Core Activity D - Measure performance Flashcards
Accounting treatment, performance risk, business model risk, interpreting FS, Improving performance FS
What is IAS 24 and it’s purpose?
IAS 24, Related Party Disclosures.
The scope extends to related party relationships & related party transaction’s.
Its purpose is to alert users of the financial statements to relationships with, and transactions between, related parties, that could impact the financial statements. Ie non arms length type transactions.
Describe the application of IAS 12 ?
Prescribes the accounting treatment for income taxes.
Pre tax profit + depreciation - less Capital allowances = Taxable profits
Booked by Journaling Provision for Corporation Tax
Dr Corporation Tax (Expense)
Cr Provision for CT (Liability)
If the provision at year end is different to the Tax return figure, an under or over provision (Adjustment) can be journaled in the current FY.
Also describes the treatment for deferred tax assets and liabilities
What is IAS 33?
Financial reporting standards for Earnings Per Share.
EPS is mandatory for publicly listed companies, those not listed but wishing to report EPS also follow IAS 33.
Ordinary EPS
(Profit After Tax - irredeemable preference share dividends)/ ordinary shares outstanding
Diluted EPS
Profit after tax + notional extra earnings / basic ordinary shares + notional extra shares
Extra notional earnings = impact on earnings due to interest payment savings less tax owed on additional profits
Share options calculated via treasury share method
For Groups
Net profit attributable to the group / number of ordinary shares of the parent
What is IFRS 15 ? And the 5 step process?
- Identify the contract with the customer.
- Identify the performance obligations in the contract.
- Determine the transaction price.
- Allocate the transaction price to the performance obligation.
- Recognise revenue when or as the performance obligation is met.
What’s the 3 criteria for recognising a provision ?
IAS 37 Provisions, contingent liability and assets states that 3 criteria must be met in order to satisfy that we recognise the provision.
Is there a present (legal or constructive) obligation?
Is it probable that the outflow will occur?
A reliable estimate can be made of the amount ?
If not, but it’s possible, a contingent liability may need to be disclosed
Describe IFRS 16 and how it should be applied?
Lease accounting for lessors
New rules on balance sheet!? must understand
Classification of the lease as
A) Finance Lease
B) Operating Lease
Determining factor for classification is whether the lease transfers substantially all of the risk & rewards of owning the underlying asset.
IFRS 9 & 32
Financial instruments
Under what criteria allows items to be recognised an internally generate Intangible asset ?
IAS 38 - identifiable non monetary asset without physical substance
Purchase / developed criteria
Purchased criteria
Defined as an asset
- controlled by an entity as a result of past events
- from which future economic benefits are expected to flow to the entity
- It must be probable that the expected future economic benefits attributable to the asset will flow to the entity
- and the cost of the asset can be measured reliably.
Developed criteria
Profitable
Intention to use or sell
Resources available
Ability to use or sell
Technically feasible
Expenditure can be reliable measured
Explain the Integrated Reporting Framework & 6 capitals
- Financial capital
- Manufactured capital
- Intellectual capital
- Human capital
- Social and relationship capital
- Natural capital
Describe the application of IAS 12 with reference to deferred Tax?
Temporary differences occur when the Accounting treatment differers to the Tax treatment of Assets.
Asset depreciation of 15k less a Capital allowance of 25k results in a temporary difference between the carrying book value & carrying tax base value. 10k* Tax rate .19 = $1900 Deferred Tax.
Describe the application of revaluations in accordance with IAS 16
Dr Fixed Asset Account
Cr Other comprehensive income (revaluation surplus)
Describe the application of IFRS 2 ?
IFRS 2 share based payments
Describe the application of IFRS 3?
IFRS 3, Business combinations
What’s the definition of an accrual ?
An accrual is a liability to pay for goods or services that have been received, but not yet been invoiced or paid.
What’s the definition of a provision?
As defined by IAS 37 - a provision is a liability of uncertain timing or amount.
Whats the recognition criteria for How and When provisions accounted for ?
IAS 37
- There’s a present obligation (legal or constructive) as a result of a past event
- It is probable that it will be paid ie over 50%
- The amount can be estimated reliably
Describe the general accounting treatment & steps for provisions, contingent liabilities & contingent assets.
IAS 37 defines a provision as a liability of uncertain timing or amount.
Provision - recognised in financial statements when three criteria are met
Present obligation (legal or constructive)
Probable that there will be future transfer
Measure reliable
Contingent Liability - disclosed in notes when the outcome is possible, but not probable (Likely).
Contingent Asset - disclosed in notes when the outcome is probable (almost certain)
Which contracts does IFRS 15 not apply to ?
- Lease contracts within the scope of IFRS 16. Transfer of an asset (not a good or service)
- Insurance contracts within the scope of IFRS 17, insurance contracts.
- Contracts within the scope of IFRS 9, financial instruments.
- Contracts for certain non monetary exchanges.
For Lessors, describe the accounting treatment for an operating lease in accordance with IFRS 16?
For an operating lease, the accounting treatment reflects a rental agreement, with the lessor recognising the lease payments as income over the lease term.
New IFRS 16 rules state that the NPV of the rental payments must be shown on the balance sheet.
For Lessors, describe the account treatment for an finance lease in accordance with IFRS 16?
For a finance lease, the accounting treatment reflects there having been a sale, with the lessor de recognising the leased asset, and recognising a finance lease receivable, equal to the net investment in the lease (Gross investment discounted using the interest rate implicit in the lease).
The lessor recognises finance income over the lease term, increasing the balance of the lease receivable for finance income, and reducing the balance of the lease receivable as payments are received.
How should foreign currency be accounted for ?
Foreign currency transactions should be translated into functional currency and are governed by (IAS 21)
Any Foreign currency gains or losses should be treated as items of other operating income or expense.
What is the accounting standard and following steps to take when considering to recognise an internally generated intangible asset?
IAS 38 -
Research costs are written off to the P&L
Development costs can be recognised at costs as intangible non current asset if
Profitable
Intention to use or sell
Resources available
Ability to use or sell
Technically feasible
Expenditure can be reliable measured
Cannot recognise internally generated goodwill
