Chapter 8 - Other Standards

Question 1

What is the definition of accounting policies?

Answer 1

the specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements

Question 2

What are accounting estimates?

Answer 2

the estimates required when inherent uncertainties impact on the application of an accounting policy

Question 3

What is an example of an accounting policy?

Answer 3

to depreciate plant and machinery

Question 4

What is an example of an accounting estimate?

Answer 4

the useful economic life, residual value, pattern of consumption/creation of the net benefits

Question 5

IAS 8 requires an entity to select and apply appropriate accounting policies to ensure what?

Answer 5

that the information in the financial statements
- is relevant to the decision making needs of the user
- faithfully represents the entity’s performance and position

Question 6

What occurs with a change in accounting policy?

Answer 6

• applied retrospectively, as if new policy had always been in place
• restate comparatives
• restate relevant b/frwd balances

Question 7

What occurs with a change in accounting estimate?

Answer 7

• applied prospectively, from current period onwards
• disclose, if impact if material

Question 8

What is a prior period error?

Answer 8

omissions from, and misstatements in financial statements arising from a failure to use, or misuse of, reliable info that was available and could reasonably be expected to have been obtained

Question 9

When identified how are prior period errors adjustments done?

Answer 9

• applied retrospectively
• restate affected comparatives
• restate relevant b/frwd balances

Question 10

What is fair value?

Answer 10

the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants

Question 11

What is level 1 of the hierarchy of inputs?

Answer 11

• quoted prices (observable) in active markets for identical items, the most reliable evidence of fair value

Question 12

What is level 2 of the hierarchy of inputs?

Answer 12

observable inputs other than level 1, e.g., similar items in active markets or identical items in inactive markets. Some adjustments necessary to reach fair value

Question 13

What is level 3 of the hierarchy of inputs?

Answer 13

unobserved inputs, based upon best information available

Question 14

IFRS 13 does not apply to what?

Answer 14

• leases
• inventories
• impairments

Question 15

What is the basic rule for valuing inventory?

Answer 15

inventories should be stated at the lower of cost and net realisable value, on an item by item basis

Question 16

What is cost?

Answer 16

all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition

Question 17

What costs would be excluded?

Answer 17

• abnormal waste
• storage costs
• admin overheads
• selling costs

Question 18

What is the net realisable value?

Answer 18

the estimated selling price in the ordinary course of business, less the estimated costs required to complete and sell the item

Question 19

What are the 2 methods of identifying cost?

Answer 19

• unit cost
• average cost
• first in-first out

Question 20

What is unit cost?

Answer 20

where each unit of inventory is separately identified, we simply value the items of closing inventory at the actual cost of purchasing those items.

Question 21

What is average cost?

Answer 21

found by dividing the cost of items by the number of items held in inventory.

Question 22

What is FIFO?

Answer 22

assume that items purchases first are sold first.

Question 23

What is a biological asset?

Answer 23

a living plant or animal

Question 24

What is agricultural produce?

Answer 24

is the produce harvested from a biological asset

Question 25

What is agricultural activity?

Answer 25

the management of the biological transformation of biological assets for:
sale
into agricultural produce, or
into additional biological assets

Question 26

What is a bearer plant?

Answer 26

• used in the production or supply of agricultural produce
• is expected to bear fruit for more than one period
• has a remote likelihood of being sold as agricultural produce, expect for incidental scrap sales

Question 27

What does IAS 41 apply to?

Answer 27

government grants related specifically to biological assets which are held at fair value - cost to sell, that’s outside of scope of IAS 20

Question 28

if the grant has no conditions attached how is it recognised?

Answer 28

• recognise when grant becomes receivable

Question 29

if the grant has conditions attached how is it recognised?

Answer 29

recognise once the conditions are met

Question 30

How are biological assets valued?

Answer 30

Intially: recognise at fair value less costs to sell
Year end: revalue to fair value less costs to sell. Gain or loss in SPL

Question 31

If fair value is not available how are biological assets valued? i.e. bearer plant or asset not part of agricultural activity

Answer 31

cost - depreciation

Question 32

How are agricultural produce valued?

Answer 32

Initially: Recognise at fair value less costs to sell. Immediately reclassify as inventories

Question 33

What is the double entry for a fair value increase?

Answer 33

Dr Biological Asset (NCA)
Cr SPL (fair value gain)