F2 standards

Question 1

What is the standard for Business Combinations?

Answer 1

IFRS 3

acquisition of subsidiary

GW recognised as asset at functional currency and closing rate

subject to IAS 21 effects of changes in foreign exchange rates

NCI- from date of control must be recognised!

Question 2

What is the standard for Consolidated Financial Statements?

Answer 2

IFRS 10

defines control and tells us how to consolidate

subsidiary: controlled by another

control: power to govern and influence >50
NIC: measured through % of S NA or fair value

an investor controls an investee if and only if the investor has all of the following elements:

• power over the investee
• exposure, or rights, to variable returns from its involvement with the investee
• the ability to use its power over the investee to affect the amount of the investor’s returns

Question 3

What is the standard for Joint Arrangements?

Answer 3

IFRS 11

an arrangement of which two or more parties have joint control

JV: joint arrangement whereby the parties that have joint control of the arrangement have rights to the ENT ASSETS of the arrangement

JO:joint arrangement whereby the parties that have joint control of the arrangement have rights to the ASSETS, OBLIGATIONS of the arrangement

Question 4

What is the standard for Fair Value Measurement?

Answer 4

IFRS 13

fair values to be determined based on their “highest and best use”. Their value to the combined business may be challenging to determine and we could end up overstating assets and understating goodwill.

Question 5

What is the standard for Revenue from contracts with customers?

Answer 5

IFRS 15

Contract
Obligations
Price
Allocation of price to obligations
Recognise revenue

Low receivables due to advance payment
Performance obligation: course delivery
Cash received = deferred income i.e. contract liability
Release to P/L when course delivered
Not part of 6.4%

Question 6

What is the standard for Leases?

Answer 6

IFRS 16

conveys right of use of asset

Finance lease: option to purchase at end, over half of economic life, dep over life straight line or reducing balance, risks/rewards transferred
Don’t show on fin statements
Remove from NCA by CV
Receivable for PV at discounted cash flow i.e. net investment on lease
Reduce by cash receipt
Interest invomce on P/L over the lease term
Debit receivable and credit finance income

Operating: retain risks and rewards, less than half economic life
Continue to depreciate
Lease payment recognised as operating income on P/L

Question 7

What is the standard for Income Tax?

Answer 7

IAS 12

deferred tax when accounting profit =/= taxable profit

2 reasons:

• permanent differences e.g. expenses
• temporary differences e.g. depreciation, tax allowances

only temporary considered

Question 8

What is the standard for Effects of change in FX?

Answer 8

IAS 21

YE:
SFP
-CR:monetary
-leave as is: non-monetary
-FX to P/L

SPL & OCI:

• AR:income and expenses due to smoothing volatility
• FX: SOCIE

Question 9

What is the standard for Related Party Transactions?

Answer 9

IAS 24

if:

• parent/sub
• associate
• joint arrangement
• member of key management personnel
• close family member

must disclose

Question 10

What is the standard for Financial Instruments - Presentation?

Answer 10

IAS 32

Question 11

What is the standard for Earnings per share

Answer 11

IAS 33

EPS and DEPS must be disclosed as they are key information

DEPS assists in decision making
-warning signal

EPS= profit/WANS

Question 12

What is the standard for Impairment?

Answer 12

IAS 36

Decline in value due to internal or external factors

• reputation
• food poisoning
• physical damage

Undertake review of tangible or intangible

Impair when CV> recoverable amount

Recoverable amount is higher of:

• FV- selling costs
• Value in use

Impairment recognised in P/L as expense
PPE and intangible impaired
Non-amortised assets must be impairment reviewed
Establishing FV might bve difficult e.g. for intangibles

Question 13

What is the standard for Provisions, Contingent Liabilities and Contingent Assets?

Answer 13

IAS 37

criteria:

• present OBLIGATION as a result of a past event
• probable TRANSFER of economic benefit
• measure the outcome RELIABLY

Question 14

What is the standard for Intangible Assets?

Answer 14

IAS 38

• identifiable
• non-monetary
• no physical substance
• value to the business

If identifiable (sell separately) and have control, then recognise/capitalise

research: expense to P/L until development
development: if criteria satisfied, amortise over UEL
PIRATE
-probable future benefits
-intend to complete
-resources available
-able to use/sell
-technically feasible
-expenses reliably measurable

Question 15

Wha is the standard for Investment is associates?

Answer 15

IAS 28

investor has SIGNIFICANT INFLUENCE over the entity

Question 16

difference between functional and presentational currency?

Answer 16

functional:

• primary currency in environ
• N$

presentational:

• what financial statements presented in
  sub: could be local
  consol: functional

Question 17

when can WACC be used as a discount rate?

Answer 17

constant capital structure: affects weightings
new investment doesn’t change risk profile
new investment is marginal to the entity: will cause change in values