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SBR ACCA > Part C5-11: Reporting The Financial Performance Of Entities > Flashcards

Part C5-11: Reporting The Financial Performance Of Entities Flashcards

1
Q

Types of post employment benefit plans

A

Defined contribution
- company promises to pay fixed contributions into a pension fund for the employee and has no further obligations

Defined benefit
- obligation to pay a defined pension

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2
Q

Past service cost - definition and treatment

A

This is the change in the pension plan resulting in a higher pension obligation for employee service in prior periods

Should be recognised immediately

Dr income statement
Cr pension liability

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3
Q

Current service cost - definition and treatment

A

Increase in pension liability due to benefits earned by employee service in the period

Dr income statement
Cr pension liability

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4
Q

Interest cost on pension - definition and treatment

A

The unwinding on the discount of the pension liability

Dr interest
Cr pension liability

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5
Q

Contributions to pension fund accounting treatment

A

Dr pension asset

Cr cash

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6
Q

Benefits paid accounting treatment

A

Dr pension liability

Cr pension asset

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7
Q

Termination benefits - when to recognise

A

Amount payable only recognised when committed to either

  • terminating the employment of employees before the normal retirement date; or
  • providing benefits in order to encourage voluntary redundancy

Discount down if payable in future

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8
Q

Any pension asset recognised should be valued at..

A

The lower of
- the net total calculated
AND
- the net total of
i) past service costs not recognised as an expense
And
ii) the PV of any economy benefits available in the form of refunds from the plan or reductions in future contributions to the plan

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9
Q

Defined contribution plan

A

The enterprise pays fixed contributions into a fund and has no further obligations

Contribution payable is recognised in the income statement for that period

If contributions are not payable until after a year they must be discounted

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10
Q

Curtailments - definition and treatment

A

An amendment made to the plan which improves benefits for plan members

An increase to the obligation (and expense) is recognised when the amendment occurs

Dr P&L
Cr PV of defined benefit obligation

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11
Q

Settlements - definition and treatment

A

A settlement eliminates all further obligations

The gain or loss on a settlement is recognised in P&L when the settlement occurs

Dr PV of obligation (as advised by actuary)
Cr FV plan assets transferred
Cr cash (paid directly by entity)
Cr/Dr profit or loss

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12
Q

The Asset ceiling test

A

The net pension amount can’t be shown at more than its recoverable amount

So any net pension asset gets measured at lower of:
- net reported asset
Or
- PV of any refunds/reduction of future contributions available from the pension plan

Impairment loss charged immediately to OCI

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13
Q

What tax rate to use for unrealised profit adjustments?

A

IAS12 says to use the tax rate of the buyer

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14
Q

When to recognise a provision and at how much?

A
  • there is an obligation (constructive or legal)
  • there is a probable outflow
  • it is reliably measurable

For a large population of items use expected values
For a single item the most likely outcome may be the best estimate

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15
Q

Contingent liabilities definition

A

A disclosure in the accounts

They occur when a potential liability is not probable but only possible

Or when not reliably measurable

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16
Q

Contingent assets definition

A

Prudence is important here!!

Must be virtually certain rather than just probable

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17
Q

Contingent liabilities probability test

A

Remote chance of paying - do nothing
Possible chance - disclosure
Probable chance - create a provision

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18
Q

Contingent assets probability test

A

Remote chance - do nothing
Possible chance - do nothing
Probably chance - disclosure
Virtually certain- create an asset in the accounts

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19
Q

Specific types of provisions

A

Future operating losses

Onerous contracts

Restructuring

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20
Q

Should we provide for future operating losses?!

A

No as there is no obligation

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21
Q

When to create a provision for restructuring

A

When there is a detailed formal plan
AND
There is a valid expectation in those affected that it will carry out restructuring by starting to implement a plan or announcing it

Provide only for costs that are

  • necessarily entailed by the restructuring
  • not associated with the ongoing activities of the entity
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22
Q

Should there be a provision?

1 Warranties

2 Major repairs

3 Self insurance

4 Environmental contamination clearance

5 Decommissioning costs

6 Restructuring

7 Reimbursements

A

1 Yes as legal obligation. Expected values

2 No. treated as replacement NCAs

3 No. no obligation

4 Yes if legally required or if other parties would expect it as known policy

5 Yes as a debit to asset

6 Yes if formal plan in place (don’t provide for training/marketing etc)

7 only when virtually certain

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23
Q

When is the after the reporting date period?

A

Anytime between the period end and the date that the accounts are authorised for issue

24
Q

The types of share based payments

A

1 Equity-settled share-based payment

2 Cash-settled share-based payment

3 Transactions with a choice of settlement

25
Q

Equity settled share based payments treatment

A

Dr expense

Cr equity

26
Q

Cash settled share based payments treatment

A

Cash is paid based on share price

Dr expense
Cr liability

27
Q

Vesting period definition

A

Often share based payments are not immediately payable. The expense is spread over the period. This period is the vesting period

28
Q

How much to recognise for share based payments

A

Option 1: Direct method
- use the FV of the goods or services received

Option 2: Indirect method
- use the FV of the shares issued by the company
For equity settled - use FV of shares @ grant date
For cash settled - update FV of shares each year

IFRS 2 suggest using option 1 unless FV cannot be reliably measured

29
Q

Modifying equity instruments - accounting treatment

A
  1. Continue to recognise the original FV of the instrument in the normal way
  2. Recognise any increase in FV at the modification date (or any increase in number of instruments granted) spread over the period between modification date and vesting date
  3. If modification occurs after vesting date, additional FV must be recognised immediately, unless there is an addition service period
30
Q

Equity instruments cancellations and settlements - accounting treatment

A

Charge any remaining FV immediately in P&L

Any amount paid to the employees by the entity on settlement should be treated as a buyback of shares and should be recognised as a deduction from equity

If the amount of the payment is in excess of the FV of the equity instrument granted, it should be recognised immediately

31
Q

Cash settlement made to an employee on cancellation- accounting treatment

A

Dr equity
Dr IS
Cr cash

32
Q

Share-based payments - which do you apply to IFRS 2?

A

Applies to all entity’s (incl private or small)

Only when shares are issued in return for goods and services only

Share appreciation rates
Employee share purchase plans
Employee share ownership plans
Share option pans 
Plans where share issues depend on certain conditions
33
Q

The FV hierarchy

A

Level 1 inputs

  • quoted prices in accessible active markets for identical assets
  • the most reliable and used without adjustment

Level 2 inputs

  • observable inputs (other than quoted market prices)
  • include quoted prices for similar assets in active markets, inputs corroborated by observable market data (I.e. correlation)

Level 3 inputs
- unobservable inputs for the asset

34
Q

Most advantageous market definition

A

The market that maximises the amount received (after transaction costs and transport costs)

35
Q

Principle market definition

A

The market with the greatest volume and level of activity

36
Q

The three valuation techniques

A

Market approach
- uses prices generated by market transactions of identical or comparable assets

Income approach
- converts future cash flows to a sing current (discounted) amount

Cost approach
- the amount needed to replace the device capacity of an asset (current replacement cost)

37
Q

Examples of simplifications for IFRS for SMEs

A
  • Goodwill and other indefinite life intangibles are amortised over their useful lives, but if it cannot be reliably estimated then 10 years
  • simplified calculation is allowed if measurement of a defined benefit pension plan obligations in old undue cost or effort
  • cost mode is permitted for investments in associates and JVs
38
Q

IFRS for SMEs

A

More user friendly

Easier transition to full IFRS

Cost benefit improvement by relaxation of some measurement and recognition criteria

Stewardship not so important

May improve access to capital

39
Q

IFRS for SMEs- research and development and borrowing cost treatment

A

All research and development costs and all borrowing costs are recognised as an expense

40
Q

IFRS for SMEs- NCAs and goodwill treatment

A

Cost model only

All intangible assets including goodwill are assumed to have finite lives and are amortised

41
Q

When can you recognise a government grant?

A

When there is reasonable assurance that:

  • entity will comply with any conditions attached
  • the grant will be received
42
Q

IAS 20 (government grants) does not apply to the following conditions

A
  • tax breaks from the government
  • government acting as part owner of the entity
  • free technical or marketing advice
43
Q

Accounting for government grants approaches

A

Capital grant approach

Income grant approach

44
Q

Capital grant approach - accounting for cr cost of asset

A

Dr cash
Cr cost of asset

Will reduce depreciation to the income statement and the asset on the SFP

45
Q

Capital grant approach- accounting for cr deferred income

A

Dr cash
Cr deferred income

Will keep full depreciation and full asset and liability on the income statement and SFP respectively

Then

Dr deferred income
Cr income statement (over life of asset)

46
Q

Non-monetary government grants

A

Use FV to put a value on asset gifted

47
Q

Accounting treatment for capital grant repayment

A

Dr any deferred income balance or cost of asset
Dr income statement with balancing figure
Cr cash amount repaid

Any extra depreciation to date should be recognised immediately as an expense

48
Q

Accounting treatment for income grant repayment

A

Dr income statement

Cr cash

49
Q

Income grant approach - accounting treatment

A

Dr cash

Cr other income (or expense)

50
Q

Minimum content of an interim financial report

A 
Condensed balance sheet
Condensed income statement 
Condensed statement of changes in equity
Condensed cash flow statement 
Selected explanatory notes
51
Q

Accounting policy definition

A

Specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting the financial statements

52
Q

When to makes changes to accounting policy

A

If it is required by a standard or interpretation

If it would give more relevant and reliable information

53
Q

What to change for changes in accounting policy

A

Adjust the comparative amounts for the affected item

Adjust the opening retained earnings

54
Q

Accounting estimates definition

A

An adjustment of the carrying amount of an asset or liability, or related expense, resulting from reassessing the expected future benefits and obligations associated with that asset or liability

55
Q

Examples of accounts estimates

A

Allowance for doubtful debt

Inventory obsolescence

A change in the estimate of the useful economic life of PPE

56
Q

Examples of accounting policies

A

Valuation of fixed assets
Depreciation methods
Recognition of goodwill
Inventory valuation

57
Q

Accounting treatment for post period errors

A

Adjust the comparative amounts for the affected item

Adjust opening retained earnings

SBR ACCA (8 decks)

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