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CIMA MCS > CIMA F1: B. Financial Accounting and Reporting > Flashcards

CIMA F1: B. Financial Accounting and Reporting Flashcards

1
Q

IFRS 3 - BUSINESS COMBINATIONS

A

A. SCOPE

B. ACCOUNTING METHOD

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2
Q

IFRS 10 - CONSOLIDATED FINANCIAL STATEMENTS

A

A. SCOPE
B. PRINCIPLES OF CONTROL
C. IDENTIFYING CONTROL
D. CONSOLIDATION
E. EXEMPTIONS
F. ACQUISITIONS/DISPOSALS WHERE CONTROL IS RETAINED
G. ACQUISITIONS WHERE CONTROL IS ACHIEVED
H. DISPOSALS WHERE CONTROL IS LOST (FULL DISPOSAL)
I. DISPOSALS WHERE CONTROL IS LOST (SUBSIDIARY TO ASSOCIATE)
J. DISPOSALS WHERE CONTROL IS LOST (SUBSIDIARY TO SIMPLE INVESTMENT)

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3
Q

IFRS 13 - FAIR VALUE MEASUREMENT

A

A. DEFINITION
B. CONSIDERATIONS IN DETERMINING FV
C. FAIR VALUE HIERARCHY

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4
Q

IAS 2 - INVENTORIES

A

A. SCOPE

B. MEASUREMENT

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5
Q

IAS 16 - PROPERTY, PLANT AND EQUIPMENT

A

A. DEFINITION
B. INITIAL MEASUREMENT
C. SUBSEQUENT MEASUREMENT
D. DEPRECIATION

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6
Q

IAS 27 - SEPARATE FINANCIAL STATEMENTS

A

A. SCOPE

B. ACCOUNTING METHOD

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7
Q

IAS 28 - INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

A 
A. SCOPE
B. ACCOUNTING FOR ASSOCIATES/JOINT VENTURES
C. EQUITY METHOD
D. PROCEDURES
E. EXEMPTIONS
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8
Q

IAS 36 - IMPAIRMENT OF ASSETS

A

A. SCOPE
B. VALUE IN USE
C. INDICATORS OF IMPAIRMENT
D. RECOGNITION AND MEASUREMENT

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9
Q

IFRS 3 - BUSINESS COMBINATIONS

A. SCOPE

A

A. SCOPE

1) Business Combination = transaction in which an acquirer obtains control of one or more businesses
2) Business has 3 elements:
a. Inputs (PPE/inventories)
b. Process (production/workforce)
c. Outputs (dividends/cost savings)

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10
Q

IFRS 3 - BUSINESS COMBINATIONS

B. ACCOUNTING METHOD

A

B. ACCOUNTING METHOD

1) Identify of the ‘acquirer’
2) Determine the ‘acquisition date’
3) Recognise assets+liabilities (FV at acquisition date with FV adjustments) and NCI (either full/FV or proportionate share of FV)
4) Recognise either:
a. Goodwill (Consideration+NCI+FV of previous interests less FVNA) and capitalise and impair annually; or
b. A gain on bargain purchase which should be checked for errors before recognising in SPL.

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11
Q

IFRS 10 - CONSOLIDATED FINANCIAL STATEMENTS

A. SCOPE

A

A. SCOPE

1) Requires a parent entity to present consolidated financial statements
2) Defines the principle of control, and establishes control as the basis for consolidation
3) Set out how to apply the principle of control to identify whether an investor controls an investee and therefore must consolidate the investee
4) Sets out the accounting requirements for the preparation of consolidated financial statements
5) Defines an investment entity and sets out an exception to consolidating particular subsidiaries of an investment entity.

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12
Q

IFRS 10 - CONSOLIDATED FINANCIAL STATEMENTS

B. PRINCIPLES OF CONTROL

A

B. PRINCIPLES OF CONTROL

1) Ability: to use power to affect returns
2) Exposure or Rights: to variable returns from investee
3) Power: over investee to direct activities

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13
Q

IFRS 10 - CONSOLIDATED FINANCIAL STATEMENTS

C. IDENTIFYING CONTROL

A

C. IDENTIFYING CONTROL

1) Look at Power
a. >50% voting rights
b. <50% but power shown through:
i. Size and dispersion of shareholders
ii. Difficult to co-ordinate others
iii. Voting patterns
iv. Contractual arrangements
c. Potential voting rights (if able to use/exercisable now)
d. Appoint or remove directors
e. Decision making rights (eg. Management contract)
2) Look at relevant activities
a. Selling/Purchasing
b. Managing assets
c. Researching and developing new products/processes
d. Raising finance
3) Look at variable returns
a. Check returns are variable
b. Dividends
c. Remuneration

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14
Q

IFRS 10 - CONSOLIDATED FINANCIAL STATEMENTS

D. CONSOLIDATION

A

D. CONSOLIDATION

1) Combine
a. Assets + Liabilities
b. Income + Expenses
c. Cash Flows
2) Eliminate
a. Parent’s investment in each subsidiary (carrying amount)
b. Intra group balances (SOFP) and transactions (SPL)

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15
Q

IFRS 10 - CONSOLIDATED FINANCIAL STATEMENTS

E. EXEMPTIONS

A

E. EXEMPTIONS

1) Parent is wholly owned subsidiary
2) Parent is partially owned subsidiary and NCI does not object
3) Its debt or equity instruments are not publicly traded
4) It did not file FS with a securities commission for purpose of issuing instruments in a public market
5) Its ultimate or any intermediate parent publishes consolidated financial statements that are available for public use and comply with IFRS

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16
Q

IFRS 10 - CONSOLIDATED FINANCIAL STATEMENTS

F. ACQUISITIONS/DISPOSALS WHERE CONTROL IS RETAINED

A

F. ACQUISITIONS/DISPOSALS WHERE CONTROL IS RETAINED

1) In substance there is no change to the group, just a transaction between SH
2) SOFP
a. Still consolidate based on year end shareholding
b. Adjustment to NCI in SOFP
c. Adjustment to equity in SOFP
d. No new goodwill for acquisition
3) SPLOCI
a. Still Consolidate for the whole period
b. NCI time apportioned (%before/after)
c. No profit/loss on disposal

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17
Q

IFRS 10 - CONSOLIDATED FINANCIAL STATEMENTS

G. ACQUISITIONS WHERE CONTROL IS ACHIEVED

A

G. ACQUISITIONS WHERE CONTROL IS ACHIEVED

1) In substance:
a. Investment sold (IAS 39)
b. Subsidiary purchased (IFRS 3)
2) SOFP
a. Calculate goodwill at date of control
b. Consolidate at year end
3) SPLOCI
a. Recognise gain/loss on derecognition of investment in PL (FV less cost)
b. Reclassify previous revaluation gains/losses on investment out of OCI
c. Consolidate as subsidiary from date of control (pro-rate accordingly)
d. Pro-rate NCI accordingly

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18
Q

IFRS 10 - CONSOLIDATED FINANCIAL STATEMENTS

H. DISPOSALS WHERE CONTROL IS LOST (FULL DISPOSAL)

A

H. DISPOSALS WHERE CONTROL IS LOST (FULL DISPOSAL)

1) In substance:
a. Full disposal
2) SOFP
a. No consolidation as no sub/NCI at year end
3) SPLOCI
a. Consolidate income, expenses and NCI to date of disposal (pro-rate)
b. Profit/Loss on disposal

19
Q

IFRS 10 - CONSOLIDATED FINANCIAL STATEMENTS

I. DISPOSALS WHERE CONTROL IS LOST (SUBSIDIARY TO ASSOCIATE)

A

I. DISPOSALS WHERE CONTROL IS LOST (SUBSIDIARY TO ASSOCIATE)

1) In substance:
a. Full disposal
b. Acquisition of associate
2) SOFP
a. FV of investment remaining at date of disposal
b. Equity Method applied (IAS 28)
3) SPLOCI
a. Consolidate income, expenses and NCI to date of disposal (pro-rate)
b. Profit/Loss on disposal
c. Treat as associate (IAS 28)

20
Q

IFRS 10 - CONSOLIDATED FINANCIAL STATEMENTS

J. DISPOSALS WHERE CONTROL IS LOST (SUBSIDIARY TO SIMPLE INVESTMENT)

A

J. DISPOSALS WHERE CONTROL IS LOST (SUBSIDIARY TO SIMPLE INVESTMENT)

1) In substance:
a. Full disposal
b. Simple investment
2) SOFP
a. FV of investment remaining at date of disposal
b. Available for sale financial asset thereafter (FV gains/losses to OCI) (IAS 39)
3) SPLOCI
a. Consolidate income, expenses and NCI to date of disposal (pro-rate)
b. Profit/Loss on disposal
c. Recognise dividend income in PL and revaluation gains/losses on investment to OCI (IAS 39)

21
Q

IFRS 13 - FAIR VALUE MEASUREMENT

A. DEFINITION

A

A. DEFINITION

1) The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
2) Valuation Techniques
a. Market approach (identical or comparable transactions)
b. Cost approach (current replacement cost)
c. Income approach (discounted future cash flows)

22
Q

IFRS 13 - FAIR VALUE MEASUREMENT

B. CONSIDERATIONS IN DETERMINING FV

A

B. CONSIDERATIONS IN DETERMINING FV

1) The asset or liability being measured
2) The principal market
3) Highest and best use of the asset or liability and whether used in conjunction with other assets
4) Assumptions that market participants would use when pricing the asset

23
Q

IFRS 13 - FAIR VALUE MEASUREMENT

C. FAIR VALUE HIERARCHY

A

C. FAIR VALUE HIERARCHY

1) Level 1 inputs: quoted prices in active markets for identical assets, accessed at measurement date
2) Level 2 inputs: inputs other than quoted prices that are directly or indirectly observable for the asset (similar assets)
3) Level 3 inputs: unobservable inputs for the asset

24
Q

IAS 2 - INVENTORIES

A. SCOPE

A

A. SCOPE

1) Assets held for sale in the ordinary course of business (finished goods)
2) Assets in the production process for sale in the ordinary course of business (work in process)
3) Materials and supplies that are consumed in production (raw materials)
4) Stock must be held at the lower of cost and net realisable value.
5) Excludes WIP arising under construction contracts (IAS 11 - Construction Contracts

25
Q

IAS 2 - INVENTORIES

B. MEASUREMENT

A

B. MEASUREMENT
1) Costs of purchase (including taxes, transport, and handling) net of trade discounts received
2) Costs of conversion (including fixed and variable manufacturing overheads) and
3) Other costs incurred in bringing the inventories to their present location and condition
Inventory cost should not include:
1) Abnormal waste
2) Storage costs
3) Administrative overheads unrelated to production
4) Selling costs
5) Foreign exchange differences arising directly on the recent acquisition of inventories invoiced in a foreign currency
6) Interest cost when inventories are purchased with deferred settlement terms.

26
Q

IAS 16 - PROPERTY, PLANT AND EQUIPMENT

A. DEFINITION

A

A. DEFINITION

1) Tangible asset
2) Held for use
3) Expected to be used during more than one accounting period

27
Q

IAS 16 - PROPERTY, PLANT AND EQUIPMENT

B. INITIAL MEASUREMENT

A

B. INITIAL MEASUREMENT

1) Initially measured at costs. Components include:
a. Purchase Price
b. Import duties
c. Directly attributable costs of bringing asset to location and working condition
d. Best estimate of dismantling and Restoration costs if obliged to incur them by the date initial cost is established (IAS 37 – Provisions, Contingent Liabilities and Contingent Assets)
2) Subsequent expenditure can be capitalised if it meets recognition criteria:
a. Probable future economic benefits
b. Cost can be measured reliably

28
Q

IAS 16 - PROPERTY, PLANT AND EQUIPMENT

C. SUBSEQUENT MEASUREMENT

A

C. SUBSEQUENT MEASUREMENT
Two methods:
1) Cost Model: asset is carried at cost less accumulated depreciation and impairment
2) Revaluation Model: asset is carried at FV less subsequent depreciation and impairment
a. Revalue entire class of assets
b. Revalue sufficiently often
c. Increases are credited to OCI and SOCIE (revaluation surplus) or used to reverse previous decreases
d. Decreases are expensed to profit and loss or used to reverse previous decreases
e. Depreciate the new value over remaining useful life

29
Q

IAS 16 - PROPERTY, PLANT AND EQUIPMENT

D. DEPRECIATION

A

D. DEPRECIATION

1) Depreciable amount (cost less residual value) should be allocated on a systematic basis
2) Residual value and useful life should be reviewed at least each financial year end
3) Depreciation method used should reflect pattern in which the asset’s economic benefits are consumed
a. Straight line
b. Reducing balance
c. Machine hour
4) Charged to profit and loss
5) Begins when asset is available for use and continues until derecognised.

30
Q

IAS 27 - SEPARATE FINANCIAL STATEMENTS

A. SCOPE

A

A. SCOPE
Outlines the accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when an entity prepares separate financial statements.

31
Q

IAS 27 - SEPARATE FINANCIAL STATEMENTS

B. ACCOUNTING METHOD

A

B. ACCOUNTING METHOD
Choice of:
1) Cost
2) As a financial asset (at FV) (IAS 39 - Financial Instruments: Recognition and Measurement)
3) Using Equity Method (IAS 28 – Investments in Associates and Joint Ventures)

32
Q

IAS 28 - INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

A. SCOPE

A

A. SCOPE
IAS 28 applies to all entities that are investors with either:
1) Significant Influence (Associate)
a. The power to participate in the financial and operating policy decisions of the investee but is not control or joint control of those policies (>20%)
i. Representation on Board of Directors
ii. Participation in policy making
iii. Material transactions between entity and investee
iv. Interchange of management
v. Provision of essential technical info
2) Joint Control (Joint Venture)
a. The contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control

33
Q

IAS 28 - INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

B. ACCOUNTING FOR ASSOCIATES/JOINT VENTURES

A

B. ACCOUNTING FOR ASSOCIATES/JOINT VENTURES

1) In separate financial statements (IAS 27)
a. Cost
b. As a financial asset (at FV) (IAS 39)
c. Using Equity Method
2) In consolidated financial statements
a. Using Equity Method

34
Q

IAS 28 - INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

C. EQUITY METHOD

A

C. EQUITY METHOD

1) SOFP (single line)
a. Initial recognition at cost
b. Post-acquisition
i. Add P’s share of post-acquisition retained earnings
ii. Deduct impairment losses on associate to date
2) SPLOCI (single line)
a. A’s profit for the year x group %
b. A’s OCI for the year x group %

35
Q

IAS 28 - INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

D. PROCEDURES

A

D. PROCEDURES
1) Not part of group so no cancellation of intra-group transactions
2) Eliminate Group’s share of unrealised profit (PUP x group%)
a. P sells goods, A holds inventories
Dr Group RE (SOFP) / Dr COS (SPLOCI)
Cr Investment in Associate (SOFP)
b. A sells goods, P holds inventories (overstated inventories)
Dr Group RE (SOFP) / Dr Share of A’s Profit (SPLOCI)
Cr Group inventories (SOFP)
3) Ensure Uniform accounting policies
4) Ensure same reporting date (or within 3 months)
5) Losses of an investee => do not reduce the investment below 0

36
Q

IAS 28 - INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

E. EXEMPTIONS

A

E. EXEMPTIONS

1) Parent is wholly owned subsidiary
2) Parent is partially owned subsidiary and NCI does not object
3) Its debt or equity instruments are not publicly traded
4) It did not file FS with a securities commission for purpose of issuing instruments in a public market
5) Its ultimate or any intermediate parent publishes consolidated financial statements that are available for public use and comply with IFRS

37
Q

IAS 36 - IMPAIRMENT OF ASSETS

A. SCOPE

A

A. SCOPE
If an asset’s carrying value is higher than it’s recoverable value (the higher of FVLCTS and its value in use), it should be reduced in value by the impairment loss and written off against profit (unless previously revalued).

38
Q

IAS 36 - IMPAIRMENT OF ASSETS

B. VALUE IN USE

A

B. VALUE IN USE
Present value of future cash flows.
The calculation of value in use should reflect the following elements:
1) Estimated future cash flows from asset
2) Expectations about possible variations in the amount or timing of those future cash flows
3) Time value of money, represented by the current market risk-free rate of interest
4) Price for bearing the uncertainty inherent in the asset
5) Other factors, such as illiquidity, that market participants would reflect in pricing future cash flows

39
Q

IAS 36 - IMPAIRMENT OF ASSETS

C. INDICATORS OF IMPAIRMENT

A

C. INDICATORS OF IMPAIRMENT

1) External sources
a. Fall in asset’s market value
b. Change in PESTEL environments
c. Increase in market interest rates affecting discount rates (which affect Value in use)
d. Net assets of company higher than market capitalisation
2) Internal sources
a. Obsolescence/damage
b. Idle or held for disposal
c. Adverse changes in use or economic performance
3) Annually tested
a. Intangibles with indefinite useful life
b. Intangibles not yet available for use
c. Good will acquired in a business combination

40
Q

IAS 36 - IMPAIRMENT OF ASSETS

D. RECOGNITION AND MEASUREMENT

A

D. RECOGNITION AND MEASUREMENT

1) Assets at historic cost: charged to PL
2) Assets at a revalued amount: charge to revaluation surplus (OCI) and excess to PL

41
Q

IAS 38 - INTANGIBLE ASSETS

A. DEFINITION

A

A. DEFINITION

1) Identifiable
a. Arises from contractual or other legal rights (acquired through purchase)
b. Separable (capable of being sold/transferred/licensed)
2) Non-monetary asset (controlled and probable FEBs)
3) Without physical substance

42
Q

IAS 38 - INTANGIBLE ASSETS

B. INITIAL RECOGNITION

A

B. INITIAL RECOGNITION

1) Purchased: measure at cost
2) Acquired: measure at FV (if possible), separate from goodwill (IFRS 3 – Business Combinations)
3) Internally generated: split into
a. Research phase (no certainty of FEBs): expense as incurred
b. Development phase: capitalise if PIRATE, otherwise expense
i. Probable FEBs
ii. Intention to complete and use/sell
iii. Resources adequate to complete and use/sell
iv. Ability to use/sell
v. Technical feasibility
vi. Expenditure can be reliably measured

43
Q

IAS 38 - INTANGIBLE ASSETS

C. SUBSEQUENT MEASUREMENT

A

C. SUBSEQUENT MEASUREMENT
Two methods:
1) Cost Model: asset is carried at cost less accumulated amortisation and impairment
2) Revaluation Model (rare): asset is carried at FV less subsequent amortisation and impairment ONLY IF FV can be determined by reference to an active market
a. Revalue entire class of assets
b. Revalue sufficiently often
c. Increases are credited to OCI and SOCIE (revaluation surplus) or used to reverse previous decreases
d. Decreases are expensed to profit and loss or used to reverse previous decreases
e. Amortise the new value over remaining useful life

44
Q

IAS 38 - INTANGIBLE ASSETS

D. AMORTISATION

A

D. AMORTISATION

1) Indefinite life: Cost but with no amortisation
2) Finite life: Cost should be amortised on a systematic basis
3) Residual value and useful life should be reviewed at least each financial year end
4) Amortisation method used should reflect pattern of benefits
a. If unable to determine pattern: Straight line
5) Charged to profit and loss
6) Begins when asset is available for use and continues until derecognised.

CIMA MCS (2 decks)

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