Financial Reporting

Question 1

How to treat Research and Development (PIRATE)

Answer 1

Research - write off as an expense immediately
Development (PIRATE)
P - Profit made on project
I - Intention to use/sell product
R - Resources available to complete project
A - Ability to use/sell product
T - Technically feasible
E - Expenditure is identifiable

Question 2

The recoverable amount of an asset or a cash-generating unit is the higher of

Answer 2

• Its fair value less costs of disposal and

- Its value in use

Question 3

Assets are impaired if

Answer 3

the carrying amount exceeds its recoverable amount

Question 4

Value in use is

Answer 4

the present value of the future cash flows expected to be derived from an asset or cash-generating unit.’

Question 5

A provision shall be recognised when..

Answer 5

(a) an entity has a present obligation (legal or constructive) as a result of a
past event;
(b) it is probable that an outflow of resources embodying economic benefits
will be required to settle the obligation; and
(c) a reliable estimate can be made of the amount of the obligation.‘(IAS 37,
para 14)`

Question 6

Accounting policies should be..

Answer 6

• Relevant
• Reliable
• Consistent
• Comparable

Question 7

Changes in accounting policies or accounting errors should be adjusted for..

Answer 7

retrospectively

Question 8

Changes in accounting estimates should be accounted for..

Answer 8

prospectively

Question 9

An asset can be classified as ‘held for sale’ if..

Answer 9

its carrying amount will be recovered through a sale transaction rather than through continuing use

Question 10

Held for sale criteria:

Answer 10

 The asset is available for immediate sale.
 The sale is highly probable.
– Management committed to plan to sell the asset.
– Active programme to locate a buyer.
– Marketed at a price that is reasonable.
– Sale expected to take place within one year.
– Unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

Question 11

A discontinued operation is a component of an entity that either has beendisposed of, or is classified as held for sale, and

Answer 11

(a) represents a separate major line of business or geographical area of operations,
(b) is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations or
(c) is a subsidiary acquired exclusively with a view to resale.’ (IFRS 5, para 32)