Calendar Question (Q3)

(a)
i)
Sale
Revenue is usually reserved for activities that are done in ordinary course of business. In this case,
Calendar has a business model of developing biotech for stage payments and then sharing on the
royalties with the pharmaceutical that manufactures and sells goods.

At acquisition of this project, it’s clear that this was not classified as inventory, which is held for
sale on ordinary course of business. It was classified as intangible asset aimed for use.

In the past, Calendar has only done this sale 2 times, indicating it is not a regular business activity.
In addition, there is no such sale since 20X0, implying this transaction is not common.

The returns being sub-optimal indicates that asset should have been impaired before it was sold.
The classification suited for the asset would have been held for sale if it is not sold off by Dec
20X7.

Conclusion, it is not revenue but should be treated as other income – gain or loss on disposal of
intangible asset.

ii)
Lease
A contract that gives right to control use of the identifiable asset for a period of time in exchange
for a consideration.

Right of use must be substantially all the asset’s economic benefit and lessee must be able to
direct use.

Measurement
Lease liability is measured at PV of future lease payments discounted as rate implicit in lease or
incremental borrowing rate.

Right of use is measured at lease liability and any negotiation cost. It must be depreciated over
time.

In this case
The contract is a lease because
- Calendar has a right to use the plane for 3 years
- It is unlikely Diary would substitute the plane given the high cost involved in specification
that Calendar has made
- The replacement would only be in rare cases, when the original plane is not working
 - Calendar has to make fixed payments in the future which it cannot be avoid
- Diary restriction to area to fly would be protect the plane and not limit the use
Treatment
- The accountant had mistakenly expensed off the negotiation cost and first payment for
the lease. This must be reversed
- Negotiation cost will be capitalized to right of use asset
- Lease liability would be calculated at PV of future lease liability and correspondingly a
right of use asset will be recognized
- The finance cost for the current year should be charged to P/L together with the
depreciation of right of use asset based on 3-year term.

(b)
Materiality
An item is material if it can influence the economic decision of user based on financial statement.

This can be quantitative or qualitative characteristic.

Non-compliance to law and regulation can be qualitatively material.

PPE
The suggestion to write-off expenditure below $500 is consistent with cost and benefit criteria
provided with conceptual framework.

This is consistent with tax framework that allows small value assets to be deductible.

The treatment does go against requirements of IFRS that all assets can be capitalized.

However, IAS 8 indicates that IFRS apply only to material item and therefore the proposal has
validity.

This treatment would be acceptable within practical expedient but should be reviewed regularly
to ensure that faithful representation is not compromised.

Checklist
The checklist will ensure that all relevant disclosures have been made, ensuring completeness.
Disclosures are vital since it helps users understand items not included in FS, like contingent
liabilities.

However, disclosure should not be boilerplate items that are included without considering
whether the item is material or not.

Judgement is needed to ensure that information disclosed are relevant and address stakeholders
needs. Too much disclosure could clutter the FS and overload users with immaterial elements.