Single Entity

Question 1

Accounting for payment of ordinary dividend

Answer 1

DR Retained Earnings
CR Cash

Question 2

Accounting for payment or declaration in accounting period of dividend on irredeemable preference shares

Answer 2

DR Retained Earnings
CR Cash

Question 3

Accounting for payment or declaration in accounting period of dividend on redeemable preference shares

Answer 3

DR Finance Costs
CR Cash/ Other Payables

treated as a loan

Question 4

The effect of changes in foreign exchange rates - initial recognition

Answer 4

A transaction should be recorded on the initial recognition by translating at the spot rate at the transaction date.

Question 5

The effect of changes in foreign exchange rates - at subsequent year end (monetary items)

Answer 5

Must be retranslated at the closing rate, giving rise to transaction exchanges gain and losses which are recognised in P&L.
(receivables, payables, loans and cash)

Question 6

The effect of changes in foreign exchange rates - at subsequent year end (non monetary items)

Answer 6

Held at historical cost (eg inventories) are not retranslated.

Question 7

The effect of changes in foreign exchange rates - at subsequent year end (non monetary items held at fair value)

Answer 7

Translated at the rates when the values were measured, the translation exchange gains and losses would be recognised in other comprehensive income. (revalued PPE)

Question 8

The effect of changes in foreign exchange rates - At point of receipt/payment

Answer 8

Conversion exchange gains and losses will be created at the point of receipt or payment of receivables and payables. These will again be recognised in P&L.

Question 9

Accounting for revaluation on PPE - Increases in value basic rule

Answer 9

Revaluation is recognised in other comprehensive income and form part of equity under the heading of revaluation surplus.

Question 10

Accounting for revaluation on PPE - Journal entries

Answer 10

DR PPE Cost/valuation - Cost up to revalued amount
DR PPE acc dep’n - Remove all depreciation
CR Revaluation Surplus

Question 11

Accounting for revaluation on PPE - Depreciation of revalued assets

Answer 11

Depreciation charge is based on the revalued amount less residual value.

This will produce higher depreciation charge - under IAS 16 excess depreciation is transferred from revaluation to retained earnings.

DR Revaluation Reserves
CR Retained Earnings

Question 12

Revaluation Proforma

Answer 12

Year 1 2 3
Opening Cost
Revaluation
Revalued

Remaining useful life
Dep’n Charge
Carrying amount

Transfer excess dep’n

Question 13

IAS 36 - Impairment of asset

Answer 13

Recoverable amount of an asset is the higher of:

Value in use

Fair value less costs of disposal

Question 14

IAS 36 - Impairment of asset - Value in use

Answer 14

Being the present value of the future cash flows expected to be dereived from using the asset. e.g if kept using

Question 15

IAS 36 - Impairment of asset - Fair value less costs of disposal

Answer 15

Fair value being the price that would be received to sell an asset in an orderly transaction less costs to dispose.

Question 16

IFRS 5 - Non-current assets held for sale - Criteria

Answer 16

Certain criteria must be met
(a) It must be available for immediate sale in its current condition
(b) The sale should be highly probable
(c) The sale should be expected to take place within a year of the reclassification

Question 17

IFRS 5 - Non-current assets held for sale

Answer 17

(1) Shown separately under current assets in the statement of financial position as ‘non-current assets held for sale’
(2) Valued at the lower of its carrying amount and fair value less costs of disposal
(3) No longer depreciated

Question 18

IFRS 5 - Non-current assets held for sale -Disposal of PPE measured under revaluation

Answer 18

• The asset must be revalued at fair value before classification
• Once adjusted use normal held for sale basis so fair value less costs of disposal. The effect is that the costs of disposal are immediately recognised in P&L as an impairment loss.

Question 19

Government Grants - Initial recognition

Answer 19

Government grants are recognised when there is reasonable assurance that:
- The entity will comply with the conditions of the grant
- The entity will receive the grant

Question 20

Government Grants - Subsequent treatment

Answer 20

Income Approach - the grant is recognised in the P&L

Grants relating to assets - where grants are received for depreciating assets, the grant will be released to P&L over the useful life of the asset

Grants relating to income - will be released to the P&L over the periods in which the costs of meeting any grant conditions are incurred

Question 21

Government Grants - Presentation (Capital)

Answer 21

(a) Deferred Income (Separate asset DR and deferred income CR)
(b) a deduction in the carrying amount of the asset

Question 22

Government Grants - Presentation (Revenue)

Answer 22

(a) a credit in P&L (other income)
(b) a deduction from the related expense (netting off)

Question 23

IAS 23 Borrowing Costs - Relating to capital expenditure

Answer 23

If it is directly attributable to the acq’n, construction or production it forms part of the costs of that asset.

Capitalisation of borrowing costs:
- Start of construction and time during
- Should cease when substantially all the activities necessary to get the asset ready for its intended use
- Should cease if construction ceases for any reason

Question 24

IAS 38 Intangible assets - R&D (Research)

Answer 24

All expenditure of research should be recognised as an expense when incurred.

Examples:
- Activities aimed at obtaining new knowledge
- The search for alternative materials

Question 25

IAS 38 Intangible assets - R&D (Development)

Answer 25

Development costs qualify for recognition as intangible assets if follows the following criteria:

P - Asset will generate probable future economic benefits
I - Its intention to complete and use or sell
R - Resources to complete the development
A - Its ability to use or sell
T - The technical feasibility of completing so it will be available to use or sell
E - Its ability to measure reliably the expenditure attributable

Question 26

IFRS 15 Revenue - Deferred Consideration

Answer 26

If an entity offers a period of “interest free” credit the revenue needs to be recognised separately:
(1) the fair value of the goods on date of sale
(2) financing income recognised over the credit period.

Question 27

Deferred consideration - discount formula

Answer 27

Cashflow x 1/(1+R)^n

Question 28

IFRS 16 Leases - Accounting for lease (initial measurement)

Answer 28

DR Right of use asset (PVFLP + deposit + fees)
CR Lease Liability (PVFLP)
CR Cash (deposit/first instalment + fees)
CR Provision (dismantling costs)

Question 29

IFRS 16 Leases - Accounting for lease (depreciating the asset)

Answer 29

DR Depreciation expense
CR Accumulated depreciation

Depreciated over the shorter of the lease term or the asset’s useful life

Question 30

IFRS 16 Leases - Accounting for lease (making a payment)

Answer 30

DR Lease Liability
CR Cash

Question 31

IFRS 16 Leases - Accounting for lease (finance charge)

Answer 31

DR Finance Cost
CR Lease Liabilities

Interest accrued over the period based on interest rate

Question 32

IFRS 16 Leases - Short term leases or lease of low value assets

Answer 32

Exemptions for leases under the following:
- Short term leases - term 12 months or less with no purchase option

• Leases of low value - assets with low individual value e.g laptops, phones. Cars are never considered low

Question 33

IFRS 16 Leases - Sale and leaseback (constitutes a sale under IFRS15)

Answer 33

Step 1: Calculate the proportion of the original asset effectively retained as the a right-of-use asset, being PVFLP / fair value of asset

Step 2: Calculate the carrying amount of the right-of-use asset retained (original carrying amount x %retained) and the gain on disposal of proportion (balancing proportion x the full gain)