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pass paper 12/9
1. A company borrowed $47m on 1/12/2004, when the market and effective interest rate was 5% on 30/11/2005, the company borrowed an additional $45m when the current market rate was 7.4%,. both financial liabilities are repayable on 30/11/2009 and are single payment. discuss accounting for above fin liabilities under current accounting standards using amortised cost and additionally fair values at 30/11/2005.i dont understand fair value and amortised cost, is fair vakue based on market price and amortised is the carrying values.?
2. what are the difference btwn amortised and fair value?
3. the company uses the revaluation model, for its building cost $10m on 1/12/2003 and has useful life of 20yrs. they are dep in straight line to a nil residual value. the buildings were revalued downwards on 31/11/2004 to $8m which was the buildings recoverable amount. at 30/11/2005 the value of buildings risen by $11m which was included in f/s
1.5 is impairment loss for 1/12/04 so DR P/L OR RE and CR PPE?
gain of 3.42m. what do we credit or debit in the sofp?
4. in general how would we know whether to use fair values or amortised cost ? i,e the different classifications of loans and rec, held to maturity etc. and what are equity instruments? they are mentioned at FV.
5. is there a chance this could be asked for current issues?
thanks
Simple answer – yes, there’s always a chance it could be asked as a current issue. But, let’s be honest, IFRS9 has been left behind by IFRSs 10, 11, 12, 13, 14 and now (since last week) 15
IFRS 14 (Regulatory Deferral Accounts) is so remote as to be not worth considering and IFRS 15 was only issued last week as a replacement to the Revenue IAS
“Loans and receivables” and “held to maturity” no longer exist as classifications
Let me suggest that you read Tom Clendon’s articles in Student Accountant from 2 years ago (?)
Excellent pieces of technical information and should help to clear up any lingering IFRS9 doubts
is it this link? its about hedging not ifrs 9 though?
Part 1 of the two part article was in September 2013 Student Accountant
pass paper 12/9
1. A company borrowed $47m on 1/12/2004, when the market and effective interest rate was 5% on 30/11/2005, the company borrowed an additional $45m when the current market rate was 7.4%,. both financial liabilities are repayable on 30/11/2009 and are single payment. discuss accounting for above fin liabilities under current accounting standards using amortised cost and additionally fair values at 30/11/2005.i dont understand fair value and amortised cost, is fair vakue based on market price and amortised is the carrying values.?
2. what are the difference btwn amortised and fair value?
3. the company uses the revaluation model, for its building cost $10m on 1/12/2003 and has useful life of 20yrs. they are dep in straight line to a nil residual value. the buildings were revalued downwards on 31/11/2004 to $8m which was the buildings recoverable amount. at 30/11/2005 the value of buildings risen by $11m which was included in f/s
1.5 is impairment loss for 1/12/04 so DR P/L OR RE and CR PPE?
gain of 3.42m. what do we credit or debit in the sofp?
4. in general how would we know whether to use fair values or amortised cost ? i,e the different classifications of loans and rec, held to maturity etc. and what are equity instruments? they are mentioned at FV.
5. is there a chance this could be asked for current issues?
thanks
1) yes
2) just answered by your question 1
3) profit or loss by 1m ( can’t reverse an impairment through P or L to an amount greater than the asset would have been if we hadn’t impaired in the first place) The balance of 2.42 to Revaluation Reserve
4) pretty much everything is now at fair value. Amortized cost only used in the situation where fair value would cause an imbalance. (Tom Clendon’s article explains that point)
5) always a chance, but I’m thinking it’s only a remote chance
3. the amount 1.5 impairment, is not greater than the asset, the revaluation gain is 3.42. so is this CR RE 1.5, CR 1.92 gain in OCE, and DR 3.42 to PPE?
4. the inbalance is due to the classification of whether it is debt or equity instrument?
4) no, it’s where it is related to a different instrument like through a hedge which is held at amortized cost. It would be inconsistent to hedge at fair value
3) I can see that the impairment is not greater than the asset, but we cannot unimpaired such that the revised asset value is now greater than it would have been if we hadn’t impaired in the first place
so what are the entries for this adj then.
so what are the adj for this then? there would be no impairment then as the Revaluation is greater than the impairment loss? can you please let me know what the entries are to the sofp. i would think you dr 1.92 ppe, CR OCE 1.92?
I don’t understand …. what entries? Hold at amortized cost if by doing so you prevent an imbalance
That sounds ok, except Cr OCE would be to Revaluation Reserve
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