Descriptions Flashcards
1
Q
IFRS 3 Business Combinations
What is a business combination and how is a business defined within this standard?
A
Business Combination - an acquirer obtains control of a business.
A Business - an integrated set of Activities and assets that is capable of being conducted and managed for the purpose of providing goods or services to customers, generating investment income or generating income from ordinary activities.
If an acquired set of assets is concentrated in a single or group of similar identifiable assets then the purchase is not a business combination.
2
Q
How is revenue recognition approached under IFRS 15 revenue from contracts with customers?
A
Revenue recognition is a 5 part process;
-
Identify the contract - An agreement between two parties that creates rights and obligations
- Both parties must approve the contract and their rights can be identified.
- Payment terms can be identified
- The contract has commercial substance.
- It is probable that the selling entity will receive the consideration.
-
Identify the separate performance obligations - promises to transfer distinct goods or services to a customer.
- Distinct = can be benefited from on it’s own and is separably identifiable from other contractual promises.
-
Determine the transaction price - There will be a number of considerations:
- Is the consideration variable, an estimate of the amount to be received may be required.
- Financing - consideration may need to be discounted to present value if there is a significant Financing component.
- Non Cash consideration - is measured at fair value.
- Consideration payable to a customer - should be accounted for as a separate purchase transaction.
- Allocate the transaction price to the performance obligation - in proportion to the stand alone selling price of each component. This may require estimate if a price is unobservable.
-
Recognise revenue when a performance obligation is satisfied. - satisfaction may ocurr:
- Over time - The customer simultaneously receives and consumes the benefit, the entity is creating or enhancing an asset controlled by the customer, the entity cannot use the asset for an alternative use and payment can be demanded for performance to date.
- At a point in time - customer has physical possession, significant rewards and risks of ownership, legal title and the seller has the right to payment.
3
Q
What are definitions used in IFRS 16 Leases?
A
Lease - A contract that conveys the right to use an underlying asset for a period of time in exchange for consideration.
Lessor - The entity that provided the right of use asset and receives consideration
Lessee - the entity that obtains the use of the right-of-use asset and in exchange transfers consideration.
Right-of-use Asset - represents the lessees reights to use and underlying asset over the lease term.
4
Q
What are the main areas covered by IAS 1 Presentation of Financial Statements?
https://www.iasplus.com/en/standards/ias/ias1
A
The standard applies to General purpose financial statements prepared & presented in accordance with IFRS.
Components - other titles may be used:
- Statement of Financial Position (Balance sheet)
- Statement of Profit or Loss & other comprehensive income.
- Statement of Changes in Equity
- Statement of Cash Flows.
- Disclosures.
Where an accounting policy is applied retrospectively or a retrospective restatement of items is carried out the entity must also present a SFP as at the beginning of the earliest comparative period.
Where the statements comply with IFRS an explicit and unreserved statement of compliance must be included in the notes.
Statements are prepared on a going concern basis, uncertainties must be disclosed, using the Accruals basis.
Presentation and classification must remain consistent, unless change is justified (circumstance or IFRS)
Material classes of items must be presented separately, items may be aggregated if doing so does not obscure information.
Credit and debit balances may not be offset.
5
Q
Under IAS 2 - Inventories, how is inventory defined and measured?
https://www.iasplus.com/en/standards/ias/ias2
A
Inventory is assets held for sale in the ordinary course of the entity’s business including:
- Assets in the production process for sale
- Materials and supplies that are consumed in production.
The following are excluded from the scope of this standard;
- WIP arising under construction contracts. IAS 11
- Financial instruments - IAS 39
- Biological assets relating to agricultural activity and agricultural produce at the point of harvest IAS 41
The basic recognition of value for inventories is the lower of cost and Net realisable value, with cost including:
- Costs of purchase - inc. Taxes, transport and handling, net of trade discounts received.
- Costs of conversion - inc. Fixed and variable manufacturing overheads.
- Other costs incurred in bringing inventories to their present location and condition.
Inventory cost should not include:
- Abnormal waste
- Storage costs
- Administrative overheads unrelated to production
- Selling costs
- Foreign exchange differences arising directly on recent acquisition of inventories invoiced in foreign currency.
- Interest cost when inventories are purchased on deferred settlement terms.
NRV = estimated selling price less estimated cost of completion and estimated costs to make the sale.
6
Q
IAS 7 - Statement of Cash Flows
What is the purpose of a statement of cash flows and how are the different cash flows classified?
A
The statement reconciles cash and Cash equivalents between the start and the end of the year. Cash & Cash equivalents being:
- Cash in hand and in the bank
- Current asset investments less over drafts repayable on demand.
i.e. any thing that is extremely liquid. This is defined under IAS 7 as Short term, Highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
Cash flows are classified as:
- Operating activities - main revenue generating activities of the business.
- Investing activities - acquisitions and disposals of longterm assets and other investments.
- Financing activities -activities that alter equity and long term borrowing of the entity.
*
7
Q
IAS 10 Events After the reporting period
How does IAS 10 define an event after a reporting period.
And how should these events be accounted for?
A
An event after a reporting period is one which occurs between the reporting date and the date the FS are authorised for issue.
Event giving evidence about conditions at reporting date - The Financial statements should be adjusted.
Event not giving evidence about conditions at the reporting date - Do not adjust FS but disclosure may be required if material.
If the event affects going concern it is automatically an adjusting event.
8
Q
IAS 12 Income Taxes
When calculating the effect of deferred tax what impact will the taxable difference have?
A
Deferred tax is the difference between the Carrying amount and Tax Base (WDV) x the applicable tax rate.
- Where carrying amount > Tax Base - Deferred tax Liability arises, thus an increase in Tax Expense.
- Where carrying amount < Tax base - Deferred Tax asset arises, thus a decrease in tax expense.
Tax base for an Asset - usually the carrying amount unless there are taxable economic benefits from the recovery of the asset.
Tax base for a Liability - Carrying amount less any amount that will be deductible for tax in the future.
Note this is dealt with from a net asset position so liabilities are negative balance.
9
Q
How does IAS 16 define PPE and how is the value measured?
A
PPE - Tangible items which are used to produce or supply goods, for rental, or for administrative purposes over more than one period.
- Must be a probable flow of future economic benefit from the asset.
- Cost of the assets must be able to be measured reliably - were the costs avoidable with the same end result.
Initial Measurement - At cost, including costs to bring assets to working condition and current location. This may also include costs to dismantle or dispose of.
Subsequent Measurement - either
- Cost Model - Depreciate over useful life, profit or loss on disposal is recorded on the P&L.
-
Revaluation Model
- Whole class of assets to be revalued.
- Depreciate over useful life.
- Revaluation gains are recorded to OCI, losses to P&L if no revaluation surplus.
10
Q
Under IAS 36 impairment of Assets when should an impairment review be carried out and what are the indications of impairment?
A
An impairment review should be carried out;
- Annually for certain classes of assets - Intangible, with an indefinite useful life.
- Where there are indications of impairment.
Indications of Impairment include;
- Decline in the market value of an asset
- Adverse changes to the environment in which the entity operates.
- Asset Obsolescence, damage or idleness.
- The value of the entity as a whole being less than the carrying value of it’s net assets.
11
Q
IAS 37 Provisions, Contingent Liabilities & Contingent assets
How does IAS 37 define a provision, and when should one be recognised?
A
A Provision is a liability of uncertain timing or amount and should be recognised if:
- There is a present obligation from a past event.
- There is a probable outflow of economic benefits
- the probable outflow can be measured reliably.
Measurement - at the best estimate of the expenditure required to settle the obligation as at the reporting date;
- Single Obligation - most likely amount payable.
- For a large population of items - the expected value.
Note:if the time value of money is material the provision should be discounted to present value.
12
Q
How does IAS 38 define intangible assets and when can they be initially recognised?
A
IAS 38 define intangible assets as identifiable non-monetary assets without physical substance.
Recognition
- Internally generated assets are generally not recognised unless arising from development, then must meet the following criteria
- Potential to generate future economic benefits.
- Intention to complete and sell/use.
- Reliably measure expenditure
- Adequate resource available to complete
- Technically feasible
- Expected to be sold/used.
- Purchased Assets are recognised at Cost - purchase price plus direct costs.
13
Q
Under IAS 1, presentation of Financial Statements, how are current and non current items defined?
A
A current Asset is and asset that is:
- Expected to be realised in the entities normal operating cycle
- Held primarily for the purpose of trading
- Expected to be realised within 12 months after the reporting period
- Cash and Cash equivalents.
A current liability is:
- Expected to be settled within the entity’s normal operating cycle
- Held for the purpose of trading.
- due to be settled within 12 months.
- For which the entity does not have the right at the end of the reporting period to defer settlement beyond 12 months.
14
Q
Where does IAS 1 require profit and loss to be recognised, and which other standards may supersede this requirement?
A
All items of income and expense in a period must be included in profit or loss unless impacted by another reporting standard, examples are:
- Changes to revaluation surplus - IAS 16 PPE and IAS 38 Intangible Assets.
- Re measurement of a Net defined benefit liability - IAS 19 Employee benefits.
- Exchange differences from currency translation - IAS 21 The effects of changes in foreign exchange rates
- Gains and Losses on re measuring available for sale financial assets - IAS 39 Financial instruments.
*
15
Q
How does IFRS 5 - Non current assets held for sale and discontinued operations define these two items?
A
Discontinued operation - component of an entity sold or held for sale, and:
- Is a separate line of business (operations/location)
- Is part of a plan to dispose of a separate line of business, or
- Is a subsidiary acquired sole for resale.
An asset is held for sale if it’s value will mainly be recovered through a sales transaction and the sale is highly probable.
Once an item is held for sale no further depreciation is applied.
Assets held for sale are a type of current asset.
16
Q
How does IFRS 5 measure the value of assets held for sale and how is this presented on the financial statements?
A
- For an asset value will be the lower of carrying amount and net realisable value.
- For discontinued operations a single amount is presented on the SPL which comprises profit or loss of the operation, profit or loss on disposal or any loss on classification a held for sale.
17
Q
Under IFRS 13 Fair value measurement, how is fair value defined and what are the approaches that can be applied when determining a fair value?
A
Fair Value - The price received when selling an asset or the price paid to transfer a liability, in an orderly transaction between market participants at the measurement date.
Approaches
- Market approaches - based on recent selling prices.
- Cost approaches - based on replacement cost
- Income approaches - valuations based on financial forecasts.
Fair value is a market based measurement (not entity specific) so priority will be given to observable data from active markets;
- Level 1 - Quoted prices for identical assets in active markets.
- Level 2 - Quoted prices for similar assets, quoted prices in less active markets, observable inputs that are not prices.
- Level 3 - Un observable inputs i.e the entities own data.
The active market will be the principle market - market with greatest volume and level of activity for the asset or liability. Assume this is the market the entity usually trades in.
If there is no principle market then fair value should be based on the most advantageous market.
Non Financial Assets - i.e PPE or intangible assets.
Fair value is based on highest and best use
18
Q
Under IAS 8 Accounting policies, changes in accounting estimates and errors, how are policies and estimates defined
A
Accounting Policy - Principles and rules applied by an entity which specify how transactions are reflected in the financial statements.
- Policies should remain the same between periods to increase comparability with changes only made if required by IFRS or if it will provide more reliable or relevant presentation.
- Changes to policy require retrospective adjustments
- Comparative information is restated as if policy had always been applied.
- Opening retained earnings balance in SoE is adjusted.
Accounting estimates - are monetary amounts in financial statements that involve measurement uncertainty. e.g. depreciation & amortisation.
- Changes to accounting estimates are recognised prospectively, in the current and future reporting periods.
Prior Period Errors - are misstatements and omissions as a result of not using reliable information that should have been available, these can result from mistakes or fraud.
- Prior period errors are corrected retrospectively in the same way as changes in accounting policy.
19
Q
What does IAS 34 Interim Financial Reporting cover?
A
The standard states that an interim report is one which covers a period of less than 12 months.
Interim reporting is not mandatory under this standard however it may be a legal or statutory requirement in some jurisdictions.
Under the standard an interim financial report should include:
- Condensed SFP, SPLOCI, SCF, SCE
- Disclosure notes.
- The accounting policies applied should be the same as used in annual statements.
20
Q
Are there any other considerations when recognising revenue from contracts?
A
Recognition over time - revenue is recognised based on the progress towards completion.
Contract Costs - An entity must capitalise the following costs in relation to contracts, and amortise as the profit is recognised.:
- The costs of obtaining the contract, unless the cost would be incurred even if the contract was not won.
- Costs of Fulfilling a contract that do not fall within the scope of other standards if recovered.
Assets and Liabilities
If revenue is recognised before consideration is received then either of the following should also be recognised:
- A receivable - if the right to consideration is unconditional.
- A contract asset, note a contract liability should be recognised if consideration is received before revenue has been recognised.
21
Q
What complications may be encountered with IAS 16?
A
Subsequent expenditure - Capex or expense?
- If it enhances the economic benefits the asset provides
- Relates to overhaul or major inspection - capitalise and depreciate over period to next overhaul or inspection. Any replaced parts should be de recognised.
- Complex assets - Assets made up of components which depreciate at different rates.
- General repairs and anything that maintains the economic benefits of the assets should be charged to the P&L as expense.
22
Q
Under IAS 20, Accounting for Government Grants and disclosure of Government assistance, how are Government Grants described. And what are the accounting treatments applied?
A
A Government grant is assistance received from the Government in the form of resources transferred to an entity in return for compliance with past or future conditions.
Grants should be recognised when reasonable assurance conditions will be complied with and grant will be received.
Revenue Grants - Relate to operating costs so should be matched in the P&L with related costs. This may be done by netting off or by showing the grant income as a separate credit line on the P&L.
Capital Grants - relate to asset purchases matched in the P&L with related depreciation.
- Net Method - Deduct from initial cost of the asset, this will then effectively match the grant to the related depreciation.
- Deferred Credit - Grant is not deducted from asset cost, post as deferred income and then release off annually.
23
Q
Under IAS 23 Borrowing costs how are borrowing costs recognised for capitalisation?
A
Borrowing costs for qualifying assets must be capitalised.
Qualifying asset - an asset which necessarily takes a substantial period of time to get ready for its intended use.
When can the borrowing costs relating to a qualifying asset be capitalised:
- Expenditure is being incurred
- Borrowing costs are being incurred
- Activities to prepare the asset are in progress.
How is the borrowing cost calculated?
- Specific Loan - use the rate on that loan, offset any income from investment of surplus funds.
- General Borrowings - calculate the weighted average rate.
Capitalisation should cease once substantially all activities to prepare the asset are complete, or if construction is suspended.
24
Q
How does IAS 40 define Investment property and how is its value measured?
A
IAS 40 states that investment property is land or buildings held for rental and/or capital appreciation, or it is land held for an undecided use.
- Initial recognition is at cost - purchase price plus direct costs.
- Subsequent valuation can be at either
- Cost Model - Depreciated over useful life, with profit or loss on disposal going to the SPL.
- Fair Value Model - No depreciation, revaluation gains/losses are recorded in the SPL.
Considerations
- The property no longer meets the definition of investment property and is under the fair value model?
- Account up to the date of transfer under fair value model
- Transfer carrying value to PPE and depreciate over remaining useful life.
- Property held as PPE becomes investment property.
- Charge depreciation up to the date of transfer.
- Revalue with gains going to revaluation surplus.
- Property classified as investment and treated as all other in that class of asset.
25
Under IAS 36 how are impaired assets dealt with?
**An asset is impaired when Carrying value \> recoverable amount.**
*recoverable amount = higher of value in use & fair value less costs to sell.*
Writing down of an impaired assets:
* Charge to SPL
* Unless previously revalued then charge to OCI (revaluation reserve) until used up..
**Considerations**
Cash generating unit - group of assets that generate cash flows.
* Impairment in CGU is allocated to goodwill first.
* Then to other assets in proportion to carrying amount.
* An asset cannot be reduced below its recoverable amount.
***Impairment can be reversed…***
* In the current reporting period.
* Cannot take the carrying amount above what would have been recognised if no impairment had been applied.
26
Under IFRS 5 Non current assets held for sale how is an asset held for sale recognised, measured and presented on the financial statements?
**Recognition**
Must be available for sale in present condition and sale must be highly probable.
* Marketed at fair value
* Active programme to find a buyer
* Sale is expected within 12 months
* Management are committed to the sale plan.
**Measurement**
At the lower of carrying amount and fair value less costs to sell.
* If held under the fair value model the asset should be revalued before being reclassified.
* All depreciation charges against the asset should cease.
Assets held for sale are presented below current assets on the Financial statements.
27
How does IAS 41 define biological assets and agricultural produce.
How are they recognised and measured?
**Biological asset -** a living plant or animal.
* Initial Value = Fair value less costs to sell.
* At year end - Revalue to Fair value less cost to sell, gain/loss in SPL.
**Agricultural Produce -** Produce harvested from a biological asset.
* At point of harvest - Fair value less cost to sell
* Immediately reclassify as inventory.
**Bearer plant -**A living plant used in production of supply of agricultural produce, expected to bear fruit for more than one period and has a remote likelihood of being sold.*Now treated under IAS 16.*
28
How are government grants relating to biological assets accounted for and under which standard?
**Where the asset is measured at cost less (IAS 16)**
Grant income is accounted for under IAS 20 - accounting for government grants.
**Where the Assets is measured at Fair value less cost to sell;**
Accounted for under IAS 41
* Unconditional grant - Recognised in p&l when the grant becomes receivable.*
* Conditional - Recognised in p&l when the conditions are met.*
29
Under IAS 21 how is functional currency defined and how should the translation to this currency be treated?
**Functional Currency -** the currency of the primary economic environment in which an entity operates.
*Primary Factors influencing this are;*
* The currency that influences sales prices.
* The currency that influences labour, Material and other costs.
*Secondary factors that can also be considered;*
* Currency in which finance is obtained.
* Currency that operating receipts are retained in.
**Note** *when determining functional currency of a subsidiary, it will be the same as the parent if there is little autonomy.*
***Translation***
*_Initital Transaction_* - translate using spot rate at transaction date.
*_Cash Settlement -_* translate using spot rate at settlement date.
*Movement in the exchange rate may result in gains/losses which are recorded in the SPL.*
30
Where overseas balances are held at the reporting date what is the treatment required under IAS 21?
It is important to first define if the item is monetary;
**Monetary -** Assets & Liabilities which will lead to the receipt of a determinable number of currency units.
* Monetary Items - re translated at reporting date using closing rate of exchange.*
* Non-Monetary items - Do not re translate. If held at fair value then value is translated on the date it was determined.*
31
# IFRS 16 Leases
How is a lease identified and why must it be recognised?
A contract contains a lease if;
*It conveys the “Right to control the use of an identified asset for a period of time in exchange for consideration”*
If this requirement is met then the lessee must recognise both and asset and a liability in respect of the lease unless it is short term or of minimal value.
32
# IFRS 16 Leases
How must the lessee measure the asset and liability to be recognised in respect of a lease?
**Lease Liability**
* Recognise at the present value of payments not yet made, this will include;
* Fixed and variable payments.
* Amounts expected to be paid under residual value guarantees
* Options to purchase that are expected to be exercised.
* Termination penalties if the lease term reflects and expectation that they will be paid.
* Subsequent measurement:
* Add finance costs
* Reduce by cash payments.
**Right of Use asset**
Recognise at cost which equals;
* Initial value of lease liability
* Payments made at/before commencement.
* Initial direct costs
* Estimated costs of removal or dismantling.
* **Subsequent measurement -** depreciate over the shorter of useful life and the lease term if ownership does not transfer, over useful ife if ownership does transfer.
*in both cases the lease term comprises:*
* *Non cancelled periods*
* *Periods covered by an option to extend if reasonably certain to be exercised.*
* *Periods covered by an option to terminate if reasonably certain not to be exercised.*
33
# IFRS 16 Leases
For Lessors how are leases classified?
A lessor must classify a lease as either;
**A finance lease -** which transfers substantially all the risks and rewards of the underlying asset to the lessor. Indicators of this type of lease are:
* Transfer of asset ownership at the end of the lease.
* Lease gives option to purchase at less than fair value and this is reasonably certain to occur.
* The lease term, inc. secondary periods, is the major part of the assets useful life.
* At inception PV of lease payments amounts to substantially all the fair value of the asset.
* Leased assets are specialised.
* The lessee will benefit from changes to the assets residual value.
* Lessee can continue lease for secondary period for rent payments much lower than market rates.
**An operating lease is any lease that is not a finance lease.**
34
# IFRS 16 Leases
For Lessors how is the value of the lease initially and subsequently measured?
For Finance Leases
**Initial Measurement -** the Present value of:
* Fixed payments
* Variable payments valued at inception
* Residual value guarantees
* Unguaranteed residual values
* Purchase options reasonably expected to be exercised.
* Termination penalties, if the lease term reflects the expectation these will be incurred.
**Subsequent Measurement**
* Lease receivable increased by interest income, also recorded in investment income in the SPL.
* Cash receipts recorded against the lease receivable.
***For Operating Leases***
Income is recognised in a straight line over the lease term.
Underlying asset is recognised and measured inline with IAS 16 PPE or IAS 38 Intangible Assets
35
# IFRS 16 Leases
Where an asset is sold and leased back how is it determined if the transfer is accounted for as a lease or a sale?
This is determined through application of IFRS 15 Revenue from Contracts;
**Where the transfer is not a sale;**
*Seller-Lessee*
* *Continues to recognise the Asset.*
* *Recognises a Financial liability equal to the proceeds received.*
*Buyer-Lessor*
* *Does not recognise the asset.*
* *Recognises a financial asset equal to the transfer proceeds.*
**Where the transfer is a Sale**
*Seller-lessee*
* *Derecognises the asset*
* *Recognise Right of Use asset at proportion of previous carrying amount relating to rights retained.*
* *Recognise a lease liability*
* *Profit or loss on disposal will arise.*
*Buyer-Lessor*
* *Account for the asset purchase.*
* *Account for the lease by applying lessor accounting requirements.*
36
# IAS 19 - Employee benefits
What are the two types of Pension schemes defined under IAS 19 and how do their accounting treatments differ?
**Defined Contribution -** The entity pays a fixed contribution to a separate entity and has no legal or constructive obligation to make further contributions.
* *Another employment cost to the entity, with no further obligation once contribution has been paid.*
* *Charged to the SPL in the period.*
**Defined Benefit -** A scheme which is not defined contribution
* *Employer is guaranteeing an outcome to the employee - risk bearing.*
* *Pension plan obligation is a liability measured at present value.*
* *Plan investments are assets measured at fair value.*
* *Net value is reported as either liability (Deficit) or Asset (Surplus)*
***It is recommended amounts are calculated by an actuary.***
37
# IAS 19 Employee benefits
What are the different movements that must be taken into account when determining the value for a defined benefit schema to be shown in the financial statements?
**Statement of Profit or Loss**
* Net interest component - represents the change in the value of liability/asset due to the passage of time. Apply discount rate at the start of the year to the net defined benefit value.
* Service cost component -
* Current - increase in present value due to employee service in the current period.
* Past - change in present value due to amendments or curtailments on obligations from prior periods.
* Gains/Losses on settlement - the difference between fair value paid out and reduction in PV of the defined benefit obligation.
**OCI**
Adjustment posted due to difference between net pension deficit and amount calculated by the actuary.
This is identified in OCI as an item which will not be reclassified to SPL in future periods.
**Statement of Financial Position**
* Plan Obligation - Present value of the plan obligation without deducting any plan assets.
* Plan Assets - Assets held by long term benefit fund that exist solely to fund employee benefits.
38
# IAS 19 Employee benefits
Under IAS 19 how is the monetary value of a plan amendment, Settlement or Curtailment (PASC) calculated?
This is essentially the difference between the net defined benefit deficit before and after the settlement.
This is identified by:
* Updating the Pension plan assumptions at the date of the PASC.
* Measure current service cost and interest up to the settlement date using assumptions at the start of the reporting period.
* Measure the current service cost and interest for the remainder of the reporting period using the assumptions at the settlement date.
39
# IFRS 2 Share-based Payment
How are share based payments classified
**Equity-Settled -** Transaction is settled in shares or share options
**Cash-Settled -** Transaction is settled in cash based on it's share price.
* Vesting conditions - conditions that the counter party must meet to be entitled to the share based payment.*
* Vesting date - the date all conditions are met and the shares/share options are transferred to the counter party.*
* Vesting period - period over which the vesting conditions are to be satisfied.*
40
# IFRS 2 Share-Based Payment
How are transactions for equity settled share-based payments accounted for and measured, and how is the timing of the transaction determined.
**Accounting entries**
DR Asset/Expense Cr Equity.
**Valuation**
* Used to pay suppliers - **Value at fair value of item purchased (think observable inputs and active markets)***
* Used to pay employees - **value at fair value of equity instrument (share) at the grant date (date of agreement)***
41
# IFRS 2 Share-Based payment
What accounting may be done in relation to share based payments after the vesting period?
***No further adjustments to total Equity can be made, however balances may be transferred within Equity.***
**Modifications -** changing the terms of a share option scheme during the vesting period. If this results in an in crease in the fair value then extra expense is recognised.
* Expense = difference between fair value of new arrangement and fair value of the old arrangement at the modification date.
* Charged to SPL over the remaining vesting period.
42
# IFRS 2 Share-Based Payments
Where share options are/are not exercised how are these treated in the accounts?
**Options Exercised**
* Cash will be received from employees which along with the fair value of the option forms the values of the shares issued:
DR Cash & Equity
Cr Share Premium & Share Capital
**Options not exercised**
* Fair value attributed to the options can be reversed through retained earnings
Dr Equity
Cr Retained Earnings.
**Options Cancelled/settled**
* Remaining share-based payment expense is recognised immediately in the accounts.
* Payments made to employees up to the fair value of the equity instruments at cancelation are accounted for as a deduction from equity.
* Payments made to employees in excess of the fair value of the equity instruments at cancellation are accounted for as an expense in Profit or loss.
43
# IFRS 2 Share-Based Payments
With hybrid transactions how is the accounting treatment determined?
**Entity Choice -** Is there a present obligation to deliver cash?
* Yes - Account for as cash settled share-based.
* No - Account for as Equity settled share-based.
**Counterparty choice -** They may have a choice so this is a compound instrument and must be split between equity and liabilities.
* *With Employees - **Equity element = fair value of equity alternative at the grant date less the fair value of the cash alternative at the grant date.***
* *Not with Employees - **Equity = fair value of good or service received less fair value of the cash alternative of the transaction.***
* *Liability element - **Cash settlement option with rules for cash settled share-based payments applied.***
Both components will be recognised over the vesting period.
44
# IAS 37 Provisions, Contingent liabilities and Contingent Assets
What specific situations can the measurement and recognition of provisions be applied to?
**Future Operating losses -** No provision can be made as a current obligation does not exist. The cost could be avoided.
**Onerous Contracts -** where unavoidable costs exceed benefits that will be obtained.
A provision can be measured as the lower of
* The cost of fulfilling the contract.
* the cost of terminating the contract.
**Restructuring -** An obligation exists if:
* A detailed, Formal and approved plan exists. And
* The plan has been announced to those affected.
*The provision should include direct costs arising but no costs relating to ongoing operations.*
**Decommissioning costs** - Obligation may arise where there is requirement for environmental clear up.
Any costs should be discounted to their present value using a pre tax market rate.
Discount will be unwound each period until costs are paid.
45
# IAS 37 Provisions, Contingent Liabilities and Contingent Assets.
How are contingent assets and liabilities defined, recognised and measured?
**Contingent Liabilities -**
* Possible obligations who's existence will be confirmed by future events not controlled by the entity.
* Present obligations where an out flow of economic benefits is not probable
* Present obligations where the outflow of economic benefits cannot be measured.
*No provision is made, instead the contingent liability is disclosed in the notes to the financial statements.*
**Contingent Assets -** possible asset who's existence will only be confirmed by future events not under the entities control.
*Disclosed in the notes if the likelihood of economic inflow is probable, do not disclose if only possible or remote.*
46
# IAS 32 Financial Instruments - presentation
How does IAS 32 define a financial instrument?
**A financial Instrument -** is a contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
**A Financial Asset -**
* Cash
* An Equity instrument of another entity e.g. shares.
* A contractual right to receive cash or another financial asset. e.g receivables or bonds
* A contractual right to exchange financial assets or liabilities on favourable terms. e.g share options.
**A financial Liability -**
* A contractual obligation to deliver cash or another financial asset.
* A contractual obligation to exchange financial assets or liabilities on unfavourable terms.
* A contract under which an entity is obliged to issue a variable number of it's own equity instruments.
**Equity -** any contract that evidences a residual interest in the assets of an entity after deducting it's liabilities.
47
# IAS 32 Financial Instruments - presentation
How does IAS 32 Describe a compound instrument and what it must be split in to?
**A Compound Instrument -** is one that has characteristics of both financial liability and Equity. E.g Bond with a choice on redemption of cash or equity shares.
This type of instrument must be split in to
**Liability component -** Present value of the cash repayment discounted using the market rate on Non-convertible bonds.
**Equity Component -** difference between cash received and liability component at the issue date.
48
# IFRS 9 - Financial Instruments
What three ways can Financial Assets that are debt instruments be classified?
**Amortised Cost**
* Where intention is to hold asset to maturity and collect contractual cash flows.
* Contractual terms give rise to repayments of principle and repayments of interest.
* At inception - Cost plus transaction costs.
* Subsequent - Interest income to SPL, asset value through Amortised cost table.
**FVOCI**
* Not being held for short term trading, so held to maturity but may be sold.
* Must give rise to cash flows that are solely principle and interest.
* Inception = Fair value plus transaction costs
* Subsequent - Interest income using effective rate of interest to SPL, revaluation gain/loss to OCI.
**FVPL**
* Default designation, assumes that instruments are held for short term investment.
* Inception - Fair value, transaction costs charged straight to SPL.
* Subsequent - Interest income using actual interest rate, Revalued with gain/loss taken to SPL.
49
# IFRS 9 Finaicial Instruments
What approach does IFRS 9 take to impairment of financial instruments and how is this applied?
An expected loss approach is used which is applied to debt instruments measured at either Amortised cost or FVOCI.
Entities must calculate a loss allowance equal to either;
* 12 month expected credit losses, if credit risk has not increased significantly.
* Lifetime expected credit losses, if credit risk has increased significantly.
*When measuring expected credit losses the estimate must be:*
* Unbiased and probability weighted.
* Reflective of the time value of money.
* Based on information about past events, current conditions and forecasts of future economic conditions.
**If credit impaired losses = Gross carrying amount less PV of estimated future cashflows discounted at the original effective rate of interest.**
* Loss allowance is posted to;*
* Amortised cost Dr SPL, Cr Allowance SFP*
* FVOCI - Dr SPL, Cr OCI*
* FVPL not applied.*
50
# IFRS 9 Financial Instruments
What criteria should be met to de recognise a financial asset or liability?
**Financial Liability**
De recognise when the obligation is extinguished, this may happen when the contract is discharged, Cancelled or expires.
Difference between consideration transferred and carrying amount is recognised in SPL regardless of the designation the asset was held under.
**Financial Asset**
De recognise when contractual rights to the cashflow expire which will be either;
* All payments have been made or expired. or
* the entity transfers substantially all the risks and rewards of the financial asset to another party.
Difference between consideration and carrying amount transfers to SPL.
51
# IFRS 9 Financial Instruments
What characteristics must a financial instrument have to be a derivative.
A financial instrument must have the following characteristics to be a derivative;
* It's value changes in response to the value changes of an underlaying item.
* It requires little or no initial investment.
* It is settled at a future date.
**Futures -** Contract to buy something in the future at an agreed price.
**Swap -** Two parties agree to exchange periodic payments at specified intervals over a specified time period.
**Options -** Give the right but not obligation to buy or sell an underlaying asset on or before a specified future date.
52
# IFRS 9 Financial instruments
What is the accounting treatment applied to derivatives?
**Initial -** Fair value through Profit and Loss, so purchase price but without transaction costs, these are charged to the SPL as an expense.
This will be the price to obtain the derivative _not_ the price agreed on the underlaying contract.
**Subsequent -** The derivative will be revalued at each reporting date with gains/losses going to the SPL
**Conclusion -** At the conclusion of the contract the derivative will be revalued and then de recognised in the transactions relating to the obtained asset.
53
# IFRS 9 Financial Instruments
What is an embedded derivative, how are they identified and accounted for?
An embedded derivative is a component of a contract that includes a non derivative host and which affects cash flows in a similar way to a stand alone derivative.
I.e Convertible bond at 3% with redemption as cash or fixed number of shares where market rates of interest are 10%
* There is an embedded derivative - the bond is a non derivative host with the conversion option being a derivative element.
* The bond falls with the scope of IFRS 9 so the whole contract must be classified in line with the standards.
* Because interest receipts are below market rate the contractual cash flows test is failed so the bond will be measured at FVSPL.
54
# IFRS 9 Financial Instruments
What is hedge accounting and why is it used?
Hedge accounting is an optional set of rules which can be used to reduce volatility in the SPL as a result of changes to FV or cashflows.
**Two types of Hedge accounting are:**
* Fair Value - hedging movements in the FV of a recognised asset or liability or a firm commitment that could impact SPL.
* Cash Flow - hedging movements in cash flows associated with a recognised item or a highly probable forecast transaction that could impact SPL.
***What must be documented when choosing to Hedge account?***
* The Hedged item that exposes the entity to fair value or cash flow changes.
* The hedging instrument, so the derivative who's fair value or cash flow changes are expected to offset the hedged item.
* The risk that the entity is hedging against.
Under a FV hedge gains and losses for both instruments are recognised in SPL, unless the hedged item is an investment in shares measured at FVOCI.
Under a cash flow hedge the gain/loss on the hedging instrument is recorded in OCI unless it is greater than the gain/loss on the hedged item, then the over is taken to SPL.
55
# IFRS 9 Financial Instruments
What are the effectiveness requirements that must be met before hedge accounting can be used?
A hedge is deemed to be effective if:
* There is an economic relationship between the hedged item and the instrument.
* Credit risk does not dominate the value changes that result from the relationship between item and instrument.
* The hedge ratio is the same as that resulting from the quantity of the hedged item that the entity actually hedges and the quantity of the hedging instrument used.
56
# IFRS 7 Financial Instruments - disclosures
What disclosures are entities required to give regarding Financial instruments?
**Significance of the financial instruments for an entities financial position and performance**
* Quantitative disclosures must be made for each separate class of financial instrument held.
* The entity must also provide information about risk exposure inc. Credit risk, Liquidity risk and market risk.
**The Nature and extent of risks arising from Financial instruments, and how these are managed**
* Qualitative disclosures describing overall policies and processes for managing risk and how this has changed in the current period.
57
# IAS 12 Income Tax
What exceptions are there to recognising DT liabilities on temporary taxable differences?
* The initial recognition of Goodwill.
* The initial recognition of an asset or Liability that does not affect accounting or Taxable profit and does not create equal taxable and deductible temporary differences.
***NOTE -if the item giving rise to DT is recorded in OCI then the related DT should also be recorded in OCI. i.e. DT on revaluation of PPE***
58
# IAS 12 Income Taxes
How do share option schemes impact Deferred tax?
**Share OptionScheme =** Expense to SPL over vesting period with tax relief not usually granted until the exercise date.
For calculating the Deferred tax asset the following should be applied;
* Carrying amount = Nil. It is neither an asset or a liability.
* Tax base of share based payment = Intrinsic value x number of options x no. vectors / periods then x no. periods elapsed.
*Intrinsic value = difference between option and actual share price.*
Where estimated future tax deduction \> accumulated remuneration expense the balancing amount is recognised in equity.
59
# IAS 12 Income taxes
What allowances does IAS 12 make in respect to unused tax losses?
A deferred tax asset may be recognised only to the extent that it is probable future taxable profits will be available against which the future unused tax losses can be utilised:
* Deductible difference can only be offset against taxable difference if legally can settle on net basis and the tax amounts are levied by the same tax authority.
* Do the forecasts support taxable profits being made in the future?
* Do the losses arise from events unlikely to recur?
* Will tax planning opportunities be available?
60
# IAS 12 Income Taxes
What are the deferred Tax implications when a right of use asset and a lease liability are recognised?
This will depend on if tax relief is granted on the asset or liability resulting in temporary difference.
*Note Entering in to a lease will not affect accounting or Taxable profit.*
***Tax relief in respect of the leased Asset -** Tb of asset is future allowable tax relief, TB of liability is carrying amount less future tax deductions. No temporary differences arise so no deferred tax.*
**Tax relief in respect of Lease liability -** TB of asset is Nil as there are no future allowable tax deductions, TB of liability is Nil as carrying amount less future tax deductible. Temporary differences do arise so Deferred tax.
61
# IAS 12 Income Tax
What are the deferred tax implications when dealing with fair value adjustments in consolidated statements?
The Tax base of an entities Net assets (equity) is based on the individual financial statements, so when assets are bought in to consolidated statements at their fair value a temporary difference will arise.
The deferred tax amount to be recognised will be included in the goodwill calculation effectively changing the value of the assets acquired and the overall value of the goodwill.
62
# IFRS 8 Operating Segment
How are operating segments defined and what is their purpose?
An operating segment is a component of an entity:
* That engages in Business activities
* Whose results are regularly reviewed by the chief operating decision maker.
* For which discrete financial information is available.
Segments may be aggregated when they are similar in terms of;
* Products or services sold
* Production processes
* Types of Customers
* Distribution methods.
**Segments will be disclosed that meet one of the following;**
* It's revenue is 10% or more of total revenue
* It's assets are 10% or more of total assets
* It's profit or loss is 10% or more of the greater, inabsolute amount, of;
* The combined profit of all profit making segments.
* The combined loss of all loss making segments.
* In total segments should be disclosed that report at least 75% of external revenue.
**Information to be reported for each segment**
* Profit or Loss
* Total Assets
* Total Liabilities
* Other amounts should be disclosed if regularly provided to CODM.
63
# IAS 24 Related Parties
How is a related party defined and identified?
**A related party is -** a person or entity that is related to the entity preparing its financial statements.
*A person or member of their close family is related to the reporting entity if:*
* Have control or Joint control over the entity.
* Have significant influence over the entity
* Are a member of key management personnel of the entity.
*Two entities are related if:*
* They are parents and subsidiaries within the same group.
* One entity is an associate or joint venture of the other.
* A person who is related to one entity has control over the other.
* A person who has control over one of the entities also has significant influence over the other entity or is a member of it's KMP.
64
# IAS 24 Related Parties
What must be disclosed in relation to related party transactions?
* Overall - The transfer of resources, services or obligations between a reporting entity and a related party.
All transactions must be disclosed irrespective of price.
**The disclosure should include:**
* The nature of the relationship
* A description of the transactions
* The amounts of the transactions
* Amounts and details of any outstanding balances.
* Allowances for receivables in respect of outstanding balances.
* Irrecoverable debt expense in respect of the outstanding balances.
**A disclosure of control should include;**
* The name of the parent
* The name of the ultimate controlling party if different.
**Disclosure of management compensation should include;**
* Short term employee benefits
* Post-employment benefits
* other long term benefits
* Termination benefits
* Share-based payments
65
# IFRS 1 First Time adoption of IFRS Standards
What procedures are set out for when an entity is applying IFRS standards for the first time?
**Date of Transition**
This is the start date of the earliest period that comparative information will be provided, i.e. if Y/E 20X8 is to be reported under IFRS then date of transition is the start of the 20X7 year.
An opening SFP must be produced as at this date.
**Applying IFRS Standards -** At date of transition the entity must;
* Recognise all Astes & Liabilities required by IFRS
* Derecognise assets & Liabilities not permitted by IFRS
* Reclassify Assets, Liabilities and Equity in accordance with IFRS
* Measure assets & Liabilities in accordance with IFRS.
**Reporting Gains and Losses**
Gains or losses arising from the adoption should be recognised directly in retained earnings.
66
# IFRS 1 First time adoption of IFRS
What practical factors should be considered when considering adopting new standards?
* Bonuses & Performance related pay - impact of profit change.
* IT Systems - will they require updating or replacing.
* Covenants on Loans - will they be breeched.
* Earnings Per Share - will it reduce.
* Perception - will analysts view the move positively
* Staff knowledge - is it sufficient.
67
# IFRS 10 Consolidated Financial Statements
What elements must an entity have to demonstrate control over another entity?
* Power over the investee (Sub)
* Exposure or rights to receive variable returns
* Ability to use power to influence variable returns.
*Think 50% or shares/voting rights.*
68
# IAS 28 Investments in Associates and Joint Ventures
How is an associate defined and how are they accounted for?
An Associate is an entity over which the parent has significant influence, usually through a shareholding of 20-50%
**Factors indicating significant influence;**
* Representation on the board of directors
* Significant transactions between investor and investee.
* Provision of technical info that is essential to the success of the investee.
*Accounted for using the equity method:*
**Cost of Investment** X
**P's% of Associate PA reserves** X
**Impairment to Date** X
***investment is associate X***
69
# IFRS 10
What are the workings required when consolidating the Statement of Financial Position?
**W1 Establishing the Group Structure -** identify % of control , acquisition date plus any associates.
**W2 Net Assets of the Subsidiary -** Identifying movements in Net assets (Equity) between the acquisition date and the reporting period. *WIll*
**W3 GoodWill -** basically the difference between consideration and Net assets value.
**W4 Non Controlling Interest -** NCI's share of Net assets at acquisition plus share of PA reserves and Goodwill impairment.
**W5 Consolidated Reserves -** Consolidating all of parent retained earnings with share of Subs reserves, goodwill impairment and PURP adj if P is seller.
**W6 Other Components of Equity -** other components of equity must only include the P's share of any increase from the Sub.
70
# IFRS 10 Consolidated Financial statements
What considerations are there when consolidating the SPL?
* If acquisition occurred part way through the year the Sub's figures should be prorated.
* Intra group income and expense should be eliminated.
* Unrealised profit on intra group transactions should be eliminated.
* Dividends from the Sub should be removed.
* Any profit from associates is accounted for using the equity method. To be shown in OCI.
71
# IFRS 10 Consolidated Financial Statements
In what situations might control be established with less than 505% of share capital?
* Contractual arrangements - entity may be designed so voting rights are not the dominant factor in establishing control.
* Dispersed and Un connected shareholders - balance of shares are held in small amounts by large numbers of other persons or entities.
* Potential Voting Rights - does the entity hold share options or convertible loans which may give them control in the future.
72
# IFRS 3 Business Combinations
What other elements must be present for an entity to qualify as a business?
A business must have inputs, processes that are applied to inputs that contribute to the creation of outputs,
* Inputs - Economic resources such as PPE, Raw materials and Employees.
* Processes - systems conventions or rules that contribute to output production when applied to inputs.
* Outputs - Good Services, Income.
73
# IFRS 3 Business Combinations
What are the requirements of the acquisition method
1. Identify the acquirer - this is the entity that has assumed control over another entity.
2. Identify the acquisition date - the date that control over the acquirer is obtained.
3. Recognise the Net assets - measure identifiable assets and liabilities at their fair value at the acquisitor date.
4. Recognise Goodwill and NCI -
74
# IFRS 3 Business Combinations
How is the value fo different types of purchase consideration measured?
* Cash - Cash Paid
* Deferred Cash - Present value
* Shares (upfront) - Fair value at acquisition
* Deferred shares - Fair value at acquisition
* Contingent consideration - Fair value.
*If consideration includes replacement share based payments to subsidiary employee's is exchange for their existing scheme then the FV of the replacement scheme must be allocated between Purchase consideration and post acquisition remuneration.*
75
# IFRS 3 Business Combinations
When can the values of consideration, Net assets and NCI be measured?
The measurement period runs for 12 months from the date of acquisition, during this period the acquirer must make retrospective adjustments if new information is determined about:
* Fair value of consideration transferred.
* Fair value fo the net assets at acquisition.
* Non controlling interest.
76
# IFRS 3 Business Combinations
How is the impairment of goodwill calculated?
This will be impacted by the method used to calculated the NCI's share of Net assets.
**Fair Value -** The carrying value of goodwill plus Net assets is compared to the recoverable amount of the sub at the reporting date.
**Share of Net assets -** Goodwill will need to be “grossed up” as goodwill shown on acquisition is only the parents share, once impairment has been calculated i will need to be split back out between Parent and NCI.
77
# IFRS 11 - Joint arrangements
What are the two different types of joint arrangements and how are they defined?
**Joint Operation -** Venturers have rights to assets and obligations for the liabilities of the arrangement. Account for share of A,L, I and E.
**Joint Venture -** venturers have rights to the net assets of the arrangement. Equity account as with Associates.
78
# IAS 27 Separate Financial Statements
In an entities non consolidated (Separate) Financial statements how should an entity measure it's investments in subsidiaries, joint ventures or associates?
Investment should be measured;
* At cost, or
* Using the equity method,
* or in accordance with IFRS Financial instruments.
Dividends received are recorded in SPL _unless_ the equity method is used then dividends reduce the carrying amount of the investment.
79
# IAS 27 Separate Financial Statements
When might a parent be exempt from preparing consolidated financial statements?
All of the following must be met;
* The parent is a whole owned subsidiary and have been informed and do not object to the parent not preparing consolidated statements.
* The parents debt or equity instruments are not traded on the public market.
* The parent did not file it's financial statements with a stock exchange or other regulatory org. for the purpose of issuing any class of financial instruments in a public market.
* The ultimate parent company produces consolidated statements that comply with IFRS and are available for public use.
80
What is a step acquisition and how are the different stages accounted for?
**Step Acquisition -** when control over a sub is achieved in stages, often by buying blocks of shares at different times.
*Accounting For;*
* Pre existing holding (without control being achieved) accounted for under relevant standard i.e IAS 28 investments in associates.
* When control is achieved - Revalue preexisting share holding to fair value, gain/loss to SPL.
* Consolidate as normal including the fair value of the pre existing shareholding as this forms part of the overall consideration to gain control.
81
How are subsidiaries acquired for sale dealt with?
Subsidiaries acquired exclusively for resale are not exempt from consolidation.
However if it meets the held for sale criteria under IFRS 5 it is;
* Presented in the FS as a disposal group classified as held for sale, all assets are amalgamated in to one line and the same for all liabilities.
* Measured both at acquisition and at subsequent reporting dates at fair value less costs to sell.
82
How are disposals of share holdings dealt with in the consolidated financial statements?
**If the disposal results in control over the sub being lost (part disposal) the following applies;**
* Consolidated Income & Expense pro rated up to the disposal date.
* Calculate profit or loss on disposal.
* Recognise remaining shares at fair value and account for them under either IFRS 9 or IAS 28.
Profit or loss on disposal is calculated as:
Precceds and Fair value of shares retained less Goodwill at disposal, Net assets at disposal and NCI at disposal.
83
What are the two ways of presenting the results of a disposed subsidiary?
**Line by Line -** where the definition of discontinued operations is not met, results in the SPL should be time apportioned line by line, resulting profit or loss is presented as an exceptional item in arriving at profit before tax.
**Single Figure -** if the definition of discontinued operations is met results are aggregated in to a single line presented after profit for the period from continuing operations.
The single figure comprises Profit or loss for sub up to disposal date & profit or loss on disposal of the sub.
84
What happens when an entity acquires further shares in a subsidiary it already controls?
There is no change in control so:
1. Goodwill is not recalculated
2. Profit or loss does not arise on the transaction in the SPL.
Accounting is carried out in equity as a decrease in NCI so:
Dr NCI
Cr Cash
Cr/Dr Other components of equity with the balancing figure.
Decrease in nCI is the proportionate reduction in it's carrying amount at the purchase date of the additional shares.
Sale of shares where control is retained is dealt with in the same way.
85
# IAS 21 - Foreign Currency
Under this standard what are the rules applied for translating an overseas sub to the presentation currency?
**Income, Expenses & Other Comprehensive income -** are translated at the rate in place at the date of each transaction, the average rate for the year may be used as an approximation.
**Assets & Liabilities -** translate at the closing rate of exchange.
**Goodwill -** should be calculated in the functional currency of the sub, and then treated the same as an asset when translating.
**Exchange differences -** Arising because Opening net assets plus profit for year will not equal closing net assets when translated.
These differences are recognised in OCI.
But are reclassified to SPL upon disposal of the foreign operation.
86
# IAS 7 Statement of Cash flows
What are the two methods of presenting Cash generated from operations and how are they applied?
* **Direct Method -** Starts from cash receipts from customers then deducts cash paid to suppliers, employees and other expenses.
* **Indirect method -** Starts from profit before tax adds back finance and depreciation, deducts investment and adjusts for other “non cash” transactions
* Share of (Profit/ loss of associate.
* Other non cash (incomes)/expenses
* (Profit)/loss on disposal on non current assets
* (Increase)/decrease in inventories
* (Increase)/Decrease in receivables
* increase/(decrease in payables.
*Note: usually the indirect method is used.*
87
# IAS 7 Statement of Cash flows
What are the two methods of presenting Cash generated from operations and how are they applied?
* **Direct Method -** Starts from cash receipts from customers then deducts cash paid to suppliers, employees and other expenses.
* **Indirect method -** Starts from profit before tax adds back finance and depreciation, deducts investment and adjusts for other “non cash” transactions
* Share of (Profit/ loss of associate.
* Other non cash (incomes)/expenses
* (Profit)/loss on disposal on non current assets
* (Increase)/decrease in inventories
* (Increase)/Decrease in receivables
* increase/(decrease in payables.
*Note: usually the indirect method is used.*
88
# IAS 7 Statement of Cash Flows
When dealing with the acquisition or disposal of a subsidiary during the year how does this impact cash flows?
**Acquisition -** Actual cash flow (paid) must be recorded net of any cash held by the sub which is now controlled by the group, so Consideration less Cash & Cash equivalents of the sub at acquisition.
**Disposal -** Essentially the same as the group is loosing control of the cash & Cash equivalents of the sub. So cash received less cash and cash equivalents of the sub at disposal.
These are presenting in investing activities as Acquisition/disposal of subsidiary net of cash acquired/disposed.
*Note: the addition of the subsidiaries Assets and liabilities must be taken in to account when looking at the cash movement for an item during the year.*
89
# IAS 7 Statement of Cash flows
Why are dividends to NCIs important in the consolidated cash flow statement and how are these calculated?
Dividends paid to an NCI will equate to cash flowing out of the business, where as dividends paid within the group will hove no net effect.
The dividend paid can be calculated as;
NCI Balance Bought forward
Add: TCI for the reporting period
Add: NCI Added on acquisition
Less: NCI lost at disposal
***Balancing figure = Dividend Paid***
*Balance C/f*
Part of Financing activities.
90
# IAs 7 Statement of Cash Flows
What are the possible cash flows related to associate transactions
* Dividends Received
* Cash paid on acquisition
* Cash proceeds from sale
* Loans to Associate
*All presented as cash flows from investing activities.*
***Dividend received can be calculated by reconciling the carrying amount of the associate year on year with the dividend being the balancing figure.***
* B/F Balance*
* Add: Cost of associates purchased in year,*
* Add/(less) share of associate Profit/(Loss)*
* Add/(less): share of associate OCI*
* Less; Carrying amount of associate on disposal*
**Dividend Paid = balancing figure.**
C/F Balance
91
# Integrated reporting
What does integrated reporting provide and how is this laid out?
an IR outlines how an entity creates value over the short, medium and long term.
Value is conceptualised in terms of 6 capitals:
* Financial
* Manufactured
* Intellectual
* Human
* Social & Relationship
* Natural.
92
What content elements should an IR report contain?
* Organisational overview and External Enviroment
* Governance
* Opportunities and Risks
* Strategy & resource allocation
* Business Model
* Performance
* Future Outlook
* Basis of presentation.
*The framework is principles based*
93
# UK GAAP
What are the main accounting standards applied in the UK?
FRS 101 - Reduced disclosures framework. Provides exemptions from disclosure requirements.
FRS 102 - Standard applicable in UK and Ireland. Based on IFRS for SME's
FRS 103 - Insurance Contracts
FRS 104 - Interim Financial reporting for entities under FRS 102
FRS 105 - Standard applicable to micro-entities regime.
94
# UK GAAP
How does an entity qualify as a Micro - Entity
It must satisfy 2 of the following requirements;
1. Turnover \< £632,000 pa
2. Gross Assets \< £316,000
3. Average employees \< 10
95
# UK GAAP
What are the concepts and pervasive principles set out in FRS 102?
Understandability
Relevance
Materiality
Reliability
Substance over form - accounted for using economic substance rather than legal form.
Prudence - Exercise caution on judgements
Completeness - within bounds of cost and materiality
Comparability - over time and with other entities
Timeliness - provided without undue delay.
96
# UK GAAP
What are the key differences between IFRS and FRS reporting standards?
**Frame Work -** FRS identifies qualitative characteristics of materiality, Substance over form & Prudence.
**IAS 1 -** FRS format is prescribed by Companies act.
**IAS 20 -** Capital grants may only be recorded using deferred income method.
**IAS 23 -** FRS allows a choice to capitalise borrowing costs or charge to SPL.
**IAS 12 -** Conceptualises deferred tax through SPL.
**IAS 24 -** Key management personnel compensation is disclosed in total only. **&** transactions between 2 or more members of the group need not be disclosed as long as the Sub is fully owned.
**IAS 38 -** Choice to capitalise development cots once criteria are met **&** all intangibles have a finite UEL that does not exceed 10 years.
**IAS 28 -** Implicit GW arising on an associate should be amortised.
**IFRS 3 -** GW is amortised over its UEL, Negative GW is shown as a negative asset on the face of the SFP. Acquisition costs are added to consideration. If probable inc. contingent consideration in GW. On the proportionate method is allowed for NCI.
**IFRS 5** - Discontinued operations are shown in a separate column in SPL. No held for sale so continue to depreciate up to disposal.
**IFRS 9 -** Simplified approach Investment in shares are FVPL, debt is amortised. Impairment adopts an incurred loss approach.
**IFRS 15 -** Splits revenue accounting in to Sale of Goods, provision of services and construction contracts.
**IFRS 16 -** Lessees clarify leases as finance or operation leases. Liability and Asset only recognised for Finance leases.
97
# UK GAAP
What are the basic companies house requirements for single entity financial statements?
**A company is exempt if;**
* It's a subsidiary
* It has been dormant through out the whole of the year
* It's parent undertaking is established under law of an EEA State.
98
# UK GAAP
What are the basic companies house requirements for group entity financial statements?
**A company is exempt if;**
* If its a wholly owned sub
* Under section 405 would exclude all subs
*
