Topic 6 International Accounting Standards

Question 1

What is the aim of accounting standards

Answer 1

Reliable - not containing errors or bias

Relevant - to help decision making e.g. shareholders

Comparable - between years within a business and different businesses in different countries

Understandable - by stakeholders such as HM Customs

Question 2

IAS 1

Answer 2

Presentation of Financial Statements

Should include: 4 financial statements

Chairman’s report

Director’s report

Auditor report

Question 3

IAS 2

Answer 3

Inventories

Both FIFO and AVCO are fine

3 types of inventories: Raw materials, Work in progress, Finished goods

Inventory should be valued at the lower of cost or NRV

Question 4

IAS 8

Answer 4

Accounting Policies, Changes in Accounting Estimates and Errors

Changes to accounting policies could include: Depreciation, Inventory Valuation, Doubtful debts and Non-current Assets value

Changes made to correct errors should be recorded in the notes

Question 5

IAS 10

Answer 5

Events After Reporting Period

“Events” are classified as “adjusting” or “non-adjusting” depending on whether or not they lead to a change in the reported figures for last year

Question 6

IAS 16

Answer 6

Property, Plant and Equipment

Non-current Assets should be initially valued at historic cost which includes all the costs with the initial purchase of the asset

Schedule of Non-current Assets can be used

Question 7

IAS 18

Answer 7

Revenue

IAS 18 allows revenues to be recognised when certain criteria are met

Question 8

IAS 36

Answer 8

Impairment of Assets

Assets must not be reported in the financial statements at more than the highest amount that could be recovered through the assets use or sale

Question 9

IAS 37

Answer 9

Provisions, Contingent Liabilities and Contingent Assets

A provision is a liability that is virtually certain to happen but the timing or amount is uncertain

A contingent liability is a potential liability, it depends on whether or not a future event occurs

Question 10

IAS 38

Answer 10

Intangible Assets

Many internal generated brand names are clearly of great value but do not have a Readily Ascertainable Market Value which means that they should not be included in the final accounts

Question 11

Conditions under which revenue can be realised

Answer 11

Sale of goods - seller has no longer control over the goods

Rendering of services - a reasonable % has been supplied

Interest - time passes

Royalties - whatever has been agreed happens

Dividends - whenever the shareholder has the right to receive payments

Question 12

Conditions of IAS 37

Answer 12

Question 13

Sources of finance

Answer 13