As we release the 3rd edition a Korean·English translation 

 

 

 

It has been 7 years since Accounting Principles based on International Standards was published. Because the several revisions made over this period were not considered in-depth enough, this time we’ve done a major overhaul of the whole book. We consider the following points in this revision.

 

1. Highlight international standards that are different from the old standards

 

Up to now, this book was written and revised as an introduction to overall international standards, so it was somewhat short on explaining the specific, detailed requirements of the international standards. This revision highlights in detail the following items, which the international standards require be carried out differently than under the old standards.

 

	Old standards	International standards	Text
Estimating bad debts	Select one amongst the individual method, percentage method, and aging method.	If information obtained by the individual method is not enough, the aging method should be applied.	p.276
Presenting trade receivables	Indirect method, showing gross amount of trade receivables less allowance for uncollectible accounts.	Both direct method, showing net amount of trade receivables, and indirect method are allowed. If direct method is used, allowance for uncollectible accounts balance should be disclosed in a footnote.	p.274
Inventory valuation	Select one amongst specific identification method, FIFO, LIFO, or weighted average method.	LIFO is not allowed. Must apply specific identification method first. If inventories are exchangeable, FIFO or weighted average can be applied.	p.326
Checking whether depreciation expense reflects economic reality	No standard.	Must check every year whether depreciation expense reflects economic reality and, if it does not reflect, must change depreciation method, useful life, and residual value.	p.371
Presenting accumulated depreciation	Indirect method showing accumulated depreciation as a deduction.	Both direct method, showing net amount, and indirect method are allowed. If direct method is used, balance of accumulated depreciation should be disclosed in a footnote.	p.376
Presenting bonds payable	Indirect method showing discount on bonds payable as a reduction.	Direct method showing amortized cost.	p.428
Classification of interest received, dividend received, and interest paid in statement of cash flows	Classified as operating activities applying an exception to the theory.	Allows both the exceptional old standards and the theory, classifying interest received and dividend received as investing activities and interest paid as a financing activity. (This book applies classification by the theory).	p.511
Classification of financial assets	Trading, Available-for-sale, Held-to-maturity financial assets	Amortized cost, Fair value through profit or loss, Fair value through other comprehensive income financial assets	p.582

 

2. Use of revised terminology

 

We revise and use the titles of the income statement account (Korean) that can be understood as cash flows rather than expense or revenue as below.

 

Before revision	After revision
Rent (paid)	Rent expense
Insurance premium	Insurance expense
Salaries	Salaries expense
Rent(received)	Rent revenue
Service fees	Service fees revenue

 

3. Inclusion of IFRS (International Financial Reporting Standards) footnotes

 

Each time IFRS is quoted or referenced, a footnote is created, and the related standards are listed in the ‘IFRS References (http://www.kasb.or.kr)’ section included at the end of each Chapter. Therefore, it becomes clear that the definitions of key terms and important accounting methods are determined by IFRS. If a student wishes to conduct in-depth research on a related topic, he or she can easily identify the relevant standards and so conduct the research more effectively by using the information provided. In addition, when the student publishes his or her research outputs, he or she can easily quote or reference the related standards.

 

4. A Korean-English translation

 

We have created a Korean·English translation, in response to the internationalization of the accounting environment. When translating, we attempt to consider both the Korean and English version as independent texts. We first translate each sentence from Korean version into English and then re-translate this English version back into Korean, to ensure we arrive at a consistent result. Accounting can be difficult to both understand and effectively communicate. We expect that this Korean-English translation will help minimize these problems.

 

 

 

As we hurry to revise, we know that there will be some errors and typos. We politely ask for your understanding and for kindly notifying us of any errors. We also promise to revise continuously from now on. We express our profound thanks to all staff of Yulgok publishing company for their invaluable work.

 

February 21, 2019

Authors

 

 

1. Business Activities and Financial Statements 

Section 1 Business enterprises and business activities 2

Section 2 Business activities and accounting system 9

Section 3 Preparing and disclosing financial statements 17

 

2. Nature of Financial Statements 

Section 1 Statement of financial position 32

Section 2 Comprehensive income statement 47

Section 3 Statement of cash flows 64

Section 4 Statement of changes in equity 69

Section 5 Basic assumption and limitations of financial statements 72

 

3. Recording Transactions and Preparation of Financial Statements

 ―Cash Transactions

Section 1 Transactions and bookkeeping 84

Section 2 Recording transactions under the double-entry bookkeeping system

  87

Section 3 Accounting cycle (cash) 102

4. Accrual Basis and Preparation of Financial Statements

Section 1 Measurement of income: Accrual basis and cash basis 140

Section 2 Recognition of revenue and expense under the accrual basis

  145

Section 3 Adjusting journal entries 151

Section 4 Accounting cycle (accrual) 166 

 

5. Comprehensive Illustration of Preparing and Using Financial

 Statements 

Section 1 A comprehensive illustration of preparing financial statements

  190

Section 2 A comprehensive illustration of using financial statements    224

Case Financial Statements of Daehan Department Store

I. Financial statements 250

II. Footnotes 254

 

6. Operating Activities―Sales and Trade Receivables 

Section 1 Sales and trade receivables 270

Section 2 Trade receivables and bad debts 272

Section 3 Trade receivables and cash flows 285

Section 4 Related financial ratios 290

 

7. Operating Activities―Cost of Goods Sold, Inventory, and Trade Payables

 

Section 1 Cost of goods sold, inventory, and trade payables 306

Section 2 Recording cost of goods sold 308

Section 3 Correction of inventory errors 316

Section 4 Inventory valuation methods 326

Section 5 Estimating cost of ending merchandise inventory 333

Section 6 Inventory shortage loss and valuation loss 338

Section 7 Cost of goods sold and cash flows 342

Section 8 Related financial ratios 346

 

8. Investing Activities―Non-current Assets

Section 1 Acquisition cost of tangible assets 367

Section 2 Depreciation methods 371

Section 3 Depreciation expense and cash flows 379

Section 4 Capital expenditures and revenue expenditures 380

Section 5 Disposal of tangible assets 382

Section 6 Impairment of tangible assets 387

Section 7 Related financial ratios 391

 

9. Financing Activities―Liabilities

Section 1 Financial liabilities and non-financial liabilities 412

Section 2 Borrowings 414

Section 3 Bonds payable 418

Section 4 Provisions 443

Section 5 Related financial ratios 448

10. Financing Activities－Equity

Section 1 Issuance of stock 470

Section 2 Dividends 473

Section 3 Treasury stock 477

Section 4 Statement of changes in equity 481

Section 5 Related financial ratios 486

 

11. Statement of Cash Flows 

Section 1 Key issues 510

Section 2 Cash flows from operating activities 517

Section 3 Cash flows from investing and financing activities 525

Section 4 Non-cash transactions 528

Section 5 A comprehensive illustration of preparing a statement of cash flows

  529

Section 6 Related financial ratios 552

 

Appendix 1 Special Issues

Section 1 Other comprehensive income and net income 580

Section 2 Accounting for fair value through other comprehensive income    financial assets 582

Section 3 Accounting for revaluation of tangible assets 588

Section 4 Equity method and consolidated financial statements 596

 

Appendix 2 Key Financial Ratios

I. Evaluating profitability 610

II. Evaluating growth 610

Ⅲ. Evaluating activity 611

Ⅳ. Evaluating safety (financial) 611

Ⅴ. Price multiples 612

 

Translation of terms and index (English-Korean)/613