Chapters 17-20 Flashcards
whats a foreign operation
a sub that operates in a foreign currency
can a foreign operation have its own functional currenvy
yes if it can be a stand alone company - not if its just an extension of the parents
what rate do you use for equity when translating the sub
historical rate
what rate do you use for dividends when translating the sub
actual
what rate do you use for P/L when translating the sub
average
exchange differences in the year on translation of net assets working
closing net assets at closing rate
less opening net assets at opening rate
less retained profit
plus or minus difference on goodwill
how do you calculate exchange difference in goodwill
calculate as normal in foreign currency
translate it at closing rate
for impairment losses what exchange rate do you use
you can use average or year end as the IAS does not state which one
what is the net investment in foreign operations
the amount of the reporting entitys in the net assets of a foreign operation
whats a cash equivalent
short term highly liquid investments
two methods of cash flows
indirect and direct - indirect is much more detailed operating cash flows but will result in same figure
what method does IAS prefer for cash flows
direct - but it is a choice as its just presentational
what do you need to eliminate from a consolidated cash flow
anything internal
what section are dividends to NCI
Financing
proforma for NCI Dividends
opening balance from SOFP \+ NCI share of total comp income \+ acquisition of sub -disposal of sub - non cash ie gain on foreign exchange -dividends to sub ( Balancing figure) closing balance from SOFP
How to calculate dividends received from associate
opening balance ( SOFP) \+group share of profit for the year \+group share of OCI \+acquisition of associate or joint venture -disposal of associate or joint venture -non cash items -dividends ( Balancing figure ) closing balance (SOFP)
how to calculate cash paid from acquiring a sub
- cash paid + subs cash
how to calculate cash received from disposal of a sub
+ cash proceeds - subs cash
what is the effect on assets and liabilities if the sub is acquired in the year
they need to be added in to the cash flow as they have been consolidated for the first time
what is the effect on assets and liabilities if the sub is acquired in the year
they need to be deducted as they have been deconsolidated for the first time
criticisms of IAS 7
Direct method of cash flow is preferred but rarely used in practice as it requires lots of additional workings
harder for users of FS to compare if people are using seperate methods
easier to hide the misclassifications in the indirect method and manipulate the cash flow
why is relevance an issue when doing FS for an SME
some standards are just not relevant such as IAS 33 - Earnings per share. SME’s dont always operate on the stock market so this is irrelevant
why is relevance an issue when doing FS for an SME
an underlying principle is that cost and effort required to prepare FS should not outweigh the benefits to users
what is the IFRS for SME’s focus on
needs of lendors and creditors