Pg 17

IAS 2 valuation of inventories

IAS 2 requires all inventories to be valued at the lower of cost or NRV at the end of each reporting
period.

The cost of purchase would be $457,143 by yr ended 31 Aug 2017. This cost is more than the NRV of the
steel which is only $400,000. Thus, there is loss of $57,143 and will be recognised as an onerous
contract.

A provision of $57,143 would be recognized.

Pg 18

IAS 1 Presentation of Financial Statement

IAS 1 sets out the minimum items required in the financial statements. However, there are limited
guideline regarding any additional item to be provided in the financial statement. Entity is allowed to
exercise own judgement regarding the additional items to be provided.

However, Chemclean decided to split the cost of inventories into two but this is not allowed as IAS 2
requires the cost of inventories sold to be shown as part of the cost of sales within the profit or loss. The
inventories must be recognized within the cost of sales in order to matched against the revenue
generated from the sale of the inventories.

Non-recurring item

Chem lean decided to disclose the increase in FV as a non-recurring item and provide further
explanation on it. However, the action of Chemclean seems to portray the fair value increase is an
extraordinary item, which is prohibited by IAS 1 as it does not provide useful! information to user of F/S.

IFRS 3

IFRS 3 requires all assets and liabilities of subsidiary to be recognised at its FV on the date of acquisition,
although this item is non-recurring but IFRS 3 allows and require the restatement of the inventories to its
FV. As such Chemclean will have to restate the CA of the inventories to its FV.

Once the cost of inventories is restate to its FV, the FV will be the new CA of the inventories and this
would be the amount shown as the cost of goods sold.

Pg 22

Cost of PPE capitalized

IAS 16 requires that all expenses to bring the asset into working condition to be capitalized. Thus,
Diamond will be able to capitalized the alterations cost of 6.6m and the restoration cost of 5m at the end
of lease term. However, as there is a time value of money, the restoration cost will be discounted to its
present value. Alterations cost is treated wrongly thus there is a need for the entity to correct the error
within the P&L:

DR. PPE 6.6m

CR. P&L 6.6m

The PPE will be depreciated over 7 yrs of useful life from year ended 31 Mar 2017. The entity will only
start to depreciate the asset once it is ready for use.

Cost of asset capitalised

Dr PPE 9.9m

Cr Re 6.6m

Cr Non-current liability 3.3m

Pg 30

Decommissioning cost

IAS 16 allows an entity to capitalised all expenses to bring the asset into working condition. The
decommission cost will be capitalised as part of the cost of underground facility.

Provision

An entity is only allowed to recognised a provision if the entity has a past event leading to a present
obligation, in the case of Gasnature there is a legislation that requires the entity to decommissioned the
facility thus a provision is recognised.

In the event, time value of money is material, the decommissioning cost will be discounted to its present
value.

Remaining gas

The gas level required in the underground facility to assist to pushed out the gas when extracted, these
gas is basically used in business to generate future economic benefits.

These gas will be recognised as part of the cost of the underground facility. Together with the
decommissioning cost and underground facility cost, it will then be depreciated over the life of the
facility.

When the facility is decommissioned, the irrecoverable gas would then be sold and recognised as a gain
or loss on disposal of the PPE.

Pg 61

Finance vs operating lease

IFRS 16 identify a lease as a finance lease if the lessor transfer substantially the risk and reward of
ownership for asset to the lessee. The lessee although allowed to use the vehicle but its subject to
certain jurisdiction and mileage cap as well. This indicate that risk & reward is not transferred to lessee.
Further, Carsoon is responsible for the maintenance for the vehicle rather than the lessee.
Lessee can buy the vehicle at a price above the market price this shows that it is unlikely that ownership
will be transferred to the lessee. Further the purchase price above the mkt price indicates that the lease
does not contain a bargain purchase option.

Finally, the lease term for the vehicle is only three years thus it is unlikely to be the assets useful life.
Therefore it can be concluded the lease is an operating lease.

Financial statement

Thus, the vehicle will be shown as PPE of Carsoon and depreciated. Meanwhile the rental received from
the leasing is recognised as income of Carsoon.

At the end of the lease, the vehicle will be put up for sale, thus IFRS 5 will apply where the vehicle is
valued at the lower of CA or FV less cost to sell.

Statement of cash flow

Investing activities is only possible for cash flows from the company's investment or items related to
capital expenditure. However, for Carsoon as their business involved leasing of vehicle thus it should be
shown as part of the company's operating activities.

Pg 74

Advertising

IAS 38 only allows an entity to recognised an IA once the asset is able to meet all the four recognition
criteria. The bonus on signing fee of $20,000 and annual fee of $50,000 is paid for advertising. This
expenditure cannot be recognised as IA as it does not generate future economic benefits.

Thus, the above fee will be recognised as expense rather than IA. The $20,000 will be split over a three
year period as it is a prepayment for signing the contract. Meanwhile the $50,000 is recognised on yearly
basis.

20% prize money

This is executory contract as both party has not carry out their obligation. The entity has not make any
payment nor the player participating in any tournament. Thus, there is no provision in this case.
Provision is only possible once the player has participated the tournament.

Pg 76

Development Cost

IAS 38 allows an entity to capitalized all expenses related to the development as long as the conditions
are met.

Cost of wind farm can be treated as part of development cost, thus it will be capitalized as it is necessary
for Darlatt to test the prototype.

The cost of wind farm will be amortized once commercial production of wind turbine started.
PPE

The wind farm is generating energy that is sold to regulator; thus, it can be argued to be PPE as it is used
in business to generate future economic benefits.

However, the main purpose is for testing the prototype, it is part of development cost.

Income from sale of energy

The energy was generated as part of the testing phase. As the cost of wind farm is capitalized, the
income generated can be set-off against cost capitalized.

Conceptual Framework

Conceptual Framework do not allow off-setting of cost, thus the sales of energy recognized as income
within P&L would be more appropriate

pg 140

Scope of IFRS 2

SBP transaction is where an entity acquires goods or services in a SBP arrangement. If the shares were
given in exchange for controlling int, it is outside the scope of IFRS 2.

The 3m shares is given in exchange for controlling int. within Hashm thus excluded from IFRS 2 but it will
be governed by IFRS 3.

The 3m shares will be treated as cost of investment and recognised at its FV on the date of acquisition at
$6m.

5000 shares

The 5000 shares are part of IFRS 2 as it was given in exchange for the directors service.

An exp of $50,000 (5x5000x$2) would be recognized for YIE 31 May 2007

However, the 5,000 sha. can also be treated as part of IFRS 3 as it was given to all shareholders of Hash.
Thus, it must be studied carefully whether the offer of 5,000 sha. to the directors in their capacity as
employee or shareholders of the co.

SBP with non-vesting condition are recognized on grant date while those with vesting condition is spread
across vesting period.

As the sh. options were given due to exceptional performance last yr, it has a non-vesting condition thus
will be recognized on grant date, 31 May 2007.

An exp. of $3m will be recognized on 31 May 2007, as it is an equity settled SBP transaction with
employee thus recognized at its FV on grant date.

(b)
Dr PPE 4m

Cr Liability 3.9m (1.3x 3)

Cr equity 0.1m

FV of equity and liability

FV of liability= 40,000 x 3.00= 120,000

FV of equity= 50,000 x 2.50= 125,000

5000

Dr P&L 125,000

Cr liability 120,000

Cr equity 5,000

Pg 149

Memorandum

To: Assistant

From: Accountant

Date: XXXX

Subject: Presentation of Financial instruments and its accounting treatment

This memorandum has 2 part, first its regarding the presentation and classification for the 2 financial
instruments. Second part is the finance cost recognised for the 2 instruments:

Based on your earlier comment regarding the preferred shares and bond, I need you to take note of the
following points when classifying financial instruments future.

Substance over form

IAS 32 requires the classification of financial instrument to be based on the substance of the intruments
rather than its legal form. Thus, classifying preferred shares as equity because it’s a share is incorrect.

Preferred shares

An instruments where an entity has a contractual obligation to deliver cash is a financial liability. The
preferred shares must be classified as financial liability because it is redeemable on 1 Oct 20Y5.

Bond
 Compound financial instruments is an instrument with a host contract and also an embedded
derivatives. The bond is a compound financial instrument because it has a host contract (loan) and an
embedded derivative which is the conversion option.

Thus, Tail will need to separately recognized the bond into its equity and liability component.

Effective interest rate- preferred share 12.4% and bound is 12.3%

Finance cost- Preferred share

Year end Opening balance Finance Cost (12.4%) Cash payment Closing balance
20Y0 11.9m 1.48m 0 13.3m

Bond

Computation of FV of FL and Equity instrument

FV of FL $m
PV of interest 0
PV of redemption (24.15* 0.56) 13.52
FV of FL 13.52
Less: CA 15
FV of equity 1.48

Finance cost- Bond

Year end Opening balance Finance Cost (12.3%) Cash payment Closing balance
20Y0 13.52 1.67 0 15.19

pg 150

Fixed and fixed

If the settlement is by an exchange of a fixed number of equity instrument with a fixed amount of cash,
the instrument will be classified as equity. In the case of Stent, the preference shares can be converted
into equity shares or redeemed at par. Thus, it cannot be equity instrument in this case.

Compound financial instrument

A compound FI, is an instrument which has a host contract (loan) and an embedded derivatives which is
the conversion option. The preference shares is a compound FI as there is a conversion option.

The entity will need to separately recognize the preference shares into its liability and equity component.

Impact on gearing
Gearing will increase because the liability will increase as a result of recognizing the preference shares
as a compound FI.

B shares

An instrument is a financial liability if the entity has a contractual obligation to deliver cash, meanwhile it
is equity instrument if it is the residual interest on the financial assets after deducting the liabilities.

Sye do not have a contractual obligation to deliver cash as the legal charter gave the entity a choice to
pay or not. Thus, the B shares is classifies as equity within the financial statement.

Preference shares

The preference shares has a puttable element where the holder can require the entity to make payment,
thus, the preference share is a financial liability as the entity has a contractual obligation to deliver cash.

The element of whether the entity has sufficient distributable reserve does not negate the entity from
classifying it as a financial liability.

pg 169

Option 1

An entity can only derecognized a FA once the entity has transferred the contractual rights to the CF.
Besides contractual CF, the entity needs to transfer substantially the risk and reward as well.

As the factoring is a non-recourse factoring, the entity has transferred the risk and reward.

Meanwhile, the 9% guarantee will not affect derecognition as the entity has transferred substantially risk
and reward.

Thus, the receivable will be derecognized and a loss on derecognition of $8.05m will be recognized
including a FV of $50,000 for the guarantee.

DR Bank $32m

DR P&L $8.05m

CR T. receivable $40m

CR FL $0.05m

Option 2

Diamond will be charged imputed interest on advancement thus if the receivable settled earlier they can
save on the interest, therefore the risk and reward is not transferred.
Meanwhile, the factor has full recourse thus the risk and reward again is proven not transferred.
Therefore, the receivable cannot be derecognized.

The advance received by Diamond is recognized as a FL. However, because the receivable can be
derecognized after six mth, the FL is recognized as CL

pg 170

Derecognition of receivable

IFRS 9 only allows an entity to derecognized the FA once the entity has transferred substantially the risk
and reward of the FA. In the case of Robby, as they agreed to reimburse the factor for any shortfall, thus
Robby has not transferred the risks and reward for the receivable. Therefore, they are not allowed to
derecognized the receivable.

As Robby has derecognized the receivable, they would need to recognized them back. Meanwhile, the
advancement received from the factor will be treated as a short-term liability.

pg 172

Financial liabilities

IAS 32 requires the classification of FL to be based on its substance rather than legal form. Thus, Evolve
argument on not recognizing the FL due to it being a put option on its own equity is incorrect.

A FL is when an entity has a contractual obligation to deliver cash or to exchange financial instrument
under potentially unfavorable conditions. The shareholders has the rights to transfer back to Evolve, thus
this put option has resulted in Evolve having an obligation that they would not be able to avoid if the
shareholders decided to put it back to Evolve, thus these option is a FL in nature.

Amount

The FL would be recognized based on its fair value which in this case is the present value of the future
CF. It would be based on the maximum amount Evolve will have to pay when the shareholder put it back
to them.

Non-adjusting event

IAS 10 states that an adjusting event are event that occurred after the year end that provide further
evidence of conditions that existed at year end. Thus, when the shareholders decided to put the options
back to Evolve it only provide further evidence of the conditions that existed at year end.

pg 173

Sell Patent

The shares received by Klancet for the disposal of Patent will be recognized as part of financial
instrument under IFRS 9.
IFRS 13 allows the shares to be valved at market price as the shares is publicly listed shares. IFRS 13
allows the use of market price of the item if it is public traded (level 1) input.

5% Royalty

IFRS 15 allows an entity to recognized revenue once they are able to satisfied performance obligation.

Revenue is only recognized once sales has taken place in Jancy.

Purchase Patent

IFRS 2 Share-based payment transaction is when an entity acquires goods or services in a SBP
arrangement.

Thus, the acquisition of patent settled by Klancet issuing its own shares is part of SBP transaction.

The patent is recognized based on the FV of the patent at date of acquisition.

pg 179

IFRS 5

An asset is classified as held for sale when the CA of the asset will be recovered through sale rather than
use. To classify an asset as held for sale, the asset will need to meet the conditions within IFRS 5.

Committed to a plan to sell

The mgnt of the co must be committed to a plan to sell. It seems that Evolve is committed to disposed
Resource as a binding offer to sell has been accepted.

Completed within one yr

An asset that is classified as held for sale, the sale is expected to be completed within 1 yr. In the case of
disposal for Resource, the sale is expected to be completed by 31 Aug 2016.

Treatment

An asset that is classified as held for sale will be carried at the lower of its CA or FV less cost to sell. Thus,
the current treatment of Evolve is correct. The selling price of the binding offer can be taken to be the FV
of the asset.

The asset held for sale must be measured at the lower of CA or FV at the date it is classified as held for
sale, in the case of Resource they were adopting IFRS since 31 Aug 2016 thus this is aligned to IFRS 5.

Uncertainties

Although there were uncertainties regarding the finalization of the offer and the uncertainties were not
disclosed, but the event after reporting period on 20 Sept 2016 provide that the binding offer will lead to
sale thus the non-disclosure is acceptable.

The finalization of the agreement shows that the sale will take place and will take place within one yr
thus the entity is correct in classifying the assets as held for sale.

pg 188
Principal vs agent

IFRS 15 states that the principal to a contract is the party that is responsible to satisfy the performance
obligation. Meanwhile, an agent has a performance obligation to make an arrangement to have another
party fulfilling the goods or service.

Formatt is responsible to ensure that the equipment are free from defect and they will be responsible in
the event there is any defect. This shows that Formatt is the party that is able to satisfy the performance
obligation.

The customer enters into the contract with Formatt for the supply of the equipment together with its
development and supply of the equipment. Thus, this is one single performance obligation as it cannot
be separately identified.

Therefore, it can be concluded that Formatt is the principal here and would recognized the revenue for
this contract.

pg 189

Performance obligation

Performance obligation are promised by the entity to transfer the goods or services. These promised
must be distinct.

Darlatt sells wind turbines with a 2 year warranty and maintenance services for a 10 year period. The
wind turbine is a performance obligation while the maintenance is a separate PO. Warranty is not a
separate PO as it is given to provide assurance to customer on the reliability of wind turbine. Thus,
warranty and wind turbine is one PO.

The option to extend the warranty to 10 year period if a customer choose to do so its considered as a
separate PO.

Transaction Price

Transaction price is the total amount payable under the contract. In this case it is $3.6m. If the customer
choose to extend the contract it will be $4.4m.

pg 198

The G/W for Bochem is based on the difference between the purchase consideration and fair value of
net assets of Bochem at the date of acquisition. As the co uses full g/w, he NCI is valued at $54m.

Meanwhile, due to IFRS 3 requirement where all assets & liabilities must be valued at fair value on DOA,
this will give rise to a FV adjustment of $10m for the plant. As a result, a G/W of $44m arises on DOA
while after impairment of 10%, the G/W shown in consolidated SOFP for Y/E 30 April 2019 is $39.6m.

The use of partial g/w will result in a decline in g/w amount from $44m to $38m on the date of
acquisition. The g/w decline by $6m bcos under partial g/w bcos the NCI g/w is no taken into
consideration.

(ii)
The NA is stated at FV on date of acquisition in order to allow an entity to match the expense incurred to
the income generated from the use of the asset.

If FV adjustment is included as part of G/W, the plant would be under-stated resulting in under
statement of depreciation. This will result in the F/S no longer prudence.

Pg 199

IFRS 3 requires all asset & liabilities of subsidiary to be stated at its FV thus the contingent liability of
Fence must be recognized at its FV of $30m. This has directly reduced the NA of Fence on date of
acquisition thus giving rise to higher GW.

Meanwhile, the $4m FV adjustment for PPE will increase the FV of NA as the original NA of $202m was
before completion of the valuation. Thus, G/W is reduced by $4m as a result of this adjustment.

Impact on consolidated F/S for Y/E

The decrease in CL will be recognized as income within the consol P&L while in the consol SOFP it will
carried at FV of $25m.

The FV adjustment for plant will give rise to additional depreciation of $0.4m for consol P&L for Y/E 2019
and the CA of PPE will increase by $3.47m ($4m-0.53m)

pg 227 (excel)

The acquisition of 60% interest in Lose has given rise to Beth able to exercise control over Lose. Thus,
G/W will be calculated on 1 Dec 2018.

Therefore, the previously held interest of 20% will be restated to its FV of $60m, giving rise to a gain on
restatement of $20m that is recognized in the P&L.

pg 237

The disposal of 10% result decrease in Ashanti’s interest in Bochem to 60%, thus Ashanti still maintain
control over Bochem.

Therefore, the disposal is merely a transaction within equity, thus gain on decrease of $8.9m will be
recognized within the equity.

Meanwhile, the FV of NCI will increase by $25.1m to reflect the increase of 10% for NCI from Ashanti’s
disposal

pg 239

June 17
The disposal of 10% shares in Heart resulted in Diamond unable to exercise significant influence. As a
result, a loss on disposal significant influence. As a result, a loss on disposal of $5.5m would be
recognized within P&L.

After the disposal, the remaining 15% will be treated as other investment within IFRS 9. As the mgmt.
has designated it as FVTOCI, the increase in FV of $2m is recognized in OCI.

alternative

The disposal of 10% interest in Heart would have resulted in Diamond unable to exercise significant
influence over Heart. Therefore, a loss on disposal of Heart will have to be determined. The loss on
disposal of $.5.5m will be recognized within he consol P&L. Meanwhile, the remaining 15% interest will
be recognized as other investment within the consol SOFP as at 31 March 2017 at 67m and the change in
FV of the investment of $3m will be recognized in OCI.

pg 278

Land Valuation

IFRS 13 uses mkt. price, if not possible to determine principal mkt, entity choose must advantageous
mkt. (highest & best use).

Thus, the highest and best use of the land is to be use for residential purpose thus the FV is $5.44m.

Brand name

IFRS 13 hierarchy of FV involved 3 level of input. The brand name involved the use of level 3 input, the
use of unobservable input mgnt need to value the brand.

IFRS 13 emphasize on the use of exit price, mkt price to sell the asset. The indirect benefit of $20m
cannot be considered to be FV as its related to benefits for Mehran’s brand and not the purchased
brand.

Thus, the brand name has a FV of $17m, the direct benefit from continuing use of brand based on
valuation.

pg 279

Principal mkt

It is the mkt with the greatest volume (domestic-manufacturer) but domestic-retailer could be principal
mkt as mgnt is uncertain but believe it could be similar in size.

In the event there is no principal mkt, an entity will based on the FV of the most advantageous mkt,
which is the highest and best use, in this case its export tonnes.

If there is a restriction to sell, the mkt price cannot be considered as FV. However, Mehran can overcome
the restriction through the use of selling agent. Thus, the FV is $1094. However, if Mehran has a license
the FV is $1100.
pg 280

Sh valuation

Ord.sh of private limited, Mehran will not be able to use level 1 input as it is unquoted. Meanwhile, the
use of observable input is not suitable as the transaction price is for a pre. Sh. While Mehran’s shh is ord.
sh.

Thus Mehran will have to use unobservable input (valuation method) Mehran would take price of
preferred sh. And adjust to reflect differences between the preferred sh. And ord.sh.

The preferred sh. Issued reflect controlling int. while Mehran sh. Is only NCI thus there is a difference in
value.

The preferred sh. Has fixed cumulative dividend, thus it will give the preferred sh. Higher FV while its also
more liquid than the ord. sh.

Revision

pg 8

a) Valuation of inventory

IAS 2 requires all inventory to be valued at the lower of cost or NRV at the end of each reporting period.
The cost of the oil to Burley is $98/barrel. Meanwhile the NRV can be computer as;

estimated SP $105

(-)cost to sell ($2)

NRV $103

Therefore the inventory of Burley will be valued at $98/barrel. There is no inventory loss in this case.

The selling price of oil after the yr end of $101 is not considered as it is an event after reporting period.
The decline in price is an indication that arose after the yr end. Thus, the selling price of oil at yr end is
used.

pg 57

Factory subsidence

IAS 36 requires an impairment review is required when there is an indication of impairment. Therefore
the subsidence of the production facility is an indicator of impairment and as such Farham has to carry
out an impairment review for the facility.

Provision for repair

IAS 37 only allows provision to be recognised once the entity is able to meet the three criteria such as
past event leading to a present obligation, probable outflow of economic benefits and best estimate of
the expenditure to settle the obligation.
As Farham has no legal or constructive obligation for the repair thus, no provision for the repair is
needed in this case. However, if the amount is material a disclosure is necessary.

Revaluation surplus

IAS 36 requires all impairment loss to be written off as expenses. However, if the asset was previously
revalued with a surplus, the impairment loss can be set-off against the surplus and any balance only
written off as expense.

However, in the case of Farham, the surplus of $10m relates to another asset thus Farham cannot offset
any impairment loss from the production facility with this surplus.

Ethics

The directive of the COO is clearly motivated by her own self-interest, bonus target. Her action of
misrepresenting the F/S will lead to investor making decision based on a F/S that is no longer true and
fair. This will affect the relationship with investors.

The COO action is clearly unethical as she knows that her action is in contrast with the IAS. The
accountant for Farham should know that the F/S must be prepared in accordance with the IAS, thus they
will be responsible to ensure that the F/S is in full compliance with the IAS.

The accountant may loose the job, but as an accountant we are part of a profession and member of
ACCA thus we are bound by the code of ethics and to act in the public interest even to the extent of
losing our job.

Pg 61

IA with finite useful life

IAS 38 requires an IA to be amortised over its useful life, if it has a finite useful life. However, if the IA has
an indefinite useful life, no amortisation is required.

An indefinite useful life is when an IA can be used for the foreseeable future. Pod's argument for
changing the useful life to indefinite was wrong bcos they were unable to estimate the useful life rather
than IA can use for the foreseeable future. Thus, this change cannot be allowed.

Pod will continue to amortised based on the best estimate of useful life and any changes is accounted for
as a change in actg estimate under IAS 8.

CGU

CGU is the smallest identifiable group of assets that is capable of generating cash flow.

Pod decided to changed its CGU from branch level to product line. The change should be allowed bcos
income & cost were not on branches level (not accurately measured) but rather on product line basis.

However, Pod uses the monthly P&L statement to make decision on individual branch, and whether it
should be continued or not. Thus, the individual branch cash flow can be measured and can also be a
separate CGU.

Pg 87
 A. Conceptual Framework requirement

CF defines an asset as a present economic resource controlled by the entity as a result of past events. An
economic resource is a right that has the potential to produce economic benefits.

The CF requires the recognition of asset if it provides users of financial statements with:

1. Relevant information about the asset or liability and about income, expense or changes in
equity.
2. A faithful representation of the asset

IAS 38 criteria

IAS 38 allows an entity to recognized an IA once the asset is able to satisfy the following criteria:

1. Separately identifiable
2. Control
3. Future economic benefits
4. Costs can be measured reliably

Basically we can conclude that the CF & IAS 38 has similarity in that criteria (ii) &(iii) are similar to he
definition of assets under the CF.

(b)

Recognition criteria for IAS 38 met

If an entity is able to meet the recognition criteria for IAS 38, the item has to be recognized as an IA
within the financial statement. For the yr 20x7 the entity F/S correctly recognized the IA.

However, Skitzer decided to write-off in 20x8 as R&D because they are unsure whether the initial
payment should have been an IA. It seems that the entity has made an error as the entity has met all the
recognition criteria under IAS 38, thus the IA has to be capitalized rather than written-off.

Impairment

When the entit has a doubt regarding the recoverability of the IA, this result in an impairment review,
rather than reclassifying in the IA as R&D.

IA rather than development

The entity is acquiring the development of other co, thus to Skitzer this is their IA rather than the entity’s
development cost. Thus, it is wrong to classify the acquisition as development cost.

Changes in estimate

IAs 8 defines changes in accounting estimates as an adjustment to the CA of the assets or liability
resulting from reassessment of the expected future economic benefits. But for Skitzer, this is clearly not
a change in estimate but rather an error on the entity’s behalf of treating the acquisition as R&D.
C.

Revenue

Proceed from sale of items within the entity’s ordinary business activity, then the proceed can be treated
as revenue.

On 1 Sept 20x6, the development acquired were recognized as the entity’s IA acquired as part of the
business combination. It was not part of the entity’s inventory. This is clearly showing that the
development were acquired with an intention to generate future economic benefit rather than held for
sale.

Business model of Skitzer is to jointly develop new product and manufacture for resale, thus selling of
development is not part of its business activity. Therefore, the argument that the sale is within the
business model of Skitzer is incorrect.

Thus, based on IAS 38, the gain on disposal of the IA must be shown as other income within the P&L
rather than classifying it as part of revenue within IFRS 15.

pg 139

Derecognition of FA

IFRS 9 only allows an entity to derecognised FA once the entity has transferred the contractual rights to
the cash flow. Besides that the entity has to transfer substantially the risk and reward associated with
the FA as well.

As Robby has received $3.6m thus Robby has transferred the contractual rights to the CF. However,
Robby has agreed to reimburse for any shortfall from the receivable thus this provide evidence that
Robby still maintain the risk and reward. Thus, Robby must not derecognised the receivable.

Since Robby must not derecognised the receivable, thus the amount of advancement from the bank of
$3.6 million will be treated as a short-term loan and classified as a FL within the CL of Robby's financial
statement

Meanwhile since Robby has derecognised the receivable, Robby will need to recognised back the
receivable at $4m. The loss on derecognition within the P&L will have to be reversed back.

pg 140

June 2017

Agreement 1

IFRS 9 allows an entity to derecognised its FA once the entity has transferred the contractual rights to the
cash flow and transfer substantially its risks and rewards. In the case of Diamond, they have accepted
$32 million as a full and final settlement for the receivable thus the entity has transferred the contractual
rights to the cash flow.

Meanwhile, with regards to the risk and reward, as the factoring is non-recourse thus it can be said that
the risk and reward is now with the factor co. Although Diamond provides a guarantee to the factor,
however the amount of guarantee is only 9%, thus it can be said that Diamond has transferred
substantially the risk and reward as well.

Therefore, the receivable will be derecognised from the financial statement and a loss on derecognition
of $8 million will be recognised by Diamond. As for the guarantee, it will be shown as a FL at its fair value
of $50,000. The FL will be recognised within the CL of Diamond.

Agreement 2

Diamond has not transfer the contractual rights to the CF bcos they will still receive further cash from
the factor co. Besides that, Diamond has not transfer substantially the risk and reward as well bcos it is a
recourse factoring where the factor co will claim from Diamond if there is any bad debt. Meanwhile the
charges on the imputed interest also indicate that the risk and reward is still with Diamond bcos if the
receivable pay faster Diamond is able to save on interest cost.

Thus, Diamond must not derecognised the receivable. The advancement of $8m will be shown as a FL
within the CL of Diamond SOFP.

After the six month period, Diamond will be allowed to derecognised the receivable bcos by then the risk
and reward is transferred, bcos Diamond has no further obligation for the receivables.

Pg 145

Based on IFRS 9, the conditions to apply hedge accounting:

1. There must be a formal documentation about the hedging, inclusive of the objectives of hedging the
instruments and its amount.

2. Hedge effectiveness of the hedging relationship can be measured.

3. The hedge must be for eligible hedged item and hedging instruments

Hedge effectiveness

There must be economic relationship between the hedging instrument and the hedge item. The effect of
credit risk must not affect the value of the hedging Instruments. Besides that, the hedge ratio must be
almost similar to the hedge item.

FV of hedging instrument increase by $203,000 but the hedge item decline by $90,000 thus the
effectiveness is around 44% thus this instrument does not meet the hedge ratio. I

Thus, it can be concluded that Coatmin will not be able to apply hedge actg for this particular instrument
bcos the hedge effectiveness is not met and further its creditworthiness is afffecting the value of the
hedging instrument.

Since Coatmin will not be able to apply hedge actg, thus the change in FV of the hedging instrument will
be shown in the P&L. basically the $203,000 will be recognised in P&L.

pg 146
Sept 2018

IFRS 9 allows an entity to derecognised a FA once the entity has transferred the contractual rights to the
CF and transfer substantially the risk and reward associated with the FA.

The third party is responsible/obliged to return to Banana the coupon interest, thus it can be argued that
the contractual rights to the cash flow has not been transferred.

Banana undertake to repurchase the bond at $8.8m in 2 yrs time This shows that the risks associated
with the bond has not transferred to the third party and remain with Banana. This can also be seen from
the arrangement where the third will received payment from Banana if the bond value decline.

The disposal price of the bond is well below the fair value with an agreement to purchase back at a price
which is also below the FV as well. Thus, it can be argued that the arrangement is not a disposal but
rather a financing arrangement for Banana to raise cash.

Impact on consolidated Financial statement

Thus, the bond cannot be derecognised from the financial statement of Banana. It will continue to be
recognised based on the amortised cost method.

Year ended $'m Interest income Cash receipt $'m Closing bal $'m
(7%) $'m
June X6 10 0.7 (0.5) 10.2

June X7 10.2 0.714 (0.5) 10.414

The bond will continue to be shown within the consolidated SOFP as at 30 June 20X7 at $10.414 million.
Meanwhile an interest income of $714,000 will be recognised within the consolidated P&L for the year
ended 30 June 20X7.

$8 million proceeed from disposal

Meanwhile the proceed from disposal of $8m will be shown as a financial liability (amortised cost) within
the consolidated SOFP and an interest of $800,000 will be accrue over the two yr period.

pg 178 excel

(a) (i) consolidated statement of profit and loss and OCI for the …

Revenue (400+115+35)-12) 538

Cost of sales ((312+65+18)-12) -383

(ii) reversal of goodwill impairment

reversal of goodwill impairment is not allowed under IAS 38. The std only allows the recognition of
purchased GW. Thus, recognising any reversal of G/W impairment, this amount to recognising inernally
generated GW.

Since Marhchant has recognized the reversal of G/W, they will need to write-off $5m to P&L.

(iii)

The sales of 8% interest in Nathan does not result in a loss of control, thus it’s just a transaction within
equity. The sale of 8% interest will give rise to a gain of 6.3m and would be recognized in equity rather
than P&L because its mere a transaction within equity

Meanwhile the NCI would increase by 11.7m as a result of the 8% disposal

Gain / loss on decrease in interest (Nathan) $’m $’m

Proceeds 18

Less NA @ 30 April 2014

As given 120

FV adjustment 14

G/W remaining 12

% decrease 0.08 -11.7

Gain to equity 6.3

(iV)

g/l on disposal option $'m $'m

Proceeds 50

FV of residual int 40

NCI 34

124

Less NA at 1 Nov 2013

as given 90

g/w remaining 12 -102

Gain to P&L 22
The disposal of 40% interest would result in a loss of control, thus, the subsi will no longer to
consolidated from 1 Nov 2013 onwards.

Therefore, the consolidated P&L will only include the first 6 mths result of option

Thereafter, Marchant will need to account for its remaining interest in Option as an investment in
associate, thus the share of associate profit $1.5m (15m/2 * 20%) will be included whthin the consol
P&L.

In the consolidated SOFP, the investment in associate will be shown as $41.5m ($40+$1.5).

Besides that, a gain on disposal of Option $22m will be included within the consol P&L and any
remaining GW for Potion will be written off as the subsi has been disposed.

pg 185 excel

pg 189 excel

Dec 2018 4b

Tax reconciliation

The reconciliation explains the difference between the tax charge and the statutory tax rate. Oversea tax
rate is applicable when the subsi and parent is situated in different country. The statutory tax rate is 22%
but the effective rate for the group is 27%, this shows different rate for subsi. Therefore, there is a need
to reflect for the different rate paid by the subsi and parent and individual co pay their own tax.

Some items within the F/S has no tax implication, thus it resulted in the differences between tax charge
and tax based on statutory rate.

Brand impairment give rise to tax implication thus this one-off item must be shown to investors.

Other tax adjustment could be referring to amortization, provisions and etc but no explanation was
provided. The use of others category should be avoided.

Tax rate

Group operates in different country thus actual rate applied to profits are different from local tax rate.
The tax rate is expected to change to 25% thus the rate use will be the rate the obligation will be settled.
Thus, 25% will be used.

Deferred tax

Deferred tax is made for temporary difference between CA and its tax base. Deferred tax only recognized
if the amount is recoverable or realized, if not it is not recognized.

DT is recognized based on the amount it is expected to be recoverable/settled. Thus, the rate of tax rate
used is based on the ta rate when the obligation is recovered/settled.

DT arising can be due to taxable/deductible temporary difference thus resulting in DTL or DTA

Holls deductible temporary difference of $4.5m will give rise to DTA of $1.125m. The taxable temporary
difference of $5m will give rise to DTL of $1.25m.
Sept 2019 1.c

Purchase consideration

Shares given in exchange for controlling interest is specifically excluded from IFRS 2. As it will be
accounted for under IFRS 3.

IFRS 3

the share exchange is part of the consideration in the business combination. The deferred shares is
recognised based on its FV at the date of acquisition.

Thus a consideration of $72 million is recognised. (0.6 x 10m x 2/5 x 30)

$15m

The share option to the employee has to be replaced by Luploid thus it is part of IFRS 3 and will be
included as purchase consideration.

The amount recognised is $9m (15 x 3/5) as part of the consideration.

Meanwhile the remaining $9m [(10000 x 0.9) x 100 x $20 x 1/2] for the additional two year will be
spread across the vesting period and recognised as expense.

Vesting condition

As the share based replacement has a vesting condition, the entity has to recognised the expenses over
the vesting period which is the additional two years.

The vesting condition is both market condition and service condition.

Mar 2020 2.

(a)(i)

The plan was only discussed within the mgmt. thus it is not necessary approved or finalized there is still a
possibility of changes to the plan.

According to Mrs Dawes, if the resturucturing did not take place similar expenditure will also be incurred
under alternative strategy. These two evidences shows that the entity is not committed to the
restructuring plan, thus a provision must not be recognized.

Only the legal fee and redundancy cost can be part of the restructuring provision. Meanwhile, the
relocation cost is part of the ongoing activities and as such must not be included within the provision
amount.

Although MRs Dawes argues that all expenditure need to included to ensure the firm is prudent when
preparing the F/S, however it should be noted that the Framework requires a firm to be prudent n not
asymmetric prudence.

Besides that, none of the staff is notified shows that the plain is not communicated as yet.
Mrs Dawes expect final decision to be made b4 the F/S is authorized thus this is an event after reporting
period. However, it is a non-adj event as the entity cannot recognized the prov. However, as it is material
a disclosure is sufficient.

2 (a)(ii) Mar 2020 2.

Stewardship

Ensuring an efficient & effective management of the entity’s resources. Besides that, stewardship also
involved ensuring the shareholders received accurate and reliable info about the entity’s performance
and position.

Restructure

The restructuring is an example of a good stewardship bcos it makes the co more efficient.

The restructuring by the directors is essential in order to overcome the entity’s poor performance in
recent yrs. This action is in the best interest of the shareholders.

Recognition of Prov

The recognition of the provision is not a good example of a good stewardship as the entity was not able
to meet the criteria of IAS 37, thus by recognizing the prov this would result in the F/S no longer
providing accurate info about the entity’s performance n financial position.

Disclosure as notes to the account is more than sufficient to argue a good stewardship on the part of the
mgmt. as they have provided sufficient info on the material events that may potentially affect the
shareholders or investors.

2 (a)(iii) Mar 2020 2.

Related party transaction

Under a related party transaction, Mr or Mrs Shaw either one of them has to be a key management
personnel. However, neither of them is becos Mrs Shaw is not part of the entity’s payroll while Mr Shaw
is an accountant but he is not part of the BOD thus he cannot participate in the entity’s decision-making
process.

Another possibility of relate party is when one is able to participate in the entity’s operational decision
making. In order to do so the person must be able to exercise control of significant influence over the
entity. Unfortunately, Mrs Shaw only has 5% interest in the entity thus is can neither control nr exercise
significant influence in the entity.

Therefore, it can be concluded that the transaction does not fall under IAS 24 related party transaction
as such will not be disclosed.

2 (b) Mar 2020 2.

Self Interest

The wife is currently holding shares, and Mr Shaw has info that may give the wife unfair adv. However,
Mr Shaw must remember he is a member of ACCA, thus he is bound by ACCA code of ethic where one of
it is confidentiality. He is not allowed to disclosed info unless there is a public duty to do so. By informing
the wife on the restructuring he is using this insider info for personal gain thus it’s a breach of ACCA code
of ethics.

Nephew will lose his job bcos of the restructuring, Mr shaw must not disclose this information to the
nephew as well bcos it will give the nephew unfair adv where he can find job ahead of others.

Mr Shaw must not disclose the info to the wife or nephew to ensure that he maintains confidentiality
over the info.

Intimidation threat

Recgonition of the prov goes against the actg std, thus this action is unethical bcos it shows that the
entity is not exercising professional behavior and also not competence & due care. Further the action of
the CE to require the account to recognized the provision is also not objective.

We will need to remind the CE that she is also a member of ACCA thus she is bound by the code of
ethics. The action is a breach of the code of ethics. Besides that, her action would also result in the F/S
no longer true&fair and as a result investors and shareholders will hold the CE responsible for any
economic action undertaken using the F/S

3. (a)(i) Mar 2020

IFRS 5 Asset held for sale

An asset is only classified as held for sale when the CA of the asset will be recovered through sale rather
than use.

The sale for the stadium will take place 30 Nov 20X6, which is more than 1 year thus it doesn't meet the
condition of IFRS 5 which require the sale to be completed within one yr. However, as long as the mgmt
still still committed to a plan to sell it can still be classified as held for sale.

Enter into contract

The mgmt is still committed to a plan to sell as they have entered into the contract to sell the stadium,
however the contract for sale will only take place after 1 yr, thus the mgmt has intention to continue
using it for the next reporting period.

3(a)(ii) Mar 2020

Improve crowd control

The original treatment is to reduce the CA of PPE. CA of PPE is only reduce either bcos there is an
impairment, deficit, disposal or dep. However, exp to improve crowd control is not any one of the above
thus the treatment is incorrect.

Dr PPE $2m

Cr P&L $2m
3(a)(iii)

As disposal has taken place, the stadium will be derecognized at $18.92m (20-1-0.08)

Gain on disposal is= 30m-18.82m

However the gain recognized in P&L = 11.08 x 13.3% = 1.47m

% retained= 26m/30m

= 86.7%

Dr right of use $16.4m

Dr Bank $30m

Cr Lease liability $26m

Cr PPE $18.92m

Cr P&L $1.41m

3(b)(i) Mar 2020

Amortisation

IAS 38 only allow for amortisation of IA when the IA has a finite useful life. In the case of Leria, the
content rights is amortised over the revenue consumed by its customers.

Amortisation is basically to ensure the entity match the expenses incurred to the income generated from
the use of the IA. Thus, the amortisation method of Leria is acceptable as the entity is matching the
amortisation to the income generated from the content rights.

IAS 38 do allow a rebuttable presumption on the amortisation of IA to its revenue if the entity is able to
demonstrate the cost is related to the revenue generated.

The budgeted cost for the content rights is based on the expected revenue thus this provide justification
that the cost of IA is related to the revenue generated.

Industry Practice

The method is acceptable under IAS 38 while requires IA to be amortised over its useful life. Howver, the
useful life will have to be reassessed each yr.

3(b)(ii) Mar 2020

Initial recognition of players contract is at cost

The cost to renegotiate the contract would be capitalised to the remaining unamortised cost of player
contract. The new CA will then be amortised over the remaining useful life.

Contingent payment can only be recognised if it is probable there would be an outflow. However, in this
case the contingent cannot be recognised as yet as the player has not started to play in the league.
Disclosure is sufficient

At later stage, when it becomes probable then a contingent payment can be recognised.

An impairment is required if there is an indication the asset may be impaired. In the case of the football
player, career threatening injury is an indication of impairment, thus an impairment review is needed.

A single player is not a CGU, it is the football team that is CGU. Thus when carrying out impairment
review, the CA is compared against the RA which is made up of the FV less cost to sell. FV here is the
amount the football club believe they can recover if they were to sell the player.

Sept 2020

1.a

Explanatory Notes: Direcot of Sugar Co

W1: Gain/(Loss) on Restatement of Previously held interest($'m)

FV (4m x $3.80) 15.2m

CA: Investment in Associate

PC 10m

(+) Post-profit (12m x 40%) 4.8m

GAIN on restatement (14.8m)

0.4m

The initial 40% acquisition Sugar is able to exercise significant influence thus it will be recognised as
investment in associate with a share of associate profit of $4.8m being recognised within the
consolidated F/S.

The acquisition of 30% interest in Flour would result in Sugar able to exercise control over Flour. Thus,
the initial investment of 40% in Flour which resulted in associate relationship will be derecognised.
Therefore, a gain on restatement of $0.4m will be recognised within the consolidated P&L for YE 30 June
20X8.

Goodwill will be determined on 1 July 20X7 as Sugar is able to exercise control over Flour. Since this is a
step acquisition, the previously held interest of 40% will be restated to its FV of $15.2m.

W2: Godwill on acquisition of Flour (S'm)

PC-Cash 3

Share ex (3/2 x $6) 9

FV of previously held 15.2

interest

NCI (3mx 3.8) 11.4

38.6
Less: NA

As given (35741+600) (36.341)

Goodwill 2.259

The cash paid of $3m will be shown as part of the cash flow from investing activities. It represent an
outflow of $1.766m (3m - 1.234m) from cash paid to acquire the subsidiary.

1.b sample answer Sept 2020

1.c

The current service cost, net interest & remeasurement is non-cash flow item thus it will not result in
cash flow movement. However, under the statement of CF, these expenditure item has been included
within the operating profit thus it will be added back.

The gain/loss on remeasurement affects the OCI & has no impact on the statement of CF.

Within the statement of cash flow, Sugar will only include the cash contribution made to the plan asset.
This represent cash outflow from the entity. However, for current year Sugar only made the payment in
July 20X8, thus it will not be represented in the statement of CF for YE 20X7.

Meanwhile the benefit paid of $2m in cash does not affect the statement of CF as the payment is made
from the plan asset and reduced the obligation of the entity.

2.

Revenue recognition

IFRS 15 allows an entity to only recognised revenue once the entity has satisfied the performance
obligation. In the case of Calibra, they can only recognised as revenue once the title and possession of
the building is passed to the buyer which is upon the completion of the construction. Thus, when Calibra
recognises the $8.5m as revenue upon signing of contract is incorrect

Significant Financing.Cost

The std requires an entity to recognised revenue that reflect the cash amount to be paid when the PO is
satisfied. Thus, in the case of Calibra, they would need to recognised the revenue at $9.55m. However, if
there is a significant financing cost it will be discounted based on the borrowing cost of the party
receiving the financing, in this case Calibra.

Thus, the revenue will be discounted at 6% to $8.5m.

If the customer pay $8.5m when signed, then $8.5m will be recognised as a liability as it represent an
advancement from the customer.

JAS 23

The interest incurred by Calibra when constructing the building will be capitalised under IAS 23 as it is
interest incurred on a loan taken to construct a qualifying asset, in this case an inventory.

LJan 20x8

Dr. Bank $8.5m

Cr. Advancement $8.5m

31 Dec 20x8

Dr. Inventory: Interest accrue $0.51m

Cr. Advancement $0.51m

Dr. Interest exp $0.54m

Cr. Advancement $0.54m

Upon satisfying PO

Dr. Advancement $9.55m

Cr. Revenue $9.55m

(c) Bodoni

The action of the chief accountant allowing the customer to delay payment in return for a positive
reference of his employment is clearly showing that he is acting in his on interest rather than the interest
of the co.

As an accountant he is bound by the ACCA code of conduct, thus the Chieft Accountant must maintain
his objectivity throughout when dealing with Bodoni. He must not allow the pressure to overcome his
judgement.

The Chief Accountant should have referred to the company policy on customer request for delayed
payment. If no such policy exist, the accountant should have referred to the senior mgmt on the
possibility of awarding credit to the customer. This will reduce the chance of losing the customer and
maintain the objectivity of the accountant.

Distributed Ledger Technology (DLT)

The Chief accountant has his own private concern regarding the reliability of the due diligence, however
he did not take further actions even when knowing that the board will approve the project. Thus, it
shows that he has failed to exercise due care in discharging his duty. He should raise the issue with the
board and possibly suggest to Calibra to appoint an external consultant to assess the DLT. This is mainly
bcos its a new technology with material implication on the company.

The accountant has limited knowledge on the DLT but he assured the mgmt that he is able to facilitate
the transfer. This shows that the accountant has integrity issue. As an accountant we are bound by the
code of conduct, thus the accountant should not have claimed that he is capable when it is clear that he
is not. His action is possibly bcos he wanted to have the permanent position by claiming that he can do
so, thus if it is this case there is self interest threat. The accountant must be reminded that when the
implementation failed, he will be held responsible and will lose his job when the mgmt found out that he
is incapable.

Being a young accountant, he will have more pressure from the mgmt to act unethically or there may be
some situation where there is conflict of interest. Thus, being young accountant, lack of experience thus
when there is a doubt on certain ethical issue, the accountant should consider calling up the ACCA
Ethical hotline for further advice.

3.(a)(i) Sept 2020

The Intangible asset must be capable of being separately identified. A majority of IA such as brand Is not
able to be separately Identified unless It is registered or patented.

IA must be capable of generating future economic benefits, however a majority of IA's benefits are
objective such as the one related to Corbel where the benefits Is by dosing the manufacturing unit of
Jengl.

IA can be revalue to Its FV prodded there Is an active market. This again Is a subjective matter as the
existence of an above market may not be clear.

Most of the time internally generated IA cannot be recognised boos the IA cannot be separately
identified and its cost cannot be measured reliably. However, we know that it does contribute to the
company's financial performance.

IA will be amortised over Its useful life, however it may be difficult to determine the useful life, but that
does not mean that the useful life is indefinite, thus a best estimate will have to be used.

3(b)(i)

IAS 38 requires the an IA acquired as part of a business combination are to be recognised separately
from the goodwill If the IA is capable of being separately identified. In this case, the brand can be
recognised separately front the GW after its registration. Further the brand is able to obtain premium
price and Corbel intend to continue its manufacturing under the brand thus this prove that the brand
generates future economic benefits.

CGU

CGU is the smallest identifiable group of asset that is capable of generating cash flow. thus brand cannot
be a separate CGU as by Itself it cannot generate cash flow. Thus, the brand will have to be allocated to
the individual manufacturing unit as considered as part of the CGU. Thus, an Impairment review on the
brand will be based on the Individual CGU.
3(b)(ii) Sept 2020

Accounting for identifiable useful life for IA

An IA with an Indefinite useful life will not be amortised but will be tested for yearly Impairment review.
During the Impairment review, the entity will have to reassess the useful life to determine whether It
continues to be indefinite, If It is no longer indefinite, the entity will start to amortised treating this as a
change In actg estimate. However, if the useful life continue to be Indefinite, the entity will have to
determine whether there is a decline in the CA of the IA, if there is then an Impairment loss is
recognised.

Locust brand

As the brand has been sold successfully for many yrs and has an established market, it can be said that
the IA has an Indefinite useful life as Corbel can continue to generate future economic benefits from the
IA for the foreseeable future.

Clara Brand

The brand will be promoted by a famous actor, this time it will be more difficult to argue Indefinite useful
life mainly bcos its a new brand thus the future economic benefits is still subjective, popularity of the
actor may not be sustained for the foreseeable future which will have an Impact on the sales of the
perfume under the brand. Thus, this brand has a finite useful life and must be amortised.

3(b)(iii) Sept 2020

Closure of 6 stores

IFRS 5 requires assets that are classified as held for sale to be measured based on its respective IFRS until
the date of reclassification after which It will be carried at the lower of its carrying amount or fair value
less cost to sell.

The 6 stores are to be treated as a disposal group as it will be sold in a single transaction. Thus, after the
reclassification it will be tested for impairment and if there is any impairment loss it will be allocated to
the Individual asset based on IAS 36.

The 6 stores will also be accounted for as a discontinued operation as they are part of a component of
Corbel before the disposal.

Meanwhile if there are any redundancy cost or expenses related to the disclosure, It will be treated
under IAS 37 as part of a provision for restructuring.

As for the remaining stores, there Is no formal announcement or any detail and formal plan, further the
directors has denied It, thus there is no constructive obligation for the closure and as such no recognition
Is needed.

3(b)(iv) Sept 2020

impairment
IAS 36 requires an impairment review when there is an Indication of impairment. Indication of
impairment tomes from internal or external Information that shows the economic performance of the
asset is worse than expected.

In the case of the primary stores, there is no impairment review needed even if they are making losses
as the performance is consistent with expectations.

Internet sales

The sales from Internet sales are sourced from different stores and central warehouse, thus it Is not
appropriate that the Internet sales be allocated all to the primary stores. It has to be allocated to the
Individual stores and central warehouse as CGU.

4. (a)(i) Sept 2020

Discuss the nature of IFRS for SMEs and the principal differences between IFRS for SMEs and full IFRS
standards.

IFRS for SME basically focuses on ensuring reliability of information provided to user of financial
statement for SME. This is done by ensuring a consistent approach is taken for the preparation of SME
FS.

IFRS for SME reduces the cost of providing the infomration by providing less disclosure and more
flexibility in recognition and measurement. This enable SME to adopt for the preparation of its FS.

IAS 38 IA for SME allows the entity to capitalised and amortised the IA over a period of not more than 20
yrs. Besides that IAS 19 allows remeasurement gain or losses to be recognised within P&L rather than
OCI.

(iii)

Discuss how integrated reporting could help SMES better understand and better communicate how
they create value to investors.

IR will provide the linkage between the strategy adopted by the SME and its risks. This will allow SME to
understand better the strategy that is adopted and its ability to create value.

IR can bridge the gap between the financial statement and the information need of the investors as IR is
able to provide information such as its relationship with the society and community the investors who
will be keen to assess the risk of SME.

SME will be able to provide further information on their ability to create value to investors such as
intellctual capital where this may not be captured by the financial statement under intangible assets.

IR will also help SME to understand the linkage between the different capital in value creation. This will
ensure that SME is able to focus on not just one capital but on the other capital as well. Coming out the
relevant measures for all d six different types of capital.

4.(b)(i) video 50
W1: Computation of payout

Salary in yr 20X7 = ($1.1m x 1.03)4

= $1.238m

Payout in 20X7 = $1.238m x 75% x 1%

= $930.000

Handfood will recognised the current service cost at $765,390 (930,000 x 0.823) in the P&L for the YE
20X2. On a yearly basis there is a need for Handfood to recognised an unwinding of finance cost, 5%
$38,270 ($765390 x 0.05).

Handfood will have to recognised the employee benefits as and when the services has been rendered by
the employee that entitles them to the benefits. It is not recognised on payment date but rather on the
date the employee is entitle to it.

However, as the employee benefit is not paid until 20X7, thus there is a need to discount the employee
benefit to its current value. Therefore, on a yearly basis there will be unwinding of finance cost that will
be added back to the defined benefit obligation.

There may also be remeasurement gain or loss arising as a result of changes in the actuarial estimate.
This gain or losses will be recognised within OCI, but bcos Handfood is SME, the remeasurement gain or
loss is to P&L.

Mar 2021

1.(a)(i)

whether Columbia Co should be considered the acquirer in a business combination with Peru Co;

Explanatory Notes

An acquirer is one that has the ability to exercise control over the investee. Control can only exist if the
investor has the power over the investee. The acquirer must be able direct the activities of the investee.
The Investor has the rights to variable return from its investment with investee and finally ability to
affect the return of the investor from directing the activities of investee.

Both Brazil & Columbia has 50% shareholding in Peru and each share has one voting right thus no one is
able to exercise control in this case. Further the amount paid by both investor is similar except Columbla
having paid additional share exchange.

However, Columbia has the right to appoint 60% of the board of Peru, this has resulted in Columbia
having the power to direct the activities of the investee.

Although Brazil has the veto rights but the veto rights is on amendments to articles of incorporation &
appointment of auditors, this is not connected to the operational and financial matters of the investee.
Both appoint one member to the senior mgmt team, but the mgmt appointed by Columbia makes key
decisions which relates to matters affecting the return of the investee. Thus, this shows that Columbia
has the ability to affect the return of its investment through the senior mgr appointment.

The senior mgmt also has the ability to direct the activities of investee by requesting for investee to get
board approval this would ensure that Columbia interest in Peru is taken care off.

Thus, it can be concluded that Columbia is the acquirer in this situation and this is further emphasize by
the fact that they actually pay extra as compared to Brazil.

1. a(ii) Mar 2021

W1 computation of G/W ($’m)

PC- Cash (2.5 x 8) 20

- sha exchange (2.5/20 x 10) 1.25
NCI (2.5 x 8) 20

Less: NA
As given 32
FV adj- Bond 2.16
FV adj- Brand 1
FV adj- deferred income 0.59 35.75
G/W 5.5

IFRS 3 requires all assets & liabilities of subsidiary to be stated at its FV on the date of acquisition. FV is
the price to sell an asset in an orderly transaction between mkt participant. FV is determined base on the
price of the principal mkt & if cant then the highest and best use.

The consideration offered to acquire is settled by way of share exchange and cash consideration. As the
cash consideration has a monetary value thus that would be the measures used. Meanwhile the share
offered in exchange will be measure based on the share price of Columbia bcos the share of Columbia
has a mkt price thus we will need to use the quoted price.

Meanwhile, the NCI will based on the price paid by Brazil for their 50% holding of Peru. It is the price
paid for the shares in Peru.

In the case of the bond as it is an unquoted bond thus there is no mkt price for it. Therefore there is a
need to use the price of a similar item, in this case the price of bond with similar quoted co.

W2. Bond

The fair value of the bond is $8.4m ($6m/$1 x $2) x 70%.

$’000

Year Open bal Int income (8%) Cash receipt Closing bal
20x5 6000 240 0 6240
Therefore there is an increase of $2.16m (8.4-6.24) to the FV of the bond.

W3 Brand

Although to Columbia they do not have any intention to continue the Pery brand thus to Columbia the
brand has no value. But IFRS 13, in valuing asset is not entity specific but rather mkt based. Therefore,
the brand has a fair value of $5m which is the amount for the fair value of the brand.

W4 Deferred income

Fair value of the outstanding performance obligation is $2.21m ($1.7m + (1.7 x 30%). This will be the fair
value of the outstanding performance obligation.

Therefore, there is a need to revised the amount to $2.21m thus a write-down of the deferred income by
$0.59m.

1. (b) Mar 2021

W5

Net Asset
Bal 20 P&L (30-1) 29
Cash 21
P&L (gain) 12 Bal c/d 25
OCI 1
54 54

The defined benefit scheme of Columbia is in surplus thus it is subjected to asset celling test. Therefore
the opening balance of the plan asset is $20m which is the lower of the CA of the plan asset or the PV of
refund or reduction in contribution.

Meanwhile, an interest income of $1m will be recognized on the opening bal of the plan asset and
shown within the P&L for YE 20x5. Similarly the CSC will be recognized as expense.

As there is curtailment during the yr, there is a need for Columbia to recognized a gain on curtailment
amounting to $12m (28-16) in the P&L.

During the yr Columbia has made a contribution of $21m to the plan asset thus this will increase the
plan asset balance. However, for the benefit paid of $28m, this would result in a decrease on the plan
asset and the defined obligation as well. Thus, overall the net assets remain unchanged.

Finally, Columbia will need to recognized a gain on remeasurement of $1m (w4) as a result of the change
in the value of net assets.

Defined contribution scheme

Under a Defined contribution scheme, the entity has an obligation to make the contribution, thus
Columbia’s obligation is to make the contribution and the contribution represent the expense. Thus
$0.5m will be recognized as expenses for Columbia and no liability being recognized unless the
contribution remain owing.
Dec 2021 video 35

(a)(i)

why it was correct to initially classify Grin Co as an associate, as opposed to a subsidiary, on 1 April 20X2;

Explanatory Notes

Significant influence

When an entity is able to exercise significant influence over another entity, this will rise to associate
relationship. As Chuckle only own 30% shares of Grin Co, thus Chuckle is only able to exercise significant
influence over Grin Co thus its being accounted for as associate.

Control

A subsidiary relationship exist when an entity is able to exercise control over the other. Control exist
when the entity has power to affect the returns of the entity. In the case of Chuckle, although they do
not own more than 50% shares but their shareholding is the highest among all the other investors who
owns less than 10%.

Although Chuckle & Grin shares key mgmt personnel but the shareholders voted independently, thus it
shows that Chuckle is unable to exercise control by virtue of having similar key mgmt personnel.

Further, Chuckle is only holding 30% shares in Grin thus they alone will not have the power to affect the
return of Grin

(a)(ii)

W1: Investment in Associate

Cost of investment 100m

Plus: Post-acq profit ((348-286)-12) x 30% 15m

Plus: Post-surplus (15-3) x 30% 3.6m

118.6m

Within the consolidated SOFP as at 31 March 20X6, investment in Grin will be shown as an investment in
associate as a single line item under the non- current asset at $118.6m.

Meanwhile the surplus of $3.6m will be recognised within the consolidated OCE. Finally, the post-
acquisition profit of $15m will be added to the retained earnings.

(iii)

With the additional 18% shares, this will increase Chuckle holding to 48%, although still less than 50%
interest to exercise control, but with other investors holding less than 10%, it is likely that Chuckle will be
able to exercise control as they will have the power to direct the activities of Grin.
Besides that, Chuckle also own some share options in Grin. This is potential voting rights that has to be
considered as it may increase the voting rights of Chuckle to 60%. Currently, the share option is unlike to
be exercise as the exercise price is above the market price thus it will be a loss to Chuckle to exercise the
option.

However, the share price of Grin is on upward trend and likely to continue thus it is very likely that the
share option will be profitable for Chuckle to exercise thus raising their shareholding to 60% and
effectively giving them control over Grin.

Further it will give Chuckle cost savings from the additional shareholdings, thus it seems that from the
above, it is very likely for Chuckle to exercise the options and raising their interest to 60%. Thus, Grin
should be accounted for as a subsidiary.

(b)(i) Dec 2021

FV adjustment

The std requires that on acquisition of a subsi, all the assets and liabilities of the subsidiary are to be
recognised at its fair value.

Land

There is a surplus of $10m on land. This will give rise to deferred tax liability of $2m (10 x 20% ).
Therefore the fair value of net assets of Grin will increase by $8m on acqusition (10-2).

Inventory

The CA of the inventory is $84m, however the FV of the invetnory is $131m, thus this will give rise to a
fair value adjustment of $47m. Again deferred tax liability of $9.4m will be recognised. Thus, the net
asset of Grin will increase by $37.6m (47-9.6).

Internally generated IA

As the database is internally generated, it is not recognised by Grin, however under the consolidated F/S,
Internally generated IA will be recognised as long as the IA can be separately identified and its fair value
can be reliably measured. Thus, in the case of the database, this database can be recognised within the
consol F/S

Thus, the database will be recognized at its FV of $5m with a DT liability of $1m being recognized as well.
Thus, the net asset will increase by $4m in total.

Goodwill ($'m)

Purchase consideration 66

FV of previously held interest 127

NCI (52% x 397.6) 206.8

399.8
Less: Net Assets

As given 348

FV adj: land 8

FV Adj: Inventory 37.6

FV Adj: Database 4 (397.6)

2.2

Thea acquisition of the 18% shares give rise to control, thus GW will be calculated on 1 April 20x6. As
Chuckie obtain control through step acq, there is a need to restate the previously interest of 30% to its
FV of $127m. There will be a gain on restatement of $8.4m (127-118.6) to be recognized within the
consol P&L.

The GW computation has to incorporate all the FV of adjustment of land, inventory and database thus
giving to a total asset of $397.6 and a GW on acquisition of $2.2m.

As the co adopted the partial GW method, the NCI will be valued of $206.8m which is the share of the
subsi’s NA

2. (a)(i) Dec 2021

IAS 21 Gain on translation of foreign subsi

Any gain/loss on translation of the foreign subsi net assets & goodwill will be recognised within the
consolidated OCI. Therefore, the treatment by Mr Raavi is Incorrect bcos he has included it within the
SOPL.

The gain on translation recognised within the OCI will be reclassified to SOPL when the foreign subsi has
been disposed. However, in the case of Raavi, the foreign subsi is held for sale, thus the gain on
translation must not be reclassified as disposal has not taken place yet.

2 (a)(ii)

Did not comment on wrong treatment by Raavi

Miss Malgun did not comment on the wrong treatment prescribed by Mr Raavi, this shows that she has
breach the ACCA code of ethics which requires her to be competence and exercise due care. Her action
shows that she either overlook it or has no knowledge that the treatment is incorrect.

As Miss Malgun is remunerated partly through profit related pay, possibly thats the reason why Miss
Malgun decided not to highlight the wrong treatment so that the F/S would show a higher profit which is
to the adv of Miss Malgun. This shows that Miss Malgun action is self interest. Miss Malgun is a financial
accountant, thus as a member of an accounting profession, she is expected to serve the public interest
rather than her own interest.

Termination without reason

The contract of employment for Mr Raavi allows for termination by either party without reasons, this
type of contract opens up opportunity for Miss Malgun to exercise undue influence over Mr Raavi who
needs to secure his employment. Thus, this contract itself is unethical bcos it is in favour of Miss Malgun.

Miss Malgun delegated the task to prepare financial statement to Mr Raavi who is not a qualified
accountant. Thus, the action of Miss Malgun is considered to be wrong as she should clearly know that
Mr Raavi is not qualified to take on the task of an accountant as he is only a sudent accountat. Thus, Miss
Malgun has failed to ensure that the financial statement is free from material error and the financial
statement is the responsibility of the director.

2 (b) Dec 2021

IFRS 15 revenue recognition

IFRS 15 only allows an entity to recognised a revenue once the entity has satisfied the performance
obligation. In the case of the Agency Co, the performance obligation is satisfied upon the granting of the
license to Kokila Co. Thus, the $15m revenue can therefore be recognised.

However, the $3m cannot be recognised until the revenue exceeded $35m. Only when the revenue
exceeded this amount will the performance obligation be satisfied.

2 (c)

Capitalisaton of development cost

An entity can only capitalised a development cost once the entity is able to meet all the 5 conditions.
The development is similar to an existing product, thus the technical feasibility of the product can be
demonstrated.

The product is developed for r eputational reasons and use specifically by a small group of people thus
the product's usefulness and market can be demonstrated.

Even when the entity can meet all d conditions for capitalisation, the entity need to ensure that the
development cost capitalised is not more than the future economic benefits. Thus, bcos the product is
only used by a small group of people and charging them only nominal value thus the development cost
will exceed the future benefits, thus the development will then have to be written off.

3. (a) Computation refer to spreadsheet Dec 2021

Effect on EBITDA

EBITDA will be the lowest if Stem choose to lease the asset for 12 months as the rental expense is
charged as an operating expense.

3 (b) (i)

Equity method of accounting requires an entity to account for only their portion of the investment in
associates. Thus, this method of accounting will consider the value of the entity's investment in associate
by taking into consideration of their share of returns from the investment in associate.
Equity method of measurement is more relevant than cost measurement basis when valuing investment
in associate bcos the value of the investment changes when the associate co makes a profit or loss. Thus,
under the equity method the value of the investment changes with the share of associates profit.
However, under cost method the value of investment remain the same irrespective of the performance
of associate. Thus the value is outdated.

FV measurement basis is based on IFRS 13, thus if the shares in associate is a listed co then the FV is
based on the co market price. The use of FV in this case will reflect the true value of the investment in
associate. Thus, it is a more relevant meausres than equity method.

Current issue