Inv, est, policies, events post period and op segments

Question 1

How should inventories be measured?

Answer 1

Lower of;

Cost - this includes cost of purchase, costs of conversion and cost to bring inventory to current location and condition. Costs of conversion may include production overheads and should be allocated based on normal (budgeted) production levels

Net realisable value

estimated selling prices less costs to completion less costs to sell

Question 2

Give some examples of costs NOT included in inventory costs?

Answer 2

Abnormal amounts of wasted materials, labour or other production costs

Storage costs

Admin costs that do not contribute to bringing the inventories to their present location and condition

Selling and distribution costs

Question 3

What are the main disclosure elements of IAS 2 - Inventories?

Answer 3

Accounting policy adopted, including the cost formula used

Total carrying amount, classified as;

Raw materials        X
WIP                         X
FG                          X
                               \_\_\_\_
                                X

Question 4

When should a change in accounting policy be made?

Answer 4

ONLY if required by a new IFRS

or

The change improves the relevance and reliability of financial statements

Question 5

Give some common examples of changes in accounting policies?

Answer 5

There has been a change in

Recognition - IE an expense is now recognised as an asset

Presentation - IE depreciation is now classified as cost of sales rather than an administration expense

Measurement basis - IE stating that assets should be valued as replacement cost rather than historical cost

Question 6

Give some examples of changes in accounting estimates?

Answer 6

Changes in;

• the useful lives of NCAs
• the residual values of NCS’s
• the method of depreciating NCAs
• Warranties and provisions

Question 7

Describe what accounting errors are?

Answer 7

Errors are omissions from and misstatements in the entities financials arising from a failure to use or misuse of reliable information that;

• was available when financials for the period were issued and
• could reasonably be expected to have been obtained and taken into account in the preparation and presentation of those financial statements

Question 8

How should accounting errors be treated?

Answer 8

Errors are treated in the same way as accounting policy changes, IE, they should be corrected retrospectively

Question 9

Describe the difference between adjusting and non-adjusting events?

Answer 9

Adjusting - those events which provide evidence of conditions that existed at the reporting date. FS should be adjusted to reflect the adjusting event

Non-adjusting - those events that are indicative of conditions that arose AFTER the reporting date. FS should not be adjusted to reflect. Non-adjusting events should be disclosed if they affect users understanding of the FS

Question 10

Give some examples of adjusting events

Answer 10

Evidence that inventory is valued incorrectly IE NRV is less than cost

Evidence that a customer has gone into liquidation

Evidence of fraud or error

Completion of a court case entered into before the reporting date

Completion of an insurance claim relating to an event that occurred prior to the YE

Question 11

Give some examples of NON adjusting events

Answer 11

Acquisition or disposal of a sub after the year end

Announcements of a plan to discontinue an operation

Destruction of an asset by fire or flood after the reporting date

Announcements of a plan to restructure

Share capital transactions after the reporting date

Changes in taxation or fx rates after the reporting date

Strikes or other labour disputes

Question 12

How does IFRS 8 define operating segments?

Answer 12

IFRS 8 defines operating segments as a component of an entity that;

a - engages in business activity from which it earns revenues and incurs expenses

b - whose operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and asses its performance

and

c - for which discrete financial info is available

Question 13

Describe the 10% rule for reportable segments

Answer 13

A segment should be classified as reportable if it contributes more than 10% of the total of any of the following;

• revenue (internal and external)
• profitable segments
• loss making segments
• assets

If after allocating segments according to the 10% rule the external revenue of reportable segments is less than 75% of total revenue of the entity then additional segments will be classed as reportable segments even if they did not meet the 10% rule