Questions and Answers of Applying IFRS Standards

4. What are some external indicators of impairment?
3. When should an entity conduct an impairment test?
2. Why is an impairment test considered necessary?
1. What is an impairment test?
7 apply the disclosure requirements of IAS 36.
6 account for reversals of impairment losses
5 account for the impairment of goodwill
4 identify a cash-generating unit, and account for an impairment loss for a cash-generating unit — not including goodwill
3 explain how to undertake an impairment test for an individual asset
2 understand when to undertake an impairment test
1 understand the purpose of the impairment test for assets
Exercise 14.10 ★ ★ ★ ACQUISITION OF TWO BUSINESSES Queenfi sh Ltd is a manufacturer of specialised industrial machinery seeking to diversify its operations. After protracted negotiations, the
Exercise 14.9 ★ ★ ★ ACCOUNTING FOR ACQUISITIONS OF A BUSINESS AND SHARES IN ANOTHER ENTITY Tailor Ltd is seeking to expand its share of the pet care market and has negotiated to acquire the
Exercise 14.8 ★ ★ ACCOUNTING FOR BUSINESS COMBINATION BY ACQUIRER Sweetlip Ltd and Warehou Ltd are two family-owned fl ax-producing companies in New Zealand. Sweetlip Ltd is owned by the Wood
Exercise 14.7 ★ ★ ACCOUNTING FOR BUSINESS COMBINATION BY ACQUIRER, JOURNAL ENTRIES FOR LIQUIDATION OF ACQUIREE Ling Ltd and Steenbras Ltd are small family-owned companies engaged in vegetable
Exercise 14.6 ★ ★ ACCOUNTING FOR BUSINESS COMBINATION BY ACQUIRER, LIQUIDATION ACCOUNTS OF ACQUIREE On 1 July 2016, two companies — New Starfi sh Ltd and Tuna Ltd — sign an agreement whereby
Exercise 14.5 ★ ★ CONSIDERATION TRANSFERRED On 1 September 2016, the directors of Monkfi sh Ltd approached the directors of Cod Ltd with the following proposal for the acquisition of the issued
Exercise 14.4 ★ ★ IDENTIFYING THE ACQUIRER White Ltd has been negotiating with Cloud Ltd for several months, and agreements have fi nally been reached for the two companies to combine. In
Exercise 14.3 ★ DETERMINING THE FAIR VALUE OF EQUITY ISSUED BY THE ACQUIRER On 1 December 2016, Trout Ltd acquired all the assets and liabilities of Dory Ltd, with Trout Ltd issuing 100 000 shares
Exercise 14.2 ★ ACQUISITION OF SHARES IN ACQUIREE On 1 January 2016, Desert Ltd acquired all the issued shares of Island Ltd. At this date the equity of Island Ltd consisted of: Share capital —
Exercise 14.1 ★ ACCOUNTING BY THE ACQUIRER On 1 July 2016, New Ltd acquired the following assets and liabilities from Day Ltd: Carrying amount Fair value Land Plant (cost $400 000) Inventory Cash
11. Why is it important to identify an acquirer in a business combination?
10. How is a gain on bargain purchase accounted for?
9. If an acquiree liquidates, what are the key accounts raised by the acquiree and which accounts are transferred to these accounts?
8. How is the consideration transferred calculated?
7. Explain the key steps in the acquisition method.
5. What recognition criteria are applied to assets acquired and liabilities assumed in a business combination? 6. How is an acquirer identifi ed?
4. Explain the key components of ‘core’ goodwill.
1. What is meant by a ‘business combination’?
8 account for subsequent adjustments to the initial accounting for a business combination 9 provide the disclosures required under IFRS 3.
7 prepare the accounting records of the acquiree
6 account for shares acquired in the acquiree
5 understand the nature of and the accounting for goodwill and gain from bargain purchase
4 recognise and measure the assets acquired and liabilities assumed in the business combination
3 account for a business combination in the records of the acquirer
2 explain the basic steps in the acquisition method of accounting for a business combination
1 understand the nature of a business combination and its various forms
Exercise 13.7 ★ ★ ★ ACCOUNTING FOR BRANDS Jon West Ltd is a leading company in the sale of frozen and canned fi sh produce. These products are sold under two brand names. Fish caught in
Exercise 13.6 ★ ★ RESEARCH AND DEVELOPMENT Capetown Ltd has been involved in a project to develop an engine that runs on extracts from sugar cane. It started the project in February 2014. Between
Exercise 13.5 ★ ★ RESEARCH AND DEVELOPMENT Stellenbosch Laboratories Ltd manufactures and distributes a wide range of general pharmaceutical products. Selected audited data for the reporting
Exercise 13.4 ★ ★ RECOGNITION OF INTANGIBLES Soweto Ltd is unsure of how to obtain computer software. Four possibilities are: 1. Purchase computer software externally, including packages for
Exercise 13.3 ★ ★ RESEARCH AND DEVELOPMENT Because of the low level of rainfall in Simonstown, householders fi nd it diffi cult to keep their gardens and lawns suffi ciently watered. As a result,
Exercise 13.2 ★ BRANDS AND FORMULAS Wayne Upton (2001, p. 71) in his discussion of the lives of intangible assets noted that the formula for Coca-Cola has grown more valuable over time, not less,
Exercise 13.1 ★ USEFUL TRADEMARK LIFE X Ltd holds a trademark that is well known within consumer circles and has enabled the company to be a market leader in its area. The trademark has been held
8. Explain when development outlays can be capitalised.
7. Explain the difference between ‘research’ and ‘development’.
5. How is the useful life of an intangible asset determined?
4. Explain what is meant by an ‘active market’.
2. Explain what is meant by ‘identifi ability’.
1. What are the key characteristics of an intangible asset?
8 recognise and account for sale and leaseback transactions 9 discuss the 2016 changes to lease accounting.
7 account for operating leases from the perspective of both lessors and lessees
6 account for fi nance leases by manufacturer or dealer lessors
5 account for fi nance leases from the perspective of a lessor
4 account for fi nance leases from the perspective of a lessee
3 understand and apply the guidance necessary to classify leases
1 discuss the characteristics of a lease
Exercise 11.14 ★ ★ ★ COST OF ACQUISITION Borod Ltd started business early in 2013. During its fi rst 9 months, Borod Ltd acquired real estate for the construction of a building and other
Exercise 11.14 ★ ★ ★ COST OF ACQUISITION Borod Ltd started business early in 2013. During its fi rst 9 months, Borod Ltd acquired real estate for the construction of a building and other
Exercise 11.13 ★ ★ ★ REVALUATION OF ASSETS AND TAX-EFFECT ACCOUNTING For Chartres Ltd, profi t before income tax for the year ended 30 June 2013 amounted to £375 000, including the following
Exercise 11.12 ★ ★ ACQUISITIONS, DISPOSALS, TRADE-INS, OVERHAULS, DEPRECIATION Axel Schulz is the owner of Wremen Fishing Charters. The business’s fi nal trial balance on 30 June 2012 (end of
Exercise 11.11 ★ ★ REVALUATION OF ASSETS On 1 July 2012, Themar Ltd acquired two assets within the same class of plant and equipment. Information on these assets is as follows: Cost Expected
Exercise 11.10 ★ ★ ACQUISITION AND SALE OF ASSETS, DEPRECIATION Thader Turf Farm owned the following items of property, plant and equipment as at 30 June 2014: Land (at cost) Offi ce building (at
Exercise 11.9 ★ ★ REVALUATION OF ASSETS AND TAX-EFFECT ACCOUNTING Farida Ltd acquired a machine on 1 July 2012 at a cost of £100 000. The machine has an expected useful life of 5 years, and the
Exercise 11.8 ★ ★ DEPRECIATION Red Sun Ltd constructed a building for use by the administration section of the company. The completion date was 1 July 2007, and the construction cost was £840
Exercise 11.7 ★ ★ DEPRECIATION Plaaz Ltd was formed on 1 July 2012 to provide delivery services for packages to be taken between the city and the airport. On this date, the company acquired a
Exercise 11.6 ★ ★ EXPENSING OF COSTS Mehna Ltd has acquired a new building for £500 000. It has incurred incidental costs of £10 000 in the acquisition process for legal fees, real estate
Exercise 11.5 ★ ★ DEPRECIATION CHARGES A new accountant has been appointed to Dettum Ltd and has implemented major changes in the calculation of depreciation. As a result, some parts of the
Exercise 11.4 ★ ★ STRAIGHT-LINE DEPRECIATION VS DIMINISHING-BALANCE DEPRECIATION Asia Ltd uses tractors as a part of its operating equipment, and it applies the straight-line depreciation method
Exercise 11.3 ★ REVALUATION OF ASSETS In the 30 June 2014 annual report of Sonner Ltd, the equipment was reported as follows:The equipment consisted of two machines, Machine A and Machine B.
Exercise 11.2 ★ ANNUAL DEPRECIATION CHARGE A company is in the movie rental business. Movies are generally kept for 2 years and then either sold or destroyed. However, management wants to show
Exercise 11.1 ★ FAIR VALUE BASIS FOR MEASUREMENT The management of an entity has decided to use the fair value basis for the measurement of its equipment. Some of this equipment is very hard to
10. When should property, plant and equipment be derecognised?
7. What is meant by ‘residual value’ of an asset?
6. How is useful life determined?
5. What is meant by ‘depreciation expense’?
2. How is cost determined?
1. How should items of property, plant and equipment be measured at point of initial recognition, and would gifts be treated differently from acquisitions?
10 explain the accounting issues relating to investment properties.
9 implement the disclosure requirements of IAS 16
8 account for derecognition
7 discuss the factors to consider when choosing which measurement model to apply
6 explain the revaluation model of measurement
5 explain the cost model of measurement and understand the nature and calculation of depreciation
4 explain the alternative ways in which property, plant and equipment can be measured subsequent to initial recognition
3 demonstrate how to measure property, plant and equipment on initial recognition
2 recall the recognition criteria for initial recognition of property, plant and equipment
1 describe the nature of property, plant and equipment
Exercise 10.10 ★ ★ ★ ACCOUNTING FOR DEFINED BENEFIT PENSION PLANS Lily Ltd provides a defi ned benefi t pension plan for its managers. The following information is available in relation to the
Exercise 10.9 ★ ★ ACCOUNTING FOR LONG SERVICE LEAVE Geranium Ltd provides long service leave for its retail staff. Long service leave entitlement is determined as 13 weeks of paid leave for 10
Exercise 10.8 ★ ★ ACCOUNTING FOR DEFINED BENEFIT PENSION PLANS For each of the following scenarios, determine (i) the surplus or defi cit in the defi ned benefi t pension plan and (ii) the net
Exercise 10.7 ★ ★ ACCOUNTING FOR DEFINED BENEFIT PENSION PLANS Washington Inc. provides a defi ned benefi t pension plan for its managers. The assistant accountant has completed some sections of
Exercise 10.6 ★ ACCOUNTING FOR SICK LEAVE Nagaland Ltd opened a call centre on 1 January 2016. The company provides 1 week (5 days) of sick leave entitlement for the employees working at the call
Exercise 10.5 ★ ACCOUNTING FOR THE PAYROLL AND ACCRUAL OF WAGES AND SALARIES Lavender plc pays its employees on a fortnightly basis. All employee benefi ts are recognised as expenses. The following
Exercise 10.4 ★ ACCOUNTING FOR DEFINED CONTRIBUTION PENSION PLANS Southern Inc. provides a defi ned contribution pension fund for its employees. The company pays contributions equivalent to 10% of
Exercise 10.3 ★ ACCOUNTING FOR PROFIT-SHARING ARRANGEMENTS Schwarzwald GmbH has a profi t-sharing arrangement in which 1% of profi t for the period is payable to employees, paid 3 months after the
Exercise 10.2 ★ ACCOUNTING FOR ANNUAL LEAVE Newcastle plc provides employees with 4 weeks (20 days) of annual leave for each year of service. The annual leave is accumulating and vesting up to a
Exercise 10.1 ★ ACCOUNTING FOR SICK LEAVE Ontario Ltd has 200 employees who each earn a gross wage of $140 per day. Ontario Ltd provides 5 days of paid non-accumulating sick leave for each employee
11. The board of directors of City Scooters GmbH met in December 2016 and decided to close down a branch of the company’s operations when the lease expired in the following August. The chief fi
10. Explain the projected unit credit method of measuring and recognising an obligation for long-term employee benefi ts. Illustrate your answer with an example.

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