past paper Flashcards
company bought 25% rights to receive revenue in another company. can this be classified as an intangible asset?
no, there is no involvement in the business, these are contractual rights to receive cash”
-they should be treated as FA
-FA have 2 types of model”
-amortised cost model
-fair value model
amortised cost has 2 tests:
business model test (end tak kharay hona, no bhaagna)
contractual cashflow characteristics (pure principle and interest) - this test is not met as these rights r like derivative
so not appt to use amortised cost model
it doesn’t pass test
change in accounting policy- state the rule
IAS 8 only permits change in accounting policy if
1) it is required by IFRS
2) it will improve relevance, presentation.
change must be applied retrospectively unless it’s not practical
-it is possible to depart from IAS standards but only in rare circumstance that compliance would be misleading
are companies allowed to show gain and loss of a defined benefit scheme in OCI, and not income statement?
no, all gain and losses on DBS must be reported in income statement, except for remeasurement component
can impairment loss be netted off if a revaluation reserve exists but it doesn’t pertain to the asset impaired?
no it cant. impairment should be recorded in profit and loss.
what is a disposal group? accounting treatment for a subsidary that is HFS?
group of assets that will be disposed off in a single transaction. eg.
a subsidary. accounting treatment for a disposal group is:
-present separately as discontinued operation
-valued at lower of carrying value and FV less CTS
-carrying amount will be net assets and goodwill less NCI’s share
-
restructuring plans have been announced, but COO says dont record provision
this is wrong. constructive obligation exists.
directly attributable costs shud be recognised though, not ongoing business. legal and redundancy costs should be provided for.
Sale and lease back rule
If sale meets IFRS 15 criteria , actual sale, risk and rewards transferred. Then
De recognise asset
Book ROU according to rights retained (CV* PV of future rentals/FV)
Book gain/loss according to rights transferred
Debit bank credit liability
If it doesn’t meet criteria, then
No derecognition of asset
No ROU
Just book receipt as a loan
how should shares be valued at reporting date
in scope of ifrs 9, equity instruments should be measured at fair value in SOFP, and gains and losses should be taken to pnl.
if not held for trading, company can make an irrevokable election at initial recognition to measure it at FVTOCI, with only dividend income recognised in profit and loss.if OCI option is elected, gain will never be reclassified to PnL.
IFRS 15- revenue from royalties?
IFRS 15 states revenue should be recognised when the subsequent sale occurs.
measurement and recognition of royalties- how is it supported by framework?
framework says item that meets definition of element should be recognised if it provides useful financial information. i.e:
-relevant info
-faithful representation
recognising royalty will help users assess economic performance and they can make better investment decisions.
royalty can be accurately measured on basis of sales, so faithful representation of sales is possible.
future royalty incomes shud not be recognised , as no certainty and faithful rep.
P giving property, employee expertise and crpyto to S/JV
de recognise property and crypto.
employee expertise is an internally generated intangible asset so it doesnt have a CV.
Joint venturer transfers asset to joint venture in exchange for equity interest in JV, profit on disposal?
Gain/ loss on disposal will only be limited to how much % holding in JV. eg. if 50% shareholding in JV,
profit on disposal will only be recognised by 50%.
should crypto be recorded as an FS or intangible
-crypto is not a cash equivalent as it value is dependent on other factors and there is no contractual right to receive cash. so it doesnt meet definition of FA as per framework
intangible is non monetary asset identifabble no physical substance, crypto meets this defintion.
measurement:
can be measured at FV as there is active market- gain and lossses in oci. revaluation reverse.
-cost model, if life indeifintie thhen dont amortise.
when no ifrs exists for a particular transaction, eg. crypto
framework gives guidance . consideration shud be given to characteristics of asset. crypto is violatile so fv should be used, rather than PV of cash flows.
-if crypto is held as investment, then gain loss shud be reocrded in PnL rather than OCI.
IAS19 employee benefits - amendment?
before amendment, it was not required to revise assumptions for calculation of current service cost and net interest . even if updated assumptions were used to calculate amendment, curtailment, settlment.
thats why now:
-current service cost must be determined using updated acturial assumption
-net interest must be determined using updated interest rate for remaining period after plan change.
difficulty deciding life of intangible so indefinite life kardi
not right, indefinite only if no foreseeable limit to its useful life. life must be determined, and amortised otherwise assets n profit will be overstated
cash flow discounting
-reasonable and supportable assumptions
-do analysis of past variances in projections an actual cash.
-assumptions must be consistent with past actual outcomes
-include future inflow from continuing use of asset
-outflows necessary to generate inflows
-inflow at disposal
-include day to day servicing, maintenence costs
loan presented as an operating cash flow (4 yrs tenure)
IAS says:
-cash flows from operating activites are those related to revenue producting activities. eg. cash paid to customers and suppliers
-cash flows from financing activites are those that change the equity or borrowing structure. loan is a borrowing and it must be presented in financing activities.
current treatment will make co look more liquid and improve long term sustainability.
sale of shares from 100% ownership to 95%- treatment?
if there is loss of control, then gain loss on disposal will be recorded.
no loss of control here so means no profit or loss will be recorded, no remeasurement of goodwill.
account for transaction in equity, as an increase to NCI.
increase in NCI will be:
disposal date goodwill + disposal date net assets *% given to NCI.
-difference between cash proceeds and increase in NCI will go in other components of equity. (OCE) not in income statement
revaluation reserve of 4 million
revaluation loss of 5 million was all recorded in OCI
ias 16 states that revaluation gain will be recognised in OCI and held in revaluation reserve in equity.
revaluation losses can be charged to oci to the extent the revalation reserve exists, excess to be charged to PnL.
1 million should be charged to PnL, currently profits are overstated.
classified sub as HFS, but also transferred business to it during the year. loss making sub
-define discontinued operation and HFS
-tell criteria and 12 month rule
-then apply, additional activities means not truly available for sale in present condition
-therefore, treat it as a continuing operation in FS. loss will not be presented separately in PnL, will be included in profit from continuing operations
-assets and liabilities of sub will be reclassified from current to non current.
no disclosure of bonuses of directors
ias states that:
-SH are related party and any transaction with them must be disclosed
-individual bonuses dont have to be but a total of all bonus must be disclosed
-breakup must be given
-
ethics
-users rely on us
-accountnats have status and are trusted
-to ensure trust is not broke, we r bound by code of ethics and conduct and IAS
-faithful representation
-mention the standards broken,
-who is impacted
-over and understatements
-
-what action to take? remind, convince, tcwg, legal, resign
equity settled SBP scheme not accounted for cuz not vested
according to ias 2 expense must be spread over the vesting period
expense shud be recorded at FV at grant date
-tell entry
-also IAS says disclosure must be made cuz related party
directors son doing internship, paid market salary.
directors are key management
-close family will also be related party
-salary will have to be disclosed, can make a statement that its market value
retail outlet has been aggregated with other segment
ifrs 8 says separate segment are involved in revenue generation, have discreet financial info and monitored by CODM.
they can be aggregated if similar economic characteristics, likesimilar customers, production process, distriution
if they r not similar, disclose separately, if material (aka thresholds r met)
director made a policy that all gains and losses on pension scheme are recognised in OCI
-change in policy is only allowed if ___
-retrospetive
-departure is allowed if following IAS will mislead fs users.
–
ias 19 states all gain and loss on DBS will be recorded in PnL except for remeasurement component which must be recorded in OCI.
co entered into a contract to purchase wheat, and pay cash equivalent to SP. however it can be settled anytime. margie doesnt intend to take physical delivery
doesnt fall under ifrs 2
as no physical delivery
-falls under scope of ifrs 9 because it can be settled net
contract is derivative cuz it meets following criteria:
-value changes compared to underlying item
-no or low initial investment
-settled in future
ifrs 9 requires derivatives to be measured at FV through PnL.
initially contract will be recognised at FV (probably nil as shares shud equate to 350 tons of wheat)
-derivatives are remeasured to FV at each reporting date. (based on wheat and shares)
-gain and loss to be reported in PnL.
recent developments in sustainability reporting
recent developments:
-ISSB is formed, an independent standard setting body under ifrs foundation (due to their standard setting expertise and relationships)
FOCUS of ISSB:
-material information for investors
-initially, climate-related reporting, later to cover broader environmental, social, and governance (ESG) matters.
-aim for global, comparable framework
Objective:
-Develop and maintain global sustainability reporting standards.
-Leveraging IASB’s experience and standard-setting process for coherence with existing IFRS standards.
-encourage regulators to mandate sustainability reporting standards
-level playing field for cos
-international comparability
-UNGC,, a voluntary initiative that encourages cos to report actions taken to implement UN principles like human rights, labor, environment, anti corruption
-GRI which encourage entities to produce a balanced report- positvie negative influence on society and environment
-Integrated reporting, report on value creation, 6 capitals
-laws are being passed to make sustainability disclosures necessary
benefits of disclosing environmental impact
benefits:
-attract ethical investors
-its best practice, improved reputation cuz of increased transparency
-attract and retain talent
-attract and retain customers
-increased trust
-comparability means improved decision making
interaction between individual and consolidated books
in individual books P treats S as an investment and records gains and losses in income statement
so we will reverse individual books entries and make it zero
(farz)
then do consolidated entries from scratch
otherwise double double.
P can treat investment in S as FVTOCI or FVTPNL as per ifrs 9
however in consolidated books company can bring investment to FV till acq date, after that they cant bring it to FV.
consolidation PnL- P disposed of S shares but didnt lose control
case 2: did lose control
S income and expenses must be consolidated for full year
no gain/loss on disposal
-income and expense add in full up to date of disposal
-gain/loss on disposal will be calculated
-goodwill will be recalculated
/-after disposal, equity method (one line adjustment will be used) for remaining shares
what is the format to calculate profit/loss on disposal if control has been lost?
Bank proceeds
Fair value of residual holding
Less: Goodwill at disposal
Less: Net assets at disposal
Less: NCI at disposal
Fair value of non financial asset
go for highest and best use as long as it’s legal, financially feasible and physically possible.
intention of use are irrelevant
value as if converted to best use:
eg. market value less demolition cost
