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Operational Case Study > F1 - Accounting Standards > Flashcards

F1 - Accounting Standards Flashcards

1
Q

What is an asset?

A

A present economic resource controlled by the entity as a result of past events

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2
Q

What makes something a non current asset?

A

It is expected to be recovered more than 12 months after the SFP date

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3
Q

What are property, plant and equipment?

A

Tangible items that are held by an entity for use in production or supply, and are expected to be used during more than one period

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4
Q

What are PPE initially recognised at?

A

Cost - purchase price (excl VAT), direct costs of bringing the asset to location and condition for use, estimated cost of dismantling and removing the asset

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5
Q

When are subsequent expenditures capitalised?

A

When they provide incremental benefit or increase the useful economic life

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6
Q

Can day to day servicing costs be capitalised?

A

No - they are revenue expenses

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7
Q

What is the cost model of measurement of assets after acquisition?

A

All non current assets other than land should be depreciated over their useful economic lives down to their residual value

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8
Q

How often should the useful economic life of non current assets be reviewed?

A

At least each financial year end

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9
Q

What is the revaluation model of measurement of assets after acquisition?

A

Revaluing an asset to its fair value - the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date

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10
Q

What is the financial accounting standard for Non Current Asset valuation?

A

IAS 16

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11
Q

When is an asset impaired?

A

An asset is impaired if its carrying amount is greater than its recoverable amount

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12
Q

What is an assets recoverable amount?

A

The higher or the value in use and the fair value less costs of disposal

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13
Q

What are 3 possible internal causes of impairment?

A
  1. Decline in market value of the asset
  2. Change in technological market
  3. Increase in interest rates reducing value in use
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14
Q

What are 3 possible external causes of impairment?

A
  1. Evidence of obsolescence or physical damage
  2. Adverse changes in the use of the asset
  3. Evidence that the asset’s performance is worse than expected
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15
Q

What is the financial accounting standard for Impairment losses?

A

IAS 36

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16
Q

When can a non current asset be classified as held for sale?

A
  1. Seeking a buyer
  2. Available to be sold immediately
  3. Likely to be sold
  4. Expected within one year
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17
Q

What are the 4 steps when an asset is held for sale?

A
  1. Update the carrying amount in line with iAS 16
  2. Revalue at the lower of the carrying amount and the fair value less costs to sell
  3. Transfer to current assets
  4. Cease depreciation
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18
Q

What is a lease?

A

A contract that conveys the right to use an asset for a period of time in exchange for consideration

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19
Q

What is the right of use asset?

A

This represents the lessee’s right to use an underlying asset for the lease term

20
Q

What are the 2 entries made at the commencement of a lease?

A

Dr Right of Use Asset (PPE)

Cr Lease Liability

21
Q

What is the lease liability?

A

Effectively a loan, representing the substance of the transaction - what the company has ‘borrowed’ in order to use the asset

22
Q

What is the lease liability initially measured at?

A

The total present value of the future lease payments

23
Q

What is the discount rate used in the lease liability calcuations?

A

The interest rate implicit in the lease

24
Q

What is the right of use asset initially measured at?

A

The lease liability plus any payments previously made (e.g. deposit), initial direct costs and estimated costs of dismantling at the end of the lease

25
Q

Over what period is the right of use asset depreciated?

A

The shorter of the total useful life and the lease term, unless reasonably certain the organisation will obtain the asset at the end of the lease

26
Q

How do we split the lease liability?

A

Into the current liability (due within 12 months) and the non current liability

27
Q

What does each lease payment do to entries in the financial statements?

A

Decreases the lease liability and contributes an interest expense

28
Q

When can a lease be recognised an expense on the P&L?

A

If the assets are of low value or term less than 12 months

29
Q

What is the financial standard for leases?

A

IFRS 16

30
Q

How are low values leases expensed to the P&L?

A

Straight line over the total length of the lease - accrue for differences due to deposits/rebates

31
Q

What is the accounting standard for inventories?

A

IAS 2

32
Q

What can inventories include?

A

Goods purchased for resale, finished goods, WIP and raw materials

33
Q

What are inventories measured at?

A

The lower of cost and net realisable value

34
Q

What is included in initial cost of inventories?

A

Costs of purchase, conversion and other costs incurred bringing the inventories into their present condition and location

35
Q

How do we determine cost when inventory items are a) interchangeable and b) not interchangeable

A

a) First in First Out (or weighted average)

b) standard cost

36
Q

What is included in net realisable value of inventories?

A

Estimated less price less costs of completion and selling costs

37
Q

What are 3 key reasons that net realisable value might fall below cost of inventories?

A
  1. Physical deterioration in condition
  2. Obsolescence in products
  3. Fall in selling prices due to competition
38
Q

What is the accounting standard for events after the reporting period?

A

IAS 10

39
Q

What are events after the reporting period?

A

Those which occur between the end of the reporting period and the date that the financial statements are authorised for issue

40
Q

What is an adjusting event?

A

An event where there is evidence that conditions existed at the end of the reporting period

41
Q

What is the result of an adjusting event?

A

An adjustment to the financial statements

42
Q

What is a non-adjusting event?

A

An event where the conditions arose after the reporting period

43
Q

What is the result of a non adjusting event?

A

Disclosure in the notes to the financial statements

44
Q

What are 3 key examples of adjusting events?

A
  1. Bankruptcy of a customer (write off bad debt)
  2. Sale of inventory below cost
  3. Impairment of PPE
45
Q

What are 3 key examples of non adjusting events?

A
  1. Fire or flood damage
  2. Plans to discontinue operations
  3. Major ordinary share transactions

Operational Case Study (10 decks)

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