IFRS/IAS

Question 1

IFRS 9 - Financial instruments

Answer 1

Specifies how an entity should classify, and measure, financial assets, financial liabilities, and some contracts to buy or sell financial items.

Requires an entity to recognise a financial asset or a financial liability in its statement of financial position when it becomes party to the contractual provisions of the instrument.

Initial recognition. An entity measures a financial asset or financial liability, at it’s fair value plus or minus, the transaction costs that are directly attributable to the acquisition or issue of the financial asset or the financial liability, unless classified as fair value through profit or loss.

Question 2

IFRS 9 derivatives

Answer 2

Derivative is a financial instrument that derives its value from the value of an underlying asset, price, rate or index.

Characteristics

Its value changes in response to changes in the underlying item.

It requires little or no initial investment.

It is settled at a future date.

Question 3

IFRS, 16

Finance, lease

Answer 3

A lease that transfers all the risks and rewards of ownership. Title may or may not be transferred.

Ownership is transferred to the leasee at the end of the lease.

The lessee has the option to purchase the asset for a price substantially below the fair value and is reasonably certain to exercise this option.

The lease term is for the major part of the assets, useful life.

The present value of the minimum lease payments amount to substantially all of the fair value of the asset.

The assets are of a specialist nature that I need only the lessee can use without major modification.

The lessee bears losses arising from cancelling the lease.

The lessee has ability to continue the lease for secondary period add a rate below the market rent.

Question 4

IFRS 16

Operating lease

Answer 4

A lease other than a finance lease

Lease receipts are shown as income on the statement of profit and loss on a straight line basis over the term of the lease, unless another systematic basis is more appropriate.

Any difference between the amounts charged and the amounts paid will be recognised as accrued income or deferred income in the statement of financial position.

Question 5

IFRS 16

Lessor accounting

Initial recognition

Answer 5

At inception of a lease, lessor present finance leases by derecognising the leased asset and recording a receivable for the future receipts from the lease.

The finance lease receivable is equal to the net investment of the lease.

This is calculated as a present value of all and received

– fixed rental payments

– variable rental payments

– residual value guarantees

– unguaranteed residual values.

– termination of penalties.

The payments are discounted at the rate implicit in the lease.

Question 6

IFRS 16

Finance leases

Subsequent treatment

Answer 6

Receivable is increase by the finance income earned

Decreased by the cash receipts

Question 7

IFRS 15

Revenue from contract with customers

Answer 7

Income arising in the course of an entity is ordinary activities.

Does not include

Proceeds from the sale of non-current assets

Sales tax and other similar taxes

Other amounts collected on behalf of others, for example in an agency relationship.

Question 8

IFRS 15

Five step approach

Answer 8

COPAR
Contract
Obligation
Price
Allocate price
Recognise revenue

One – identify the contract

Two – identify the separate performance applications within the contract

Three – determine the transaction price

Four – allocate the transaction price to the performance application in the contract

Five – recognise revenue when (or as) a performance application is satisfied

Question 9

IFRS 15
Identify the contract

Answer 9

A contract is an agreement between two or more parties that creates rights and obligations. A contract does not need to be written.

An entity can only account for revenue if the contract meets the following criteria.

– the parties to the contract have approved, and I committed to filling the contract.

– each parties rights can be identified.

– the payment terms can be identified

– The contract has commercial substance

– it is probable that the entity will be paid

Question 10

IFRS 15

Determining the transaction price

Answer 10

The transaction price is the amount of consideration an entity expects in exchange for satisfying before this application.

When determining the transaction price, the following must be considered.

Variable consideration

Significant financing components.

Non-cash consideration.

Consideration payable to a customer.

If the transaction contract includes variable consideration, (eg bonus) it should be included within the transaction price if it is highly probable that a significant reversal in the amount of cumulative revenue will not occur when the uncertainty is resolved.

Question 11

IFRS 15

Identifying the separate performance obligations within a contract

Answer 11

Performance obligations are promises to transfer distinct goods or services to a customer.

Some contracts contain more than one performance application for example,

– an estimate enter into a contract with a customer to sell a car (one PO), which includes one years, free, servicing and maintenance (another PO).

• an entity might enter into a contract with a customer to provide a course of five lectures (one performance obligation), as well as provide a textbook on the first day, of course (another separate performance obligation).

Question 12

IFRS. 15

Allocate the transaction price.

Answer 12

Contracts can include a number of performance obligations, e.g. sales of products including warranty periods. Prices should be allocated to each separate performance obligation within a contract.

The total transaction price should be allocated to each performance obligation in proportion to standalone selling prices.

The best evidence of a standalone selling price is the observable same price of a good or service sold separately.

if a standalone selling price is not directly observable to the entity, the the entity must estimate the standalone selling price

Question 13

IFRS. 15

Recognising revenue

Answer 13

Revenues is recognised when, or as, the entity satisfies, a performance obligation by transferring a promised, good or service to a customer

At the start of the contract, for each performance obligation identified, an entity must determine whether it satisfies the performance obligation, either at a point in time or over time.

Question 14

IFRS 15

Satisfying a performance obligation, at a point in time

Answer 14

The performance obligation is satisfied at a point in time when a customer obtains control of a promised asset.

Control of an asset refers to the ability to direct the use of and obtain substantially all of the remaining benefits from the asset.

Control includes the ability to prevent other entities from obtaining benefits from an asset i.e. an entity can restrict the assets use.

The following are indicators of the transfer of control.

– the entity has a present right to payment for the asset

– the customer has the legal title to the asset.

– The entity has transferred physical possession of the asset

– the customer has significant risks and rewards of ownership of the asset

– the customer has accepted the asset.

Question 15

IFRS. 15

Satisfying the performance application over time.

Answer 15

An entity satisfies a performance obligation and, correspondingly, should recognise revenue over time, if one of the following criteria is met.

The customer simultaneously receives and consumes the benefits provided by the entities performance as the entity performs, i.e. the entity provides a service.

The entity performance or enhances as asset (for example, work in progress) that the customer controls as the asset is created or enhanced. IE construction.

The entities performance does not create an asset with an alternative use to the entity and the possible write to payment for performance completed to date . IE construction.

Question 16

IFRS 10

Consolidated financial statements

Answer 16

An investor controls and investee, if and only if, the investor has all of the following elements

– power over the investee

• Exposure, or rights, to variable returns from its involvement, with the investee, and

– the ability to use its power over the investee to affect the amount of investors returns

Question 17

IFRS 10

Definition of power

Answer 17

Existing rights to give the current ability to direct the relevant activities.

Power is generally considered to have been achieved an investor owns more than 50% of the voting rights in an entity.

Question 18

IFRS 10

Consolidated financial statements

Answer 18

Should be prepared when the parent has control over one or more subsidiaries known as acquisition accounting.

The following rules apply

– the parent and subsidiaries assets. Liabilities income and expenses are combined in full.

• Goodwill is recognised in accordance with IFRS 3, business combinations
• Share capital of the group is the share capital of the parent only
• Intragroup, balances and transactions are limited in full
• Uniform, accounting policies must be used.
• Noncontrolling interests are presented within equity separately from the equity of the owners of the parent.

Question 19

IFRS 10

Exemption from group accounts

Answer 19

If it is a wholly-owned subsidiary or a partially owned subsidiary and its owners, including those, not otherwise, entitled to vote, have been informed and do not object to the parent not presenting consolidated financial statements.

Its debt or equity instruments are not traded in a public market.

It did not file its financial statements with the securities commission or other regulatory organisations for the purposes of issuing any class of instruments in a public market.

Its ultimate parent produces consolidated financial statements available for public use to comply with IFRS standards

Question 20

IFRS 3

Business combinations

Answer 20

Allows two methods to be used to value the noncontrolling interest of the date of acquisition

– fair value

– proportionate share of net assets method

Businesses may choose how to value non-control the interest on a acquisition by acquisition basis. In other words, it is possible for a group to apply the fair value method for some, but not all subsidiaries.

Question 21

IFRS 3

Business combinations – impairment of goodwill

Answer 21

Must be tested at each reporting date for impairment. This means a goodwill is reviewed to ensure that its value is not over stated in the consolidated statement of financial position.

Question 22

IFRS, three

Business combinations – goodwill

Answer 22

Goodwill is a residual amount, calculated by comparing, at acquisition, the value of the subsidiary as a whole, and the fair value of its identifiable net assets at this time. Residual amount may exist as a result of the subsidiaries

– positive reputation

– loyal customer base.

– staff expertise

Goodwill is captured as an intangible asset on the consolidated statement, financial position and is subject to annual impairment reviews.

Question 23

IFRS 13

Fair value measurement

Answer 23

Price that will be received a selling asset of paid to transfer a liability in an orderly transaction between market participants at the measurement date

Question 24

I FRS,3 – business combinations

Identification of assets and liabilities

Answer 24

The group must recognise the fair value of identifiable, net assets and liabilities of the subsidiary required.

Unless it is identifiable, if

– it is capable of being separated

– arises from contractual or other legal rights 

Question 25

IFRS, 11 – joint arrangements

Answer 25

Defines two types of arrangements in which there is joint control – a joint-venture and a joint operation – and sets out the accounting treatment of each.

A joint arrangement is in arrangement of which two or more parties have joint control. Joint control is the contractually agreed, sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

A joint-venture is the joint arrangement, whereby the parties have joined control of the arrangement Have rights to the net assets of the arrangement and a separate legal entity has been set up

Question 26

IAS, 32

Financial instruments presentation 

Answer 26

Provides the rules of classifying financial instruments as liabilities or equity.

The issuer of the financial instrument is classified as a financial liability or equity instrument on initial recognition, according to its substance

Financial liabilities.

The instrument will be classified as a liability if the issue are has contractual obligation

– to deliver cash (or another financial asset) to the holder

– to exchange, financial instruments, on potentially unfavourable terms

Equity instruments

A financial instrument is only an equity instrument, if there is no such contractual obligation.

Question 27

IAS, 32

Financial instruments – presentation of compounded instruments

Answer 27

A compound instrument is a financial instrument that has characteristics of both equity and liabilities

Convertible bonds are compound instruments. Convertible bonds are currently debt but can be converted into equity shares at certain points in the future.

Upon initial recognition, IAS 32 requires compound financial instruments to be split into their component parts.

– a financial liability – measured at the present value of the future, cash flows

– an equity instrument (the option to convert into shares) – calculated as the balancing figure

Question 28

IAS, 33

Earnings per share 

Answer 28

An entity must present basic earnings per share and diluted earnings per share with equal prominence in the statement of comprehensive income. In consolidated financial statements, earnings, per-share measures are based on the consolidated profit or loss attributable to ordinary equity holders of the parent.

Details rules on the calculation of earnings per share and presentation to ensure consistent treatment and compatibility between companies.

Question 29

IAS, 37

Provisions, contingent assets, and contingent liabilities

Answer 29

Defines and specifies the accounting for and disclosure of provisions, contingent, liabilities, and contingent assets.

Question 30

IAS, 37

Recognition of a provision

Answer 30

Can be recognised when, and only when, all of the following conditions are met

– and entity has a present obligation (legal or constructive) as a result of past events.

– it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation

– a reliable estimate can be made of the amount of the obligation .

Question 31

IAS, 37

Obligations

Answer 31

Canby

Legal arising from

– a contract

– legislation

– other operation of law

Constructive, i.e., the entity has created a valid expectation, via

– an established pattern of past practice

– a published policy or statement

Question 32

IAS, 37

Restructuring

Answer 32

Can only be made if

– the entity has a detailed formal plan.

– has raised a valid expectation in those affected, as it will carry out the restructuring by – starting to implement it or announcing it.

A provision can then only be made for costs that are

– necessarily entailed by the restructuring and

– not associated with the ongoing activities of the entity

Costs specifically not allowed include retraining/relocation of existing staff, marketing and investment in new systems.

Question 33

IAS, 37

Contingent liabilities

Answer 33

*A possible obligation that arises from past events, and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity or

*A present obligation that arises from past events, but is not recognised because

– it is not probable that an outflow resources anybody economic benefits will be required to settle the obligation, or

– the amount of the application can be measured with sufficient reliability

Question 34

IAS, 37

Recognition for a contingent liability

Answer 34

The contingent liability is not recognised, but disclosed in a note, unless the possibility of outflow is remote.

If the likelihood is remote, nothing is recognised or disclosed.

Question 35

IAS, 37

Contingent asset

Answer 35

A possible asset that arises from past events, and whose existence would be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity

Question 36

IAS, 37

Contingent asset recognition

Answer 36

Contingent as it is not recognised, but if an inflow is considered probable, it may be disclosed in a note

If the chances are possible or remote, nothing is recognised or disclosed

Question 37

IAS, 37

Provisions

Answer 37

Provision is a liability of uncertain timing or amount.

A liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources, embodying economic benefits.

Question 38

IAS, 38, intangible assets,

Internally generated Intangibles that can never be recognised

Answer 38

Internally generated intangible is rarely meet the recognition criteria as they are not capable of reliable measurement

Goodwill

Brands

Publishing titles

Newspaper mastheads

Customer lists

Intellectual property 

Question 39

IAS, 38 intangible assets

The cost of an intangible asset

Answer 39

It’s price to purchase, including import, duties, and nonrefundable taxes on acquisition, after deducting trade discounts and rebates

Any directly attributable costs, preparing the assets for its intended use

Question 40

IAS, 38

Intangible assets

Accounting for research and development costs

Answer 40

Ionly research and development expenditure incurred after the recognition criteria for research and development costs has been met, should be recognised as an asset. Expenditure recognises an expense in the profit and loss cannot subsequently be reinstated as an asset

Development expenditure should be amortised over the useful life as soon as commercial production begins

Question 41

IAS 12

Income taxes

Answer 41

The income tax expense in the statement of profit and loss typically consists of three elements

– current tax expense for the year

– under or over provision in relation to the tax expense of the previous period

– movements in deferred tax, liabilities or assets

Question 42

Ias, 12

Income taxes,

Deferred tax

Answer 42

The estimated future tax consequences of transactions and events, recognising the financial statements of the current and previous periods.

Deferred tax is the basis of allocating tax charges to particular accounting periods. It is an application of the accrual concept and aims to eliminate a mismatch between accounting profit and taxable profit.

The differences between accounting profit and taxable profit can be caused by –

– expenses not allowed for tax purposes and differences between the carrying amount of an asset or liability and its tax base.

Question 43

IAS, 12

Income taxes,

Deferred tax on a losses

Answer 43

Recognised on an utilise losses carried forward as there will be a future tax benefit when the losses are offset against future profits .

Question 44

IAS. 21

THE effects of changes in foreign exchange rates.

Answer 44

outlines how to account for foreign currency transactions and operations in financial statements, and also how to translate financial statements into presentation currency.

Question 45

I a S 21

The effects of changes in foreign exchange rates

Functional currency

Answer 45

The functional currency is the currency of the primary economic environment in which the entity operates.

In most cases, this will be the local currency.

the following should be considered when determining its functional currency

– the currency that mainly influences sales prices for goods and services

– the currency of the country whose competitive forces and regulations mainly determine the sales price of goods and services.

– The currency that mainly influences labour, materials and other costs of providing goods and services,

– the currency in which funding from issuing debt and equity is generated

– the currency, in which receipts from operating activities are usually retained.

Question 46

I a S 21

The effects of changes in foreign exchange rates

Presentation currency

Answer 46

The currency in which the entity presents its financial statements.

This can be different from the functional currency, particularly the entity in question is a foreign owned subsidiary. The subsidiary may have to present its financial statements in the currency of his parents, even though this is different to its own functional currency.

Question 47

IAS, 28

Investments in associates and joint ventures

Answer 47

Requires an investor to account for its investment in associates using the equity method. Pescribes how to apply the equity method when accounting for investments in associates and joint ventures.

Question 48

IAS, 28

Investments in associates and joint ventures

Definition of an associate

Answer 48

An associate, over which an investor has significant influence

Significant influence is defined as – the power to participate in the financial and operating policy decisions of the investee, but is not in control or joint control of those policies

And investor probably has significant influence. If

– it is represented on the board of directors

– it participates in policy, making processes, including decisions about dividends and other distributions

– there are material transactions between the investor and investee

– there is interchange of managerial personnel

– there is provision of essential technical information .

Question 49

IAS, 28

Investments in associates and joint ventures

Method of accounting

Answer 49

Accounted for using equity accounting

They are not consolidated as a parent does not have control

They are exempted from using the equity method. If

– the investment is classified as held for sale.

– the parent is exempted from having to prepare consolidated accounts on the ground that it is wholly or partly owned subsidiary of another company.

Question 50

IAS, 28

Investments in associates and joint ventures

Unrealised profits

Answer 50

And realise profits and transactions between the group and the associates are to be eliminated. Only the investors share of the profits is removed.

Parent sells to associate

– reduce consolidated retained earnings (increasing cost of sales)

– reduce investment in associate

Associate sells to parent

– reduce consolidated retained earnings (reducing share of profits in associate)

– reduce inventory

Question 51

IAS seven

Statement of cash flows

Answer 51

Describes how to present information in the statement of cash flows about an entity is cash and cash equivalents change during the period.

Question 52

IAS seven

Statement of cash flows

Definitions

Answer 52

Cash consist of cash in hand and deposit through payable upon demand, less overdrafts. This includes cash held in a foreign currency

Cash, equivalent of short-term, highly liquid investments that are readily convertible into known amount of cash and a subject to any significant risk of changes in value.

Question 53

IAS, 24

Related party disclosures

Answer 53

Are you related party is a personal entity that is related to the entity that is preparing its financial statements.

Question 54

IAS, 24

Related party disclosures

Typical related parties

Answer 54

Key management personnel

Close family members of key management personnel

Entities there are members of the same group

Question 55

IAS, 24

Related party disclosures

Unrelated parties

Answer 55

Two entities simply because they have a director/member of key management personnel in common

To join ventures simply because they share during control of a joint-venture

Providers of finance

Key customers and suppliers

Question 56

IAS, 24

Related party disclosures

Disclosure requirements

Answer 56

Related party transactions is a transfer of resources, services, or obligations between a reporting entity and a related party, regardless of whether a price is charged.

Where there have been transactions between the entity and a related party, the entity is required to disclose

– the nature of the related party relationship

– the nature of the transaction

– the amount of the transaction

– any outstanding balance relating to the transaction

– any provision of the death of debts related to the amount of any outstanding balance