Chapter 1: Conceptual Framework for Financial Reporting

Section 1: The Meaning of Accounting 1-2
1.
Definition of Accounting 1-2
2.
Accounting Classification 1-4
3.
The Social Function of Financial Accounting 1-6

Section 2 Financial Reporting and Accounting Principles 1-7
1.
Financial Report 1-7
2.
Generally Accepted Accounting Principles 1-8
3.
Generally Accepted Accounting Principles in Korea 1-9
4.
Method of Establishing Accounting Principles 1-11
5.
Accounting Standards Format 1-12
6.
Establishment of Accounting Principles in Korea 1-12
7.
International Financial Reporting Standards 1-15

Section 3 Conceptual Framework for Financial Reporting 1-21
1.
The Significance and Purpose of the Conceptual Framework 1-21
2.
Objectives of General Purpose Financial Reporting 1-24
3.
Qualitative Characteristics of Useful Financial Information 1-29
4.
General Purpose Financial Statements 1-38
5.
Elements of Financial Statements 1-41
6.
Recognition and Derecognition of Financial Statement Elements 1-55
7.
Measurement of Financial Statement Elements 1-60
8.
Presentation and Disclosure of Financial Statements 1-70
9.
Capital and Capital Maintenance Concepts and Profit Measurement 1-73
Practice Problem 1-77

Chapter 2 Profit Measurement and Measurement Standards

Section 1 Profit Measurement 2-2
1.
Capital Maintenance Approach 2-2
2.
Transaction Approach 2-3
3.
Profit Reporting Method 2-4

Section 2 Measurement Criteria 2-6
1.
The significance of measurement standards 2-6
2.
Measurement Standards and Profit Measurement 2-6

Section 3 Fair Value Measurement 2-11
1.
The Meaning of Fair Value 2-11
2.
Fair Value Measurement Method 2-12
3.
Considerations for Measuring the Fair Value of Non-Financial Assets 2-15
4.
Considerations for Measuring the Fair Value of Debt and Equity Instruments 2-16
5.
Fair value at initial recognition 2-18
6.
Using Valuation Techniques 2-18

Section 4: The Time Value of Money 2-20
1.
Basic Concepts 2-20
2.
Future Value and Present Value of Simple Cash Flows 2-21
3.
Future and Present Value of a Normal Pension 2-24

Section 5: Present Value Assessment of Long-Term Bonds and Debt 2-28
1.
The Significance of Present Value Assessment 2-28
2.
Application of Present Value Assessment 2-28
3.
Type 2-30 of Present Value Assessment
Practice Problem 2-43

Chapter 3 Financial Statements Presentation

Section 1 Preparation and Presentation of Financial Statements 3-2
1.
Financial Statements General 3-2
2.
General Principles of Preparing and Presenting Financial Statements 3-5
3.
Identifying Financial Statements 3-11

Section 2 Types of Financial Statements 3-12
1.
Financial Statements 3-12
2.
Statement of Comprehensive Income 3-22
3.
Other Financial Statements 3-31
4.
Note 3-31
Practice Problem 3-32

Chapter 4 Cash and Receivables

Section 1 Cash and Financial Institution Deposits 4-2
1.
Cash 4-2
2.
Financial institution deposits 4-3
3.
Presentation of Cash and Financial Institution Deposits in the Financial Statements 4-6

Section 2 Bank Account Reconciliation 4-9
1.
2nd Bank Account Reconciliation Table 4-9
2.
4-13 Bank Account Reconciliation Statement

Section 3 Accounts Receivable and Other Receivables 4-18
1.
Initial Recognition of Accounts Receivable 4-18
2.
Subsequent Measurement of Accounts Receivable 4-21
3.
Expected Loss on Accounts Receivable 4-22

Section 4 Transfer of Accounts Receivable 4-28
1.
The Significance of Transferring Accounts Receivable 4-28
2.
Factoring Transaction 4-29
3.
Bill Discount Transaction 4-32
Practice Problem 4-35

Chapter 5 Inventory Assets and Agricultural, Forestry, and Fishery Assets

Section 1 Recognition and Measurement of Inventory Assets 5-2
1.
The Significance of Inventory Assets 5-2
2.
Acquisition cost of externally purchased inventory assets 5-3
3.
Acquisition cost of self-manufactured inventory assets 5-6
4.
Harvested crop inventory from biological assets 5-9

Section 2 Cost Allocation of Inventory Assets 5-10
1.
Items to Include in Ending Inventory Assets 5-10
2.
Determining the Quantity of Inventory Assets 5-16
3.
Determining the Unit Cost of Inventory Assets 5-21

Section 3: Inventory Shortages and Valuation 5-27
1.
Inventory shortage 5-28
2.
Decrease in net realizable value of inventory assets 5-29
3.
Recognition of Inventory-Related Expenses 5-39

Section 4: Allocation of Inventory Asset Cost by Estimation 5-42
1.
Gross Profit Margin Method 5-42
2.
Retail Inventory Act 5-45
Boron: Agricultural, Forestry and Fisheries Resources 5-56
Practice Problem 5-61

Chapter 6 Tangible Assets and Investment Real Estate

Section 1: Basics of Tangible Assets 6-2
1.
The significance of tangible assets 6-2
2.
Classification and Disclosure of Tangible Assets 6-4

Section 2 Acquisition of Tangible Assets 6-5
1.
General Acquisition 6-5
2.
Acquisition of tangible assets by situation 6-7
3.
Acquisition by Exchange 6-17
4.
6-21 When acquiring assets subject to recovery obligations
5.
Acquisition of Tangible Assets Using Government Subsidies 6-26

Section 3 Depreciation 6-37
1.
Causes of Asset Value Decrease and the Nature of Depreciation 6-37
2.
Elements of Depreciation 6-38
3.
General Depreciation Methods 6-40
4.
Other Depreciation Issues 6-44

Section 4 Subsequent Costs and Elimination 6-47
1.
Follow-up cost 6-47
2.
Removal of Tangible Assets 6-49

Section 5 Impairment of Tangible Assets 6-50
1.
Impairment loss on tangible assets 6-50
2.
Reversal of Impairment Losses on Tangible Assets 6-52

Section 6 Reevaluation Model 6-56

Section 7 Investment Real Estate 6-68
1.
The Significance of Investment Real Estate 6-68
2.
Recognition and Measurement of Investment Property 6-69
3.
Measurement after Recognition of Investment Property 6-70
4.
Reclassification of Investment Property Accounts 6-72
5.
Disposal of Investment Property 6-73
Practice Problem 6-76

Chapter 7 Capitalization of Borrowing Costs

Section 1: Fundamentals of Borrowing Cost Capitalization 7-2
1.
The Significance of Borrowing Cost Capitalization 7-2
2.
Debate on Capitalizing Borrowing Costs 7-3
3.
Qualifying Assets and Capitalizable Borrowing Costs 7-4
4.
Capitalization period 7-5

Section 2: Procedure for Capitalizing Borrowing Costs 7-7
1.
Basic Concepts of Calculating Borrowing Costs to Capitalize 7-7
2.
Specific Procedures for Calculating Borrowing Costs to Capitalize 7-8
Boron: Capitalization of Foreign Currency Borrowings at Borrowing Costs 7-20
1.
Capitalizable borrowing costs 7-20
2.
Capitalization of Borrowing Costs of Specific Foreign Currency Borrowings 7-20
Practice Problem 7-24

Chapter 8 Intangible Assets and Other Assets

Section 1 Intangible Assets General 8-2
1.
Definition of Intangible Assets 8-2
2.
Recognition of Intangible Assets 8-5
3.
Measurement of Externally Purchased Intangible Assets 8-7
4.
Amortization of Intangible Assets 8-11
5.
Impairment and Recoveries of Intangible Assets 8-15
6.
Removal of Intangible Assets 8-16
7.
Reevaluation Model 8-16

Section 2 Internally Generated Intangible Assets 8-17
1.
Internal Creation of Intangible Assets Stage 8-17
2.
Cost of Internally Generated Intangible Assets 8-19
3.
Internally Created Legal Rights 8-21
4.
Internally Generated Brands and Customer Lists 8-22
5.
Internally generated goodwill 8-22
Boron: Website, Exploration and Evaluation Assets, and Mining Costs 8-23
1.
Website cost 8-23
2.
Exploration and Evaluation of Mineral Resources 8-24
3.
Stripping cost in the open-pit mine production stage 8-25
Practice Problem 8-27

Chapter 9 Financial Debt and Private Loans

Section 1 General Financial Liabilities 9-2
1.
Definition of Debt 9-2
2.
The Significance of Financial Debt 9-3
3.
Classification of Financial Liabilities 9-7
4.
Initial Recognition and Subsequent Measurement of Financial Liabilities 9-8
5.
Elimination of Financial Debt 9-9

Section 2 Private Debt 9-10
1.
Issuance of Bonds at Face Value: Initial Recognition of Financial Liabilities 9-11
2.
Discounted Issuance of Bonds: Initial Recognition of Financial Liabilities 9-12
3.
Issuance of Bonds at a Premium: Initial Recognition of Financial Liabilities 9-14
4.
Transaction costs when issuing bonds: Bond issuance cost 9-16
5.
Bond issuance between interest payment dates 9-19
6.
Repayment of Private Debt: Elimination of Financial Debt 9-22
7.
9-27 If the indicated interest is paid twice a year
8.
9-28 If the interest payment date and settlement date are different
9.
Continuously Repayable Bonds 9-30
Boron: Other Reasons for Derecognition of Financial Debt 9-33
1.
Conversion of Financial Debt into Equity 9-33
2.
Changes in the Terms of Financial Liabilities 9-33
Boron: Special Financial Liabilities 9-40
1.
Profit and Loss - Financial Liabilities Measured at Fair Value 9-40
2.
Financial liabilities arising from the transfer of financial assets 9-44
3.
Financial liabilities under financial guarantee contracts 9-45
4.
Financial liabilities under loan agreements with interest rates below market rates 9-46
5.
Contingent consideration recognized by the acquirer in a business combination 9-46
Practice Problem 9-47

Chapter 10 Accrued Liabilities and Employee Benefits

Section 1: Accrued Liabilities, Contingent Liabilities, and Contingent Assets 10-2
1.
Recognition of Estimated Liabilities 10-2
2.
Distinction between Accrued and Contingent Liabilities 10-3
3.
Recognition of Provisions 10-7
4.
Measuring Provisions 10-10
5.
Case Study 10-14: Application of Recognition and Measurement Criteria for Provisions
6.
Product Warranty Loss Provision Liabilities 10-19

Section 2 Post-Reporting Period Events 10-23

Section 3 Employee Compensation 10-28
1.
Short-term employee compensation 10-29
2.
Other Long-Term Employee Benefits 10-33
3.
Severance pay 10-34
4.
Retirement benefits 10-35
5.
Defined Benefit Plan 10-38
Practice Problem 10-56

Chapter 11 Capital

Section 1: The Meaning of Capital 11-2
1.
Definition and Classification of Capital 11-2
2.
Capital stock of the stock company 11-5
3.
Accounting for General Capital 11-10

Section 2 Accounting for Capital Transactions 11-12
1.
Capital increase transaction 11-12
2.
Potato Trading 11-21
3.
Treasury Stock Trading 11-24
4.
Issuance and Redemption Transaction of Redeemable Preferred Stock 11-28
5.
Other Capital Transactions 11-33

Section 3 Accounting for Profit and Loss Transactions 11-35
1.
Accumulated other comprehensive income 11-35
2.
Retained Earnings 11-38

Section 4 Disposition of Undistributed Retained Earnings 11-40
1.
11-40 per pound
2.
Other Changes in Undistributed Retained Earnings 11-44
3.
Retained Earnings Disposition Statement 11-46

Section 5 Statement of Changes in Equity 11-50
1.
Statement of Changes in Equity 11-50
Practice Problem 11-55

Appendix: International Financial Reporting Standards Financial Statements Cases, Present Value Factor Table
Case Study - International Financial Reporting Standards Financial Statements Appendix 2
Appendix - Present Value Coefficient Table Appendix-15

The accounting environment is also rapidly changing, in step with the advancement of information and communication technology. Following the IMF foreign exchange crisis, our corporate accounting standards underwent several revisions, and now the world is moving toward a single standard known as International Financial Reporting Standards (IFRS). Korea has also fully adopted IFRS.
In some ways, it raises doubts about whether it is right to apply a single standard when the economic scale and environment of each country are very different. However, in the case of Korea, the goal was to dispel the international perception that it was a country with low accounting transparency, and so it joined the ranks of countries in Asia that adopted IFRS before neighboring countries such as China, Japan, and Taiwan.

The most significant characteristic of IFRS is that it is a principle-based standard.
However, since we have all been accustomed to rule-based systems for a long time, principle-based systems are very unfamiliar and even confusing.
In the past, both financial statement preparers and auditors simply had to follow the regulations. Now, however, they must independently determine whether a statement complies with the principles and provide logical grounds for their judgment. This gives them greater freedom, but at the same time, their responsibilities have also increased.
Likewise, from the perspective of a student studying, in the past, it was enough to memorize accounting methods according to accounting standards. However, now that logical judgment skills need to be further developed, more effort must be put into cultivating logical thinking skills based on concepts and theories.
Accounting transparency in our country will not automatically improve simply by adopting IFRS; it must be supported by the efforts of all financial statement preparers, users, and auditors.
The features of this textbook are as follows:

1.
Faithful reflection of international accounting standards

All of the Korean International Financial Reporting Standards adopted to date, including standards, interpretations, and practical application guidelines, have been reflected.
In addition, even the parts that are considered minor for the purpose of the examination are not omitted and are sufficiently explained in the supplementary material.

2.
Maximizing visual effects through various pictures and tables

We have strived to break away from descriptive textbooks that simply list repetitive accounting procedures and focus on memorization, so that even students encountering the book for the first time can easily understand more principles at a glance.
This will allow you to develop the attitude of seeing the forest rather than the trees, which is the learning principle of accounting, and you can expect a natural memorization effect through many pictures and tables.

3.
Distinction between financial statement account items and comprehensive income statement account items

What do students find most challenging in financial accounting? One of them is understanding the characteristics of numerous accounting items and performing perfect accounting procedures.
To this end, this book performed accounting processing by distinguishing between the financial statement account subjects and the comprehensive income statement account subjects.
The account subjects in the statement of financial position were colored 'black', the current profit and loss account in the statement of comprehensive income was colored 'gray', and the other comprehensive income account was colored 'blue'.
This is a unique feature of this book, designed to help readers visually distinguish the differences between accounting subjects, a method of explanation never attempted in any existing financial accounting textbook.

4.
Presentation of the order of accounting processing

Another thing that students find most difficult when studying financial accounting is the accounting treatment of double-entry bookkeeping.
In order to handle double-entry bookkeeping, it is necessary to be able to identify the impact of changes in assets, liabilities, and capital resulting from accounting transactions, and to reclassify and reconcile these into debits and credits. Therefore, it is bound to be difficult for beginners studying financial accounting.
Accounting is said to be the language of business.
Just as we are confused when we first learn English because of the different word order compared to our own language, we are bound to be confused when we first encounter accounting, the language of business, because of the order of accounting processing.
For this purpose, this book presents the order of accounting processing using numbers.
When students perform accounting processing while looking at the book, I believe that if they follow the suggested order of ① -〉 ② -〉 ③ -〉 ④, they will be able to naturally solve the difficulties of accounting processing.
This is also an original explanation method that has not been attempted in any existing financial accounting textbook.

5.
Systematic organization of practice problems

For the first test, theoretical O× problems and calculation-type objective practice problems are included, and for the second test, subjective practice problems without duplication are included.
In addition, practice questions from the first and second CPA and CPA exams from 2010 to 2024, which were first issued based on international accounting standards, are included.
Through this, the test takers were able to develop a sense of problem solving skills for the actual exam.

I received help from many people before publishing this textbook.
I would like to express my gratitude to Professor Kim Seong-hwan of Kwangwoon University, who has always advised me to maintain a good book quality, and to CEO Lee Nak-gyu and his staff at Sam & Books, who have spared no effort in providing both material and spiritual support, including editing and design work, to ensure that the book is enjoyable to read.
I hope this book will be of some help to the accounting field in our country, and I promise to continue revising and improving it to make it even better.

January 2025
All authors