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Financial Reporting > Chapter 1 > Flashcards

Chapter 1 Flashcards

1
Q

GAAP

A

General term for a set of accounting standards and reporting guidelines used to prepare accounts. UK GAAP and US GAAP are more specific

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2
Q

Advantages of convergence to IFRS v local GAAP

A

Recognized globally
Reduced training costs
One international model
Improved quality

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3
Q

Disadvantages of convergence to IFRS v local GAAP

A

Reluctance to change
Perception of difficulty
Cost to convert where relevant

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4
Q

IFRS Foundation mission

A

To develop IFRS standards that bring TEA to financial markets around the world

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5
Q

International forum of accounting standard setters

A

Group of national accounting standard setters that have a close involvement in finances reporting issues

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6
Q

Duties of the IFASS

A

Undertake research
Provide guidance on IASB priorities
Identify emerging issues
Facilitate and cooperate on our reach

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7
Q

Due process

A

Ifrs standards are developed through a due process which is a set of consultative procedures established to ensure that standard setting is transparent

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8
Q

Purpose of the Conceptual Framework for Financial Reporting

A

Assist IASB in developing standards
Assist account preparers in developing policies where there are no standards
Assist all parties to understand and interpret standards

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9
Q

Limitations of General purpose financial reports

A

Cannot meet all the information needs of primary users
Financial reports are based on estimates
Financial reports do not show the value of the reporting entirety
Developed to meet the information requirements of primary users

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10
Q

How is information relevant ?

A

When it is capable of making a difference in the decisions of decision makers

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11
Q

Accounting policies

A

Specific principles, based, conventions, rules and practices applied in preparing and presenting financial statements

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12
Q

Change in accounting estimates

A

An adjustment to the carrying amount of an asset or liability which results from new information and developments and not corrections of errors

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13
Q

Prior period errors

A

Omissions and misstatements relating to financial statements for one or more periods

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14
Q

When can an entity change an accounting policy

A

When it is required to do so by IFRS
The change would result in the financial statements providing more relevant and reliable information

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15
Q

Other sources of GAAP

A

Industry groups
Methods of accounting developed by companies in the absence of rules in a specific area

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16
Q

Role of the IFASS

A

A group of national accounting standard setters from over the world that have a close involvement in financial reporting issues

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17
Q

Discussion paper

A

A document developed by IASB that sets out the problem, discusses research findings and relevant literature and presents alternative solutions to the issues under consideration and the arguments and implications relative to each

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18
Q

Exposure draft

A

Invites comment on the proposed IFRS

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19
Q

Standard publication, exposure draft requires approval by supermajority (10/16) members

A
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20
Q

IFRIC interpretations

A

Authoritative interpretation of the standards which provide further guidance on how to apply them (developed by IFRS interpretations committee)

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21
Q

According to the conceptual framework, when is an asset or liability recognized

A

When recognizing it provides information that is useful

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22
Q

Objective of general purpose financial reporting

A

Provide information useful to primary users in making decisions relating to the provision of tecources

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23
Q

Can inappropriate accounting treatments be rectified by notes or explanatory materials and disclosures of accounting policies used ?

A

No

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24
Q

Three principles due process is based on

A

Transparency - anybody should be able to follow IFRS standards
Full and fair consultation - public opinion is consulted before an IFRS is issued or amended so persons can share their views on an issue
Accountability - the board an interpretations committee explain the rationale for their decisions

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25
Q

Main effects on financial statements adopting IFRS

A

Greater use of fair value as a measurement basis
Need for more narratives to explain its complexities
Greater disclosure

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26
Q

When do revenue recognition principles apply

A

The parties have approved the contract
The entity can identify each parties rights
Payment terms can be identified
The contract has commercial substance
It is probable the entity will collect the consideration due under the contract

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27
Q

Performance obligation

A

A contract to transfer to a customer goods and services that are distinct or series of goods that are substantially the same and transferred in the same way

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28
Q

When is a good or service distinct

A

If the customer can benefit from it on its own or with other era sources that are readily available

The promise to transfer the good is separate from other goods in the contract

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29
Q

When determining transaction price what should be considered

A

Time value of money
Fair value of any non cash consideration
Estimates of variable consideration
Consideration payable to the customer

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30
Q

When is the allocation of a transaction price made

A

At the beginning of the contract and is not adjusted for subsequent changes in the stand alone price

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31
Q

When is an asset transferred to a customer ?

A

When the customer gains control of the asset

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32
Q

Indicators of transfer of control

A

Customer has a legal right to the asset
Customer has physical possession of the asset
Significant risks and rewards have been transferred to the customer
The customer has an obligation to pay for the asset
The customer has accepted the asset

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33
Q

A PO is satisfied over time if what criteria are met

A

Customer receives benefits of the good or service while the obligation is being performed

Performance creates an asset that the customer controls during that creation or enhancement

Performance does not create an asset which the supplier has alternative use for and the supplier has an enforceable right to payment for performance completed to date

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34
Q

When is a contract asset or contract liability recognized

A

When the entity’s performance is represented by the revenue recognized

The customers performance is payment

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35
Q

Contract asset

A

When work done has been recognized as revenue but the entity has not yet issued an invoice or received payment for it

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36
Q

Contract liability

A

When the customer has been invoiced or paid before doing the work and the invoices/payments exceed the revenue recognized

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37
Q

When do output methods recognize revenue ?

A

Recognize revenue on the basis of the value to the customer of the goods/services transferred to date relative to the goods/services promised

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38
Q

Why should revaluations be done frequently ?

A

To ensure there is no material difference between the carrying amount and the fair value at the reporting date

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39
Q

Contract modification

A

Occurs when you have change of terms in an ongoing contract eg modify your cell phone plan add data, reduce your plan etc

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40
Q

New contract must satisfy two conditions

A

Product/services are distinct and are not interdependent with other goods and services
Stand-alone price being charged to the customer as if you are buying the product separately

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41
Q

Qualifying asset

A

An asset that takes a substantial period of time to get ready for its intended use

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42
Q

What May fall within the definition of borrowing costs

A

Interest expense calculated using the effective interest method
Finance charges with respect to lease liabilities
Preference dividend when preference capital is classified as debt
Exchange differences from foreign currency borrowings

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43
Q

Disclosure for borrowing costs

A

Amount of borrowing costs capitalized in the period
The capitalization rate used

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44
Q

Examples of qualifying assets

A

Manufacturing plant
Power generation facilities
Investment properties
Inventories which take a substantial period of time to bring them to a sale-able condition

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45
Q

Examples of assets that do not qualify

A

Assets ready for their intended use or sale when acquired
Inventories routinely manufactured

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46
Q

When does capitalisation commence

A

When expenditure on the asset is being incurred
Borrowing costs are being incurred
Activities necessary to prepare the asset for its intended use or sale have started

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47
Q

Does IAS 23 apply to qualifying assets which are measured at fair value ?

A

No

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48
Q

Items that may fall within the definition of borrowing costs

A

Interest expense calculated using effective interest method
Finance charges with respect to lease liabilities
Preference dividend when preference capital is classified as debt
Exchange differences arising from foreign currency borrowings

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49
Q

Expenditure on qualifying assets include

A

Payments of cash
Transfers of other assets
Assumption of interest bearing liabilities

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50
Q

Holding gain

A

Difference between fair value of the asset and the historical cost

Eg Bought land in 2000 for 10000 and it’s fair value in 2024 is 20000 then 10000 would be a holding gain

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51
Q

Operating gain

A

Difference between fair value and the selling price

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52
Q

How is fair presentation achieved

A

By compliance with all applicable standards

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53
Q

Can you depart from an IFRS standard in order to achieve fair presentation

A

Yes but entity must disclose that management has concluded that the financial statements present fairly the entity’s financial position

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54
Q

Can assets and liabilities be netted off ?

A

No except for some items a unless another standard requires it

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55
Q

What should an entity disclose when the statements are presented for a period longer or shorter than a year

A

The reason
The fact that the information is not comparable

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56
Q

Expenditures on a qualifying asset only includes

A

Payments of cash
Transfers of other assets
Assumption of interest bearing liabilities

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57
Q

What should happen if there is no IfRS applicable for a transaction

A

Management should develop an accounting policy
That is relevant to decision makers
Is neutral
Is prudent
Complete in all material aspects
Reflect the economic substance of the transaction
Represent faithfully the entity’s financial position

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58
Q

When can an entity change an accounting policy

A

If required to do so by IfRS
The change would result in financial statements being more useful

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59
Q

IFRIC interpretations

A

Authoritative interpretations of the standards which provide guidance on how to apply them

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60
Q

When does an IfRS apply

A

From a date specified in the standard and is not retroactive

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61
Q

When an asset is exchanged what is it measured at

A

Fair vale of asset received equal to the fair value of the asset given up less any cash or cash equivalents transferred

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62
Q

Basis of fair value hierarchy

A

Level 1 inputs - inputs (assets, liabilities) are observable (anybody could look it up, based on market information)
Level 2 - based on observable inputs in less active markets
Level 3 - inputs are not observable … based on managers or internal company’s assumptions

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63
Q

Principal market

A

Market that has a high frequency/volume of business activity and transactions eg New York stock exchange

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64
Q

Advantageous market

A

No principal market but has enough activity to get a fair price and take transaction cost into account

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65
Q

How do you value a non financial asset like PpE

A

Use highest and best use

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66
Q

Ways to value an asset

A

Market approach - active market (most reliable)
Income approach - loop
Cost approach

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67
Q

Define inventories

A

Assets held for resale, in the form of materials to be consumed in the production process and in the process of production for resale

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68
Q

An entity must use the same cost formula for all inventories having a similar nature and use

A

True

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69
Q

When are government grants recognized as income

A

When there is reasonable assurance that the entity will receive the grant, comply with the conditions attaching to the grant

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70
Q

How is a forgivable loan treated

A

As a grant when there is reasonable assurance that the entity will meet the terms of its forgiveness

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71
Q

Investment property

A

Property held to earn rentals or for capital appreciation

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72
Q

Owner occupied property

A

Property held by the owner for use in the production or supply of goods or services or for admin purposes

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73
Q

If a component of an investment property requires replacement during the useful life of the property then

A

The replacement part is capitalized

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74
Q

Can entity use both fair value and cost model for investment properties ?

A

No it’s either or and applies it to all its investment properties

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75
Q

When are transfers to and from investment property made ?

A

When there is a change in its use

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76
Q

When an investment property is transferred, it’s fair value at the date of transfer is deemed the cost for the subsequent application

A

True

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77
Q

Where do gains or losses from a change in fair value of investment property go ?

A

Profit or loss

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78
Q

Should you use the term revaluation when discussing their value model under IAS 40 ?

A

No

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79
Q

Grants exclude

A

Forms of government assistance which cannot reasonably have a value placed on them
Transactions with government which cannot be distinguished from the entity’s normal trading transactions

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80
Q

IAS 20 does not deal with

A

income tax benefits
rants covered by IAS 41 Agriculture
government participation in the ownership of the reporting entity
accounting for grants that reflect the changes in prices

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81
Q

Grants exclude

A

government assistance which cannot reasonably have a value placed on them
transactions with government which cannot be distinguished from normal trading.

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82
Q

Main source of GAAP

A

Regulatory framework

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83
Q

Active market

A

A market where the transaction for the asset or liability takes place with sufficient frequency and volume to provide pricing information on an ongoing basis

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84
Q

Principal market

A

Market with the greatest volume and level of activity for the asset/liability

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85
Q

Most advantageous market

A

Market that maximizes fair value after taking transaction and transport costs into account

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86
Q

Events after the reporting period

A

Events that occur between reporting date and date of issuance of financial statements

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87
Q

Adjusting events

A

Provide further existence of conditions that already existed at reporting date (no new info)

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88
Q

Non adjusting events

A

Conditions that arose after reporting date (new events)

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89
Q

Effects of non adjusting events after the reporting date are not recognized at the reporting date

A

True

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90
Q

Non adjusting events should be disclosed if they are important enough to affect the ability of using the statements

A

True

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91
Q

Examples of non adjusting that would require disclosure

A

Destruction of a plant by fire after reporting date
Decline in market value of investments
Major business combination after reporting date
Large changes in foreign exchange rates
Declaration of dividends

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92
Q

Items that need separate disclosures

A

Going concern- should not be prepared if management intends to cease trading
Non adjusting events - nature of the event and estimate of its financial effect

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93
Q

Steps in Due Process

A

Consult with IFRS advisory council on adding the topic to IASB Agenda
Publishing an ED for public comment
Consideration of all comments received within the comment period
Approval of a standard by 10/16

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94
Q

Highest and best use takes into account

A

Use which is physically possible
What is legally allowed
Financial feasibility of using the asset

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95
Q

Three elements to control

A

Power over the invested
Exposure/rights to variable returns
Ability to affect those returns through the power held

96
Q

Difference between fair value and current cost

A

Fair value is an exit price; price obtained to transfer an asset or liability where as current cost is an entry price price obtained to acquire an asset of liability

97
Q

Fulfillment value/value in use

A

Present value of cash flows to be derived from using an asset and its ultimate disposal

98
Q

When do we recognize a grant

A

When we have received the grant
When there is reasonable assurance that we will meet the conditions of the grant

99
Q

How to account for grant that takes form of transfer of non monetary asset

A

Account at fair value

100
Q

Examples which are excluded from government grants but included as government assistance

A

Assistance which cannot reasonably have a value placed on it (free marketing advice or providing guarantees)
Transactions which cannot be distinguished from normal trading transactions

101
Q

Component of an entity

A

A portion of the company with operations and cash flows distinguishable from the rest of the entity

102
Q

Lease

A

A contract for the right to use an asset for a period of time

103
Q

Right if use asset

A

An asset that represents the lessee’s right to use the asset for the lease term

104
Q

Short term lease

A

A lease that at the commencement date has a lease term or 12 months or less. A lease with a purchase option is not a short term lease

105
Q

Lease term

A

Non concealable period for which a lessee has the right to use an underlying asset

106
Q

When does a contract for a lease exist

A

If the contract coveys right to control the use of an identified asset for a period of Time in exchange for consideration

107
Q

When is a forgivable loan treated as a grant

A

When there is reasonable assurance that the entity will meet the terms for forgiveness

108
Q

How to account for grant that takes the form of a non monetary asset ?

A

At fair value

109
Q

Ways to present grants related to assets in SOFP

A

Set up the grant as deferred income
Or deduct the grant from cost in arriving at the carrying amount of the asset

110
Q

How to account for grants in SOPL

A

Credit separate income account (other income)
Deduct from the cost of the expense/asset

111
Q

Do government grants include indirect benefits ?

A

No

112
Q

Can government loans with a low interest rate be a government grant

A

Yes

113
Q

How to account for intangibles on a physical medium ?

A

Determine which element is more significant (the tangible part or the intangible part)

114
Q

How is an asset identifiable

A

When it can be separated or it arises from contractual or other legal rights

115
Q

Government grants

A

Assistance by government in the form of transfers of resources in return for past or future compliance with certain conditions relating to operating activities

116
Q

How are intangible assets initially recognized

A

At cost

117
Q

How are intangible assets acquired in a business combination measured ?

A

At fair value

118
Q

How is intangible assets measured when acquired in exchange for a non monetary asset

A

At fair value unless the transcationlacks commercial substance
Fair value of the asset given up or received is reliably measured

119
Q

Are bearer plants measured at fair value

A

No because trees mature and are not for sale. They are measured at accumulated cost until maturity and is then depreciated over the trees life

120
Q

How is a biological asset measured

A

At fair value less costs to sell at initial recognition and at the end of each reporting period

121
Q

What is a voluntary a change in accounting policies

A

When the change will provide info that is more reliable and relevant

122
Q

A new or revised Ifrs contains transitional provisions which should be applied to changes in accounting policy

A

True

123
Q

Voluntary change in accounting policy

A

When the info will be more useful or relevant

124
Q

Any reversal of write down is recognized as a reduction in expense in the period the reversal occurs

A

True

125
Q

Should coats to sell inventories exclude financial costs and taxes ?

A

Yes

126
Q

If fair value for inventories cannot apply then use

A

IAS 16 and IAS 36 PPE and impairment of assets

127
Q

Why Ifrs standards on their own are not a complete regulatory framework

A

Legal and market regulations are also required to regulate preparation of financial statements

128
Q

What is highest and best use

A

The most profitable way to use a non financial asset like Property

129
Q

Valuation techniques to estimate fair value

A

Income approach - considers future cash flows and discounts to a current value
Market approach - price you will get on the market for a comparable asset
Cost approach - amount you paid for the asset or the amount to replace the asset

130
Q

What is substance over form

A

In consolidations we are looking at it as one company but legally they are two different companies

131
Q

Where control exists even when there is less than 50% majority shares

A

Parent has power to cast a majority of votes at meetings of the board
Parent has power to appoint or remove a majority of board members
Parent has power to govern financial and operating policies
Parent has power over more than 50% of voting rights

132
Q

What is control

A

Power to obtain future economic benefits from underlying resources
Ability to restrict others from accessing those benefits

133
Q

Recognition criteria for intangible assets

A

Measured reliably
Probable economic flow of benefits to the entity

134
Q

Useful life of an intangible asset arising from contractual and other legal rights should not exceed the period of such rights

A

True

135
Q

Residual value of an intangible asset is assumed to be zero unless

A

There is an active market for the asset
A commitment by third party to purchase the asset at the end of its useful life

136
Q

An indicator that an intangible asset may be impaired

A

Reassessing a useful life as finite rather than indefinite

137
Q

If an indefinite assessment is no longer supported theme the change is a change in accounting estimate

A

True

138
Q

Purpose of testing for impairment

A

To ensure the carrying amount can be recovered

139
Q

When should an intangible asset be derecognized ?

A

On disposal
When no future economic benefits are expected from its use or disposal

140
Q

Business combination

A

An event where the acquirer contains control of more than one business

141
Q

Control of an investor

A

When the investor is exposed or has rights to variable returns from its involvement with the investor and has the ability to affect those returns through its power over the investee

142
Q

Exception from presenting consolidated statements

A

If all are met

It is a wholly owned or partially owned subsidiary
The parents debt or equity instruments are not traded on a public market
The parent is not in the process of issuing securities in a public stock market
The ultimate parents presents consolidated statements in accordance with IFRS

143
Q

Date of acquisition and disposal are based on whether or not control exists and not necessarily the legal date of acquisition or disposal

A

True

144
Q

Due process are built on the requirements of

A

Transparency
Accountability
Full and fair consultation

145
Q

IFRS interpretation committee

A

Interpretations of standards and guidance on how to apply them

146
Q

Concept of materiality considers only the decisions that primary users may take based on the financial information about the reporting entity

A

True

147
Q

If there is no applicable IfRs management must use its judgment to develop policies that are relevant and reliable

A

True

148
Q

Consistency helps to achieve comparability

A

True

149
Q

For a change in accounting policy due to new Ifrs

A

Disclose title of Ifrs
Nature of change in policy
That the change is made in accordance with IfRs transitional provisions

150
Q

For voluntary change in accounting policy

A

Nature of the change

Reason why the new policy gives me relevant and reliable information

151
Q

How are errors corrected

A

Retrospectively
Opening equity balances are restated, comparatives are restated
If the error affected a period earlier than the comparative period, the opening balance equity at the start is adjusted
Don’t fix financials for all the years with errors just the opening balance equity

152
Q

IAS 1 requires an entity to include an additional sofp when making retrospectively restatements

A

True

153
Q

Ifrs 15 requires contract access contract liabilities and receivables to be shown separately

A

True

154
Q

Any costs incurred to fulfill a contract with a customer should be expensed

A

True

155
Q

Incremental costs of obtaining a contract

A

Costs to obtain a contract that would not have been incurred if the contract had not been obtained

156
Q

Incremental costs are recognized as an asset of the entity expects to recover them

A

True

157
Q

Components of inventory cost

A

Purchase price
Import duties
Transport
Direct costs
Production overhead
Deduct discounts
Joint product costs
Borrowing costs (limited)
Non production overheads (only of bringing to present location and condition)

Expenditures excluded

Abnormal amounts of wasted materials
Selling costs
Storage costs
Admin overheads

158
Q

Write downs to never and all losses are recognized in the period the write down/loss occurs

A

True

159
Q

Any reversal of write down is recognized as a reduction in expense in the period the reversal occurs

A

True

160
Q

Measurement of biological asset

A

Fair value less costs to sell

161
Q

Presumption that Fv can be measured reliably can be rebutted on initial recognition when a quoted price is unavailable
Alternative estimates are determined to be unreliable in that case the BA is carried at cost less acc depreciation and any impairment losses

A

True

162
Q

Biological asset should be presented separately in the SOFp

A

True

163
Q

For transfers for non monetary assets, it is usual to account for both the grant and the asset at fair value, alternatively it may be recorded at a nominal amount

A

True

164
Q

A change Jn the inventory valuation method is a change in accounting policy but a change in depreciation, allowance for doubtful debts, useful life are accounting estimates

A

True

165
Q

A new or revised IFRS would contain transitional provisions which show how an IFrS is to be applied

A

True

166
Q

If there are no transitional provisions or the change in policy is voluntary, a change in policy is applied retrospectively.

A

True

167
Q

If there are no transitional provisions or the change in policy is voluntary, a change in policy is applied retrospectively.

A

True

168
Q

Retrospective application means that:

the opening balance of each affected part of equity for the earliest period presented is adjusted; and
the comparative amounts are disclosed for each prior period as if the new policy had always been applied.

A

True

169
Q

Initial measurement of investment property

A

Cost (FV of consideration given up for it) including transaction costs

170
Q

Component of an entity

A

A portion of the company with operations and cash flows clearly distinguishable from the remainder of an entity

171
Q

Discontinued operation

A

A component that is either been disposed or classified as held for sale and represents a separate major line of business or geographical area of operations, is part of a single coordinated plan for its disposal or is a subsidiary acquired exclusively with a view to resale

172
Q

Disposal group

A

A group of assets to be disposed of collectively and directly associated liabilities

173
Q

Assets in a disposal group also include goodwill

A

True

174
Q

Obligating event

A

An event which creates legal or constructive obligation which the entity has not other choice but to comply with the obligation

175
Q

Constructive obligation

A

Arises from an entity’s past practice, published policies etc

176
Q

Legal obligation

A

Derives from the operation of law

177
Q

Contingent liability

A

Possible obligation which arises from past events and whose existence is confirmed on the occurrence or non occurrence of one or more uncertain future events not wholly within the entity’s control

A present obligation which arises from past events but not recognized because an outflow of resources is not probable or the amount of the obligation cannot be measured reliably

178
Q

Onerous contract

A

Contract where unavoidable costs of fulfilling it exceeds the condominium benefits to be derived from it

179
Q

Contract asset

A

Possible asset which arises from last events and whose existence will be confirmed only on the occurrence or non occurrence of one or more uncertain events not wholly within the entities control

180
Q

Conditions for a provision to be recognized

A

Entity has present legal or constructive obligation to transfer economic resources as a result of past events

Reliable estimate can be made

Probable that an outflow of economic resources will be required to settle the obligation

181
Q

Obligating event

A

Past event which leads to a present obligation. It exists when an entity has not other choice but to transfer economic resources

182
Q

When is a contingent liability disclosed

A

When no reliable estimate can be made,

183
Q

Contingent liability is disclosed unless the possibility of out flow of resources is remote. Then what happens ?

A

Do nothing

184
Q

When is a contingent asset disclosed ?

A

When an inflow of economic benefit is probable

185
Q

Are contingent assets recognized ?

A

No unless the realization of income is virtually certain, then it will not be contingent and will therefor eve recognized

186
Q

If a contingent liability or asset is remote, then

A

Do nothing

187
Q

If a contingent liability is probable, then
If contingent asset is probable, then

A

Disclose contingent liability
Do nothing

188
Q

If a contingent liability is probable, then,
If a contingent asset is probable then

A

Make a reliable estimate and then provide for it
Disclose contingent asset

189
Q

If contingent liability is virtually certain, then
If contingent asset is virtually certain then

A

Provide for it
Recognize the asset

190
Q

Should a provision be discounted to present value if the time value of money is material ?

A

Yes

191
Q

What discount rate should be used for discounting provisions

A

A pre tax rate that reflects current market assessments if the time value of money and risks specific to the liability

192
Q

Are provisions measured before tax ?

A

Ya

193
Q

I can recognize a reimbursement for costs incurred to settling a provision

A

Only if it is virtually certain to be received

194
Q

Reimbursements (provisions) must be presented separately in the SOFP and cannot exceed the provision

A

True

195
Q

A provision can only be used for the purpose for which the provision was originally recognized

A

True

196
Q

Why shouldn’t provisions be recognized for future operating losses ?

A

They do not arise from a past event
There is no obligation

197
Q

Present obligation under a onerous contract is recognized as a provision

A

True

198
Q

The unavoidable costs in a contract are the lower of

A

The cost to fulfill
Compensation of penalties arising from failure to fulfill it

199
Q

You can set up a provision for decommissioning costs and will initially be recognized at the pv of the future expected cash flow in respect of the obligation

A

True

200
Q

Can you recognize a provision for the costs of self insurance

A

No

201
Q

Further analysis is required when classification is by function not by nature

A

True

202
Q

Dividends paid on irredeemable preference shares are treated as a distribution. Dividends on redeemable preference shares classified as liabilities would be treated as borrowing costs

A

True

203
Q

Only details of adjusting events after the reporting period must be disclosed by note

A

True

204
Q
A
205
Q

Effects of adjusting events must be recognised in the financials

A

True

206
Q

Financial instrument

A

any contract that gives a rise to to both a financial asset of one entity and a financial liability or equity instrument of another entity.

207
Q

Transaction costs

A

incremental costs which are directly attributable to the acquisition, or disposal of a financial instrument. An incremental cost is one that would not have been incurred if the entity had not acquired, or disposed of the financial instrument

208
Q

Amortized cost

A

the amount measured at initial recognition; minus principal repayments;
plus or minus cumulative amortisation of differences between that initial amount and the maturity amount; and
for financial assets, adjusted for any loss allowance.

209
Q

Financial asset

A

any asset which is:

cash, contractual right to receive cash or financial asset from another entity;
a contractual right to exchange financial instruments with another entity. an equity instrument of another entity; orcertain contracts which may be settled in the entity’s own equity instruments.

210
Q

When can financial assets be offset?

A

the entity has a legal right of offset; intends to settle on a net basis or realise the asset and settle the liability simultaneously.

211
Q

How are treasury shares recorded?

A

presented in the statement of financial position as a deduction from equity. No gain or loss is recognised on this transaction.

212
Q

How are financial assets recognized on initial recognition?

A

at fair value (usually the transaction price)
So either FVTPL
FVTOCI
Amortized cost

213
Q

When is a right substantive?

A

the investor has the practical ability to exercise the right when decisions about relevant activities need to be made.

214
Q

Are there exclusions from consolidation of individual subsidiaries which meet the control criteria.

A

No

215
Q

A provision is only required when a legal or constructive obligation begins

A

True

216
Q

How are financial assets measured initially?

A

Fair value plus any transacation costs unless classified as FVTPL in this case it would go to FVTPL

217
Q

FVTPL

A

transaction costs are recognised through profit or loss and remeasure to fv gains or losses go to profit or loss

218
Q

FVTOCI

A
219
Q

What are the IFRS that deal with financial instruments

A

Ifrs 32, 7, 9

220
Q

Financial liability

A

Any liability which is a contractual obligation to deliver cash or a financial asset to an entity, exchange financial instruments with an entity, certain contracts that will be settled with own equity instruments

221
Q

Physical items like cash, prepayments, inventory, tax are not financial instruments

A

True

222
Q

Financial assets that have both equity and debt are classified separately

A

True

223
Q

Can transaction costs be added to financial assets classified through FVTPL

A

No, like the name suggests they go through profit and loss

224
Q

When is an asset held at amortized cost

A
  1. It is held within a business model where financial assets are held to collect contractual cash flows; and
  2. Its contractual terms give rise to cash flows on specified dates which are solely payments of principal and interest (on the outstanding principal).

So simple debt instruments that are held to maturity and contractual cash receipts from holding the asset

225
Q

When is an asset held at FVTOCI

A

If held in a business model to get contractual cash flows from the asset and then sell it and its contractual terms give rise to cash flows on specified dates which are payments and interest
Simply, no intent to keep the asset till maturity but sell it at any time

226
Q

When is an asset held at FVTPL

A

All other assets not measured at AC and FVTOCI with the exception of
One: on initial recognition an entity may elect to designate an equity instrument in another entity that is not held for trading at FVTOCI

227
Q

For amortized cost, the cash flow is based on the instruments coupon or nominal rate

A

True

228
Q

Value in use

A

Present came if cash flows to be derived from an asset

229
Q

At the end of each reporting period an entity must determine if an asset or CGU is impaired

A

True

230
Q

Recoverable amount

A

Higher if Fv less costs to sell and value in use

231
Q

How is fair value assessesd

A

Using hierarchy

232
Q

Costs of disposal include finance costs and income tax

A

False

233
Q

Initial measurement of financial liabilities

A

Fair value with transaction costs being deducted unless if classified at FVTPL then it is expensed

234
Q

What is a simple group

A

Made up of a parent and up to two subsidiaries and one associate of the parent

235
Q

If reporting dates are coterminous then financial statements can be drawn with different dates if

A

The diff is no greater than three months and
Adjustments are made for the effects of significant transactions

236
Q

Reasons why GP margin May fall

A

Change in sales mix
Increasing discounts to remain competitive
Loss of discounts from suppliers
Decrease in demand for products
Costs incurred not being passed down to customer
Other costs that might be expensed to cost of sales

237
Q

Profit or loss on disposal of subsidiary

A

Consideration given
Less: Goodwill at date control lost
NCI at date control lost
Net assets at date control lost

Financial Reporting (1 decks)

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