Mid-term

Question 1

IAS24 RELATED PARTIES

When a person is a related party to an entity, what disclosure is required?

Answer 1

Name
Relationship to entity
Amount of transaction
Amount outstanding at year end

Question 2

IAS24 RELATED PARTIES

When is a person related to an entity?

Answer 2

• Control or joint control
• Significant control over the entity
• Key management personnel of the entity or it’s parent
• Close family members

Question 3

IAS24 RELATED PARTIES

Define “related party”

Answer 3

A person or entity that is related to the reporting entity

Question 4

IAS32 FINANCIAL INSTRUMENTS

Under IAS32, how should compound instruments be presented?

Answer 4

• Split into equity and liability components

- Presented accordingly in SOFP (i.e. convertible bonds)

Question 5

IAS12 TAXATION

What is the difference between accounting and taxable profits?

Answer 5

Accounting profits are the profits calculated and presented in the FS

Taxable profits are calculated in the tax computation

There are temporary and permanent differences between them

Question 6

IAS12 TAXATION

What is a temporary difference?

Answer 6

Difference between the carrying amount of an asset or liability and the tax base

Taxable temporary difference -
If the carrying amount exceeds the tax base, deferred tax must be provided (provision)
Examples: Revaluation gain

Deductible temporary difference -
If the tax base exceeds the carrying amount, the amount is deductible from future taxable profits (asset)
Example: Impairment

Question 7

IAS12 TAXATION

What is a permanent difference?

Answer 7

Occur when certain items of revenue and expenses are excluded from the computation of taxable profits

Question 8

IAS12 TAXATION

Define “deferred tax”

Answer 8

An accounting measure used to match the tax effects of transactions with their accounting impact

It is the tax attributable to temporary differences

Question 9

CONCEPTUAL FRAMEWORK

What are the 6 elements of the conceptual framework?

Answer 9

• Relevance (must be relevant)
• Timeliness (info given in time to influence decision makers needs)
• Comparability (comparable to other FS)
• Faithful Representation (complete, neutral and free from error)
• Understandability (understandable by users)
• Verifiability (verified by different independent observers)

Question 10

IAS21 FOREIGN EXCHANGE

Define “exchange rate” and “conversion”

Answer 10

The ratio of exchange for 2 currencies

Conversion is the process of exchanging amounts of one foreign currency for another

Question 11

IAS21 FOREIGN EXCHANGE

Define “spot exchange rate”

Answer 11

The exchange rate for immediate delivery

Question 12

IAS21 FOREIGN EXCHANGE

Define “closing rate”

Answer 12

The spot rate at the year end

The exchange rate for immediate delivery at the year end

Question 13

IAS32 FINANICAL INSTRUMENTS

Define “financial instrument”:

Answer 13

Any contract that gives rise to both a financial asset of one entity and a financial liability or equity instrument of another entity

Question 14

IAS32 FINANICAL INSTRUMENTS

What method should be used in the financial statements to recognise loan stock?

Answer 14

The loan stock should be measured at amortised cost using the effective interest method

Question 15

IAS32 FINANICAL INSTRUMENTS

What is the amortised cost method?

Answer 15

The amount at which the financial instrument is measured at initial recognition minus principal payments, plus or minus the cumulative amortisation

Question 16

IAS32 FINANICAL INSTRUMENTS

Define “effective interest rate”

Answer 16

The rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument to the net carrying amount

Question 17

IAS12 TAXATION

Define “current tax”

Answer 17

The amount payable to the tax authorities in relation to the trading activities of the period

Question 18

IAS12 TAXATION

Define “deferred tax”

Answer 18

An accounting measure used to match the tax effects of transactions with their accounting impact

Question 19

CONCEPTUAL FRAMEWORK

What is the meaning of conceptual framework?

Answer 19

Theoretical principals that provide the basis for the development of new accounting standards and evaluating those already in existence

Question 20

CONCEPTUAL FRAMEWORK

What is the objective of financial statements?

Answer 20

To provide useful information to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity

Question 21

IAS12 TAXATION

Define “tax base”

Answer 21

The amount attributable to an asset or liability for tax purposes

It is the amount that will be deductible for tax purposes against any future economic benefits.