IFRS 10-Consolidated Financial statements and IFRS 3 Business

combination
Conceptual framework says Substantive rights override protective
An entity controls a resource if it can direct its rights in determining control Concentration Test
use and obtain economic benefits that may flow The concentration test is met if substantially all of the
from it. fair value of the total assets acquired is concentrated in
a single identifiable asset or group of similar identifiable
In accordance with IFRS 10, Protective rights. Rights designed to protect assets. If this test meets then no need for acquisition
the interest of the party holding those rights accounting, account it as purchase of an asset.
An entity that is a parent is required to prepare
without giving that party power over the
consolidated financial statements. Acquisition Accounting/consolidation
entity to which those rights relate.
There is control if; The acquisition method has the following
 The investor has power over the investee, Special purpose entity (SPE), is a legal entity or requirements:
and company created to fulfil special purpose or 1. Identifying the acquirer -The acquirer is the entity
 The investor has rights to variable returns objective. Often SPE is not formally owned by its that has assumed control over another entity.
from involvement with investee and creator (parent) for various reasons. 2. Determining the acquisition date-date on which
 Investor can affect those returns through If a parent controls special purpose entity, then the acquirer obtains control over the acquiree.
his powers. SPE is a subsidiary and must be consolidated 3. Recognizing and measuring the subsidiary's
even if the parent owns zero percent share identifiable assets and liabilities-acquirer must
Entity has power over an investee if; This is why IFRS 10 prescribes to assess the need measure the identifiable assets acquired and the
 Exercise majority of voting rights in of consolidation based on control, not on legal liabilities assumed at their fair values at the
an investee ownership. acquisition date. Non identifiable assets are
 Contractual arrangements between IFRS 3 Business Combination subsumed into calculation of purchased goodwill.
the investor and other parties IFRS 3 Business combination applies when 4. Recognizing goodwill (or a gain from a bargain
 Holding less than 50% of the voting an acquirer (investor) obtains control of a purchase) and any non controlling interest.
share, with other equity interests business (investee). Assets are resources controlled by an entity from a past
held by dispersed unconnected group IFRS 3 Business Combinations defines a event that are expected to lead to an inflow of
 Holding potential voting rights- business as an integrated set of activities and economic benefits.
capable of being exercised assets that can be managed to provide goods Liabilities are present obligations from a past event that
Power is defined as existing rights (that or services, generate investment income (such are expected to lead to an outflow of economic
give the current ability) to direct the as dividends or interest), or generate other resources.
relevant activities (financing and income from ordinary activities. IFRS® 3 Business Combinations requires the investor to
operating activities) of the investee. Acquisition must comprise inputs and identify all of the investee’s identifiable net assets at
Straightforward = Majority Voting Rights processes that significantly contribute to the acquisition. To be identifiable, asset must either be
(>50%) = Control Exist. ability to turn those inputs into outputs. To capable of being used or sold separately Or It must arise
Complex cases = < 50% = More than one qualify as a business, outputs are not from legal or contractual rights. A reliable estimate of its
factor must be considered like right to required fair value is also necessary to be recognized as a
appoint, reassign or remove key separate asset rather than subsumed within the
management personnel or direct activities. goodwill figure.

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 IAS 7-Consolidated Statement of Cash Flows
Object: Enables investors, lenders, & other creditors to assess the liquidity, solvency and
financial adaptability of the entity. Investing Activities (I.A)-
Operating Activities (O.A)- Sale and purchase of NCA
Conceptual framework says Remove non cash items and items
belonging to I.A & F.A Sale proceeds from NCA X
Investors, lenders, and other Purchase of NCA (X)
creditors make informed Acquisition of A or JV (X)
decisions if given information Dividend received from A/JV X
Profit Before Tax X Acquisition/Disposal of Sub (X)/X
that can help them predict an Interest Received X
Dep. & Amort. X
entity’s future cash flows. Finance cost X Cash generated from I.A XX
P% *A’s dividend=Inflow Impairment loss (Goodwill) X
P (Goes to investing activities) Gain/Loss on disposal of NCA X Financing Activities F.A- All
Gain/loss on sale of Sub. (X)/X ectivities from debt or equity financing
Profit share of A/JV (X)
Investment income (X) Proceeds from share Issue X
Changes in working capital Loan Issue/Repayment X/(X)
A Inventory (X)/X Lease liability repayment (X)
S Receivables (X)/X Dividend paid to NCI (X)
Payables X/(X) Dividend paid to parent S.H (X)
NCI% *S’s dividend=outflow
(Goes to financing activities) Cash generated from Operations XX Cash generated from F.A XX
Key working notes-Use T-form Interest paid (X) Change in cash and cash Equi. X/(X)
1. Dividend paid to NCI-F.A Tax paid (X) Opening cash and cash Equi. X
2. Dividend received from associate-I.A Cash generated from O.A XX Closing cash and cash equi. XXX
3. Acq./Disposal of sub. Key working notes-Use T-form
*Purchase (paid-cash acquired) -I.A 6. Finance cost payable-Gives interest
Sale (Received –cash disposed of)-I.A paid
**Working capital movement Note: IAS 7 permits either
methods-this limits 7. Lease liability-Gives lease payment
(Inventory, receivables, payables) -O.A 8. Govt grant payable-Gives amort.
4. PPE at carrying amount comparability.
9. Goodwill-Gives impairment loss
5. Income tax paid

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 IAS 7-Consolidated Statement of Cash Flows
Object: Enables investors, lenders, & other creditors to assess the liquidity, solvency and
financial adaptability of the entity.
Explanation hints
Why companies prefer indirect -----
method? Practice question:
September/December 2020 –
Info. for direct method is too Sample Questions-UK variant
costly and time consuming to Qn.1/Dec. 2018 qn 1.
obtain.
Explanation hints
Investor perspective
1. Cash generated from operations is principally cash
Prefer direct method. Trends in obtained from the trading activities of the
cash flows can easily be entity. These can include receipts from sale of goods,
cash payments to suppliers and cash payments on
assessed and compared to behalf iof employees.
those of competitors. It is 2. The indirect method adjusts the profit or loss for
effects of transactions of a non cash nature, any
relevant information as it aids deferrals or accruals from past or future operating cash
investment decisions. receipts or payments and any items of income or
expense associated with investing or financing cash
flows.
Cash equivalents are-short 3. Non cash flows which have reduced profit and must
be subsequently added back include service cost
term, highly liquid investments component, depreciation, exchange losses,
that are readily convertible to impairment, finance costs..etc
4. Remeasuremnt component is ignored as it is neither a
known amount of cash and csh flow nor an expense to operating profits
subject to insignificant risk of 5. The movement on receivables, payables and
inventory are adjusted so that the timing differeces
changes in value. between when cash is paid or received and when the
items are accrued in the financial statements are
accounted for.

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 Definitions
IAS 36-Impairment of Assets
Impairment is a reduction in the Factors to consider at VIU
recoverable amount of an asset or cash  Reasonable assumptions of recent budget
generating unit below its carrying and forecasts- for cash flows
amount.  Obtained on current condition of asset
without enhancement
Impairment loss is the amount by which  Budget assessment to be done
carrying amount of an asset exceeds its  Discount rate-Time value of money should
recoverable amount. be reflected.
Impairment Indicators  Rsik should be specific to the asset.
Recoverable amount: is higher of an External: Cash Generating Unit
asset’s net selling price and its value in 1. Decline in asset’s market Is the smallest identifiable group of assets that
use. value. generates cash inflow, largely independent of
2. Adverse effect in tech, the cash flows from other assets.
Value in use: Present value of estimated Corporate assets-Assets otherthan goodwill
future cash flows arising from the
market, economic or legal
environment that contribute to the future cash flows of both
continuing use of an asset and from its
the CGU under review and other CGUs.
disposal at the end of useful life. 3. Increase in market interest
Allocation of Impairment loss to CGUs
rates-it affects DF used in PV
Net selling price: Amount obtainable 1. To any asset that is impaired
4. Entity’s net assets book value 2. To goodwill in the CGU
from sale of an asset at fair value less the
cost of disposal.
measurement above market 3. To all other assets in the CGU on a pro-rata
value. basis based on carrying value.
Recognition of impairment Internal:
Reversal of impairment loss-Done
1. Obsolescence/physical
loss damage prospectively
 Recognized as an expense in the SOPL  Increase carrying amount of an asset due to
2. Material reduction in usage
immediately. a reversal on impairment loss.
 If asset is carried at revalued amount (IAS 16
3. Economic performance  Increase should not exceed the depreciated
& IAS 38 only), then loss is recognized worsen historical cost that would have been if there
directly against any revaluation surplus. Any 4. Development of intention to was no impairment.
excess is expensed to P&L. sell  Recognized as income immediately in SOPL.
 Any reversal of impairment loss on a
revalued asset is treated as a revaluation
increase.

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 IAS 2-Inventory & IFRS 5-NCA Held for Sale
and discontinued operations
Definition of inventory IFRS 5 NCA Held for sale- continued
Are any items and proprerty which are  Must be available for sale and sale must
held; be highly probable (sell< 1 year, active
 For sale in ordinary course of programme to locate buyer, actively
business Change of a plan of sale marketing).
 In the process of production for such If no sale within one year, that asset can be classified  NCA held for sale is valued at the lower of
sale as held for sale if; the carryng value and fair value less costs
 In the form of materials to be used in  The delay has been caused by events or to sell. Any reduction in value is recorded
production circumstances beyond entity’s control as an impairment through profit or loss.
Measurement  Entity is still committed to the sale  If asset is measured using revaluation
Initially measured at cost-includes If conditions for H4S are nolonger met, measure asset model, then it is revalued to FV
purchase costs, conversion costs & any at lower of; immediately before classified as held for
other costs to get it to its current 1. Its Carrying amount before classification as H4S sale.
condition and location adjusted for dep, amort or revaluation.  Then revalued again at lower of carrying
Allows 3 methods-Actual unit cost, FIFO 2. Its recoverable amount at date of decision not to amount (FV) and FV less cost to sell. The
and weighted average cost sell. difference is selling costs and these are
Any adjustment is recognized in profit or loss as a charged against profits in the period.
Subsequent measurement gain or loss from continuing operations.  An asset held for sale is not depreciated
At lower of cost and Net Realisable value. Discontinued Operations
*Prudence concept Presentation in the statement of financial Disposed of, or held for sale and;
NRV includes estimated selling price less  Separate major line of business or
any selling expenses.
position
Assets classified as held for sale (H4S) are presented geographical area of operation
Disclosure  Single co-ordinated plan to dispose of a
The total carrying amount of inventories separately from other assets.
Liabilities of a disposal group also presented separate line of business/geographical area
by category  Is a subsidiary acquired exclusively with a
Details of inventories carried at net separately from other liabilities.
Note: if asset is classified as H4S after reporting date, view to re-sale
realizable value. If disposed of in the year-disclose in year of
but before issue of financial statements, details must
disposal.
IFRS 5-NCA is classified as held for be disclosed in the notes-Non adjusting event.
If held for sale-disclose in year of held for sale
sale if its carrying amount will be Disclose in P or L (PFY-face), SCF (Net cash
recovered principally through a sale flows-face or notes) and in SFP-if fully disposed
transaction rather than through its of-none, if not fully disposed of-assets held for
continuing use. sale.

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 Step 5: Recognize revenue

IFRS 15-Revenue From Contract costs-Capitalized

Revenue is recognized when the entity satisfies a
performance obligation by transferring a promised good or
-Costs of obtaining a contract
contracts with customers exclude legal fees, cost of traveling
service to the customer.
Perfomance obligation is satisfied over time or at a point in
Definition to a tender.
time.
-Costs of fulfilling a contract
It is over time if;
Income arising in the course of an entity’s *Such costs are amortized to SOPL
 Customer simultaneously receives and consumes the
ordinary activities (Normal trading and
benefits as entity performs.
operating activities)
 Entity enhances the asset that the customer controls.
Five step model for revenue recognition
For step 3--Consider;  Entity has right to payment for performance completed
Step 1: Identify the contract with the
 Variable consideration-if significant to date.
customer.
reversal will not occur-consider it. If If a performance obligation is satisfied overtime, then
Conditions:
client can return goods, it’s a V.C, refund revenue is recognized over time.
- Approved by all relevant parties
liability = consideration received. An entity controls the asset if it can direct its use and
-Each aprty’s rights can be identified
 Significant financing components-if it obtain most of its remaining benefits. Control also includes
-Payment terms can be identified
exists, consideration receivable should ability to prevent other entities from obtaining benefits
-There is commercial substance
be discounted to P.V using customer from an asset.
-Consideration will probably be collected
borrowing rate. Indicators of transfer of control
Step 2: Identify the separate performance
 Non-cash consideration-Measured at fair  Entity has a present right to payment for the asset
obligations.
value at date of contract. If FV can not be  Customer has legal title to the asset
Conditions
estimated, txn is measured using stand  Entity has transferred physical possession of the asset
-Distinct goods or services (or bundle) if
alone selling price of the good promised  Customer has the significant risks and rewards of
*Customer can benefit from the good or
to customer. Changes in FV accounted for ownership of the asset
service on its own
in accordance with IFRS 9 e.g for share  The customer has accepted the asset
*Promise to provide the good or service is
price change at reporting date if it was a Contract Modifications-is a change in scope or price of a
separately identifiable from other
share exchange txn. contract.
contractual promises.
 Consideration payable to customer-if Treat as a separate contract if: scope increases due to
Principal: if entity controls the goods or
paid in exchange for a distinct good, additions or price increases by amt reflecting stand-alone
services before its transferred to the buyer
account for it as a purchase txn if not, SP of additional goods.
Agent: recognize revenue based on the
then reduce the txn price of the contract. Otherwise-Terminate existing contract and create a new
face it is entitled to.
Step 4: Allocate the transaction (txn) price contract if goods are distinct. Txn PX is original
Warranties: Accounted for in accordance
Total txn price (px) is allocated to each consideration unrecognized + additional consideration
with IAS 37 Provisions, Contingent L & A
performance obligation in proportion to from modification. Othersiwe its part of original contract if
If purchased separately, treat as distinct
stand-alone selling px. If discount is offered, remaining goods are not distinct.
obligation.
allocate it equally to all performance Disclosures
Step 3: Determine the transaction price.
obligations. o Revenue recognized from contracts with customers
An amount to which an entity expects to
o Contract balances and asets recognized from costs
be entitled in exchange for the goods and
incurred
services. Sales Tax excluded

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 Separating components

IFRS 16-Leases …………

Contract may contain a lease component and a non-lease
component. Allocate consideration accordingly.
Key entries to calculate
Lessor-legally owns the assets Two tables prepared-PV table & lease liability table
Vs. Lessee-Uses the asset 1. PV of lease liability
Initial measurement 2. Right-of-use asset
Lease-a contract that conveys the right to
Lease liability 3. Finance costs (0n outstanding lease liability)
use an underlying asset for a period of
Initially measured at PV of unpaid lease 4. Lease payments (incase of separation component)
time in exchange for consideration.
payments (fixed payments, variable 5. Carrying amount of liability (after +interest –payment)
Lessor-entity that provides right-of-use
payments, residual value guarantees, 6. Depreciation of Right-of-use asset
asset-receives consideration.
purchase options, termination penalties). 7. Carrying amount of right of use asset (after dep.
Lessee-entity that obtains use of the
Discount rate is rate implicit in the lease or deduction
right-of-use asset-transfers consideration
else the borrowing rate. Reassessing of the lease liability
A right-of-use asset-is lessee’s right to use
Right-of use-asset Re-calculate the liability using a revised discount rate if;
an underlying asset over the lease term
Initially recognized at cost (amt of initial  Lease term changes
Lessor:
measurement of the lease liability, lease  Entity’s assessment of an option to purchase changes.
Finance lease Vs Operating lease
payments made at or before, initial direct Short-term leases and low value assets
Lessee:
costs, dismantling costs) Recognize the lease payments in P&L on a straight line
Right of use asset Vs. Lease liability
Lease term-non cancellable periods, option basis. No lease liability or right of use asset is recognized
Rental payments: Either advance (start of
to extend lease period, option to terminate Lessee disclosures
the lease period or Arrears (end of the
lease period. -Depreciation charged on right of use assets
lease period).
JE -Interest expenses on lease liabilities
Control of asset’s use arises if;
Dr. Right of use asset -Expenses relating to short term & low value assets
 Lessee has the right to substantially all
Cr. Lease Liability -Cash outflows for leased assets
of the identified asset’s economic
Dr. Right of use asset (direct costs) -Carrying amount of right of use assets
benefits and
 Has the right to direct the identified Cr. Cash (direct costs)
Subsequent measurement Lessor Accounting
asset’s use.
Lease liability-Carrying amount increased by Lessor classifies leases as finance or operating leases
No right to use if supplier can substitute
interest charge. Interest recorded in SOPL. Finance lease-is a lease where substantially all of the risks
the asset for an alternative.
Carrying amount reduced by cash and rewards of the underlying asset transfer to the lessee.
Lessee Accounting
repayments. Operating lease-a lease that does not meet the definition
Lessee has to recognize a lease liability
Right of use asset-measured using cost of finance lease.
and a right-of-use asset.
model (initial cost less acc. Dep and Finance leases:Initial treatment-Derecognize asset
An asset is an economic resource that, as
impairment). Dep. Charged over useful life if Present assets held under a finance lease as receivable.
a result of a past event, is contolled by an
ownership transfers to lessee at end Calculation of value of receivable
entity-Right-of-use asset meets this
otherwise charged over shorter of the useful Fixed payments + variable payments + residual value
definition as per conceptual framework.
life and lease term. guarantees + unguaranteed residual values + purchase
A liability is a present obligation, arising
**FV and revaluation model can be used. options + termination penalties-all discounted to PV.
from a past event, to transfer an
economic resource-Lease liability meets it

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 Practice exam kit question
IFRS 16-Leases continued 31(a)(iii) -Leria Co. page 59.
Subsequent treatment 32 (a)(i)-Ecoma
 Carrying amount of lease receivable
increased by finance income, which is Transfer is a sale
credited to SOPL Seller-Lessee
 Carrying amount or lease receivable is 1. Recognize the sale at fair value (Cash)
reduced by cash receipts. 2. Recognize a right-of-use asset, as a proportion of the
Operating leases previous carrying value of underlying asset
Lessor recognizes income from an 3. Derecognise the asset at carrying amount
operating lease on a straight line basis 4. Recognize the lease liability (PV of lease payments)
over the lease term. 5. Gain/loss on rights transferred to the buyer (𝛽)
Any direct costs are added to cost of asset
Asset is recorded in SOFP and depreciated Calculating a right of use asset value
in accordance with IAS 16 or IAS 38. 𝑷𝑽 𝒐𝒇 𝒍𝒆𝒂𝒔𝒆 𝒍𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒚
= 𝒙 𝑪𝒂𝒓𝒓𝒚𝒊𝒏𝒈 𝒂𝒎𝒐𝒖𝒏𝒕 𝒐𝒇 𝒕𝒉𝒆 𝒂𝒔𝒔𝒆𝒕
𝑭𝑽 𝒐𝒇 𝒕𝒉𝒆 𝒂𝒔𝒔𝒆𝒕
Sale and lease back
If the seller-lessee transfers an asset to Buyer-Lessor
another entity (buyer-lessor) and then  Recognize purchase of the asset
leases it back;  Apply lessor accounting
 Assess if the transfer is a sale.
 Apply IFRS 15 to decide if a Derecognition of lease (incase lease is vacated)
performance obligation has been Vacating lease implies that the right-of-use will provide no
satisfied. further economic benefits. This indicates impairment.
 So perform an impairment review in accordance with
Transfer not a sale-Treat as a loan IAS 36 Impairment of assets.
 Seller-lessee continues to recognize the  Compare carrying amount of the right-of-use asset
transferred asset and recognize a with recoverable amount.
financial liability equal to transfer  Recoverable amount is higher fair value less cost to
proceeds. sell and value in use.
 Buyer-lessor does not recognize the  If lease can not be sold or sublet, then recoverable
transferred asset and recognize a amount is likely to be nil. Write down the right-of-use
financial asset equal to transfer asset to recoverable amount and record an expense in
proceeds. SOPL.

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 Post-employment benefit plan/pension IAS 19-Employee Benefits Qns-32-pg 60
plan/scheme Key points
 At each year end, the plan assets
Consists of a pool of assets (investments, cash &
and defined benefit obligation are
properties), together with pension liability.
re-measured. The obligation is
Two types;
measured at present value, and the
 Defined contribution plans
 Defined benefit plans
Year on year movement-proforma assets are measured at fair value.
Obligation/assets b/d XX  The gain cannot be reclassified to
Defined contribution plans-are benefit plans where
Net interest component XX profit or loss.
the entity ‘pays fixed contributions into a separate
 Service costs are recognized
entity and will have no legal or constructive Service cost component XX regardless of the vesting
obligation to pay further contributions if the fund Contributions into plan (X) requirements.
does not hold sufficient assets to pay all employee
Benefits paid --  All past service costs are
benefits relating to their service’
X/(X) recognized as expense at earlier of;
Defined benefit plans are post-employment plans
Remeasurement (𝛽) XX a. When plan amendment or
that are not defined contribution plans.
curtailment occurs, and
Accounting for defined contribution plans Obligation c/f-Assets c/f XX b. When the entity recognizes
 Pension contribution is charged to profit or loss as Net interest component-Credited to related restructuring costs or
an employment expense.
SOP-discount rate * liability and asset termination benefits
 Accrual or prepayment arises if cash paid is not
Service costs-credited to SOPL. Amendments: Reporting entity must
equal to value of contributions due for the period.
 Current service cost determine;
Accounting for defined benefit plan
-current service cost and net interest
 The entity has a long term liability that must be  Past service cost for remainder of reporting period after
measured at present value.  Any gain or loss on settlement (also PASC.
 It also has assets which must be measured at fiar
gain on curtailment is included as The Asset ceiling
value.
part of service cost component) Surplus measured at lower of;
 Entity reports net position in SOFP-offets its
Contributions into the plan-cash  Amount calculated as normal
pension obligation and its plan assets.
 Total of PV of future refunds and
 If obligation exceeds assets-plan is in deficit and a outflow in SCF. reductions in future contributions
liability is reported iin SOFP. Benefits paid-Reduce both plan
 If assets exceed the obligation, there is a surplus-
obligation and plan assets. Termination benefits-benefits payable
asset reported in SOFP.
Remeasurement component-charged to as a result of employment being
OCI. Can not be reclassified to SOPL in terminated either by employer or by
employee accepting voluntary
Important: According to IAS 19, at each financial future-since no clear basis to determine redundancy.
year end, the plan assets and the plan obligation the amount or the timing of Recognition; Entity recognize a
are re-measured and any re-measurement gains reclassification (IASB Conceptual liability and an expense. At earlier of
and losses are recognized in OCI famework). date when such can not be withdrawn
Asset ceiling reductions-charged to OCI or entity recognized a restructuring
cost
as an expense.

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 IFRS 9 Financial Amortized cost method. Finance cost/income-use effective rate
and cash paid/rec. use coupon rate.
Kaplan Kit qn. 11-Trailer-pg
For Financial assets:
instruments b/d (SFP) + finance income (SPL)–cash rec(SCF) = c/f (SFP) 22.
For financial liability:
Key Definitions
b/d (SFP) + Finance cost (SPL) – cash paid (SCF) = c/f(SFP) 2018 sept. SBR INT qn. 1
Compound instruments e.g Convetible debentures/bonds
Financial asset-Equity investment in
another company or contractual right to 1. Business model test-intent to hold the Involves an economic substance which is a combination of
receive cash. asset until its maturity date and, equity and liability- account for using split equity accouting
Financial liability-Contractual obligation to 2. Contractual cash flow test-contractual Initial measurement
deliver cash. cash receipts on holding the asset. Liability component is discounted to obtain FV assuming
Equity-Residual interest in assets after *If contractual cash flow test is passed but the conversion doesn’t take place.-use discount rate on
deduction of liabilities. no intention to hold till maturity, then similar debt without a conversion option.
Derivative FVtOCI The equity component is the difference between the
 Value liked to underlying asset Derecognition of financial asset (sale) proceeds on issue and the initial liability component.
 Requires little or no initial investment Financial assets are derecognized on transfer Subsequent measurement
 Settled (for cash) at a future date of risks and rewards to another party.  Liability is subsequently measured at amortized cost-
Liability instrument: Increases gearing  Equities held at FVtPL-gain or loss to P&L use interest rate on similar debt without conversion
ratio and interest cover decreases.  Equities held at FVtOCI-gain or loss to OCI but adjusted for issue costs.
Equity instruments: decrease gearing ratio (but txn costs charged to P&L).No  The equity component is not subsequently changed.
and interest cove increases reclassification. Issue costs are recognuized by adjusting the effective rate
1. Financial Assets Debt instruments held at FVtOCI: of interest.
Initial measurement: initially recognized at Step 1: gain or loss to OCI Key steps
FV plus transaction costs, unless classified Step 2: cumulative gains or losses recycled Initially:
as FV through profit or loss where txn from OCI to P&L (reclassification occurs) Dr. Cash (amount received less issue costs if any) X
costs are immediately recognized through 2. Financial liabilities Cr. Liability (PV at DF of similar debt) X
profit or loss. Initial measurement: initially recognized at FV Cr. Equity (𝛽)Issue costs if any allocate pro-rata with liab X
Subsequent measurement net of txn costs (net proceeds). How to obtain the PV of liability (liab)-discounting interest.
Equity instruments (investing in shares). Subsequent measurement Year cash outflow@coupon rate DF PV
FVtPL is default. Gains or losses at  Amortized cost 1 loan*Coupon rate table X
reporting date through profit or loss.  Favir value through profit or loss (FVtPL)- 2 Same +
If to be held for long term, hold at FVtOCI. to prevent accounting mismatch. If FV can 2 Loan amount table X
At reporting date, take gains or losses not be obtained from active market, Net PV for liability amount XX
through OCI. An irrevocavle election must calculate it by discounting the future cash Subsequently: Use amortized method. Closing figure at
be made. flows at a market rate of interest. end of loan payment should be the loan amount received.
Debt instruments (Lending money)- Derecognition Conversion of bond/debenture/loan
Financial asset is measured at Amortised Financial liabilities are derecognized when Dr. Other components of equity-equity value X
cost if it fulfils the following tests: they have been paid in full or transferred to Dr. Liability-bond/loan/debt rec. X
another party. Cr. Share capital X
Cr. Share premium-if any-scenario based X

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 Enter contract-initially SFP date
IFRS 9 Financial Options Pay premium = financial asset Financial asset or $nil
instruments Other derivatives like Pay nothing =$nil value Financial asset or
Derivatives swaps/futures/forwards financial liability
Derivative financial instruments are
recognized as either assets (favourable) or Hedge Accounting-method of managing risk
liabilities (unfavourable).
Trade receivables/contract assets (recognized Hedged item-an asset or liability that exposes the entity to
 They are measured at fair value both
under IFRS 15) if they do not have a risks of changes in fair value or future cash flows.
upon initial recognition (txn costs goes
significant financing component. Hedging instrument-a designated derivative, or a non-
to SOPL) and subsequently remeasured
 Prospective bad debts are always derivative financial asset or liability, whose fair value or
at FV at reporting date with gains or
recognized in an allowance account cash flows are expected to offset changes in fair value or
losses through profit or loss.
based on lifetime expected credit losses. future cash flows of hedged item.
Do not apply the three stage model in this Types of hedge accounting
Impairment of financial assets.
case. 1. Fair value hedge-a hedge of the exposure to changes
Impairment rules under IFRS 9 apply to
 For lease receivables, as well as trade in fair value of a recognized asset or liability or an
investments in debt (loan assets) held at
receivables and contract assets with a unrecognized firm commitment that is attributable to
amortized cost of at FVtOCI.
significant financing component- entity a particular risk and could affect profit or loss.
Expected credit loss model is used in an
can chose accounting policy to measure 2. Cash flow hedge-a hedge of the exposure to variability
attempt to recognize credit losses before
the loss allowance at an amount equal to in cash flows that is attributable to a particular risk
default occurs.
lifetime credit losses. associated with a recognized asset or liability or a
To recognize the loss incurred-use a three
 Impairment revesals: gains or losses on highly probable forecast transaction and that could
stage model
remeasurement of the loss allowance are affect profit or loss.
Stage 1: Initial recognition and when no
recorded in profit or loss. Conditions fo hedge accounting
subsequent significant deterioration in
credit quality- credit loss recognized is: PV  Hedging relationship consist only of eligible hedging
of expected credit losses 12 months after Derivative characteristics-a financial instruments and hedged items
reporting date (12 months expected credit instrument:  At inception, there must be formal documentation
losses).  value changes is response to change in identifying the item and instrument
Step 2: Significant deterioration in credit value of underlying asset (eg interest  Hedge efficiency
quality-credit losses recognized- rate, commodity price, foreign Acconting for Fair value hedge
impairment recognized at PV of expected exchange rate). At reporting date- hedging instrument remeasured to fair
credit shortfalls.  Requires little or no initial net value. And carrying amount of hedged item adjusted for
Step 3: Objective evidence of an investment change in fair value since inception of hedge.
impairment-(Lifetime expected credit  It is settled at a future date-in cash Gain or loss on the hedging instrument and loss or gain on
losses) the hedged item is recorded:
Note: Effective interest rate is applied to 1. In profit or loss in most cases but
the carrying amount of the asset, net of 2. In OCI if hedged item is an investment in equity that is
any allowance, if there has been objective measured at FVtOCI
evidence of an impairment.

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IFRS 9 Financial instruments
Accounting for cash flow
hedge
Hedging instrument is remeasured to fair
value (FV) at reporting date. Gain or loss is Practice questions on IFRS 9
recognized in OCI. Discontinuing hedge accounting September 2018 SBR (INT) paper qn. 1(c)
If gain or loss on hedging instrument since
Cease hedge if; Differences between equity and liabilities
inception is greater than loss or gain on
 Hedging instrument expires or is
hedged item, then excess gain or loss on In accordance with IASB conceptual framework, equity
exercised, sold, or terminated
instrument must be recognized in profit or is the residual interest in the assets of an entity after
 Hedge no longer meets the hedging
loss. deducting all the liabilities while Liabilities is defined as
criteria
Note: the present obligation arising from the past events and
 A forecast future txn that qualified as a
If hedged item eventually results in will involve economic benefit outflow from the entity.
hedge item is no longer highly probable
recognition of a financial asset or a
The discontinuance is accounted for Equity, there is no such obligation to deliver cash or cash
financial liability, the gains or losses that
prospectively. equivalent or even any other financial asset. Any
were recognized in equity are reclassified
Treatment of gains and losses upon contract that will be settled by the entity receiving or
to profit or loss as a reclassification
ceasure delivering a fixed number of its own equity instruments
adjustment.
o If forecast txn is no longer expected to in exchange for a fixed amount of cash or another
If it’s a non financial asset or liability, gain
occur, gains or losses recognized in OCI financial asset is an equity instrument. Otherwise, if
or loss held in equity is adjusted against
must be taken to profit or loss there is any variability in the amount of cash or own
carrying amount of non financial
immediately. equity instrument which will be delivered or received,
asset/liability.
o If txn is still expected to occur, gains then such a contract is a financial asset or liability as
Hedge effectiveness requirements
and losses are retained in equity until applicable
1. There must be an economic
former hedged txn occurs. While
relationship between the hedged item
and the hedging instrument.
Liabilities involve obligations to deliver cash or cash
2. Effect of credit risk does not dominate
equivalents or any other financial asset to a third party
the value changes that result from
(holder).
that economic relationship
The obligation may arise from a requirement to repay
either principle, interest or dividends.

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 Suggested Standard Hints for ethics questions
ETHICS QUESTION Intro: (State part)
Definition Financial statements are important to a range of user
Ethics are a code of moral principles that groups, such as investors, lenders and creditoors. These
people fellow with respect to what is right stakehpolders require the financial statements to faithfully
or wrong. represent the performance and position of the company
Ethical principles so that they can make adequate investment decisions.
The ACCA Rulebook contains the bye- The accountant should comply with the fundamental
laws, regulations and code of ethics and ethical principles set out in the ACCA Rulebook: to act with
conduct, which every ACCA memeber Threats-to fundamental ethical principles integrity, objectivity, professional competence and due
should follow. Self-interest-a financial or other interest may care, confidentiality and professional behaviour.
The accountant should comply with the inappropriately influence the accountant’s By following the code of ethics, it is more likely that a
fundamental ethical principles set out in judgement or behavior. faithful representation of the company will be offered
the ACCA Rulebook: to act with: Self-review-The accountant may not because the needs of the users will be prioritized.
Integrity-to be straightforward and appropriately evaluate the results of a The accountant should be mindful of any threats to these
honest in all professional and business previous judgement made or activity or fundamental ethical principles. In doing so, the accountant
relationships. service performed by themselves or others should coosnider the relevant facts, the ethical issues
Objectivity-Not to allow bias, conflict of within firm. involved, the fundamental principles which are
interest or undue influence of others to Advocacy-A threat that the accountant threatened, whether internal procedures exist which
override professional or business promotes the client's or employer’s position mitigate the threats and what alternative courses of action
judgements. to the point that their objectivity is could be taken
Professional competence and due care-To compromised.
maintain professional knowledge and Familiarity-Due to a long or close relationship Apply:-Ethical issues in the case (principals $ threats)
skills at the level required to ensure that with a client or employer, the accountant
a client or employer receives competent may be too sympathetic to their interests or
professional service based on current too accepting of their work. Conclusion:-If ethical issue between accountant & magt.
developments in practice. Intimidation-The accountant may not act Accountant must not therefore comply with the
Confidentiality-To respect the objectively due to actual or perceived (management) instructions. The accountant should remind
confidentiality of information acquired as pressures. the (management) of their obligations to comply with the
Code of Ethics. Should the accountant feel unable to
a result of professional and business
relationships and therefore not disclose
Approach style approach the (manangemeent) directly, they could
any such info to third parties without
proper and specific authority, unless
State consider talking to those charged with governance and in
particular, non executive directors to explain the situation.
there is a legal or professional right or Apply The accountant could also seek help from the ACCA ethical
helpline and take legal advice. Ultimately, if the situation
duty to disclose, nor use the information
for personal advantage. Conclude cannot be resolved, the accountant could consider
Professional Behavior-To comply with resigning and seeking employment elsewhere.
relevant laws and regulations and avoid
any action that discredits the profession.

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 IFRS 5: NCA held for sale and
discontinued operations
Definitions Qn. 1 (c) Dec. 2018
A discontinued operation is a component of Special case: Loss of control in a subsidiary
any entity which either has been disposed of or To be classified as held for sale, a sale has to be
is classified as held for sale and; highly probable and the entity should be available for
1. Represents a separate major line of sale in its present condition.
business or geographical area of ---------- IFRS 5 does not explicitly extend the requirements
operations. for held for sale to situations where control is lost.
2. Is a single co-ordinated plan to dispose of a However, the International Accounting Standards
separate major line or area of operations. Board (the Board) have confirmed that in instances
3. Is a subsidiary acquired exclusively for where control is lost, the subsidiaries’ assets and
resale. liabilities should be derecognized. Loss of control is a
significant economic event and fundamentally
**The definition is subjective and the directors changes the investor– investee relationship.
should consider factors such as materiality and Therefore situations where the parent is committed
relevance before determining whether a to lose control should trigger a reclassification as
subsidiary (CGU) should be presented as held for sale. Whether this should be extended to
discontinued or not. situations where control is lost to other causes would
be judgmental.

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 Sustainability reporting, Integrated reporting and APMs
Intergrated reporting
Methodology that give how business activities lead to
Sustainability reporting value in shrot term, mmedium term and long term.
Factors which may be of interest too Fundamental concepts underpinning IR framework
investors  The capitals-Financial, intellectual, social, human
Animal welfae, arms, emissions, energy, manufactured and natural capital
(use renewable energy), marketing,, Alternative Performance Measures  The organization’s business model-inputs, business
remuneration, etc (APMS) activities, output and outcomes.
Information given through reports like: EBITDA-Earnings befoe interest, tax,  The creation of value over time
 Environmental reports depreciation, and amortization.
 Socuial reports  It protects business results from Contents of integrated report
 Sustainability reports distortions by subjective decisions 1. Organizational overview
 Integrated reports about depreciation and amortization. 2. Governance
Sustainable development goals—no  It is NOT a cash flow since it takes no 3. Opportunities and risks
poverty, zero hunger, decent work, account into working capital. 4. Strategy & resource allocation
reduced inequalities etc. EBITDAR-As EBITDA but also add back 5. Business model
Why entity should have own sustainable rental expense. 6. Performance
development goals: Principle guidelines by ESMA 7. Future outlook
 It is ethical 1. APMS should be clearly defined in FS
 Govt funding will increasing focus on
Stakeholder analysis
2. A reconciliation should be published
sustainable businesses between the APM and the traditional
 Investors and potential investors may be primarily
 There will be a reduction in measure. i.e EBITDA should be interested in PROFITABILITY.
reputational and regulatory risks reconciled to earnings as used in  Lenders and suppliers may be primarily interested
 Sustainnable products and services are earnings per share. in the survival of company in the short term
a growth area 3. The relevance and reliability of any (LIQUIDITY) and the long term (SOLVENCY)
APMs used should be explained.
Global reporting Initiative (GRI)- 4. APMS should not be more prominent
Key ratios
Publishes the most widely used standards than traditional measures (e.g EPS) 1. Performance-ROCE, profit margin
on sustainability reporting. 5. APMS should b epresented alongside 2. Liquidity-Current and acid test ratio
Why sustainability reporting? comparatives for the prior year 3. Efficiency-Asset turnover, inventory days,
o Risk 6. The method of calculation of the APM
o Relevance
receivable days, payable days
should be consistent from year to year
o Opportunities 4. Solvency-gearing ratio, interest cover
o Screening strategies 5. Investor-EPS, PE ratio, dividend cover
o Valuation models

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 ED 2019/7 General presentation and disclosure
To assist investors in understanding financial Qn 36 ZEDTECH-Mar/Ju 2019-pg 65 exam kit
statements: Key hints
1. For comparability, P&L to report separately: 1. Nature (eg depreciation, employee expenses) or
(a) Operating profit function (eg cost of sales, administrative
(b) Operating profit plus income and expenses expenses)-Not free choice. Must assess which
(b) Interest and dividends paid to be a
from associates and joint ventures method would provide most useful info to users.
FINANCING cash flow-most companies show
(c) Profit before finance costs and tax Factors to consider include wider industry
interest as an operating cash flow
2. Rules on disaggregation practice.
(c) Interest and dividend received to be an
(a) Companies present expenses by Nature (eg 2. Operating profit-subtotal is mandatory
INVESTING cash flow—there is currently less
cost of sales, operating expenses etc) and some 3. Associates and joint ventures to be classified as
consistency in current accounting practice.
present expenses by function (eg raw materials, integral or non integral. Investment is integral if
5. Goodwill to always be separately disclosed
staff costs etc)-this leads to lack of it doesnot generate a return individually and
on the face of the SFP.
comparability. So companies presenting largely independent of the entity’s other assets.
expenses by FUNCTION must in the notes to the 4. Other subtotals-entities must report the share
FS show an analysis of the expenses by nature. of profits or losses from integral associates and
b. Companies highlight unusual changes in P$L joint ventures. This followed by operating profit
(eg impact of COVID19). The proposed definition and income and expenses from integral
of unusual is “of limited predictive value.. Not associates and joint ventures, then profit before
expected to arise (again) for several future finance costs and tax.
accounting periods”. 5. Defined benefit net interest-should be reported
3. Non-IFRS measures such as EBITDA: in SOPL as finance cost.
Companies should: 6. Mabagement performance measures-should not
(a) Reconcile the measure to an IFRS measure be put as a column on SOPL since its not
(eg EPS) calculated in accordance with IFRS standards-
(b) Explain how the mmeasure is calculated undue prominence. Such measures can be
(c) Explain why it reflects management’s view reported elsewhere in the financial statements
of performance. and entity has to disclose:
4.To improve consistency in cash flow  Info about why measures disclosed provide
statements: useful info.
(a) If using indirect method-cash flow  How the measures are calculated
statement should start with operating  A reconciliation of each measure to nearest IFRS
profits instead of PBT. subtotal and the effect on tax and NCI of each of
them

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 Grant Date Vesting date Exercise date
IFRS 2-Share Based Terms of scheme Employees become entitled to the share based Employee receives the
Payments Agreed:
No. of employees
payment
Accounting Treatment during vesting period
share based payment

Definition No. of years Spread the fair value of the share based
No. of options/rights payment over the vesting period based on
It is payment for goods or services in either, number of employees expected to exercise the
(a) Shares (b) share options (c) cash payment option.
based on share price.
It’s a common way of awarding employee
performance. Cash-settled share based payments
*Share option allows the holder to buy a share -------
Examples :
in the future for a fixed price. Key point  Share appreciation rights (SARs)-employees are
Two types Incase of purchase of goods, make sure you entitled to future cash payments if share price
Equity-settled share based payments-entity apply the necessary standard while increases
acquires goods/services in exchange for equity accounting for them at year end since they  Rights to shares that are redeemable-entitle the
instruments of the entity . will be recognized in full in the books on grant holder to a future payment of cash
Cash-settled share based payments-entity date. i.e. if purchased patents-all rules of IAS Dr. profit/loss/Asset
acquires goods or services in exchange for 38 apply. Cr. Liabilities
amounts of cash measured by reference to the Vesting conditions Measurement
entity’s share price. Non market based Re-measure the FV of the liability arising at each reporting
Equity-settled share based payments  Conditions related to an employee having date.
Co. issues shares in return for the provision of to remain with company for a fixed period Note: FV of a SAR consists of the intrinsic value (cash
goods or services. Dr. Expense Cr. Equity. If its or related to growth in profit or in payable based upon the share price at that date) plus the
for goods, Dr. Purchase Cr. Equity. earnings per share. time value (as share price varies over time).
Measurement  Non market based vesting conditions are Thus account for SARS at intrinsic value at the exercise
 Measure at fair value of equity instrument taken into account at each reporting date. The FV could exceed its intrinsic value at this date.
at grant date if txn is with employees or if period. At end of exercise period, intrinsic value of SAR will equal
the FV of goods and services can not be Market based-already factored into FV at grant date its fair value. So clear the liability and any balance transfer
measured reliably  Conditions related to the market price of to profit or loss.
 If FV of goods or services can be measured the company’s shares.
reliably, then measure at FV of goods or Read about:
 Market based vesting conditions are 1. Modifications to terms on which equity instruments are
services received at the date they were ignored for the purpose of estimating the
received. granted and cancellations and settlements
No. of employees = initial number less number of options that will vest. 2. Replacing a cash settled scheme with an equity settled
those expected to leave over the total After vesting period, no further adjustments scheme
Formular vesting period should be made. Transfer any balance in
𝑛 3. Hybrid txns
Equity = 𝑁𝑜. 𝑜𝑓 𝑠ℎ𝑎𝑟𝑒𝑠 𝑥 𝐹𝑉 𝑥 𝑁𝑜. 𝑜𝑓 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑒𝑠 𝑥 OCE to retained earnings.
𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑦𝑒𝑎𝑟𝑠 4. Group share based payments
Equity goes to other components of equity in SOFP 5. Disclosures
Expense = movement in equity. Goes to SOPL as staff costs
At year 1, expenses (staff costs) = equity.

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 Specific cases
Deferred Tax arises on temporary IAS 12-Deferred Tax Revaluations
differences between the carrying value of an DT should be recognized on the revaluation
of PPE. Even if no intention to sell the asset
asset or liability and its tax base. DT arising from revaluation must be
A temporary diffrerence is the difference between recorded in OCI since revaluation gains are
the carrying amount of an asset or liability and its tax recorded in OCI.
Individual company accounts Dr. OCI-DT due on revaluation gain X
base.. 1. PPE:
Tax base is the amount attributed to an asset or Dr. Profit of loss (bal. fig.) X
Carrying amount (IAS 16) Vs. Tax base (Tax written
liability for tax purpose. Cr. DTL-due on PPE X
down value)
Calculating deferred tax Share option schemes
2. Provisions:
Step 1. Calculate temporary difference  Tax relief granted when share options are
Carrying value (IAS 37) Vs. Tax base (nil)
Carrying value X exercised.
3. Intangiblebles (devt costs)
Less: Tax base X  Amount of tax relief granted is based on
Carrying value (IAS 38) Vs. Tax base (nil)
Temporary difference X intrinsic value of options (difference
4. Share based payments
Step 2: Calculate the deferred tax position by between market price of shares and
Carryning value (IFS 2-intrinsic value) Vs. Tax base
multiplying the temporary difference by the income exercise price of options)
(nil)
tax rate at which the asset or liability will be settled  The delayed tax relief implies that equity
Defered tax liabilities and assets Recognition
at. settled share based payment schemes
IAS 12 provides that deferred tax should be
X% * temporary diffrerence = closing deferred tax give rise to a DTA.
provided for on all taxable temporary differences.
provision. Unused tax losses
Defered tax assets should be recognized on all
Step 3: The closing deferred tax position is eiher a IAS 12 allows a DTA to be recognized if it is
deductible temporary differences
deferred tax asset or a liability probable that future taxable profits will be
Measurement
Deferred tax liability arises if: available.
Tax rate must be based on legislation enacted or
Carrying value > Tax base – taxable temporary Business combinations & deferred tax
substantively ebnacted by reporting date
difference FV adjustments-identifiable assets and
Defered tax assets and liabilities are not
A deferred tax asset arises if: liabilities of sub. are consolidated at FV but
discounted to PV
Carrying value<Tax base –tax deductible temporary tax base derives from values in sub’s
Presentation
difference. individual books. A time diference is created,
Deferred tax liabilities and assets are presented as
Step 4: The movement in the deferred tax position giving rise to deferred tax in consolidated
non-current on SFP
goes through profit or loss. financial statements.
IAS 12 allows offsetting of deferred tax assets and
Closing position X Deferred tax recognized on the difference is
liablities provided:
Less: opening position X treated as part of the net assets acquired.
 Entity has a legally enforceable right to set off
Movement X/((X) *Goodwill does not give rise to DT.
current tax assets/liabilities.
Increase in deferred Tax PURP adjustment creates a deductible
 Defered tax assets and liabilities relate to tax
Dr. Income tax expense (SPL) temporary diff, giving rise to a deffered tax
levied by same tax authority.
Cr. Defered tax provision asset in consolidated financial statements.
Decrease in deferred tax Un remitted earnings
Dr. deferred tax
Cr. Income tax expense (SPL)

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 -----

Investor focus questions -----

------

Definition
--------

-------

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 CURRENT ISSUES-2021-2022
SBR Syllabus Deficiencies in Standards
Key Current issues under  IAS 1-Presentation of
the syllabus financial statements

A: Accounting in the current  IFRS 15- Revenue from

business environment contracts

B: Materiality Current Issues  IFRS 2-Share based

payments
C: Management 1. SBR Syllabus
commentary  IAS 37- Provisions,
1. Deficiencies in Contingent Liabilities and
D: Presentation and standards Contingent assets
disclosure
 IFRS 8-Operating segments

 IFRS 3-Business
Combinations

 IAS 7- Statement of Cash

Flows

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 SBR-CURRENT ISSUES
1. Cryptocurrency 2. Initial coin offerings
 Method of raising finance through
 Virtual currencies cryptographic assets.
 Not issued by a central authority  Investors buy into ICO & receive tokens in
 Can be used to make purchases Eg. exchange.
Bitcoin  Tokens entitle holder to cryptocurrencies
 Market value is extremely volatile or might be utiity tokens-gives users
 Does not constitute cash-can not be access to products or security tokens-
readily exchanged for goods & economic stake in an entity or right to
services receive cash or assets in future
 Does not qualify as a cash equivalent-  Tokens can become valuable and be
subject to significant risk of change in A: Accounting in the traded on a crypto exchange.
value
 Not investment in equity or right to current business
 Un regulated-easy access to finance.
receive cash-Hence not financial environment  Cash raised or different cryptocurrency
asset. like Bitcoin-Record an asset as debit entry.
-Is Identifiable non monetary asset  For credit entry-Based on nature of tokens
without physical substance-Thus Read technical
issued-Possibilities include;
intangible asset-IAS 38 treatment. article- Financial liability-contractual obligation to
Measurement model is not appropriate https://bit.ly/3czPC deliver cash or another financial asset to the
token holder.
 FV is volatile-Cost based model Mb Equity-holder of token issued through ICO
unlikely to give relevant being entitled to payments out of
information. distributable reserves-if the reporting entity is
 Revaluation model seems under no contractual obligation to deliver
appropriately-but requires gains on cash or another financial asset.
remeasurement to FV to be taken to Revenue-Recipient was a customer & if a
OCI. contract (IFRS 15) exists.
 Entities invest in it to enjoy short- None of the above-if legal or constructive
term changes in FV-Must be obligation exists-Recognize provision-IAS 37
recorded in P&L (Assets treatment in -Refer to IAS 8 with reference to conceptual
IFRS 9-Financial instruments) framework.

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 SBR-CURRENT ISSUES
3. Natural Disasters Insurance
 Include volcanic eruptions, earthquakes,  Affected entities will need to account
drought, floods & pandemics for insurance claims. Uncertainity arises
on nature of claim, type of coverage
Financial reporting consequences provided by insurance, timing and
 Impairments-Disasters trigger amount of any proceed recoverable.
impairment review (IAS 36)-assets  IAS 37 only allows recognition of asset
damaged esp. for PPE. If asset from incurance claim if receipt is
destroyed, derecognize it ratherthan A: Accounting in the virtually certain.-threshold of
impairement. current business probability is high so recognition is
 Impairments- In line with IFRS 9 environment unlikely.
Financial instruments-entities that lend  If insurance pay-out is deemed
money need to assess whether credit
Key standards under natural
payable,then a contigent asset can be
risk associated with financial asset has disasters-Scenario dependent: disclosed.
increased significantly. Default rates  IAS 36-Impairment
likely to increase rendering some  IAS 38-Intangible assets Additional liabilities
financial assets credit-impaired.  IAS 2-Inventory An entity might sell or terminate a line of
 Inventory damage. Inventory sold at a  IAS 37-Provisions business or reduce employee head count-
reduced price. IAS 2 Inventories-some treat according to IAS 7: recognize a
 IAS 1-Financial Statements
inventory may need to be remeasured provision if there is a present obligation
from its costs to its net realizable value.
 IAS 8-Changes in policies
from a past event and an outflow of
economic benefits is probable. If there is a
Going concern restructuring plan or a detailed plan is
Incase of material uncertainities relating to publically announced, then an obligation
going concern, disclose them in accordance exists. Only include direct costs from
with IAS 1 Presentation of financial restructuring in the provision.
statements. If going concern assumption is Provision required if there is an obligation
not appropriate, FS are prepared on an to repair the environmental damage.
alternative basis and this is disclosed. Decomissionong provisions will require
review

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 The practice Statement
SBR-CURRENT ISSUES
Issued by the board-Called Making
Materiality Judgements-Provides non Users
mandatory guidance when applying IFRS
standards in FS preparation  Material judgements based on needs of
 For Information to be material-consider; primary users (investors, lenders and
 Quantitive factors-Measures of revenue, B: Materiality- creditors) of financial statements
profits, assets and cash flows. information is material if  Aim at meeting common information
 Qualitative factors-Related party txns, needs for investors, lenders and
omitting, misstating or
unusual txns, geography, wider creditors.
economic uncertainity. obscuring it could
 Materiality judgements are relevant to reasonably be expected Process
recognition, measurement, presentation to influence decisions of Process when making materiality
and disclosure decisions. judgement has four steps.
the primary users of
Step 1: Identify information that could be
Recognition and measurement: financial statements material
o Entity need to apply recognition and Step 2: Assess whether that information is
 The practice statement
measurement criteria in an IFRS material
 Recognition and measurement
standard when the effects are material. Step 3: Organize the information in draft
 Presentation and disclosure
Presentation & disclosure financial statements
 Users
Entity only needs to apply the disclosure Step 4: Review the draft financial
 Process
requirements in an IFRS standard if the statements.
resulting information is material.
Entity may need to provide additional info
not required by an IFRS standard.
When organizing info. Entity should;
Empharsise material matters
Ensure material information is not obscured
by immaterial info.
 Ensure information is entity-specific
 Aim for simplicity-no material omissions
 Use appropriate formats
 Provide comparable information
 Avoid duplication

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 Management commentary
SBR-CURRENT ISSUES
Purpose:
Providing useful info.
 IFRS Practice statement management
commentary provides for preparation  Performance measures reported in
and presentation of MC on a set of FS. consistent mananer to enable
 Provides users with more context comparability of MC over time.
through which to interpret the financial  Disclose performance measures widely
position, financial performance and cash used by the industry to enhance
flows of an entity. comparability.
 It is not mandatory to produce MC.  Present non-financial performance
C: Management commentary measures
Framework for presentation of MC  Purpose of management  MC should not be generic-generic info
MC should include information which is commentary is not relevant and should be avoided.
forward-looking.  Framework for presentation of MC
Information included should possess the  Elements of Management When organizing disclosure notes,
qualitative characteristics of useful info. Commentaty (MC) entities should:
 Providing useful information
Elements of MC  Empharsise material matters
To link MC with conceptual frame, explain  Ensure material info is not obscured by
MC should include info. That is essential to
how the qualitative characteristics and immaterial info.
the understanding of:
enhancing characteristics relate to MC  Ensure info is entity specific
 Management’s objectives & strategies
elements, users.  Aim for simplicity and conciseness
 Entity’s resources, risks and
relationships without omitting material details
 Nature of the business  Ensure formats are appropriate and
 Key performance measures-used by understable-lists, tables
management to evaluate the entity’s  Provide comparable information
performance  Avoid duplication
 Results of operations and prospects

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 Presentation & Disclosure
SBR-CURRENT ISSUES
--------------------------
----------------------------
 -----------------------------------

D: Presentation & Disclosure

 --------------------------

-----------------------------------

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 Deficiencies in Standards
IFRS 15: Revenue from
IAS 1: Presentation of contracts with
financial Statements-Chp. 3 customers-Chp.4
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egestas arcu erat dolor, at amet. cras pharetra proin egestas arcu
erat dolor, at amet.

Deficiencies in
Standards
IAS 37: Provisions,
contingent Liabilities
and Contingent Assets- IFRS 2: Share-based
Chp.11 payments-Chp. 10
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est. A magna maecenas, quam est. A magna maecenas, quam
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erat dolor, at amet. erat dolor, at amet.

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 Deficiencies in Standards

IFRS 8: Operating IFRS 3: Business

Segments-Chp. 14 Combinations-Chp. 18
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est. A magna maecenas, quam est. A magna maecenas, quam
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cras pharetra proin egestas arcu cras pharetra proin egestas arcu
erat dolor, at amet. erat dolor, at amet.

Deficiencies in
Standards

IAS 7: Statement of cash

flows-Chp. 21 Lorem Ipsum
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est. A magna maecenas, quam est. A magna maecenas, quam
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erat dolor, at amet. erat dolor, at amet.

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 Designed with by

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 2021 SBR-Webinar-Day 1
Non Current Assets Other Standards discussed
Intanginle Assets-IAS 38 Borrowing costs-IAS 20-
Tangible assets: Capitalize costs for qualifying
-PPE-IAS 16
assets
-Investment property-IAS 40
Initial Subsequent
Government Grants-Method
PPE-IAS 16 Cost + DAC + P.V @ Either:
dismantling cost Cost model (Cost –Accum. Dep-
one and two for recognition in
*Unwinding of interest at impairment) SPL & SFP
each reporting date.
Dr. Finance cost Revaluation model (@ F.V as per IFRS 13)-
Cr. Provision Revaluation done at sufficient regularity. Question 29 (Corbel) -page 55
Gain to OCI and loss to SPL
from exam kit discussed.

Intangible Assets-IAS 38 SAME as IAS 16 Same as IAS 16

Finite life-Amortize

Indefinite life asset-check Impairment of

asset-IAS 36

Investment property-IAS 40 SAME as IAS 16 Either:

Cost model (SAME as IAS 16)

Fair value model-At each reporting date.

Gain or loss to SPL and no depreciation
charged.

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 2021 SBR-Webinar-Day 2
Non Current Assets Other Standards discussed
Intanginle Assets-IAS 38 Borrowing costs-IAS 20-
Tangible assets: Capitalize costs for qualifying
-PPE-IAS 16
assets
-Investment property-IAS 40
Question 29 (Corbel) -
page 55 from exam kit Government Grants-Method
discussed. one and two for recognition in
SPL & SFP

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 SFP Consolidation
2021 SBR-Webinar-Day SFP
3 working notes
Add everything as if you own Intra-group trading For negative Goodwill-its called Gain on
everything (100%) bagain piurchase, taken to group RE. it
Eliminate Intra Group transactions is a rare situation-double check your
Show the NCI-To equity section workings.
Eliminate: Two types-Full goodwill (NCI at FV) and
In paents books-Investment in -Sale by parent to sub-
Proportionate goodwill (NCI at % of FV
subsidiary either at markup or of assets (WN-2)) and belongs to parent
Subsoidiary-Share capital & Share margin. Obtain PURP. only.
premium GRE Dr (Goes to WN-5). Calulation of impairment of goodwill.
Group Inventory Gr. Recall total notional goodwill incase of
Prepare five working notes. proportionate mtd.
WN-1: Group structure-Acquirer
Sale by subsidiary to
parent. Impairement loss goes to when
WN-2: Net assets of subsidiary @ calculating impairment of goodwill goes
FV, at date oquisition and at GRE Dr.---%P of PURP— to Retained earnings incase of
reporting date. Difference is the (WN-5) or take to WN 2 proportionate. Remember to deduct the
posit acquisition movement (due to as deduction. loss from Goodwill in WN-3.
change in profit or loss) thus RE NCI Dr….%NCI of PURP)- WN-4-NCI.
affected for subsidiary and parent. FV of NCI at acquisition (WN-3)
For FV adjustment, look out for
(WN-5) or take to WN 2
as deduction. Add: % NCI’s share in post acquisition
additional depreciation and subtact movement-From WN-2.
it from the reporting date value. Inventory Cr. Less: Impairment loss (incase of full
WN 3-Goodwill calculation. goodwill)
*Consideration paid-Cash, WN-5: Group retained earnings.
contigent @ Expected value, RE of parent
deferred @ PV or share for share Add: % of parent x post ast actuisition
**+FV of NCI @ DOA movement
Less: FV of Net assets of sub at Less: % of parent x impairment
acquisition (from WN2-) Less: Unwinding of interest on deffered
Difference if the Goodwill. consideration
Result is Group retained earnings.
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 2021 SBR-Webinar-Day 3
SPL Consolidation
GSPL-Mid year acquisition Change in group structure
Deduct sales of parent to
---Step acquisition—Moving towards
subsidiary from Revenue and
area of control.
COGS. Add PURP to COGS
Step disposal-Moving towards below 50
Joint venture Vs. Joint + 1%
STAR ITEMS-in subsidiary books. operation-IFRS 11
 Provisions like future operating Features of JV STEP ACQUISITION
losses-Deduct from WN-2
-50% voting rights (a) From no control to control
 Contingent liability-Just a note
Unanimous decision -Calculate FV of investment at change o
to account. Record @FV/EV.
structure. Gain or loss take to SPL.
Deduct from WN-2 making.
Initiate consolidation (IFRS 3 & IFRS 10)-
 Internally generated intangible Use IAS 28-Equity Calculate Goodwill
asset like goodwill-Not method of accounting FV of previous investment
recognized in consolidation. For Under equity accounting; FV of consideration paid
brand-Record it in GSFP.
In B/S: Investment in FV of NCI
Joint Operation-IFRS 11 JV/operation plus % x Less: Net asset of the sub (WN-2)
(b) From control to control.
-No separate entity is created post acquisition profits.
Recognzise decrease in NCI.
-No consolidation In SPL-Share of profit NCI DR. (proportion of % control
Ecord expenses/incomes in SPL from associate/JV less OCI Dr. (b/f)
according to profit sharing ratio.
dividends received. Bank Cr. (amount paid)

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 2021 SBR-Webinar-Day 3
Step Disposal Group statement of cash flows
Calculate profit or loss on disposal. Indirect method:
*from consolidation to associate Operating activities
equity accounting-IAS 28 or Investing activities
financial asset-IFRS 9. Financing activities
QN-1-UK. March 2021 Adjustments for GSCF
Add Proceeds + paper solved.  For purchase of subsidiary -get cash
Add FV of retained interest + paid less the cash in SOPL at
----------------------------
Add FV of NCI@ disposal date + acquisition of sub, Take this value to
Less Goodwill @disposal – Investing activities as cash outflow.
Less FV of net assests of sub at  For sale of sub. Take difference as
disposal date - inflow to investing activities.
Profit or loss goes to SPL  For WORKING CAPITAL
 Look out for movements in
Control to control of lower value inventory, trade payables and trade
NCI increases. receivables.
Bank Dr (proceeds)  Add the values of subsidiary to
Cr. OCI (b/f) opening date balance. Difference
Cr. NCI (proportionate) between this and the reporting date
balalnces represents movement and
take to GSCF.

 On disposal of a subsidiary: Deduct

value at disposal from balance at
opening date and compare it to the
reporting date balance, open cash
movements.

 -Dividends paid goes to financing

activities

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 -Dividend received goes to investing
activities.
 2021 SBR-Webinar-Day 4
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 2021 SBR-Webinar-Day 5
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March 2021 Qn. 1

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