SBR Flashcards
**Define a financial asset.
**
Equity investment in another entity OR
Contractual right to receive cash
**In what circumstances can financial assets and liabilities be offset?
**
Legally enforceable right to offset AND
Intention to settle on a net basis
How should a subsequent event which is non-adjusting but will cause the entity to cease trading be dealt with in FS?
The FS should be adjusted (break-up basis)
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?
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
What is a market-based condition (in the context of share-based pay) and what is its relevance?
Condition linked to the market price of company shares
Ignore in computation of the P&L charge
How should goodwill be translated for a foreign subsidiary?
Closing rate
Carrying amount of goodwill will change every year
How would a revaluation of PPE (upwards) affect ROCE?
PBIT – down – extra depreciation
CE – up – revaluation reserve recognised
Therefore, ROCE down.
Which method of cash flow preparation is preferred by IAS 7 and by accounts preparers? Why?
IAS 7 – direct – gives users additional information
Accounts preparers – indirect – easy to prepare
How should a cryptocurrency be recognised in the SOFP?
Intangible asset
What are three characteristics of materiality?
- Omission of information would influence economic decisions of users
- Mis-statement of information would influence economic decisions of users
- Obscuring information would influence economic decisions of users
Which body publishes standards on sustainability reporting?
Global Reporting Initiative
Define Free Cash Flow
Cash flows from operating activities less capital expenditure
Define PE ratio
Current share price / EPS
Define receivable days
Receivables / Credit sales x 365
How are DB pension plans dealt with in the operating section of a cash flow statement?
- Add back service costs (non-cash items)
- Deduct contributions paid
In calculating goodwill how would deal with a legal claim against a subsidiary which is regarded as possible?
Contingent liabilities must be measured at FV irrespective of probability.
Remember that the rules for goodwill calculation are different to the IAS 37 rules.
How does IFRS 10 define control?
Investor has power over investee AND is exposed to variable returns from investee AND has ability to affect the returns
A company owns 30% of another company. What are the possibilities for accounting?
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.
For SMEs what is the accounting treatment of borrowing costs?
Expense in the P&L (even constructed assets where large companies would capitalise the borrowing cost)
What are the quantitative thresholds for disclosure under IFRS 8, Segmental Reporting?
- TOTAL revenue greater than or equal to 10% of aggregate TOTAL revenue
- TOTAL assets greater than or equal to 10% of aggregate TOTAL assets
- 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
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?
Temp difference = 1,000
X 20% = 200
Dr Goodwill
Cr DT liability
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?
Temp difference = 1,000
X 20% = 200
Dr DT asset
Cr P&L
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?
Temp difference = 1,000
X 20% = 200
Dr OCI
Cr DT liability
A company buys an investment property financed by a loan. What is the accounting? (The company prefers to use the fair value model)
IP – fair value, gains to P&L
Financial liability – fair value, gains to P&L (Note – using amortised cost would create an ‘accounting mismatch’)
In the context of derivatives, what is an executory contract and how would it be accounted for?
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
Define an adjusting subsequent event.
Event between SOFP date and date FS are approved
Gives evidence on condition that existed at the SOFP date
How do you account for share based pay where the employee has the choice of shares or cash?
Split accounting
Liability and equity
Similar to convertible loan
What is the main item recognised in OCI for a defined benefit pension scheme?
Remeasurement difference / actuarial difference
What are the main items recognised in the P&L for a defined benefit pension scheme?
Service cost
Net interest cost
A company sells PPE with a life of 50 years, and rents it back for 10 years? How will this be accounted for?
SFP
Derecognise PPE
Recognise Right of Use asset, Cash, and Lease liability
P&L
Profit (or loss) on derecognition of PPE (‘part-disposal)
How should the lessor reflect a finance lease in the financial statements?
SFP - Receivable
P&L - Finance income
What are the primary factors in determining functional currency?
SOFA
- Sales Price
- Operating costs
- Finance
- Autonomy
Currency influencing sales price
Currency influencing labour and material costs
A company buys inventory from a foreign country on credit. At the SOFP date, how should the inventory and payable be translated?
Inventory:
– Historic rate if valued at cost
– Closing rate if valued at NRV
Payable – Closing rate
In what order should losses be allocated to cash-generating units?
- Assets obviously impaired
- Goodwill
- Other non-current assets
Define cash-generating unit
Smallest group of assets that generates independent cash flows
