Pocket book

Question 1

What are the things that go down the left side of a statement of changes in equity?

Answer 1

Opening balance
Change in accounting policy/Adjustments
Share issue
Revaluation surplus/deficit
Equity option
Profit from SPL
Dividends
Transfer to retained earnings

Closing balance

Question 2

What are the IFRS foundation responsible for?

Answer 2

Responsible for the governance of the standard setting process

Question 3

What is the IASB responsible for?

Answer 3

Responsible for setting the IFRS standards

Question 4

What are the IFRS Advisory council responsible for?

Answer 4

Provides a forum for experts from different countries and business sectors to offer advice to the board

Question 5

What are the IFRS Interpretations committee responsible for?

Answer 5

Issue rapid guidance on accounting matters where divergent interpretations exist

Question 6

By what process are standards set?

Answer 6

By a process of consultation

Question 7

What does the board do for new standards?

Answer 7

Identifies a subject and establishes an advisory committee to recommend and appropriate treatment

Question 8

What is each standard preceded by?

Answer 8

An exposure draft which gives the public an opportunity to comment

Question 9

What might the board issue at any stage?

Answer 9

A discussion paper

Question 10

What are three things that effect the preparation of financial statements in addition to the IFRS standards?

Answer 10

• National company law
• EU directives
• Stock exchange rules

Question 11

What does principles based accounting involve?

Answer 11

Preparing financial statements so that they meet a set of principles-based criteria

Question 12

What does rules based accounting involve?

Answer 12

Putting he requirement to comply with each individual accounting standard first

Question 13

What are the two fundamental characteristics of useful financial information?

Answer 13

Relevance

Faithful representation

Question 14

What are the four enhancing characteristics of useful financial information?

Answer 14

• Comparability
• Verifiability
• Timeliness
• Understandability

Question 15

What does information have to be to be useful?

Answer 15

Material

Question 16

What are the three extended characteristics of the fundamental characteristic Faithful representation?

Answer 16

Completeness
Free from error
Neutral

Question 17

What are the two extended characteristics of the fundamental characteristic Relevance?

Answer 17

Predictive value

Confirmatory value

Question 18

What is a financial liability initially recognised at?

Answer 18

Fair value

This is usually…

Net proceeds of cash received
Less: costs of issuing

Question 19

How do we initially measure financial assets?

Answer 19

Fair value

Transaction costs can be included unless the asset is fair value through P+L

Question 20

How are equity investments measured? 3 things

Answer 20

Fair value through P+L

Transaction costs are expensed

Any gains or losses shown in statement of P+L

Question 21

When can an entity classify equity investments in fair value through other comprehensive income and what do they have to do for this?

Answer 21

• When the investment is seen as a long term investment

- The designation must be done on acquisition

Question 22

When we classify equity under FVOCI, how do we treat transaction costs?

Answer 22

Capitalise them

Question 23

When we classify equity under FVOCI, how do we treat gains or losses?

Answer 23

Revalued each year
Gain or loss shown in other comprehensive income
Gain taken to investment reserve in equity

Question 24

Can an investment reserve be negative?

Answer 24

Yes!

Question 25

What do we do with investment reserve when the investment is sold?

Answer 25

Transferred to retained earnings or left in equity

Question 26

What are three three ways debt instruments are categorised?

Answer 26

• Fair value through profit or loss
• Amortised cost
• Fair value through other comprehensive income

Question 27

What is the default category for debt instruments?

Answer 27

Fair value through profit or loss

Question 28

What are the two tests for determining the remaining two categories for categorising debt instruments?

Answer 28

Business model test - The purpose of holding the investment

Contractual cash flow characteristics test - Looks at cash received as a result of holding the investment

Question 29

To carry an investment at amortised cost, what are the criteria?

Answer 29

• Business model test. The entity must intend to hold the investment to maturity.
• Contractual cash flow characteristics test. The contractual terms of the financial asset must give rise to cash flows that are solely of principal and interest.

Question 30

How do you calculate amortised cost of a debt instrument?

Answer 30

Balance cfwd
Interest income
Less: Payment received

Interest goes to P+L under finance cost

Question 31

To carry an investment at FVOCI, what are the criteria?

Answer 31

• Business model test - Hold the investment to maturity but may sell the asset if the possibility of buying another asset with a higher return arises.
• Contractual cash flow characteristics test - The contractual terms of the financial asset must give rise to cash flows that are solely of principal and interest, as for amortised cost.

Question 32

How do you recognise FVOCI of a debt instrument?

Answer 32

Initially recognised at fair value + transaction costs

Interest income calculated using effective rate

At reporting date the asset is revalued to fair value with gain or loss in other comprehensive income

Question 33

What does a sale of a receivable with recourse mean and how is it treated?

Answer 33

The factor can return any unpaid debts to the business

Treated as a secure loan against receivables

Question 34

What does a sale of a receivable without recourse mean and how is it treated?

Answer 34

The factor bears the risk of the recoverable debts

Treated as a sale and receivables removed from company’s financial statements