F7 Revision

11/21/2022
Revision F7 –Financial Reporting
1. TIMETABLE
Mon Tue Wed Thu Fri Sat Sun
21/11:
23/11 25/11
Introduction 22/11 24/11 26/11 27/11
Topic 1 Topic 2
Topic 1
28/11: 30/11
29/11 01/12 02/12 03/12 04/12
Topic 3 Q&A + Mock exam
08/12
05/12 06/12 07/12 09/12 10/12 11/12
FR exam
1
11/21/2022
1. TIMETABLE
Topic
01 02 03
Consolidated financial Cash flow, Ratio,
Accounting for
statements and Interpretation and
transactions
Investment in Associates other issues
2. CONTENTS
2.1. Introduction
2.1.1. Format and structure of the examination
• Section A will contain 15 multiple-choice questions (MCQ)

of two marks each representing 30% of the examination.
• Section B of the exam comprises three 10 mark case-

based questions.
• Each case has five objective test questions of 2 marks
each, representing 30% of the examination.
• Section C of the exam comprises two 20 mark questions.
2
11/21/2022
Topic 1.
Accounting for transactions
1. TANGIBLE NON-CURRENT ASSETS

1.1. Property, plant and equipment –IAS 16
1.1.1. Exclutions:
Biological assets which relate to agricultural activity (IAS 41)
IAS 16 does not

apply to: Mineral rights and reserves such as oil, natural gas and similar
non-regenerative resources.
3
11/21/2022

1.1.2. Terminology:
 Held for use in the production or supply of goods or services or for rental or for admin purposes; and
PPE – tangible assets
 Expected to be used during more than one period.
Depreciation The systematic allocation of a depreciable amount of an asset over its useful life.
Depreciable amount The cost (or other amount substituted for cost) less its residual value.
Either the period of time over which an asset is expected to be used, or the number of production or similar units expected to be obtained from
Useful life
the asset.
The amount of cash/cash equivalents paid or the fair value (as defined in IFRS 13) of other consideration given to acquire an asset at the time
Cost
of its acquisition or construction.
An estimate of the amount which would currently be obtained from the disposal of the asset, after deducting the estimated costs of disposal, if
Residual value
the asset was already of the age and in the condition expected at the end of its useful life.
The amount at which an asset is recognised in the statement of financial position after deducting any accumulated depreciation and
Carrying amount
accumulated impairment losses.
Impairment loss The amount by which the carrying amount of an asset exceeds its recoverable amount.

1.1.3. Criteria
An item of property, plant and equipment is recognised when:
It is probable that future economic benefits The cost of the asset to the entity can be measured
associated with the asset will flow to the entity; and reliably.
4
11/21/2022

Example 1: Asset Expenditure and Expense Examples
• $27,000 spent on acquiring new car for a sales executive is expenditure on an asset.
• An annual road (or vehicle) tax of $1,800 included in the purchase price of (i) should be excluded from
the cost of the asset as it is an expense (a "running" cost).
• $10,000 on the purchase of a second-hand delivery vehicle will be capitalised as the cost of an asset
(that the purchased vehicle is not new is irrelevant).
• $12,000 spent on the refurbishment (i.e. renovation) of (iii) to bring it into use will also be part of the
cost of the asset.
• $1,000 monthly rental for hire of a vehicle is an expense.
10

1.1.5. Initial measurement at recognition – at cost:
Purchased asssets
Purchase price: X
(+) Import duties X
(+) Non-refundable purchase taxes X
(-) Trade discounts/rebates (X)
Directly attributable costs of bringing the asset to the location and necessary working condition:
(+) wages and salaries arising directly from construction or acquisition X
(+) costs of site preparation X
(+) initial delivery and handling costs X
(+) installation and assembly costs X
(+) costs of testing proper functioning (i.e. to assess performance) X
(+) professional fees (e.g. architects and engineers) X
(+) borrowing costs for qualifying assets (IAS 23) X
(+) An initial estimate of dismantling and removal costs (i.e. decommissioning") the asset and restoring the site on which it is X
located. The obligation for this may arise either:
- on acquisition of the item; or
- as a consequence of using the item other than to produce inventory.
Capitalised cost X
10
5
11/21/2022
11

Self-constructed assets
Direct cost (materials, labour…) X
(+) Overhead attributed to construction X
Capitalised cost X
11
12

Should EXCLUDE (applicable to both purchased and self-constructed asset)
Abnormal cost such as Foreign exchange Interest cost (except for interest cost which meets condition
wasted material/labour gain/loss to be capitalised under IAS 23 - Borrowings cost)
Avoidable cost (such as training Cost occurred when the asset is already ready for use
Business rate
staff, relocation costs) (such as costs of opening the factory)
12
6
11/21/2022
13

1.1.6. Exchange of Assets:
Fair value of asset received = Fair value of the

X
asset given up (trade-in or part-exchange)
(-) Cash or cash equivalents transferred (X)
Cost X
Except when
the exchange transaction lacks the fair value of neither the asset received nor the asset
commercial substance given up is reliably measurable.
13
14

1.1.7. Subsequent expenditure – capitalised as a NCA if the asset recognition criteria are met.
No improvement to
Charge to PL Running cost
the asset
Subsequent
expenditure
Part Replacement
Capitalised and
Improve the assets
depreciated
Major Inspection or
Overhaul Costs
14
7
11/21/2022
15

1.1.7. Subsequent expenditure – capitalised as a NCA if the asset recognition criteria are met.
Running cost • Servicing costs (e.g. labour and consumables) are recognised in profit or loss
• Require regular replacement at different intervals and so have different useful lives.
Part Replacement
• The carrying amount of an item of PPE recognises the cost of replacing a component part
(Complex assets)
when that cost is incurred, if the recognition criteria are met.
Major Inspection • The cost of each major inspection performed is recognised in the carrying amount of
or Overhaul Costs asset, as a replacement, if the recognition criteria are satisfied.
15
16

1.1.8. Measurement after recognition
Revaluation model only if fair value of the item can be measured reliably.
Cost model
All revalued assets are still depreciated, unless the asset is land.
Cost (initial recorded) X X

Fair value amount @revaluation date
(-) Accumulated depreciation (X) (X)
(-) Subsequent accumulated depreciation
(-) Impairment losses (X) (X)
(-) Subsequent accumulated impairment losses
Carrying amount X Carrying amount X
16
8
11/21/2022
17

1.1.8. Measurement after recognition
Revaluation If there are 2 assets with 1

surplus and 1 decrease
Surplus goes to BS and

Gain Loss
decrease charges to PL
Should EXCLUDE (applicable to both
Dr Asset (carrying amount) Dr Profit or loss (expense)
Cr Revaluation surplus (OCI) Cr Asset (carrying amount)
purchased and self-constructed asset)
Revaluation reserves (SOFP) are
realised and MAY be transferred
Loss after gain Gain after loss directly to retained earnings
Dr Revaluation surplus (OCI) Dr Asset (carrying amount) when the PPE is being
Dr Profit or loss (expense) Cr Profit or loss (expense charged) depreciated and disposed.
Cr Asset (carrying amount) Cr Revaluation surplus (OCI)
17
18

1.1.9. Depreciation method:
Depreciation
method
Reducing balance Units of

Straight line method
method production method
(Cost –
(NBV – (Cost of asset – Salvage value)
Residual value) Residual value)/ x
x Expected useful life of Units per year/
Depreciation rate the asset Estimated production
capability
18
9
11/21/2022
19

1.1.9. Depreciation method:
Eliminate asset’s
SOFP carrying amount
Derecognition
Recognise gain or loss
(difference between estimated Gains are NOT
SOPL net disposal proceeds and classified as revenue
carrying amount)
19
20
Examiners' reports
QUESTION 1.
On 1 January 20X5, Factman Co acquired a piece of equipment at a cost of $25m.
The equipment has a useful life of five years and the company must decommission the
equipment at the end of the five-year period. The estimated cost of this decommissioning
in five years' time is $10m. Factman Co's cost of capital is 10% per annum.
The present value of $1 receivable in five years' time at a discount rate of 10% per annum is
$0.621.
Factman Co has correctly capitalised the equipment and recognised a provision for
decommissioning costs at the correct amount.
What is the total charge to profit or loss relating to the equipment and decommissioning
provision which will be required for the year ended 31 December 20X5 (to the nearest
$'000)?
$ ____________ ,000
20
10
11/21/2022
21
Examiners' reports
QUESTION 1.
The correct answer was $6,863,000 and candidates would have been required to simply
type 6863.
The decommissioning provision should have been capitalised as part of the cost of the
equipment at its present value of $6,210,000 ($10m x 0.621) on 1 January 20X5.
This means that the depreciation for the year ended 31 December 20X5 would have been
$6,242,000 (($25m + $6.21m) x 1/5 years)
In addition to the depreciation of the equipment, the discount on the decommissioning
provision would need to be unwound and a finance cost of $621,000 ($6,210,000 x 10%)
should be recognised in the statement of profit or loss.
Therefore, the total charge to profit or loss relating to the equipment and decommissioning
provision required for the year ended 31 December 20X5 would be $6,863,000 ($6,242,000
depreciation + $621,000 finance cost).
21
22
2. IAS 40: INVESTMENT PROPERTY
IAS 40
- Need for a Standard
- Terminology
RECOGNITION AND MEASUREMENT DISCLOSURE

MEASUREMENT AFTER RECOGNITION - General
- Recognition - Fair Value Model - Cost Model
- Initial Measurement - Cost Model
- Expenditure After Initial - Change In Use
Recognition - Disposals
- Change in Model
22
11
11/21/2022
23

2.1. Terminology
Investment property – property (land and/or a building, or part thereof) held (by the owner or a lessee as a
right-of-use asset) to earn rentals or for capital appreciation or both, rather than for:
Use in the production or supply of goods/services

Sale in the ordinary course of business
or for administrative purposes (owner-occupied
(inventory)
Shouldproperty)
EXCLUDE (applicable to both purchased and self-constructed asset)
Note: A property that is owned by a parent but occupied by a subsidiary, or vice versa.
Parent: investment property
Group: Owner-occupied property.
23
24

2.2. Recognition
An investment property is recognised as an asset when:
Should
It is probable that theEXCLUDE (applicable
future economic to both purchased
benefits which are and self-constructed asset)
The cost of the investment
attributable to the investment property will flow to the entity; and property can be measured reliably
24
12
11/21/2022
25

2.3. Initial Measurement –at cost
An owned investment property is measured initially at its COST, which is the fair value of the
consideration given for it, including any transaction costs.
25
26

2.4. Subsequent measurement
Fair value model Cost model

• No depreciation • Same as IAS 16
• Gain/ loss from revaluation • Disclosure FV of IP
CHARGE to PL
26
13
11/21/2022
27

2.5. Derecognition
Derecognition when:
Should EXCLUDE
When(applicable to both purchased
it is permanently withdrawnandfrom
self-constructed
use and no asset)
future economic
Disposal or
benefits are expected from use.
27
28

2.6. Change in use
IAS 40 ->
@FV at transferred date -> gain/loss to PL
IAS 2, IAS 16
IAS 2, IAS 16 -> IAS

@FV at transferred date -> gain/loss follow IAS 2 (PL), IAS 16 (Revaluation surplus)
40
28
14
11/21/2022
29
3. BORRROWING COSTS -IAS 23

3.1. Definitions
Borrowing costs • Interest and other costs incurred by an entity in connection with the borrowing of funds.
• An asset which necessarily takes a substantial period of time to get ready for its
Qualifying asset
intended use or sale.
Not a • Inventories that are normally manufactured or produced in large quantities on a

qualifying repetitive basis and over a short period of time;
asset • Assets which are ready for use or sale when acquired.
29
30

3.2. Recognition:
Borrowing costs which are directly

attributable to the acquisition,
construction or production of a
qualifying asset are capitalised as part
of the cost of that asset.
All other borrowing costs must be

recognised as an expense in the period
in which they are incurred.
30
15
11/21/2022
31

3.4. Commencement of Capitalization
The capitalization process shall begin when the entity first meets all of the following conditions :
Expenditure for asset are being incurred;
Borrowing costs are being incurred;
Activities that are necessary to prepare the asset for its intended use or sale are in progress.
31
32

3.5. Suspension and Cessation of Capitalization
• Capitalisation should be suspended during periods in which active development is interrupted.

• Capitalisation ceases when "substantially all" the activities necessary to prepare the qualifying asset
for its intended use or sale are completed.
32
16
11/21/2022
33

3.6. Disclosures
Following shall be disclosed:
The amount of borrowing cost capitalized during the period;
The capitalization rate used to determine the amount of borrowing cost eligible for capitalization.
33
34
4. INTANGIBLE ASSETS –IAS 38

4.1. Definition
Should
Intangible assetEXCLUDE (applicablenon-monetary
− an identifiable to both purchased andwithout
asset self-constructed
physicalasset)
substance.
3 critical attributes of an intangible assets

(These criteria’s applies to both internally generated and purchased intangible assets)
Identifiability • Capable of being separated from the entity or arised from a contract or legal rights.
• The power to obtain the future economic benefits from the underlying resource; and
Control
• The ability to restrict the access of others to those benefits.
• It is probable that future economic benefits from the asset will flow to the entity. Future economic
Recognition benefits are net cash inflows and may include increased revenues and/or cost savings.
• The cost of the asset can be reliably measured.
34
17
11/21/2022
35

4.2. Initial measurement
Internally generated (goodwill, brands)
• Goodwill: NOT recognised

• Intangible assets: Only recognised if PIRATE criteria met.
Acquired
• Separately acquired: Cost = Purchase price + directly attributable cost

• Part of business combination: FV at the date of acquisition
Research: cost incurred to gain new scientific or technical knowledge and understanding.
• No certainty of future economic benefits.

• Recognise as an expenses in PL as incurred
35
36

4.2. Initial measurement
Development: An intangible asset arising from development must be recognised if, and only if, specified criteria
can be demonstrated.
• How the intangible asset will generate Probable future economic benefits;
• Intention to complete the intangible asset and use it or sell it;
• the availability of adequate technical, financial and other Resources to complete the development and to use
or sell the intangible asset; and
• Ability to use or sell the intangible asset;
• Technical feasibility of completing the intangible asset so that it will be available for use or sale;
• ability to measure reliably the Expenditure attributable to the intangible asset during its development.
Costs can only be recognised as an asset from the point ALL six are met, up to the date that the project is
completed. Until then, all costs must be expensed to profit or loss.
36
18
11/21/2022
37

Accumulated
Cost model Cost
amortisation
Impairment loses
Accumulated
Revaluation model Fair value (reference to
amortisation
active market)
37
38

Product is homogenous
Active
market There are willing buyers and
suppliers
Intangible assets (e.g. brand), Active market So, revaluation model

are UNIQUE in nature does not exist is NOT applicable
38
19
11/21/2022
39

4.4. Amortisation
IA with finite life IA with indefinite life (Goodwill)

(Limited) (Unpredictable)
Amortise (normally SL method) No amortisation

• Residual value is assumed to be nil, (checked for impairment annually
• Unless: and when indicators exist)
o a third party is committed to buy the IA at the end of its useful life
o there is an active market for this type of IA and it is probable that
there will be a market for the asset at the end of its useful life.
Normally, subsequent expenditure on an intangible asset after its purchase or completion is

recognised as an expense. Only rarely are the asset recognition criteria met.
39
40

4.5. Disposal/Retirement of Intangible assets
It is disposed, or
IA should be
derecognisedwhen:
There is no further expected economic benefit from its future use
Gain/loss on
Net proceeds Carrying amount of IA PL
disposal
Net proceeds Proceeds Cost to sell
40
20
11/21/2022
41
Examiners' reports
QUESTION 2.
Sagan Co acquired a brand name with an estimated useful life of ten years on 1 January
20X2 for $10m. On 1 January 20X5 a brand specialist believed the brand to have a fair
value of $14m.
Sagan Co also ran a training course on 1 January 20X5 for all staff on how to use a new
software system. This training cost Sagan Co $450,000. On average the employees are
expected to remain with Sagan Co for three years.
How much should be recognised as an expense in the statement of profit or loss for the
year ended 31 December 20X5 in respect of each item?
Brand amortization $1m $2m
Training costs $150,000 $450,000
41
42
Examiners' reports
QUESTION 2.
The correct responses were:

• Brand amortisation - $1m
• Training costs - $450,000
In accordance with IAS 38 Intangible Assets, the revaluation model for intangible assets can
only be applied when an active market exists upon which fair value can be based. IAS 38
specifically states that an active market cannot exist for brands. Although brands may be
bought and sold, contracts are negotiated between individual buyers and sellers with
transactions being relatively infrequent. For these reasons, the price paid for one asset may
not provide sufficient evidence of the fair value of another and prices are often not available
to the public.
42
21
11/21/2022
43
Examiners' reports
QUESTION 2.
On this basis, despite a valuer believing that the brand is worth $14m, it should continue to
be recognised at its cost of $10m and be amortised over 10 years, resulting in an
amortisation expense in the year ended 31 December 20X5 of $1m ($10m x 1/10 years).
Similarly, costs of staff training are specifically identified in IAS 38 as being an example of
expenditure that is not part of the cost of an intangible asset. Although an entity may have a
team of skilled staff and may be able to identify incremental staff skills leading to the future
economic benefits from training, there is not sufficient control over such economic benefits
for an intangible asset to be recognised. Therefore, staff training costs should always be
expensed in full as they are incurred and an expense of $450,000 should be recognised for
Sagan Co’s training costs in the year ended 31 20X5.
43
44
5. IMPAIRMENT OF ASSETS –IAS 36

5.1. Scope
IAS 36 applies to all assets (including subsidiaries, associates and joint ventures) except those
covered by the specific provisions of other IFRS Standards, for example:
Inventories Contract assets

(IAS 2) (IFRS 15)
Deferred tax assets Financial assets

(IAS 12) (IFRS 9)
Biological assets measured at

Investment property measured at fair value
fair value less costs of disposal
(IAS 40)
(IAS 41)
44
22
11/21/2022
45

5.2 Indications of impairment
External sources Internal sources
• Decline in market value • Obsolescence/physical damage

• Significant changes (market, • Significant changes (restructuring,
technology, legal, economic) discontinuing)
• Increase in interest rates • Internal reporting evidence
• CA > market capitalization
45
46
Intangibles with indefinite useful life

Annual Test
Intangibles not yet available for use
Goodwill Annual Test
Test when
Other assets: @ reporting date
Indicators exist
46
23
11/21/2022
47

5.3. Recognition
Recoverable amount
>
Higher of
Carrying amount
(Accounting records) Fair value less cost to sell
Value in use
Impairment Loss CA RA
47
48

5.3. Recognition
Recoverable
amount
No
If RA> CA
impairment
Higher of
asset’s/CGU’s
If NRV Use value
impossible to set in use
NRV = Fair value -

Value in use
cost to sell
48
24
11/21/2022
49

5.3. Recognition
Debit:
P/L-Impairment
loss
Impairment Loss Cost
Model
Credit:
Asset
(adjustment)
Carrying Recoverable
amount amount Debit:
Debit:
OCI-Revaluation
P/L-impairment loss
surplus
Revaluation
Model
Credit:
Asset
Adjust depreciation for (adjustment)
future periods to new CA
49
50

5.4. Cash generating unit
CGU Impairment loss
• Cash generating unit is the smallest • First deduct to specific asset

identifiable group of assets for which
Shouldindependent
• Then deduct impairment in GW value
cash to both purchased and self-
EXCLUDE (applicable Should EXCLUDE (applicable to both purchased and self-
constructed asset) constructed asset)
• The remaining should pro-rate to
remaining assets
• Do not allocate impairment loss to
current assets.
50
25
11/21/2022
51

5.4. Cash generating unit
CGU with goodwill: impairment loss
Do not reduce CA of an asset below

the highest of:
1. Reduce CA of any goodwill allocated to CGU

Recoverable
Zero
amount
2. Reduce CA of other assets of CGU pro-rata
51
52

5.5. Reversal of impairment loss
Reversal of impairment loss
Is there any indication that impairment loss no longer exists?
External sources Internal sources
• Increase in market value • Significant changes

(restructuring, enhancement)
• Should EXCLUDE
Significant (applicable
changes to both
(market, Should EXCLUDE (applicable to both
purchased and self-constructed asset) purchased and self-constructed asset)
technology, legal, economic) • Internal reporting evidence
• Decrease in interest rates
52
26
11/21/2022
53

5.5. Reversal of impairment loss
Individual asset Cash generating unit Goodwill
• Increased CA ≤ original CA • Allocation to assets pro rata • No reversal

(NO goodwill)
• P/L, or revaluation increase
• CA of asset – not increase
• Depreciation Adjustment
Lower of
RA Original CA
53
54
6. REVENUE –IFRS 15
6.1. 5-step model for revenue recognition
Step 1: Identify the contract(s) with the customer
An agreement between two or more parties that creates enforceable rights and
Contract
obligations.
A party that has contracted with an entity to obtain goods/services that are an output of
Customer
the entity's ordinary activities in exchange for consideration
The contract does not have to be a written one, it can be verbal or implied. In order for IFRS 15 to apply
the following must all be met:
The contract is approved by all parties The rights and payment terms can be identified
The contract has commercial substance It is probable that revenue will be collected
The contract can be written, verbal or implied.
54
27
11/21/2022
55
Step 2: Identify the separate performance obligations
Performance obligation – a promise in a contract A good/service is distinct if both of the

with a customer to transfer to a customer: following criteria are, in the contract, met:
A good or service (or bundle of goods/ The customer can benefit from the
services) that is distinct; or good/service on its own or when
combined with the customer's available
A series of goods/services that are resources; and
substantially the same and are
transferred in the same way. The promise to transfer the good/service
is separately identifiable from other
goods/services in the contract.
55
56
Example 1: Identify Performance Obligations
A software developer, Jackson, enters into a contract with a customer to transfer a software licence,
perform installation and provide software updates and technical support for five years. Jackson sells the
licence, installation, updates and technical support separately. Jackson determines that each
good/service is separately identifiable because the installation does not modify the software and the
software is functional without the updates and technical support.
56
28
11/21/2022
57
Solution:
The software is delivered before the installation, updates and technical support and is functional without
the updates and technical support, so the customer can benefit from each good/service on its own.
Jackson also has determined that the software licence, installation, updates and technical support are
separately identifiable. On this basis, there are four performance obligations in this contract:
Software licence Installation service Software updates Technical support
57
58
Step 3: Determine the transaction price
The amount of consideration to which an entity expects to be entitled in exchange for

Transaction price transferring promised goods/services to a customer excluding amounts collected for
third parties (e.g. Sales tax).
Any consideration payable to the customer is a reduction in the transaction price unless it is for
goods/services received from the customer.
58
29
11/21/2022
59
Step 4: Allocate the transaction price to the performance obligations
The price at which an entity would sell a promised good/service separately to a

Stand-alone selling price
customer.
Step 5: Recognise revenue when (or as) a performance obligation is satisfied
Any consideration payable to the customer is a reduction in the transaction price unless it is for
goods/services received from the customer.
An asset is transferred when (or as) the customer gains control of the asset.
The performance obligation will be satisfied over time or at a point in time.
59
60
Revenue should be recognised at the point in time when the customer obtains control of the asset.
Indicators of the transfer of control include:
The customer has an obligation to pay for an asset
The customer has legal title to the asset
The entity has transferred physical possession of the asset;
The customer has the significant risks and rewards of ownership
The customer has accepted the asset.
60
30
11/21/2022
61
Performance obligations satisfied over time

If a performance obligation is satisfied over time, the completion of the performance obligation is
measured using either of the following methods:
Revenue is recognized based on the value to the customer of the goods or services
transferred to date,
Output method
i.E. Work certified.
Output method = work certified to date/total contract revenue
Revenue is recognized based on the entity’s efforts or inputs to the satisfaction of
a performance obligation,
Input method
i.E. Costs incurred or labor hours.
Input method (cost based) = costs to date/total estimated costs.
61
62
ACCOUNTING TREATMENTS SOPL AND OCI

SOFP
Revenue (x%. Total contract revenue) x

Contract asset/liability
Total revenue x
Expenses (x%.Total contract costs) (x) Revenue to date x
Expected profit x Less: invoices issued to date (x)
x
Total expected costs (x)
Trade receivables
Revenue (x%. Total contract revenue) x
Invoices issued to date x
Expenses (Balancing) (x)
Overall expected profit/loss x/(x) Less: cash received (x)
Recognised total loss (x) x
62
31
11/21/2022
63
6.2. Common types of transaction
1. Principal vs agent 2. Repurchase agreements
When a third party is involved in providing goods or The repurchase price < The original selling price
services to a customer, the seller is required to • A forward contract: An entity has an obligation to
determine whether the nature of its promise is a repurchase the asset (IFRS 16)
performance obligation to: • A call option: An entity has the right to repurchase
• Provide the specified goods or services itself the asset (IFRS 16)
(principal) or • A put option: An entity must repurchase the asset if
• Arrange for a third party to provide those goods or requested to do so by the customer.
services (agent) The repurchase price > The original selling price
• Financial instruments
63
64
6.2. Sale and repurchase
3. Bill and hold arrangements 4. Consignments
An entity bills a customer for a product but the entity Arises where a vendor delivers a product to another
retains physical possession of the product until it is party, such as a dealer or retailer, for sale to end
transferred to the customer at a point in time in the customers. The inventory is recognized in the books
future of the entity that bears the significant risk and reward
of ownership (e.g. risk of damage, obsolescence, lack
of demand for vehicles, no opportunity to return them,
the showroom owner must buy within a specified time
if not sold to public)
64
32
11/21/2022
65
Examiners' reports
QUESTION 3.
IFRS 15 Revenue from Contracts with Customers requires the transaction price to be
allocated to the performance obligations in the contract.
Where each performance obligation is satisfied at a point in time, how should the
allocation of the transaction price be made?
A. The transaction price should be spread equally over the period from when the contract is
first agreed to when it is completed
B. The transaction price should be allocated relative to the stand-alone selling price of the
component parts at the date of the contract inception
C. An agreed percentage of the transaction price should be allocated to the standalone
selling price of any goods sold with the balance spread equally over the term of the
contract
D. The transaction price should be allocated based on the cost of the component parts at
the date on which the contract is first agreed
65
66
Examiners' reports
QUESTION 3.
B – The transaction price should be allocated relative to the stand-alone selling price of the
component parts at the date of the contract inception.
In accordance with IFRS 15, an entity must allocate the transaction price of a contract to
each performance obligation identified on a relative stand-alone selling price basis.
To do this, the entity must determine the stand-alone selling price of the distinct good or
service underlying each performance obligation in the contract and allocate the transaction
price in proportion to those stand-alone selling prices
66
33
11/21/2022
67
7. Government Grants –IAS20

7.1. Overview
Government grants – assistance by governments in the form of transfers of resources in return for
past or future compliance with certain conditions relating to operating activities.
Monetary (showed by cash): by assets, by expense
Non-monetary (showed by goods or something physical)
67
68

7.2. Recognise
Government grants are recognised as income when there is reasonable assurance that the entity will:
Comply with the conditions attaching to them; and
Receive the grant.
68
34
11/21/2022
69

7.2. Recognise
a, Money government grant:

By assets Directly deduct from PPE Recognise as deferred income
Dr Cash Dr Cash
Cr PPE Cr Deferred income
At the time of cash receipt - Depreciation charge decreases - Reflect proper value of PPe
- Value of PPE decreases - High depreciation
 Does not reflect proper value of PPE - Has liability (deferred income)
Not applicable Dr Deferred income – GG
Each period, realized the deferred income
Cr Income
(realised over the useful life of the PPE)
Dr PPE $100 Dr PPE $100
Cr Cash $100 Cr Cash $100
Dr Cash $20 Dr Cash $20

Cr PPE $20 Cr Deferred income $20
Eg: Machine has a cost of $100. GG = $20
End of year 1: End of year 1:
-> Revised cost of PPE: $80. Useful life: 5 years
Dr Depreciation expense $16 Dr Deferred income $4
Cr PPE – carrying amount $16 Cr Income $4
SOPL SOFP SOPL: SOFP:

Depreciation charge: $16. PPE: $64 Depreciation charge: $20 Deferred income – CL: $4
Net expense: $16 Income: $4 Deferred income – NCL: $12
Net expense: $16
69
70

7.2. Recognise
a, Money government grant (grants related to income)
By expense
Past cost Current cost

Dr Cash • Recognise as income
Cr Other income Dr Cash
Cr Other income
• Directly deduct from expense
Dr Cash
Cr Specific cost
70
35
11/21/2022
71

7.2. Recognise
b, Non-monetary government grant (grant related to assets - same as deferred income in monetary
government grant for PPE)
Recognised GG Amortise GG over the useful life of asset:
Dr PPE Dr DD – deferred income
Cr GG – Deferred income Cr Income
Cr Additional cash/consideration to acquire PPE
71
72

7.3. Repayment GG:
Directly deduct from PPE: Deferred income:
Dr PPE Dr DD – deferred income
Cr Cash Dr PPE/Expenses
Cr Cash
72
36
11/21/2022
73
8. Financial instruments – IFRS9

8.1. Definitions
• Cash;
• A contractual right to receive cash or another financial asset from another entity;
• A contractual right to exchange financial instruments with another entity under conditions which
Financial assets
are potentially favourable;
• An equity instrument of another entity; or certain contracts which will (or may) be settled in the
entity's own equity instruments.
• To deliver cash or another financial asset to another entity;

Financial • To exchange financial instruments with another entity under conditions that are potentially
liabilities unfavourable; or
• Certain contracts that will (or may) be settled in own equity instruments.
• Any contract which evidences a residual interest in the assets of an entity after deducting all of its
Equity
liabilities.
73
74

8.1. Definitions
Physical assets (e.g. prepayments), liabilities that are not contractual in nature (e.g.
taxes) and contractual rights and obligations relating to non-financial assets are not
financial instruments.
Redeemable preference shares that require the issuer to deliver cash to the holder
(either on redemption or in the form of a dividend) are classified as liabilities even
though, legally, they may be equity.
74
37
11/21/2022
75

8.2. Financial assets
Should
Initial measurement: at FVEXCLUDE (applicable to both purchased and self-constructed asset)
75
76

Financial assets
Debt instruments Derivatives Equity
Fail Yes
“Characteristics” test Held for trading
Pass
“Business model” test No
(2) Both: hold to No

(1) Hold to collect (3): neither (1) nor FVOCI option
collect contractual
contractual CF (2) elected
CF and sell
Yes Yes
Conditional FVTPL elected
No No FVOCI
FVTPL
(no recycling)
Amortised FVOCI
Cost (with recycling)
76
38
11/21/2022
77

8.2. Financial assets
Equity Instruments (purchases of shares in other entities)
Default May select
Fair value through profit or loss Fair value through other comprehensive income
Transaction costs associated with Transaction costs are capitalized.

the purchase of these investments
The investments are revalued to fair value each year end, with the
are expensed, not capitalised
gain/loss being taken to an investment reserve in equity and shown in
other comprehensive income.
• similar to a revaluation of PPE. The main difference is that there can be
a negative investment reserve.
• FVOCI investment is sold.
77
78

8.3. Financial Liabilities
Debt Instruments (purchase of bonds and redeemable preference shares)
Default Held for trading or Designated
Amortised Cost Fair value to profit or loss
• Initial recognition: proceed received less trading • Initial recognition: proceed received.
cost.
• Transaction cost goes directly to profit or loss.
• Subsequent measurement: amortised cost • Subsequent measurement: all changes in FV will go

adjustment using effective interest rate. directly to PL.
78
39
11/21/2022
79

8.4. Compound financial instruments
A compound instrument is a financial instrument that has characteristics of both equity and liabilities,
such as a convertible loan.
Based on present value of future cash flows assuming on conversion – Apply

LIABILITIES discount rate equivalent to interest on similar nonconvertible debt instrument
(i.e. discount the cash flows at the market rate of interest).
EQUITY ELEMENT Equity = remainder

(OPTIONS) (i.e. deduct the present value of the debt from the proceeds of the issue).
79
80

Example 1: Convertible Loan Notes
Oviedo Co issued $10m 5% convertible loan notes on 1 January 20X1. On 31 December 20X3 these will
either be repaid at par or converted into shares on that date. The interest rate for loan notes without the
option to convert is 8%.
The present value of $1 receivable at the end of each year, based on discount rates of 5% and 8%, are:
End of year 5% 8%
1 0.952 0.926
2 0.907 0.857
3 0.864 0.794
80
40
11/21/2022
81

Solution
End of year Payment Discounted factor Present value
$000 @8% $000
1 500 0.926 463
2 500 0.857 429
3 10,500 0.794 8,337
Total 9,229
Dr Cash 10,000
Cr CB - liability component 9,229
Cr CB - equity component 771
End of year Opening balance Interest expense Payment Closing balance

$000 $000 $000 $000
1 9,229 738 500 9,467
2 9,467 757 500 9,724
3 9,724 778 500 10,002
81
82
9. Leases -IFRS 16
9.1. Definition
A lease is a contract that gives the right to use an asset of an identified asset for a period of time in
exchange for consideration.
There's 3 tests to see if the contract is a lease.
The asset must be identifiable. The customer must be able to get

substantially all the benefits while it
This can be explicitly - it's in the contract or uses it
implicitly - the contract only makes sense by
using this asset The customer must be able to direct
how and for what the asset is used
There is no identifiable asset if the supplier
can substitute the asset and would benefit
from doing so
82
41
11/21/2022
83
9. Leasing -IFRS 16
9.2. Lessee accounting
a, Initial recognition:
Right of use asset Lease liability

Measured at the amount of the lease liability plus any Measured at the present value of the lease payments payable over the
initial direct costs incurred by the lessee. lease term, discounted at the rate implicit in the lease.
• Lease liability • Fixed payments less incentives
• Initial direct costs
• Estimated costs for dismantling
• Payments less incentives before commencement date
Note: If the rate implicit in the lease cannot be determined the lessee
shall use their incremental borrowing rate
83
84
9. Leasing -IFRS 16
9.2. Lessee accounting
b, Subsequent measurement:
Exception
Right of use asset Lease liability

Investment property (lease for leasing)
Cost less accumulated Financial liability at
depreciation. amortized cost. FV model, if FV is not realiably measured
Note:
Depreciation is based on the earlier of the useful life and

Use cost model
lease term, unless ownership transfers, in which case use
the useful life.
Other revaluation model
84
42
11/21/2022
85
9. Leasing -IFRS 16
9.3. Lease liability
a, Pay in advance:
Opening Lease Net Interest Closing

Year Total lease
balance payment balance expense balance Closing balance
liability
0 A B C D E
Current Lease C=A-B D=C* E=C+D
lease payment Effective
CL lease
liability each interest Lease payment in next period
1 liability
period rate
…. NCL lease Balancing figure =total lease liability – CL

Final liability Lease liability
year
85
86
9. Leasing -IFRS 16
b, Pay in arrears:
Opening Interest Lease Closing

Year Total lease
balance expense payment balance Closing balance
liability
0 A B C D
Current lease B=A* Lease D=A+B-
liability Effective payment C NCL lease
Closing balance of the next year
1 interest each liability
rate period
….
CL lease Balancing amt =
Final liability Total liability - NCL lease liability
year
86
43
11/21/2022
87
9. Leasing -IFRS 16
c, Accounting treatments:
Initial recognition At the end of year 1
Depreciation expense: Interest expense: Payment:
Dr Right of use asset Dr Depreciation expense Dr Interest expense Dr Lease liability

Cr Lease liability Cr Acc depn - ROU Cr Lease liability Cr Cash
Cr Cash
Remember to reclassify NCL and CL of lease liability on SOFP
87
88
9. Leasing -IFRS 16
9.4. Operating lease
Dr Rental expense
Cr Cash
88
44
11/21/2022
89
9. Leasing -IFRS 16
9.5. Sale and leaseback
A sale and leaseback transaction occurs when one entity (seller) transfers an asset to another entity
(buyer) who then leases the asset back to the original seller (lessee).
The companies are required to account for the transfer contract and the lease applying IFRS 16,
however consideration is first given to whether the initial sale of the transferred asset is a
performance obligation under IFRS 15.
89
90
9. Leasing -IFRS 16
If the transfer of the asset is a sale then the following rules apply:
Seller-Lessee Buyer-Lessor
• Derecognise the asset • Recognise purchase of the asset
• Recognise the sale at fair value • Apply lessor accounting
• Recognise lease liability (PV of lease rentals)
• Recognise a right-of-use asset, as a proportion of the previous carrying
value of underlying asset = Previous Carrying value x Lease
liabilities/Proceeds
• Gain/loss on rights transferred to the buyer
90
45
11/21/2022
91
9. Leasing -IFRS 16
If the transfer of the asset is not a sale then the following rules apply:
Seller-Lessee Buyer-Lessor
• Continue to recognise the asset. • Do not recognise the asset.
• Recognise a financial liability • Recognise a financial asset

(= proceeds) (= proceeds)
91
92
9. Leasing -IFRS 16
Note:
If the proceeds are less than the fair value of the asset or the lease payments are less than market
rental the following adjustments to sales proceeds apply:
Any below-market terms should be accounted for as a prepayment of the lease payments; and,
Any above-market terms should be accounted for as additional financing provided to the lessee.
92
46
11/21/2022
93
10. Provisions, Contingent liabilities and Contingent assets

10.1. Provision
10.1.1. Definition
Provisions Liabilities of uncertain timing or amount.
Liability A present obligation arising from past events, the settlement of which is expected to result in an outflow of economic resources.
An event which creates a legal or constructive obligation which results in an entity having no realistic alternative to settling that
Obligating event
obligation.
Legal obligation An obligation which derives from the operation of law (i.e. a contract, legislation or other operation of law).
An obligation which derives from an entity's actions where:

• by an established pattern of past practice, published policies or a sufficiently specific current statement, the entity has indicated
Constructive obligation to other parties that it will accept certain responsibilities; and
• as a result, the entity has created a valid expectation on the part of those other parties that it will discharge those
responsibilities.
• A possible obligation which arises from past events and whose existence will be confirmed only on the occurrence or non-
occurrence of one or more uncertain future events which are not wholly within the entity’s control; or
Contingent liability • A present obligation which arises from past events but is not recognised because:
o an outflow of resources is not probable; or
o the amount of the obligation cannot be measured with sufficient reliability. (This is very rare.)
93
94

10.1. Provision
10.1.2. Recognition
A provision must be recognised when certain conditions have been met. Those conditions are met when:
It is probable that an outflow of economic resources will be A reliable estimate of the

required to settle the obligation obligation can be made
An entity has a present (legal or constructive) obligation to transfer economic resources as a result of
past events
If these conditions are not met, a provision should not be recognised.
94
47
11/21/2022
95

10.1. Provision
10.1.3. Measurement
Provision should be made at the best estimate of the expenditure required to settle the present obligation.
Take into account the risks and uncertainties that Should be discounted to their present values, where
surround the underlying events. the effect of the time value of money is material.
95
96

10.1. Provision
10.1.3. Measurement
Settle the present obligation at the balance sheet date
For one – off events For large populations of events
Measured at the most likely amount. Measured at a probability-weighted expected

value.
Example: restructuring, environmental clean-up,
settlement of a lawsuit Example: warranties, customer refunds
• Review and adjust provisions at each balance sheet date
• If outflow no longer probable, reverse the provision to income.
96
48
11/21/2022
97

10.1. Provision
10.1.4. Special cases
Future operating
• Provisions should not be recognised for future operating losses.
losses
• An onerous contract is a contract where the unavoidable costs of completing the contract
exceed the benefits expected to be received under it.
Onerous contracts • Where an onerous contract exists, the entity should provide for the net loss which is the
lower of the costs of fulfilling the contract and the penalties from failing to fulfill the
contract.
Decommissioning
and other • Provisions for these costs should only be recognised from the date on which the obligating
environmental event occurs.
costs
97
98

10.1. Provision
10.1.4. Special cases - Restructuring
A restructuring is a planned program which materially changes the scope of business undertaken by
an entity or the manner in which that business is conducted.
A provision for restructuring costs is recognised only when the entity has a constructive obligation to
restructure, that is when the entity:
Has a detailed formal plan for the restructuring, and
Has raised a valid expectation in those affected that it will carry out the restructuring
98
49
11/21/2022
99

10.1. Provision
10.1.4. Special cases - Restructuring
Provisions for restructuring should include only those expenditures which are both:
necessarily incurred by a restructuring; and
not associated with ongoing activities.
A restructuring provision cannot therefore include:

the costs of retraining or relocating staff;
marketing costs;
the costs of investment in new systems or networks;
operating losses up to the restructuring date.
99
10
10. Provisions, Contingent liabilities and Contingent assets 0
10.1. Provision
10.2. Contingent Assets and Contingent Liabilities
Probability Economic resource inflow (asset) Economic resource outflow (liability)
Virtually certain (>90%) Asset in SOFP Liability in SOFP
Contingent asset, NOT an asset in

Probable (>50%) Provision (liability) in SOFP
SOFP, disclose in notes
Contingent asset, NOT an asset in Contingent liability, NOT a liability in

Possible (>10%)
SOFP, do nothing SOFP, disclose in notes
Contingent asset, NOT an asset in Contingent liability, NOT a liability in

Remote
SOFP, do nothing SOFP, do nothing
100
50
11/21/2022
10
11. Events after the Reporting Period –IAS 10 1
11.1. Definition
Events after the reporting period are those events, both favourable and unfavourable, that occur between
the end of the reporting period and the date when the financial statements are authorised for issue.
31 Dec 20X1 31 Jan 20X1 15 Feb 20X2
.
End of reporting period
.
Closing work finished
.
FS are authorized for issue
Events after the reporting period
101
102
11. Events after the Reporting Period –IAS 10

11.2. Adjusting and non –adjusting events
Adjusting events Non-adjusting events

These provide evidence of conditions which existed at These relate to conditions which arose after the reporting period. If
the end of the reporting period. non-adjusting event is material, the entity should disclose by notes:
• The financial statements should be amended to • The nature of the event
include the effect of adjusting events.
• An estimate of its financial effect or a statement that such an
• This is likely to require the recognition of a loss in estimate cannot be made.
profit or loss.
EXAMPLE: EXAMPLE:
• Determination of the amount of a bonus payment or • Issuance of new shares.
profit sharing if the company had legal or constructive
• Dividend declaration.
obligation at the year end.
• Natural disaster.
• Settlement of court cases.
• Decline in market value of an investment.
• Sale of inventory below cost.
• Bankruptcy of a customer.
102
51
11/21/2022
103
12. Inventories –IAS 2

12.1. Definition
Inventories – assets which are:
• held for resale in the ordinary course of business (e.g. merchandise purchased by retailer);
• in the process of production for resale (e.g. finished goods, work in progress, raw materials); or
• in the form of materials or supplies to be consumed in the production process or rendering of services.
103
104

12.2. Measurement
Inventories are measured at the lower of cost and net realisable value.
• Cost includes all costs involved in bringing the inventories to their present location and condition.
• Net realizable value = Estimated selling price – Estimated selling costs
104
52
11/21/2022
105

12.2. Measurement
Components of cost include
PURCHASE COSTS CONVERSION COSTS OTHER COSTS
• Purchase price; • Direct production costs; • Non-production overheads only if

incurred in bringing inventories to
• Import duties/non-refundable taxes; • Production overheads based on
present location and condition (e.g.
normal capacity (i.e. expected on
• Transport/handling; storage in whiskey distillers) and
average under normal
specific design costs;
• Deduct trade discounts/ rebates. circumstances);
• Borrowing costs in limited
• Joint product costs (deduct net
circumstances (see IAS 23).
realisable value of by-products).
105
106

12.2. Measurement
The following expenditures are excluded
abnormal amounts of wasted materials, labour and other production costs;

storage costs unless necessary to the production process;
administrative overheads; and
selling costs.
106
53
11/21/2022
107
13. Biological assets – IAS 41

13.1. Definition
Biological asset A living animal or plant.
Biological The processes of growth, degeneration, production and procreation that cause qualitative and
transformation quantitative changes in a biological asset.
Harvest The detachment of produce from a biological asset or the cessation of a biological asset's life..
Agricultural produce The product harvested from a biological asset.
Which are used solely to grow produce (e.g. apple trees or grape vines), are accounted for under
Bearer plants
IAS 16 Property, Plant and Equipment.
107
108
13. Biological assets – IAS 41

13.2. Measurement
A biological asset should be measured at its fair value less costs to sell:
On initial recognition; and At the end of each reporting period.

• A gain or loss arising is included in profit or loss for the period in which it arises.
• All costs related to biological assets that are measured at fair value are recognised as expenses when
incurred, other than costs to purchase biological assets.
• If FV cannot be determined, use cost less depreciation less impairment.
108
54
11/21/2022
109
14. Taxation – IAS 12

14.1. Current tax and Deferred tax
IAS 12 states that there are two elements of tax that will need to be accounted for:
Current tax - the amount of income taxes Deferred tax - an accounting adjustment aimed
payable/recoverable in respect of the taxable to match the tax effects of transactions to the
profit/loss for a period relevant accounting period
To account for tax payable by the company:
Dr Income tax expense/ Tax charge (in SOPL)
Cr Income tax payable/Current tax/Taxation (in SOFP as current liability)
109
110

14.2. Deferred taxation
Deferred taxation is a basis of allocating tax charges to particular accounting periods. The key of deferred
taxation lies in the two quite different concepts of profit:
ACCOUNTING PROFIT
TAXABLE
Should EXCLUDE (applicable to both purchased and self-constructed PROFIT
asset)
Accounting profit is the figure of profit before
Taxable profit is the figure of profit in which the
tax, reported to the shareholders in the published
taxation authorities base their tax calculations.
accounts.
110
55
11/21/2022
111

DEFERRED TAXATION CALCULATIONS
Step 1: Summarise the accounting carrying amounts and the tax base for every asset and liability.
Step 2: Calculate the temporary difference by deducting the tax base from the carrying amount.
Step 3: Calculate the deferred tax liability and asset.
To calculate the deferred tax liabilities, sum all positive temporary differences and apply the tax rate.
To calculate the deferred tax asset, sum all negative temporary differences and apply the tax rate.
Step 4: Calculate the net deferred tax liability or asset by summing the two amounts in Step 3. This will
be the asset or liability carried in the statement of financial position.
Step 5: Deduct the opening deferred tax liability or asset. The difference will be this year's charge/credit
to profit or loss (or OCI).
111
112

14.2.1. Temporary differences
ACCOUNTING TREATMENTS
The tax base of an asset or liability is the amount
attributed to the asset or liability for tax purposes.
Carrying amount x
If those economic benefits will not be taxable, the tax
Tax base (x)
base of the asset is equal to its carrying amount.
Temporary difference x Should EXCLUDE (applicable to both purchased and self-
Example: Bill Co provided a loan
constructed of $250,000 to John Co.
asset)
At the year end, Bill Co's accounts show a loan receivable
Temporary differences – differences of $200,000. The repayment of the loan has no tax
between the carrying amount of an consequences. Therefore the loan receivable has a tax
asset or liability and its tax base. base of $200,000. No temporary taxable difference
arises.
112
56
11/21/2022
113

14.2.2. Recognition of deferred tax
Deferred taxEXCLUDE
Should = (applicable
Temporary Difference
to both purchased x asset)
and self-constructed Tax rate
Carrying amount of asset > Tax base of asset Taxable temporary difference Deferred tax liability
Carrying amount of liability > Tax base of liability Deductible temporary difference Deferred tax asset
113
114

Note Amount Tax base
Further information:
$ $
Non-current assets 1. The deferred tax liability balance at the beginning of the
Plant and machinery 200,000 175,000
year, 1 January, was $1,200.
Receivables 2. Interest is taxed on a cash basis.

Trade receivables 1 50,000
3. Allowances for irrecoverable debts are not deductible for
Interest receivable 1,000 tax purposes. Amounts in respect of receivables are only
Payables
Should EXCLUDE
deductible (applicable
on application to both
of a court purchased
order and
to a specific
amount. self-constructed asset)
Fine 10,000
Interest payable 2,000 4. Fines are not tax deductible.
Note 1: The trade receivables balance is made up of the following:
5. Deferred tax is charged at 30%.
$
Balances 55,000
Required: Calculate the deferred tax provision which is
required at 31 December and the charge to profit or loss for
Allowance for irrecoverable debts (5,000) the year.
50,000
114
57
11/21/2022
115

Carrying Tax Temporary Temporary Deferred

amount base difference differences tax
$ $ $ $ $
Non-current assets
Deferred tax liabilities 26,000 7,800
Plant and machinery 200,000 175,000 25,000
Deferred tax assets (7,000) (2,100)
Receivables
5,700
Trade receivables 50,000 55,000 (5,000)
$
Interest receivable 1,000 0 1,000
Deferred tax as at 1 Jan 1,200
Payables
Fine 10,000 10,000 0 Profit or loss (balancing figure) 4,500
Interest payable 2,000 0 (2,000)A63 Deferred tax as at 31 Dec 5,700
115
116

14.3. Accounting treatments
STATEMENT OF PROFIT OR LOSS – TAX EXPENSE/TAX CHARGE
1. Current tax: income tax on taxable profits of this period. Dr Tax charge
Current tax = taxable profit x tax rate Cr Tax payable
2. Over/under provision in income tax on profits of previous Under provision: Over provision:
period. Dr Tax charge Dr Tax payable
Cr Tax payable Cr Tax charge
Revaluation:
Dr OCI
3. Deferred tax: movement in deferred tax balances during the Cr Deferred tax
period.
Dr Deferred tax or Dr Tax charge
Cr Tax charge Cr Deferred tax
116
58
Slide 115
A63 Trong slides này: Temporary diff của assets = CA - Tax base, nhg
Tem diff của liab = Tax base -CA
Admin, 11/20/2022
11/21/2022
117

14.3. Accounting treatments
STATEMENT OF FINANCIAL POSITION – TAX PAYABLE/TAXATION/CURRENT TAX
1. Unpaid tax (liabilities) or overpaid tax (prepayment)

2. Deferred tax liabilities (DTL) or deferred tax asset (DTA)
117
118
Examiners' reports
QUESTION 4. The information below relates to the financial statements of a company as at 30
September 20X7
$
Carrying amount The amount of the The amount of the
deferred tax liability is: revaluation surplus is:
Plant (cost less depreciation) 110,000
Land (original cost $200,000) 280,000
Correct Correct
Tax base
Plant 90,000
Land 200,000
Incorrect Incorrect
Tax rate 20%

Deferred tax liability 20,000
Revaluation surplus 64,000
118
59
11/21/2022
119
Examiners' reports
QUESTION 4.
The amount of the deferred tax liability is: CORRECT

The amount of the revaluation surplus is: CORRECT
Taxable temporary Deferred tax at

Carrying amount Tax base
difference 20%
$ $ $ $
Plant 110,000 90,000 20,000 4,000
Land 280,000 200,000 80,000 16,000
Total DTL 20,000
$
Revaluation gain ($280,000 - $200,000) 80,000
Less associated deferred tax (per above) (16,000)
Total revaluation surplus 64,000
119
120
15. Accounting policies, Changes in Accounting Estimate and Errors –IAS 8
15.1. Accounting policy
Accounting policies – specific principles, bases, conventions, rules and practices applied in preparing
and presenting financial statements.
An entity can only change an accounting policy if:
• it is required to do so by an IFRS (i.e. a mandatory change); or
• the change would result in the financial statements providing more relevant and reliable
information (i.e.Should EXCLUDE (applicable to both purchased and self-constructed asset)
a voluntary change).
EXAMPLE:
• Change in recognition/classification
• Change in measurement method (such as from FIFO to AVCO)
• Change in presentation (from COGS to administrative expense)
120
60
11/21/2022
121
15.1. Accounting policy
A new or revised IFRS generally contains "transitional provisions" which should be applied
to any change of accounting policy.
If there are no transitional provisions or the change in policy is voluntary, a change in policy
is applied retrospectively. Retrospective application means that:
• the opening balance of each affected part of equity for the earliest period presented is
adjusted;
• the comparative amounts are disclosed for each prior period as if the new policy had
always been applied.
If it is not practicable to apply the effects of a change in policy to prior periods, the change
is made from the earliest period for which retrospective application is practicable.
121
122
15.2. Accounting estimates
Change in accounting estimate – an adjustment to the carrying amount of an asset or

liability (or the amount of annual consumption of an asset) which results from a current
assessment of expected future benefits and obligations.
When a change in circumstances occurs which affects the estimates previously made, the
effect of that change is recognised prospectively in the current and future (where relevant)
periods' profit orShould
loss. EXCLUDE (applicable to both purchased and self-constructed asset)
EXAMPLE:
• Change in the allowance for doubtful debt.
• Change in estimated useful life/residual value of NCA.

• Change in depreciation method.
122
61
11/21/2022
123
15.3. Prior period errors
Prior period errors – omissions and misstatements, relating to the financial statements for
one or more periods which arose from a failure to use, or the misuse of, reliable information
which:
• was availableShould
whenEXCLUDE
the financial statements
(applicable for those
to both purchased andperiods were authorised
self-constructed asset) for issue;
• could reasonably be expected to have been obtained and taken into account when those
financial statements were prepared and presented.
A65
An error is corrected retrospectively if material.
123
124
16. Non current assets held for sale and Discontinued Operations –IFRS 5
16.1. Non-current assets Held for Sale
The asset must be available for immediate sale in its present condition and the sale must
be highly probable.
PROBABLE
• Management must be committed to a plan to sell • The sale is expected to qualify for recognition as
the asset. a completed sale within one year from the date
of classification.
• An active programme to locate a buyer and
complete the plan must have been initiated. • The actions required to complete the plan should
indicate that significant changes to the plan or
• The asset must be actively marketed for sale at a
withdrawal from the plan are unlikely.
reasonable price (in relation to its current fair
value).
124
62
Slide 123
A65 tuỳ nhé, nếu immaterial thì adjust kì này cũng đc

Admin, 11/20/2022
11/21/2022
125
ASSETS EQUITY
Non-current assets x Ordinary shares x
Current assets x Share premium x
Non-current assets held for sale x Retained earning x
Total assets x Revaluation surplus x
Amount recognized in OCI as x
LIABILITIES separate component of equity
Non-current liabilities x relating to NCA held for sale
Current liabilities x Total equity x
Liabilities directly associated with x
NCA held for sale
Total liabilities x
125
126

MEASUREMENT
Step 1: at date of reclassification
Lower of carrying amount and fair value less cost, differences charge to PL.
Step 2: after reclassification.

No depreciation. Lower of carrying amount and fair value less cost.
Step 3: if the recognition criteria are not met, reclassify as non-current assets.
Lower of carrying amount before classification at asset held for sale (Step 1) – depreciation
and Recoverable amount (higher fair value less cost and value in use), differences charge to PL.
126
63
11/21/2022
127
16.2. Discontinued operation
Discontinued operation – a component which has either been disposed of or is classified

as held for sale and:
• represents a separate major line of business or geographical area of operations;
• is part of a single coordinated
Should plan for
EXCLUDE (applicable to its
bothdisposal;
purchasedor
and self-constructed asset)
• is a subsidiary acquired exclusively with a view to resale.

Disposal group – a group of assets to be disposed of collectively in a single transaction,
and directly associated liabilities which will be transferred in the transaction.
127
128
16.2. Discontinued operation
Statement of profit or loss

Continued operations
Revenue x
Cost of good sold (x)
Gross profit x
Other expenses (x)
Profit for the year from continuing operations x
Discontinued operations
Profit for the year from discontinued operations x
Profit for the year x
Profit attributable for:
Owners of the parents x
Non-controlling interest x
128
64
11/21/2022
129
17. Foreign currency transactions –IAS 21
17.1. Definition
Functional currency The currency of the primary economic environment in which the entity operates.
Presentation currency The currency in which the financial statements are presented.
Foreign currency A currency other than the functional currency.
Closing rate The spot exchange rate at the reporting date.
Money held and assets and liabilities to be received or paid in fixed or determinable number of
Monetary items
units of currency.
Spot exchange rate The exchange rate for immediate delivery.
129
130
17.2. Initial recognition
A foreign currency transaction (e.g. a purchase or sale of goods) is initially recorded at the
spot exchange rate (of the functional currency) on the date of the transaction.
130
65
11/21/2022
131
17.3. Settlement in the same period
Settlement of an outstanding foreign currency amount (e.g. a receivable or payable) is

translated at theShould
spot EXCLUDE
exchange rate ontothe
(applicable settlement
both date.
purchased and All the exchange
self-constructed asset) difference is
recognized in PL in that period.
131
132
17.4. Settlement in a subsequent accounting period
Monetary items Non-monetary items
Cash and amounts Balances that do not involve a transfer of

that will be settles in cash (e.g, Inventories and property, plant
cash and equipment)
Remeasure at
Measured using a Measured using fair
reporting date using
cost model value model
closing rate
Translate using spot

Do not remeasure at exchange rate at
reporting date remeasurement date
132
66
11/21/2022
133
18. Earnings per share –IAS 33
18.1. Comparative EPS
• Last year EPS, which is comparable with this year's figure.
• This figure can be different from the EPS figure in last year FS as there were some
events in thisShould
year. EXCLUDE (applicable to both purchased and self-constructed asset)
Example: Right issue will made the WA no. of shares increase, then comparative EPS
decreases.
133
134
18.2. Basic EPS
Profit (or loss) relating to the ordinary shareholders

Basic EPS
Should EXCLUDE
= (applicable to both purchased and self-constructed asset)
Weighted average number of ordinary shares
Profit after tax/profit attributable to the owners of parent x
(-) Discontinued operations (x)
(-) Div. of irredeemable preference shares (x)
Net profit/(loss) attributable to ordinary shareholders x
134
67
11/21/2022
135
18.3. Bonus issue of shares
No. of share after bonus issue

Bonus fraction =
No. of share before bonus issue
WA shareShould
= Share before
EXCLUDE issue x to
(applicable Bonus fraction and
both purchased x Time + Share after
self-constructed issue x Time
asset)
1
Restated EPS = Last year prime EPS x
Bonus fraction
135
136
18.4. Right issue of shares
Step 1: Theoretical ex-rights price per share (TERP)

Step 2: Bonus fraction = FV per share immediately before the exercise of rights/ TERP
Step 3: WA share = Share before issue x Bonus fraction x time + Share after issue x time
Step 4: EPS
136
68
11/21/2022
137
Step 1: Theoretical ex-rights price per Example: Right bonus Fraction

share (TERP)
1 Jan Shares in issue 1,000,000
Step 2: Bonus fraction = FV per share
31 Mar • Rights issue of 1 for 5 shares at
immediately before the exercise of 90 cents
rights/
Should TERP (applicable to both purchased and
EXCLUDE • MV of shares $1 (cum-rights
self-constructed asset) price)
Step 3: Weighted average share = Share
before issue x Bonus fraction x time + Required: Calculate the number of shares
Share after issue x time for use in the EPS calculation
Step 4: EPS
137
138
Step 1: TERP $ Step 3: WA shares Shares
5 shares @ $1 5 1 Jan – 31 Mar

254,237
1,000,000 x 3/12 x 1/0.9833
1 shares @ $0.9 0.9
1 Apr – 31 Dec
900,000
6 shares 5.9 1,000,000 x 6/5 x 9/12
TERP (5.9/6) 0.9833 Total shares 1,154,237
Step 2: Bonus fraction
Cum − right price 1

TERP 0.9833
138
69
11/21/2022
139
18.5. Diluted EPS
Convertible debt Share options or warrants

Earnings
Number of shares under option x
Basic earnings x
Number that would have been issued at average
Add back: loan interest saved net of tax x market price (AMP) (x)
Diluted earnings x (No. of options x exercise price):AMP
Number of shares Number of shares treated as issued for nil

x
consideration
Basic weighted average number of shares x
Add: additional shares on conversion

x
(use maximum dilution)
Diluted weighted average number of shares x
139
140
Topic 2.
Consolidated financial statements and
Investment in Associates
140
70
11/21/2022
141
1. Overview
INVESTMENT IN A COMPANY
Subsidiaries Associates Other investment
Criteria Control Significant influence Other investment
Shares >50% voting rights >20%, <50% <20%
Consolidation/
Accounting method Equity Accounting Fair value/Cost
Acquisition accounting
141
142
1. Overview
CONTROL
• Power over investee: >50% of voting rights or right to appoint/reassign/remove key management,
right directly to relevant activities/transactions, and
• Right to variables returns from its involvement with the investee, and
• The ability to use its power over the investee to affect the amount of the investor's return.
142
71
11/21/2022
143
2. Consolidated financial statements
2.1. Consolidated SOFP
Step 1: Trình bày khung báo cáo

Step 2: Điền các số liệu cho sẵn từ đề bài trước. Sau khi làm working sẽ sửa lại số trên báo
cáo cho phù hợp.
Step 3: Đọc các note của đề bài và trình bày working
Các bước làm working:

Note: Nguyên tắc làm consol SOFP:
Step 1: Fair value of consideration transferred
• Cộng ngang các chỉ tiêu trên SOFP,
Step 2: Goodwill trừ Share capital của subsidiary.
Step 3: Intra-group transactions and balance elimination • Loại bỏ các giao dịch nội bộ và số dư
nội bộ
Step 4: Retained earnings and NCI
143
144

2.1.1. FAIR VALUE OF CONSIDERATION TRANSFERRED
Consideration transferred @acquisition date is measured @fair value:
• Transferred by assets: cash,…
• Transferred by acquiring liabilities: loan, borrowings,…
• Transferred by equity interests: share issue, share exchange,…
• Deferred consideration: discounting amount payables to present value @acquisition date to get
fair value of consideration (Unwinding)
144
72
11/21/2022
145

2.1.2. GOODWILL
Fair value of consideration transferred x

Note:
Fair value of NCI at acquisition date x
• If goodwill > 0, recognize as assets in
Less: net assets at acquisition date (x) SOFP under the title of "Goodwill"
• If goodwill < 0 -> "bargain purchase" ->

Goodwill at acquisition date x Gain on OCI in SOPL
Impairment of goodwill (x) • Impairment loss is tested annually,

according to IAS 36.
Goodwill at reporting date x
145
146

2.1.2. GOODWILL
Ordinary share x
Share premium x
Reserve on acquisition (revaluation surplus) x
Pre-acquisition retained earnings/profit x
PPE valuation adjustment x
Inventory x
Liabilities (loan, borrowings) x
Total fair value of net assets at acquisition date x
146
73
11/21/2022
147

2.1.3. INTRA-GROUP TRADING
Intra-receivables/payables Cash in transit Inventories in transit
Dr Payables Dr Cash Dr Inventories

Cr Receivables Cr Receivables Cr Payables
147
148

2.1.3. INTRA-GROUP TRADING – UNREALIZED PROFIT
1. If Subsidiary sold to Parent (upstream): URP Working:
Dr Group retained earnings (P's share of S)

Profit on intra-group sales x
Dr NCI (NCI's share of S)
URP (% of inventories remained
Should EXCLUDE (applicable to both purchased and self- x
Cr Inventory unsold x Profit on intra-group sales)
constructed asset)
2. If Parent sold to Subsidiary (downstream):
Dr Group retained earnings
Cr Inventory
148
74
11/21/2022
149

2.1.3. INTRA-GROUP TRADING – INTRA-GROUP SALES OF NCA
1. If Subsidiary sold to Parent (upstream): URP Working:
Dr Group retained earnings (P's share of S)

Unrealised profit on transferred x
Dr NCI (NCI's share of S)
Should EXCLUDE (applicable to both purchased and self- Less: proportion depreciated by year-end (x)
Cr NCA
constructed asset)
2. If Parent sold to Subsidiary (downstream): x
Dr Group retained earnings
Cr NCA
149
150

2.1.4. RETAINED EARNINGS AND NCI
Retained earnings P Co S Co
Per question x x
Retained earnings at acquisition date (x)
URP (x)
FV adjustments (x)
Unwinding deferred consideration (x)
x x
Group’s shares of post acquisition x
Impairment of goodwill (x)
Group retained earnings x
150
75
11/21/2022
151

2.1.4. RETAINED EARNINGS AND NCI
Non-controlling interest
NCI at acquisition date x
NCI’s share of post-acquisition x
NCI’s share of revaluation surplus x
Impairment of goodwill (x)
NCI at reporting date x
151
152
2.2. Consolidated SOPL
Revenue Add 100% P + 100% S

… as this represents what
is controlled by P.
Profit for year Eliminate all intra-group
OCI transactions.
Profit attributable to:

Owners of Parent Balancing
NCI S’s PFY x NCI%
Total comprehensive income attributable to:
Owners of Parent Balancing
NCI S’s TCI x NCI%
152
76
11/21/2022
153

2.2.1. INTRA-GROUP TRADING
Dr Sales – total intra-group sales

Cr COS – balancing
Cr Inventories - URP
153
154

2.2.2. INTRA-GROUP LOANS AND INTEREST
1. Cancel the intra-group loan balances in the consolidated SOFP

Dr Loan payable
Cr Loan receivable
2. Cancel the intra-group interest payable by 1 party to the other in the consol SPL&OCI
Dr Group finance income

Cr Group finance costs
154
77
11/21/2022
155

2.2.3. DISPOSAL OF SUBSIDIARIES
In the individual FSs of the parent, the profit or loss on disposal is calculated as follows:
$
FV of consideration received x
Less: carrying amount of investment disposed (x)
Profit/loss on disposal x
155
156

1. SOPL and OCI:
- Consolidated results and NCI to the date of disposal.

- Show the group profit or loss on disposal on separate line after profit before tax.
2. SOFP: no goodwill, no NCI and no consolidation.
156
78
11/21/2022
157

In the group FSs, the profit or loss on disposal is calculated as follows:
$ $
FV of consideration received x
Less: share of consolidated carrying amount
at date of disposal
Net assets at DOD x
Goodwill at DOD x
Less: NCI (x)
(x)
Profit/loss on disposal x/(x)
157
158
2.3. Investment in associates

2.3.1. DEFINITION
• Associates is an entity, including an unincorporated entity such as a partnership, over

which an investor has significant influence and which is neither a subsidiary nor an
interest in a joint venture.
• Significant influence is the power to participate in the financial and operating policy
decisions of the investee but not control over these policies. Significant influence when a
company holds 20% or more of the voting power of the investee, otherwise stated.
158
79
11/21/2022
159

2.3.1. DEFINITION
IAS 28 also states that significant influence can be shown by:

• Representation on the board of directors
• Participation in policy making processes
• Material transactions between the investor and the investee
• Interchange of managerial personnel
• Provision of essential technical information
159
160

2.3.2. EQUITY METHOD
The investment is initially recorded at cost and adjusted thereafter for the post-acquisition
change in the investor's share of net assets of the investee. The profit or loss of the investor
includes the investor's share of the profit or loss of the investee.
160
80
11/21/2022
161

Consolidated SOFP $ Working $
Non-current assets
Investment in associate (working) x Cost of associate x
Share of post-acquisition profit/loss x/(x)

Intra-group trading:
Dividends from associates (x)
Dr Group retained earnings URP.A%
Unrealised profit (x)
Cr Investment in associates URP.A%
Impairment (x)
Dividend: Eliminated dividend from
income and investment in associates. Investment in associate x
161
162

Consolidated SOPL and OCI $
Profit or loss
A’s profit for the year x Group%
x
(Show before group profit before tax)
Other comprehensive income

A’s OCI x Group% x
162
81
11/21/2022
163
2.4. Other investments
• Other investment is initially recorded at cost.

• Any profit/loss attributed from other investment or impairment should be charged to PL.
163
164
Topic 3. Cash flow, Ratio, Interpretation and

other issues
164
82
11/21/2022
165
3.1. Statement of cash flows
Cash flows from operating activities Cash flows from investing activities
Profit before tax x Purchase of PPE (x)
Adjustment for: Proceed from sale of PPE x
Depreciation x Dividend received/Interest received x
Gain/loss on disposal PPE (x)/x Cash payment for purchase of other entity’s shares (x)
Dividend income/Interest income (x) Net cash flows from/used in investing activities x/(x)
Interest expense x
Operating profit before changes in working capital x Cash flows from financing activities
Changes in working capital Proceed from issue of shares capital x
Increase/Decrease in Inventories (x)/x Proceed from borrowings/loan noted/debenture x
Increase/Decrease in Receivables (x)/x Payment for borrowings/loan noted (x)
Increase/Decrease in Prepayment (x)/x Dividend paid (x)
Increase/Decrease in Payables x/(x) Net cash flows from/used in financing activities x/(x)
Increase/Decrease in Accrual x/(x)
Cash generated from operation x Net increase/decrease in cash and cash equivalents x/(x)
Interest paid (x) Cash and cash equivalents at the beginning of the x
Income tax paid (x) period
Net cash flows from/used in operating activities x/(x) Cash and cash equivalents at the end of the period x
165
166
3. Cash flow, Ratio, Interpretation and other issues
3.2. Ratio and Interpretation

3.2.1. PROFITABILITY RATIOS (PERFORMANCE RATIOS)
Return on capital employed (ROCE)
• ROCE = (PBIT ÷ Capital employed) × 100%
• PBIT = PAT + Taxation + interest charge on loan capital = operating profit
• Capital employed = Shareholders’ equity + Non-current liabilities
= Total assets – current liabilities
• Significant change may be due to:
• New assets acquired during the year which are not yet running at capacity
• Assets ageing and revaluations
166
83
11/21/2022
167

Return on equity (ROE)

ROE = (Profit after tax and preference dividend ÷ total equity) × 100%
Meaning: The ROE focuses on the return for the ordinary shareholders.
Significant change may be due to:
• The reasons previously stated for the changes in ROCE
• Considerations of changes in interest paid and gearing (debt : equity) levels
167
168

Operating profit margin (Return on sales, Net profit margin)

• Operating profit margin = PBIT/Revenue
• PBIT = Revenue – COS – Distribution exp. – Administration Exp.
• Meaning: The operating profit margin is usually compared to the gross profit margin to
determine how well the company is controlling its overheads.
168
84
11/21/2022
169

Gross profit margin

• Gross profit margin = (Gross profit ÷ revenue) × 100%
• Meaning: The gross profit margin measures how well a company is running its core
operations.
• A change in sales price
• A change in product mix
• An incorrect inventory valuation (will affect two years of results)
• A change in cost of sales due to efficiency or price movements
169
170

Net asset turnover

• Net asset turnover = Revenue/Capital employed
• Net asset turnover is a measure of how well the assets of a business are being used to
generate sales.
Significant change (especially a decrease) may be due to:
• The company buying new assets late in the year – these assets will be included in the total
assets less current liability figures but may not yet have had sufficient time to start
generating revenue.
170
85
11/21/2022
171

3.2.2. SHORT-TERM SOLVENCY & LIQUIDITY
Current ratio
• Current ratio = Current assets ÷ Current liabilities
• Normally, a ratio in excess of 1 should be expected
• Comparison to other peer companies is particularly relevant in terms of the expected
levels of inventories, receivables and payables.
• A change in the levels of inventories, receivables and payables held
171
172

3.2.2. SHORT-TERM SOLVENCY & LIQUIDITY
Quick ratio (liquid capital ratio or acid test)

• Quick ratio = (Current assets – inventories) ÷ Current liabilities
• A ratio of less than 1:1 could indicate that the company would have difficulty paying its
debts as they fall due.
• A change in the levels of receivables and payables held
172
86
11/21/2022
173

3.2.3. EFFICIENCY RATIOS – WORKING CAPITAL RATIOS
Inventory turnover period (days)

• Inventory turnover period = (Inventories ÷ Cost of sales) × 365 days
• This ratio measures the number of days inventories are held on average by a company
before they are sold.
• A change in the type of inventory held
• Improved or worsened inventory controls
• Changes in the popularity of certain inventory items
173
174

Inventory turnover (times)

• Inventory turnover = COS ÷ Inventories
• Generally, higher inventory turnover the better, ie lower inventory turnover period the
better, but several aspects of inventory holding policy have to be balanced: lead times,
seasonal fluctuations, alternative uses of warehouse space, bulk buying discounts,
characteristics of inventory.
174
87
11/21/2022
175

Receivables collection period (days)

• Receivables collection period =(Trade receivables ÷ Revenue*) × 365 days
* Only credit sales, cash sales should be excluded
• This ratio shows, on average how long it takes for the trade receivables to settle their
account with the company.
• The average credit term granted to customers should be taken into account as well as
the efficiency of the credit control function within the company. Normal credit terms of
payment are within 30 days.
175
176

Payables payment period (days)

• Payables payment period = (Trade payables ÷ Purchases*) × 365 days
* If there is no information of purchases, use COS instead
• This ratio measures the time it takes the company to settle its trade payable balances.
• Increased/decreased credit terms from suppliers
• Increase/decrease the cash the company has available to make payments
• Better/worse management of the payables ledger
176
88
11/21/2022
177

Payables payment period (days)

• Payables payment period = (Trade payables ÷ Purchases*) × 365 days
* If there is no information of purchases, use COS instead
• This ratio measures the time it takes the company to settle its trade payable balances.
• Increased/decreased credit terms from suppliers
• Increase/decrease the cash the company has available to make payments
• Better/worse management of the payables ledger
177
178

3.2.4. LONG-TERM SOLVENCY AND STABILITY
Debt ratio
• Debt ratio = total debts / total assets
• Total debt = CL + NCL
• Total asset = CA + NCA
• Generally, you might regard 50% as a safe limit to debt
178
89
11/21/2022
179

Gearing/Leverage
• Gearing or leverage is concerned with a company’s long-term capital structure.
• Gearing = interest bearing debt/(shareholders’ equity + interest bearing debt) x 100%
• An issue of shares during the year
• Repayment or taking out of new debt financing
High or low gearing indicates the degree of risk involved in holding equity shares in a
company.
179
180

Interest cover
• Interest cover = Profit before interest and tax ÷ finance costs
• Meaning: This ratio considers the number of times a company could pay its interest
payments using its profit from operations.
• Factors which have a significant impact on profit before interest and tax
• A change in interest bearing debt
180
90
11/21/2022
181

Cash flow ratio

• Cash flow ratio = Net cash inflow ÷ total debts
• Meaning: This ratio is an useful indicator of a company’s cash position.
181
182

3.2.5. SHAREHOLDERS' INVESTMENT RATIOS
Dividend yield
• Dividend yield = Dividend per share ÷ Current market price (ex div)× 100%
• Shareholders look for both dividend yield and capital growth
• A change in the levels of dividends paid by the company
• Fluctuations in the company's share price
182
91
11/21/2022
183

Dividend cover
• Dividend cover = Earnings per share ÷ Dividend per share
• This ratio shows the proportion of profit for the year that is available for distribution to
shareholders that has been paid or proposed and what proportion will be retained in the
business to finance future growth.
• A change in the level of profits earned by the business
• The need to keep the dividend level consistent year on year
183
184

Price/earnings ratio
• PE ratio = Current market price ÷ Earnings per share
• A high P/E ratio indicates strong shareholder confidence in the company and its future
because the market has valued its shares at a high price relative to the earnings per
share made by the company.
• A change in the level of profits earned by the company
• A change in value shareholders' perceive in the company
184
92
11/21/2022
185
MOCK EXAM
Microsoft Excel
Worksheet
185
93

F7 Revision

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

F7 Revision

Uploaded by

Copyright:

Available Formats

11/21/2022

Revision F7 –Financial Reporting

Mon Tue Wed Thu Fri Sat Sun

• Section A will contain 15 multiple-choice questions (MCQ)

• Section B of the exam comprises three 10 mark case-

• Section C of the exam comprises two 20 mark questions.

1. TANGIBLE NON-CURRENT ASSETS

Biological assets which relate to agricultural activity (IAS 41)

IAS 16 does not

1. TANGIBLE NON-CURRENT ASSETS

1. TANGIBLE NON-CURRENT ASSETS

An item of property, plant and equipment is recognised when:

1. TANGIBLE NON-CURRENT ASSETS

• $1,000 monthly rental for hire of a vehicle is an expense.

1. TANGIBLE NON-CURRENT ASSETS

1. TANGIBLE NON-CURRENT ASSETS

Direct cost (materials, labour…) X

(+) Overhead attributed to construction X

1. TANGIBLE NON-CURRENT ASSETS

Should EXCLUDE (applicable to both purchased and self-constructed asset)

1. TANGIBLE NON-CURRENT ASSETS

Fair value of asset received = Fair value of the

(-) Cash or cash equivalents transferred (X)

1. TANGIBLE NON-CURRENT ASSETS

1. TANGIBLE NON-CURRENT ASSETS

1. TANGIBLE NON-CURRENT ASSETS

Cost (initial recorded) X X

1. TANGIBLE NON-CURRENT ASSETS

Revaluation If there are 2 assets with 1

Surplus goes to BS and

1. TANGIBLE NON-CURRENT ASSETS

Reducing balance Units of

1. TANGIBLE NON-CURRENT ASSETS

2. IAS 40: INVESTMENT PROPERTY

RECOGNITION AND MEASUREMENT DISCLOSURE

2. IAS 40: INVESTMENT PROPERTY

Use in the production or supply of goods/services

Parent: investment property

Group: Owner-occupied property.

2. IAS 40: INVESTMENT PROPERTY

An investment property is recognised as an asset when:

2. IAS 40: INVESTMENT PROPERTY

2. IAS 40: INVESTMENT PROPERTY

Fair value model Cost model

2. IAS 40: INVESTMENT PROPERTY

2. IAS 40: INVESTMENT PROPERTY

IAS 2, IAS 16 -> IAS

3. BORRROWING COSTS -IAS 23

Not a • Inventories that are normally manufactured or produced in large quantities on a

3. BORRROWING COSTS -IAS 23

Borrowing costs which are directly

All other borrowing costs must be

3. BORRROWING COSTS -IAS 23

Expenditure for asset are being incurred;

Borrowing costs are being incurred;

3. BORRROWING COSTS -IAS 23

• Capitalisation should be suspended during periods in which active development is interrupted.

3. BORRROWING COSTS -IAS 23

Following shall be disclosed:

The amount of borrowing cost capitalized during the period;

4. INTANGIBLE ASSETS –IAS 38

3 critical attributes of an intangible assets