SBR flashcards - OpenTuition

Question

What are the 6 qualitative characteristics of financial information?

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Answer

What are the 6 qualitative characteristics of financial information?

Relevance
Faithful representation
Comparability.
Verifiability.
Timeliness.
Understandability

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Question

Define an asset

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Answer

Define an asset Present economic resource / controlled / past event.

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Question

Identify 5 headings in other comprehensive income

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Answer

Identify 5 headings in other comprehensive income:

Gain on PPE revaluation.
Gain or loss on FVOCI investment.
Remeasurement gain or loss on pension plan.
Exchange difference on translation of foreign subsidiary.
Gain or loss on cash flow hedge.

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Question

Define joint arrangement.

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Answer

Define joint arrangement. Two or more parties have joint control / each party has the right of veto over key decisions.

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How are joint ventures accounted for?

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Answer

How are joint ventures accounted for? Equity accounting.

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Question

Define Functional Currency.

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Answer

Define Functional Currency. Currency of the primary economic environment in which the entity operates.

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Question

In a cash flow statement where would you show dividends from associates

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Answer

In a cash flow statement where would you show dividends from associates and dividends to NCI? Dividends from associates would be in investing activities. Dividends to NCI would be in financing activities.

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Question

Should you depreciate PPE and investment properties if held at FV?

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Answer

Should you depreciate PPE and investment properties if held at FV? PPE – yes Investment properties - no

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Question

In what circumstances should borrowing costs be capitalised?

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Answer

In what circumstances should borrowing costs be capitalised? If an asset is being constructed over a period of time. It is then known as a qualifying asset.

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Question

Can you capitalise non purchased intangibles?

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Answer

Can you capitalise non purchased intangibles? You must capitalise development costs if the project is commercially viable etc.

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Question

Define value in use and explain its relevance.

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Answer

Define value in use and explain its relevance. Present value of the future cash flows from the asset. Used when testing for impairment.

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Question

At what value are non-current assets held for sale recognised in the SFP?

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Answer

At what value are non-current assets held for sale recognised in the SFP? Lower of:

Existing carrying value; Fair value less cost to sell.

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Question

Where in the P&L would you record a discontinued operation?

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Where in the P&L would you record a discontinued operation? After tax. Before NCI.

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Question

Where in the SFP would you record a non-current assets held for sale?

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Where in the SFP would you record a non-current assets held for sale? Below current assets.

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Question

What is a defined benefit pension scheme?

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Answer

What is a defined benefit pension scheme? "Employer makes a promise to the employee that they will receive certain benefits when they retire. Benefits will be linked to length of service and the employees’ salary on retirement."

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Question

Which type of pension scheme will normally appear in an employer’s SFP?

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Answer

Which type of pension scheme will normally appear in an employer’s SFP? Defined benefit pension scheme.

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Question

How do you measure the P&L charge for equity-settled share based pay schemes?

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Answer

How do you measure the P&L charge for equity-settled share based pay schemes?

Number of instruments expected to vest.
Fair value of instrument at grant date.
Vesting period

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Question

How do you measure the P&L charge for cash-settled share based pay schemes?

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Answer

How do you measure the P&L charge for cash-settled share based pay schemes?

Number of instruments expected to vest.
Fair value of instrument at SFP date.
Vesting period.

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Question

What is the accounting for negative goodwill?

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Answer

What is the accounting for negative goodwill? Negative goodwill should be credited to the P&L immediately.

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Question

Should goodwill be amortised?

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Answer

Should goodwill be amortised? No. It should however be reviewed for impairment at each SFP date.

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Question

Define liability and financial liability

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Answer

Define liability and financial liability. Liability = Present obligation / transfer economic resources / past event. Financial liability = Obligation to deliver cash.

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Question

Define derivative.

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Answer

Define derivative.

Value changes in response to change in value of some underlying asset or liability.
Requires no or little initial investment.
Settled at a future date (normally for cash).

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Question

Andrew owns some sausages and an option to sell the sausages.

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Answer

Andrew owns some sausages and an option to sell the sausages. What sort of hedge accounting can he use? Fair value hedge accounting. The derivative protects Andrew from change in value of the recognised asset (the sausages).

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Question

Mary expects to sell some sausages to the King of Neverland next year.

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Mary expects to sell some sausages to the King of Neverland next year. She enters a currency forward to sell the Neverland dollars when she receives them next year. What sort of hedge accounting can she use? Cash flow hedge accounting. The derivative protects Mary from changes in value in highly probable future cash flows

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Question

Define Level 1 input for fair value purposes.

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Answer

Define Level 1 input for fair value purposes. Give an example of an asset for which Level 1 would be used. Quoted price in active market for identical asset or liability. Example = share listed on a stock exchange.

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Question

Define operating segment.

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Answer

Define operating segment. Segment whose results are regularly reviewed by chief operating decision maker.

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Question

What are the five stages of the revenue recognition model?

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Answer

What are the five stages of the revenue recognition model?

Identify the contract.
Identify the performance obligations.
Determine the price.
Allocate the price to the performance obligations.
Recognise revenue as performance obligations are satisfied.

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Question

Define a lease

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Answer

Define a lease. Right to control / specified asset / period of time / in exchange for consideration.

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Question

How should the lessee normally reflect a lease in the financial statements?

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How should the lessee normally reflect a lease in the financial statements? SFP Right of use asset and lease liability P&L Depreciation and finance cost

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Question

In what circumstances should a company recognise a deferred tax asset relating to losses?

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Answer

In what circumstances should a company recognise a deferred tax asset relating to losses? Only if it is likely that the company will make future taxable profits against which the losses can be offset.

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Question

What are the 3 key related party disclosures?

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Answer

What are the 3 key related party disclosures?

Parent company / ultimate controlling party.
Key management compensation (e.g. salary).
Related party transactions.

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Question

Define a provision

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Define a provision. Liability of uncertain timing or amount.

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Question

In what circumstances can you recognise a provision for reorganisation?

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In what circumstances can you recognise a provision for reorganisation? Detailed formal plan. Announced to those affected (e.g. the staff).

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Question

When should contingent liabilities and contingent assets be disclosed?

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When should contingent liabilities and contingent assets be disclosed? Contingent liabilities = possible Contingent assets = probable.

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Question

In what 2 situations should you make a prior period adjustment?

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In what 2 situations should you make a prior period adjustment? Change in accounting policy. Material error in prior year.

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Question

What is the formula for EPS?

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Answer

What is the formula for EPS? Profit for the year attributable to the ordinary sharehokders (i.e. and after NCI) divided by: Weighted average number of equity shares multiplied by 100

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Question

For SMEs what is the accounting treatment of development costs?

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Answer

For SMEs what is the accounting treatment of development costs? Expense in the P&L.

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Question

For integrated reporting identify the six capitals.

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Answer

For integrated reporting identify the six capitals.

Financial.
Manufactured.
Intellectual.
Human.
Natural.
Social and relationship.

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Question

If an ACCA accountant does not know the accounting treatment of leases, what is the ethical issue?

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Answer

If an ACCA accountant does not know the accounting treatment of leases, what is the ethical issue? Lack of professional competence and due care (ACCA Principle)

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Question

In what circumstances should an asset be recognised in the financial statements?

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Answer

In what circumstances should an asset be recognised in the financial statements? If it results in relevant and faithful representation.

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Question

Define equity.

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Answer

Define equity Residual interest in assets minus liabilities.

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Question

Parent has December year-end. Subsidiary has October year-end. Can parent consolidate subsidiary?

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Parent has December year-end. Subsidiary has October year-end. Can parent consolidate subsidiary? Yes. The maximum gap is three months.

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Question

Give examples of monetary assets and explain their relevance in SBR

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Answer

Give examples of monetary assets and explain their relevance in SBR Receivables and cash. Translation of foreign transactions by a company.

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Question

If a company is using the fair value model, how often should it revalue PPE and IP?

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Answer

If a company is using the fair value model, how often should it revalue PPE and IP? PPE – on regular basis – e.g. every 3 to 5 years. IP – every year.

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Question

How should a company account for a government grant?

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Answer

How should a company account for a government grant? Recognise in the P&L over the period in which the related expenditure is recognised.

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Question

Define investment property.

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Answer

Define investment property. Land and buildings held to earn rentals and / or for capital appreciation.

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Question

In what 3 circumstances should a company conduct an impairment review?

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Answer

In what 3 circumstances should a company conduct an impairment review? 1) If there is goodwill in SFP. 2) If there are intangibles in the SFP which are not being amortised. 3) If there is an impairment indicator – e.g. the government bans a product that the company sells.

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Question

How are derivatives recognised in the financial statements?

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Answer

How are derivatives recognised in the financial statements? SFP – fair value. P&L – changes in fair value.

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Question

If an ACCA accountant deliberately fails to consolidate a subsidiary, what is the ethical issue?

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If an ACCA accountant deliberately fails to consolidate a subsidiary, what is the ethical issue? Lack of integrity -straightforward business conduct (ACCA Principle)

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Question

What are the three attributes of faithful representation?

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Answer

What are the three attributes of faithful representation?

Completeness
Neutrality
Freedom from error

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Question

In what circumstances should liabilities be recognised, according to the Framework?

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Answer

In what circumstances should liabilities be recognised, according to the Framework?

Relevant information
Faithful representation

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Question

How should fair value be determined for non-financial assets (e.g., investment properties)?

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Answer

How should fair value be determined for non-financial assets (e.g., investment properties)? Highest and best use if: - Physically possible - Legally permissible - Financially feasible

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Question

If directors have a profit-related bonus, what ethical threat does this represent?

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If directors have a profit-related bonus, what ethical threat does this represent? Self-interest. More interested in maximising profits than in fair presentation.

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Question

Identify three circumstances when gains recognised in OCI are later recycled to P&L?

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Answer

Identify three circumstances when gains recognised in OCI are later recycled to P&L? Cash flow hedges Disposal of foreign subsidiary (exchange gains) Disposal of bonds (NOT shares) classed as FVOCI

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Question

What are the key components of a discontinued operation?

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What are the key components of a discontinued operation? Separate major line of business Already discontinued or held for sale at the SOFP date

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Question

What is the accounting treatment of a change in depreciation rate?

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What is the accounting treatment of a change in depreciation rate? Change in estimate not policy Account for prospectively No prior period adjustment

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Question

What is a performance obligation?

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What is a performance obligation? A DISTINCT obligation (i.e., sold separately) to transfer goods or services

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Question

What are the primary factors in determining functional currency?

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Answer

What are the primary factors in determining functional currency? Currency influencing sales price Currency influencing labour and material costs

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Question

A company buys inventory from a foreign country on credit.

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A company buys inventory from a foreign country on credit. At the SOFP date, how should the inventory and payable be translated? Inventory: - Historic rate if valued at cost - Closing rate if valued at NRV Payable – Closing rate

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Question

In what order should losses be allocated to cash-generating units?

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In what order should losses be allocated to cash-generating units? 1. Assets obviously impaired 2. Goodwill 3. Other non-current assets

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Question

Define cash-generating unit

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Define cash-generating unit Smallest group of assets that generates independent cash flows

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Question

In what circumstances is an intangible asset ‘identifiable’?

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In what circumstances is an intangible asset ‘identifiable’? Separable (can be sold separately) OR Arises from legal or contractual rights

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Question

What is the accounting treatment if PPE is transferred to IP? The company uses historic cost for PPE and fair value for IP. Prices are rising.

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What is the accounting treatment if PPE is transferred to IP? The company uses historic cost for PPE and fair value for IP. Prices are rising. Revalue the asset to FV Gain to OCI Reclassify the asset to IP Subsequent gains to P&L

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Question

A company buys a building which it intends to use as a hotel. Can it classify it as an investment property?

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A company buys a building which it intends to use as a hotel. Can it classify it as an investment property? No Providing significant non-incidental services, e.g., catering Classify as PPE

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Question

In revenue recognition how should the transaction price be allocated to separate performance obligations?

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In revenue recognition how should the transaction price be allocated to separate performance obligations? On the basis of STAND-ALONE selling prices

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Question

How should the lessor reflect a finance lease in the financial statements?

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How should the lessor reflect a finance lease in the financial statements? SFP Receivable P&L Finance income

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Question

A company sells PPE with a life of 50 years, and rents it back for 10 years? How will this be accounted for?

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A company sells PPE with a life of 50 years, and rents it back for 10 years? How will this be accounted for? SFP Derecognise PPE Recognise Right of Use asset, Cash, and Lease liability P&L Profit (or loss) on derecognition of PPE (‘part-disposal)

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Question

What are the main items recognised in the P&L for a defined benefit pension scheme?

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What are the main items recognised in the P&L for a defined benefit pension scheme? Service cost Net interest cost

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Question

What is the main item recognised in OCI for a defined benefit pension scheme?

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What is the main item recognised in OCI for a defined benefit pension scheme? Remeasurement difference / actuarial difference

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Question

How do you account for share based pay where the employee has the choice of shares or cash?

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How do you account for share based pay where the employee has the choice of shares or cash? Split accounting Liability and equity Similar to convertible loan

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Question

Define an adjusting subsequent event.

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Define an adjusting subsequent event. Event between SOFP date and date FS are approved Gives evidence on condition that existed at the SOFP date

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Question

In the context of derivatives, what is an executory contract and how would it be accounted for?

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In the context of derivatives, what is an executory contract and how would it be accounted for? Not settled in cash, e.g., contract to buy wheat settled in wheat. Outside scope of IFRS 9 No accounting until wheat is actually purchased

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Question

A company buys an investment property financed by a loan. What is the accounting? (The company prefers to use the fair value model)

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A company buys an investment property financed by a loan. What is the accounting? (The company prefers to use the fair value model) IP – fair value, gains to P&L Financial liability – fair value, gains to P&L (Note – using amortised cost would create an ‘accounting mismatch’)

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Question

How should a company account for doubtful debts for trade receivables?

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How should a company account for doubtful debts for trade receivables? Lifetime expected credit losses (Note – 3 stage model is not used for most receivables; it is more relevant to bonds etc)

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Question

A company revalues PPE upwards by $1,000. Tax rate is 20%. The gain will be taxed when the asset is sold. What is the deferred tax implication?

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A company revalues PPE upwards by $1,000. Tax rate is 20%. The gain will be taxed when the asset is sold. What is the deferred tax implication? Temp difference = 1,000 X 20% = 200 Dr OCI Cr DT liability

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Question

A company sets up reorganisation provision of $1,000. Tax rate is 20%.

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A company sets up reorganisation provision of $1,000. Tax rate is 20%. The expense will be allowed for tax only when the reorganisation actually takes place. What is the deferred tax implication? Temp difference = 1,000 X 20% = 200 Dr DT asset Cr P&L

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Question

A parent company revalues the PPE of a subsidiary upwards by

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A parent company revalues the PPE of a subsidiary upwards by $1,000 as part of the fair value exercise in calculating goodwill. Tax rate is 20%. The gain will be taxed when the asset is sold. What is the deferred tax implication? Temp difference = 1,000 X 20% = 200 Dr Goodwill Cr DT liability

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Question

What are the quantitative thresholds for disclosure under IFRS 8, Segmental Reporting?

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What are the quantitative thresholds for disclosure under IFRS 8, Segmental Reporting? 1. TOTAL revenue greater than or equal to 10% of aggregate TOTAL revenue 2. TOTAL assets greater than or equal to 10% of aggregate TOTAL assets 3. Profit or loss is greater than or equal to the greater of: (a) TOTAL profits of all segments making a profit (b) TOTAL losses of all segments making a loss

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Question

How would you refer to a transaction involving the husband of a company director under IAS 24?

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How would you refer to a transaction involving the husband of a company director under IAS 24? Transaction with CLOSE FAMILY of KEY MANAGEMENT

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Question

For SMEs what is the accounting treatment of borrowing costs?

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For SMEs what is the accounting treatment of borrowing costs? Expense in the P&L (even constructed assets where large companies would capitalise the borrowing cost)

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Question

A company owns 30% of another company. What are the possibilities for accounting?

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A company owns 30% of another company. What are the possibilities for accounting? FV through OCI if no significant influence Equity account if significant influence or joint control Consolidate if control Remember to consider the substance of the transaction rather than the % shareholding.

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Question

How does IFRS 10 define control?

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How does IFRS 10 define control? Investor has power over investee AND is exposed to variable returns from investee AND has ability to affect the returns

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Question

What is required for a ‘business’ and why is it relevant for group accounts?

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What is required for a ‘business’ and why is it relevant for group accounts? Input + Process + Outputs Relevance – we consolidate subsidiaries only if they meet the definition of a business. If a company holds only a single asset, the transaction may well be regarded as an asset purchase rather than a business combination.

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Question

In calculating goodwill how would deal with a legal claim against a subsidiary which is regarded as possible?

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In calculating goodwill how would deal with a legal claim against a subsidiary which is regarded as possible? Contingent liabilities must be measured at FV irrespective of probability. Remember that the rules for goodwill calculation are different to the IAS 37 rules.

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Question

How are DB pension plans dealt with in the operating section of a cash flow statement?

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How are DB pension plans dealt with in the operating section of a cash flow statement? 1. Add back service costs (non-cash items) 2. Deduct contributions paid

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Question

Define receivable days

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Answer

Define receivable days Receivables / Credit sales x 365

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Question

Define PE ratio

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Answer

Define PE ratio Current share price / EPS

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Question

Define Free Cash Flow

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Answer

Define Free Cash Flow Cash flows from operating activities less capital expenditure

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Question

Which body publishes standards on sustainability reporting?

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Answer

Which body publishes standards on sustainability reporting? Global Reporting Initiative

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Question

How should a cryptocurrency be recognised in the SOFP?

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How should a cryptocurrency be recognised in the SOFP? Intangible asset

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Question

What are three characteristics of materiality?

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What are three characteristics of materiality? Omission of information would influence economic decisions of users Mis-statement of information would influence economic decisions of users Obscuring information would influence economic decisions of users

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Question

Which method of cash flow preparation is preferred by IAS 7 and by accounts preparers? Why?

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Which method of cash flow preparation is preferred by IAS 7 and by accounts preparers? Why? IAS 7 – direct – gives users additional information Accounts preparers – indirect – easy to prepare

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Question

How would a revaluation of PPE (upwards) affect ROCE?

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How would a revaluation of PPE (upwards) affect ROCE? PBIT – down – extra depreciation CE – up – revaluation reserve recognised Therefore, ROCE down.

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Question

How should goodwill be translated for a foreign subsidiary?

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How should goodwill be translated for a foreign subsidiary? Closing rate Carrying amount of goodwill will change every year

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Question

What is a market-based condition (in the context of share-based pay) and what is its relevance?

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Answer

Condition linked to the market price of company shares Ignore in computation of the P&L charge?

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Question

A company sells PPE with a life of 50 years, and rents it back for 50 years? How will this be accounted for and why?

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Answer

A company sells PPE with a life of 50 years, and rents it back for 50 years? How will this be accounted for and why? SFP Do not derecognise PPE Recognise liability Why? Unlikely to be a sale / transfer of risks and rewards In substance this is a secured loan

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Question

How should a subsequent event which is non-adjusting but will cause the entity to cease trading be dealt with in FS?

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How should a subsequent event which is non-adjusting but will cause the entity to cease trading be dealt with in FS? The FS should be adjusted (break-up basis)

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Question

In what circumstances can financial assets and liabilities be offset?

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In what circumstances can financial assets and liabilities be offset? Legally enforceable right to offset AND Intention to settle on a net basis

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Question

Define a financial asset.

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Define a financial asset. Equity investment in another entity OR Contractual right to receive cash

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Deck complete!