FAR Knowledge Flashcards
(50 cards)
How can a person be a related party under IAS 24
Person (or close family member):
- has control, joint control or significant influence over the reporting entity.
- is a member of KMP of the reporting entity (or its parent)
How can an entity be a related party under IAS 24 (4)
Entity is related if:
- both members of the same group
- one entity is an associate or JV or the other entity
- both are JV of the same third party
- entity is controlled or jointly controlled by a related person
Where a RPT has taken place what must be disclosed
1) The nature of the relationship
2) the amount of the transaction including any outstanding balances
3) any amounts written off or provided for including the related expense
Disclosure is required of the name of the parent company and the UCP irrespective of any transactions with them
Can any types of transactions be removed from related parties
Transactions between group entities in group accounts (must still disclose in single entity accounts)
What IFRS deals with NCA HFS
What is the criteria for something to be HFS
IFRS 5
1) available for immediate sale in current condition
2) sale highly probable
3) sale expected to take place within a year of reclassification
What happens when an asset is transferred to HFS
1) show separately under current assets as ‘non-current assets held for sale’
2) valued at lower of carrying amount and FVLCTS (no value in use)
2a) if the FVLCTS is lower than the carrying amount then an impairment will need to be recorded
3) no longer depreciated
What are the journal entries moving an asset to NCA HFS under the cost model
What are the 3 steps
Dr (any accum depn from PPE)
Dr NCA HFS 80
Dr P/L. 20
Cr PPE 100
1) remove asset from PPE
2) Recognise it as asset HFS
3) if fall in value then Recognise a loss
How would you account for creating an HFS asset under the revaluation model
1) asset must be revalued at FV under IAS 16 immediately before classification
2) under IFRS 5 reclassify based on the lower of carrying value (FV here) and FV- CTS —- has the effect of taking costs of disposal straight to P/L
3) if step 1 led to an increase in FV then an amount would have gone to the Reval reserve. On disposal, this reval reserve must be recycled to retained earnings
Which accounting standard relates to intangibles
Define an intangible
IAS 38
Identifiable non- monetary asset without physical substance
What conditions does an intangible need to be identifiable
Identifiable if it meets one of the two below
- separable
- arises from contractual or other legal rights
Separable if it can be sold, transferred, exchanged, licensed or rented to another party on its own rather than as part of the business
What conditions must be met if an intangible is to be recognised
1) probable that future economic benefits will flow to the entity
2) cost can be measured reliably
What is the initial measurement of an intangible
What about subsequent measurement
Initial: the cost being the purchase price plus any directly attributable costs eg costs of employees working to bring asset to working condition, legal and professional fees, costs of testing
Subsequent: choice of
Cost model: initial cost less accum amortization and impairment losses
Revaluation model: fair value less accumulated amortization and impairment losses. But only when active market (so revaluation model not usually appropriate)
How does amortization of an intangible work
Asset has finite useful life: amortize over the UEL commencing when it becomes available for use. No residual value
Indefinite life: should not be amortized but annually reviewed for impairment
How does purchased goodwill of an unincorporated business differ from an incorporated one
Unincorporated eg sole trader or partnership: Recognise in the single entity accounts of the purchaser
Incorporated: recognised in the consolidated SOFP
Can research costs be recognised as an intangible
No - they are an expense
Can development costs be recognised as an intangible
Yes - provided they follow strict criteria and can be demonstrated by the entity
1) probable future economic benefits
2) Intention to complete and use/sell asset
3) resources adequate and available to complete and use/ sell
4) ability to use / sell
5)technical feasibility of completing the intangible so it will be available for use
6) expenditure can be measured reliably
PIRATE
What accounting standard deals with revenue
What is the five step model for revenue recognition under
IFRS 15
1) identify the contract with the customer
2) identify the performance obligations in the contract
3) determine the transaction price
4) allocate the transaction price to the performance obligations
5) Recognise revenue when a performance obligation is satisfied
When can warranties be recognised as revenue
When the warranties provide a distinct service (eg free repairs). They are treated as a separate performance obligation. This would be the case if the customer is able to purchase the warranty separately
Warranties that simply provide assurance that product is manufactured to a certain condition dealt with as warranty provision under IAS 37
For performance obligations satisfied over a period of time how is revenue recognised
Output (sales value) method - eg survey of work completed to date
Input (costs incurred) method - costs incurred / total expected costs
If outcome cannot be estimated reliably such as early stages of contract. Revenue should be recognised only to extent costs recognised are expected to be recoverable from the customer (PRUDENT)
What are the only type of preference shares to be included in equity
Which types are classified as a liab
Equity: irredeemable preference shares with no mandatory requirement to pay a dividend
Liab: redeemable preference shares
Irredeemable preference shares where the interest is mandatory and cumulative
Which type of financial instrument do you deduct transaction costs from at initial recognition
Fin liab
Define fair value under IFRS 13
Price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date
What accounting standard deals with provisions
What 3 conditions must be present to recognise a a provision
IAS 37
1) entity has a present obligation (legal or constructive) as a result of a past event
2) probable that outflow of economic benefits will be required to settle the obligation
3) a reliable estimate can be made of the amount of the obligation
How is the estimate of the amount of provision calculated
For a single obligation, the most likely outcome is considered the best estimate
Large population of items eg warranty provision : obligation estimated by weighting all possible outcomes by their associated probabilities to arrive at EXPECTED VALUE
Where time value of money is material, the provision should be discounted to PV
