Changes and developments in financial reporting Flashcards
What are cryptocurrencies?
virtual currencies that provide the holder with various rights.
-Not issued by a central authority
-therefore outside of government control
Although crypto can be used to purchase goods and services, it is not widely accepted, why is this?
the market is highly volatile
With regards to accounting treatment, crypto is not;
-cash: cannot be readily exchanged for goods or services
-cash equivalents: there is a significant risk of a change in value
-financial instruments: no contractual right to receive cash
Crypto potentially falls into the scope of IAS38 Intangible Assets; why is the cost model unsuitable?
unlikely to provide useful information because there will be a large discrepancy between carrying amount and fair value, and crypto may affect cash flows by being sold at fair value
Crypto potentially falls into the scope of IAS38 Intangible Assets; why is the revaluation model unsuitable?
requires fair value gains to be report in OCI, even though most standards require traded investments to be remeasured through profit or loss
What should entities apply to develop an appropriate policy for crypto?
Conceptual Framework
What are initial coin offerings (ICO)?
a method of raising finance through cryptographic assets
What 3 tokens do investors (supporters) receive when they buy into ICOs?
-tokens that entitle the holder to crypto currencies
-utility tokens (which provide users with access to a product or service)
-security tokens (which might provide an economic stake in an entity or the the right to receive cash or assets in future)
What can these valuable tokens be exchange?
Crypto exchange
When an entity raises funds via an ICO, what is the debit entry?
receipt of an asset (cash or different crypto currency)
When an entity raises funds via an ICO, what are the 4 options for the credit entry?
-financial liability (if the reporting entity is contractually obliged to deliver cash or another financial asset)
-equity (if they are entitled to payments made out of distributable reserves but not to deliver cash or another financial asset)
-revenue (recipient is a customer and if a contract per IFRS 15 exists)
-provision (if there is a legal or constructive obligation to the subscriber as per IAS 37)
What does an entity do if it determines that no specific IFRS Standard applies to it issued tokens?
Refer to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors and to the Conceptual Framework in order to develop an appropriate accounting policy
What are 6 examples of natural disasters?
-volcanic eruptions
-earthquakes
-droughts
-tsunamis
-floods
-pandemics
What are the potential consequences of a natural disaster to impairment of assets?
-buildings and machinery may be damaged
-demand for goods and services may reduce
-productivity may decline
What are the potential consequences of a natural disaster to inventories?
-damaged or surplus to inventory may need remeasuring from cost to net realisable value
