Questions & Answers

New window blinds in a leased office

Question We took an office under the lease and we installed the new window blinds. How do we treat the expenses for the window blinds? Do we add it to the ROU asset? Or directly in profit or loss as an expense? Answer These…

Change from revaluation back to cost model

Question We intend to change our accounting policy on land and building from “Revaluation model” to “Cost model”. IAS 16 is silent on that. Please, what are your thoughts on this? Answer It is not prohibited, but it is very rare. I would say…

Expenses for remediation of environmental damage

Question We operate a chiller plant through which we provide cooling services to our customers. However the soil around the plant is of poor quality due to a leakage of water from the plant. It caused some underground leaks. We are able to identify the…

Direct sales with no contract

Question Our company produces detergents and sells directly to supermarkets for resale based on sales orders received (small, multiple orders). We have no ‘contract’. Does IFRS 15 apply in this case since there is no contract? Answer Under IFRS 15 (paragraph 10), a contract…

Agent’s commission when principal fails to perform

Question We have identified that we act as an agent and our partner acts as a principal. We recognize commission received from the principal as a revenue. What shall we do when the principal did not perform and did not satisfy its performance obligations to…

Leases prepaid for years in advance

Question How should we account for leases paid in advance for 25 years? We made a one-off payment for the lease of the land for 25 years at the commencement of the lease, and we will not make any further payments. At the end of…

When to recognize a warranty provision

Question I do understand that we have to make provision for expenses for warranty repairs if we are obliged to make repairs of defects on the product within 5 years after making a sale. But why do we make a provision for all 5 years…

Non-controlling interest in a private company

Question Under IFRS 9, equity instruments must be revalued at fair value through profit and loss or OCI. What happens if a company purchases non-controlling interest in a private company? Is the private company revalued every year to comply with IFRS 9? Answer Before…

Journal entries – finished goods

Question When you produce finished goods from raw materials, labour and other items, what are the journal entries to reflect that? For example, in the lecture #5 Solved Examples in Inventories section, you calculated the cost of one unit of finished product as follows: Item…

Testing goods: inventories, expense or PPE?

Question I work with an antivirus software company in the cybersecurity industry. 95% of our sales are software but we also sell some hardware products. For the hardware products, we use some units as “proof of concept” stock; our Sales Engineers ship to our customers…

Annual license fees on software

Question We have bought SAP system for accounting from a vendor and we need to pay annual license fees to maintain this software. Kindly advise whether we can capitalise annual license fees? Answer If it is a software that is not necessary for the…

Impairment and subsequent depreciation

Question We recognized impairment loss on one of our buildings because its fair value was by CU 40 000 lower than its carrying amount. We depreciated that building on a straight-line basis over 40 years. How should we continue depreciating the building after recognition of…