IFRS

Question 1

Under IFRS an intangible is defined as…

Answer 1

an identifiable, nonmonetary asset without physical substance.

Question 2

Intercompany Account Receivable (or payable) on Consolidated B/S

Answer 2

Total parent and subsidiary’s A/R (or A/P). Any difference between the total and the amount shown in Consolidated column is an intercompany A/R (or A/P)

Question 3

When calculating GP for percentage of construction what will be considered:
Progress Billings to date
Income Previously Recognized

Answer 3

Income Previously Recognized (only)

Question 4

Treatment of BIC after bond issuance

Answer 4

IFRS – Amortize BIC using Effective Interest Method (reducing the CV of the bonds)

GAAP – Noncurrent Asset, amortized using S/L Method over period that Bonds are outstanding

Question 5

What does BIC include?

Answer 5

Printing and engraving costs
Legal and accounting feeswhat
Underwriter commission
Promotion costs (printing of prospectus)

Question 6

What methods does IFRS allow for Cash Flow Statements?

Answer 6

IFRS – Direct, Indirect and Modified

Negative cash balance in C/F rptd as negative Cash Equiv.
(negative asset)

GAAP – Direct and Indirect only

Negative cash balance is reported as a current Liability

Question 7

On IFRS Stmt of CASH FLOWS, how are interest and dividends categorized?

Answer 7

IFRS –
INTEREST = INVESTING or Int Paid may be FINANCING
(although Interest PAID may be FINANCING)
DIVIDENDS RECEIVED = INVESTING
(unless in lending business, then its operating)

GAAP –
INTEREST = OPERATING
DIVIDENDS RECEIVED are OPERATING
DIVIDENDS PAID are INVESTING

Question 8

How does IFRS classify Interest paid on L-T Debt on the Cash Flow Statement

Answer 8

IFRS –
L-T Interest Expense = OPERATING or FINANCING activity

GAAP –
L-T Interest Expense and Revenue = OPERATING activity

Question 9

In IFRS, Purchase of PPE Machinery -

How do you account for FREIGHT IN
How do you account for LOAN INTEREST

Answer 9

FREIGHT IN is part of readying for Intended Use - CAPITALIZE

LOAN INTEREST is expesed as incurred

Question 10

IFRS Lawsuit Reporting - When do you report (accrue) a contingent Loss?

Answer 10

IFRS – Contingent Loss must be recognized if it is “more likely than not”

GAAP –
Unsuccessful suit is Expensed
Successful suit, award and expenses are Capitalized

For reporting - a Loss must be PROBABLE, which is defined as “likely.” (51% is not enough)

Question 11

IFRS Terminology difference for contingencies

Answer 11

IFRS:
PROVISION - when Probable & Estimable
(Disclose & Accrue)
Ex: Warranty Oblig or probable loss of suit D & A

CONTINGENCY - when NOT Probably and Estimable
(Disclose Only)
Potential obligation not recognized as liability either because not probable or estimable.

Question 12

IFRS treatment of “CONTINGENCIES”

Answer 12

DISCLOSED only

Viewed as not probable or estimable therefore not recognized as a liability.

Question 13

IFRS treatment of “PROVISION”

Answer 13

DISCLOSED and ACCRUED
Recognized as liabilities on balance sheet
outflow is probably; amount is estimable

Question 14

IFRS treatment of PENSIONS PLANS, VAC & SICK PAY

Answer 14

IFRS – Vacation and sick pay that accumulate are required to be accrued

PROJECTED UNIT CREDIT Method is applied for defined benefit pension plans

Actuarial gains and losses are recognized immediately in OCI.

Question 15

GAAP treatment of PENSION PLANS, VAC & SICK PAY

Answer 15

Vacation pay that accumulates or vests and sick pay that vests must be accrued.

Benefits-Years-of-Service Method used for defined benefit pension plans.

Corridor approach used for recognizing actuarial gains and losses in pension expense.

Question 16

IFRS criteria for operating or “finance” lease

Answer 16

Only criteria for FINANCE (GAAP calls CAPITAL) is that
Lease appears to have BPO:

Life of lease must be major portion of life of asset (60% qualifies)

That it “transfers substantially all rights and risks of ownership to lessee.

Initial direct costs are CAPITALIZED with a finance lease.

Question 17

GAAP LEASE (OPERATING or CAPITAL)

Answer 17

TT
BPO
75 EST ECON LIFE
90 MIN LEASE PMTS

An operating lease is never recorded on B/S
Initial Direct Costs are EXPENSED by lesee as incurred

Question 18

IFRS differences in valuation of inventory for reporting

Answer 18

IFRS -

1. LIFO not allowed
2. Inventory rpt at LCNRV (GAAP is LCM)
3. Allows recoveries after write-downs if NRV increases

Question 19

IFRS differences in valuation of receivables and allowances

Answer 19

Uses Allowance Method but calls it “Provision Method”

Required to be tested for impairment each period ending. Impairment loss MAY be recovered

Transaction Costs are included in CV reducing effective rate.

Question 20

IFRS Required Disclosures on “Statement of Profit and Loss” (I/S)

Answer 20

FINANCE COST (FAT)
TAX EXPENSE (TIRE)
INCOME (IPA)

Question 21

IFRS HEDGE ACCOUNTING

Affects which two types of Hedges?
Where does IFRS Hedge Acct recognize gains and losses?

Answer 21

IFRS HEDGE ACCOUNTING applies to

1. Cash-Flow Hedge
2. Hedge of Net Investment in Foreign Operations

Recognizes gains and losses in OCI

Question 22

IFRS COMPOUND BONDS e.g. ‘convertible bonds’

Answer 22

Compound (convertible) bonds are separated into Liabilty and Equity components

– also, don’t forget –

IFRS requires CV be reduced by debt issue costs (BIC) resulting in lower Bonds/Payable amount and Higher Effective Interest Rate

Question 23

How does IFRS account for bonds and track interest?

Answer 23

IFRS Amortizes Cost using the EFFECTIVE INTEREST METHOD, [S/L Method NOT allowed]

Results in LOWER B/P amount and HIGHER effective interest.

FV Election is possible, but irrevocable
Initially record at FV - transaction costs at issuance - FVTPL