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CIMA MCS > CIMA F2: B. Financial Reporting > Flashcards

CIMA F2: B. Financial Reporting Flashcards

1
Q

IFRS 2 - SHARE-BASED PAYMENT

A

A. SCOPE
B. RECOGNITION
C. MEASUREMENT

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2
Q

IFRS 11 - JOINT ARRANGEMENTS

A

A. SCOPE
B. ACCOUNTING FOR JOINT OPERATIONS
C. ACCOUNTING FOR JOINT VENTURES

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3
Q

IFRS 12 - DISCLOSURE OF INTERESTS IN OTHER ENTITIES

A

A. OBJECTIVE AND SCOPE
B. STRUCTURED ENTITIES
C. DISCLOSURES

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4
Q

IAS 11 - CONSTRUCTION CONTRACTS

A

A. DEFINITION

B. RECOGNITION

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5
Q

IAS 12 - INCOME TAXES

A 
A. CURRENT TAX
B. DEFERRED TAX
C. TEMPORARY DIFFERENCE
D. DEFERRED TAX LIABILITIES
E. DEFERRED TAX ASSETS
F. EXAMPLES
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6
Q

IAS 17 - LEASES

A 
A. DEFINITIONS
B. LESSEE ACCOUNTING (FINANCE LEASES)
C. LESSEE ACCOUNTING (OPERATING LEASES)
D. LESSEE ACCOUNTING (SALE AND LEASEBACK)
E. LESSOR ACCOUNTING (FINANCE LEASES)
F. LESSOR ACCOUNTING (OPERATING LEASES)
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7
Q

IAS 18 - REVENUE

A

A. DEFINITION
B. RECOGNITION
C. MEASUREMENT

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8
Q

IAS 21 - FOREIGN EXCHANGE

A

A. DEFINITIONS
B. TRANSLATION OF TRANSACTIONS
C. TRANSLATION OF SUBSIDIARIES
D. CONSOLIDATION

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9
Q

IAS 24 - RELATED PARTY DISCLOSURES

A 
A. OBJECTIVE AND PURPOSE
B. RELATED PERSONS
C. RELATED ENTITIES
D. NON-RELATED PARITES
E. DISCLOSURE
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10
Q

IAS 32 - FINANCIAL INSTRUMENTS: PRESENTATION

A 
A. ELEMENTS OF FINANCIAL STATEMENTS
B. RECOGNITION CRITERIA
C. FINANCIAL INSTRUMENTS
D. FINANCIAL ASSETS
E. FINANCIAL LIABILITIES
F. EQUITY INSTRUMENTS
G. DERIVATIVES
H. COMPOUND INSTRUMENTS (E.G CONVERTIBLE DEBT)
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11
Q

IAS 33 - EARNINGS PER SHARE

A

A. SCOPE
B. BASIC EPS
C. DILUTED EPS

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12
Q

IAS 37 – PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS

A

A. PROVISIONS
B. APPLICATION OF PROVISIONS
C. CONTINGENT LIABILITIES
D. CONTINGENT ASSETS

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13
Q

IAS 39 - FINANCIAL INSTRUMENTS: RECOGNITION AND MEASUREMENT

A 
A. POINT OF RECOGNITION
B. MEASUREMENT OF FINANCIAL ASSETS
C. MEASUREMENT OF FINANCIAL LIABILITIES
D. FAIR VALUE
E. IMPAIRMENT OF FINANCIAL ASSETS
F. DERECOGNITION
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14
Q

IFRS 2 - SHARE-BASED PAYMENT

A. SCOPE

A

A. SCOPE

1) Equity-settled = Entity receives goods/services as consideration for its own equity instruments. (e.g Shares: Credit Equity)
2) Cash-settled = Entity receives goods/services by incurring liability, based on price of equity instruments. (e.g Share Appreciation rights: Credit liabilities)

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15
Q

IFRS 2 - SHARE-BASED PAYMENT

B. RECOGNITION

A

B. RECOGNITION

1) If a period of service must be completed to receive entitlement then spread over the ‘vesting period’
2) Recognise as expense because it is effectively payment for employee’s services (ie a form of remuneration)
3) Even if it’s a share option and no cash is paid, an expense must be recognised.

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16
Q

IFRS 2 - SHARE-BASED PAYMENT

C. MEASUREMENT

A

C. MEASUREMENT

1) Ideally, direct method (FV of goods/services received)
2) Indirect used for payments to employees since difficult to measure value of service reliably (FV of the share-based payment)
3) Equity-settled use FV of instruments at grant date and don’t update
4) Cash-settled use FV of instruments at grant date and update each year end to ensure best estimate of payment
5) Value of Share-based payment equity/liability should be updated each year to reflect estimated employees entitled

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17
Q

IFRS 11 - JOINT ARRANGEMENTS

A. SCOPE

A

A. SCOPE

1) An arrangement of which two or more parties have joint control
2) A joint arrangement has the following characteristics:
a. the parties are bound by a contractual arrangement, and
b. the contractual arrangement gives two or more of those parties joint control of the arrangement.
3) A joint arrangement is either:
a. Joint Operation = Parties have rights to assets and obligations for liabilities
b. Joint Venture = Parties have rights to the net assets of the arrangement (always a separate entity)

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18
Q

IFRS 11 - JOINT ARRANGEMENTS

B. ACCOUNTING FOR JOINT OPERATIONS

A

B. ACCOUNTING FOR JOINT OPERATIONS

1) In separate financial statements recognise:
a. Its own assets, liabilities and expenses
b. Its share pf assets held and expenses and liabilities incurred jointly
c. Its revenue from sales of its share of output
d. Its share of revenue from sale of output by joint operation
2) No adjustment needed on consolidation

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19
Q

IFRS 11 - JOINT ARRANGEMENTS

C. ACCOUNTING FOR JOINT VENTURES

A

C. ACCOUNTING FOR 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 (IAS 28)

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20
Q

IFRS 12 - DISCLOSURE OF INTERESTS IN OTHER ENTITIES

A. OBJECTIVE AND SCOPE

A

A. OBJECTIVE AND SCOPE

1) The objective of IFRS 12 is to require the disclosure of information that enables users of financial statements to evaluate:
a. The nature of, and risks associated with, its interests in other entities
b. The effects of those interests on its financial position, financial performance and cash flows
2) Required for entities that have an interest in any of the following:
a. Subsidiaries
b. Joint Arrangements
c. Associates
d. Unconsolidated Structured Entities

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21
Q

IFRS 12 - DISCLOSURE OF INTERESTS IN OTHER ENTITIES

B. STRUCTURED ENTITIES

A

B. STRUCTURED ENTITIES

1) An entity that has been designed so that voting or similar rights are not the dominant factor in determining control
2) Activities are directed by other means e.g. a Contract

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22
Q

IFRS 12 - DISCLOSURE OF INTERESTS IN OTHER ENTITIES

C. DISCLOSURES

A

C. DISCLOSURES

1) Significant judgements and assumptions determining:
a. Control
b. Joint Control
c. Significant influence
2) Information to understand composition of group
3) Nature, extent and financial effects of interests in joint arrangements and associates
4) Nature and extent of interests in unconsolidated structured entities

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23
Q

IAS 11 - CONSTRUCTION CONTRACTS

A. DEFINITION

A

A. DEFINITION

1) Contract specifically negotiated for construction of an asset/combination of assets
2) Must straddle an accounting period end

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24
Q

IAS 11 - CONSTRUCTION CONTRACTS

B. RECOGNITION

A

B. RECOGNITION

1) Estimate outcome based on
a. Total contract revenue
b. Stage of completion
c. Total costs to complete the contract
2) Outcome can be estimated reliably
a. Revenue and costs recognised by stage of completion
i. Proportion of costs incurred (cost to date/total costs x revenue)
ii. Surveys of work performed (work certified/contract price x revenue)
iii. Physical proportion completed (% complete x revenue)
b. Expected losses recognised as an expense immediately
3) Outcome cannot be estimated reliably
a. Revenue recognised to the extent that costs are expected to be recoverable
b. Costs recognised in the period they are incurred
4) Amount of revenue above/(below) that billed to customer is recorded in SOFP under ‘Gross amounts due from(to) customers’ (asset/(liability)

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25
Q

IAS 12 - INCOME TAXES

A. CURRENT TAX

A

A. CURRENT TAX

1) Estimate payable for current year, recognised as a liability.
2) If its an asset amounts paid already exceed the amount due and an adjustment is made in the next period.
3) Using laws/rates enacted or substantially enacted by the balance sheet date.

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26
Q

IAS 12 - INCOME TAXES

B. DEFERRED TAX

A

B. DEFERRED TAX

1) It’s basically creating a provision (deferred tax liability) or a prepayment (deferred tax asset) that arise when calculating the tax payable
2) There are two types of differences when calculating tax.
a. Permanent differences (No deferred tax)
b. Temporary differences (Deferred tax)
i. Calculated as difference between carrying amount (SOFP) and tax base
3) Using laws/rates enacted or substantially enacted by the balance sheet date.

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27
Q

IAS 12 - INCOME TAXES

C. TEMPORARY DIFFERENCE

A

C. TEMPORARY DIFFERENCE

1) Calculate the net value of the assets for accounting purposes and tax purposes.
2) The tax rate is applied to the difference between the accounting and tax net values.
3) DT (liability)/asset = Temporary difference x tax rate

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28
Q

IAS 12 - INCOME TAXES

D. DEFERRED TAX LIABILITIES

A 
D. DEFERRED TAX LIABILITIES
1)	Taxable differences = amounts taxable in the future (DT liability)
2)	To increase
Dr Deferred Tax Expense
Cr Deferred Tax Liability
3)	To decrease
Dr Deferred Tax Liability
Cr Deferred Tax Expense
4)	Only need to post movement
29
Q

IAS 12 - INCOME TAXES

E. DEFERRED TAX ASSETS

A 
E. DEFERRED TAX ASSETS
1)	Deductible differences = amounts tax deductible in the future (DT asset)
2)	To increase
Dr Deferred Tax Asset
Cr Deferred Tax Expense
3)	To decrease
Dr Deferred Tax Expense
Cr Deferred Tax Asset
4)	Only need to post movement
30
Q

IAS 12 - INCOME TAXES

F. EXAMPLES

A

F. EXAMPLES

1) NCA (DTL = accelerated depreciation allowances or revaluation gains only realised on sale (OCI))
2) Accruals (DTA = taxed when cash paid)
3) Prepayments (DTL = taxed when paid)
4) Provisions (DTA)
5) Deferred income (DTL)
6) Trading losses (DTA = represent a future tax saving)

31
Q

IAS 17 - LEASES

A. DEFINITIONS

A

A. DEFINITIONS

1) Finance Lease (transfer of risks and rewards of ownership)
a. Specialised asset
b. Transferred ownership
c. Option to purchase at low price
d. Major part of asset’s life
e. PV MLP substantially all of the fair value
2) Operating Lease
a. Lease other than a finance lease

32
Q

IAS 17 - LEASES

B. LESSEE ACCOUNTING (FINANCE LEASES)

A

B. LESSEE ACCOUNTING (FINANCE LEASES)
Substance over form legal title with lessor, but risk and rewards with lessee.
1) SOFP
a. Recognise asset and corresponding liability at the lower of FV and PV MLP
Dr PPE
Cr Finance Lease Liability
2) SPLOCI
a. Depreciate asset over shorter of lease term and useful life (unless legal title transfers at end of lease)
b. Split Payments between capital and finance charge
i. Record Finance Charge (interest at constant rate implicit in lease)
Dr Finance Costs (SPL)
Cr Finance Lease Liability
ii. Record instalment (cash paid)
Dr Finance Lease Liability
Cr Cash

33
Q

IAS 17 - LEASES

C. LESSEE ACCOUNTING (OPERATING LEASES)

A

C. LESSEE ACCOUNTING (OPERATING LEASES)

1) Lessor still has risks and rewards
2) Do not record any asset or liability
3) Recognise lease rentals as an expense on a straight line basis over the term

34
Q

IAS 17 - LEASES

D. LESSEE ACCOUNTING (SALE AND LEASEBACK)

A 
D. LESSEE ACCOUNTING (SALE AND LEASEBACK)
1)	Finance Leaseback (in substance no disposal) 
	a.	Sale
		i.	Dr Cash (proceeds)
Cr Finance Lease Liability 
		ii.	Dr PPE (excess proceeds over NBV)
Cr Deferred income
		iii.	Release proceeds over the lease term
	b.	Leaseback
		i.	Regular lessee accounting applies
2)	Operating Leaseback (in substance disposal)
	a.	Sale
		i.	Dr Cash (proceeds)
Cr PPE (NBV)
Cr/Dr Profit/loss on disposal (SPL)
	b.	Leaseback
		i.	Regular lessee accounting applies
35
Q

IAS 17 - LEASES

E. LESSOR ACCOUNTING (FINANCE LEASES)

A 
E. LESSOR ACCOUNTING (FINANCE LEASES)
1)	SOFP (No PPE but lease receivable)
	a.	Lease Receivable = PV MLP – PV of unguaranteed residual value (total RV -guaranteed RV)
Dr Lease Receivable
Cr PPE
Cr Sales profit (SPL)
2)	SPLOCI
	a.	Finance Income
Dr Lease Receivable
Cr Finance Income
	b.	Instalment Received
Dr Cash
Cr Lease Receivable
36
Q

IAS 17 - LEASES

F. LESSOR ACCOUNTING (OPERATING LEASES)

A

F. LESSOR ACCOUNTING (OPERATING LEASES)

1) SOFP
a. PPE (IAS 16)
2) SPLOCI
a. Record depreciation
b. Rental income recorded straight line over term

37
Q

IAS 18 - REVENUE

A. DEFINITION

A

A. DEFINITION

1) Inflow of economic benefits (income)
2) Arising from the ordinary operating activities of an entity
a. Sale of goods
b. Rendering of services
c. Interest (time proportion using effective interest IAS 39)
d. Royalties (accruals basis)
e. Dividends (when right to receive payment established)

38
Q

IAS 18 - REVENUE

B. RECOGNITION

A

B. RECOGNITION

1) Sale of Goods
a. Transfer risks and rewards of ownership
b. No continuing managerial involvement
c. Amount of revenue measured reliably
d. Probable economic benefit
e. Costs incurred measured reliably
2) Services
a. Stage of completion can be measured reliably
i. Surveys of work
ii. Services performed as % of total
iii. Cost incurred as % of total
b. Amount of revenue measured reliably
c. Probable economic benefit
d. Costs incurred measured reliably
e. Otherwise match revenue to recoverable costs)

39
Q

IAS 18 - REVENUE

C. MEASUREMENT

A

C. MEASUREMENT
1) Using FV of consideration received or receivable
a. If deferred it should be discounted to present value
Dr Accrued Income
Cr Revenue (at PV)
b. Remainder = interest revenue and is accrued
Dr Accrued Income
Cr Interest Income (remainder)
c. Reversed when cash received
Dr Cash
Cr Accrued Income
2) Exclude amounts collect on behalf of 3rd parties

40
Q

IAS 21 - FOREIGN EXCHANGE

A. DEFINITIONS

A

A. DEFINITIONS

1) Functional Currency = the currency of the primary economic environment in which the entity operates. i.e. the currency:
a. That mainly influences sales prices
b. Of the country whose competitive forces/regulations determine sales prices
c. That mainly influences labour, material and other costs
d. In which finance is generated
e. In which receipts are retained
f. Also consider independence of subsidiary
i. Extension of parent or autonomous
ii. High or low proportion of intra-group transactions
iii. Cash flows affect Parent’s cash flows
iv. Cash flows are sufficient to service debt obligations
2) Presentation Currency = the currency in which financial statements are presented

41
Q

IAS 21 - FOREIGN EXCHANGE

B. TRANSLATION OF TRANSACTIONS

A

B. TRANSLATION OF TRANSACTIONS

1) Exchange Rates = Spot rate
2) Year End conversion
a. Monetary Assets and Liabilities = @ Closing Rate
b. Non-monetary Assets and Liabilities carried at cost = @ Historic Rate
c. Non-monetary Assets and Liabilities carried at FV = @ Rate when FV measured
3) Exchange Differences to PL (unless they relate to a revaluation gain/loss recognised in OCI)

42
Q

IAS 21 - FOREIGN EXCHANGE

C. TRANSLATION OF SUBSIDIARIES

A

C. TRANSLATION OF SUBSIDIARIES

1) Exchange Rates
a. SOFP
i. Assets and Liabilities = @ Closing Rate
ii. Share Capital and Pre-Acq’n reserves = @ Historic Rate
iii. Post-Acq’n Reserves = Balancing figure
b. SPLOCI = All items either
i. @ Actual rate
ii. @ Average Rate (unless significant fluctuation)
2) Exchange Differences to OCI

43
Q

IAS 21 - FOREIGN EXCHANGE

D. CONSOLIDATION

A

D. CONSOLIDATION

1) Consideration = HR
2) NCI = HR
3) Less Net Assets = HR
4) Goodwill @ Acq’n = HR
5) Less impairment = AR/CR
6) Exchange difference = balancing figure posted to reserves (and NCI if Full GW method used)
7) Goodwill @ YE = CR

44
Q

IAS 24 - RELATED PARTY DISCLOSURES

A. OBJECTIVE AND PURPOSE

A

A. OBJECTIVE AND PURPOSE

1) Objective: ensures necessary disclosure to draw attention to possibility that financial statements have been affected by the existence of related parties
2) Purpose: knowledge of related party transactions and balances may affect the assessment by users of financial statements

45
Q

IAS 24 - RELATED PARTY DISCLOSURES

B. RELATED PERSONS

A

B. RELATED PERSONS

1) Person who is related to the reporting entity
a. A person or close family member that
i. Has control or joint control
ii. Has significant influence
iii. Is a member of the key management personnel

46
Q

IAS 24 - RELATED PARTY DISCLOSURES

C. RELATED ENTITIES

A

C. RELATED ENTITIES

1) Entity that is related to the reporting entity
b. An entity is related if any of the below conditions applies:
i. Members of the same group
ii. Associate or JV of the entity or a member of the same group
iii. Both JV of the same third party
iv. One is a JV of and the other an associate of the same third party
v. Entity is a post-employment benefit plan for entity or related entity
vi. Controlled or jointly controlled by person in (a)
vii. Related person with control (per a)i) has significant influence
viii. Entity provides key management services to reporting entity

47
Q

IAS 24 - RELATED PARTY DISCLOSURES

D. NON-RELATED PARTIES

A

D. NON-RELATED PARTIES

1) Simply because of common director
2) Two venturers because they share control over a JV
3) Providers of finance, trade unions, public utilities, government agencies through normal dealings
4) A customer, supplier, franchisor, distributor by virtue of economic dependence.

48
Q

IAS 24 - RELATED PARTY DISCLOSURES

E. DISCLOSURE

A

E. DISCLOSURE

1) Nature of parent and ultimate controlling party
2) Key management personnel compensation by category of benefits (those planning/directing/controlling)
3) If the entity has had related party transactions
a. Nature of relationship
b. Amount of transactions
c. Amount of outstanding balances, including terms/conditions/guarantees
d. Provisions for doubtful debts
e. Expenses recognised for bad or doubtful debts

49
Q

IAS 32 - FINANCIAL INSTRUMENTS: PRESENTATION

A. ELEMENTS OF FINANCIAL STATEMENTS

A

A. ELEMENTS OF FINANCIAL STATEMENTS

1) Asset:
a. Controlled by the entity
b. Expected future economic benefits
2) Liability:
a. Present obligation
b. Past event
c. Expected outflows
3) Equity: Residual interest in net assets
4) Income: Increases in benefits resulting in increases in equity
5) Expenses: Decreases in benefits resulting in increases in equity

50
Q

IAS 32 - FINANCIAL INSTRUMENTS: PRESENTATION

B. RECOGNITION CRITERIA

A

B. RECOGNITION CRITERIA

1) Probable future benefit
2) Cost/value that can be reliably measured

51
Q

IAS 32 - FINANCIAL INSTRUMENTS: PRESENTATION

C. FINANCIAL INSTRUMENTS

A

C. FINANCIAL INSTRUMENTS

1) Contract giving rise to a financial asset in one company and a financial liability or equity instrument in another.

52
Q

IAS 32 - FINANCIAL INSTRUMENTS: PRESENTATION

D. FINANCIAL ASSETS

A

D. FINANCIAL ASSETS

1) Cash
2) Equity instrument in another
3) A contractual right to receive cash/financial asset
4) A contractual right to exchange financial assets/liabilities under potential favourable conditions
5) A contract that will be settled in the entity’s own equity instruments

53
Q

IAS 32 - FINANCIAL INSTRUMENTS: PRESENTATION

E. FINANCIAL LIABILITIES

A

E. FINANCIAL LIABILITIES

1) A contractual obligation to deliver cash/financial asset
2) A contractual obligation to exchange financial assets/liabilities under potential unfavourable conditions
3) A contract that will be settled in the entity’s own equity instruments

54
Q

IAS 32 - FINANCIAL INSTRUMENTS: PRESENTATION

F. EQUITY INSTRUMENTS

A

F. EQUITY INSTRUMENTS

1) Contract that evidences a residual interest in assets after deducting liabilities
a. Own ordinary shares
b. Non-cumulative irredeemable preference shares

55
Q

IAS 32 - FINANCIAL INSTRUMENTS: PRESENTATION

G. DERIVATIVES

A

G. DERIVATIVES

1) Value changes with underlying variable
2) Little or no initial net investment
3) Settled at a future date
4) Favourable = asset / Unfavourable = liability

56
Q

IAS 32 - FINANCIAL INSTRUMENTS: PRESENTATION

H. COMPOUND INSTRUMENTS (E.G CONVERTIBLE DEBT)

A

H. COMPOUND INSTRUMENTS (E.G CONVERTIBLE DEBT)
1) Characteristics of both debt and equity
a. Financial Liability
i. Present value of interest + Present value of principal
ii. Then measured using amortised cost
b. Equity component
i. Proceeds – financial liability component
2) Initial recognition:
Dr Cash
Cr Financial Liability
Cr Equity

57
Q

IAS 33 - EARNINGS PER SHARE

A. SCOPE

A

A. SCOPE

1) PLCs must present EPS on the face of SPLOCI
2) Non-listed entities have a choice, but must show both basic and diluted EPS

58
Q

IAS 33 - EARNINGS PER SHARE

B. BASIC EPS

A

B. BASIC EPS

1) Calculation = Earnings / Weighted avg no. of shares
2) Changes in Share Capital
a. Full Market Price
i. Time apportion share issues
b. Bonus Issue
i. No cash
ii. Use bonus fraction retrospectively (BONO = new / old)
iii. Reciprocal used to restate comparative
c. Rights Issue
i. Cheap shares to existing shareholders
ii. Use rights fraction retrospectively (RIOT = old price / TERP)
iii. Reciprocal used to restate comparative`

59
Q

IAS 33 - EARNINGS PER SHARE

C. DILUTED EPS

A

C. DILUTED EPS

1) Calculation = Diluted Earnings / Diluted Shares
2) Assume that potential share issues are made
a. Convertible instruments are converted
b. Options/Warrants are exercised
c. Ordinary shares are issued upon satisfaction of conditions

60
Q

IAS 37 – PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS

A. PROVISIONS

A

A. PROVISIONS

1) Definition = A liability of uncertain timing or amount
2) Recognition
a. Present obligation as a result of past event
b. Probable outflow
c. Reliable estimate of the obligation
3) Measurement
a. Use best estimate of required expenditure at balance sheet date (discounted PV that reflects market and specific risks)
i. For large population (multiple settlements) = expected values
ii. For single population (one-off) = most likely amount

61
Q

IAS 37 – PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS

B. APPLICATION OF PROVISIONS

A

B. APPLICATION OF PROVISIONS
1) Future operating losses = No provision (no liability)
2) Major overhaul or repairs = No provision (no obligation)
3) Onerous contracts = provision for lower of:
a. Cost of fulfilling
b. Cost of penalties of not fulfilling
4) Restructuring if committed to sale or detailed formal plan has been announced to those affected
a. Provision for direct expenditures only
5) Decommissioning
a. Provision from date of obligating event
Dr PPE
Cr Provision
b. Each year depreciate and unwind discount
Dr Finance Costs
Cr Provision

62
Q

IAS 37 – PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS

C. CONTINGENT LIABILITIES

A

C. CONTINGENT LIABILITIES

1) Definition = does not meet definition of a liability
a. Possible obligation
b. Outflow not probable
c. Amount can’t be reliably measured
2) Treatment = do not recognise
3) Disclosure
a. Nature of contingent liability
b. Estimate of financial effect
c. Indication of uncertainties
d. Possibility of reimbursement

63
Q

IAS 37 – PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS

D. CONTINGENT ASSETS

A

D. CONTINGENT ASSETS

1) Definition = possible asset from past event
2) Treatment = do not recognise unless virtually certain
3) Disclosure (if probable)
a. Nature of contingent asset
b. Estimate of financial effect

64
Q

IAS 39 - FINANCIAL INSTRUMENTS: RECOGNITION AND MEASUREMENT

A. POINT OF RECOGNITION

A

A. POINT OF RECOGNITION

Recognise when become party to the contractual provisions (commitment date)

65
Q

IAS 39 - FINANCIAL INSTRUMENTS: RECOGNITION AND MEASUREMENT

B. MEASUREMENT OF FINANCIAL ASSETS

A

B. MEASUREMENT OF FINANCIAL ASSETS

1) Held to Maturity (Quoted/fixed payments and maturity)
a. Initial = FV + txn costs
b. Subsequent = Amortised cost
2) Loans and receivables (unquoted)
a. Initial = FV + txn costs
b. Subsequent = Amortised cost
3) At FV through profit and loss (ST/trading)
a. Initial = FV (txn costs to PL as expense)
b. Subsequent = FV (gains/losses in PL)
4) Available for sale (LT/default)
a. Initial = FV + txn costs
b. Subsequent = FV (gains/losses in OCI until disposal)

66
Q

IAS 39 - FINANCIAL INSTRUMENTS: RECOGNITION AND MEASUREMENT

C. MEASUREMENT OF FINANCIAL LIABILITIES

A

C. MEASUREMENT OF FINANCIAL LIABILITIES

1) Most financial liabilities
a. Initial = FV less txn costs
b. Subsequent = Amortised cost
2) At FV through profit and loss (ST/trading)
a. Initial = FV (txn costs to PL as expense)
b. Subsequent = FV (gains/losses in PL)

67
Q

IAS 39 - FINANCIAL INSTRUMENTS: RECOGNITION AND MEASUREMENT

D. FAIR VALUE

A

D. FAIR VALUE

Price received/paid in an orderly txn between participants at measurement date (IFRS 13)

68
Q

IAS 39 - FINANCIAL INSTRUMENTS: RECOGNITION AND MEASUREMENT

E. IMPAIRMENT OF FINANCIAL ASSETS

A

E. IMPAIRMENT OF FINANCIAL ASSETS

1) Indicators
a. Financial difficulty of issuer (eg. bonds)
b. Breach of contract
c. High probability of bankruptcy of borrower
2) Keep (Held to maturity/Loans and receivables)
a. Impairment loss = difference between
i. Assets carrying value (amortised cost)
ii. PV of expected future cash flows at original EIR
b. Reported to PL
3) Sell (available for sale)
a. Impairment loss = difference between
i. Old FV
ii. New FV
b. Reported against revaluation gains in OCI (to nil) thereafter PL

69
Q

IAS 39 - FINANCIAL INSTRUMENTS: RECOGNITION AND MEASUREMENT

F. DERECOGNITION

A

F. DERECOGNITION

1) Financial Assets
a. When contractual rights to cash flows expire
b. When the financial asset is transferred (substantially all risks and rewards)
2) Financial Liabilities
a. When obligation is discharged
b. When obligation is cancelled
c. When obligation is expired

CIMA MCS (2 decks)

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