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Practice Questions for IFRS 9?

Forums › ACCA Forums › ACCA SBR Strategic Business Reporting Forums › Practice Questions for IFRS 9?

  • This topic has 8 replies, 5 voices, and was last updated 13 years ago by Anonymous.
Viewing 9 posts - 1 through 9 (of 9 total)
  • Author
    Posts
  • June 7, 2011 at 10:09 pm #49021
    scott89uk
    Member
    • Topics: 2
    • Replies: 1
    • ☆

    Hi guys – I’m resitting the paper and just wondered if anyone knew where I could view some questions based on the new Financial Instruments standard. All my material is based around IAS 39. Thanks

    June 8, 2011 at 10:43 am #83595
    Anonymous
    Inactive
    • Topics: 0
    • Replies: 6
    • ☆

    Here is a question from LSBF –

    Margery holds a number of different financial assets and is concerned by the effect of the implementation of International Reporting Standard 9 (IFRS9).
    Margery carries two portfolios of debenture loan assets. Both portfolios are currently held at amortised cost. Both portfolios are managed with a view to collecting the cash flow interest and then the nominal cash flow at the end of the contract. All the assets in both portfolios attract interest at market rate plus an interest premium and there on no further features within the contracts. However, one of the portfolios of debenture loan assets has similar characteristics to debenture loan liabilities carried by Margery at fair value. The directors of Margery are concerned this may result in an accounting mismatch and wonder if there is a solution to their problem in IFRS9.
    Margery also holds a number of Treasury Bills for speculating purposes. These are long dated loan asset investments which are simple loans attracting only interest and capital repayment. However, Margery has no intent to wait for capital repayment. Also Margery holds a number of convertible loans assets. These attract interest and capital repayment like normal loans but the assets give Margery the right but not the obligation to convert the debt asset to equity at the end of the contract.
    Further Margery has a wide portfolio of equity investments. By far the majority of these equity assets are held for trading. However, an equity investment in Target limited is held with the intent of purchasing the entire equity of Target. Currently Margery holds only 12% of the equity, but this equity holding has been built up over a number of months and Margery hopes eventually to be in a position to force a takeover. So the intent is to keep this Target equity. However, there is a rival building up equity in Target and obviously both cannot win the race to takeover Target. So Margery would like to understand what would happen if Margery lost the race for Target and was forced to sell to the rival.
    Required
    (a) Discuss the principles of IFRS9 and explain how the financial assets described above would be classified and recognised under IFRS9.
    (18 marks)
    (b) Discuss how the above relates to the development of the wider financial instrument project and briefly explain the issues in the other components of the financial instruments project.

    June 8, 2011 at 1:13 pm #83596
    scott89uk
    Member
    • Topics: 2
    • Replies: 1
    • ☆

    Great. I really appreciate you taking the time out to post this. Thanks

    June 8, 2011 at 7:07 pm #83597
    ACCA LOVER!!!
    Member
    • Topics: 32
    • Replies: 52
    • ☆☆

    Hi..

    I am really struggling with IFRS 9.. does any one have a dummies explanation? Also do you have the answer the question?? I hope you didnt type it all out?!?!
    Thanks

    June 8, 2011 at 8:13 pm #83598
    Anonymous
    Inactive
    • Topics: 0
    • Replies: 6
    • ☆

    Hi, I have copied question, but will have to type the answer. Hopefully it will help me to remember it better.
    The answer was given on LSBF revision course. Martin, who is a marker, recommended to use simple language and headings.

    So, here it is:
    Answer:
    IFRS 9
    IFRS 9 classifies Financial Assets (FA) into 2 blocks; those measered at amortised cost and those at FV

    Questions
    IFRS 9 does this by asking 2 questions:
    Simple loan?


    no


    |
    yes
    |
    Collection basis?


    no


    | |
    yes |
    | |
    amortised cost __________ Fair value
    (sorry, the chart does not look good. hope it is clear what it is all about)

    Question 1.Simple loan?

    IFRS 9 is essentially asking “Is the FA a loan and does it have interest and principal repayment with no other features?”

    Cash flow characteristic
    The technical name for above is the Cash Flow Characteristic test

    Question2 Collection basis?
    The above question asks essentially “Do you we plan to recover value from FA by collecting the interest and principal repayment?”

    Buisness model

    The technical name for the above is the buisness model test

    YES/NO
    Two yes” results in amortised cost, one “no” results in FV

    June 8, 2011 at 8:29 pm #83599
    Anonymous
    Inactive
    • Topics: 0
    • Replies: 6
    • ☆

    Amortised cost

    carrying an asset at amortised cost means initial recognition at initial value following by unwinding

    Fair Value

    Carrying an asset at Fair Value means marking the asset to market value at each measurement point

    Default
    The default position for gain and losses in the I/s or P/L

    IASPLUS.COM
    Which is why IASPLUS.COM calls these FAFVPL

    Strategic Equity
    But IFRS9 permits gain and losses to go to OCI if you have an equity investment with long term strategic intent

    IASPLUS>COM

    So IASPLUS.COM calls the strategic equity FAFVOCI

    FVO
    But IFRS9 allows us to take a FA at amortised cost and carry them at FV if there is an accounting mismatch.

    Mismatch

    An accounting mismatch occurs if there is a Financial Liability at FV related yo Financial Asset at amortised cost

    Debenture loan Asset
    Now let us ask the IFRS9 question about the above
    Q! Simple loan? – Yes
    Q2 Collection basis? – Yes
    So, the initial conclusion is that both portfolios would be carried at amortised cost

    FVO
    However, one portfolio is the subject of an accounting mismatch. To solve the problem directors should exercise the FV option and carry this one portfolio at FV

    Treasury b ills
    The speculation basis of the T-Bills means these are FAFVPL. The T-Bills fail the Buisness Model Test

    Convertibles
    the convertibles are not simle loans and so these two are FAFVPL
    the convertibles fail the cash flow characteristic test

    Majority

    The majority of the equity is held for traiding. This fails cash flow characteristic test
    So this is FAFVPL

    Strategic equity
    But the 12% equity in target is different. The intent is to keep this target equity is FAFVOCE

    Transfer
    If Margery does lose the race for target then margery would be forced to sell this strategic equity. Is this event the accumulated gains in OCE would be transferred to Retained Earning

    June 8, 2011 at 8:53 pm #83600
    Anonymous
    Inactive
    • Topics: 0
    • Replies: 6
    • ☆

    I have got extrimly bored typing this 🙂 🙂
    will do the second part by the end of the weekend…

    June 11, 2011 at 11:41 am #83601
    steveliujian
    Member
    • Topics: 1
    • Replies: 7
    • ☆

    anechek, you are extremely kind, I love u! haha!!! very good question and answers! make complex issue simple

    June 11, 2011 at 5:01 pm #83602
    Anonymous
    Inactive
    • Topics: 0
    • Replies: 3
    • ☆

    Thanks for your kindness Anechek. Good luck with your exams.

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