SBR

Question 1

**Define a financial asset.
**

Answer 1

Equity investment in another entity OR
Contractual right to receive cash

Question 2

**In what circumstances can financial assets and liabilities be offset?

**

Answer 2

Legally enforceable right to offset AND
Intention to settle on a net basis

Question 3

How should a subsequent event which is non-adjusting but will cause the entity to cease trading be dealt with in FS?

Answer 3

The FS should be adjusted (break-up basis)

Question 4

A company sells PPE with a life of 50 years, and rents it back for 50 years? How will this be accounted for and why?

Answer 4

SFP
Do not derecognise PPE
Recognise liability
Why?
Unlikely to be a sale / transfer of risks and rewards
In substance this is a secured loan

Question 5

What is a market-based condition (in the context of share-based pay) and what is its relevance?

Answer 5

Condition linked to the market price of company shares
Ignore in computation of the P&L charge

Question 6

How should goodwill be translated for a foreign subsidiary?

Answer 6

Closing rate
Carrying amount of goodwill will change every year

Question 7

How would a revaluation of PPE (upwards) affect ROCE?

Answer 7

PBIT – down – extra depreciation
CE – up – revaluation reserve recognised
Therefore, ROCE down.

Question 8

Which method of cash flow preparation is preferred by IAS 7 and by accounts preparers? Why?

Answer 8

IAS 7 – direct – gives users additional information
Accounts preparers – indirect – easy to prepare

Question 9

How should a cryptocurrency be recognised in the SOFP?

Answer 9

Intangible asset

Question 10

What are three characteristics of materiality?

Answer 10

1. Omission of information would influence economic decisions of users
2. Mis-statement of information would influence economic decisions of users
3. Obscuring information would influence economic decisions of users

Question 11

Which body publishes standards on sustainability reporting?

Answer 11

Global Reporting Initiative

Question 12

Define Free Cash Flow

Answer 12

Cash flows from operating activities less capital expenditure

Question 13

Define PE ratio

Answer 13

Current share price / EPS

Question 14

Define receivable days

Answer 14

Receivables / Credit sales x 365

Question 15

How are DB pension plans dealt with in the operating section of a cash flow statement?

Answer 15

1. Add back service costs (non-cash items)
2. Deduct contributions paid

Question 16

In calculating goodwill how would deal with a legal claim against a subsidiary which is regarded as possible?

Answer 16

Contingent liabilities must be measured at FV irrespective of probability.
Remember that the rules for goodwill calculation are different to the IAS 37 rules.

Question 17

How does IFRS 10 define control?

Answer 17

Investor has power over investee AND is exposed to variable returns from investee AND has ability to affect the returns

Question 18

A company owns 30% of another company. What are the possibilities for accounting?

Answer 18

FV through OCI if no significant influence
Equity account if significant influence or joint control
Consolidate if control

Remember to consider the substance of the transaction rather than the % shareholding.

Question 19

For SMEs what is the accounting treatment of borrowing costs?

Answer 19

Expense in the P&L (even constructed assets where large companies would capitalise the borrowing cost)

Question 20

What are the quantitative thresholds for disclosure under IFRS 8, Segmental Reporting?

Answer 20

1. TOTAL revenue greater than or equal to 10% of aggregate TOTAL revenue
2. TOTAL assets greater than or equal to 10% of aggregate TOTAL assets
3. Profit or loss is greater than or equal to the greater of:
   (a) TOTAL profits of all segments making a profit
   (b) TOTAL losses of all segments making a loss

Question 21

A parent company revalues the PPE of a subsidiary upwards by $1,000 as part of the fair value exercise in calculating goodwill. Tax rate is 20%. The gain will be taxed when the asset is sold.
What is the deferred tax implication?

Answer 21

Temp difference = 1,000
X 20% = 200
Dr Goodwill
Cr DT liability

Question 22

A company sets up reorganisation provision of $1,000. Tax rate is 20%. The expense will be allowed for tax only when the reorganisation actually takes place. What is the deferred tax implication?

Answer 22

Temp difference = 1,000
X 20% = 200
Dr DT asset
Cr P&L

Question 23

A company revalues PPE upwards by $1,000. Tax rate is 20%. The gain will be taxed when the asset is sold. What is the deferred tax implication?

Answer 23

Temp difference = 1,000
X 20% = 200
Dr OCI
Cr DT liability

Question 24

A company buys an investment property financed by a loan. What is the accounting? (The company prefers to use the fair value model)

Answer 24

IP – fair value, gains to P&L
Financial liability – fair value, gains to P&L (Note – using amortised cost would create an ‘accounting mismatch’)

Question 25

In the context of derivatives, what is an executory contract and how would it be accounted for?

Answer 25

Not settled in cash, e.g., contract to buy wheat settled in wheat.
Outside scope of IFRS 9
No accounting until wheat is actually purchased

Question 26

Define an adjusting subsequent event.

Answer 26

Event between SOFP date and date FS are approved
Gives evidence on condition that existed at the SOFP date

Question 27

How do you account for share based pay where the employee has the choice of shares or cash?

Answer 27

Split accounting
Liability and equity
Similar to convertible loan

Question 28

What is the main item recognised in OCI for a defined benefit pension scheme?

Answer 28

Remeasurement difference / actuarial difference

Question 29

What are the main items recognised in the P&L for a defined benefit pension scheme?

Answer 29

Service cost
Net interest cost

Question 30

A company sells PPE with a life of 50 years, and rents it back for 10 years? How will this be accounted for?

Answer 30

SFP
Derecognise PPE
Recognise Right of Use asset, Cash, and Lease liability
P&L
Profit (or loss) on derecognition of PPE (‘part-disposal)

Question 31

How should the lessor reflect a finance lease in the financial statements?

Answer 31

SFP - Receivable
P&L - Finance income

Question 32

What are the primary factors in determining functional currency?

Answer 32

SOFA
- Sales Price
- Operating costs
- Finance
- Autonomy

Currency influencing sales price
Currency influencing labour and material costs

Question 33

A company buys inventory from a foreign country on credit. At the SOFP date, how should the inventory and payable be translated?

Answer 33

Inventory:
– Historic rate if valued at cost
– Closing rate if valued at NRV
Payable – Closing rate

Question 34

In what order should losses be allocated to cash-generating units?

Answer 34

1. Assets obviously impaired
2. Goodwill
3. Other non-current assets

Question 35

Define cash-generating unit

Answer 35

Smallest group of assets that generates independent cash flows