Which information is not specifically a required disclosure in relation to financial statements
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Q1: Entity A produces whisky from barley, water and yeast in a 24-month distillation process. Inventories include barley and yeast raw materials, partly distilled whisky and distilled whisky. Show Current assets - expected to be realised (i.e. turned into cash) in the entity's normal operating cycle Q2: Accounting treatment? Why? At 31/12/20X7 A presents current assets: non-current asset: Q3: An obligation to suppliers for the purchase of raw materials. Accounting treatment? Why? current liability expected to settle (i.e. pay) the supplier in the entity's normal operation cycle Q4: At 31/12/20X7 A was in breach of a covenant in a loan that is otherwise repayable 3 years later. The breach entitles (but does not oblige) the bank to require immediate
repayment. at 31.12.20x7 the loan is a current liability at 31.12.20x7 A does not have an unconditional right to defer settlement for at least 12 months Q5: Same as in Q4 except after the end of the reporting period (31/12/20X7) and before the financial statements were approved for issue, the bank formally agreed not to demand early repayment of the loan. the loan is a current liability at 31.12.20x7 A does not have an unconditional right to defer settlement for at least 12 months Q6: What elements does a complete set of financial statements according to IAS 1 Financial Statements comprise? Please state all relevant elements and briefly describe them (key information, structure / build-up, usefulness) -statement of financial
positions: balance sheet (assets/liabilities Q6: Which of the following reports is not a component of the financial statements according to IAS 1? a) Statement of financial position c) director's report Q7: XYZ Inc. decided to extend its reporting period from a year (12-month period) to a 15-month period. Which of the following is not required under IAS 1 in case of change in reporting period? a) XYZ Inc. should disclose the reason for using a longer period than a period of 12 months. C Q8: Which of the following is not specifically a required disclosure of IAS 1? a) Name of the reporting entity or other means of identification, and any change in that information from the
previous year B Q9: Which one of the following is not required to be presented as minimum information on the face of the balance sheet, according to IAS 1? a) Investment property D Q10: When an entity opts to present the income statement classifying expenses by function, which of the following is not required to be disclosed as "additional information"? a) Depreciation expense C The purpose of the conceptual Framework for Financial Reporting is a) to assist the IASB in setting IFRS Answer e) The objective of general purpose financial reporting is provide financial information about the reporting entity, Which of the following could most closely be associated with the objective of financial reporting transparency and neutrality The fundamental qualitative characteristics are relevance and faithful presentation Verifiability means knowledge and independent observers could...? could reach consensus, but not necessarily complete agreement, that a depiction is a faithful representation Which statements are true a) relevance is a fundamental qualitative characteristic Answer: e) What could affect both recognition and measurement? Uncertainties about the extent of future cash flows. - Recognition criteria determine when to recognize an item. The purpose of the conceptual framework for financial reporting is? - to assist the IASB in setting IFRS What are the advantages of using IFRS for the companies? (drivers) External drivers: Internal drivers: Guiding principles of standard-setting - transparency and accessibility What is the due process? Is an IASB' international consolation process established with aim of harmonising financial reporting by setting standards describing the consultative arrangements of IASB and providing Trustees with the opportunities to ensure compliance at various points of the process 6 stages. What is most closely associated with the objective of financial reporting? true and fair What are the fundamental qualitative characteristics? Relevance and faithful representation (completeness, neutrality, free from errors) With which method are expenses recognised in comprehensive income (profit or other comprehensive income) using the accrual basis - items are recognised as assets, liabilities, equity, income or expenses when they satisfy the definitions and recognition criteria for those items. How many measurement bases does IFRSs specify for the measurement of assets? Name them many: including historical cost, fair value, value in use, estimated selling price less cost to complete and sell, etc. The conceptual framework: d What enhancing qualitative characteristics are defined in the conceptual framework? - comparability Which are the underlying assumptions of financial statements? Accrual Basis: Going Concern: Recognition in an accounting context - Benefit flow to/from the
entity probable What is accrual basis of accounting It means recognise element when it satisfy definitions and recognition criteria Measurement in accounting context Process of determining monetary amounts at which elements are recognised and it is often based on estimates, judgements and models Measurement basis: Historical cost - paid at the time of their acquisition (assets) Measurement basis: Current cost Cash that would be paid if acquired now Measurement basis: realisable value Cash that could be obtained by selling the asset in an arm's-length transaction NRV = Fair value (i.e., selling price) - selling costs - costs to complete (think: work-in-process inventory) Measurement basis: Present value present discounted value of future net cash generated Measurement basis: Fair value NRV = Fair value (i.e., selling price) - selling costs - costs to complete (think: work-in-process inventory) - price that would be received to sell in an orderly transaction Assets An asset is a resource controlled by the entity and a result of past events and from which future economic benefits are expected to flow to the entity Liabilities 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" Equity Equity is the residual interest in the assets of the entity after deducting all of its liabilities Income - Income is increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or - decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants Expenses Expenses are decreases in economic benefits during the accounting period in the form of outflows or depletions of assets ... - and incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants. Presentation of financial statements: impracticable Applying a requirement becomes impracticable when the entity cannot apply a requirement despite all reasonable effort to do so Definition: International Financial Reporting Standards IFRS Standards and interpretations adopted by the International Accounting Standards Board IASB: 1. International Financial Reporting Standards Material An item is deemed to be material if it is omission or misstatement would influence the economic decisions of a user taken on the basis of the financial statements. Materiality is determined based on the item's nature size and /or the surrounding circumstances IFRS hierarchy IFRS Statement of Financial Position: key information, structure, build-up, usefulness Reports the assets of the entity at a point in time and the claims against those resources. Claims are broken up into liabilities and shareholders' equity Key information: assets, liabilities and equity Structure: Assets = Liabilities + Equity Current and non-current assets and liabilities should be classified separately on the face of the statement of financial position except in circumstances when a liquidity-based presentation provides more reliable and relevant information Usefulness: Statement of comprehensive income: key information, structure, build-up, usefulness Reports revenues less expenses (earnings) that increase owners' equity between two balance sheet dates Key information: income and expenses Structure: expenses classified by nature of function Net revenue -COGS = gross margin Statement of changes in equity key information, structure, build-up, usefulness Two primary components: - Contributed capital which represents stockholders' investment -> common stock (par value) and additional paid in capital, and - retained earning which equals cumulative net income minus cumulative dividends since the formation of the company Key information: all changes in equity or changes other than those with equity holders Structure: comprehensive income = net income + other comprehensive income Statement of cash flows: key information, structure, build-up, usefulness Explains the change in cash during the period in terms of cash provided by or used for operating, investing and financing activities Key information: cash inflows and outflows from operating, financing and investing activities Change in Cash = cash from operations + cash from investing + cash from financing Usefulness: it serves as a basis for evaluating the entity's ability to generate cash and cash equivalents and the needs to utilize these cash flows notes key information, structure, build-up, usefulness a collection of information providing descriptions and disaggregated information relating to items Usefulness: a summary of significant accounting policies and other explanatory information Current - expect to realise, sell or consume in entity's Non-current ? settle in normal operating cycle an entity expects, and has discretion, to refinance or roll over an obligation for at least 12 months after the reporting period under an existing loan facility with the same lender, on the same or similar terms. What is the comprehensive income for the period? Comprehensive income (or earnings): Is the change in equity (net assets) of a business during a period of transaction and other events and circumstances from non-current sources. It includes all changes in equity during a period (except those resulting from Investments by owners and distribution to owners). Is a concept that gives the company- whole point of view and attempts to measure the sum total of all operating and financial events that have changed the value of owners' interest in a business. Comprehensive income is comprised of two elements: net income and other comprehensive income. Other comprehensive income includes changes in operating expenses, foreign currency translation gain or loss; a profit or loss that is realized by the sale of property, unrealized loss or gain on available-for-sale securities; and any other transaction that is usually not classified as net income. Cost of sale method An entity classifies expenses according to their function as part of cost of sales Advantage: provides more relevant information to users than the classification of expenses by nature Disadvantage: The allocation of costs to functions requires arbitrary allocation involving judgement e.g. manufacturing, selling, general administrative, and financing Nature of expense An entity aggregates expenses to profit or loss according to their nature. For example depreciation, purchases of materials, transport costs, employee benefits and advertising costs --> expenses are not allocated among functions within the entity Steps of financial reporting - objective Is a change in accounting policies allowed, if yes, how should the new policies applied? Changes in accounting policies should be applied retroperspectively When is disclosure needed (accounting policy change) - Judgements that management made in the process of applying entity's accounting policies that have the most significant effect - Information about major sources of estimation uncertainty The four financial statements An entity purchases a building and the seller accepts payment partly in equity shares and partly in debentures (Schuldscheine) of the entity. This transaction should be treated in the statement of cash flow as? This does not belong in a cash flow statement and should be disclosed only in the footnotes to the financial statement An entity (other than financial institution) receives dividends from its investment in shares. How should it disclose the dividends received in the statement of cash flows prepared under IAS 7? Either as operating inflow or as investing cash inflow How should gain on the sale of an office building owned by the entity be presented in a statement of cash flows? As an adjustment to the net income in the "operating activities" section of the statement of cash flows prepared under the indirect method. How should an unrealised gain on foreign currency translation be presented in a statement of cash flows? As an adjustment to the net income in the "operating activities" section of the statement of cash flows How should repayment of a long-term loan compromising repayment of the principal amount and interest due to date on the loan be treated in a cash flow statement? The repayment of the principal portion of the loan is cash flow belonging in the "investing activities" section; the interest payment belongs either in the "operating activities" section or the "financing activities" section Inventories should be stated at Lower of cost and net realizable value Which of the following costs of conversion cannot be included in the cost of inventory? - cost of direct labour - salaries of sales staff Inventories are assets: a) used in the production or supply of goods and services for administrative purposes g b) held for sale in the ordinary course of business The cost of inventory should not include: A) purchase price g c) abnormal amounts of wasted materials ABC LLC manufacture sells paper envelopes. The stock of envelopes was included in the closing inventory as of Dec 31, 2009 at a cost of $50 each per pack. During final audit, auditors noted that the subsequent sale price for the inventory at Jan 15, 2010 was $40 each per pack. Furthermore, inquiry reveals that during the physical stock take, a water leakage has created damages to the paper and glue. Accordingly, in the following week, ABC spent a total of $15 per pack for repairing and reapplying glue to envelopes. The net realizable value and inventory write-down (loss amount) to? NRV: $ 25 Write-down $ 25 Are the following items assets? -
Potter's kiln (Brennofen) all yes. 2nd maybe questionable Cost of private jet $15mio and can be depreciated either using a composite useful life or use full lives of its major components. it is expected to be used over a period of seven years. the engine of the jet has a useful life of 5 years, the tires are replaced every two years. What are the relevant useful life? five years engine and two years tires. 7 years useful life applied to the balance cost of the jet An entity imported machinery to install in its new factory premises before year-end. However, due to circumstances beyond its control, the machinery was delayed by a few months but reached the factory before year end. Entity learned that it was charged interest by bank on the loan it had taken to fund the cost of the plant. What is the proper treatment of freight and interest expense under IAS 16 Freight charges should be capitalized but interest cannot be capitalized under these circumstances XYZ ownes a fleet of over 100 cars and 20 ships. it operates in a capital-intensive industry industry and the has significant property plant and equipment. the company's account has suggested the alternatives that follow. What is appropriate? - revalue an entire class of PPE - revalue an entire class of PPE An entity installed a new production facility and incurred a number of expenses at the point of installation. the entity's accountant is arguing that most expenses do not qualify for capitalization. Included in those expenses are initial operating losses. These should be expensed and charged to the income statement IAS 16 requires that revaluation surplus resulting from initial revaluation of PPE should be treated how? debited to the class of PPE that is being revalued and credited to other comprehensive income and accumulated in equity under the heading of revaluation surplus. A tech start-up has completed one of its high profile research and development projects. Which of the following statements is correct: a) Costs incurred during the research phase can be capitalized b) Costs incurred during the development phase can be capitalized if criteria such as technical feasibility of the project being established are met Q2: Which item listed below does not qualify as an intangible asset? d) Tablet computers Q3: Under IAS 38 which of the following items qualify as an intangible asset and why? a) Purchase of customer lists a) Purchase of customer lists - controlled by entity Which requirements must be met for an item to be recognized as an intangible asset? - controlled by entity Q5: Master Piano acquires the copyrights to the original recordings of a famous pianist. Contract duration is 5 years. Due to an injury the pianist cannot play during the initial 12 months of the contract. Which of the following costs can be capitalized as an intangible asset and why? a) CHF 5 million to purchase the copyrights a) CHF 5 million to purchase the copyrights Q6: IAS 38 sets out rules for the recognition of other internally generated intangible assets and broadly defines such expenditures as research and development. a) Which requirements need to be met to recognize development expenditures as an intangible asset? - technical feasibility An engineering company receives a confirmed order from a Chinese car manufacturer to develop a new design for turbocharging truck engines. As part of its research and development activities, the engineering company incurs the following cost (all 2012). a) Jan 30: CHF 50,000 salaries for technicians and engineers a) Jan 30: CHF 50,000 salaries for technicians and engineers d) August 15: CHF 50,000 for the development of a first prototype for testing with the engine to ensure full compatibility Once recognised, intangible assets can be carried at? Cost less accumulated depreciation and less accumulated amortisation Impairment loss amount by which the carrying amount of an asset or a cash-generating unit exceed its recoverable amount Recoverable amount (impairment) the higher of: Why Cash Generating Unit CGU If an asset appears to be impaired, the recoverable amount for that asset should be calculated. This might not be possible due to: In such case, the recoverable amount of the cash-generating unit to which the asset belongs should be calculated Which assets should be tested for impairment annually? - intangible assets with an indefinite useful life Reversal of Goodwill impairment? Goodwill impairment cannot be reversed! An entity has purchased the whole of the share capital of another entity for a purchase consideration of $20 million. The goodwill arising on the transaction was $5 million. It was planned at the outset that the information systems would be merged in order to create significant savings. Additionally the entity was purchased because of its market share in a particular jurisdiction and because of its research projects. Subsequently the cost savings on the information systems were made. The government of the jurisdiction introduced a law that restricted the market share to below that anticipated by the entity, and some research projects were abandoned because of lack of funding. --> Explain any potential indicators of the impairment of goodwill. Goodwill is tested at least annually according IFRS 3 Entity expected future benefits from acquisition. Certain benefits arisen, others not -> check for impairment An entity is preparing its financial statements for the year ending November 30, 20X8. Certain items of plant and equipment were scrapped on January 1, 20X9. At November 30, 20X8, these assets were being used in production by the entity and had a carrying value of $5 million. The value-in-use of the asset at November 30, 20X8, was deemed to be $6 million, and its fair value less costs to sell was thought to be $50,000 (the scrap value). -->What is the recoverable amount of the plant and equipment at November 30, 20X8? Recoverable amount is the higher of the assets' fair value less costs to sell and its value-in-use. In this case: 6$ million Scrapping of the asset may be disclosed as a non adjusting event after the reporting period if material. An entity is reviewing one of its business segments for impairment. The carrying value of its net assets is $20 million. Management has produced two computations for the value-in-use of the business segment. The first value ($18 million) excludes the benefit to be derived from a future reorganization, but the second value ($22 million) includes the benefits to be derived from the future reorganization. There is no active market for the sale of the business segments. --> Explain whether the business segment is impaired. benefits of future reorganisation should not be taken into account. Therefore, the net assets of the business segment will be impaired by $2 million. --> value-in-use can be used as the recoverable amount as there is no active market for the sale of he business segment Management of an entity is carrying out an impairment test on an asset.
--> Required: Explain whether the use of the post tax rate is acceptable in the aforementioned circumstances. Post tax rate will not always give the same result as pre tax rate as tax rate might change. --> Management should gross up the postal rate based on an assessment of what the long-term effective tax rate might be. A manufacturing entity owns several vehicles. The vehicles are several years old and could be sold only for scrap value. They do not generate cash independently from the entity. -->How will the recoverable value of the vehicles be determined? Recoverable amount is not determinable. Entity would incorporate the vehicles into the cash-generating unit to which they belong and estimate the recoverable amount of that cash-generating unit. A railway entity has a contract with the government that requires service on each of ten different routes. The trains operating on each route and the income from each route can be identified easily. Two of the routes make substantially more profit than the others. The entity also operates a taxi service, a bus company, and a travel agency. -->What is the lowest level of cash-generating units that can be used by the entity? Taxi service, bus company and travel agency will each constitute cash-generating units. However, because the entity is required to operate on all ten routes, the lowest level of cash flows that are independent of cash flows form other groups of assets is the cash flows generated by the ten routes together. An entity operates an oil platform in the sea. The entity has provided the amount of $10 million for the financial costs of the restoration of the seabed, which is the present value of such costs. The entity has received an offer to buy the oil platform for $16 million, and the disposal costs would be $2 million. Thevalue-in-use of the oil platform is approximately $24 million before the restoration costs. The carrying value of the oil platform is $20 million. -->Is the value of the oil platform impaired? not impaired because recoverable $14 amount exceeds its carrying amount $10 An entity has an oil platform in the sea. The entity has to decommission the platform at the end of its useful life, and a provision was set up at the commencement of production. The carrying value of the provision is $8 million. The entity has received an offer of $20 million (selling costs $1 million) for the rights to the oil platform, which reflects the fact that the owners have to decommission it at the end of its useful life. The value-in-use of the oil platform is $26 million ignoring the decommissioning costs. The current carrying value of the oil platform is $28 million. --> Determine whether the value of the oil platform is impaired. Recoverable amount $19 is less than its carrying value $20 and the asset is impaired An entity A acquires 60% of the ownership interest in another entity B. --> Calculate any impairment loss arising at December 31, 20X9, for the cash- generating unit B. Impairment $12 million Q1: IAS 36 (Impairment) applies to which of the following assets? a) Inventories. d) Property,plant,and equipment. Q2: Value-in-use is a)
The market value. b) The discounted present value of future cash flows arising from use of the asset and from its disposal. Q3: If
the fair value less costs to sell cannot be determined b) The recoverable amount is the value-in-use. Q4: If assets are to be disposed of a) The recoverable amount is the fair value less costs to sell. a) The recoverable amount is the fair value less costs to sell. Q5: A cash-generating unit is a) The smallest business segment. d) The smallest group of assets that generates independent cash flows from continuing use. Q6: 12. Goodwill should be tested for impairment a) If there is an indication of impairment. b) Annually. Liability - present obligation --> legal or constructive obligation When is a liability recognised? - it is probable that any future economic benefit associated with the item will flow from the entity; and What is a provision A liability of uncertain timing or amount legal obligation an obligation that derives from contract, legislation, or other operation of law constructive obligation arises from the entity's actions, through which it has indicated to others that it will accept certain responsibilities, and as a result has created an expectation that it will discharge those responsibilities. Recognition of provision 1) it is probable that an outflow of resources embodying economic benefits would be required to settle the obligation 2) a reliable estimate can be made of the amount of the obligation
Excellent Inc. is an oil entity that is exploring oil off the shores of Excessoil Islands. It has employed oil exploration experts from around the globe. Despite all efforts, there is a major oil spill that has grabbed the attention of the media. Environmentalists are protesting and the entity has engaged lawyers to advise it about legal repercussions. --> Does the above give rise to an obligating event that requires Excellent Inc. to make a provision for the cost of making good the oil spill? yes it does --> constructive obligation! legal--> no Contingent Liabilities (IAS 37 par 10) are possible obligations whose existence will be confirmed by uncertain future events that are not wholly within the control of the entity Contingent liabilities are obligations that are not recognised because their amount cannot be measured reliably or settlement is not probable !!!Contingent liabilities are not recognised - definition and recognition criteria are not met!!! Measurement of provisions A provision is measured at the amount that the entity would !rationally! pay to settle the obligation at the end of the reporting period or to transfer it to a third party at that time While a reliable estimate is usually possible, in rare circumstances, it may not be possible to obtain a reliable estimate. In such cases, the liability is to be disclosed as a contingent liability (and not recognized as a provision). A car dealership also owns a workshop that it uses for servicing cars under warranty. In preparing its financial statements, the car dealership needs to ascertain the provision of warranty that it would be required to provide at year-end. The entity's past experience with warranty claims is: • 60% of cars sold in a year have zero
defects. group of items: 7000 Restructuring - Although many fundamental structural changes to an entity's operations would be significant enough to warrant disclosure in footnotes to the financial statements, not all of these changes qualify as restructuring that necessitates recognition Recognition of the provision is required because a constructive obligation may arise The board of directors of ABC Inc. at their meeting held on December 15, 2009, decided to close down the entity's international branches and shift its international operations and consolidate them with its domestic operations. A detailed formal plan for winding up the international operations was also formalized and agreed to by the board of directors in that meeting. -->Do the actions of the board of directors create a constructive obligation that needs a provision for restructuring at the end of the reporting period, December 31, 2009? Yes, --> constructive obligation Amazon Inc. has been sued for the following three alleged infringements of law: 1) Unauthorized use of a trademark; the claim is for $100 million. • Legal counsel is of the opinion that not all the legal cases are tenable in law and has communicated to Amazon Inc. this assessment of the three lawsuits: -->What should be the provision that Amazon Inc. should recognize or the contingent liability that it should disclose in each of the lawsuits, based on the assessments of its legal counsel? 1) no disclosure 2) might be legal/contingent liability 2million 3) disclosure of contingent liability Q1: A has 1,000 units of a product sold with active warranties (ie A will repair defects found up to 6 months after sale). Recognise provision Q2: Personal injury lawsuit brought by customer. Recognise
provision Q3: Provision for a lawsuit = CU40,000 at 31/12/20X1 & re-measured to CU90,000 at 31/12/20X2. CU3,000 of the increase = unwinding of the discount & the remainder is for better information becoming available Adjust amount of provision Q4: An employee is entitled to 5 days paid sick leave a year. Unused sick leave is carried forward for 1 calendar year. It is allocated on a FIFO basis. A4: 31/12/20X1 liability = CU2,100 Q5: Same as Ex 1 except sick leave cannot be carried forward to the next calendar year & does not vest (ie is not paid out in cash) No liability at 31/12/20X1 (no obligation) Q6: Similar to Ex 1 and Ex 2 except sick leave is paid out in cash in January 20X2 payroll at 20X1 salary rate A6: 31/12/20X1 liability = CU1,200 (ie CU400 wage rate × 3 (5 earned less 2 taken) days due at 31/12/20X1 & paid out in 20X2 --> cannot be carried over Q7: A pays 3% of year's profit (before profit sharing) to employees who serve throughout the current year & who will continue to serve throughout the following year. A expects to save 10% through staff turnover. The bonus will be paid on 31/12/20X2. Profit for 20X1 before profit sharing = CU1,000,000 • A7: Liability at 31/12/20X1 & expense = CU27,000 (ie 3% × CU1,000,000 × 90%) Q8: Provisions are measured at the best estimate of the amount required to settle the obligation at the reporting date. When the provision involves a large population of items, the estimate of the amount: a) reflects the weighting of all possible outcomes by their associated probabilities? a) reflects the weighting of all possible outcomes by their associated probabilities? Q9: Provisions are measured at the best estimate of the amount required to settle the obligation at the reporting date. When the provision arises from a single obligation, the estimate of the amount: a) reflects the weighting of all possible outcomes by their associated probabilities? When the provision arises from a single obligation, the estimate of the amount: c) is the individual most likely outcome adjusted to consider the other possible outcomes Q10: A is defending a patent infringement lawsuit. Court is expected to rule in 12/20X2. 30% chance court will dismiss the case. If not, 20% chance A pays CU200,000 & 80% chance pay CU100,000. At 31/12/20X1 A recognise a provision of? A10: e) Q11: Same as Question 3 except, disclosure of some of the information about the case can be expected to prejudice seriously A's position in the dispute over the alleged breach of patent. At 31 December 20X1, A would: a) not recognise a provision. Disclose the general nature of the dispute, together with the fact that, and reason why, the information has not been disclosed? ... Employee benefits Employee benefits are all forms of consideration paid for services of employees or for termination of employment IAS 19 separates employee benefits into 4 categories: Short-term employee benefits • Expected to be settled wholly before 12 months after the period in which the employee rendered the related service. --> recognise as an expense as the employee provides the related service The salaried employees of A are entitled to 25 days paid leave each year. The entitlement accrues
evenly over the year and unused leave may be carried forward for one year. $401538 Post-employment benefits are payable after the completion of employment. Post-employment benefits: defined contribution • disclose amount recognised as an expense According to the pension plan of an entity, the employees and entity contribute 5% of the employee's salary to the plan, and the employee is guaranteed a return of the contributions plus 3% a year by the employer. --> What classification would be given to the above pension scheme? Defined benefit or defined obligation plan? --> defined obligation plan Q15: A's employees are each entitled to 20 days of paid holiday leave per calendar year. Unused holiday leave cannot be carried forward and does not vest. The entity has a 31 December annual reporting date. The holiday leave is: a) a short-term employee benefit? a) a short-term employee benefit? Q16: Same as question 8, except unused holiday leave is paid out on 31 December of each year (ie it vests at the end of each calendar year but does not accumulate). The holiday leave is: a) a short-term employee benefit? a) a short-term employee benefit? Q17: Same as question 8, except unused holiday leave may be carried forward for two calendar years (ie it accumulates but does not vest). The holiday leave is: a) a short-term employee benefit? c) an other long-term employee benefit? Q18: A publicly announces its commitment to a voluntary redundancy plan. It has an obligation to pay a lumpsum to employees that elect redundancy. The obligation is: a) a short-term employee benefit? d) a termination benefit? Q19: A reimburses 50% of past employees' post-employment medical costs if the employee provides +25 years of service. The obligation is: a) a short-term employee benefit? b) a post-employment benefit? Q20: A profit sharing plan requires A pay a specified portion of its cumulative profit for a 5-year period to employees who serve throughout the 5-year period. The obligation is: a) a short-term employee benefit? c) an other long-term employee benefit? Revenue is income that arises in the course of ordinary activities of the entity The gross inflow of economic benefits during the period arising in the course of the ordinary activities of an entity when those inflows result in increases in equity, other than increases relation to contributions from equity participants Recognition: Revenue - entity has transferred to the buyer the significant risks and rewards of ownership of the goods - entity retains neither continuing managerial involvement to the degree usually associated with ownership nor effective
control over the goods sold Big Bulk has arrangements with its customers that, in any 12-month period ending March 31, if they purchase goods for a value of at least $1 million, they will receive a
retrospective discount of 2%. 98 % of $900 000 Nice Guy Inc. sells goods with a cost of $100,000 to Start-up Co. for $140,000 and a credit period of six months. Nice Guy Inc.'s normal cash price would have been $125,000 with a credit
period of one month or with a $5,000 discount for cash on delivery. revenues of $120000 difference between nominal amount of $ 140'000 and discounted value would be recognised as interest income over the period of finance of six months Full Service Co. sells some equipment, the cash price of which is $100,000, for $140,000 with a
commitment to service the equipment for a period of two years, with no further charge. revenue $100'000 40'000 over two years as service revenue Bespoke Inc. has manufactured a machine specifically to the design of its customer. The machine could not be used by any other party. Bespoke Inc. has never manufactured this type of machine before and expects
a number of faults to materialize in its operation during its first year of use, which Bespoke Inc. is contractually bound to rectify at no further cost to the customer. The nature of these faults could well be significant. As of Bespoke Inc.'s year-end, the machine had been delivered and installed, the customer invoiced for $100,000 (the contract price), and the costs incurred by Bespoke Inc. up to that date amounted to $65,000. no recognition of revenue impossible to measure the cost of rectification of any faults that may materialise. Which of the following situations signify that "risks and rewards" have not been transferred to the buyer? • XYZ Inc. sells goods to ABC Inc. In the sales contract, there is a clause that the seller has an obligation for unsatisfactory performance, which is not governed by normal warranty provisions. • Zeta Inc. shipped machinery to a destination specified by the buyer. A significant part of the transaction involves installation that has not yet been fulfilled by Zeta Inc. • The buyer has the right to cancel the purchase for a reason not specified in the contract of sale (duly signed by both parties) and the seller is uncertain about the outcome. all three 1. xyz has an obligation beyond the normal warranty provision 2. significant part of installation not yet done 3. unspecified uncertainty Dr K AG sell goods costing 1,500,000 for 2,000,000 due in 2 years interest free. Current cash price would have been 1,652,893. revenue 1652893 rest interest income ??? "Bill and hold" sales, in which delivery is delayed at the buyer's request but the buyer assumes title and accepts invoicing, should be recognized when a) The buyer makes an order. d) It is probable that the delivery will be made, payment terms have been established, and the buyer has acknowledged the delivery instructions. ABC Inc. is a large manufacturer of machines. XYZ Ltd., a major customer of ABC Inc., has placed an order for a special machine for which it has given a deposit of €112,500 to ABC Inc. a) When the customer orders the machine. c) When the machine is loaded on the port. 3. Revenue from an artistic performance is recognized once a) The audience registers for the event online. d) The event takes place. X Ltd., a large manufacturer of cosmetics, sells merchandise to Y Ltd., a retailer, which in turn sells the goods to the public at large through its chain of retail outlets. Y Ltd. purchases merchandise from X Ltd. under a consignment contract. When should revenue from the sale of merchandise to Y Ltd. be recognized by X Ltd.? a) When goods are delivered to YLtd. b) When goods are sold by YLtd. M Ltd, a new company manufacturing and selling consumable products, has come out with an offer to refund the cost of purchase within one month of sale if the customer is not satisfied with the product. When should M Ltd. recognize the revenue? a) When goods are sold to the customers. a) When goods are sold to the customers. Micrium, a computer chip manufacturing company, sells its products to its distributors for onward sales to the ultimate customers. Due to frequent fluctuations in the market prices for these goods, Micrium has a "price protection" clause in the distributor agreement that
entitles it to raise additional billings in case of upward price movement. Another clause in the distributor's agreement is that Micrium can at any time reduce its inventory by buying back goods at the cost at which it sold the goods to the distributor. Distributors pay for the goods within 60 days from the sale of goods to them. When should Micrium recognize revenue on sale of goods to the distributors? d) When the distributor sells goods to the ultimate customers and there is no uncertainty with respect to the "price protection" clause or the buyback of goods. According to the consensus in IFRIC 13, an entity shall apply IAS 18 (Revenue) and account for award credits as a separately identifiable component of the sales transaction in which they are granted. The consideration allocated to the award credits shall be measured by reference to their a) Cost. c) Fair value. IFRIC 18 provides guidance on the transfers of assets for entities that receive items of PPE. It addresses three issues. Which of the following issues does it not address? a) How to account for the transferred item. b) How to derecognize the item. An entity is acting as a principal when it has exposure to the significant risks and rewards associated with the sale of goods or the rendering of services. Which of the following features indicates that an entity is not acting as a principal? a) The entity has the primary responsibility for providing the goods or
services desired by the customer or for fulfilling the order, for example by being responsible for the acceptability of the products or services ordered or purchased by the customer. d) The entity does not have the credit risk. Accounting for investments in other entities Associate An entity, including an unincorporated entity such as a partnership, over which the investor has significant influence and that is neither a subsidiary nor an interest in a joint venture Equity method Investment is initially recognised at cost and adjusted thereafter for the post-acquisition change in the ivestor's share of net assets of the invest. The profit or loss of the investor includes the investor's share of the profit or loss of the investee Significant influence direct or indirectly more than 20% of the voting rights the power to participate in the financial and operating policy decisions of the invest but is not control or joint control over those policies Indicators for significant influence - representation on the board of directors or equivalent governing body of the invest Entity A owns 15% of the ordinary shares that carry voting rights in Entity B. • Entity B is governed through its ordinary shares that carry voting rights and is not subject to joint control. Yes. The combination of Entity A's current ownership interest in Entity B's ordinary shares that carrying voting rights and its potential voting rights (i.e. call options to acquire an additional 10% of Entity B's ordinary shares) give Entity A the ability to exercise significant influence. Q7: IAS 28 does not require the equity method to be applied when the associate has been acquired and held with the view to its disposal within a certain time period. What is the time period within which the associate must be disposed off? a) Six months? b) Twelve months Q 8: How is goodwill arising on the acquisition of an associate dealt with in the financial statements? a) It is amortised? d) Goodwill is not recognised separately within the carrying amount of the investment Q9: A acquires 25% of the voting shares of B on Jan 1, 2009. The purchase consideration was CHF 10 million, and A has significant influence over B. What is the carrying value of the investment in B in the group financial statements at December 31 2009? Cost of investment 10 + Share of post acquisition reserves (25% of (21-15)) = 11.5. The share of the post acquisition reserves will be credited to the retained earnings of the group. Goodwill in an associate is not separately recognized. The entire carrying amount is tested for impairment. Income from associates is reported after profit from operations, just before profit before tax. Q 10: Company A sells inventory to its 30%-owned associate, B. The inventory had cost A CHF 200.000 and was sold for CHF 300.000. B also has sold inventory to A. The cost of this inventory to B was CHF 100.000, and it was sold for CHF 120.000. A to B: Intergroup profit is 300 - 200 = 100; profit reported would be 100 * 70/100 = 70; the remaining profit would be deferred until the sale of the inventory B to A: Profit made by B is 120 - 100 = 20; an amount of 20 * 30/100 = 6 would be eliminated from the carrying value of the investment. Joint Operation Parties that have !rights to the assets and obligations for the liabilities! and relations to the arrangement are parties to a joint operation A joint operator accounts for its assets, liabilities and corresponding revenues and expenses arising from the arrangement Joint Venture Parties that have !rights to the net assets! of the arrangement are parties to a joint venture A joint venture accounts for an investment in the arrangement using the equity method What are the disclosure requirements in financial statements?Auditors are required to express an opinion on the financial statements as a whole. This includes the notes to the financial statements which are an integral part of the accounts, providing additional information on balances and transactions and other relevant information.
What information is not included in financial statements?Financial Statements Have No Predictive Value
The information in a set of financial statements provides information about either historical results or the financial status of a business as of a specific date. The statements do not necessarily provide any value in predicting what will happen in the future.
What are the three 3 key information required in the financial section?The income statement, balance sheet, and statement of cash flows are required financial statements. These three statements are informative tools that traders can use to analyze a company's financial strength and provide a quick picture of a company's financial health and underlying value.
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