Chapter 12 Revenue Recognition

Section 1 Revenue Recognition under International Accounting Standards 12-2
1.
The Meaning of Profit 12-2
2.
5 Steps to Revenue Recognition 12-2
3.
Step 1: Identifying the Contract with the Customer 12-6
4.
Step 2: Identifying Performance Obligations 12-10
5.
Step 3: Calculating the Transaction Price 12-15
6.
Step 4: Allocate the Transaction Price to Performance Obligations 12-26
7.
Step 5: Recognize Revenue Upon Performance 12-36
8.
Presentation of Contract-Related Assets and Liabilities in the Financial Statements 12-39
9.
Cost Recognition of Contract-Related Costs 12-43
Section 2 Revenue Recognition by Transaction Type 12-45
1.
Intermediary Sales: Principal and Agent 12-45
2.
Sales with Return Rights 12-48
3.
Warranty Provision: Product Warranty Conditional Sale 12-53
4.
Issuance of Gift Certificates 12-56
5.
Post-sale repurchase agreement 12-58
6.
Customer Choice of Additional Goods and Services: Customer Loyalty Program 12-62
7.
Licensing 12-68
8.
Non-Indian Claim Agreement 12-73
9.
Revenue Recognition from Other Transactions 12-74
Section 3 Construction Contract 12-76
1.
Total contract revenue 12-76
2.
Total contract cost 12-77
3.
Measuring Progress 12-37
4.
12-78 if progress can be reasonably measured
5.
12-83 In case of expected contract loss
6.
12-87 If progress cannot be reasonably measured
7.
Progress criteria other than the cost ratio method 12-89
8.
Combination of Contracts 12-92
9.
Special Construction Cost 12-94
Practice Problem 12-99

Chapter 13 Financial Assets for Investment Purposes

Section 1 Financial Assets 13-2
1.
Definition of Financial Assets 13-3
2.
Characteristics and Classification of Financial Assets 13-4
3.
Initial Recognition and Measurement of Financial Assets 13-7
4.
Subsequent Measurement of Financial Assets 13-10
5.
Receipt of dividends and interest during the holding period 13-11
6.
Deregistration of Financial Assets 13-13
7.
Impairment of Financial Assets 13-19
Section 2 Investment Equity Products 13-23
1.
Classification of Investment Equity Instruments on the Financial Statements 13-23
2.
Investment Equity Instruments: Financial Assets Measured at Fair Value through Profit and Loss 13-23
3.
Investment Equity Instruments: Equity Instruments Measured at Fair Value in Other Comprehensive Income 13-27
Section 3 Investment Debt Products 13-33
1.
Classification of Investment Debt Instruments in Financial Statements 13-33
2.
Investment Debt Instruments: Financial Assets Measured at Fair Value Through Profit and Loss 13-34
3.
Investment Debt Instruments: Financial Assets Measured at Amortized Cost 13-36
4.
Investment Debt Instruments: Financial Assets Measured at Fair Value through Other Comprehensive Income 13-55
Section 4 Other Matters Related to Financial Assets 13-71
1.
Changes in Contractual Cash Flows 13-71
2.
Reclassification of Financial Assets 13-76
3.
Accounting on the trading date and accounting on the settlement date 13-82
4.
Contractual Cash Flow Characteristics of Financial Assets 13-85
5.
Business Model for Financial Asset Management 13-86
6.
Continuous Engagement Approach 13-88
7.
Transfer of financial assets for which management services are provided 13-90
BORON 1: Cash Flow Characteristics and Business Models 13-85
Article 2: Special Circumstances for Deregistration of Financial Assets 13-88
Practice Problem 13-92

Chapter 14 Complex Financial Products

Section 1 Compound Financial Products 14-2
1.
The Significance of Compound Financial Products 14-2
2.
Types of Compound Financial Products 14-2
3.
Accounting for Compound Financial Products Problem 14-3
Section 2 Convertible Bonds 14-6
1.
Convertible Bond Basics 14-6
2.
Issuance of convertible bonds at par value 14-12
3.
Discounted issuance of convertible bonds 14-19
4.
Special Circumstances of Convertible Bonds 14-25
Section 3 Convertible Bonds 14-33
1.
Basic Concepts of Convertible Bonds 14-33
2.
Issuance of convertible bonds at par value 14-34
Section 4 Convertible Preferred Stock 14-43
1.
Convertible Preferred Stock 14-43
Practice Problem 14-45

Chapter 15 Stock-Based Compensation

Section 1 Significance of Stock-Based Compensation Transactions 15-2
1.
The Significance of Stock-Based Compensation Transactions 15-2
2.
Vesting and Counterparty of Stock-Based Compensation Transactions 15-4
Section 2 Stock-Settled Stock-Based Compensation Transactions 15-5
1.
Recognition and Measurement of Compensation Costs per Unit 15-6
2.
Calculation of compensation amount 15-9
3.
Accounting during the vesting period 15-9
4.
Accounting after the full date 15-10
5.
Special Circumstances of Stock-Settled Stock-Based Compensation Transactions 15-15
Section 3 Cash-Settled Stock-Based Compensation Transactions 15-30
1.
Recognition and Measurement of Compensation Costs per Unit 15-30
2.
Calculation of compensation amount 15-31
3.
Accounting during the vesting period 15-32
4.
Accounting after the full date 15-32
5.
Change of terms from cash settlement to stock settlement 15-37

Chapter 16 Earnings per Share

Section 1: Basis of Earnings Per Share 16-2
1.
The Meaning of Earnings Per Share 16-2
2.
Types and Presentation Methods of Earnings Per Share 16-2
Section 2 Basic Earnings Per Share 16-5
1.
Weighted average number of common shares outstanding: Denominator 16-7
2.
Net income attributable to common stockholders: Numerator 16-17
Section 3 Diluted Earnings Per Share 16-25
1.
Increase in the number of common shares outstanding: Denominator 16-26
2.
Increase in earnings attributable to common stockholders: Numerator 16-35
3.
Judging the dilution effect 16-36
Section 4 Retroactive Amendment and Public Notice 16-40
1.
Retroactive revision of earnings per share 16-40
Boron: Special Circumstances of Diluted Earnings Per Share 16-42
1.
Various types of potential common stock 16-42
Practice Problem 16-45

Chapter 17 Leases

Section 1: Basic Concepts of Lease Accounting 17-2
1.
The Meaning of Lease 17-2
2.
Definition of Lease-Related Terms 17-10
3.
Calculating Total Lease Investment 17-16
Section 2 Lease Agreement of Lessor 17-20
1.
Lease Classification 17-20 by Lessor
2.
Direct Finance Lease: Lessor, Not Manufacturer or Seller 17-22
3.
Provider of Operating Lease 17-29
Section 3 Lease Agreement of Lessee 17-33
1.
Lease Classification of Lessees 17-33
2.
Lease Commencement Date: First Measurement 17-34
3.
During the lease period: Follow-up measurements 17-35
4.
Revaluation of Lease Liabilities: Variable Lease Payments 17-45
Section 4 Other Lease Transactions 17-54
1.
Lease Agreement Amendment 17-54
2.
Sales Lease: Lessor who is a manufacturer or seller 17-60
3.
Sale and Lease 17-66
4.
Jeon Dae-lease 17-72
5.
Real Estate Leases by Lessors 17-74
Practice Problem 17-76

Chapter 18 Corporate Tax Accounting

Section 1 General Corporate Tax Accounting 18-2
1.
The Significance of Corporate Tax Accounting 18-2
2.
The Significance of Corporate Tax Distribution Accounting 18-3
3.
Accounting Profit and Taxable Income 18-5
4.
Tax base and income disposal 18-6
5.
Temporary and Permanent Differences 18-7
Section 2 Inter-period distribution of corporate tax 18-16
1.
Deferred tax assets 18-16
2.
Deferred tax liabilities 18-18
3.
Applicable tax rate 18-18
4.
Procedures for inter-period distribution of corporate tax in multiple periods 18-19
5.
Tax effects of deficits, etc. 18-27
6.
Presentation of the Financial Statements of Income Tax Effects 18-31
7.
Exclusion of Present Value Application 18-32
Section 3: Intra-period distribution of corporate tax 18-33
1.
The significance of distribution within the corporate tax period 18-33
2.
Intra-tax distribution of items recognized as profit or loss 18-34
3.
Intra-tax distribution of items recognized outside of current period profit or loss 18-35
Boron: Reclassification Adjustment of Other Comprehensive Income 18-42
1.
Intra-period allocation of other comprehensive income subject to reclassification adjustment 18-42
2.
18-43 Intra-period allocation of other comprehensive income not subject to reclassification adjustment
Practice Problem 18-44

Chapter 19 Accounting Changes and Error Corrections

Section 1 Significance of Accounting Changes and Error Corrections 19-2
1.
Accounting Policies, Accounting Estimates, and the Significance of Previous Period Errors 19-2
2.
Significance of Accounting Changes 19-3
3.
The significance of error correction 19-5
4.
Accounting Treatment of Accounting Changes and Error Corrections 19-5
Section 2 Accounting Changes 19-10
1.
Changes in Accounting Policies 19-10
2.
Changes in Accounting Estimates 19-15
Section 3 Error Correction 19-18
1.
Bug fixes 19-18
2.
Error Type 19-19
3.
Accounting Methods for Error Correction 19-20
4.
Error tally using error correction tables 19-35
Section 4 Special Circumstances of Accounting Changes and Error Corrections 19-44
1.
Restatement of Financial Statements 19-44
2.
Corporate Tax Effects of Accounting Changes and Corrections of Previous Period Errors 19-47
Practice Problem 19-49

Chapter 20 Cash Flow Statement

Section 1 General Statement of Cash Flows 20-2
1.
The Significance of the Cash Flow Statement 20-2
2.
How to Prepare a Cash Flow Statement 20-4
3.
Classification of Cash Flow Types 20-6
4.
Cash Flow Statement Preparation Logic 20-10
Section 2 Cash Flows from Operating Activities 20-14
1.
Direct Method 20-14
2.
Indirect method 20-26
Section 3 Cash Flows from Investing Activities 20-34
1.
Tangible Assets 20-34
2.
Other Comprehensive Income - Financial Assets Measured at Fair Value: Equity Instruments 20-36
3.
Financial Assets Measured at Amortized Cost: Debt Instruments 20-38
Section 4 Cash Flows from Financing Activities 20-41
1.
Long-term borrowings and current portion of long-term borrowings 20-41
2.
Private debt 20-43
3.
Paid-in capital increase and dividend 20-45
Section 5 Cash Flow Statement Other Matters 20-48
1.
Cash Flow Statement 20-48
2.
Foreign currency cash flow 20-48
3.
Cash flows related to subsidiaries 20-48
4.
Non-cash transactions 20-49
Practice Problems 20-50

Appendix: International Financial Reporting Standards Financial Statements Examples, 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 moved away from descriptive textbooks that simply list repetitive accounting processes and focus on memorization, and have strived to ensure that even first-time test takers 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, an explanation method never attempted before 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 procedures while reading the book, I believe that they will be able to naturally solve the difficulties of accounting procedures by following the suggested order of ① → ② → ③ → ④.
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. I would also like to thank 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