SBR Flashcards
IFRS13 - Fair Value Measurement Definition
And 3 Levels
Price received when selling an asset or transferring a liability in an orderly transaction between market participants at the measurement date
Level 1 - identical assets in identical markets
Level 2 - similar assets or identical assets in less active markets
Level 3- internally generated
IFRS13 - Non-financial assets
Based on highest and best use
Take into account:
- is it legal?
- is it physically feasible?
- is it financially feasibly?
Define the following:
Asset
Liability
Equity
Asset: a resource controlled by an entity as a result of past events that will lead to a probable inflow of economic benefits
Liability: an obligation of the entity that has arisen due to past events that will lead to a probable outflow of economic resources
Equity: the residual interest after deducting all of the net assets
Define the following:
Income
Expenses
Income: increases in economic benefits during the period
Expenses: decreases in economic benefits during the period
What is a defined benefit scheme?
A scheme that isn’t a define contribution scheme
Define the following:
Current service cost
Past service cost
CSC: increases in the present value of the defined obligation resulting from employee service during the period
PSC: the change in the present value of the defined benefit obligation from employee services in prior periods resulting from plan amendment or curtailment
When does a asset ceiling test apply?
This is on defined benefit schemes.
Where the is a net asset the test applies to restrict it to what is recoverable.
How are plan liabilities measured at the year end on defined benefit schemes?
On an actuarial basis - the present value
Define a defined contribution scheme - where should these be recognised?
Where an entity pays a fixed contribution and will have no legal or constructive obligation to pay further contributions if the fund doesn’t hold sufficient funds to pay all employee benefits
These should be recognised in the P&L
What is IAS19?
Employee benefits - pensions
When can you change accounting policy? And how should this be adjusted?
Can only change if
Required to by a standard
Makes the results more relevant and reliable
This should be adjusted retrospectively as if the policy was always in place
What are the 5 steps of recognising revenue?
C: identify the contact
O: identify the separate performance obligations within the contract
P: determine the transaction price
A: allocate the price to the separate obligations
R: recognise revenue when or as the performance obligation is satisfied
IRRS15: 3 ways to determine whether revenue should be recognised at a point in time or over time
Simultaneously received and consumed by the customer
Creating or enhancing an asset controlled by the customer
Entity can’t use the asset and can demand payment for performance up to date
How should you account for variable consideration on a contract such as a penalty or bonus?
The entity must estimate the amount it expect to receive
This must only be included if it is highly probable a significant reversal will not occur
How should consideration paid back to the customer be accounted for? ie baked beans at the front of Tesco
Account for this as a separate transaction
What costs should be capitalised on a contract?
The costs of obtaining a contract and the costs of fulfilling a contract that do not fall under another standard
Must be directly attributable and covered by a margin or reimbursed
Amortise as revenue is recognised
Under IAS20 government grants, when should a grant be recognised?
Only account for when it is reasonably certain the grant will be received
How should Income grants to subsidise expenses be accounted for?
They should be matched to related costs
What are the two ways of recognised grants for Non current assets under IAS20?
1) deduct from asset and depreciate the net cost
2) treat as deferred income and release to the profit and loss
User IAS1 how should OCI be presented?
You must classify between
1) items which will be reclassified the profit and loss and
2) items which will not be reclassified to the profit and loss
Under IAS23 Borrowing costs what three things must apply in order for the expenditure to be capitalised?
1) Expenditure for the asset is being incurred
2) Borrowing costs are being incurred
3) The necessary activities are in progress
Under IAS23 borrowing costs when should capitalisation of expenditure be stopped or suspended?
Capitalisation should stop when substantially all the activities are complete.
Capitalisation should be suspended in extended periods where development isn’t active.
Define an intangible asset
An identifiable a non-monetary asset without physical substance
When should an intangible asset be recognised at cost?
1) It is identifiable
2) It is controlled by the entity
3) It will generate probable future economic benefits
4) The cost can be measured reliably
When can and intangible assets be revalued?
Only when there is an active market
What are the six criteria that development expenditure should be capitalised?
1) probable future economic benefits
2) intention to complete
3) Re-sources available
4) ability to sell
5) technically feasible
6) Expenditure can be measured
Under IAS36 When is an asset impaired
When the amount by which the carrying amount of an asset or a cash generating units exceeds its recoverable amount
What is the recoverable amount of an asset?
It is the greater of fair value less cost to sell or its value in use
What is a cash generating unit?
The smallest group of assets that are capable of generating independent cash flows
What is an investment property?
Land or buildings are held for rental or capital appreciation it also could be land that is held for undecided use
How should you initially recognise an investment property and subsequently then what are your choices?
Initially the investment property should be recognised at cost is the purchase price plus directly attributable costs there then is a choice.
Either the cost model appreciated over its useful life and an profit or loss and disposal should go to the profit and loss.
Or the fair value model there should be no depreciation revaluation to go to the profit and loss on a profit or loss on disposal should go to the profit and loss.
Under IFRS5 When should an asset be classified as held for sale
And assets should be classified as held for sale if it’s carrying amount will be recovered principally through a sales transaction
List criteria when an asset should be held for sale
1) Available for sale in present condition
2) a sale must be highly probable
3) management are committed
4) marketed at fair value
5) actively marketed
6) The sale is expected within 12 months
7) Unlikely to change plan
What is the measurement when an asset is classified as held for sale
Measure the Low of carrying amount or fair value less cost to sell
Stop depreciating
Present below current assets on a separate line
If you were using the fair value model then this should be revalued to fair value
What is a disposal group
A dispose of group is a collection of assets to be sold in a single transaction
What is the definition of a share based payment?
This is where an entity receives goods or services in exchange for shares, share options or cash based on a share price
How should the ShareBase payment be recognised?
The expenses recognise in the profit and loss over the vesting period, if there are no vesting conditions then recognise immediately
What is the three recognition criteria for provision
1) A present obligation due to a past event
2) that will be a probable outflow of economic resources
3) A reliable estimate can be made
What is a contingent liability And how should they be recognised in the accounts
Possible obligation that will be confirmed by uncertain future events outside of the entities control, They should not be recognised but should be disclosed unless removed
If an investment in debt is held to maturity how should it be recognised initially and subsequently
This is a amortised cost, initially this should be recognised at fair value plus costs. Then subsequently interest income should be recognised at the effective rate
If investments in debt or occasionally sold how should they initially and subsequently be recognised
This is that fair value through OCI. Initially that should be recognised at fair value plus costs. Subsequently this should be recognised interest income at the effective rate and then re-valued at the reporting date to OCI. On disposal this must be reclassified to the profit and loss.
How should a investments that are held for trading be recognised
They should be recognised at fair value through profit and loss. Initially they should be recognised at their fair value. Then subsequently they should be revalued at reporting date to the profit and loss.
How should investments in equity normally be measured, and when can this be different?
They should normally be measured at fair value through the profit and loss. Fair value through OCI can be used if they are not held for trade, or an irrevocable choice is made for this designation upon initial recognition of the assets.
What is the definition of a financial instrument and what are the three characteristics?
A contract that gives rise to a financial assets in one entity and a financial liability or equity instrument in another entity. Three characteristics are
F: Settled at a future date
U: underlying variable
N: Little or no initial investment
Define a biological asset and agricultural produce? How should a biological asset be recognised and how should agricultural produce be recognised ?
Biological assets are a living plant or animal. They should be recognised initially at fair value less cost to sell. Then revalue at the year-end putting the gain or loss to the profit and loss.
Agricultural produce is harvested from a biological asset. Initially this should be recognised at the deemed cost this is fair value less costs to sell. They immediately should be classified to inventories.
What is a lease under IFRS 16?
A lease is a contract that conveys the right to use an underlying asset for a period of time in exchange for consideration.
Provide key indicators that it may be a finance lease
1) ownership transfers at the end of the lease term
2) there is an option to purchase at fair value and this is likely to occur
3) The lease term is for a major part of the assets life
4) at inception the present value of lease payment equals the majority of the fair value
5) The asset is specialised
6) secondary period for less than market value
When should an operating segment be recognised?
1) engages in a business activity
2) operating results are regularly reviewed by a CODM
3) Discrete financial information is available
It must be a listed company
What must you disclose about an operating segment?
1) factors used to identify the segment
2) types of products sold in each segment
3) basis of accounting treatment
4) Nature of differences between consolidation totals and segments
What are the two types of joint arrangements and define these
A joint operation is where ventures have rights to assets and obligations of the arrangement. Account for share of assets liabilities income and expenses.
The joint-venture is when ventures have rights to net assets this is usually a separate entity and must be equity accounted.
What is a joint arrangement
This is where two or more parties have joint control and they require unanimous consent.
Under IAS24 what are the three criteria that someone might be a related party?
1) Control or joint control over the entity
2) significant influence over the entity
3) member of key management personal of the entity or parent
What are the four omissions of an SME?
Assets held for sale
Interim reporting
Operating segments
EPS
There are three disallowed treatments under the SME regime, what are these?
NCI can’t be measured at that value
Revaluation model can’t be used for intangible assets
Cost model for investment property is only allowed if the fair value can’t be determined
Name some of the simplification of the SME regime
Borrowing costs always to the profit and loss
depn doesn’t need to be reviewed annually
R&d is always expenses
Cum ex digs not recycled to the profit and loss
Simplified techniques on defined benefits schemes
