PMR - IFRS Sections Flashcards
IFRS Material regarding Performance, Measurement, and Reporting
1
Q
Construction Contracts – Multiple assets (IFRS)
A
- If contract covers a number of assets, treat as a separate construction contract when:
- Separate proposals have been submitted for each asset
- Each asset has been subject to separate negotiation
- The costs and revenues of each asset can be identified
Reference: IAS 11.08
2
Q
Construction Contracts – Group of contracts (IFRS)
A
- Group of contracts, whether with a single customer or several, will be treated as a single construction contract when:
- The group of contracts is negotiated as a single package
- The contracts are so closely interrelated that they are in effect part of a single project with an overall profit margin
- The contracts are performed concurrently at the same time or in a continuous sequence
Reference: IAS 11.09
3
Q
Construction Contracts – Additional asset (IFRS)
A
- Contract provides for construction of an additional asset at the option of the customer – treat as a separate construction contract when:
- Asset differs significantly in design, technology or function
- Price of the asset is negotiated without regard to the original contract price
Reference: IAS 11.10
4
Q
Construction Contracts – Contract revenue (IFRS)
A
- Initial amount of revenue agreed in the contract
- Variations in contract work, claims and incentive payments to the extent that it is probable that they will result in revenue and are capable of being reliably measured
- Reference: IAS 11.11*
5
Q
Construction Contracts – Contract costs (IFRS)
A
- Costs that relate directly to the specific contract
- Costs that are attributable to contract activity in general and can be allocated to the contract
- Such other costs as are specifically chargeable to the customer under the terms of the contract
- Reference: IAS 11.16*
6
Q
Construction Contracts – Recognition (IFRS)
A
- Use percentage complete to recognize revenue and expenses when the outcome of a construction contract can be estimated reliably
- Fixed price contract – when all of the following are satisfied:
- Total contract revenue can be measured reliably
- It is probable that the economic benefits associated with the contract will flow to the entity
- Both the contract costs to complete the contract and the percentage complete can be measured reliably
- Contract costs attributable to the contract can be clearly identified and measured reliably so that actual contract costs incurred can be compared with prior estimates
- Cost plus contract – when all of the following are satisfied:
- It is probable that the economic benefits associated with the contract will flow to the entity
- The contract costs attributable to the contract, whether or not specifically reimbursable, can be clearly identified and measured reliably
Reference: IAS 11.22 - .24
7
Q
Construction Contracts – Measurement (IFRS)
A
- Revenue recognized based on proportion of costs to date divided by estimated total costs (actual costs to date + estimated costs to complete). Other methods to determine percentage complete could be used, such as surveys of work performed or completion of a physical proportion of the contract work.
- Progress billings are deferred
- When the outcome cannot be estimated reliably:
- Recognize revenue only to the extent of contract costs incurred that it is probable will be recoverable
- Recognize contract costs as an expense in the period in which they are incurred
- If situation changes and estimates can be made, use percentage complete method on a prospective basis
- When it’s probable that the total contract costs will exceed total contract revenue, recognize the expected loss as an expense immediately.
- Completed contract method not acceptable
- Reference: IAS 11.25 - .35*
8
Q
Borrowing Costs (IFRS)
A
- Interest and other costs that an entity incurs in connection with the borrowing of funds
- Capitalize borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset
- Possible qualifying assets:
- Inventories
- Manufacturing plants
- Intangible assets
- Investment properties
Reference: IAS 23.05, .07, .08
9
Q
Impairment of Assets (IFRS)
A
- Assess whether there is any indication that an asset may be impaired. Regardless of whether there is any indication of impairment, must test the following impairment annually:
- Intangible asset with a indefinite useful life or an intangible asset not yet available for use
- Goodwill acquired in a business combination
- Determine if asset is part of a cash generating unit. If so, test cash generating unit for impairment.
- Determine recoverable amount = higher of fair value less costs to sell and value in use
- Value in use = discounted future cash flows from continuing use of the asset
- If recoverable amount subsequently increases, can reverse impairment loss to the extent previously recorded (except goodwill, which can never be reversed)
- Reference: IAS 36.09, .10, .12, .18*
10
Q
**Indicators of impairment **
A
- Significant decrease in its market price
- Significant adverse changes in the technological, market or economic environment
- Evidence of obsolescence or physical damage of an asset
- Adverse change in the way an asset is being used
- Evidence that the economic performance of an asset is worse than expected
- Cash flow issues
11
Q
Investment Property (IFRS)
A
- Land or building (or both) held to earn rentals and/or capital appreciation rather than for use in the production or supply of goods or services.
- Recognize if probable that future economic benefits will flow to entity and cost can be reliably measured
- Record at cost plus directly attributable expenses
- Reference: IAS 40*
12
Q
PPE – Subsequent measurement (IFRS)
A
- After initial recognition, PP&E can be accounted for using cost or revaluation model
- Cost model – carried at cost less accumulated amortization and accumulated impairment losses
- Reference: IAS 16*
13
Q
PPE – Revaluation model (IFRS)
A
- Revaluation model – for PP&E whose fair value can be reliably measured, carried at fair value at the date of revaluation less any subsequent accumulated depreciation and accumulated impairment losses
- Should be done with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at year end. Frequency depends on volatility of changes in fair value.
- All items in the same class are revalued at the same time
- Surplus or deficit arising on revaluation should be recognized as follows:
- Surplus – credit to OCI unless surplus reverses a previous deficit, in which case charge the surplus to net income to the extent of any previous deficit
- Deficit – credit to profit/loss, unless the deficit reverses a previous surplus, in which case a charge is made to OCI to use up any previous surplus
- Reference: IAS 16*
14
Q
PPE – Depreciation (IFRS)
A
- Allocated on a systematic basis over an asset’s useful life
- Depreciation begins when asset is available for use
- Depreciation ceases when an asset is classified as held for sale or when it’s derecognized. Depreciation doesn’t cease when asset become idle or is retired from active use.
- Residual value and useful life should be reviewed annually – any changes are accounted for prospectively as changes in estimates
- Reference: IAS 16.43 - .62 *
15
Q
PPE - Depreciation methods (IFRS)
A
- Use method which reflects the pattern in which the asset’s future economic benefits are expected to be consumed by the entity
- Review method annually, any changes are accounted for prospectively as changes in estimates
- Most common methods:
- Straight-line method (smoothens income)
- Productive output (good matching)
- Declining balance (smoothes total expense when considering depreciation and R&M; based on assumption that newer assets produce more benefits up front)
*Reference: IAS 16.43 - .62 *
