Question

How is market valuation assessed under the IFRS? What are the steps to complete a consolidated statement of cash flows?

Answer 1

1) HOW IS MARKET VALUATION ASSESSED UNDER IFRS?

ANSWER:- A fair value measurement assumes that the transaction to sell the asset

or transfer the liability takes place either:

(a) in the principal market for the asset or liability; or

(b) in the absence of a principal market, in the most advantageous

market for the asset or liability.
Fair value measurement contemplates an orderly transaction to sell the asset or

transfer the liability in its principal market. IFRS is clear that, if there is a

principal market for the asset or liability, a fair value measurement represents the

price in that market at the measurement date (regardless of whether that price is

directly observable or estimated using another valuation technique). The price in

the principal market must be used even if the price in a different market is

potentially more advantageous.
The identification of a principal (or most advantageous) market could be impacted

by whether there are observable markets for the item being measured. However,

even where there is no observable market, fair value measurement assumes a

transaction takes place at the measurement date. The assumed transaction

establishes a basis for estimating the price to sell the asset or to transfer the

liability.
An entity shall measure the fair value of an asset or a liability using the

assumptions that market participants would use when pricing the asset or

liability, assuming that market participants act in their economic best

interest.

In developing those assumptions, an entity need not identify specific market

participants. Rather, the entity shall identify characteristics that distinguish

market participants generally, considering factors specific to all the

following:

(a) the asset or liability;

(b) the principal (or most advantageous) market for the asset or liability;

and

(c) market participants with whom the entity would enter into a transaction

in that market.

2)WHAT ARE THE STEPS TO COMPLETE A CONSOLIDATED STATEMENT OF CASH FLOWS?

ANSWER:- Step 1. Prepare the operating activities section by converting net income from an accrual basis to a cash basis.

The indirect method begins with net income from the income statement and makes several adjustments related to changes in current assets, current liabilities, and other items to arrive at cash provided by operating activities (or used by operating activities if the result is a cash outflow). Cash provided by operating activities represents net income on a cash basis. It tells the reader how much cash was received from the daily operations of the business.
Step 2. Prepare the investing activities section by presenting cash activity for noncurrent assets.
This step focuses on the effect changes in noncurrent assets have on cash. Noncurrent asset balances found on the balance sheet, coupled with other information (e.g., cash proceeds from sale of equipment) are used to perform this step.
Step 3. Prepare the financing activities section by presenting cash activity for noncurrent liabilities and owners’ equity.

This step focuses on the effect changes in noncurrent liabilities and owners’ equity have on cash. Noncurrent liabilities and owners’ equity balances found on the balance sheet, coupled with other information (e.g., cash dividends paid) are used to perform this step.
Step 4. Reconcile the change in cash.

Each section of the statement of cash flows described in steps 1, 2, and 3, will show the total cash provided by (increase) or used by (decrease) the activity. Step 4 simply confirms that the net of these changes equates to the change in cash on the balance sheet.