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CIMA F1 > Other Accounting Standards > Flashcards

Other Accounting Standards Flashcards

1
Q

How is the carrying amount of PPE calculated?

A

Cost - Accumulated depreciation - accumulatede impairement

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2
Q

What is meant by impairement?

A

If an asset’s carying amount is greater than its recoverable amount

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3
Q

What is recoverable amount?

A

The higher of the asset’s fair value - costs of disposal and its value in use

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4
Q

What is fair value less cost of disposal

A

Net sale proceedings recieved after asset is sold - taking away any disposal, transaction fees

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5
Q

What is value in use?

A

Present value of Future cash flows- dervied from asset

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6
Q

How to calculate impairement loss?

A

Carrying value- Recoverable value

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7
Q

What needs to be done to be aware of the risk of impairement?

A
  • Formal assesstment for impairement indicators
  • By board of entity
  • At end of each reporting period
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8
Q

What are the two types of impairment indicators?

A

External sources - within entity
Internal Sources - ouside entity

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9
Q

What are 3 internal sources of impairment indicators?

A
  • Physical damage to the asset
    -Plans of Changes to useful life of asset
  • Other internal evidence which suggest asset’s performance is worse than expected
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10
Q

What are 4 external sources

A
  • Significant decrease in market value
  • Changes in technological, legal, market environments which affect asset value
  • Increase in interest rate: reduce asset value in use
  • Carryign amount of entity’s net assets being more than its market capitalisation
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11
Q

What is market capitalisation?

A

Number of shares of entity x share price

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12
Q

How can an impairement loss be recognised in financial statements?

A
  • As an expense in SPL
  • In its equity
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12
Q

How is impairement value accounted for assets held at historic cost

A

Charging impairement loss as an expense in SPL -Debit
Credit: Non current Asset Value

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13
Q

How is impairment value recognised for a revalued asset

A

Original revaluation surplus should be reversed for that asset
- any extra expense taken from SPL

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14
Q

How is impairement value accounted for for a revalued asset

A

Debit:revaluation surplus
Debit: Extra expense

Credit: Non current asset value

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15
Q

What happens to depreciation for an asset which has suffered imapirement

A

New carryign amount (recoverable amount) should be dpreciated oiver the remaining useful life
- useful life might need to be evaluated as well

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16
Q

What disclosures are needed regarding impairement

A
  • Impairment losses should be recognised
    -Any recovery of impairment losses
  • For each class for assets
  • for significant imapirement for a specific asset : nature of loss, basis of recoverable amount
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17
Q

What is meant by a non current asset held for sale

A
  • Entity plans to sell asset rather than continuing to use it
  • To recover the value of the asset
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18
Q

What is a disposal group

A
  • Group of assets (or liabilities) to be disposed of together as a group in a signle transaction
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19
Q

What are the two criteria to determine asset/disposable group to be held for sale

A
  • Available for sale in it’s present condition
  • Sale must be highly probably
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20
Q

What is meant by available for sale in present condition

A
  • Not being used in busineess
    -No adjustments needed for sale
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21
Q

What is meant by highly probable criteria

A
  • Management are committed to plan to sell
  • Actively seeking a buyer
  • Asset is marketed at a reasonable price relation to fair value
  • Sale expected to be completed in one year of classification
  • Unlikely for significant changes to the plan or withdrawal of sale
22
Q

Can an asset/disposal group still be classified as held for sale after one year

A
  • Can be
  • IF entity can demonstrate the delay was caused by events beyond control
23
Q

At what value should an asset identified as held for sale be accounted for

A

The lower of
- Carrying amount
- Fair Value - Cost of disposal

24
Q

What are the adjustements made for assets classsfied as held for sale?

A
  • Any loss shown on SPL
  • No further depreciation should be charged
    -Any gain or loss on sale recorded in SPL like a normal disposal
25
Q

Why is no further depreciation charged for an asset classified as held for sale?

A

It’s value will be recoverable through its sale rather than its use

26
Q

Where are assets held for sale listed on the Statement of financial position?

A

Disclosed separately
In it’s own line
Below current assets

27
Q

What is the definition of discontinued operation?

A

Component of an entity that has been discontinued or classified as held for sale and
- represents a separate major line of business
- is part of a single plan to dispose of major line
- is a subsidiary acquired with a view to resale

28
Q

What is meant by component of an entity

A

Has operations and cash flows that can be clearly distinguished from the rest of the entity
- operationally and financial reporting purposes

29
Q

What are the disclosures needed for NCA held for sale and discontinued operations?

A
  • Single amount in the statement of Profit or loss comprising of
  • Post-tax profit or loss of discontinued operations
  • Post-tax gain or loss recognised on measurement to fair value - costs of disposal
30
Q

How should the analysis of disclosure of NCA held for sale and discontinued operations be broken down?

A
  • Revenue, expenses and pre-tax profit or loss
  • Related income tax expense
  • Post-tax gain or loss on disposal of asset or measurement to fair value - cost of disposal
31
Q

Define Inventories

A

Assets that are:
- Held for sale in the ordinary course of business (finished goods)
- In the process of production for sales (work in progress)
- Raw materials or supplies for the production process

32
Q

How is inventory measured?

A

At the lower of
- cost
or
- net realisable value (NRV)

33
Q

What are the components of the cost of inventories?

A
  • Cost of purchase (Purchase price - discounts, import duties or taxes, directly attributable costs of delivery and installation)
  • Cost of Conversion (costs directly related to units of production of material, labour, overheads)
  • Other costs (bringing inventory to current location and condition)
34
Q

What are fixed production overheads??

A

Indirect costs such as the cost of factory management and administration remain relatively constant - based on normal level of production

35
Q

What are variable production overheads?

A

Include indirect materials and labour costs and vary with production

36
Q

What are the estimation methods of finding the approximate value of stock?

A

Standard cost: normal levels of materials and supplies, labour - should be regularly reviewed and revised

Retail Method: cost is determined by reducing the value of inventory by the percentage of gross margin

37
Q

What are the estimation techniques used to approximate the cost for interchangeable items?

A

First in, First out

Weighted average cost

38
Q

What is the FIFO method of approximating inventory cost?

A

Calculation of cost is on the basis that the quantities in hand represent the most recent purchases/production

-older items are used first

39
Q

What is the weighted average cost approximation method for the cost of inventories?

A

Cost calculated by the weighted average price = total cost of items/total number of items

Price is recalculated on periodic basis as each shipment is received, and as items are removed

40
Q

Which cost approximation method is not permitted by IAS2 and why

A

Last in, First out (LIFO) - does not bear a good approximation of to actual cost

41
Q

Define Net realisable Value

A

Estimated selling price in the ordinary cost of business
less
- estimated costs of completion
- estimated costs necessary to make sale (marketing, selling, distribution)

42
Q

Why might the NRV be less than the cost of inventories?

A
  • Increase in cost of manufacturing items
  • Physical determination of inventories
  • Errors in production
43
Q

What disclosures are needed in financial statements for inventories>?

A
  • Accounting policies to measure inventories (cost formula)
  • Total carrying amount of inventories
  • Carrying amount at Net Realisable value
44
Q

Define events after the reporting period

A

Events favourable and unfavourable occur between end of the reporting period and when financial statements are authorised for issue

45
Q

What are the two types of events after the reporting period?

A
  • Adjusting events after the reporting period - evidence of conditions that existed
  • Non-adjusting events after the reporting period indicative of conditions that arose after the reporting period
46
Q

What are ways in which assets can be impaired as an adjusting event?

A
  • Credit customer has gone bankrupt
  • The recoverable amount of PPE has fallen below the carrying amount
  • Evidence that the Net realisable value of inventories is less than the carrying amount
47
Q

What are other examples of adjusting events?

A
  • Resolution of court case
  • determination of Cost of assets purchased or proceeds from assets sold
  • Evidence that going concern basis may no longer be appropriate
  • Discovery of fraud or error
48
Q

What are examples of non-adjusting events

A
  • Acquisition or disposal or subsidiary after the reporting date
  • Announcement of a plan to discontinue operation after the end of the reporting date
  • Major transaction in shares, PPE after reporting date
  • Litigation due to events after the reporting date
  • Destruction of PPE (fire, flood) after end of reporting date
49
Q

What is the accounting treatment for adjusting events?

A

The amounts in financial statements are changed to incorporate new information

50
Q

What is the accounting treatment for non-adjusting events?

A
  • no changes made to amounts in the financial statements
  • A disclosure note is included: nature of event + financial effect if quantifiable
51
Q

How are proposed equity dividends recognised on financial statements?

A

As a liability on the SPL - IF they were declared before the end of the reporting period

-if after, then as a note in the disclosure

52
Q
A

CIMA F1 (14 decks)

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