IAS Revision

Question 1

IAS16 - Property, plant & equipment

How is a Revaluation Gain accounted for in the financial statements?

Answer 1

Debit - Non-current assets
Debit - Accumulated depreciation
Credit - Revaluation surplus

In the statement of financial position, the non-current asset is shown as the revalued amount

In the statement of profit or loss and comprehensive income, the revaluation surplus is added to “other comprehensive income”

Question 2

IASB Conceptual Framework

Define “verifiability”

Answer 2

Different, knowledgeable, independent observers could agree that a particular depiction of a transaction in the financial statements is a faithful representation

Question 3

IASB Conceptual Framework

Define “materiality”

Answer 3

An item of information is material if omitting it or misting it could influence decisions that users make on the basis of the financial statements.

An item can be material on account go its nature or an account of its magnitude.

Question 4

IAS1 - Presentation of Financial Statements

In which statements are the following presented in:
Finance Expenses
Revaluation loss on a building
Bad Debt Expense

Answer 4

Finance Expenses - The statement of profit or loss and other comprehensive income (under finance cost - SOPL)

Revaluation loss on a building - The statement of profit or loss and other comprehensive income, under the other comprehensive income as a negative figure

Bad debt expense - The statement of profit or loss and other comprehensive income, in administration & distribution costs

Question 5

IAS2 Inventory

Define ‘Net Realisable Value (NRV)”

Answer 5

The estimated selling price of inventories in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale

Selling price - costs of completion

Question 6

IASB Conceptual Framework

Define “matching/accrual”

Answer 6

This dictates that the effects of transactions and other events are recognised in the financial statements in the periods that they occur, rather than in the period when the cash is received or paid

Question 7

IASB Conceptual Framework

Define “going concern”

Answer 7

The assumption that the entity has neither the intention nor the necessity to liquidate or curtail major operations

Question 8

IAS40 Investment Property

How is investment property measured?

Answer 8

Using either the cost model or the fair value model

The cost model - Cost less any accumulated depreciation or impairment losses

The fair value model - The exit price, proceeds if the investment property was sold today

Question 9

IAS40 Investment Property

Using the cost model, how is investment property recorded in the financial statements?

Answer 9

The cost model

Depreciation is calculated first

In the statement of profit or loss (when calculating administration & distribution expenses), there will be a depreciation charge of x amount

In the statement of financial position (non-current assets), the property will be shown at carrying value (i.e. cost less accumulated depreciation)

Question 10

IAS40 Investment Property

Using the fair value model, how is investment property recorded in the financial statements?

Answer 10

The fair value model

No depreciation charge

In the statement of profit or loss there will be a gain or loss (on revaluation) representing the fair value adjustment, in other income

In the statement of financial position (non-current assets), the property will be shown at its fair value

Question 11

IAS23 - Borrowing costs

When does IAS23 state that capitalisation of the borrowing cost should cease?

Answer 11

Capitalisation of borrowing costs must suspend when all the activities necessary to prepare the asset for its intended use or sale are complete

Question 12

IFRS5 - Discontinued operations

Define a “discontinued operation”

Answer 12

A component of an entity that either has been disposed of or is classified as held for sale. For this purpose, a component comprises operations and cash flows that can clearly be distinguished from the rest of the entity

Question 13

IFRS5 - Discontinued operations

What does the separation of discontinued operations enable users to do?

Answer 13

The separate presentation enables users to immediately identify that the performance relating to the discontinued segment or area will not continue in the future, hence making the information more relevant to users decision making

The user can choose to include the information when evaluating the past performance of the company or ignore it when forecasting future outcomes

Question 14

IAS10 - Events after the reporting period

What should you do with non-adjusting, but material, events?

Answer 14

They should be disclosed in the notes to the financial statements

Question 15

IAS1 - Presentation of Financial Statements

What does IAS1 require for an item to be classified as a “Current Asset”

Answer 15

Held primarily for the use of being traded

It is a cash or a cash equivalent

Expected to be realised within 12 months of the reporting period

Expected to be realised, sold or consumed within the entity’s normal operating cycle

Question 16

IAS17 - Leases

How are finance leases accounted for at the commencement of the lease term?

Answer 16

Shown as an increase in non-current asset in the statement of financial position

Shown as an increase in liability in the statement of financial position, a liability to the lessor

Question 17

IAS17 - Leases

How are finance leases measured? The lower of:

Answer 17

The fair value of the asset

or

The present value of the minimum lease payments

Question 18

IAS17 - Leases

How is the actuarial method used to apportion interest in a finance lease over the lease term?

Answer 18

Interest is charged at a constant percentage on the outstanding liability, therefore matching interest to the “loan balance”

This method is specified by IAS17 as it is the most accurate. However, to apply it the rate of interest in the lease is required

Question 19

IAS23 - Borrowing costs

What is the treatment of borrowing costs?

Answer 19

Borrowing costs must be capitalised if they are directly attributable to qualifying assets, which are assets that take a substantial time to complete

Question 20

IAS17 - Leases

Define a “lease”

Answer 20

An agreement whereby the lessor conveys to the lessee the right to use an asset for a period of time, in return for a payment or a series of payments

Question 21

IAS17 - Leases

Define a “finance lease”

Answer 21

A lease that transfers substantially all the risks and rewards incidental to ownership of an asset

The leased item should be considered an asset in the lessee’s financial statements along with a corresponding liability to the lessor

Question 22

IAS23 - Borrowing Costs

Define “borrowing costs”

Answer 22

The interest and other costs that an entity incurs in connection with the borrowing of funds

Question 23

IAS23 - Borrowing Costs

Define a “qualifying asset”

Answer 23

An asset that necessarily takes a substantial period of time to get ready for its intended use or sale

Question 24

IAS40 - Investment Property

Define “Investment property”

Answer 24

Property held to earn rentals or for capital appreciation or both

Question 25

IAS40 - Investment Property

What is investment property measured at initially and at a subsequent reporting date?

Answer 25

Initially - Cost

At a subsequent reporting date - Cost model or fair value model

Question 26

IAS23 - Borrowing Costs

How is the average borrowing rate calculated?
Weighted Average Borrowing Rate

Answer 26

Total interest charge/

Total outstanding liability

Question 27

What is the difference between the IAS16 - property, plant & equipment and IAS40 - investment property, subsequent measurement of the value?

Answer 27

IAS16 - Property, Plant & Equipment
Either the cost model or the revaluation model

IAS40 - Investment Property
Either the cost model or the fair value model