Chapter 5

Question 1

IAS 10?

Answer 1

Events after the reporting period
-adjusting/non-adjusting events

Question 2

Definition of Adjusting event?

Answer 2

“provides evidence of conditions that existed at the end of the reporting period”.

Question 3

Definition of Non-adjusting event?

Answer 3

“is indicative of conditions that arose after the reporting period”.

Question 4

Typical adjusting events? (5)

Answer 4

1 Conclusion of a court case which had been ongoing before the year end.
2 Impairment of assets.
3 A reduction in value of inventories where net realisable value falls below cost.
4 Insolvency of a major trade customer.
5 Discovery of fraud by an employee.

Question 5

Typical non-adjusting events? (5)

Answer 5

1 A new business combination - purchase of, or sale to, another entity.
2 The major purchase of non-current assets.
3 Damage to non-current assets as a result of fire or flooding.
4 Issue of new share capital.
5 Taking out a new (or increasing an existing) loan.

Question 6

How are material adjusting events accounted for?

Answer 6

By altering the amounts shown in the financial statements to reflect the event.

Question 7

How are material non-adjusting events accounted for?

Answer 7

They are included in the notes to the accounts, giving an indication of the likely financial effect of the event.

Question 8

IAS 12?

Answer 8

Income taxes
- estimation of taxes due.

Question 9

IFRS 15?

Answer 9

Revenue from contracts with customers
- definition of contract
- definition of customer
-definition of revenue
- five step model for recognising revenue.

Question 10

Definition of “contract”?

Answer 10

“An agreement between two or more parties that creates enforceable rights or obligations”.

Question 11

Definition of “customer”?

Answer 11

“A party that contracts with an entity to purchases goods or services that are the output of the entity’s ordinary activities in exchange for consideration”.

Question 12

Definition of “revenue”?

Answer 12

“The gross inflow of economic benefits during the period arising in the course of the ordinary activities of the entity, when those inflows result in increases in equity, other than increases relating to the contributions from equity shareholders”.

Question 13

Five step model for recognising revenue?

Answer 13

1 identify the contract with the customer.
2 Identify the performance obligations in the contract.
3 Determine the transaction price.
4 allocate the transaction price.
5 Recognise the revenue when (or as) a performance obligation is satisfied.

Question 14

IAS 37?

Answer 14

Provisions, contingent liabilities and contingent assets.

Question 15

Definition of “provision”?

Answer 15

“A liability of uncertain timing or amount”.

Question 16

Definition of “contingent liability”?

Answer 16

“A possible obligation arising form past events whose existence will only be confirmed by one or more uncertain future events not entirely within the entity’s control”.

Question 17

Definition of “contingent asset”?

Answer 17

“A possible asset arising from past events which will only be confirmed by uncertain future events not wholly within the entity’s control”.

Question 18

Treatment of almost certain contingent liability?

Answer 18

Make provision.

Question 19

Treatment of probably certain contingent liability?

Answer 19

Make provision.

Question 20

Treatment of possible certain contingent liability?

Answer 20

Disclose in notes to the accounts.

Question 21

Treatment of remote certain contingent liability?

Answer 21

Ignore.

Question 22

Treatment of almost certain contingent asset?

Answer 22

Recognise in financial statements.

Question 23

Treatment of probable contingent asset?

Answer 23

Disclose in notes to the accounts.

Question 24

Treatment of possible contingent asset?

Answer 24

Ignore.

Question 25

Treatment of remote contingent asset?

Answer 25

Ignore.