FAR Flashcards
How is a lease liability measured?
By applying the interest rate implicit in the lease and deducting the lease payments made.
What does the right of use asset, initially measured at cost, include?
The amount of the initial measurement of the lease liability.
Any lease payments made before the commencement date and any lease payments made on the commencement date less any lease incentives received.
Any initial direct costs incurred by the lessee related to the asset.
An estimation of any costs or penalties to be incurred by the lessee which the lessee is obliged to incur at the end of the lease term, such as dismantling costs or environmental clean-up costs.
How are right of use assets subsequently revalued?
Measured at cost then subtract accumulated depreciation.
What is a discontinued operation?
A component of an entity that either has been disposed of or is classified as held for sale and:
Represents a separate major line of business or geographical area.
Is part of a single coordinated plan to dispose of a separate major line of business.
Is a subsidiary acquired exclusively with a view to resell
What is a simple process for calculating exchange rate movements?
- Calculate the original.
- Revalue using the exchange rate.
- Work out the difference to see if it is positive or negative.
What does PPE measured at cost include and exclude.
Includes, Directly attributable costs:
Site preparation.
Employees benefits.
Excludes:
- costs of opening a new facility.
- cost of introducing new products.
- cost of conducting business in a new location or with a new class of customer.
- administration and general overhead costs.
Which leases are exempt according to IFRS 16?
Short term leases - 12 months or less.
Low value leases - the underlying asset is not highly dependent on and the lessee can benefit from using the underlying asset
What is process for calculating the gain or loss on the sale that relates to rights transferred to the buyer/lessor?
- Calculate gain = fair value (usually = proceeds) less carrying amount.
- Calculate gain that related to rights obtained: gain x present value of future lease payments/fair value. - gain on rights retained.
- Gain related to rights transferred is the balancing figure: total gain - gain on rights retained.
What are the six steps for solving ethical issues?
- Push back and challenge.
- Escalate.
- ICAEW helpline.
- Legal advice.
- Resign.
- Documenting everything we are doing.
When should government grants be recognised?
Where there is reasonable assurance that:
1. The entity will comply with any conditions attached to the grant.
2. The entity will actually receive the grant.
What are the two methods permitted by IAS 20 for the presentation of government grants?
Deferred income method:
- value of any grant is credited to deferred income in the statement of financial position. The grant is recognised as income in profit or loss on a systematic and rational basis over the useful life of the asset. The asset is then accounted for using the normal way by applying IAS 16.
Netting off method:
- the grant is netted off the carrying amount of the asset to which it relates. The grant is recognised in the profit or loss over the life of the depreciable asset by way of a reduction depreciation charge.
What is Richard’s process for explain questions?
- Accounting rules.
- Initial treatment.
- Subsequent treatment.
- End numbers in the SOFP/SPL.
If the construction is financed out of the general borrowing of the entity, what do we do ?
The amount of borrowing costs to be capitalised should be calculated by reference to the weighted average cost of the general borrowings. I.e (loan x rate) + (loan x rate)/ full amount of borrowings.
The weighted average cost excludes specific assets or buildings until all activities to prepare that specific asset for use or sale are complete.
In FAR, what are financial assets assumed to be measured at ?
Amortised cost using the effective interest method.
In relation to IAS 32, how are compound instruments treated, specifically convertible bonds, treated?
Split accounting proceeds: calculate the fair value of a similar non convertible bond and minus the liability component to get equity.
What are the three criteria to recognise a provision?
- An entity has a present obligation(legal or constructive)
- Probably outflow of resources (more than 50% chance)
- Reliable estimate of the amount of the obligation.
When would a constructive obligation exist with a restructuring entity?
- A detailed formal plan.
- Raised a valid expectation to those effected.
What is a contingent liability?
- A possible obligation that arises from past events that will be confirmed to exist by one or more uncertain future events.
- A present obligation that arises but cannot be recognised due to it not being a probably flow of resources or the amount cannot be reliably measured.
How is earnings per share calculated?
Profit/loss attributable to ordinary equity holders of the parent company/ weighted average number of shares.
How is weighted average number of shares calculated?
The number of shares in issue at the start of the year time-apportioned for the period before the new share issue, PLUS
The number of shares in issue after the new share issue, time-apportioned for the period after the date of issue.
How are rights fractions calculated?
Pre right issue prices of shares/ TERP
How is TERP calculated?
Total value of shares after rights issue/ total number of shares after rights issue
How should a parent company recognise goodwill?
The parent company should recognise goodwill in the consolidated accounts as the acquisition date measured as:
Consideration transferred X
Non-controlling interest at acquisition X
Net asset’s of subsidiary at acquisition (X)
= goodwill recognised.
What happens when goodwill is negative?
It becomes a gain on bargain purchase.
How is NCI at acquisition date calculated?
NCI% x subsidiaries NA at acq date OR NCI% x subsidiaries post acq reserves.
What is the exam technique for consolidated SOFP?
- Read the requirement.
- Establish group structure. (W1)
- Copy and paste statement of financial position pro forma.
- Record easy numbers on the face of the SOFP(assets, liabilities and share cap)
- Set out the net assets of S Ltd working (W2)
- Deal with adjustments.
- Calculate goodwill.
- Calculate non controlling interest at year end.
- Calculate retained earnings.
To calculate the net assets at mid year acquisition, what do we do ?
- Pro rate the subsidiary profit for the post acquisition period and deduct from the year end assets.
- Assume that a subsidiaries profits accrue evenly over time.
How is provision for unrealised profit (PURP) calculated?
Intragroup profit x% of sales in buying companies inventories.
What are the three types of fair value adjustments?
- Adjustments to carrying amounts of assets and liabilities recognised by the subsidiary.
- Adjustments to eliminate goodwill in the subsidiaries separate financial statements.
- Adjustments to recognise items that the subsidiary has not recognised in its financial statements.
How is the associate included using equity accounting?
By recognising their share of the profit as it is earned as opposed to waiting for a dividend.
What is the steps for preparing a consolidated P and L?
- Read the question.
- Establish group structure.
- Prorate statement of profit or loss pro forma.
- Set out consolidation schedule: revenue, cost of sale, expenses, inv inc, tax and profit.
- Deal with consolidation adjustments.
- Calculate non-controlling interest.
- Calculate amount of profit attributable to parent: difference between consolidated profit and NCI.
What is eliminated as part of an intragroup transaction?
- One group company’s loans, debentures, redeemable presence share.
- Intra group trading.
- Dividends from a subsidiary to parent.
How are good will impairments dealt with if non controlling interests are calculated using the proportionate method?
The impairments should be recorded in the Parents expenses column.
How are good will impairments recorded if the non controlling interest is measured at fair value?
The goodwill impairment should be recorded in the subsidiaries column.
How is a group profit or loss on disposal calculated?
Proceeds x
Net assets of disposal (x)
NCI at disposal x
Carrying amount of goodwill on disposal (x)
What is the process for getting the equity and liability components of convertible bonds?
- Discount the cash flow from bond payments. Discount using the market rate of non convertible.
- In the final year of discounting, add in the final payment to be discounted.
- Total these and minus them from the initial amount to get the liability component.
- Remember, the equity element will remain the same but once recognised the liability should be shown at amortised cost by adding the market rate interest and deducting the payment made.
What is the 5 step model for revenue recognition ?
- Identify the contact with a customer.
- Identify the performance obligations in the contract.
- Determine the transaction price.
- Allocate the transaction price to the performance obligations in the contract.
- Recognise revenue when or as the entity satisfied the performance obligations.
What are the two methods for recognising income grants?
- A credit in the profit or loss, either separately or under a general heading such as other income.
- A deduction from the related expense.
How is non controlling interest of a subsidiary calculated for consolidated profit and loss statements?
Non controlling interest % x profit per the consolidation schedule.
What should be included within an explain question?
- The accounting standards, criteria to be met and treatment.
- Any relevant calculations.
- Debits and credits.
- Anything incorrect with the account in treatment which had already been made.
What is in the reconciliation of profit before tax to cash generated from operations working?
Inventory movements.
Trade payables movements.
Trade receivables movements.
Depreciation.
Amortisation.
Profit/loss on PPE.
Profit/loss on disposal of intangibles.
Cash generated from operations final figures
What is included in the cash flows from operating activists section?
Cash generated from operations.
Interest paid.
Income tax paid.
What is included in cash flows from investing activities?
Purchase of PPE.
purchase of intangibles.
Interest received.
Proceeds from PPE.
Proceeds from intangibles.
Proceeds from disposal of subsid.
What is included in cash flows from financing activities?
Proceeds from the issue of shares.
Repayment of loan.
Dividend paid.
Finance costs.
Payments of lease liability.
Increase or decrease in retained earnings.
Profit for the year.
Proceeds from the issue of borrowings.
What are the two ways of presenting financial statement items?
By function.
By nature.
