Checkpoint 2 Flashcards

Question

International Accounting Standards Board (**IASB**): What is the Board responsible for?

Answer 1

The Board is responsible for the **development** and **publication** of International Financial Reporting Standards (**IFRSs** and previously IASs) and the **Conceptual Framework**.

Answer 2

IFRS Interpretations Committee provides timely **guidance on the application and interpretation of IFRSs** and, in the context of the Conceptual Framework, **guidance on new financial reporting issues** not specifically addressed by IFRSs. Interpretations are approved for issue by the Board.

Answer 3

This formal advisory body **takes recommendations** from individuals, corporations and national standard-setters and provides advice to the Board on priority areas of accounting.

Answer 4

The objective of the International Sustainability Standards Board (ISSB) is to deliver a comprehensive global baseline of sustainability-related disclosure standards (**IFRS Sustainability Disclosure Standards**). International investors called for **corporate reporting on climate** and other environmental, social and governance matters that is high quality, transparent, reliable and comparable.

Answer 5

**Step 1**: Identify a subject and establish an advisory committee **Step 2**: Issue a discussion paper setting out the possible options for a new standard, with public comment invited. **Step 3**: Issue of Exposure Draft (again with public comment invited), being a draft of the final standard. Any feedback on this draft or the discussion paper would be analysed. **Step 4**: Issue of final IFRS

Answer 6

A **general purpose financial report** provides financial information that is useful to the primary users so that they can make decisions about providing resources to the entity. General purpose financial reports **cannot** provide all of the information that primary and other users need. They need to consider other relevant information, e.g. general economic conditions, political events, conditions in the industry sector in which the entity operates etc.

Answer 7

Any surplus arising on revaluation should be **credited to a revaluation reserve** (in the SFP). **Depreciation** should then be charged on the revalued amount, with the expense still being recorded in the statement of profit or loss in the usual way. Any **excess depreciation** (i.e. the difference between the old depreciation charge and the new charge based on the revalued amount) can be transferred from the revaluation reserve to retained earnings each year.

Answer 8

**Dr** Cost (with dif between rev. amount and cost) **Dr** Accumulated depreciation (to clear out all depreciation to date) **Cr** Revaluation surplus

Answer 9

Initially, an investment property should be measured at **cost**. At each **subsequent year end**, a business can either: (**a**) Value the property as a *normal non-current asset* at depreciated cost or (**b**) It can choose the *fair value model*, whereby the property is revalued each year end, with any gain or loss recognised in the statement of profit or loss. Under this model, depreciation is **not charged** on the revalued asset. Whichever policy it chooses should be applied to **all of its investment** properties.

Answer 10

The costs of borrowing money - **interest** or **finance costs**

Answer 11

The amount of costs capitalised depends on whether the borrowings were specific to the asset or general borrowings: - **Specific borrowings** – capitalise actual interest incurred during the period of construction less investment income on temporary investment of the funds; - **General borrowings** – weighted average of interest outstanding during the period.

Answer 12

There are two types of **grant**: (**1**) Those relating to **income** (e.g. a grant towards training costs). The grant should be recognised as “*other income*” in the same periods as the related costs, so as to match them. Alternatively, the grant can be deducted from the related expense. (**2**) Those relating to **assets** (e.g. a grant towards the purchase of a non-current asset). At the discretion of the company these grants should either be presented as: (i) “*Deferred income*” on the SFP and then amortised over the asset’s life, or (ii) By *deducting the grant from the cost of the asset* acquired and reporting the net amount in the SFP, thus leading to a lower annual depreciation charge.

Answer 13

Any government grant that becomes repayable should be accounted for as a **change in accounting estimate**. - Repayment of grants relating to **income** should be recognised as an **expense**. - Repayments of grants relating to **assets** should be recorded by increasing the **carrying amount** of the asset or **reducing the deferred income balance**, whichever is more appropriate.

Answer 14

An asset is **impaired** if its carrying amount is greater than its recoverable amount, where *recoverable amount* is the higher of: - *Fair value less costs of disposal* (net proceeds from the sale of the asset at arm’s length) - *Value in use* (the present value of the future cash flows that the asset is expected to generate)

Answer 15

It is the smallest identifiable group of assets for which individual cash flows can be identified and measured [**a group of assets**].

Answer 16

(**a**) `Assets carried at historical cost` (i.e. those that have never been revalued in the past) Dr SPorL (depreciation) Cr SFP (non-current asset) **OR** for a CGU Dr SPorL Cr 1) Goodwill Cr 2) Other assets on a pro-rata basis (ensuring no asset is written down to an amount lower than its recoverable amount or zero) (**b**) `Revalued assets` Dr SFP (revaluation reserve re the asset ─ down to nil) Dr SPorL (depreciation) Cr SFP (non-current asset)

Answer 17

- **Assess** at each year-end for reversal of past impairments due to changes in market value or asset performance. - **Recognize** reversal in profit or loss unless originally in revaluation surplus. - **Reversal** should not exceed what the asset's depreciated carrying amount would be without the impairment. - **Impairments** to goodwill **cannot** be reversed.

Answer 18

- **S**eeking: the entity must be actively seeking a buyer. - **A**vailable: the asset must be available for immediate sale in its present condition. - **L**ikely: the sale must be highly probable. - **E**xpected: the sale is expected to be completed within 1 year.

Answer 19

**Step 1**. Update the carrying amount of the asset: depreciate up to date of classification and revalue (if using the revaluation model). **Step 2**. Next: remeasure at *lower* of carrying amount and fair value less costs to sell – this is similar to performing an impairment review. Any loss is recognised in profit or loss. **Step 3**. Present as a separate classification of asset in SFP (transfer from non-current assets to current assets). **Step 4**. Depreciation should cease from the date of classification.

Answer 20

A discontinued operation is a **component** of an entity that, at the year end, either has been disposed of or is classified as held for sale. We disclose it in **SPorL** – a single amount comprising the total of: - The post-tax *profit or loss of discontinued operations*, and - The post-tax *gain or loss recognised on the remeasurement* to fair value less costs to sell **or** on the disposal of assets/disposal groups comprising the discontinued operation.

Answer 21

Consolidated statement of profit or loss for the year ended 30 September 20X0 **Continuing operations** Profit before tax X Income tax expense X Profit for the year from continuing operations X **Discontinued operations** Profit for the year from discontinued operations (W1 + W2) [profit for the year + gain on disposal] Profit attributable to: Owners of Parent X Non-controlling interest X

Answer 22

Two alternative policies: (**1**) **Cost model** – cost less accumulated amortisation and impairment losses (**2**) **Revaluation model** – revalued amount less accumulated amortisation and impairment losses (reference to an active market).

Answer 23

Be careful! These assets are **not amortised**, but have annual *impairment* tests.

Answer 24

These are costs that are incurred to “gain new scientific or technical knowledge and understanding”. These costs are **NOT** recognised as an **intangible asset**, but are always **expensed** in the Statement of profit or loss.

Answer 25

Costs which are incurred in the “application of research findings to a plan/design for the production of new or substantially improved materials, products or processes prior to commercial production or use. These costs must be recognised if **all** of the following **criteria** are met:  **P** robable future economic benefits will be generated by the asset  **I** ntention to complete and use/sell asset  **R** esources adequate and available to complete and use/sell asset  **A** bility to use/sell the asset  **T** echnical feasibility of completing asset for use/sale  **E** xpenditure can be measured reliably. | [*Amortisation will commence when the asset is ready for use!!!*]

Checkpoint 2 Flashcards

(49 cards)