What is Accounting – ‫ما هي المحاسبة‬

A Identifying
Selecting events that are considered
evidence of economic activity.

Accounting is an information system that

identifies, records and communicates the
economic events of an organization to its
interested users.
B Recording (Bookkeeping)
Keeping a systematic diary of
‫المحاسبة هي نظام معلومات هدفه تحديد وتسجيل وتوصيل األحداث‬ transactions, as well as classifying
.‫االقتصادية التي تقوم بها المنشأة‬ and summarizing these transactions.

C Communicating
Prepare accounting reports
(Financial statements), Analyze and
interpret them for users.
 Accounting Equation – ‫المعادلة المحاسبية‬

Assets = Liabilities + Equity

‫ حقوق الملكية‬+ ‫األصول = االلتزامات‬

Assets Equity
Resources a company owns. Claims on total assets.
They provide future benefits In other words, it represents
to the company that result in the net funds invested into a
cash inflows (receipts). Liabilities business by its owners.
‫هي موارد تمتلكها الشركة ولها القدرة على‬ Debts and Obligations owed ‫الحقوق على اجمالي األصول‬
‫تزويد الشركة بمنافع مستقبلية ينتج عنها‬ to the company. They ‫وهي تمثل صافي األموال المستثمرة في‬
‫تدفقات نقدية‬ represent future sacrifices ‫الشركة عن طريق مالكيها‬
that result in cash outflows
(payments).
‫وهي الديون وااللتزامات على الشركة‬
‫التي تؤدي الى تضحيات ينتج عنها‬
.‫مدفوعات‬
Expanded Accounting Equation – ‫المعادلة المحاسبية الموسعة‬
Equity = Share Capital + Retained Earnings
)‫ األرباح المحتجزة (أو المدورة‬+ ‫حقوق الملكية = رأس المال‬
Equity = Share Capital + (Revenues – Expenses – Dividends)
)‫ (االيرادات – المصاريف – توزيعات األرباح‬+ ‫حقوق الملكية = رأس المال‬

Share capital Retained Earnings

Represents amounts Revenues

-Represent gross increases in equity
paid by shareholders for
resulting from business activities.
purchasing ordinary -Result in an increase in equity and
shares increase in assets (or decrease in liabilities)

Expenses
-Represent decrease in equity resulting
from business activities.
-Result in decrease in equity and decrease
in assets (or increase in liabilities)

Dividends
-Distribution of cash or other assets to
shareholders. It is not an expense.
-Result in decrease in equity and decrease
in assets (or increase in liabilities)
Expanded Accounting Equation :-
Assets = Liabilities + (Share Capital +
(Revenues – Expenses – Dividends))

Ex. A)
The liabilities of ABC Company are $80,000; share capital - ordinary
account is $130,000; dividends are $30,000; revenues are $600,000; and
expenses are $400,000. What is the amount of ABC Company's total assets?

Assets = Liabilities + Share Capital + Revenues - Expenses - Dividendes

X = 80,000 + 130,000 + 600,000- 400,000 - 30,000
X = 380,000

Ex. B)
The total assets of Black Company are $300,000 and its liabilities
are equal to two-thirds of its total assets. What is the amount of
Black Company's equity?

Assets = Liabilities + Equity

300,000 = 2/3 (300,000) + X
300,000 = 200,000 + X
300,000 – 200,000 = X
100,000 = X
 Debits and Credits – ‫المدين والدائن‬

Normal balance
Accounts Normal Debit Credit
It’s the side where an increase in account is
balance
recorded.
Assets Debit Increase Decrease

Liabilities Credit Decrease Increase

Debit and Credit system
provides accuracy Share Capital Credit Decrease Increase

Retained earnings Credit Decrease Increase

Double entry system

In a double entry system, equal debits and Revenues Credit Decrease Increase
credits are made for different accounts. Thus, Expenses Debit Increase Decrease
Total Debits will always equal Total Credits.
Dividends Debit Increase Decrease
Account balance
When debit amounts in one account
exceed the credit amounts, an
account will have a debit balance,
and vice versa.
 The 4 Financial statements – ‫القوائم المالية األربعة‬
Basically, this is Financial Accounting
Comprehensive
Cash Flow Income statement
Statement of Statement
Change in Equity ‫قائمة الدخل الشامل اآلخر‬
Financial Position ‫قائمة التدفقات النقدية‬
Statement
Income Statement ‫قائمة المركز المالي‬ Represents other
‫قائمة التغيرات في حقوق الملكية‬
‫قائمة الدخلل‬ Summarizes the cash income items that are
Reports the assets, inflows (increase) and not included before
Represents all liabilities and Equity net income (Example:
outflows (decrease)
Represents Revenues changes in Equity at a specific date. Unrealized gains and
for a specific period of
minus Expenses for a accounts for a specific losses from
Assets listed first, time.
specific period of period of time. revaluation of assets).
followed by Equity ‫تلخص التدفقات النقدية الداخلة‬
time, resulting in net ‫تمثل هذه القائمة التغيرات في‬ then liabilities. ‫والخارجة عن فترة زمنية‬ Can be combined or
income or net loss ‫حسابات حقوق الملكية في فترة‬
‫وتمثل رصيد األصول‬ .‫معينة‬ separated from the
‫وتمثل هذه القائمة االيرادات‬ .‫زمنية معينة‬ Income statement.
‫وااللتزامات وحقوق الملكية في‬
‫مطروحا منها المصاريف عن‬
.‫لحظة معينة‬ Only prepared when
‫ وينتج عنها‬, ‫فترة زمنية معينة‬
,‫تدرج األصول في األعلى‬ the company has OCI
.‫صافي الدخل او الخسارة‬
‫تتبعها حقوق الملكية ثم‬ items.
Rev < Exp = Net Inc.
‫االلتزامات‬ ‫تمثل بنود الدخل الشامل اآلخر‬
Rev > Exp = Net Loss ‫اللتي ال تدخل في احتساب‬
‫ ممكن أن تعرض‬,‫صافي الربح‬
‫مع قائمة الدخل أو بشكل‬
‫ وال تحضر اال اذا‬.‫منفصل‬
.‫وجدت هذه البنود‬
+ Notes of the financial statement
 Balance Sheet – ‫قائمة المركز المالي‬

Components of Balance Sheet – ‫مكونات قائمة المركز المالي‬

A B C D E
Current Assets Non-Current Equity Current Non-Current
Assets Liabilities Liabilities
Claims on total
convert into cash or convert into cash or assets. Obligations that will Obligations that will
consume within one consume within In other words, it be settled within one be settled within
year or operating more than one year represents the net year or operating more than one year
cycle whichever is or operating cycle funds invested into a cycle whichever is or operating cycle
longer. whichever is longer. business by its longer whichever is longer.
owners
Current Assets – ‫األصول المتداولة‬
Cash and Cash Equivalents – ‫النقد وما في حكمه‬

Definition - ‫التعريف‬
Cash is Cash ☺.
Cash equivalents are short-term investments that
are readily convertible to cash with insignificant
risk of change in value (3 months from
acquisition).

Components - ‫المكونات‬
Petty cash, Money at current accounts, cheques,
post dated cheques under 3 months, short-term
deposits & Short-term investments.
Bank overdraft, Travel advances, restricted cash
are not part of it.

Method of Valuation – ‫طريقة التقييم‬

At Fair Value.
 Current Assets – ‫األصول المتداولة‬

Trade Receivables and Other Debit Balances – ‫الذمم التجارية واألرصدة المدينة األخرى‬

Definition - ‫التعريف‬
the balance of money due to a firm for goods or services delivered or used but not yet
paid for by customers (‫)أو أشياء ثانية حنحك عنها ف األرصدة المدينة األخرى‬

Components - ‫المكونات‬
Types of receivable are :-
➢ Current or Non-current : Depending on the maturity of the receivable.
➢ Trading or Non-trading : depending on the nature of the transaction.
Trading receivables arises from selling goods or services to customers. While non-
trading is related to other activities, such as :
- advances to employees
- dividends and interest receivable

Method of Valuation – ‫طريقة التقييم‬

Initial Measurement at Fair value.
Subsequent Measurement at Amortized cost (Previously was Net Realizable
Value).
 Current Assets – ‫األصول المتداولة‬

Let’s focus on trade receivables now.

Timing of recognition – ‫توقيت االعتراف بااليراد‬

Its tied with IFRS – 15 (Revenue Recognition). And we will explain it in a later stage.

Hot Topics to discuss – ‫أهم المواضيع اللي حناقشها‬

➢ Initial recognition of Accounts receivables and settlement of it in cases when we
have sales discount (‫)االعتراف بالذمم المدينة وتحصيلها في حالة وجود خصم مبيعات‬
➢ Valuation of Accounts receivable (‫)تقييم الذمم المدينة‬
➢ Factoring of Receivables (‫)تخصيم الذمم المدينة‬
 Current Assets – ‫األصول المتداولة‬
Trade Receivables – ‫الذمم المدينة‬
Initial recognition of Accounts receivables and settlement of it in cases when we have sales discount

Ex. ➢ You sold inventory with $10,000 (Term 2/10, N30)

Two methods to record the sales within the topic of ➢ Customer returned 2,000
sales (cash) discounts: ➢ Scenario 1 : You collected after 9 days
I. Gross method ➢ Scenario 2 : You collected after 27 days
II. Net Method
We will only discuss the Gross method as its the Date Account title Debit Credit
most applicable. To record the sales entry
Dr. Acc. Rec. 10,000
Cr. Sales 10,000
To record the return of inventory
Dr. Sales returns 2,000
Cr. Acc. Rec. 2,000
To record collection of receivables (1st Scenario)
Dr. Cash 7,840
Dr. Sales discount 160
Cr. Acc. Rec. 8,000
To record collection of receivables (2nd Scenario)
Dr. Cash 8,000
Cr. Acc. Rec. 8,000
 Current Assets – ‫األصول المتداولة‬
Trade Receivables – ‫الذمم المدينة‬

Valuation of Accounts receivable

➢ In business, not all accounts receivable are expected to be collected, there are customers everywhere that will
go bankrupt.
➢ This uncollectible balances were called Bad debt expense (‫ )زي ما أخذت بالجامعة‬according to IAS 39.
➢ Now its called Expected credit loss (‫)خسائر ائتمانية متوقعة‬.
➢ There are two methods used as below :-

Simplified General
Approach Approach

- No significant - There is a significant

financing component financing component
- More for entities not - More for banks and
in financial industry financial institutions
- To discuss in brief - Very complex
 Current Assets – ‫األصول المتداولة‬
Trade Receivables – ‫الذمم المدينة‬

Valuation of Accounts receivable

➢ Simplified approach depends on historical rates adjusted for current conditions and future
expectations (Historical and forward looking together).
➢ We will not go deep in this, just a general look is enough now.
➢ It looks like percentage of receivables method, but with more complex calculation for loss rate.
➢ We should use aging of receivables and multiply it by loss rates to calculate ECL.

Date Account title Debit Credit

To record ECL for the year
Dr. ECL expense 3,498
Cr. ECL Provision 3,498
To write off ECL when not collected
Dr. ECL Provision 3,498
Cr. Acc. Rec. 3,498
 Current Assets – ‫األصول المتداولة‬
Trade Receivables – ‫الذمم المدينة‬

Factoring of Receivables

Sell Collect
Receivable money

Company Factoring Customer

Company
Charge fees

Ex. ➢ You have $500,000 outstanding with customer.

➢ You need cash, so you sold it to a factoring company.
➢ Factoring company charged you 3% of the balance and retains 5% of the balance and gave you
cash.

Date Account title Debit Credit

To record the sale of the receivables
Dr. Cash 460,000
Dr. Charge fees 15,000
Dr. Due from Factor Co. 25,000
Cr. Accounts rec. 500,000
 Current Assets – ‫األصول المتداولة‬
Other Debit Balances – ‫األرصدة المدينة األخرى‬

Types

Prepayments – Advances – Other

‫مصاريف مدفوعة مقدما‬ ‫دفعات مقدمة‬ Receivables –
‫ذمم أخرى‬

Prepaid rent Advances to suppliers Interest receivable

Prepaid insurance Advances to employees Insurance claims

Prepaid subscription Tax Advances

 Current Assets – ‫األصول المتداولة‬

Due from Related parties – ‫مبالغ مستحقة من جهات ذات عالقة‬

A Person - ‫شخص‬ An Entity - ‫شركة‬

➢ Has control “Fully or partially” over ➢ A Subsidiary or a Parent company

the entity ➢ Sister companies that shared the same
➢ Significant influence over the entity parent company
➢ A member of key management ➢ Joint ventures or associates
➢ Close family member of all the above

Classification - ‫التصنيف‬ Treatment – ‫المعالجة المحاسبية‬

➢ Same as receivables as well but with
➢ Same as we classify receivables, as more detailed disclosure
current or non-current based on Dr. Due from related parties
maturity dates. Cr. XXX
➢ Difference from AR is that this ➢ We should also disclosure transactions
receivable is within our family (‫)أهلية‬ between these parties (Sales, Purchase)
 Current Assets – ‫األصول المتداولة‬
Inventories – ‫المخزون‬

Definition - ‫التعريف‬
1 Assets that are held for sale in normal course of business, or consumed
in production process.

Components - ‫المكونات‬
2 Depend on the business of the company :-
➢ Merchandiser (Non-Manufacturing) :- Finished goods and spare
parts.
➢ Manufacturer : Raw materials, Work in process & Finished goods.

Method of Valuation – ‫طريقة التقييم‬

3 At Lower of Cost or NRV
➢ Cost : Purchase price plus all costs necessary to bring
inventory to their present location and condition.
➢ NRV : Selling prices – Cost to sell
 ‫األصول المتداولة – ‪Current Assets‬‬
‫المخزون – ‪Inventories‬‬

‫أهم المواضيع اللي حناقشها – ‪Hot Topics to discuss‬‬

‫‪➢ Inventory systems and accounting treatment under each system‬‬
‫)أنظمة المخزون والمعالجة المحاسبية تحت كل نطام(‬
‫تدفق التكلفة وعالقتها ( ‪➢ Cost flow assumption and its relation with COGS‬‬
‫)بتكلفة البضاعة المباعة‬
‫تطبيق طريقة التكلفة أو القيمة ( ‪➢ Apply the lower of Cost or NRV on Inventory‬‬
‫)القابلة للتحقق أيهما أقل على المخزون‬
 Current Assets – ‫األصول المتداولة‬
Inventories – ‫المخزون‬
Inventory systems and accounting treatment under each system

Perpetual – ‫الجرد المستمر‬ Periodic – ‫الجرد الدوري‬

Companies track the records for each Companies don’t track inventory for each
purchase and sale transaction. Records transaction. Instead, an inventory count
show the inventory on hand at any time. takes place at the end of the period.

The inventory count is used to determine the

Companies determine the cost of goods
cost of goods sold for the whole period along
sold after each sale.
with the inventory on hand (Ending bal.).

All purchases entries are recorded as The inventory account is not used in sales or
inventory (Dr. side). All sales entries include purchases entries. The purchases account is
the amount of sold inventory (Cr. side) used for purchases and nothing is used for sales.

It provides better control over inventory. It is used by small businesses.

It is used by medium and big businesses.

 Current Assets – ‫األصول المتداولة‬
Inventories – ‫المخزون‬
Inventory systems and accounting treatment under each system
Perpetual Periodic
Account Debit Credit Account Debit Credit

1. Purchase of merchandise on account from a supplier for $40,000, FOB shipping, term 2/10, n/30.
Dr. Inventory 40,000 Dr. Purchases 40,000
Cr. Accounts payable 40,000 Cr. Accounts payable 40,000
2.Purchase returns and allowances amounting to $2,000
Dr. Accounts payable 2,000 Dr. Accounts payable 2,000
Cr. Inventory 2,000 Cr. Purchase returns 2,000
3. Freight costs on purchase of $200 on account
Dr. Inventory 200 Dr. Freight in 200
Cr. Account payable 200 Cr. Accounts payable 200
4. Payment on account in full to the supplier with a discount
Dr. Accounts payable 38,000 Dr. Accounts payable 38,000
Cr. Cash 37,240 Cr. Cash 37,240
Cr. Inventory 760 Cr. Purchase discount 760
5. Sale of merchandise on account $24,000, term 1/10, n/30. The cost of the merchandise sold was $12,000.
Dr. Accounts receivable 24,000 Dr. Accounts receivable 24,000
Cr. Sales 24,000 Cr. Sales 24,000
Dr. Cost of goods sold 12,000
No Entry
Cr. Inventory 12,000
 Current Assets – ‫األصول المتداولة‬
Inventories – ‫المخزون‬
Inventory systems and accounting treatment under each system
Perpetual Periodic
Account Debit Credit Account Debit Credit

6. Return of merchandise $1,000. The return merchandise had a scrap value of $500.
Dr. Sales return 1,000 Dr. Sales return 1,000
Cr. Accounts receivable 1,000 Cr. Accounts receivable 1,000
Dr. Inventory 500
No Entry
Cr. Cost of goods sold 500
7. Received payments on account with a discount
Dr. Cash 22,770 Dr. Cash 22,770
Dr. Sales discount 230 Dr. Sales discount 230
Cr. Accounts receivable 23,000 Cr. Accounts receivable 23,000
8. Received payments on account without a discount
Dr. Cash 23,000 Dr. Cash 23,000
Cr. Accounts receivable 23,000 Cr. Accounts receivable 23,000
 Current Assets – ‫األصول المتداولة‬
Inventories – ‫المخزون‬

Cost flow assumption and its relation with COGS

Cost Equation

Beginning inventory Ending inventory

‫بضاعة أول المدة‬ ‫بضاعة آخر المدة‬

The cost of
goods available
for sale – ‫تكلفة‬
‫البضاعة المتاحة للبيع‬
Cost of goods purchased Cost of goods sold
‫ر‬
– ‫المشتاة‬ ‫تكلفة البضاعة‬ – ‫تكلفة البضاعة المباعة‬

This means that what you have at the beginning of the period + what you have purchased during the period = What you can sell.
In other words, What you can sell = What you have sold + what is left unsold.
Cost of goods purchased = Net Purchases + Freight in
Net Purchases = Purchases – Purchase return – Purchase discount
So Cost of goods purchased = Purchases – Purchase return – Purchase discount + Freight in

Finally, COGS at the end of the period will be equal to Beg. Inv. + Cost of goods purchased – End. Inv.
 Current Assets – ‫األصول المتداولة‬
Inventories – ‫المخزون‬

Cost flow assumption and its relation with COGS

Now lets talk about the cost flow of inventory and how we allocate these costs between Inventory and COGS. We have three methods to use:-

Specific identification – First-In First Out – ‫الداخل‬ Weighted Average -

‫طريقة التمييز العيني‬ ‫أوال الصادر أوال‬ ‫متوسط التكلفة‬
Means that each inventory item has Means that the earliest goods Allocates cost of goods available for sale on
a unique cost. purchased are the first to be sold. total inventory items to calculate per unit cost.
 Current Assets – ‫األصول المتداولة‬
Inventories – ‫المخزون‬
Cost flow assumption and its relation with COGS

Specific Identification

This method is only possible when the Ex. SmartBuy has purchased three
company sells high cost items. cameras on different dates during
Such as Vehicles and Jewelry. the year. They costed them 800,
850 and 900. During the year, they
sold two cameras for 1,000 each.
Calculate the COGS using Specific
Requires the company to keep records identification method.
for each individual inventory item.
If SmartBuy wants to maximize
profits, they will consider that they
have sold the ones that have cost
The major advantage is that it tracks the them the least, so the COGS will be
actual physical flow of the goods equal to 800+850 = 1,650
available for sale. If they want to minimize profits,
they will consider that they have
sold the expensive ones, then
COGS will be equal to 850 +900 =
The major disadvantage is that it enables 1,750
management to manipulate net income.
 Current Assets – ‫األصول المتداولة‬
Inventories – ‫المخزون‬
Cost flow assumption and its relation with COGS

FIFO
FIFO is the most realistic method. As the Answer :-
company will often sell the oldest items in the If 450 units are left (Ending inventory),
store. ( ‫بالزبط زي لما يحطولك علبة الشنينة يللي بخلص تاريخ‬ this means that 550 units have been sold,
)‫انتهائها باألول‬ let’s start from the oldest units in order to
reach the 550 units sold.
A Company’s COGS includes the oldest COGS = (100 *10) + (200*11) + (250*12)
inventory items, while the ending inventory = 6,200
includes the newest ones. While in order to calculate ending
inventory, we will start from the newest
units in order to reach the 450 units left.
Ex. SmartBuy has the following data for 2024. End. Inv. = (400*13) + (50*12)
Ending inventory per physical count was 450 units. = 5,800
Calculate COGS and ending inventory using FIFO.

Transaction No. of units Cost/unit Total Cost

Jan 1st Beg. Inv. 100 10 1,000
April 15th purchase 200 11 2,200
August 24th purchase 300 12 3,600
November 27th purchase 400 13 5,200
Total 1,000 12,000
 Current Assets – ‫األصول المتداولة‬
Inventories – ‫المخزون‬
Cost flow assumption and its relation with COGS

Weighted Average
Answer:-
Assumes that the units are similar in nature,
WA unit cost = 12,000/1,000
Cost of goods available for sale is allocated on
= $12
the basis of the weighted average unit cost.
This method is used under periodic system.
COGS = $12 * 550
= 6,600
WA unit cost = Cost of goods available for sale
Total units available for sale End. Inv. = $12 * 450
= 5,400

Ex. SmartBuy has the following data for 2024.

Ending inventory per physical count was 450 units.
Calculate COGS and ending inventory using WA.
Transaction No. of units Cost/unit Total Cost
Jan 1st Beg. Inv. 100 10 1,000
April 15th purchase 200 11 2,200
August 24th purchase 300 12 3,600
November 27th purchase 400 13 5,200
Total 1,000 12,000
 Current Assets – ‫األصول المتداولة‬
Inventories – ‫المخزون‬
Cost flow assumption and its relation with COGS

Moving Average

This method is used under perpetual system.

The difference between Moving and Weighted average methods is that Moving average
calculates the WA unit cost after each purchase transactions.

WA unit cost = Cost of goods available for sale

Total units available for sale

Ex. Man City football club has the following data for 2024.
Calculate COGS and ending inventory using Moving Average.
Transaction No. of units Cost/unit Total Cost
Jan 1st Beg. Inv. 100 10 1,000
April 15th purchase 200 11 2,200
August 24th purchase 300 12 3,600
September 6th Sale 450 - -
November 27th purchase 400 13 5,200
 Current Assets – ‫األصول المتداولة‬
Inventories – ‫المخزون‬
Cost flow assumption and its relation with COGS

Solution :-
WA unit cost after purchase on April 15th
(1,000+2,200) = $10.67/unit
100 +200

WA unit cost after purchase on August 24th

(3,200+3,600) = $11.33/unit
300 +300

COGS for Sep 6th Sale = 11.33 * 450 = $5,100

Remaining cost available for sale = (3,200 + 3,600 – 5,100) = 1,700

WA unit cost after purchase on November 27th

(1,700+5,200) = $12.55/unit
150 +400

Ending inventory = 12.55 * 550 = $6,900

 Current Assets – ‫األصول المتداولة‬
Inventories – ‫المخزون‬
Apply the lower of Cost or NRV on Inventory

Now lets talk about the accounting treatment and entries for write-off down the Cost to NRV.
There are two methods here : COGS method & Loss method
We will only discuss the Loss method as its more preferred and most commonly used.

Topic Loss Method

This method uses a separate loss account

Accounts used called (loss due to decline in Inv.)

Entry to record Dr. Loss due to decline in inventory

decline in value Cr. Allowance to reduce Inv. to NRV
the amount of reversal is limited to original
Reversal write-off amount

Dr. Allowance to reduce Inv. to NRV

Entry for Reversal Cr. Loss due to decline in inventory

Slow Moving When inventory has a risk of not being sold

Entry to record Slow Dr. Slow moving items expense

moving items Cr. Slow Moving provision - Inventory
 Current Assets – ‫األصول المتداولة‬
Inventories – ‫المخزون‬
Apply the lower of Cost or NRV on Inventory

Ex. Between buns has inventories amounted to $44,000 at Cost, after estimating the NRV, it
appears that Selling price was $42,000 with additional cost of selling amounted to $3,000.
Calculate the NRV and record the accounting entries for this decline in value using loss method.
Also assume that 50% of decline in value has been recovered subsequently.

NRV = 42,000 - 3,000 = $39,000

Decline in Value = 44,000 – 39,000
= $5,000

Date Account title Debit Credit

To record decline in value
Dr. loss due to decline 5,000
Cr. Allowance to reduce Inv. to NRV 5,000
To record recovery of decline
Dr. Allowance to reduce Inv. to NRV 2,500
Cr. Recovery of inventory loss 2,500
 Non- Current Assets – ‫األصول غير المتداولة‬
Property, Plant & Equipment – ‫ الممتلكات والمعدات‬,‫المباني‬

Definition - ‫التعريف‬
Are resources that have physical substance, used in
operations to generate future benefits for multiple years,
and are not for sale.

Components - ‫المكونات‬
➢ Lands
➢ Lands improvement
➢ Buildings
➢ Machinery & Equipment
➢ Furniture and Fixtures Fixed Assets
➢ Vehicles
➢ Projects under Construction

Method of Valuation – ‫طريقة التقييم‬

There are Two models:-
➢ Cost Model : Cost – Accumulated Depreciation –
Accumulated impairment
➢ Revaluation Model : Fair Value – Subsequent Acc. Dep.
– Subsequent Acc. Imp.
 ‫األصول غير المتداولة – ‪Non- Current Assets‬‬
‫المباني‪ ,‬الممتلكات والمعدات – ‪Property, Plant & Equipment‬‬

‫أهم المواضيع اللي حناقشها – ‪Hot Topics to discuss‬‬

‫)تطبيق مبدأ التكلفة على األصول الثابتة( ‪➢ Apply Cost principle to PPE‬‬
‫توضيح االختالفات بين ( ‪➢ Differentiate between CAPEX & OPEX‬‬
‫)التكاليف الرأسمالية والتكاليف التشغيلية‬
‫)احتساب مصاريف االستهالك( ‪➢ Calculate Depreciation expense‬‬
‫)التخلص من األصول الثابتة( ‪➢ Disposal of PPE‬‬
‫نظرة عامة على تدني ( )‪➢ Overview on Impairment of PPE (IAS 36‬‬
‫)األصول الثابتة‬

‫‪Fixed Assets‬‬
 Non- Current Assets – ‫األصول غير المتداولة‬
Property, Plant & Equipment – ‫ الممتلكات والمعدات‬,‫المباني‬
Apply Cost principle to PPE

Land Building Vehicles PUC

➢ Purchase price ➢ Purchase price ➢ Purchase price ➢ All costs necessary to
➢ Closing fees ➢ Closing fees ➢ Ownership make the project
➢ Brokerage fees ➢ Brokerage fees transfer ready for use.
Land Machinery & Furniture &
➢ Property tax ➢ Property tax ➢ Taxes
improvement Equipment Fixture
➢ Filling & grading ➢ Construction ➢ Painting
➢ Cleaning ➢ Parking ➢ Wiring and
➢ Purchase price ➢ Purchase price
➢ Demolition of ➢ Landscape Plumbing
➢ Freight ➢ Padding
old building ➢ Fences ➢ Interest cost
➢ Testing
➢ Lightning
➢ Sales tax
 Non- Current Assets – ‫األصول غير المتداولة‬
Property, Plant & Equipment – ‫ الممتلكات والمعدات‬,‫المباني‬

Differentiate between CAPEX & OPEX

In business, we have two main terminologies when it comes to expenditures, OPEX and CAPEX.
This is a very important topic in accounting.
Companies have their own policies about when to capitalize to assets or just expense directly through the IS.

Operating Expenditures – ‫النفقات‬

‫التشغيلية‬ OPEX Vs. CAPEX Capital Expenditures – ‫النفقات الرأسمالية‬

Maintain operating efficiency and Increase operating efficiency and expected

expected productive life (Repairs) Repair Vs. Improve productive life (Improvements)

Generally small amounts (Immaterial) Amounts Generally significant amounts (Material)

Frequent Frequency Infrequent

Dr. Repairs expense Dr. Asset

Cr. Cash/AP
Entry Cr. Cash/AP

New Decorations, new motor to a vehicle,

Oil change, general repairs, maintenance Examples
change the main battery to an electric car.
 Non- Current Assets – ‫األصول غير المتداولة‬
Property, Plant & Equipment – ‫ الممتلكات والمعدات‬,‫المباني‬
Calculate Depreciation expense
There are three methods to depreciate fixed assets, all three methods are accepted under IFRS. Management shall
select the method that is most appropriate and representative of how the asset is depreciated. Whenever a method
is selected, it shall be applied consistently.
Units of activity (‫)طريقة وحدات النشاط‬
Expressed in terms of the total units that a fixed asset will generate or produce rather than time, it uses depreciable
base in computing depreciation )‫(زي جهاز ليزر الشعر يللي بعد عشر آالف ضربة بخلص‬

Straight-Line (‫)طريقة القسط الثابت‬ Double Declining balance

Measured only by passage of time, it is (‫)طريقة القسط المتناقص‬
the most used method in business,
actually 99% of companies or even Measured only by passage of time same
more apply this method. as the straight line method. But, it uses
a decreasing depreciation expense over
It is easy to use. the useful life.

This method uses depreciable base This method uses book value in
(Cost – Residual value) in computing computing depreciation.
depreciation.
 Non- Current Assets – ‫األصول غير المتداولة‬
Property, Plant & Equipment – ‫ الممتلكات والمعدات‬,‫المباني‬
Calculate Depreciation expense

Straight Line Method (‫(طريقة القسط الثابت‬ Ex. Liverpool football club has purchased a security
equipment to check for the custody of weapons by
fans on the 1st of January 2024, the equipment
✓ In this method, depreciation is the same for each
was purchased for $20,000 and will have a
year of the asset’s useful life.
salvage value of 2,000 at the end of its useful life.
Its useful life was estimated to be 5-years.
✓ Companies need to calculate the Depreciable base
- Prepare a schedule to show depreciation
which is equal to Cost of asset – Asset’s residual
expense, accumulated depreciation and book
value. Residual value is the value of the asset at the
value.
end of its useful life. Depreciable base represents
- Prepare the annual journal entry to record
the total amount that is subject to depreciation.
depreciation expense.
✓ The equation to calculate depreciation expense
will be: Depreciable base (Cost – residual value) Year Equation for Dep. Acc. Book
Useful life (in years) annual dep. Exp Dep. value
Or = Depreciable base * Annual depreciation rate. 2024 20,000 – 2,000 3,600 3,600 16,400
Where the annual depreciation rate = (1/years). 5
2025 Same as 2024 3,600 7,200 12,800
✓ Each year, we have to calculate the following
amounts and summarize them in a schedule :- 2026 Same as 2024 3,600 10,800 9,200
▪ Depreciation expense. 2027 Same as 2024 3,600 14,400 5,600
▪ Ending balance of accumulated depreciation.
2028 Same as 2024 3,600 18,000 2,000
▪ Book value.
 Non- Current Assets – ‫األصول غير المتداولة‬
Property, Plant & Equipment – ‫ الممتلكات والمعدات‬,‫المباني‬
Calculate Depreciation expense
Straight Line Method (‫(طريقة القسط الثابت‬
- Continued

The below depreciation entry will be recorded at the end Year Equation for Dep. Acc. Book
of each year (31-Dec-202x) :- annual dep. Exp Dep. value

Date Account title Debit Credit 2024 20,000 – 2,000 2,700 2,700 17,300
5 =(3,600*9/12)
End of Dr. Depreciation exp 3,600
each 2025 Same as 2024 3,600 6,300 13,700
Cr. Accumulated dep 3,600
year
2026 Same as 2024 3,600 9,900 10,300
2027 Same as 2024 3,600 13,500 6,500
Ex. Liverpool football club has purchased a
2028 Same as 2024 3,600 17,100 2,900
security equipment to check for the custody of
weapons by fans on the 1st of April 2024, the 2029 Same as 2024 900 18,000 2,000
equipment was purchased for $20,000 and will =(3,600*3/12)
have a salvage value of $2,000 at the end of its
useful life. Its useful life was estimated to be 5- Date Account title Debit Credit
years. Dec 31st, Dr. Depreciation exp 2,700
- Prepare a schedule to show depreciation 2o24
Cr. Accumulated dep 2,700
expense, accumulated depreciation and
Dec 31st, Dr. Depreciation exp 3,600
book value.
2o25
- Prepare the annual journal entry to record Cr. Accumulated dep 3,600
depreciation expense on the first year, Mar 31st, Dr. Depreciation exp 900
second year, and final year. 2029
Cr. Accumulated dep 900
 Non- Current Assets – ‫األصول غير المتداولة‬
Property, Plant & Equipment – ‫ الممتلكات والمعدات‬,‫المباني‬
Calculate Depreciation expense
Units of activity (‫)طريقة وحدات النشاط‬
✓ In this method, depreciation is expressed in terms of total Ex. Liverpool football club has purchased a security
units of production rather than time. equipment to check for the custody of weapons by
✓ Ideal for factory machines where production is measured fans on the 1st of January 2024, the equipment
by units of output or by machine hours. was purchased for $20,000 and will have a
✓ Companies need to calculate the Depreciable base same as salvage value of 2,000 at the end of its useful life.
in the straight line method , companies also need to Its useful life was estimated to be 5-years.
calculate the output units produced in each year.
✓ We have two equations to calculate depreciation expense :- Checking times each year were as below:-
2024 : (2,500), 2025 : (2,800), 2026 : (1,100),
I. Depreciation cost per unit = 2027 : (1,900), 2028 : (1,700)
Depreciable base (Cost – residual value)
Total units of activity - Prepare a schedule to show depreciation
expense, accumulated depreciation and book
II.Depreciation expense = value using the units of activity method.
Depreciation cost per unit * Units of activity during the - Prepare the journal entry to record
year. depreciation expense in each year.

✓ Each year, we have to calculate the following amounts and

summarize them in a schedule :
▪ Depreciation expense.
▪ Ending balance of accumulated depreciation.
▪ Book value.
 Non- Current Assets – ‫األصول غير المتداولة‬
Property, Plant & Equipment – ‫ الممتلكات والمعدات‬,‫المباني‬
Calculate Depreciation expense

Units of activity (‫ )طريقة وحدات النشاط‬- Continued

Depreciation cost per unit = 20,000 – 2,000

10,000
= $1.8/unit

Year Depreciation Units of Dep. Acc. Book Date Account title Debit Credit
X
cost per unit activity Exp Dep. Value
Dec 31st, Dr. Depreciation exp 1,980
2024 1.8 x 2,500 4,500 4,500 15,500 2o26
Cr. Accumulated dep 1,980
2025 1.8 x 2,800 5,040 9,540 10,460 Dec 31st, Dr. Depreciation exp 3,420
2026 2o27
1.8 x 1,100 1,980 11,520 8,480 Cr. Accumulated dep 3,420
2027 1.8 x 1,900 3,420 14,940 5,060 Dec 31st, Dr. Depreciation exp 3,060
2o28
2028 1.8 x 1,700 3,060 18,000 2,000 Cr. Accumulated dep 3,060

Total 10,000 18,000

Date Account title Debit Credit

Dec 31st, Dr. Depreciation exp 4,500
2o24
Cr. Accumulated dep 4,500
Dec 31st, Dr. Depreciation exp 5,040
2o25
Cr. Accumulated dep 5,040
 Non- Current Assets – ‫األصول غير المتداولة‬
Property, Plant & Equipment – ‫ الممتلكات والمعدات‬,‫المباني‬
Calculate Depreciation expense
Double declining balance (‫)طريقة القسط المتناقص‬
Ex. Liverpool football club has purchased a security
✓ In this method, depreciation is expressed in terms of
equipment to check for the custody of weapons by fans
time by providing a decreasing annual depreciation
on the 1st of January 2024, the equipment was
expense every year.
purchased for $20,000 and will have a salvage value of
✓ It does not use a depreciable base, it uses book value
2,000 at the end of its useful life. Its useful life was
and ignores the residual value.
estimated to be 5-years.
✓ This method uses the depreciation rate multiplied by 2.
- Prepare a schedule to show depreciation expense,
This is why it is called double declining; depreciation
accumulated depreciation and book value using
expense is higher at first years and lower at later years.
the double declining balance method.
✓ Equations to compute depreciation are as below :-
Double rate = 1/5 * 2 = 40%
I. Double rate = Depreciation rate *2
Year Book value at beg Dep. Acc. Book
of year * rate Exp Dep. value at
II.Depreciation expense = Double rate * book year end
value 2024 20,000 *40% 8,000 8,000 12,000
✓ Stop depreciating when the book value equals the
residual value. 2025 12,000 * 40% 4,800 12,800 7,200
✓ Each year, we have to calculate the following amounts 2026 7,200 * 40% 2,880 15,680 4,320
and summarize them in a schedule :
2027 4,320 * 40% 1,728 17,408 2,592
▪ Depreciation expense.
▪ Ending balance of accumulated depreciation. 2028 (2,592 -2000)* 592 18,000 2,000
▪ Book value at the beginning of the year.
* As you can see, the depreciation expense for the last
year was the book value minus the residual value.
Non- Current Assets – ‫األصول غير المتداولة‬
Property, Plant & Equipment – ‫ الممتلكات والمعدات‬,‫المباني‬
Disposal of PPE

Fixed assets might be disposed of by :-

➢ Retirement - ‫التخلص‬
A ➢ Sale - ‫البيع‬
➢ Exchange – ‫االستبدال بأصل آخر‬
We will cover the first two only.

Regardless of the method used, we

B always have to determine the book value
at disposal date.

If the disposal occurs during the year,

C depreciation for the period up until
disposal has to be calculated as well.

The accounting treatment will be to

D remove the asset from our books by :-

debiting the accumulated depreciation
and crediting the cost of that asset.
 Non- Current Assets – ‫األصول غير المتداولة‬
Property, Plant & Equipment – ‫ الممتلكات والمعدات‬,‫المباني‬
Disposal of PPE

Retirement of fixed assets.

In case we want to dispose of/retire a fully depreciated asset (An asset that its related
accumulated depreciation is equal to its cost), the only thing we have to do is to debit the
accumulated depreciation and credit the cost as follows :-
Dr. Accumulated depreciation $$
Cr. Cost $$

In case the asset was not fully depreciated but we want to retire it anyway, a loss on disposal
will be recorded for the difference between its cost and accumulated depreciation. This loss
is reported under other income and expense section in the Income statement.

Ex. Coldplay has purchased a guitar for $20,000 on January 1st, 2024. It was depreciated by the
straight-line method based on a 4-year useful life with no residual value. On July 1st, 2027
the guitar was discarded with no cash proceeds.
- Prepare the journal entry for the disposal of the guitar on July 1st, 2027.

Depreciation expense = 20,000/4 = $5,000

Accumulated depreciation as of July 1st, 2027 = $5,000 *3.5 years = $17,500

Date Account title Debit Credit

Dr. Accumulated dep. 17,500
1st of July
Dr. Loss on disposal 2,500
2027
Cr. Cost 20,000
 Non- Current Assets – ‫األصول غير المتداولة‬
Property, Plant & Equipment – ‫ الممتلكات والمعدات‬,‫المباني‬
Disposal of PPE
Sale of fixed assets.
In case we want to sell an asset, we have to compute its book value at the date of disposal and
compare it to the cash proceeds from the sale.
Proceeds < Book value = Gain on sale.
Proceeds > Book value = Loss on sale.
Gains and losses on sale of fixed assets are recorded under other income and expense in the IS.

Coldplay has purchased a guitar for $20,000 on January 1st, 2024. It was depreciated by the
Ex. straight-line method based on a 4-year useful life with no residual value. On July 1st, 2027 the
guitar was sold to a fan.
- Prepare the journal entry for the sale of the guitar at $3,000 on July 1st, 2027.
- Prepare the journal entry for the sale of the guitar at $2,000 on July 1st, 2027.
Same as in the last example, Depreciation expense = $5,000. Accumulated depreciation
= $17,500, and Book value = (20,000 – 17,500) = $2,500
Date Account title Debit Credit
Dr. Accumulated dep. 17,500

1st of July Dr. Cash 3,000

2027 Cr. Cost 20,000
Cr. Gain on sale of fixed assets 500

Dr. Accumulated dep. 17,500

1st of July Dr. Cash 2,000

2027 Dr. Loss on sale of fixed assets 500
Cr. Cost 20,000
 Non- Current Assets – ‫األصول غير المتداولة‬
Property, Plant & Equipment – ‫ الممتلكات والمعدات‬,‫المباني‬
Overview on Impairment of PPE

Carrying value Compare Recoverable

(Based on Cash Amount
generating unit)

Higher of
Smallest group of assets that generates
cash inflow independently from other
Cost
group of assets
Less : Accumulated depreciation
Less : Accumulated impairment Fair Value Value in use
- Cost to sell

Indications of Impairment
➢ Observable indication that asset value has declined in value significantly
➢ Significant changes with an adverse effect on the entity (economic,
technological or market factors)
Estimated future
➢ Market interest rates have increased during the period
cash Flow from
➢ Evidence of obsolescence or physical damage asset
➢ Performance of an asset is worse than expected

Dr. Impairment expense

Cr. Accumulated impairment
 Non- Current Assets – ‫األصول غير المتداولة‬
Intangible Assets – ‫األصول غير الملموسة‬

Definition - ‫التعريف‬ Components - ‫المكونات‬ Method of Valuation

– ‫طريقة التقييم‬
Long-lived assets that will ➢ Software
generate future benefits with no ➢ Patents Either :-
physical substance. ➢ Copyrights ➢ Cost Model : Cost
➢ Franchise and Trade – Accumulated Depreciation
marks – Accumulated impairment
➢ Customer list ➢ Revaluation Model : Fair Value
➢ Goodwill – Subsequent Acc. Dep.
– Subsequent Acc. Imp.
 Non- Current Assets – ‫األصول غير المتداولة‬
Intangible Assets – ‫األصول غير الملموسة‬

Note : Intangible assets are the brother in

law of PPE, so the following is the same :-
➢ Disposal of Intangible assets
➢ Impairment of intangible assets
➢ Calculate Amortization expense (Same Hot Topics to discuss –
as depreciation under SLM)
‫أهم المواضيع اللي حناقشها‬
Since these topics are indifferent, we will ➢ Apply Cost principle to IA ( ‫تطبيق‬
not discuss them again. ‫)مبدأ التكلفة على األصول غير الملموسة‬
➢ Differentiate between finite and
infinite life of intangibles ( ‫توضيح‬
‫الفروقات بين األصول ذات العمر المحدد‬
‫)واألصول ذات العمر غير المحدد‬
 Non- Current Assets – ‫األصول غير المتداولة‬
Intangible Assets – ‫األصول غير الملموسة‬
Apply Cost principle to Intangible assets

In Case the intangible was internally

generated, first we have to identify the
following stages :-
➢ Research : The phase were there is
no product (planned investigation
undertaken with the prospect of
The aside Circle represents the cost to be gaining new scientific or technical
capitalized for purchased Intangibles :- knowledge and understanding. )
➢ Development : The application of
research to design or improve a
product
We should expense the research costs
directly, and capitalize the development
costs as an intangible asset (after
technical feasibility)

*Internally generated goodwill is not

capitalized or recognized.
 Non- Current Assets – ‫األصول غير المتداولة‬
Intangible Assets – ‫األصول غير الملموسة‬
Differentiate between finite and infinite life of intangibles
Franchise and
Trademarks Licenses
Copyrights a word or symbol that identifies and
If the cost of the franchise can
an exclusive right to differentiates a product or enterprise.
be determined, then amortize
produce or sell an It has indefinite life, thus not
it, if it has an indefinite life,
artistic or published amortized.
then don’t amortize it.
work.
Amortized over creator
life plus 70 years.
Patents
Are exclusive rights
issued by patent
offices that give the
right to control and
Goodwill
sell an invention for a
specific number of It is all the favorable attributes related to a
years. company. Such as, exceptional management
Amortized over its It has indefinite life, thus not amortized.
legal life or useful life
whichever is shorter.
 Non- Current Assets – ‫األصول غير المتداولة‬
Right of use assets – ‫حق استخدام األصل‬

Definition - ‫التعريف‬

01 the right to control the use of an identified asset for a

period of time in exchange for consideration. In other
words, RENT.

Components - ‫المكونات‬

02 All rent contracts shall be classified either as Operating

leases or Finance lease.

Method of Valuation – ‫طريقة التقييم‬

03 Present value of lease payments. Lease payments will be

discounted on implicit interest rate.
Non- Current Assets – ‫األصول غير المتداولة‬
Right of use assets – ‫حق استخدام األصل‬

Hot Topics to discuss – ‫أهم المواضيع اللي حناقشها‬

➢ Differentiate between Operating Lease and Financial
Lease (‫)توضيح الفروقات بين االيجار التشغيلي وااليجار التمويلي‬
➢ Most important terminologies of Financial leases ( ‫أهم‬
‫)المصطلحات المتعلقة بااليجار التمويلي‬
➢ Basic accounting treatment for Financial leases ( ‫المعالجة‬
‫)المحاسبية األساسية لاليجار التمويلي‬
 Non- Current Assets – ‫األصول غير المتداولة‬
Right of use assets – ‫حق استخدام األصل‬
Differentiate between Operating Lease and Financial Lease

Financial Lease Operating Lease

Only when the exemption is applicable :

When the exemption is not applicable, we
➢ The lease is short-term (less than one year)
have to recognize a financial lease.
➢ The underlying asset is low value (less than
$5,000 USD)
Also the asset should be identified (Ex.
Renting a car that has the plate number
XX). Renting any car is considered an We should recognize a normal prepaid
operating lease. expenses under current/non-current assets.

➢ The lessee should have the right to

obtain substantially all of the economic
benefits from use of the asset
throughout the period of use
➢ The lessee have the right to direct how
and for what purpose the asset is used

We should recognize a Right of use asset

and a Lease liability.
 Non- Current Assets – ‫األصول غير المتداولة‬
Right of use assets – ‫حق استخدام األصل‬
Most important terminologies of Financial leases

An asset that represents a lessee’s right to use an

Right of underlying asset for the lease term. Initial measurement
use Asset equals to present value of lease payments and then it
– ‫حق استخدام‬ should be depreciated using SLM. It should be classified as
‫األصل‬ a non-current asset.

Lease payments include the Lease The obligated lease payments to

following :- Lease lessor during the lease period. Initial
liability –
payments measurement equals to present value
➢ Fixed payments ‫التزام تأجير‬
– ‫دفعات االيجار‬ of lease payments (discounted on
➢ Variable payments
‫تمويلي‬
incremental borrowing rate).
➢ Exercise price of purchase It should be decreased by lease
option at the end of the period payments and increased by interest
expense.
Incremental
Its not only the lease term in the contract, Lease borrowing
The rate of interest that if the lessee would
it’s the non-cancelable period plus periods term – ‫مدة‬ rate– ‫سعر الفائدة‬
have to buy/obtain a similar asset in a similar
covered by an option to extend the lease if ‫االيجار‬ ‫على االقتراض‬
economic conditions.
the lessee is reasonably certain to exercise ‫االضافي‬
that option ( ‫ سنين‬5‫يعني اذا ناوي تمدد عقد االيجار ل‬
‫)بدك تاخذ هذا االشي في حسبتك‬
 Non- Current Assets – ‫األصول غير المتداولة‬
Right of use assets – ‫حق استخدام األصل‬
Basic accounting treatment for Financial leases

Journal Entries
Account Debit Credit

Initial Recognition of Right of use & Lease liability at the commencement date (PV of
Lease payments * Present value factor
lease payments)
Dr. Right of use assets 100,000
Cr. Lease liability 100,000
ROU
Depreciation of Right of use using Straight line method (100,000 / 5)
Lease term or useful life whichever is
Dr. Depreciation expense – ROU 20,000
short

Cr. Accumulated Depreciation – ROU 20,000 Interest expense is calculated (monthly

usually) using effective interest rate
Interest expense to increase the PV of lease liability to its future value

Dr. Interest expense 490

Cr. Lease liability 490

Lease payment to decrease lease liability by each payment (10,000 semiannual)

Dr. Lease liability 10,000

Cr. Bank/Cash 10,000
 Non- Current Assets – ‫األصول غير المتداولة‬

Investments – ‫االستثمارات‬

Definition - ‫التعريف‬
Equity (Shares) or debts (Bonds) of other companies that the company purchase in
order to generate future benefits.

Components and Method Valuation – ‫المكونات وطرق التقييم‬

➢ Investments in bonds (Valued at amortized cost).
➢ Investments in Equity (Ownership under 20%) :-
I. Investment at Fair Value though profit & loss
II. Investment at Fair Value though Other Comprehensive income
➢ Investments in associates (Equity method) ---- Ownership between 20% - 50%
➢ Investments in subsidiaries (Consolidation method) ---- Ownership above 50%
 Non- Current Assets – ‫األصول غير المتداولة‬

Investments – ‫االستثمارات‬

Hot Topics to discuss – ‫أهم المواضيع اللي حناقشها‬

➢ Initial recognition of Investments in bonds and subsequent measurement ( ‫االعتراف‬
‫)باالستثمارات في السندات و القياس الالحق لها‬
➢ Sale of investments in bonds (‫)بيع االستثمار في السندات‬
➢ Initial recognition of Investments in equity at Fair value through P&L and OCI and
subsequent measurement ( ‫االعتراف باالستثمارات المقيمة بالقيمة العادلة من خالل قائمة الدخل وقائمة‬
‫)الدخل الشامل اآلخر والقياس الالحق لها‬
➢ Sale of investments in equity (‫)بيع االستثمار في األسهم‬
➢ Accounting treatment for investments in associates ( ‫المعالجة المحاسبية لالستثمارات في‬
‫)الشركات الحليفة‬
➢ Brief on investments in subsidiaries (‫)نبذة عامة عن االستثمارات في الشركات التابعة‬
 Non- Current Assets – ‫األصول غير المتداولة‬
Investments – ‫االستثمارات‬
Initial recognition of Investments in bonds and subsequent measurement
Debt investments are investments in bonds, regardless of whether these bonds
are from a government or a corporation.
We have two events where we record entries :-
1- Acquisition of bonds.
2- Bonds interest revenue.

Acquisition of bonds & Interest revenue.

We use the Fair value to record bonds at acquisition, this includes all expenditures paid for acquiring the bond
(Usually purchase price of bond + brokerage fees).
At acquisition, we will record a simple entry:-
Dr. Debt investment
Cr. Cash

These bonds generate interest in the investor’s favor, Bonds might be issued at :-
➢ face value
➢ below face value (discount)
➢ or above face value (premium).

Discounts and premiums result when the market rate is different from the contractual rate.
Investments in bonds are subsequently measured at amortized cost using effective interest rate.
 Non- Current Assets – ‫األصول غير المتداولة‬
Investments – ‫االستثمارات‬
Initial recognition of Investments in bonds and subsequent measurement
On January 1st 2024, Daryl Dixon purchased $600,000 9%, 10-years bonds for $562,613, interest is paid semiannually every 1st of
Ex. Jan. and 1st of July.
The effective interest rate method is used for amortization and the effective interest rate is 10%.

Semi annual Interest received Interest revenue Discount Carrying value

period (Face value * (Carrying value * market rate% * 6/12) amortization D
contractual rate* 6/12) (B) C (D+C)
(A) (B-A)
1/Jan/2024 - 562,613
1/July/2024 (600,000 * 9% * 6/12) (562,613*10%*6/12) 28,131 – 27,000= 562,613 + 1,131 =
=27,000 = 28,131 1,131 563,744
31/Dec/2024 (600,000 * 9% * 6/12) (563,744*10%*6/12) 28,187 – 27,000= 563,744 + 1,187 =
=27,000 = 28,187 1,187 564,931

Dr. Debt investments 562,613

Cr. Cash 562,613

Date Account title Debit Credit Date Account title Debit Credit

To record first interest received and amortization of To record receivable of second payment and
discount amortization of discount
Jul 1st Dr. Cash 27,000 Dec 31st Dr. Interest receivable 27,000
2024 2024
Dr. Debt investments 1,131 Dr. Debt investments 1,187
Cr. Int. revenue 28,131 Cr. Int. revenue 28,187
 Non- Current Assets – ‫األصول غير المتداولة‬
Investments – ‫االستثمارات‬
Initial recognition of Investments in bonds and subsequent measurement
On Jan 1st 2024, Daryl Dixon purchased $300,000 11%, 10-years bonds for $318,694, interest is paid semiannually every 1st of Jan.
Ex. and 1st of July.
The effective interest rate method is used for amortization and the effective interest rate is 10%.

Semi annual Interest received Interest revenue Premium Carrying value

period (Face value * (Carrying value * market rate% * 6/12) amortization D
contractual rate* 6/12) (B) C (D-C)
(A) (B-A)
1/Jan/2024 - 318,694
1/July/2024 (300,000*11% * 6/12) (318,694*10%*6/12) 15,935 – 16,500= 318,694 - 565 =
=16,500 = 15,935 565 318,129
31/Dec/2024 (300,000*11% * 6/12) (318,129*10%*6/12) 15,906 – 16,500= 318,129 - 594 =
=16,500 = 15,906 594 317,535

Dr. Debt investments 318,694

Cr. Cash 318,694

Date Account title Debit Credit Date Account title Debit Credit

To record first interest received and amortization of To record receivable of second payment and
discount amortization of discount
Jul 1st Dr. Cash 16,500 Dec 31st Dr. Interest receivable 16,500
2024 2024
Cr. Int. revenue 15,935 Cr. Int. revenue 15,906
Cr. Debt investment 565 Cr. Debt investment 594
 Non- Current Assets – ‫األصول غير المتداولة‬
Investments – ‫االستثمارات‬
Sale of investments in bonds

Whenever the investor decides to sell bonds, a gain or loss on the sale is recognized for the
difference between the proceeds and carrying value of bonds.
Proceeds < Carrying value ===< Gain
Proceeds > Carrying value ===< Loss

Assume that Johnny Depp has decided to sell 30 bonds of his 100 bonds which had
Ex.
carrying value of $30,000 on Jan 1st the following year.
Record required entries for the sale of bonds if :-
- He sold them for $27,000
- He sold them for $31,000

Date Account title Debit Credit

Sale of bonds at $27,000
Dr. Cash 27,000
Jan 1st Dr. Loss on sale of bonds 3,000
Cr. Debt investment 30,000
Sale of bonds at $31,000
Dr. Cash 31,000
Jan 1st Cr. Gain on sale of bonds 1,000
Cr. Debt investment 30,000
 Non- Current Assets – ‫األصول غير المتداولة‬
Investments – ‫االستثمارات‬
Initial recognition of Investments in equity at Fair value through P&L and
OCI and subsequent measurement (Less than 20%)

FA Through P&L FA Through OCI

Management business model is to take Management business model is more a long-

advantage of changes in market prices and term strategic decision based on management
not being held for long period. business model & to collect dividends on these
shares.
Initial recognition at FV.
Subsequent measurement at FV through Initial recognition at FV.
P&L.
Subsequent measurement at FV through OCI.

All Changes in Subsequent FV will be All Changes in Subsequent FV will be

booked in “FV adjustment account-Trade” booked in “FV adjustment account-Non-
along with gain or loss in P&L statement. trade” along with gain or loss in OCI
statement.
 Non- Current Assets – ‫األصول غير المتداولة‬
Investments – ‫االستثمارات‬
Initial recognition of Investments in equity at Fair value through P&L and
OCI and subsequent measurement (Less than 20%)
FA Through P&L FA Through OCI

Example Example
Next level accounting Co. has the Next level accounting Co. has the
following trading securities as of Dec 31st, following non-trading securities as of Dec
2024. 31st, 2024.

Type Cost FV 1st Y FV 2nd Y Type Cost FV 1st Y FV 2nd Y

Shares 90,000 99,000 88,000 Shares 90,000 99,000 88,000

Date Account title Debit Credit Date Account title Debit Credit
Dr. FV adjust.- 9,000 Dr. FV adjust.- 9,000
1st trading 1st non-trading
year Cr. Unrealized year Cr. Unrealized
gain-P&L 9,000 gain-OCI 9,000
Dr. Unrealized 11,000 Dr. Unrealized 11,000
2nd loss – P&L 2nd loss – OCI
year Cr. FV adjust.- year Cr. FV adjust.-
trading 11,000 non-trading 11,000
Sale of equity investments are the same as debt
investments. Except we compare between FV and the
proceeds.
 Non- Current Assets – ‫األصول غير المتداولة‬
Investments – ‫االستثمارات‬
Accounting treatment for investments in associates (Ownership between 20%-50%)

Example
➢ Here, the investor has significant
influence but not a controlling On June 5th, 2024 Scarlett Johansson
interest over the investee, purchased 7 ordinary shares (30%
➢ The investee’s company is referred to ownership) from The Avengers Co. for
as the associate (‫) رشكة زميلة‬. $2,000 per share. The Avengers declared
➢ Usually, the investor will have a and paid dividends by $700 per share on
representative on the BOD. October 17th, 2024. The Avengers
➢ We will use Equity method here and reported net income of $3,000 on
treat the investment account as it’s a December 31st, 2024.
Retained earnings account, So any Account title Debit Credit
net income generated by the investee Dr. Inv. In associate 14,000
will increase the investment account,
Cr. Cash 14,000
and any dividends paid will decrease
the investment account.
Dr. Cash from dividends 4,900
Account title Debit Credit Cr. Inv. In associate 4,900
Dr. Inv in associate XX
Cr. Income from inv. Dr. Inv. In associate 900
in associate XX Cr. Income from inv. in
associate 900
Dr. Cash from XX
dividends
Cr. Inv in associate XX
 Non- Current Assets – ‫األصول غير المتداولة‬
Investments – ‫االستثمارات‬
Investments in subsidiaries (Consolidation method) ---- Ownership above 50%

Parent & Subsidiary relationship occurs when an entity controls an investee.

Control
- Power over the investee
A - Has rights to variable returns from
investee
- Ability to use its power to affect the
amount of investor’s return

Acquisition
B Upon Acquisition of a subsidiary, the
parent should assess the fair value of net
assets of the subsidiary and compare it
with purchase price.
PP > FV of Net assets = Goodwill
PP < FV of Net assets = Gain
* Note : Upon Consolidation, Parent should
eliminate any balances and transactions with C Consolidation
subsidiary, and assuming that they are one
Subsequently, Parent should prepare a
legal entity.
consolidated FS including Subsidiary
Assets, Liabilities & Equities.
 Current Liabilities – ‫االلتزامات المتداولة‬
Trade and Other Credit Balances – ‫الذمم الدائنة واألرصدة الدائنة األخرى‬

Definition - ‫التعريف‬
An obligation on the company that will
result in a future sacrifice in the shape
of cash outflow.

Components - ‫المكونات‬
Trade payables, unearned revenues,
advances from customers, accrued
expenses, Sales tax payable, etc,,,

Method of Valuation –
‫طريقة التقييم‬
Shall be measured at amortized cost. Or
at transaction price when time value is
immaterial.
 Current Liabilities – ‫االلتزامات المتداولة‬
Trade and Other Credit Balances – ‫الذمم الدائنة واألرصدة الدائنة األخرى‬

Hot Topics to discuss – ‫أهم‬

‫المواضيع اللي حناقشها‬

➢ Initial recognition of Accounts

payable and settlement of it ( ‫االعتراف‬
‫)بالذمم الدائنة ودفعها‬
➢ Accounting treatment for some of
other credit balances ( ‫المعالجة المحاسبية‬
‫)لألرصدة الدائنة األخرى‬
 Current Liabilities – ‫االلتزامات المتداولة‬
Trade and Other Credit Balances – ‫الذمم الدائنة واألرصدة الدائنة األخرى‬
All Topics in one slide (AP Recognition & Accounting treatment for Other Credit Balances)

Accounts Unearned Sales tax

Other payables
payable Revenue payable

Occurred when we When we have received In almost each country, Such as salaries payable,
purchase inventory , FA, cash but haven’t yet there is a tax over each interest payable, and
Services related to the performed the sale transaction that other accrued expenses
ordinary business on performance obligation to should be collected by which occurred when
account. the customer company and transferred there is a liability not
Recognition :- Receiving money :- to government related to ordinary
Dr. Inv/PPE/Exp Dr. Bank/Cash Upon sale :- business and not yet paid
Cr. AP Cr. Unearned revenue Dr. Cash Recognition :-
Settlement when paid :- When PO is satisfied :- Cr. Sales Dr. Int exp/Salaries exp
Dr. AP Dr. Unearned revenue Cr. Sales tax Cr. Int pay/Salaries pay.
Cr. Bank/Cash Cr. Revenue Upon transfer to Settlement when paid :-
government :- Dr. Payable/Accruals
Dr. Sales tax Cr. Cash
Cr. Cash
 Current Liabilities – ‫االلتزامات المتداولة‬
Income tax provision – ‫مخصص ضريبة الدخل‬

Definition - ‫التعريف‬ Accounting treatment – ‫المعالجة المحاسبية‬

Almost all countries require Upon recognition :-
companies to pay a Dr. Income tax expense
percentage of their profits for Cr. Income tax provision
the year to tax department, Upon Payment :-
this provision represents the Dr. Income tax provision
balance due to tax Cr. Bank/Cash
authorities.

Topics will not be discussed –

Presentation - ‫العرض‬ ‫مواضيع ما حنناقشها‬
Beg. Income tax provision We will not discuss any topics related
+ Income tax exp for the year to deferred tax assets/liability, since
- Income tax payments its complex and can’t be briefed,
= End. Income tax provision Also it happens occasionally.
Non-Current Liabilities – ‫االلتزامات غير المتداولة‬
Bonds and Loans – ‫القروض والسندات‬

Definition - ‫التعريف‬
Financial obligations that will due in more than one year, it can be 01
borrowed from banks (Loans) or issued by the company (Bonds)

Components - ‫المكونات‬
Long-term notes payable, long-term loans and bonds 02

Method of Valuation – ‫طريقة التقييم‬

Initially at Fair Value, and subsequently under Amortized Cost. 03
Non-Current Liabilities – ‫االلتزامات غير المتداولة‬
Bonds and Loans – ‫القروض والسندات‬

Hot Topics to discuss – ‫أهم المواضيع اللي حناقشها‬

➢ Accounting treatment for long-term notes payable and loans ( ‫المعالجة‬
‫)المحاسبية ألوراق الدفع طويلة األجل والقروض‬
➢ Accounting treatment for bonds and amortization under Effective interest
rate (‫)المعالجة المحاسبية للسندات واالطفاء باستخدام طريقة الفائدة الفعالة‬
➢ Extinguishment of bonds (‫)انقضاء السندات‬
 Non-Current Liabilities – ‫االلتزامات غير المتداولة‬
Bonds and Loans – ‫القروض والسندات‬

Accounting treatment for long-term notes payable and loans

Definition Classification
Long-term notes : It is the other side of The portion due within one year is
notes receivable, it is an obligation in a classified as a current liability and the
written promissory note that usually remaining portion shall be classified as a
requires paying interest. non current liability.
Loans : Cash borrowed from banks and
will be settled with interest.
Accounting treatment
Payment by installments Initially recorded at fair value (equals to
face value).
These obligations are often paid by
installments. Each installment consists of On each installment, we shall recognize
two things :- interest expense (Debit), reduce the
note/loan balance (Debit) and credit
1- Unpaid interest on loan balance.
Cash.
2- reduction of loan principal (‫)أصل القرض‬.
Each period, we will settle more from the
loan principle and less from interest.
 Non-Current Liabilities – ‫االلتزامات غير المتداولة‬
Bonds and Loans – ‫القروض والسندات‬
Accounting treatment for long-term notes payable and loans
Ex. Walter white has borrowed $500,000 from Gustavo on a 20-year mortgage note, 12% on Dec 31st, 2024.
The installments were semi-annual and amounted to $33,231.
- Prepare the journal entries on Dec 31st and for the first two payments.
- Show the amounts that shall be classified as current and non current liabilities as of Dec 31st 2024 and Dec 31st 2025.

Semi annual Cash payment Interest expense Reduction of Principal balance

period (A) (Balance * 12% * 6/12) principal D
(B) C (D-C)
(A-B)
31/Dec/2024 - 500,000
30/June/2025 33,231 (500,00*12%*6/12) 33,231 – 30,000= 500,000 – 3,231 =
= 30,000 3,231 496,769
31/Dec/2025 33,231 (496,769*12%*6/12) 33,231 – 29,806= 496,769 – 3,425 =
= 29,806 3,425 493,344

30/June/2026 33,231 (493,344*12%*6/12) 33,231 – 29,601= 493,344 – 3,630 =

= 29,601 3,630 489,714
31/Dec/2026 33,231 (489,714*12%*6/12) 33,231 – 29,383= 489,714 – 3,848 =
= 29,383 3,848 485,866
 Non-Current Liabilities – ‫االلتزامات غير المتداولة‬
Bonds and Loans – ‫القروض والسندات‬
Accounting treatment for long-term notes payable and loans
Ex. Walter white has borrowed $500,000 from Gustavo on a 20-years mortgage note, 12% on Dec 31st, 2024.
The installments were semi-annual and amounted to $33,231.
- Prepare the journal entries on Dec 31st and for the first two payments.
- Show the amounts that shall be classified as current and non current liabilities as of Dec 31st 2024 and Dec 31st 2025.

Date Account title Debit Credit Balance Sheet as of December 31st, 2024
To record the issuance of note payable
Non - Current liabilities
Dec 31st Dr. Cash 500,000
2024 Notes payable = 493,344 (500,000 – (3,231 + 3,425))
Cr. Notes payable 500,000
To record the first installment payment Current liabilities
June Dr. Notes payable 3,231 Notes payable = 6,656 (3,231 + 3,425)
3oth
Dr. Interest expense 30,000
2o25 Balance Sheet as of December 31st, 2025
Cr. Cash 33,231
To record the second installment payment Non - Current liabilities
Notes payable = 485,866 (493,344 – (3,630 + 3,848))
Dec 31st Dr. Notes payable 3,425
2025
Dr. Interest expense 29,806 Current liabilities
Cr. Cash 33,231 Notes payable = 7,478 (3,630 + 3,848)
 Non-Current Liabilities – ‫االلتزامات غير المتداولة‬
Bonds and Loans – ‫القروض والسندات‬
Accounting treatment for bonds and amortization under Effective interest rate
Bonds are the other side of investment in debts, it happens when the company issued a debt instrument to
Other companies and individuals requesting to finance their operations, in return of interest.
We have two events where we record entries :-
1- Issuance of bonds.
2- Bonds interest expense and related amortization.

Issuance of bonds & Interest expense.

We use the Fair value to record bonds at issuance.

At issuance, we will record a simple entry:-
Dr. Cash
Cr. Bonds payable

These bonds generate interest in the bondholder interest, Bonds might be issued at :-
➢ face value
➢ below face value (discount)
➢ or above face value (premium).

Discounts and premiums result when the market rate is different from the contractual rate.
Bonds payable are subsequently measured at amortized cost using effective interest rate.
 Non-Current Liabilities – ‫االلتزامات غير المتداولة‬
Bonds and Loans – ‫القروض والسندات‬
Accounting treatment for bonds and amortization under Effective interest rate
On January 1st 2024, Daryl Dixon issued $600,000 9%, 10-years bonds for $562,613, interest is paid semiannually every 1st of Jan.
Ex. and 1st of July.
The effective interest rate method is used for amortization and the effective interest rate is 10%.

Semi annual Interest paid Interest expense Discount Carrying value

period (Face value * (Carrying value * market rate% * 6/12) amortization D
contractual rate* 6/12) (B) C (D+C)
(A) (B-A)
1/Jan/2024 - 562,613
1/July/2024 (600,000 * 9% * 6/12) (562,613*10%*6/12) 28,131 – 27,000= 562,613 + 1,131 =
=27,000 = 28,131 1,131 563,744
31/Dec/2024 (600,000 * 9% * 6/12) (563,744*10%*6/12) 28,187 – 27,000= 563,744 + 1,187 =
=27,000 = 28,187 1,187 564,931

Dr. Cash 562,613

Cr. Bonds Payable 562,613

Date Account title Debit Credit Date Account title Debit Credit

To record first interest payment and amortization of To record the second interest payment and
discount amortization of discount
Jul 1st Dr. Interest expense 28,131 Dec 31st Dr. Interest expense 28,187
2024 2024
Cr. Bonds payable 1,131 Cr. Bonds payable 1,187
Cr. Cash 27,000 Cr. Int payable 27,000
 Non-Current Liabilities – ‫االلتزامات غير المتداولة‬
Bonds and Loans – ‫القروض والسندات‬
Accounting treatment for bonds and amortization under Effective interest rate
On Jan 1st 2024, Daryl Dixon issued $300,000 11%, 10-years bonds for $318,694, interest is paid semiannually every 1st of Jan. and
Ex. 1st of July.
The effective interest rate method is used for amortization and the effective interest rate is 10%.

Semi annual Interest paid Interest expense Premium Carrying value

period (Face value * (Carrying value * market rate% * 6/12) amortization D
contractual rate* 6/12) (B) C (D-C)
(A) (B-A)
1/Jan/2024 - 318,694
1/July/2024 (300,000*11% * 6/12) (318,694*10%*6/12) 15,935 – 16,500= 318,694 - 565 =
=16,500 = 15,935 565 318,129
31/Dec/2024 (300,000*11% * 6/12) (318,129*10%*6/12) 15,906 – 16,500= 318,129 - 594 =
=16,500 = 15,906 594 317,535

Dr. Cash 318,694

Cr. Bonds Payable 318,694

Date Account title Debit Credit Date Account title Debit Credit

To record first interest payment and amortization of To record the second interest payment and
discount amortization of discount
Jul 1st Dr. Interest expense 15,935 Dec 31st Dr. Interest expense 15,906
2024 2024
Dr. Bonds payable 565 Dr. Bonds payable 594
Cr. Cash 16,500 Cr. Int payable 16,500
 Non-Current Liabilities – ‫االلتزامات غير المتداولة‬
Bonds and Loans – ‫القروض والسندات‬
Extinguishment of bonds

Whenever the company decides to redeem bonds, a gain or loss on the sale is recognized for the
difference between the amounts paid and carrying value of bonds.
Paid amount < Carrying value ===< Loss
Paid amount > Carrying value ===< Gain

Assume that the company decided to redeem their 30 bonds of its 100 bonds which had
Ex.
carrying value of $30,000 on Jan 1st the following year.
Record required entries for the redemption of bonds if :-
- Redeemed them for $27,000
- Redeemed them for $31,000

Date Account title Debit Credit

Redemption of bonds at $27,000
Dr. Bonds payable 30,000
Jan 1st Cr. Gain on redemption 3,000
Cr. Cash 27,000
Redemption of bonds at $31,000
Dr. Bonds payable 30,000
Jan 1st Dr. Loss on redemption 1,000
Cr. Cash 31,000
 Revenue Recognition

5-Steps Approach

Step 1 Step 2 Step 3 Step 4 Step 5

Allocate the
Identify the Identify the Recognize
Determine the Transaction
Contract with Performance Revenue when
Transaction Price to the
a Customer Obligations in A performance
Price Performance
The contract Obligation is
Obligations in
Satisfied
The contract
 Revenue Recognition

5-Steps Approach

Step 1 Step 2

Identify the Identify the

Contract with Performance
a Customer Obligations in
The contract

The entity has a contract when the following criteria are met :- The performance obligations are the promised goods or
➢ The parties of contract has approved in writing or orally the services by the entity to the customer.
contract and committed to perform their obligations regard the ➢ It might be one PO (Selling an apartment) or
goods or service to be transferred. multiple POs (Selling and apartment + Cleaning
➢ Each party enforceable rights have been identified. Services)
➢ Payment terms have been identified. ➢ It might be explicit (Mentioned clearly) in the
➢ Contract has commercial substance. contract or implicit in rare cases.
➢ It is probable that the consideration will be collected from
customer in exchange of transferred goods/service.
 Revenue Recognition

5-Steps Approach

Step 3 Step 4
Allocate the
Determine the Transaction
Transaction Price to the
Price Performance
Obligations in
The contract

It’s the amount of consideration that is expected to be received in Every performance obligation should have a price, and
exchange of promised goods/services. It can be one or all of the when satisfied, a revenue shall be recognized.
following :- ➢ Allocation shall be on a standalone selling price
➢ Fixed consideration (means if you sold one item alone, what is the price
➢ Variable Consideration for that?)
➢ Constraining estimates of variable consideration ➢ iPhone example (Mobile + Charger)
➢ Existence of significant financing component
➢ Non-Cash Consideration (At Fair Value)
➢ Consideration payable to the customer (Reduction of price)
 Revenue Recognition

5-Steps Approach

More about Control :-

Step 5 1- Entity has the right to receive the consideration
2- Entity has transferred the legal title of goods/services
Recognize 3- Entity has transferred physical possession of
goods/services
Revenue when
4- Customer has significant risks and rewards of owning
A performance the goods/services
Obligation is 5- Customer has accepted the goods/services
Satisfied

PO is satisfied when the customer obtains the Control over the goods or services.
Control refers to the ability to direct the use and obtain substantially all the remaining benefits from the asset.
The performance obligation is satisfied in two ways :-

Retail At a point Construction

companies Overtime
in time companies
 Comprehensive Example
Ex. iPhone 16 has been released, and Apple Co. is selling both the mobile
device and the charger for $1,300. The contract with customers are
orally and nothing is written, only a sales invoice is issued upon the
sale point.
- Go through the 5-stpes and apply IFRS 15 over this case, taking into
consideration that if Apple sold the iPhone and the charger separately
the following prices will be charged:-
iPhone : $1,250
Charger : $150

Step 1 : Identify the contract :-

Selling iPhone with charger to the customer (oral communication but
the sales invoice as a written evidence of the sale)

Step 2 : Identify the Performance Obligations :-

1- Selling iPhone // 2- Selling Charger

Step 3 : Determine the Transaction Price :-

$1,300

Step 4 : Allocate the TP over the POs :-

Stand-alone price = iPhone $1,250 + Charger $150 = $1,400
iPhone = (1,250 / 1,400) * $1,300 = $1,161
Charger = (150 / 1,400) * $1,300 = $139

Step 5 : Recognize Revenue when PO is satisfied :-

Recognize Revenue when iPhone & charger are delivered to customer.
 Presentation of expenses – ‫طريقة عرض المصروفات‬
According to IFRS, Expenses can be presented by nature or by function.

By Nature – ‫حسب طبيعة المصروف‬ By Function – ‫حسب وظيفة المصروف‬

Nature means Nature (‫)أقولهالك إزاي؟‬ Here, costs are aggregated into groups based on
Such as Salaries, depreciation, rent, utilities, the company’s functional activities. In real life,
supplies, etc.. three main groups are used : Cost of goods sold,
General and administrative, and marketing and
To present them like this, we need detailed
selling.
information. We don’t care whether the expense
is related to marketing, operations, admin, etc.. However, if you decide to present in this way,
you have to disclose additional details in notes.

No enough space in this slide, so lets flip to the

next one ☺.
 Presentation of Operating expenses – ‫طريقة عرض المصروفات التشغيلية‬
According to IFRS, Expenses can be presented by nature or by function.

By Function – ‫حسب وظيفة المصروف‬

We have other categories related to “by function presentation” in order to complete a full income statement preview :-
- Other income and expenses : various revenues and expenses that are not related to the company’s main operations.
Types of other income are interest revenue, dividends revenue, rent revenue, gain from sale of PPE, etc.., while
types of other expenses include loss from sale of PPE, loss from employees strike, casualty losses ( However, it does
not include interest expense). Other income and expenses are presented immediately after Operating income.
- Interest expense : presented separately because it is related to another activity, that is a financing activity.
- Income Tax expense
Example for Presentation by function:-
Ex. Umniah Co. has the following data related to its income
statement for the year ended December 31st, 2024.

Net Sales 440,000

Interest Revenue 10,000
Salaries expenses 20,000
Cost of goods sold 300,000
Interest expense 15,000
Marketing expenses 4,000
Sales commission 3,000
Loss on sale of equipment 5,000
Insurance expense 10,000

Prepare an income statement.

Example for Presentation by function - Solution
Income statement for Umniah Company For the year ended Dec 31st, 2024

Sales Revenues

Net Sales $ 440,000

Cost of goods sold (300,000)

Gross profit 140,000

General & Admin

Salaries expenses $ (20,000)

Insurance expense (10,000)

Total General & Admin (30,000)

Marketing & Selling Expenses

Marketing expenses (4,000)

Sales Commission (3,000)

Total Marketing & Selling Expenses (7,000)

Income from operations $ 150
103,000
Other income and expenses
s

Interest Revenue 10,000

Loss on sale of equipment (5,000)
Interest expense (15,000)

NET
Add: NetINCOME
Income $ 93,000
 Change in equity statement – ‫قائمة التغيرات في حقوق الملكية‬

Change in Equity statement is the third statement after balance sheet and income statement.
It shows what have changed in each equity line item.

Share Capital Statutory Retained Accumulated Total balance

Reserve Earnings OCI
Beg balance $XX $XX $XX $XX $XX
Issuance of shares
/Increase share capital $XX $XX
Net income (loss) $XX $XX
Transfer to Statutory
reserve $XX $(XX) -
Cash Dividends $(XX) $(XX)
Share Dividends $XX $(XX) -
Unrealized gains(losses) $XX/(XX) $XX/(XX)
End balance $XX $XX $XX $XX $XX
 Cash Flow statement – ‫قائمة التدفقات النقدية‬
It’s the forth and final statement between the financial statements.
The purpose of this statement is to show the change in cash, by identifying the sources of cash inflow and cash outflows.
We have three main activities when categorizing the transactions

Operating Investing Financing

activities activities activities

Includes transactions that Includes cash receipts and Includes Cash receipts and
enter into the determination payments related to non- payments related to financing
of net income, such as cash current assets, such as by debt or equity.
receipts from sales and cash long term investments like Debt financing by non-
payments to suppliers. bonds (lending and current liabilities, and Equity
Operating activities involve collecting money from financing by issuing shares
income statement items, loans with other entities) and paying dividends.
as well as changes in or shares (non-trading Financing activities involve
current assets and type), property plant and all transactions in the non-
current liabilities. equipment, Intangible current liabilities and
assets, etc.., equity sections.
 Cash Flow statement – ‫قائمة التدفقات النقدية‬
Cash Flow statement for Next Level Company For the year ended Dec 31st, 2024

Net Income/Loss $ XX

Add : Non-Cash expenses (Depr., amort., gains & losses) XX

Add : Decrease in current assets & Increase in current liab. XX/(XX)

Deduct : Tax payments (XX)

Cash flow generated from (used in) operating act. XX/(XX)

Deduct : Purchase of investments , PPE & Intangibles (XX)

Add : Proceeds from sale of inv. , PPE & Intangibles XX

Cash flow generated from (used in) investing act. XX/(XX)

Add : Proceeds from loans or issuing shares XX

Deduct : Repayments of loans or treasury shares purchase (XX)

Deduct : Payments of dividends & lease payments $(XX)
150

Cash flow generated from

s (used in) financing act. XX/(XX)

Beg Cash Balance XX

Net Increase/decrease in cash XX/(XX)
Ending Cash Balance XX

List
Add: Non-Cash
Net Income transactions XX
 Comprehensive example for Cash flow statement
McKinsey & Company has the following data and events related to year ended Dec 31, 2024 and 2023.
- Prepare a cash flow statement using indirect method for year ended Dec 31, 2024.

▪ Net income for the year ended Dec 31, 2o24 was $30,000.
▪ Cash dividends were $10,000.
▪ Ordinary shares were issued for $25,000.
▪ Land was purchased for $20,000. 10,000,000
▪ One Equipment was sold for $7,000, cost was $15,000 and
accumulated depreciation was $5,000. also we purchased
one equipment for $5,000.
Balance sheet
Item 2024 2023
Land 40,000 20,000
Equipment 40,000 50,000
Accumulated depreciation (20,000) (10,000)
Inventories 5,000 13,000
AR 4,000 1,000
Cash 19,000 10,000
Total assets 88,000 84,000
Share capital 30,000 5,000
Retained earnings 53,000 33,000
Accounts payable 5,000 46,000
Total Liab. and equity 88,000 84,000
Comprehensive example for Cash flow statement - Solution
Cash flow from operating activities
Net income 30,000
+ Depreciation 15,000 = ((20,000 – 10,000) + 5,000)
+ Loss on disposal of equipment 3,000 = (7,000 – (15,000-5,000))
+ Decrease in Inventories 8,000 = (13,000 – 5,000)
- Increase in AR (3,000) = (1,000 – 4,000)
- Decrease in AP (41,000) = (5,000 – 46,000)
Cash flow provided by operating activities 12,000

Cash flow from Investing activities

- Purchase of land (20,000)
- Purchase of equipment (5,000)
+ Proceeds from Sale of equipment 7,000
Cash flow used by investing activities (18,000)

Cash flow from financing activities

+ Issuance of shares 25,000
- Payment of dividends (10,000)
Cash flow provided by financing activities 15,000

Net change in cash 9,000

+Cash at beginning of period 10,000 = from prior year BS
Cash at end of period 19,000 = Should always equal cash balance on balance sheet as of Dec 2024