Gasnature

(b) The classification of joint arrangement as joint venture or joint operations depend upon the rights
and obligations of the parties to the arrangement.A joint arrangement occurs where tow or more parties
have joint control.The structure and the form of the arrangement determines the nature of the
relationship.A joint arrangement which is not structured as separate legal entity is defined as joint
operation. A joint operator accounts for the assets, liabilities, revenues and expenses on percentage
basis based on the involvement in a joint operation.The arrangement with GOgas is a joint operation as
there is no seprate legal entity involved and they have agreed to share services and costs requiring
unanimous agreement of the parties.

Gasnature should recognise its share of the asset as property, plant and equipment. Under IAS 16 ,the
cost of an item of property, plant and equipment includes the initial estimate of the present value of
dismantling and removing the item and restoring the site on which it is located. IAS 37 contains
requirements on how to measure decommissioning, restoration and similar liabilities. The costs incurred
by an entity in respect of obligations for dismantling, removing and restoring the site on which an item
of property, plant and equipment is located are recognised and measured in accordance with IAS 16 and
IAS 37. Gasnature should recognise 55% of the cost of decommissioning the underground storage
facility. However, because Gasnature is a joint operator, there is also a contingent liability for 45% of the
decommissioning costs and there is a possible obligation for the remainder of the costs depending on
whether some uncertain future event occurs.

IAS 16 states that property, plant and equipment are tangible items which: Are held for use in the
production or supply of goods or services and Are expected to be used during more than one period.
Thus Gasnature should classify and account for its share of the irrecoverable gas as PPE. The
irrecoverable gas is necessary for the storage facility to perform its function. It is therefore part of the
storage facility and should be capitalised as a component of the storage facility asset. The irrecoverable
gas should be depreciated to its residual value over the life of the storage facility. However, if the gas is
recoverable in full when the storage facility is decommissioned, then depreciation will be recorded
against the irrecoverable gas component only.

(ii) It is not acceptable to accrue the costs of the overhaul. The entity does not have a constructive
obligation to undertake the overhaul. Under IFRS, costs related to major inspection and overhaul are
recognised as part of the carrying amount of property, plant and equipment if they meet the asset
recognition criteria in IAS 16. The major overhaul component will then be depreciated on a straight line
basis over its useful life (ie over the period to the next overhaul) and any remaining carrying amount will
be derecognised when the next overhaul is performed. Costs of the day-to-day servicing of the asset are
expensed as incurred. Therefore the cost of the overhaul should have been identified as a separate
component of the refinery at initial recognition and depreciated over a period of two years. This will
result in the same amount of expense being recognised in profit or loss over the same period as the
proposal to create a provision.

(iii) Since there were no indicators of impairment at the period end, all costs incurred up to 31 August
20X5 amounting to $5 million should remain capitalised by the entity in the financial statements for the
year ended on that date. However, if material, disclosure should be provided in the financial statements
of the additional activity during the subsequent period which determined the exploratory drilling was
unsuccessful. This represents a non-adjusting event as defined by IAS 10 as an event which is indicative
of a condition which arose after the end of the reporting period. The asset of $5 million and additional
drilling costs of $2 million incurred subsequently would be expensed in the following year's financial
statements.

(a) (i) IFRS 9 Financial Instruments applies to those contracts to buy or sell a non-financial item
which can be settled net in cash with the exception of contracts which are held for the purpose
of the receipt or delivery of a non-financial item in accordance with the entity's expected
purchase, sale or usage requirements .Contracts which are for an entity's 'own use' are exempt
from the requirements of IFRS 9. Such a contract can be irrevocably designated as measured at
fair value through profit or loss even if it was entered into for the above purpose. This
designation is available only at inception of the contract and only if it eliminates or significantly
reduces an accounting mismatch which would otherwise arise from not recognising that
contract because it is excluded from the scope of IFRS 9. There are various ways in which a
contract to buy or sell a non-financial item can be settled net in cash or another financial
instrument or by exchanging financial instruments.These include the following:
(i) When the terms of the contract permit either party to settle it net in cash
(ii) When the ability to settle net in cash is not explicit in the terms of the contract, but the
entity has a practice of settling similar contracts net in cash
(iii) When, for similar contracts, the entity has a practice of taking delivery of the underlying
and selling it within a short period after delivery, for the purpose of generating a profit
(iv) When the non-financial item which is the subject of the contract is readily convertible to
cash

The contract entered into by Gasnature with Agas seems to be an own use contract which falls
outside IFRS 9 and therefore would be treated as an executory contract. However, it could be
argued that the contract is net settled because the penalty mechanism requires Agas to
compensate Gasnature at the current prevailing market price. Further, if natural gas is readily
convertible into cash in the location where the delivery takes place, the contract could be
considered net settled. However, the contract will probably still qualify as 'own use' as long as it
has been entered into and continues to be held for the expected counterparties' sales/usage
requirements. Additionally, the entity has not irrevocably designated the contract as measured
at fair value through profit or loss, thus making it an own use contract.

SD

(a) Prior to the acquisition of 20% on 1 march 20x1, SD already controls KL with its
60%investment ,so KL is already a subsidiary and would be fully consolidated. This is not an
acquisition instead it is treated in the group accounts as a transaction between the group
shareholders ie parent purchase 20% shareholding from NCI . No goodwill needs to be
calculated on additional investment.
The value of NCI needs to be calculated on the date of additional investment ,and the
proportion purchased by parent needs to be removed from NCI. The difference between the
consideration transferred and the amount of reduction in NCI is included as adjustment to
equity.
KL must be consolidated in the group statement of profit and loss and other comprehensive
income for full year but NCI will be on pro rata basis with 40% for the first 8 months starting
from 1 july 20x0 and 20% for the rest of 4 months from 1 march 20x1.In consolidated
statement of financial position ,KL will be consolidated with a 20%NCI.

CANTO
Exibit 1
IFRS 13 Fair Value Measurement defines fair value as the price which would be received to
sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The fair value measurement of a non-financial asset
such as property takes into account the entity's ability to generate economic benefits by
using the asset in its highest and best use or by selling it to another market participant who
would use the asset in its highest and best use. The highest and best use of property takes
into account the use of the asset which is physically possible, legally permissible and
financially feasible.
Due to the lack of an active market for identical assets, it would be rare for property to be
classified in Level 1 of the fair value hierarchy. IFRS 13 states that a Level 2 input would be
the price derived from observed transactions involving similar property interests in similar
locations. Accordingly, in active and transparent markets, property valuations may be
classified as Level 2, provided that no significant adjustments have been made to the
observable data. If significant adjustments to observable data are required, the fair value
measurement may fall into Level 3.

IAS 40 Investment Property permits entities to choose between a fair value model and a
cost model. One method must be adopted for all of an entity's investment property. A
change is permitted only if this results in a more appropriate presentation. For a transfer
from owner-occupied property to investment property carried at fair value, IAS 16 Property,
Plant and Equipment (PPE) should be applied up to the date of reclassification. n. Any
difference arising between the carrying amount under IAS 16 at that date and the fair value
is dealt with as a revaluation under IAS 16.
Canto may value the property at $25 million. Canto will recognise a depreciation expense of
$0.5 million in profit or loss in the year to 28 February 20X7 while the property is accounted
for using a cost model under IAS 16. At 28 February 20X7, Canto will transfer the property
from PPE to investment property. The investment property will be recognised at its fair
value of $25 million, the carrying amount of PPE of $13.5 million ($15 million – accumulated
depreciation of $1.5 million) will be derecognised and the increase of $11.5 million will be a
revaluation surplus.
Exibit 2

IFRS 3 states that an acquirer should recognise, separately from goodwill, the identifiable intangible
assets. An asset is identifiable if it meets either the separability or contractual-legal criteria in IAS 38

Customer relationship intangible assets may be either contractual or non-contractual:

(i) Contractual customer relationships are normally recognised separately from goodwill as
they meet the contractual-legal criteria.
(ii) However, non-contractual customer relationships are recognised separately from
goodwill only if they meet the separable criterion.

Order backlog

The order backlog should be treated as an intangible asset on the acquisition. The fair value of
the order backlog is estimated based on the expected revenue to be received, less the costs to
deliver the product or service.

Water acquisition rights

The rights are valuable, as Binlory cannot manufacture vehicles without them. The rights were
acquired at no cost and renewal is certain at little or no cost. The rights cannot be sold other
than as part of the sale of a business as a whole, so there exists no secondary market. If Binlory
does not use the water, then it will lose the rights.Thus, the legal rights cannot be measured
separately from the business and from goodwill. Therefore, the legal rights should not be
accounted for as a separate intangible asset as the fair value cannot be measured reliably.

Exhibit 3

IAS 36 Impairment of Assets requires that assets be carried at no more than their carrying
amount. If the recoverable amount (which is the higher of fair value less costs of disposal and
value in use) is more than carrying amount, the asset is not impaired. It furthersays that in
measuring value in use, the discount rate used should be the pre-tax rate. The discount rate
should not reflect risks for which future cash flows have been adjusted and should equal the
rate of return which investors would require if they were to choose an investment which would
generate cash flows equivalent to those expected from the asset.

The CGU is impaired by the amount by which the carrying amount of the cash-generating unit
exceeds its recoverable amount.

Recoverable amount

The fair value less costs to sell ($26.6 million) is lower than the value in use ($28.44 million). The
recoverable amount is therefore $28.44 million.

Impairment

The carrying amount is $32 million and therefore the impairment is $3.56 million. The carrying
amount is $32 million and therefore the impairment is $3.56 million.

Allocating impairment losses

Canto will allocate the impairment loss first to the goodwill and then to other assets of the unit
pro rata on the basis of the carrying amount of each asset in the cash-generating unit.
Consequently, the entity will allocate $3 million to goodwill and then allocate $0.1 million on a
pro rata basis to PPE (to reduce it to its fair value less costs to sell of $9.9 million) and other
assets ($0.46 million to the other assets). This would mean that the carrying amounts would be
$9.9 million and $18.54 million respectively.

Ramsburry

Treatment of loan to directors

The directors have included the loan made to the director as part of the cash and cash
equivalents balance. It may be that the directors have misunderstood the definition of cash and
cash equivalents. cash equivalents as short-term, highly liquid investments that are readily
convertible to known amounts of cash and which are subject to an insignificant risk of changes
in value. . However, the loan is not in place to enable Ramsbury to manage its short-term cash
commitments, it has no fixed repayment date and the likelihood of the director defaulting is not
known.

It is likely that the loan should be treated as a financial asset under IFRS 9 Financial Instruments.
case could even be made that, since the loan may never be repaid, it is in fact a part of the
director's remuneration, and if so should be treated as an expense and disclosed accordingly. In
addition, since the director is likely to fall into the category of key management personnel,
related party disclosures under IAS 24 Related Party Disclosures are likely to be necessary.

The treatment of the loan as a cash equivalent is in breach of the two fundamental qualitative
characteristics prescribed in the IASB's Conceptual Framework that are:

Relevance. The information should be disclosed separately as it is relevant to users.

Faithful representation. Information must be complete, neutral and free from error. Clearly this
is not the case if a loan to a director is shown in cash.

In some countries, loans to directors are illegal, with directors being personally liable. Even if
this is not the case, there is a potential conflict of interest between that of the director and that
of the company, which is why separate disclosure is required as a minimum. ere is generally a
legal requirement to maintain proper accounting records, and recording a loan as cash conflicts
with this requirement.

In obscuring the nature of the transaction, it is possible that the directors are motivated by
personal interest, and are thus failing in their duty to act honestly and ethically. There is
potentially a self-interest threat to the fundamental principles of the ACCA Code of Ethics.

Ethical implications of change of accounting policy

IAS 19 Employee Benefits requires all gains and losses on a defined benefit pension scheme to
be recognised in profit or loss except for the remeasurement component relating to the assets
and liabilities of the plan, which must be recognised in other comprehensive income. So, current
service cost, past service cost and the net interest cost on the net defined benefit liability must
all be recognised in profit or loss. The directors have an ethical responsibility to prepare financial
statements which are a true representation of the entity's performance and comply with all
accounting standards.

ere is a clear self-interest threat arising from the bonus scheme. The directors' change in policy
appears to be motivated by an intention to overstate operating profit to maximise their bonus
potential. The amendment to the pension scheme is a past service cost which must be expensed
to profit or loss during the period the plan amendment has occurred.

Moreover, it appears that the directors wish to manipulate other aspects of the pension scheme
such as the current service cost and, since the scheme is in deficit, the net finance cost. The
directors are deliberately manipulating the presentation of these items by recording them in
equity rather than in profit or loss. The financial statements would not be compliant with IFRS,
would not give a reliable picture of the true costs to the company of operating a pension
scheme and this treatment would make the financial statements less comparable with other
entities correctly applying IAS 19. Such treatment is against ACCA's Code of Ethics and Conduct
and thefundamental principles of objectivity, integrity and professional behavior are being
compromised. The directors should be reminded of their ethical responsibilities and must be
discouraged from implementing the proposed change in policy.