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1. In IAS 16, there’s mention of asset class but what does it actually mean by this asset class ? if we say building is revalued at revaluation model, whole of the building ( asset class ) is being revalued ?
2. in question CS Group (June 2012), why no experience in online sales means there isn’t any group accounting policy ?
i thought accounting policy only applies when there’s new change / update in IFRS ?
3. in question CS Group (June 2012), in the answer sheet for the part (ii) Risk of material misstatement, under the heading “Loan Stock “, may i know how they get 2.5 million ? shouldn’t it be 6 million annually (120 x 5%) ?
In addition, loan will be repaid at a significant premium of 20 million, does it mean that total amount repayable will be 120 million at the redemption date ?
1. A class of PPE is a group of assets of similar nature and use in the entity’s operations. In the note to the financial statements which shows the reconciliation of the total carrying amount at the beginning and end of the period, there will be a column for each class and the deprecation method for each class will be disclosed. IAS 16 gives the following examples – land, land and buildings, machinery, ships, aircraft, motor vehicles, furniture and fixtures, office equipment and bearer plants (e.g. fruit-bearing trees). If a company has three buildings and revalues one, it must also revalue the other two in order to apply the revaluation model.
2. You will also need a new accounting policy if you start undertaking transactions that you haven’t done before. If for example, you decided to start renting out warehouse space so you have rental income for the first time, you’d need an accounting policy for it. For online sales most companies now recognise revenue on delivery which may be no different to how non-online sales are recorded – but it’s still a policy. (Note that this Q was set pre-IFRS 15 when revenue recognition criteria were not so strict that alternatives might have been possible.)
3. The amount of interest which will actually be paid annual annually is $5m, so $2.5m for 6 months. Interest is always calculated based on the stated % of the loan stock.
You are correct that $120m will be the amount repaid. The question doesn’t state what is the effective rate of interest (and you’re not expected to calculate it – this is AAA) so the answer points out that the treatment should be amortised cost (IFRS 9) and that misstatement could arise. (More specifically the risk of understatement of finance cost/liability). Let’s say the effective rate is 8.4%. The year-end accrual for interest would be $4.2m (approx) so the total amount owing is $104.2m of which $2.5 is current liability (interest that will be paid) and $101.7 is non-current. At the next reporting date, a year’s interest will have accrued (calculated at the effective rate) but only $5 interest paid. So the liability will increase each year to the $120 that will be paid .
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