asset without physical substance
Probable that future economic benefits associated with the asset will flow to the company and the company can restrict the access of others to these benefits
Cost can be measured reliably
Used in the company’s business activities
-
Not expected to be sold within 12 months
X Intended for use during more than 12 months
Source: Author’s own computations based on IAS 38 and Decree 25
As it is represented in the table above, domestic accounting standards does not allow to
recognize the website, which is used during 12 months as an item of intangible assets, this is
reflected in Table 32.
Table 32. The website treatment under BY GAAP
BY GAAP
Date Transaction Dr Cr Amount (BYN)
June 2016 The website was
created P/L Wages payable 200
June 2016 Other costs incurred during the website
creation P/L AP 30
June 2016 Input VAT Input VAT AP 6
Source: BEK-expert’s journal entries based on Decree 25 and Decree 102
Thus, under Belarusian BY GAAP this type of a website is accounted for as an expense, but
not as an intangible asset.
58
Since the website meets both recognition and definition criteria mentioned in IAS 38, it should
be accounted as it is shown in Table 33 – as an item of intangible assets.
Table 33. The website treatment under IFRS
IFRS
Date Transaction Dr Cr Amount (BYN)
June 2016 The website was
created IA Wages payable 200
June 2016 Other costs incurred during the website
creation IA AP 30
June 2016 Input VAT Input VAT AP 6
June 2016- May 2017
Depreciation charge P/L Accumulated depreciation
19.17
May 2017 The website write-off Accumulated depreciation
IA 230
Source: Author’s own computations based on IAS 38
To summarize, Table 34 shows the impact of IFRS approach and BY GAAP approach on
items of the balance sheet and the profit and loss statement.
Table 34. Impact of the accounting treatment on the company balance sheet
Balance sheet
Item BY GAAP (BYN) IFRS (BYN) Difference (BYN)
2016
Intangible assets (less amortization)
- +95.81
(=230-134.19) -95.81
2017
Intangible assets (less amortization)
- -95.81 +95.81
Source: Author’s own computations based on IAS 38 and Decree 25
Under BY GAAP the company does not recognize 230 BYN in intangible assets during 2016,
but directly attribute it to expenses. The temporary difference in the expenses arises only for 95.81
(134.19 BYN went to P/L through amortization during 2016) and it was eliminated by the end of
2017 (see Table 35).
Table 35. Impact of the accounting treatment on the company profit and loss statement
Profit and loss statement
Item BY GAAP (BYN) IFRS (BYN) Difference (BYN)
2016
Operating expenses +230 +134.19
(amortisation) +95.81
2017
Operating expenses - +95.81 -95.81
Source: Author’s own computations based on IAS 38 and Decree 25
Wear and tear of intangible assets might be very rapid, especially concerning assets, related
to information technologies. As a result, items of intangible assets might become obsolete even
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within one year. IFRS in this case facilitates better presentation of financial information, allowing
entities to account items that have quite short useful lives as items of intangible assets.
2.6 Case study V: Acquisition of inventories. Net realisable value
2.6.1 Case summary
In November 2014 BEK-expert signed a contract with the customer for delivery of fifty
connectors, the connectors are used in the space industry. In December 2014, the company
mistakenly ordered one hundred connectors instead of fifty pieces initially agreed with the
customer.
The connectors were delivered on 23 December, 2014; total amount of the invoice is
3,319.7 USD (payment terms is 30 days from the invoice date), customs duty is 8%, customs
fee is 68,65 BYN, import VAT is 719,92 BYN.
Fifty connectors were sold to the customer on 27 December, 2014 for 2076 BYN (excluding
VAT). The remaining amount of 50 connectors was left in the stock.
Due to the asset specificity it was not possible to sell it to another customer, as a result in
December 2014 it was agreed that the remaining 50 connectors would be sold to the same customer
with 50% discount, transaction took place on 12 January, 2015.
Table 36. Exchange rates of USD to BYN
Date Exchange rate USD/BYN
22.12.2014 1.004
23.12.2014 1.005
Source: Official website of the National Bank of Belarus
2.6.1 Recognition
Paragraph 6 of IAS 2 and paragraph 2 of Decree №133 contain the same definition of
inventories. Regarding the case, the assets are recognized as inventories under BY GAAP and
IFRS since they meet the following requirement: assets, which are held for sale in the ordinary
course of business. Thus, the connectors are recognized as inventories under the both treatments.
2.6.2 Measurement of inventories. Cost of purchase
Paragraph 7 of Decree №133 lists costs that are included in the cost of inventories. These are
the costs such as purchase costs, customs fees and duties (see Table 31), costs incurred to bring
inventories to their location and condition, conversion costs. This list is similar to the one
mentioned in paragraphs 10-15 of IAS 2.
Importation of goods into the territory of the Republic of Belarus is a subject to VAT.
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Import VAT is collected by customs. It is calculated and paid in Belarusian rubles. If for
calculating of VAT it is necessary to convert foreign currency into Belarusian rubles, the official
exchange rate of the National Bank of Belarus, set on the day of registration of the customs
declaration, is used (Table 37).
2.6.3 Net realisable value
IAS 2 contains comprehensive guidance on the identification of net realisable value. When it
is below cost, inventory must be written down.
The cost of inventory should be reduced to its net realisable value if the inventory has become
damaged, is wholly or partly obsolete, or if its selling price has declined.
Estimates of net realisable value must also take into account the purpose for which the
inventory is held. Therefore, inventory held for a particular contract has its net realisable value
based on the contract price, and only any excess inventory held would be based on current market
prices.
According to paragraph 23 of IAS 2 when the circumstances that previously caused
inventories to be written down below cost no longer exist, or when there is clear evidence of an
increase in net realisable value because of changed economic circumstances, the amount of the
write-down is reversed. The reversal cannot be greater than the amount of the original write-down,
so that the new carrying amount will always be the lower of the cost and the revised net realisable
value.
Table 37. Journal entries for the inventories under BY GAAP
BY GAAP
Date Transaction Dr Cr Amount (BYN)
23.12.2014 Goods received Inventories AP 3,336.30
23.12.2014 Import duty Inventories AP 266.64
23.12.2014 Import fee Inventories AP 68.65
23.12.2014 Import VAT Input VAT Bank account 719.92
27.12.2014 Revenue from goods
sold is recognized AR P/L 2,491.2
27.12.2014 Output VAT P/L Output VAT 415.2
27.12.2014 The cost of goods is
written-off P/L Inventories 1,835.9
31.12.2014 Import VAT was
recovered Output VAT Input VAT 719.92
Inventories closing balance at 31.12.2014 1,835.9
12.01.2015 Revenue from goods
sold is recognized AR P/L 1,245.6
12.01.2015 Output VAT P/L Output VAT 207.6
12.01.2015 The cost of goods is
written-off P/L Inventories 1,835.9
Source: BEK-expert’s journal entries based on Decree 133
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As it was mentioned above, contrary to IFRS treatment (see Table 38) Decree 133 does not
require to write down the cost of inventories and as a result, even when entities store inventories
that cannot be sold for the prices used in past transactions (due to different reasons: damage,
obsolescence, wrong ordering) these inventories will be overestimated that contradict the concept
of prudence.
Table 38. Journal entries for the inventories under IFRS
IFRS
Date Transaction Dr Cr Amount (BYN)
23.12.2014 Goods received Inventories AP 3,336.30
23.12.2014 Import duty Inventories AP 266.64
23.12.2014 Import fee Inventories AP 68.65
23.12.2014 Import VAT Input VAT Bank account 719.92
27.12.2014 Revenue from goods
sold is recognized AR P/L 2,491.2
27.12.2014 Output VAT P/L Output VAT 415.2
27.12.2014 The cost of goods is
written-off P/L Inventories 1,835.9
31.12.2014 Import VAT was
recovered Output VAT Input VAT 719.92
31.12.2014 The cost of goods is written-down to the
NRV P/L Inventories 797.9
Inventories closing balance at 31.12.2014 1,038
12.01.2015 Revenue from goods
sold is recognized AR P/L 1,245.6
12.01.2015 Output VAT P/L Output VAT 207.6
12.01.2015 The cost of goods is
written-off P/L Inventories 1,038
Source: Author’s own computations based on IAS 2
Approach, when NRV is used allows to provide relevant information about the assets the
company poses, which helps to provide users of financial information with more relevant data on
the company’s financial performance.
Tables 39 and 40 shows the impact of using and non-using of NPV concept on the company’s
financial statements.
Table 39. Impact of the accounting treatment on the company’s balance sheet
Balance sheet
Item BY GAAP (BYN) IFRS (BYN) Difference (BYN)
2014
Inventories +1,835.9 +1,038 +797.9
2015
Inventories -1,835.9 -1038 -797.9
Source: Author’s own computations based on IAS 2 and Decree 133
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As it was represented in Tables 33 and 34, by the end of 2014 the company under BY GAAP
has a bigger amount of inventories than it has under IFRS approach.
Table 40. Impact of the accounting treatment on the company’s profit and loss statement
Profit and loss statement
Item BY GAAP (BYN) IFRS (BYN) Difference (BYN)
2014
Revenue +2,076 +2,076 -
Cost of goods sold +1,835.9 +1,835.9 -
Operating expenses +797.9 -797.9
2015
Revenue +1,038 +1,038 -
Cost of goods sold +1,835.9 +1,038 +797.9
Source: Author’s own computations based on IAS 38 and Decree 25
Hence, as it was mentioned above, the company overestimates its assets and regarding P/L
statement: the company recognizes write-down in the inventories cost, when it is obvious that the
goods’ market price has drastically reduced.
Recommendations for BY GAAP
Accounting and reporting Act of July 12th 2013 57-Z, that defines the general principles for
accounting, has already encompassed the principles defined in IFRS Conceptual framework.
It means that the ground for succesful harmonization with IFRS has been created. The
problem of Belarusian accounting stems from its history, when the main goal of accounting was
to satisfy the needs of the state as a beneficiary of taxes. As a resulted it created a strictly regulated
system that prohibits any professional judgement and stimulated conservatism in the profession.
As a result, even now, when the system is highly harmonized with IFRS, accountants stick to the
old habbits.
One of the important principles of IFRS is the priority of the substance over the form.
According to it, operations and events should be reflected on the basis of their economic content,
and not of a legal form. This means the following: if an accountant, accepting a contract for
execution, sees that the essence of the transaction is completely different, he must ignore the
contract, ignore the primary documents and reflect the transaction, taking into account how he
understands it. This is represented in every case from the conducted study: in the first case, when
under BY GAAP the significant costs in comparison with the asset’s value were incurred, but not
capitalized due to the prohibition from the legislative acts; depreciation charge that begins when
an asset is available for use is also shown in the first case, and even the impact of the particular
asset used in the example is small, in practice, when the amount of an asset is high and the gap
between the months when it was available for use and when it was actually put in use is big, the
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difference might be material – a company will pay taxes, that it could avoid; the second case,
which described the borrowing costs capitalization is the ambiguous one, because according to
Belarusian standards of that period it was allowed to capitalize this type of costs, which, in the
author’s opinion better represents the value of the asset and comprises all the costs directly related
to the asset, but in the same time, considering the fact that companies under IFRS should impair
assets, when there are any indicators that show that carrying amount of assets differs from the
market it makes this step useless from the point of view of international standards.
Belarusian accounting as a heir of the Soviet accounting system still includes some
questionable rules like the precious metals treatment that is represented in the third case. Such
requirements should be removed from the accounting principles and transferred to waste
legislation treatment, because it makes the accounting more rule-based and overwhelming for
accountants; moreover, the costs of this usually exceed the benefits from it. This treatment can be
easily replaced by international standards, what is shown in the case.
The fourth case represents one of the main differences with IFRS accounting in intangible
assets treatment. BY GAAP still has the recognition requirement for IA to be used more than 12
months. This perfectly shows conservatism of the national accounting that does not take in to
account the fact that the modern world is developing rapidly and as a result some classes of
intangible assets become obsolete in a short period of time. These assets can not be recognized as
items of IA even if they meet the remaining requirements, which leads to discrepancies in the
company’s financial statements in comparison with IFRS and does not meet the criterion of
relevance for financial statements.
The set of recommendations made on the basis of the conducted study is the following:
for fixed assets revaluation model should be added to Decrees №25 and №26;
a separate document introducing fair value concept should be created;
decree №34 on precious metals treatment should be repealed due to a high burden on
accounting department and negligible benefits;
from the list of recognition criteria of intangible assets should be excluded the clause that
requires items of intangible assets to be intended for use during more than 1 year;
useful life determination for fixed assets should be liberalized;
net realizable value concept should be included into Decree №133 on inventories.
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Conclusion
IFRS is an international business language that allows to build a quality system of modern
economic information in a company, which contributes to making optimal management and
economic decisions not only by external users, but also by internal ones.
The financial statements under IFRS should reflect the real picture of the business and the
financial situation of a company. IFRS reporting is not information for a manager, tax authorities
or statistical authorities. Such information is primarily intended for the management of the
company.
Approaches in IFRS differ from those used by national standards. This is due to the fact that
IFRS - information about the future of the company, and national standards - about its past.
Reporting users are not interested in what the company has achieved, but what awaits it, what
prospects the company has, what cash flow it is going to create, what are their amounts, terms and
risks. In connection with this, all definitions in the preparation of statements change: assets are
considered not as property, but as future cash flows and the opportunity to earn. The same applies
to obligations that represent future cash outflows. You must correctly estimate how much the
company will have to pay. Recall that the difference between assets and liabilities is capital, i.e.
cash flow generation potential of the company. Note that different companies have different
potential.
Terminology IFRS is not tied to the terms of national law. For example, IFRS does not use
the legal concept of “ownership”, but economic concepts - “transfer of benefits and risks”,
“transfer of control over an asset”.
One of the important principles of IFRS is the priority of the substance over the form.
According to it, operations and events should be reflected on the basis of their economic content,
and not of a legal form. This means the following: if an accountant, accepting a contract for
execution, sees that the essence of the transaction is completely different, he must ignore the
contract, ignore the primary documents and reflect the transaction, taking into account how he
understands it.
With the use of IFRS, accounting ceases to be an exact science and becomes evaluative. Due
to the uncertainties inherent in business activities, many items of financial statements cannot be
accurately calculated, they can only be evaluated. In this case, the assessment implies judgments
that are based on the most up-to-date, accessible and reliable information. Using sound estimates
is an important part of preparing financial statements, which does not make it less reliable. It is
necessary to take into account that in the understanding of IFRS accounting valuation is not an
estimate made by an accountant, but an estimate used in accounting. It can be carried out by any
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competent person or authorized to such action. The main thing that such an assessment was
reasonable, and also was confirmed by an auditor. Therefore, the use of the term “accounting
estimate” rather than “accounting valuation” is recognized as more correct.
Regarding the issues of interaction with tax accounting: tax legislation has goals that are
different from the purpose of accounting under IFRS, therefore problems may arise when using
IFRS for tax accounting of property value and profits. All tax calculations must be carried out in
accordance with national legislation. The financial result under IFRS may differ significantly from
the financial result for tax accounting. Reporting under IFRS will always have differences
compared to tax reporting. It is believed that the 15 years that were spent in Belarus to separate
tax and accounting is a failed experiment and should be turned to the practice when taxes are
calculated on the basis of accounting. However, if tax accounting is based on accounting, and
accounting is based on IFRS, problems with tax authorities can immediately appear. The
accountant runs the risk of being dragged into a lengthy explanation of why the valuation of certain
assets (liabilities) is underestimated (overestimated).
Recommendations that were made to improve the national accounting can be summarized in
the following way: gradual harmonization should be continued without one-time adoption, tax
accounting should be converged with the financial accounting to avoid big discrepancies and
reduce the burden on accountants as well as administrative costs, documentary-based system
should be eliminated, many of accounting standards should be reviewed and merged, which will
allow to avoid ambiguity during the application of accounting principles.
66
List of literature
IAS 16 “Property, plant and equipment”, IASB, June 30th, 2014, paragraphs 7, 12-16, 22, 28, 30,
31, 50, 61
Decree of the Ministry of Finance of the Republic of Belarus of April 30th, 2012 №26 "Concerning
approval of the instruction on PPE accounting", paragraphs 10, 16
Resolution of the Council of Ministers of Belarus №802 ”On depreciation non-charging of PPE
and intangible assets in 2018 and further years” of October 30th, 2017
Decree of the Ministry of Economics, Ministry of Finance, Ministry of Architecture № 37/18/6
“On depreciation of PPE and amortization of intangible assets”, paragraphs 7-1, 20, 24
Decree of the Ministry of Economics as of 30.09.2011 №161 “On determining PPE’s standard
operation time”, appendix 3
IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors”, IASB of October 31st,
2018, paragraph 32
IFRS 13 “Fair value measurement”, IASB of December 12th, 2013, paragraph 29
Decree of the President of the Republic of Belarus of October 20th, 2006 №. 622 “Concerning
revaluation of fixed assets”, paragraphs 1.1.1, 1.2
Official website of National Statistical Committee of the Republic of Belarus:
http://www.belstat.gov.by/ofitsialnaya-statistika/makroekonomika-i-okruzhayushchaya-
sreda/tseny/perativnaya-informatsiya_4/ob-urovne-inflyatsii/ob-urovne-inflyatsii-v-noyabre-
2018-g-k-date-provedeniya-posledney-pereotsenki/
E&Y LLP, Wiley,2016. International GAAP2016 under IFRS, p.1298, ISBN 978-1-119-18048-7
IAS 36 “Impairment of assets”, IASB of May 29th, 2013, paragraphs 10, 11, 57
Decree of the President of the Republic of Belarus as of 13.10.2006 № 615 "On valuation activity
in the Republic of Belarus". Paragraphs 5, 8
IASB, IFRS foundation, 2018 “Conceptual Framework for financial reporting”, paragraphs 2.16,
4.3
Decree № 34 “Concerning use of precious metals and stones” of March 15th, 2004., paragraphs
71-75
ZUBKOV A.S., 2017 Changing the value of intangible assets. Glavnaya kniga, 24, pp. 5-6
Decree of the Ministry of Finance of the Republic of Belarus of April 30th, 2012 №25 "Concerning
approval of the instruction on intangible assets accounting", paragraphs 9-18
IAS 38 “Intangible assets”, IASB of May 12th, 2014, paragraphs 13, 52-57, 102-108, 74, 75
Ministry of Finance of the Republic of Belarus “Accounting and reporting Act” of July 12th 2013
57-Z, section 3 paragraph 8
67
Ministry of Finance of the Republic of Belarus, National Standard №46 “Preparation of financial
statements „of June 30th, 2014, paragraph 2
IFRS 3 “Business combinations”, IASB of October 22nd, 2018, appendix A
BANCEVICH E.E., 2014 Inventories in IFRS. Ilex, 35, p.8
IAS 2 “Inventories”, IASB of December 18th, 2003, paragraphs 6-9, 16, 25-28
Decree of the Ministry of Finance of the Republic of Belarus of September 30th 2011 №.102
”Concerning approval of the instruction on revenues and expenses accounting”. 2011.
Decree of the Ministry of Finance of the Republic of Belarus of November 12th 2010 №133
”Concerning approval of the instruction on inventory accounting”. 2010.
IASB, 2015. International Financial Reporting Standards for Small and Medium-sized Entities,
paragraphs 2.34, 10.15, 13.1-13.18, 17.10-17.19, 18.14-18.21, 27.7-27.10, 31.8
PwC LLP, Global Accounting services, 2016.Manual of accounting: IFRS 2017, p. 137, ISBN
978-0-7545-5439-4
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List of tables
Table 1. The recognition criteria for PPE under IFRS and GAAP
Table 2. Journal entries at the recognition
Table 3. Journal entries on the depreciation
Table 4. Journal entries on the repairment costs incurred under GAAP
Table 5. Journal entries on the repairment costs incurred under IFRS
Table 6. Journal entries on the depreciation after review
Table 7. Journal entries for the year 2014
Table 8. Journal entries for the year 2015
Table 9. Journal entries for the year 2016
Table 10. Journal entries for the year 2017
Table 11. Journal entries for the year 2018
Table 12. Refinancing rates, September 2013-June 2014
Table 13. Car usage, 2013-2018
Table 14. The recognition criteria for PPE under IFRS and GAAP
Table 15. Journal entries at the recognition under GAAP
Table 16. Journal entries at the recognition under IFRS
Table 17. Journal entries for the year 2014 under GAAP
Table 18. Journal entries for the year 2014 under IFRS
Table 19. Journal entries for the years 2015-2018 under GAAP
Table 20. Journal entries for the years 2015-2018 under IFRS
Table 21. Journal entries for the car’s disposal under GAAP
Table 22. Journal entries for the car’s disposal under IFRS
Table 23. Price list of computers acquired, BYN
Table 24. Journal entries for the computers under GAAP
Table 25. Prices for precious metals set by the Ministry of Finance of Belarus
Table 26. Content of precious metals in the computers acquired
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Table 27. Residual value for the computers for IFRS purposes, BYN
Table 28. Journal entries for the computers under IFRS
Table 29. Impact of the accounting treatment on the company balance sheet
Table 30. Impact of the accounting treatment on the company profit and loss statement
Table 31. IFRS and GAAP recognition and definition criteria comparison
Table 32. The website treatment under GAAP
Table 33. The website treatment under IFRS
Table 34. Impact of the accounting treatment on the company balance sheet
Table 35. Impact of the accounting treatment on the company profit and loss statement
Table 36. Exchange rates of USD to BYN
Table 37. Journal entries for the inventories under GAAP
Table 38. Journal entries for the inventories under IFRS
Table 39. Impact of the accounting treatment on the company’s balance sheet
Table 40. Impact of the accounting treatment on the company’s profit and loss statement
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List of abbreviations
GAAP – generally accepted accounting principles
IFRS – international financial reporting standards
PPE – property, plant and equipment
IA – intangible assets
NRV- net realizable value
VAT – value added tax
SME – small and medium-sized entities
WACC – weighted average cost of capital
P/L – profit and loss statement
BS – balance sheet