Part 7 - Inventories / Investment property / Investment in Associates / Joint Arrangement

Question 1

what are the cost for inventory?

Answer 1

includes all costs of purchase, cost of conversion and other costs incurred in bringing the inventories to their present location and condition

costs of conversion includes: direct labour, systematic allocation of fixed and variable overhead cost

Question 2

What are some cost that are not to be included in inventory?

Answer 2

abnormal amount of wasted materials, labours and production cost, storage cost, admin overhead, selling cost

Question 3

What’s the differences between periodic and perpetual?

Answer 3

Periodic - inventory value is determined only when physical count is performed
Perpetual - inventory value is maintained on a continual basis (inventory and COGS is calculated after each inventory transaction)

Question 4

What are the cost formula for inventories?

Answer 4

specific items - use for large, unique items, cost for each individual inventory items are maintained

average cost

• periodic system - weighted average unit cost used to allocate costs to ending inventory and COGS

Beginning inventory cost + Total current period purchase cost / no. of units in beginning inventory + units purchased during the period

Perpetual system - moving average unit cost used - new average cost computed after each purchase

FIFO - COGS is calculated assuming that the beginning inventory and oldest purchases were sold first

Question 5

how to calculate the cost of good sold?

Answer 5

COGS = cost of goods available for sale - ending inventory

Question 6

Weighted average COGS?

Answer 6

Cost of goods available for sale (opening inventory x sale price + purchase x sale price) / total purchase

Question 7

How should inventory be reported?

Answer 7

the lower of cost and net realizable value

Question 8

What is net realizable value?

Answer 8

estimate selling price in the ordinary course of business less the estimate costs of completion and the estimate cost necessary to make the sale.

Must assess NRV on an item by item basis or buy a group of similar or related items

Question 9

What is an investment property?

Answer 9

Land or a building held to earn rental or for capital appreciation rather than to:

• use in the production or supply of goods/services or for admin purpose or
• sale in the ordinary course of business

Question 10

Whats the initial measurement of investment property?

Answer 10

Record at cost - purchase price + directly attributable expense (legal fee, property transfer tax and other transaction cost)

Question 11

Whats the subsequent measurement for investment property?

Answer 11

investment property may be accounted for using either the cost or fair value method

Question 12

What’s the cost model for investment property?

Answer 12

carried at cost less accumulated depreciation and any accumulated impairment losses

Question 13

Whats the fair value model for investment property?

Answer 13

• Measure at fair value
• gain and loss resulting from change in FV - recognized in profit/loss
• Depreciation recorded

Question 14

When to have transfer to / from inventory property?

Answer 14

Only when there is a change in use e.g.

• commencement of or end of owner occupation
• commencement of development with a view to sale
• inception of an operating lease to another party

Question 15

What happens if there is a change in use from investment property to PPE or inventory?

Answer 15

deemed cost will be its fair value at date of change in use

Question 16

ASPE 3061 doesn’t permit which model when accounting for investment property?

Answer 16

Fair value model

Question 17

What is associate?

Answer 17

an entity over which the investor has significant influence

Question 18

Significant influence

Answer 18

The power to participate in the financial and operating policy decision of the investee but is not control or joint control over those policies (presume to have significant influence if >20% but less than 50% ownership.

e.g. representation of board
participation in decision making process
material inter-company transaction

Question 19

How should investment that’s subject to significant influence be accounted for?

Answer 19

accounted for using the equity method

except for investment classified as held for sale

Question 20

What is the equity method?

Answer 20

BS -> cost + proportionate share of net income/loss of investee - dividend received from investee

IS -> proportionate share of net income/loss of investee +/- amortization of purchase price discrepancy

Question 21

How to account for impairment of investment in associates?

Answer 21

Net impairment in an investment in an associate is impaired only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the net investment and the loss event has an impact of estimated CF.

• includes goodwill in impairment calculation

Question 22

What is the differences between ASPE 3051 and IAS 28 for investment in associates?

Answer 22

ASPE permits an enterprise to account for significantly influenced investees using either cost or equity method. IAS 28 requires only equity method

Question 23

What is joint arrangement?

Answer 23

An arrangement of which two or more parties have joint control

• parties are bound by contractual arrangement
• Contractual arrangement gives 2 or more of those parties joint control of those arrangement

Question 24

What is joint control?

Answer 24

the contractually agreed sharing of control of an arrangement, which exists only when decision about the relevant activities require the unanimous consent of the parties sharing control

Question 25

What is a separate vehicle?

Answer 25

A separately identifiable financial structure, including separate legal entities or entities recognized by status, regardless of whether those entities have a legal personality

Question 26

What are the two types of joint arrangement

Answer 26

Joint operation and joint Ventures

Question 27

What is a joint operation?

Answer 27

the parties that have joint control of the arrangement have rights to the assets and obligation for the liabilities related to the arrangement

It can be structured as a separate vehicle or not

Question 28

How to recognize a joint operation?

Answer 28

Joint operator’s own asset/liabilities/revenue/expense + its share of asset/liabilities/revenue/expenses

Question 29

How to recognize joint operators contribution/sell asset to joint operation?

Answer 29

only recognize gain/loss on transaction to the extend of the other parties’ interest in the joint operation

Recognize full amount of any loss when transaction provides evidence of a reduction in NRV of asset or impairment

Question 30

How to recognize purchases asset from joint operation?

Answer 30

Joint operator will only recognize its share of gain/loss on transaction when it resells the asset to 3rd party
Joint operator recognize its share of a loss

Question 31

What is a joint venture?

Answer 31

Parties have joint control of the arrangement have rights to the net assets of the arrangement

It has to be a separate vehicle.

Question 32

How to recognize its interest in joint venture?

Answer 32

recognize interest in joint venture in FS using equity method except if held in sale or a parent company thats exempt by the scope exception in IFRS 10

Question 33

How to recognize when a venturer contributes or sell asset to a joint venture?

Answer 33

same as joint operator

• if lacks commercial substance, only recognize gain/loss to the extent of monetary or non monetary asset received
• unrealized gain/loss shall be offset against the investment account

Question 34

How to recognize when venturer purchases assets from joint venturer

Answer 34

same as joint operation

Question 35

How to determine impairment in an investment in a joint arrangement

Answer 35

impaired only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the net investment and that loss event has an impact on the estimated future cash flow that can be reliably estimated

Question 36

How do ASPE 3056 distinguish between 3 types of joint arrangement?

Answer 36

• jointly controlled operation - each investor uses its own PPE and carries its own inventories for purposes of the joint arrangement activities. recognize only its own share of asset/liabilities/revenue/expense
• jointly controlled asset - same as joint operation
• jointly controlled enterprise - joint arrangement that involves the establishment of a corporation in which each investor has an interest (like joint venture) but can choose between equity method, cost method or jointly controlled asset.