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Hi,
Yes that does help – the past event element regarding contingent liabilities was not captured by me in my notes – that’ll teach me to copy and paste from Deloitte’s IASPlus.com web site! Credit to BPP, they did have it in the text book, just me short-cutting tusk tusk.
However I’m still a bit confused as follows:
The annual retainer to pay $50,000 provided she has competed in all the specified tournaments is a contractual obligation to deliver cash and so falls to be treated as a financial liability and is recognised in the SFP at its PV.
So then why isn’t the performance bonus the same? It is a contractual obligation to deliver cash whenever a tournament is won. Yet it is only accrued upon winning.
Why aren’t they both executory contracts as it seems in both something remains to be done by the other party?
Also I don’t remember reading about “executory contracts” in the text – is it mentioned in the standard?
Thanks
It’s called “spot the deliberate mistake”
Quite crafty of Chris I thought, but made sure we were all paying attention 😉To add to this question based on my current understanding:
Contingent liability (disclosed not recognised): possible obligation arising on some uncertain future event
Contingent payment (recognised as a financial liability at FV): possible payment depending on the future outcome of the condition
Eh? Wot they talkin’ abaht Willis? What’s the difference? No wonder I’m confused.
Is it that the contingent payment is a present obligation, albeit that the outcome is uncertain, where as the contingent liability is not yet an obligation but could be?
Seems a very fine line…Well the big question is that as the $50,000 forms part of “revenue” for the asset sold, does the extra £50,000 form part of the disposal proceed for tax purposes?
If it does then it’s going to reduce the tax pool for WDAs (albeit you get one year’s tax relief on the $50,000 interest expense I assume)
Wibble
In the BPP study text see chapter 8, section 5 p.255 which explains why a new standard was needed and its impact
Basically it is to prevent off-balance sheet financing and improve transparency and comparabilityDoh! Goodwill increases, of course it does. Sorry about that.
So when you say CR/DR to group RE – would this form part of the adjustments to the subsidiary’s RE since acquisition same as the extra depreciation on a FV adjustment to PPE? Therefore, S% of it allocated to group RE
Or would the whole adjustment be brought in?
Thanks
What you are referring to is the Asset Ceiling test: a pension surplus should be carried at no more than its recoverable amount, which essentially equates to the present value of the cash savings from a reduction in future contributions or a refund either directly or indirectly. It stops companies hiding money away by having massively over-funded pension schemes.
So if in surplus the defined benefit asset would be restricted to the Asset Ceiling, with any write down required treated as a re-measurement and recognised in OCI
As for the double entry, I defer to Chris, but I guess you can’t touch the plan assets, so it must be an increase in the liability (so as to reduce the overall surplus) with the debit to OCI?
I think essentially it is because whilst the performance obligation has been fulfilled in the sale of the caravan, no performance obligation has been fulfilled as yet in regards to the service plan. Therefore the service plan element is essentially just sales in advance, so the whole lot goes to deferred income, where as the sale of the caravan can be recognised in full, although the receivable needs to be discounted for the time value of money.
Hope that helps.
P2 Syllabus section C3 Financial Instruments, sub section (d) states “Apply and discuss the treatment of the expected loss impairment model”
So yes, it is examinable.
EDIT:
I have now been e-mailed the link from BPP for the supplement, this can be found at:
Looks like a lot of extra work for passing the same exam!! However I think I will go with the UK version anyway as it is very topical and relevant to be aware of the differences.
Aha, I see! IFRS for SMEs!
Now I get it, so, having taken a look, under IFRS for SMEs there IS provision to amortise goodwill and that if the useful life cannot be estimated reliably then amortisation cannot exceed 10 years.
Thanks very much for the pointer, I was beginning to wonder about why the UK was allowing amortisation when IFRS was not. Interesting that IFRS for SMEs does not have a size limit, just can’t be a public company, seems quite generous
Thanks for the clarification
I always like to know the double entry, helps me remember 🙂
Thanks 🙂
P.S. Just for the record I read in BPP P4 study text that “the interest rate on a short term interest rate futures contract is quoted on an index basis” 3.2 p 474
It was their choice of using “index” as a description – I’m not suite sure either! The fact that BPP said “on short term interest rate futures” rather than just “on futures” got me wondering if they were (other than the length of course) different from other interest rate futures. However as you have kindly confirmed that they are the only ones I need to concern myself with I’ll content myself with that – I’ll fetch my coat 🙂I guess what I’m trying to get at is if January’s future is 93.50 = interest rate of 6.50% = a 12 month rate, but the length of contract is for a 3 month period, if we want to hedge for a period of say 6 months we have to increase the contract size (x 6/3), but is it possible to simply buy a 6 month contract instead?
If I understand the notes and lectures correctly it implies that for exam purposes we will only have to deal in 3 month contract lengths and “increase the bet” for periods longer than 3 months…