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Here is the hint for the question of predicted sales:
“To get the predicted sale you need to load the Data Analysis Tab if not loaded already and follow the procedure to use the linear regression prediction following the instruction given on the module. You need to understand how to identify the constant and the coefficient and you will get the predicted sale easily. If you are not able please get back”
@stephenwidberg said:
Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. [IFRS 11:7]So, if there is contractually agreed sharing of control and each party has the right of veto, it will be a JA. And, if there isn’t, it won’t be.
Dear Sir,
based on your above response, I understand that as the question mentions:
“There is no shareholder agreement as to how Kurran should be operated or who will make the operating decisions for Kurran” => It means that the contractually agree sharing of control does not exists so Kurran is not JA of Crypto. Is it right?
@stephenwidberg said:
Basic settlement – goes to P&L – can’t see that it’s got anything to do with past service costExtra contribution – current service cost (which is what they sort of say)
The question is testing your knowledge that these items should be in P&L not OCI
I’m not sure whether you are using Kaplan or BPP kit – but they should hopefully attempt to translate the answer!
Dear Sir,
From the above, is it understood that basic settlement should be recorded in P&L and not in past service cost?
However, the answer said that it is part of the past service cost:
“Hudson should therefore have provided in full for the cost of the basic settlement regardless of whether the staff have left or not. This should be recognised as part of the past service cost in the profit or loss of Hudson for the year ended 31 December
20X2.”@stephenwidberg said:
It’s a very obscure point that probably won’t come up for another 20 years.The learning point is that when we buy the subsidiary, we must show all the consideration – in this case the fact that we have taken over an obligation of the company to deliver shares to its employees for a period of service that pre-dates the acquisition
I suspect you have, but if not, please watch my debrief of this question / exam in the online lectures
Dear Sir,
From your above explanation, I understand that as Luploid Co has acquired Hammond Co so it also take over obligation regarding the share-based payment scheme of Luploid Co. As this scheme is extended to 5 years, we need to calculate the balance of liability of share-based payment by the FV of grant date x 3 (the period vested)/5 years (the extended period of share payment schemes).
@stephenwidberg said:
The standards have the same effect – the concept is the same – it is a constructive obligation – liability if relatively certain, provision if less certainI understand properly. Thank you very much
Sorry I correct my understand as below:
So I understand the corresponding accounting entries would be:
We must discount 1,100 difference to present value and record interest revenue and contract liability. At the end of the period (after 21 months), the carrying amount of contract liabilities would be 1,100 and we will have the entry: Dr. Contract liability/Cr. Revenue: 1,100.
Please advise if my understanding is correct.
@stephenwidberg said:
Legal obligation – if company offers a warranty because it is required to do by lawConstructive obligation – if a company offers to repair your phone even though not obliged to
In the UK, there’s a shop called Marks and Spencer – if I buy a shirt there, I can take back it back within 30 days even if it’s not faulty – they aren’t obliged to but, they do because they are a nice company – it’s just that (using the words from IAS 37) the company has a PAST PRACTICE of giving refunds creating a VALID EXPECTATION for the customer.
Dear Sir,
I just think that your mentioned cases, as there exists the right of return, IFRS15 would be applied rather than IAS37. I understand that at the time you buy the shirt, the company would recognize the revenue:
Dr. Cash/Cr. Revenue: 7,000 (for example) with the total revenue of sales of the shirts in month.
And if the Company has evidence that 10% of the sale would be returned, they will record:
Dr. Revenue: 700
Cr. Refund liability: 700Is my understanding is correct?
@stephenwidberg said:
When the PPE is purchased:Dr Cash flow hedge reserve and Cr PPE – with cumulative gain.
This will have the effect of reducing depreciation charge each year – so that the gain is effectively credited to the P&L over the life of the asset
Dear Sir,
Based on the above, the accounting entries would be:
Dr. Cash flow hedge reserve – from Equity: 18,387,097
Cr. PPE – Cumulative gain: 18,387,097Is it right
@ladesmunic said:
The way I understand it, subject to the tutor’s confirmation, is this:
1. The fear at the beginning was that the price will rise hence the reason for betting against the fear. So if price rises you’ll gain on the instrument & the price falls, you’ll loose on the instrument. The whole idea is to use one gain to offset a loss.2. Because the transaction is taking place on 01/11/20X2, which is the date Cash would flow, you will not do anything until that day. It’s on this day that you’ll know if you had made a loss or gain on the item. So, on the 31/12/20X1 nothing will be recorded as far as the item is concerned. But on this day, you’ll determine if gain or loss was made on the instrument. This will probably be a gain because at inception the fair value of the instrument was zero, so the gain will be 48,387,097 (I’m using your figures; I’ve not confirmed their accuracy). So on 31/12/20X1 you credit OCI and debit the instrument.
3. On the transaction date, you re-measure the fair value of the instrument by comparing the 31/12/20X1 value of 48,387,097 with its value on transaction date which is 60,000,000. So on the instrument a gain of 11,612,903 was made. With this you’d be put on the alert that there will be a loss on the item.
4. Similarly, on the transaction date, you determine if a gain or loss was made on the item. At the inception, the forward exchange rate agreed was €1.5 to $1. So you had fixed your mind to paying $40,000,000 (60,000,000/1.5). But on this day € strengthen against $, so instead of paying $40,000,000 you will now be paying $60,000,000 therefore making a loss of $20,000,000.
5. You made a gain of 11,612,093 on the instrument and a loss of 20,000,000 on the item. The net loss to you is 8,387,987. This is the beauty of the hedging exercise. If there was no hedging, the loss would have been 20,000,000 but with the hedge the loss was reduced to 8,387,987.
6. On effectiveness. We are accounting for the instrument and not for the loss on the item. Because the gain on the instrument (11,612,093) is less than the loss (20,000,000) there is ineffectiveness – the gain did not fully cover the loss. This ineffective portion of 8,387,987 is debited to Profit or Loss account and credit the item’s account.
7. This is the way I would have approached the question. Is the approach ideal? Over to the tutor, please.
I understand the above points and the answers except for the last sentence:
The cumulative gain of 18,387,097 recognized in equity is removed from equity (the cashflow hedge reserve) and included directly in initial cost of asset.As I do not see the entries of removing cumulative gain of 18,387,097 from equity, how the Company accounts for this removal. Is this accounted by transfer this cumulative gain to retained earnings
Dr. Equity: 18,387,097
Cr: Retained earnings:18,387,097What is your opinion regarding the last sentences?
@stephenwidberg said:
When I teach from the BPP book I simplify the example. Simplification is that selling price of 57 is also the FV of the asset.
So:
Dr Cash 57
Dr Right of Use asset (20/57×48) 17
Cr PPE 48
Cr Liability 20
Cr P&L 6 (balancing figure)
Bear in mind that SBR is words not numbers in the real exam – what you need to explain is that they no longer own the old asset (PPE) but the they do now have the right to use it for 10 years, hence they have a right of use assetAnd that is plenty!
Thank you for your understanding. Now I understand that regarding sales and lease back, we would separate into two transactions for clearer understanding:
1/ Sales: As performance obligation is satisfied, risk and rewards are transferred to the clients, we DErecognize the asset.
2/ When we lease back, we should recognize the right-of-use asset corresponding to 10 years and the gain from the sale (FV – Carrying amount) should be separated into two part: Gain related to right transfer and gain related to right retained.
Pass with first attempt. I do not complete all questions and skip question 3c
@oneel11 said:
Exam was okay to some extent. My aim was to attempt on time and I was partly successful in that since I didn’t not attempt 3(c). Here’s how I approach each question1a- broke down the objective to secondary aim and CSFs. Commented on whether the measures used addressed the CSFS and objective. Also commented on Presentation of the report, which was okay.
1b- I had a negative EVA figure (-62). DdI not comment on the EVA figure though. Discussed the benefits of EVA and that includes avoids distortion of accounting policies, encourage long term investments etc as opposed to ROCE which is short term measure and does not encourage value-adding investments such as R&D.
1c- broke my answer Into three parts strategic, operational, and tactical. Approach it as I was solving performance pyramid question. Mention whether nature of information is external or internal, reflected on measures used and how they help to achieve the overall objective.
1d- my answer here was brief as I didn’t have time. Just ensured that the analyst comments had an impact on the company’s achieving its CSFs.
2a- non financial indicator is difficult to measure as it subjective. Highlighted fashion industry is subject to many opinions and taste. There are many assumptions used in quantifying satisfaction. Satisfaction could related quality of product, service, packaging and therefore different weightings should be assigned.
2b – conflict of measures, information overload, commitment of managers not to revert back to financial indicators.
3a- Board have less power since there’s risk of losing their jobs but they are interested in turning around the company. Should be informed of measures used.
Employees are have low
Level of power since high skilled laboir are it required and there’s high unemployment and but they may be employees in other departments may be interested in training and qualification. Suggested percentage of qualified employees as an alternative measure.
Government are key players as they have the power to impose fines or discontinue the company’s operations and they are interested in how the company addresses these issues.3b- board may have been just looking to reduce opportunity cost due to last losses but after performance elated pay they may adopt maximal approach and therefore selected the price with highest contribution.
3c- did not have enough time, and it was relatively the most difficult part of the exam as I didn’t know how to use the information given. Just stated some few liners about NPV lol.
Overall the Exam was the okay, not completely satisfied with the content I wrote especially in question 1 since it was rushed, but really hoping for pass as this is my 4th attempt. Somehow,I feel optimistic about this sitting.
Hi, your answer is similar to mine and wish all of us to pass the examination
@femila said:
Eva was question 1?Yes, it is q1
