Förkortningar IFRS tenta frågor

Question 1

What is the definition of deprival value?

Answer 1

The lower of:

• Replacement cost
• Recoverable amount

The higher of:

• Fair value less costs to sell (disposal value)
• Value in use (value obtainable from use)

Question 2

What is the purpose of financial reporting and what are the fundamental issues with it?

Answer 2

Financial statements are prepared for the purpose of providing information that is useful in making economic decisions.

Fundamental issues

• Who are the users of the accounting statements?
• How can we provide the user with the information best suited to their needs?

Question 3

What is the definition of fair value? (After may 2011)

Answer 3

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.

Question 4

What is measurement and how is it described in the conceptual framework?

Answer 4

Measurement is the process of determining the monetary amounts at which the elements of the financial statements are to be recognised and carried in the balance sheet and income statement.

Question 5

Which are two of the main competitors of how current value should be defined and measured?

Answer 5

Two of the main competitors within this area are fair value measurement and deprival value (Van Zilj and Wittington, 2006).

Question 6

when is deprival value used?

Answer 6

Deprival value is usually used when the fair value of an asset cannot be reliably estimated.

Question 7

Describe the different types of measurement bases?

Answer 7

• Historical cost
• Current cost
• Realizable (settlement) value
• Present value
• Fair value
• (currently) not part of the CF
• 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 (IFRS 13 § 9)

Question 8

What are the criticism of Fair value?

Answer 8

• The criticism is directed towards reliability issues, market actors use different concepts of reliability which in turn may threaten the relevance for accounting (Power, 2010; Barth, 2007).
• the lack of a clear definition of fair value (Barth, 2007).
• the way that it does not address transaction costs and the choice of market

Question 9

Measurement of fair values

What is the four step process?

Answer 9

1. Determine the asset or liability that is to be measured
2. Determine the valuation premise that is appropriate
3. Determine the principal or most advantageous market
4. Determine the appropriate valuation technique

Question 10

What is Fair Value?

Answer 10

Fair value is an exit price which embodies expectations about the future cash inflows and cash outflows associated with an asset or liability from the perspective of a market participant.

Fair value is a market-based measurement, rather than an entity-specific measurement,

Question 11

IFRS 13 provides a fair value hierarchy of inputs to achieve consistency and comparability, which are the inputs?

Answer 11

• Level 1
• quoted prices in active markets for identical assets or liabilities
• Level 2
• inputs other than quoted prices observable for the asset or liability (directly or indirectly)
• Level 3
• unobservable inputs for the asset or liability

Question 12

Describe and elaborate six of the qualitative characteristics in the conceptual framework (1989 or 2010).

Answer 12

IASB Conceptual Framework 2010 (New approach):

• Fundamental qualitative characteristics:
• Relevance
• Faithful representation
• Comparability
• Verifiability
• Timeliness
• Understandability

Question 13

What are the objectives of IFRS 13 Fair value Measurement?

Answer 13

Stated in paragraph 1:

• to define fair value
• to set out in a single standard a framework for measuring fair value
• to require disclosures about fair value measurement

Question 14

Describe the IASB standard setting process

Answer 14

Setting the agenda

• Planning the project
• Developing and publishing the discussion paper (incl public consultation)
• Developing and publishing the exposure draft (incl. public consultation)
• Developing and publishing the standard
• Procedures after an IFRS is issued

Question 15

Svar på fråga b i frågan om Lamp production line:

Answer 15

Provision:
11 700 will be recognized as a liability in the balance sheet at 31 December 2012 and the accretion of the discount (11700 * 0,1 =1170) will be shown as interest expense in the income statement

Question 16

Svar på fråga c i frågan om Lamp production line:

Answer 16

99 900/10 = 9990 (depreciation)
99 900 - 9990 = 89910 (carrying amount)
90 000 (FV) - 89910 = 90 (revaluation surplus)

The production line will be valued at the fair value of 90 000 with 90 going to the revaluation surplus account in equity.
The depreciation expense at 9990 will be recognized in the income statement.

Question 17

Svar på fråga c i frågan om Lamp production men i denna fråga buildings?

Answer 17

Since the building will be rented out to another company it is considered an investment and property and IAS 40 applies.

Question 18

a) Describe any present obligation as a result of a past obligation event?
b) Describe the probability of any outflows of resources embodying economic benefits in a settlement concerning the gas rig.

Answer 18

a) There is a present obligation as a result of a past obligation event since there is a requirement that the company must remove the gas rig at the end of the production and restore the seabed. By not doing so, the company could possibly face a penalty fee for failing to follow the agreement.
b) There is a probable outflow of resources since there is a requirement in the licensing agreement, and at the balance sheet date, the rig has already been constructed. As the company have to remove the gas rig at the end of the production, there definitely is is a probable outflow of resources that the company can’t avoid.

Question 19

Explain the difference between a finance lease and an operating lease.

Answer 19

IAS 17, paragraph 4 defines a finance lease as ‘an agreement which transfers substantially all the risks and rewards incidental to ownership of an asset.’ An operating lease any lease other than a finance lease.