Accounting Standards (IAS/IFRS)

Question 1

IAS1 Presentation of Financial Statements

Answer 1

This standard provides the format for the statement of profit or loss and other comprehensive income, statement of financial position and statement of changes in equity.

Accounting policies should be selected so that the financial statements comply with the international standards.

Question 2

IAS 2 Inventories

Answer 2

Valued at the lwoer of cost and NRV

Inventory recorded at:
(1) Cost per unit
(2) FIFO
(3) AVCO
(4) Standard cost <- for convenience

Question 3

IAS 7 Statement of Cashflows

Answer 3

Must include
- Operating activity
- Finance activity
- investing activity

Question 4

IAS 8 Changes in Accounting Policy, estimates and correction of errors

Changes in accoutning policies, accounting estimates, prior period error

Answer 4

Changes in Accounting Policies:
- Only allowed if there is a change in IFRS or results in more relevant/relaible info
- Must be dealt with retrospectively - restate comparatives + adjust opening R.E.

Accounting Estimates:
- recognised in current year (no need for restatements).
- Disclose in notes to F.S. if material

Prior period errors:
- Restate opening balances & comparative figures
- Erros and adjustments diclosed in F.S.

Question 5

IAS 10 Events after the reporting period

Events that occur between SFP date and when authorised to be issued

Answer 5

Adjusting events: those that provide evidence of conditions that existed at reporting data. If material, amend F.S.

Non-adjusting event: events after the reporting period inidicatibe of conditions that arose after the reporting period. If material, dislcosed in F.S.

Question 6

IAS 12 Income Taxes

Answer 6

Deferred tax is recognised on temporary differences between CA and tax base.

+ve temporary difference (i.e. CA > TB) –> Deferred tax Liability
-ve temporary difference (i.e. CA < TB) –> Deferred tax Asset

Question 7

IAS 16 PPE

Cost, Depn, Revaluation,

Answer 7

Initially recognised at cost. Subsequent expenditure can be capitalised if:
- Enhances economic benefits of the asset
- Replaces part of an asset
- Replaces economic benefits previously consumed

Depn: Should be reviewed at the end of each year

Revalution: is optional - if one asset is revalued, all assets w/in same asset class should be revalued too

Revaluations gains CR to OCI (&reval surplus) unless gain reverses previous loss

Revaluation losses DR to SPL unless previous gain exists

Question 8

IAS 19 Employee Benefits

Define contribution + benefit & types of costs in SFP, SPL, OCI

Answer 8

Defined Contribution: Company contributes fixed amount. Employee bears risk.
Defined Benefit: Company guarantees benefit @ retirement

SPL:

Service costs:
- Current/past service costs
- Curtailments
- Settlements

Net Interest:
- Expense on defined benefit
- Interest income

Remeasure G/L:
- Acturial G/L
- Actual expense vs expected return on assets

Question 9

IAS 20 Government Grants

When to recongise? If it relates to NCA?

Answer 9

Grants recognised if there’s a reasonable assurance:
- Conditions attached to the grant can be met
- Grant will be recieved

Grants recognised in SPL to match expenditure to which they relate

Grants relating to NCA
- Deduct grant from cost
- Treat as deferred income and release over assets life

Question 10

IAS 21 Effects of changes in Forex

at date of trans, at y.e., foerign subs translating to P

Answer 10

At date of transaction:
- Recorded using spot rate or average rate

At Y.e.:
- monetary assets/liabilities (cash, recieveables, loans) @ closing rate –> exchange differences to P&L

Foreign Subsidaries (Groups) Translating to P’s presentation currency
- Assets and liabilities at CR
- Income and Expenses & OCI at AR
- Goodwill at CR
Exchange differences on goodwill and assets to OCI

Question 11

IAS 23 Borrowing Costs

capitalised

Answer 11

Capitalise finance costs if directly attributable to asset being constructed

Capitalisation begins when constuction expenditure begins until ready for use. Costs following this must be expensed.

Question 12

IAS 24 Related Parties

Answer 12

A person or a close member of that persons family is related if that person:
- Has control or joint control of the reporting entity
- Has significant influence over reporting entity
- is a member of key management personnel

Question 13

IAS 28 Investments in Associates in Joint Ventures

Answer 13

Joint Venture: A joint arrangement whereby parties that have joint control of the arrangement have rights to the net assets

Associates Entity over which the investor has significatn influence, assumed 20% - 50%

JV/Associates should be accounted for using the equity method

Question 14

IAS 32 Financial Instruments: Presentation

debt, equity, compound

Answer 14

A financial instrument is classified as debt if there is a contractual obligation to deliver cash or another financial asset.

A financial instrument is classified as equity if there is no such arrangement.

Compound instruments have both liability and equity components and must be split into a liability
and equity element.

Question 15

IAS 33 Earnings Per Share

How is it calculated?

Answer 15

Applies to all listed companies.

Basic EPS is calculated by taking the profit attributable to equity shareholders and dividing by the weighted average number of shares.

Diluted EPS shows the effect if all potential equity shares had been issued (e.g. convertible loan
stock, share options, employee right options).

Question 16

IAS 36 Impairment of Assets

Answer 16

Impairment is measured by comparing the carrying amount of an asset with the recoverable amount.

If the carrying amount is greater than the recoverable amount, the asset is impaired.

Recoverable amount: higher of FVLCTS vs. value in use.

Question 17

IAS 37 Provisions, Contingent Liabilities and Contingent Assets

Answer 17

Provisions
A provision should be recognized when there is a present obligation as a result of a past event, which is probable and can be reliably measured.

The provision should be recognized at the best estimate at the year-end.

Contingent liabilities
A possible obligation arising from past events. A contingent liability should be disclosed unless the
possibility of the outflow of economic benefits is remote.

Contingent Assets
A possible asset that arises from past event. A contingent asset should be disclosed it is probable
and recognized if it is virtually certain.

Question 18

IAS 38 Intangible Assets

What is it? Recognised at? Amort? R&D?

Answer 18

An identifiable non-monetary asset without physical substance.

An intangible asset is recognized at cost if it is identifiable, controlled by the entity, will generate
future economic benefits and can be measure reliably.

Intangible assets should be amortized over their useful lives. If the useful life is indefinite an annual
impairment review should be performed.

Research and Development
Research costs should be expensed in the period that they are incurred.

Development costs can be capitalized if they meet the following criteria:
- Project is technically feasible
- Intention to complete the asset
- Resources are sufficent to complete the project
- Able to use or sell the asset once completed
- The expectation that future economic benefits will be generated
- Expenditure can be reliably measured

Development costs are then expensed over the UEL of the asset.

Question 19

IAS 40 Investment Property

Answer 19

Property or Land held to earn rentals or for capital appreciation.

Recognized using the cost model or fair value method as per IAS 16.

Question 20

IAS 41 Agriculture

Bio assets vs agricultural produce

Answer 20

A biological asset is ‘a living plant or animal’.

Agricultural produce is ‘the harvested product of a biological asset’.

Biological assets and agricultural produce should be valued at fair value less estimated costs to sell.

Agricultural produce should then be accounted for as per IAS 2.

Question 21

IFRS 1 First time adoption of International Reporting Standards

Answer 21

Entities must prepare an opening IFRS statement of financial position at the date of transition.

This statement must:
- Recognize all assets and liabilities required by IFRS Standards
- Reclassify all assets, liabilities and equity components in accordance with IFRS Standards.
- Measure all assets and liabilities in accordance with IFRS Standards.

Any gains or losses arising on the adoption of IFRS Standards are recognized in retained earnings.

Question 22

IFRS 2 – Share Based Payments

Answer 22

A share based payment transaction is one where an entity obtains goods or services from another party, with payment in the form of shares or share options issued.

There are two types of share based payment transactions:

• Equity-settled share based payment transactions, where an entity receives goods or services in
  exchange for its own equity instruments (shares or share options).

Recognized in equity at the fair value of the option at the grant date.

• Cash-settled share based payment transactions, where an entity acquires goods or services by incurring a liability to transfer cash or assets for an amount based on the price of its’ equity instruments.

Recognized as a liability at the fair value of goods and services. The liability is remeasured at each year-end until it is settled.

The expense in relation to the share based transaction is recognized over the vesting period.

Question 23

IFRS 3 Business Combinations

Answer 23

The purchase consideration and identifiable net assets of a subsidiary are recorded at fair value.

Non-controlling interests is measured at either fair value or the NCI’s share of the fair value of the identifiable net assets.

Gain on bargain purchase is credited to the statement of profit or loss if the net assets acquired exceed the fair value of consideration.

Question 24

IFRS 5 NCA held for sale (SFP) and Discontinued Operations (SPL)

Answer 24

SFP: Held for sale (SALE)
- Seeking: Entity seeking a buyer
- Available: Immediately available for sale
- Likely: Sale is highly probable
- Expected: Completed within a year

Measured at the lower of cost and FVCLTS

Moved to CA. No further depn charged.

SPL: Discontinued operations
Disposed of / held for sale AND:
- Represents a major line of business or geographical area of operation
- Is part of a single co-ordinated plan to sell
- Subsidy acquired for resale

P/(L) from discontinued operation and P/(L) on disposal disclsoed in single line of SPL

Question 25

IFRS 8 Operating Segments

Answer 25

An operating segment is a component: 1) Engages in business activities from which is may earn revenues and expenses 2) Regualry reviewed by chief decision maker regarding resources allocaition and performance evalution 3) For which discrete financial information is available Standard reuires entity to report info regarding operating segments that meets 10% of revenue/assets/PBT

Question 26

IFRS 9 Financial Instruments

Answer 26

**Investments in Equity** Measured at fair value through profit or loss unless the equity instrument is not held for trading and as such it can be classified as fair value through profit or loss provided this is designated at initial recognition. **Financial Assets** Measured at either: - Amortised Cost: If the business intends to hold the financial asset in order to collect the contractual cashflows and the contractual terms give rise to cashflows of solely interest and principal repayments. - Fair value through other comprehensive income: The business intends to hold the asset in order to collect contractual cashflows and to sell them. - Fair value through profit or loss: An investment which is not measured under either of the above methods. **Financial Liabilities** Financial liabilities held for trading are measured at fair value through profit or loss, other financial liabilities are recorded at amortized cost.

Question 27

IFRS 10 Consolidated Financial Statements

Answer 27

Consolidated financial statements must be prepared if one company controls another. Control consists of three components: - **P**ower over the investee, normally demonstrated through control of the voting rights - **E**xposure or rights to variable returns - **T**he ability to use power to affect the investor’s returns

Question 28

IFRS 11 Joint Arrangements

Answer 28

Joint arrangements where parties have joint control have rights to asset Recognise joint venture as an investment and account for ut using equity method

Question 29

IFRS 12 Disclosure of Interests in Other Entities

Answer 29

Disclosure requirements for entities that have an interest in subsidiaries, joint arrangements and associates, i.e. where there is control, joint control or significant influence. Designed to provide relevant information to users of financial statements e.g. details relating to the composition of the group, details of non-controlling interest within the group and identification of risks associated with any interest held in other entities.

Question 30

IFRS 13 Fair Value Measurement

Answer 30

Fair value is defined as 'the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date'. In order to allow comparability between entities, there is a hierarchy that categorizes the inputs used when measuring fair value. Level 1: Inputs comprise quoted prices in active markets for identical assts and liabilities at the measurement date Level 2: Inputs comprise quoted prices in active markets for similar assets or liabilities or inactive markets for identical assets and liabilities Level 3: Unobservable inputs for an asset or liability. Priority is given to level 1 inputs

Question 31

IFRS 15 Revenue from Contracts with Customers

Answer 31

Five step process for revenue recognition: - Identify the contract - Identify the separate performance obligations within a contract - Determine the transaction price - Allocate the transaction price to the performance obligations in the contract - Recognize revenue when (or as) a performance obligation is satisfied If a performance obligation is satisfied over time, then revenue is recognized based on progress of the performance obligation. If a performance is not satisfied over time the entity must determine the point at which a customer obtain control.

Question 32

IFRS 16 Leases

Answer 32

A contract contains a lease if it 'conveys the right to control the use of an identified asset for a period of time in exchange for consideration' **Lessee Accounting** If the lease is short-term (less than 12 months at the inception date), or of a low value, the lessee can choose to recognize the lease payments in profit or loss on a straight line basis. **Right of use asset** Initially recognized at cost and subsequently measured at cost less accumulated depreciation and impairment losses. The lease liability is initially measured at the present value of the lease payments. The carrying amount of the lease liability is increased by the interest charge, which is also recorded in the statement of profit or loss and cash repayments reduce the carrying amount of the lease liability. **Lessor Accounting** The lessor must identify whether the lease is a finance lease or an operating lease. Key indicators of a finance lease are: - Ownership of the asset transfers at the end of the lease or the lessee has the option to purchase the asset - The term is the majority of the asset’s economic life - The present value of the minimum lease payments is substantially all of the asset’s fair value If the lease is a finance lease, the lessor will: - Derecognize the asset and recognized a lese asset equal to the present value of the payments - Interest income will be recorded in the profit or loss If the lease is an operating lease, then the lessor recognizes the lease income within the statement of profit of loss on a straight line basis. **Sale and Leaseback** **Lessee** If the transfer is not a sale continue to recognize an asset and recognize a liability equal to the proceeds received. If the transfer is a sale recognize a right of use asset as the proportion of the asset’s previous carrying amount that relates to the rights retained and a corresponding lease liability. Record a profit or loss on disposal. **Lessor** If the transfer is not a sale, do not recognize an asset and recognize a financial asset equal to the proceeds. If the transfer is a sale account for the purchase and apply the lessor accounting requirements