Questions and Answers of Applying IFRS Standards

9. Identify and discuss the assumptions involved in the measurement of a provision for long service leave. Assess the consistency of these requirements with the fundamental qualitative
8. In relation to defi ned benefi t post-employment plans, paragraph 56 of IAS 19 states, ‘the entity is, in substance, underwriting the actuarial and investment risks associated with the plan’.
7. Compare the off-balance-sheet approach to accounting for a defi ned benefi t post-employment plan with the net capitalisation approach adopted by IAS 19. Can these approaches be explained by
6. Explain how an entity should account for its contribution to a defi ned contribution pension plan in accordance with IAS 19.
5. During October 2008, there was a sudden global decline in the price of equity securities and credit securities. Many pension funds made negative returns on investments during this period. How
4. Explain how a defi ned contribution pension plan differs from a defi ned benefi t pension plan.
3. What is the difference between vesting and non-vesting sick leave? How does the recognition and measurement of vesting sick leave differ from the recognition and measurement of non-vesting sick
2. What is the difference between accumulating and non-accumulating sick leave? How does the recognition of accumulating sick leave differ from the recognition of non-accumulating sick leave?
1. What is a paid absence? Provide an example.
Exercise 9.10 ★ ★ ★ ASSIGNING COSTS AND END-OF-PERIOD ADJUSTMENTS Lund Retailing Ltd is a food wholesaler that supplies independent grocery stores. The company operates a perpetual inventory
Exercise 9.9 ★ ★ ★ ALLOCATING COST (FIFO), REPORTING GROSS PROFIT AND APPLYING THE NRV RULE Stockholm Ltd wholesales bicycles. It uses the perpetual inventory method and allocates cost to
Exercise 9.8 ★ ★ ALLOCATING COST (WEIGHTED AVERAGE), REPORTING GROSS PROFIT AND APPLYING THE NRV RULE Oslo Ltd wholesales bicycles. It uses the perpetual inventory method and allocates cost to
Exercise 9.7 ★ ★ END-OF-REPORTING-PERIOD ADJUSTMENTS Norway Outfi tters sells outdoor adventure equipment. The entity uses the perpetual inventory method to account for inventory transactions and
Exercise 9.6 ★ ★ APPLYING THE LOWER OF COST AND NRV RULE The following information relates to the inventory on hand at 30 June 2013 held by Vaasa Ltd.Item No. Quantity Cost per unit $ Cost to
Exercise 9.5 ★ ★ END-OF-PERIOD ADJUSTMENTS An extract from Uppsala Ltd’s unadjusted trial balance as at 30 June 2013 appears below. Uppsala Ltd’s reporting period ends on 30 June and uses the
1. If Malmo Ltd uses the perpetual inventory system with the moving average cost fl ow method, the 18 April sale would be costed at what unit cost? (a) $8.60 (c) $8.44 (b) $8.46 (d) $8.42 2. If Malmo
Exercise 9.4 ★ ASSIGNMENT OF COST (PERIODIC AND PERPETUAL) Select the correct answer. Show any workings required and provide reasons to justify your choice. Malmo Ltd’s inventory transactions for
Exercise 9.3 ★ DETERMINING INVENTORY COST AND COST OF SALES (PERIODIC) Select the correct answer. Show any workings required and provide reasons to justify your choice. 1. The cost of inventory on
Exercise 9.2 ★ SELECTION OF COST ASSUMPTION Under what circumstances would each of the following inventory cost methods be appropriate? (a) Specifi c identifi cation (b) Last-in, fi rst-out (c)
Exercise 9.1 ★ CONSIGNMENT OF INVENTORY Arend al Ltd reported in a recent fi nancial statement that approximately $12 million of merchandise was received on consignment. Should the company
6. What impact do the terms of trade have on the determination of the quantity and value of inventory on hand where goods are in transit at the end of the reporting period?
5. Why is the lower of cost and net realisable value rule used in the accounting standard? Is it permissible to revalue inventory upwards? If so,when?
4. Compare and contrast the impact on the reported profi t and asset value for an accounting period of the fi rst-in, fi rst-out method and the weighted average method.
3. In what circumstances must assumptions be made in order to assign a cost to inventory items when they are sold?
2. What is meant by the term ‘net realisable value’? Is this the same as fair value? If not, why not?
1. Defi ne ‘cost’ as applied to the valuation of inventory.
9 implement the disclosure requirements of IAS 2.
8 identify the amounts to be recognised as inventory expenses
7 explain the net realisable value basis of measurement and account for adjustments to net realisable value
6 explain why cost fl ow assumptions are required and apply both FIFO and weighted average cost formulas
5 explain and apply end-of-period procedures for inventory under both periodic and perpetual methods
4 account for inventory transactions using both the periodic and the perpetual methods
2 explain how to measure inventories 3 explain what is included in the cost of inventory
1 discuss the nature of inventories
Exercise 8.7 ★ ★ ★ ACCOUNTING FOR CASH-SETTLED SHARE-BASED PAYMENT TRANSACTIONS Abernethy Ltd grants 1000 share appreciation rights (SARs) to 10 senior managers, to be taken in cash within 2
Exercise 8.6 ★ ★ ★ SHARE-BASED PAYMENT WITH A NON-VESTING CONDITION An employee is offered the opportunity to contribute 10% of his annual salary of $3000 across the next 2 years to a plan
Exercise 8.5 ★ ★ ACCOUNTING FOR A GRANT WITH A MARKET CONDITION At the beginning of 2016, Bay Ltd grants 10 000 share options to a senior marketing executive, conditional on that executive
Exercise 8.4 ★ ★ ACCOUNTING FOR A GRANT OF SHARE OPTIONS WHERE THE EXERCISE PRICE VARIES At the beginning of 2015, Whistler Ltd grants 3000 employee share options with an exercise price of $45 to
Exercise 8.3 ★ ★ ACCOUNTING FOR A GRANT WHERE THE NUMBER OF EQUITY INSTRUMENTS EXPECTED TO VEST VARIES Tiger Ltd grants 80 share options to each of its 200 employees. Each grant is conditional on
Exercise 8.2 ★ EQUITY-SETTLED SHARE-BASED PAYMENT TRANSACTIONS On 1 January 2016, Park Ltd announces a grant of 250 share options to each of its 20 senior executives. The grant is conditional on
Exercise 8.1 ★ SCOPE OF IFRS 2 Which of the following is a share-based payment transaction within the scope of IFRS 2? Give reasons for your answer. (a) Goods acquired from a supplier
10. Are the following statements true or false? (a) Goods or services received in a share-based payment transaction must be recognised when they are received. (b) Historical volatility provides the
9. Explain the measurement approach for cash-settled share-based payment transactions.
8. Explain what the ‘retesting’ of share options means.
7. Distinguish between vesting and non-vesting conditions.
6. What are the minimum factors required under IFRS 2 to be taken into account in option-pricing models?
5. Explain when a counterparty’s entitlement to receive equity instruments of an entity vests.
4. Outline the accounting treatment for the recognition of an equity-settled share-based payment transaction.
3. What is the different accounting treatment for instruments classifi ed as debt and those classifi ed as equity?
2. What is the difference between equity-settled and cash-settled share-based payment transactions?
1. Why do standard setters formulate rules on the measurement and recognition of share-based payment transactions?
9 describe and apply the disclosure requirements of IFRS 2.
8 demonstrate how cash-settled share-based payment transactions are measured
7 explain how modifi cations to granted equity instruments are treated
6 explain the concept of a share option reload feature
5 explain the concept of vesting through differentiating between vesting and non-vesting conditions
4 explain how equity-settled share-based payment transactions are measured
3 demonstrate how equity-settled and cash-settled share-based payment transactions are recognised
2 distinguish between cash-settled and equity-settled share-based payment transactions
1 explain the objective and scope of IFRS 2
Exercise 7.9 EMBEDDED DERIVATIVES Identify which of the following embedded derivatives must be separated from the relevant host contract. In each case, state also how the host contract and the
Exercise 7.8 AMORTISED COST, JOURNAL ENTRIES Company B issues a bond with a face value of $500 000 on 1 July 2016. Transaction costs incurred amount to $12 000. The bond pays interest at 6% per
Exercise 7.7 DISTINGUISHING FINANCIAL LIABILITIES FROM EQUITY INSTRUMENTS Company A issues redeemable preference shares. The shares are redeemable for cash at the option of the issuer. The shares
Exercise 7.6 DISTINGUISHING FINANCIAL LIABILITIES FROM EQUITY INSTRUMENTS Company A issues 100 000 $1 redeemable convertible notes. The notes pay interest at 5%. They convert at any time at the
Exercise 7.5 FINANCIAL INSTRUMENTS CATEGORIES AND MEASUREMENT Identify which of the four categories specifi ed in IAS 39 each of the following items belongs to in the books of Company H, the holder.
Exercise 7.4 CATEGORISING COMMON FINANCIAL INSTRUMENTS UNDER IAS 32 Categorise each of the following common fi nancial instruments as fi nancial assets, fi nancial liabilities or equity instruments
Exercise 7.3 DISTINGUISHING FINANCIAL LIABILITIES FROM EQUITY INSTRUMENTS (1) Company A issues 100 000 $1 convertible notes. The notes pay interest at 7%. The market rate for similar debt without the
Exercise 7.2 SCOPE OF IAS 39 Which of the following are fi nancial instruments (i.e. a fi nancial asset, fi nancial liability, or equity instrument in another entity) within the scope of IAS 39?
Exercise 7.1 SCOPE OF IAS 32 Which of the following are fi nancial instruments (i.e. a fi nancial asset, fi nancial liability, or equity instrument in another entity) within the scope of IAS 32?
5. Identify the main criticisms of accounting for fi nancial instruments that emerged during the fi nancial crisis. To what extent had the IASB addressed these by the end of 2011?
4. Explain what an economic hedge is. Will hedge accounting always result in the same outcome as an economic hedge?
3. IAS 39 applies a ‘rights and obligations approach’ to the recognition of fi nancial instruments. Discuss.
2. Does IAS 32 contain a clear hierarchy to be used in determining whether a fi nancial instrument is a fi nancial liability or an equity instrument of the issuer? Explain your answer.
1. Discuss the concept of ‘equity risk’ and how it is useful in determining whether a fi nancial instrument is a fi nancial liability or an equity instrument of the issuer.
14 describe the main disclosure requirements of IFRS 7.
13 outline the rules of hedge accounting set out in IFRS 9 and be able to apply the rules to simple common cash fl ow and fair value hedges.
12 determine when fi nancial assets and fi nancial liabilities may be offset
11 understand and apply the measurement criteria for each category of fi nancial instrument
10 apply the recognition criteria for fi nancial instruments
9 distinguish between the categories of fi nancial instruments specifi ed in IFRS 9
8 explain the concept of an embedded derivative
7 describe the scope of IFRS 9
6 determine the classifi cation of revenues and expenses arising from fi nancial instruments
5 explain the concept of a compound fi nancial instrument
4 distinguish between equity instruments and fi nancial liabilities
3 outline and apply the defi nitions of fi nancial assets and fi nancial liabilities
2 defi ne a fi nancial instrument
1 describe the background to the development of accounting standards on fi nancial instruments
Exercise 6.8 ★★★ CALCULATION OF DEFERRED TAX, AND ADJUSTMENT ENTRY The following information was extracted from the records of Bulb Ltd as at 30 June 2013: Asset (liability) Carrying amount Tax
Exercise 6.6 ★★ CREATION AND REVERSAL OF A TEMPORARY DIFFERENCE Rose Ltd purchased equipment on 1 July 2011 at a cost of £25 000. The equipment had an expected economic life of 5 years and was
3. The entity has recognised an interest receivable asset with a beginning balance of £17 000 and an ending balance of £19 500 for the current year. During the year, interest of £127 000 was
2. The entity sold a vehicle at the end of the current year for £15 000. The vehicle cost £100 000 when purchased 3 years ago, and had a carrying amount of £25 000 when sold. The taxation
1. The entity has an allowance for doubtful debts of £10 000 at the end of the current year relating to accounts receivable of £125 000. The prior year balances for these accounts were £8500 and
Exercise 6.5 ★ CALCULATION OF CURRENT TAX LIABILITY AND ADJUSTING JOURNAL ENTRY The profi t before tax, as reported in the statement of profi t or loss and other comprehensive income of Violet for
Exercise 6.4 ★ CURRENT AND DEFERRED TAX Myrtle Ltd has determined its accounting profi t before tax for the year ended 30 June 2013 to be £256 700. Included in this profi t are the items of
Exercise 6.3 ★ CALCULATION OF DEFERRED TAX The following information was extracted from the records of Orchid Ltd for the year ended 30 June 2014: ORCHID LTD Statement of Financial Position
Exercise 6.2 ★ CALCULATION OF CURRENT TAX Thistle Ltd made an accounting profi t before tax of £40 000 for the year ended 30 June 2014. Included in the accounting profi t were the following items
Exercise 6.1 ★ TAX EFFECTS OF A TEMPORARY DIFFERENCE The following information was extracted from the records of Protea Ltd for the year ended 30 June 2013: PROTEA LTD Deferred Tax Worksheet
5. In IAS 12, criteria are established for the recognition of a deferred tax asset and a deferred tax liability. Identify these criteria, and discuss any differences between the criteria for assets
4. In tax-effect accounting, the creation of temporary differences between the carrying amount and the tax base for assets and liabilities leads to the establishment of deferred tax assets and

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