Questions I Got Wrong

Question 1

How do you account for a sale and leaseback

Answer 1

Step 1
Derecognise the asset (carrying amount )
Recognise the cash (sale proceeds)

Step 2
Recognise the lease back consisting of:
ROU asset as (percentage leased back*carrying amount)
Lease liab as (PVLP)

Amount leased back is PVLP/FV

Step 3
Is there a gain or loss?
Gain is (profit on sale * percentage transferred)

Then the lease liab is amortized and split into NCL and CL
And the ROU asset is depreciated over the shorter of the lease term and the useful life

Question 2

Explain classifying expenses by function and nature

Answer 2

Function: items are accumulated according to the function they serve in the business

Nature: suitable for manufacturing and/or smaller companies. Groups them together in categories such as employee costs, depreciation etc

Question 3

What conditions must be present for a NCA to be assessed as held for sale (5)

Answer 3

Management must be committed to a plan to sell the asset

There must be an active programme to locate a buyer

The assets must be marketed for sale at a price that is fair

The sale should be expected to take place in the next year from the date of classification

It is unlikely that significant changes to the plan will be made

Question 4

What kind of change would be a change in depreciation policy under IAS 8
Is this change applied retrospectively or prospectively

Answer 4

Change in accounting estimate
Prospectively

Question 5

What are the differences between provision, contingent liab

Answer 5

Provision is probable outflow more than 50%
Contingent liab is possible outflow, requires disclosure only
If the payout chance is deemed remote, then do no need to disclose