Part 3 - Changes in accounting estimates and errors/ AR / Borrowing costs / Agriculture

Question 1

What is the IFRS and ASPE standard for accounting policies, changes in accounting estimates and errors

Answer 1

IAS 8
HB 1100
HB 1506

Question 2

If there is an absence of an IFRS standard that applies to the situation, management should… (IAS 8)

Answer 2

use its judgment in developing and applying an accounting policy
- if result in info relevant to stakeholders and reliable

Follow this order
- Requirement in IFRS standards
- conceptual framework
consider recent pronouncement of other standard setting bodies

Question 3

What is the primary source of GAAP in order of authority? (HB 1100)

Answer 3

• Accounting handbook
• accounting guidelines and apprendices
• adopt accounting policies/disclosure consistent with GAAP and developed through professional judgment and application of FS concept

Question 4

If consulting a source, need to evaluate the source based on what criterias?

Answer 4

specificity of the source
authority of the issuer
continued relevance of the source
development process for the source

Question 5

Does specific GAAP recommendation from primary source override the concept in s.1000?

Answer 5

yes

Question 6

A change in accounting policy will only be made when:

Answer 6

• required by an IFRS standard or…

- if it results in the FS providing reliable and more relevant info

Question 7

should you apply a change in accounting policy retrospectively?

Answer 7

Yes unless IFRS standards transitional provisions specify otherwise or if impracticable

relate comparative figures if possible, if not adjust opening retained earnings

Question 8

What should be done when there is a change in accounting estimates?

Answer 8

• apply in period of change and then prospectively
• record results if changes occur in circumstances which estimate is based
• disclose nature and amount of impact in current and future period

Question 9

What should be done when there is a correction of an error in past F/S

Answer 9

• Apply retrospectively
• restate comparative figures and adjust opening retained earnings of comparative year
• disclose - nature of error, effect of correction in F/Ss

Question 10

What should happen to AR subsequently after initial recording?

Answer 10

assess AR for impairment

Question 11

What is the allowance method for AR?

Answer 11

Allowance for doubtful account - contra account to AR

Question 12

What are ways of estimate Allowance for doubtful account?

Answer 12

Review of individual AR
Percentage of total AR
Perform aging of AR, then take a percentage of each aging category.

Question 13

What is the IS method for AR?

Answer 13

used by organization unable to obtain data to use allowance method or the differences in method is immaterial.

• amount of adjustment will be based on percentage of credit sales

Question 14

What are biological asset?

Answer 14

living animal or plants but excluding bearer plants

Question 15

What are the criteria to bearer plants?

Answer 15

A living plants tat meets all the following criteria (3)

• used in production or supply of agricultural produce
• expected to bear product for more than one period
• remote likelihood of being sold as agricultural produce, except incidental scrap sales

Question 16

If bearer plants no longer used to bear produces

Answer 16

They might be cut down and sold as scrap (firewood) but still be considered incidental scrap sales and can still be classified as a bearer plants

Question 17

Products that grow on bearer plants…

Answer 17

is within the scpe of IAS 41 - Agriculture

Question 18

What is agriculture produce?

Answer 18

Harvested produce of the entity’s biological assets at the point of harvest e.g. wool, milk

Question 19

Products that result of processing after harvest…

Answer 19

do not fall within the scope of IAS 41 (IAS 2 inventories instead). e.g. yarn, logs, cheese

Question 20

Recognize a biological asset or agricultural produce only when:

Answer 20

• Entity controls the asset as a result of past event
• it is probable that future economic benefits associated with the asset will flow to the entity
• fair value or cost of asset can be measured reliably

Question 21

How to recognize the biological asset and agricultural produce? Also for government grants related to biological assets.

Answer 21

measure at fair value less costs to sell (at the point of harvest)

Question 22

what will be the gain and losses on initial recognition or subsequent measurement for biological asset?

Answer 22

include in profit and loss

Question 23

When should recognize profit and loss for unconditional grants related to biological asset?

Answer 23

when government grant becomes receivable

Question 24

When should recognize profit and loss for conditional grants related to biological asset?

Answer 24

When conditions attached to the government grant are met

Question 25

What is the capitalization rate?

Answer 25

= weighted average of borrowing costs applicable to outstanding borrowings during the period other than borrowings made specifically to obtain qualifying assets

= Total general borrowing cost for the period / weighted average total general borrowing outstanding in the period